20/06/2017 Asia Business Report

Here is Rico now with Asian business report.

Chinese shares on a global index. We look what this could mean for

investors in Asia and around the world. And what are the big spenders

from the aviation industry eyeing off at the Paris air show? It is

Tuesday. Good morning Asia hello world, glad you could join us for

Asia Business Report. We start off with Chinese stocks. After years of

discussion, MSCI it will announce whether it will include China's a

shares, the mainland shares traded in China, in its emerging markets

index. This is the fourth time that MSCI is looking into the

possibility. It could mean potentially a lot of investment

going into mainland issues. Our correspondent has more from a rainy

day in Beijing. China is chasing a global financial benchmark here.

Inclusion for its eight shares, leading shares here would mean that

they attract by investors and responsible for trillions of dollars

of investment. There would no doubt be a boost to those shares although

it is hard to quantify exactly what that would be. To more significance

to the Chinese authorities is that they would regard a yes vision here

as being a vote of confidence in the financial sector. This is, however,

the fourth time they have asked. In the past what has been an impediment

has been the old familiar tale of reciprocal access. It is not easy

for foreign investors to invest here in China and buy shares. Authorities

have taken measures to try and make that simpler but it is still the

case that if you wish to purchase shares you need to deal with quotas

from the regulatory authority or you can invest via a linkup with the

Hong Kong stock exchange which has a linkup with either here in Shanghai

or another city. A note of warning, Chinese stock markets unnoticed

speculative peril -- are known for speculative peril. They have not had

a good 2017, they are up by 6% half way through. Broader economic

context, the authorities are trying to do and the insurance sector to

make sector has clamped down on shadowy products being sold,

particularly wealth management products. And in housing, what many

regard as a bubble here in this country, authorities are still in

the process of bringing in restriction on the selling and

buying sides. If this was a yes, however, there is no doubt that the

Chinese authorities would see it as a big tick in a box in terms of

being trusted globally. Over now to Australia where the cost of home

ownership has turned out to be risky business. That is one of the main

reasons that the ratings agency Moody 's has downgraded its

long-term ratings of the banks in the country, including the biggest

fall. Currently the banks down in Sydney trading. To tell us more

about this downgrade and the outlook for the banking sector, I'm joined

now from Moody 's. Frank, great to have us. So, 12 banks have been

downgraded. What will it take to improve ratings again? We need to

see a period of relative stability. We need to see a period where income

starts to write in household debt does not increase of March. That

gives households a chance to reduce their leveraged and if those

mortgages start to perform in line with expectations, then that is of

benefit to the banks. If that trend continues for a while then there

could be upward pressure on bank ratings. How long will these banks

take to get back to that level? I think it will take some time. If you

look at at forward projects and is and predictions for income growth,

it takes a while, even at the current levels of debt, just to

bring the leveraged down. You need a few years of the current loans so

people start paying them down, and income rises to come through as

well. At that point you may start to see some benefit. Looking at these

12 banks, are some worse than others? The ones we have downgraded,

we have primarily downgraded because of the household debt level and the

exposure that the banks have. Obviously some banks are much

smaller and have lower flexibility. They will find it more difficult to

respond if things mature or improve they will probably not improve as

quickly where is the larger banks with more flexibility to reduce

costs and raise capital, they have more pricing power and are better

placed to take advantages of an improving operating environment. How

about the latest rate hike from the US Federal Reserve. There could be

another one before the end of the year as well. Could this have an

impact on Australian banks and their profitability? Potentially. If US

investors start to look at higher prices to buy a stream bank debt

than that impacts profitability. But most swap back into Australian

dollars so it depends on the cost. If there is a rapid rise in swap

cost than it does not have a material impact we will have to wait

and see. Thank you for those inside in other business news. Time Warner

and Snap have agreed to create original dramas for Snapchat. Warner

Brothers will also advertise on the augmented reality and messaging

platform. The deal is reportedly worth around 100 million US dollars.

President Donald Trump met with the head of 18 US technology companies

including apple, Amazon and Microsoft, seeking their help to

make the government's competing systems more efficient. The White

House wishes to update government information technology systems, cut

costs, eliminate waste and improve service. Mr jumpstarted -- said it

estimates that the government could save up to $1 trillion over ten

years through such initiatives. The war's biggest airshow has kicked off

in Paris where manufacturers are showing off their newest aircraft.

On Monday, Boeing launched the latest version of its 737. It will

compete with the air bus a three to one. So what are Asia-Pacific

carriers purchasing? I asked that question earlier to flight global's

financial editor. The Boeing 737 max ten, the latest in the long line of

737s launched yesterday and we have seen that Asian carriers are pleased

a large role in that. Line a announced major commitment of 50

aircraft will stop we have also seen many Asian leasing companies, CDP

Asian leasing and finance, owned by CDB leasing, has committed to this.

They obviously see that there is great potential in the Asian market

for this Longer 737 jet. So why are we seeing more leasing of aircraft

rather than direct purchase of these planes? At the moment it is a good

environment for leasing companies to pick up the aircraft. One of the

reasons that airlines to deal with leasing companies is that it takes

away a sense of risk for them because, ultimately, they don't have

to put a lot of capital into the aircraft and so they can get a

leasing company to do that and that makes it easier for them to run

their business and focus on running an airline rather than being a

financial manager. So the Airbus A380 also getting a lot of attention

at this Paris airshow. Do you any of the regional airlines to make major

purchases? BA 380 has been very interesting. They show an 8380 plus,

it has a package of enhancements. These will not flow through till

2020 so it is hard to say that will have much interest in the region.

They speak about reduction in fuel burn with all of the enhancements to

the wing and a few other things. That would be quite appealing to

many airlines but it will only be for new aircraft so many of these

airlines would be up for taking the new A380 in that time frame. At the

end of this Paris airshow, who will have the upper hand in terms of

orders? Knowing or air bus? At this stage, Boeing has come out was a new

aircraft to launch, traditionally, Paris is a big one for Airbus so we

will have to see what happens towards the end. I think it will be

close. Let's have a quick look now at the markets and Asia is rising

for a second day with the Japanese market up. The All Ordinaries is

flat to hire at this point, because all big four banks in Australia are

in negative territory due to the downgrade by Moody 's. But overall,

the mood is positive after the Dow closed at record high overnight.

Tech shares had strong gains. The table at the Dow and the NASDAQ.

They are both in positive territory. There is a suggestion that investors

think there may be a rival bid for whole foods after Amazon placed

theirs. Sport Today is