21/12/2016 Asia Business Report


21/12/2016

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The bitter feud - between businesses and the ousted chairman might be

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headed for the courtroom next. Restrictions on converting yuan is

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fuelling more demand for US dollars in China.

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Good morning, Asia, hello world, it's a Wednesday. Glad you could

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join us for this mid-week edition of Asia Business Report. I'm Rico

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Hizon. We start off with India and a very public boardroom battle will be

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the top of the agenda at a number of meatings being held this week by

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companies belonging to the con gam rat Tata. The meetings were

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originally called to remove the director. But he resigned from six

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companies on Monday. We have the details from Mumbai.

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By resigning in the remaining Six posts, the director no longer holds

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any executive position in the Tata group, but Tata firms are still

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going ahead with the respective extraordinary general meetings which

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were originally called to remove the director. The sons, the main

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promoter of the con gom rat, wanted to use the meetings to justify his

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decision to sack the chairman in October. The corporate battle has

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damaged the group's reputation. It has also raised serious questions

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regarding corporate governments, something that the group has always

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prided itself on. The firms want to use these Ioms to reassure

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shareholders and investors that there are no reasons to worry about.

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There have been a series of accusations and counter-accusations

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from both sides. But the chairman has announced he'll be lodging legal

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action against the Tata Group which means this public spat is far from

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over. Moving to other business news making

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headlines. European commission has charged Facebook with providing

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misleading information which could result in the social networking

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company paying a fine that would amount into the hundreds of millions

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of dollars. Well, the issue lies with a WhatsApp privacy policy

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change in August when it said it would share user phone numbers with

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the parent company Facebook. The social networking site has

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previously indicated to the commission that it was unable to

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match the identity of users who are both Facebook and WhatsApp accounts.

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Nike, one of the world's top brands in sports wear apparel has reported

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better than expected quarterly earnings thanks to higher demand

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from western European, greater China and the emerging markets. Revenues

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rising to $8 billion for the three months to November and that is a 6%

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jump when compared to the previous period.

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The Malaysian rig get is making headlines this week falling to

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levels not seen since the 1998 Asian financial crisis, although the

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strengthening US dollar has put in Asian currencies under pressure,

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Malaysia is particularly hard hit. I spoke to the Asia Pacific economist

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for IHS and I asked him what's behind the Ringgit falling so steep.

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I think you need to look at the depreciation of the Ringgit against

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the broader context the US is strengthening because of the Fed

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hike that happened a few days ago and because of the expectation that

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the Fed is going to tighten more in 2017. But is the Ringgit's problems

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left headlines agitating global left headlines agitating global

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of factors for the Rinnggit's of factors for the Rinnggit's

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weakness and one of those is that the overall foreign exchange

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reserves of Malaysia have come down in the last three years so that's

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looking a little bit thinner than it was two or three years ago, and also

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because there's a perception in the market that Malaysia's vulnerable to

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capital outflows because there's a very high level of foreign ownership

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in both the equity market and in the Malaysian government securities

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market. But we see now the currency at levels not seen since the 1988

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Asian financial crisis, they're at fear that they could reintroduce

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capital controls to stem the fall of the currency. I think if you look at

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Philippine peso and also the Philippine peso and also the

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Ringgit, they're all down to the east Asian crisis levels. The

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Ringgit isn't alone. 'S not the right to put in the capital

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structural trend of the US dollar structural trend of the US dollar

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rising and I think we will see turmoil in Asian currency markets

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next year. Because of the additional Fed rate hikes that are expected. So

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I think there's many other currencies that will also be seeing

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significant depreciation next year. When you say Asian currency turmoil

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in 2017, so could we see a repeat of the financial crisis from 1998? I

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don't think the fundamentals of Asia are bad. I think the economic

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fundamentals are much better. This is really about the dollar. It's

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because the dollar was operating under very low interest rates for a

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very long time since 2009. So I think we need to see this not as a

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crisis in Asia, but more about the normalisation of interest rates in

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the US. How will this impact Asian economies next year? I think we will

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see probably quite significant appreciation of the dollar still to

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come against many Asian currencies. So on the currency side, we will see

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somewhat more weakness for many Asian countries, and that may help

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their exports. But it also brings with it concerns about capital

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outflows because the strong dollar and stronger US growth will attract

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capital into the US assets and out of Asian currencies and Asian

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assets. So that is a risk that if there is significant capital

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outflows, it could create some pressures on some of the currencies

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in Asia. So it is one of the downside risks for 2017. Over now to

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China where currency weakness is driving up demand for US dollars.

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The Chinese yuan has lost 6.6% this year and with the American central

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bank, the fed expected to deliver more rate headaches in 2017, that

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weakness could continue. To help slow the yuan's appreciation,

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Chinese authorities have placed a Chinese authorities have placed a

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cap on the amount that can be converted into foreign currencies

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and that limit stands at $50,000 US per person. To get around this,

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people are putting their Chinese currency into investment products

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that are priced in US dollars. Kind of the structure products of

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funds provided by the banks or by the asset manager, because in China

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we have to quote our QDI, which is the qualified domestic institutional

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investors, under this quota for those asset managers, they're

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allowed to invest in off-shore marks which is the bond marks or economic

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markets. In return, those aseat manager, they can structure the

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products to the kinds on the off-shore markets. That will provide

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them the access. And domestically it could also be as simple as a US

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dollar-timed deposit. Yes. By having these off-shore investment products,

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don't the officials from the People's Bank of China see this as a

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way to skirt this 50,000 cap rule? That's in the really the case,

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actually. In fact, for most of the conversion, you'll still be

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operating within this $50,000, US dollar, quota. But for this kind of

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products, which will enhance the return for the investors - for the

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investors, so that's why we have significant amount for this kind of

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-... Are investors in China looking at moving their Chinese yuan into US

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dollars off-shore or domestically hedging against the US dollar? I

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would say could be both. I mean, for some Chinese individuals they do

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have quite a lot overseas business. So that's why I prefer to move the

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move out of China to the off-shore accounts, but not all the Chinese

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have overseas markets. A lot of people who don't have that kind of

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overseas market, they're more looking for hedging purpose. I can

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share with you, as you know, as of now we have about 118 billion US

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dollar deposit from... And despite the $50,000 cap rule, the head of

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can China research at OCB Bank, forecasts a further depreciation of

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the Chinese yuan against US dollar in 2017. Before we go, here is a

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look at the markets and as you can see in our markets boards, the

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Nikkei 225, up about 75 points. The Hang Seng index gaining 42 and the

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all ordinaries index in positive territory. Most of the regional

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boards are in positive territory. This is after the Dow Jones

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industrial average closed yet again at another record high. It's 17th

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record since the US election, ending within 25 points off 20,000. So good

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day so far for the global markets. Thank you so much for investing your

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time with us. I'm Rico Hizon, Sports Today is coming up next.

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You're watching BBC News. Let's bring you a reminder of the top

:10:40.:10:45.

stories this hour. So-called Islamic State says one

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of its militants carried out

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