China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

Income warning over annuity delay

Posted on 30 August 2013 by

Elderly drinking tea in their home©Getty

Savers who put off buying an annuity for two years in the hope that rates will rise further may have to wait up to 41 years to recoup the lost pension income, according to new figures.

MGM Advantage, a pension provider, has calculated that a 65-year-old with a £100,000 pension pot would lose about £11,000 in income by putting off an annuity purchase for two years, if rates remained at the same level as today.

    Although delaying will mean receiving a higher income because the saver is older, MGM calculates that annuity rates would need to rise by at least 6 per cent from today’s levels for the total retirement income to break even.

    “It has been said that buying an annuity is a gamble, but then so is delaying an annuity purchase if rates do not improve,” said MGM.

    Even though annuities are often perceived as low-risk, others argue that savers take a gamble when they lock into a lifetime rate.

    “Buying an annuity is effectively deciding that you no longer want to have the chance for your fund to grow,” says Dr Ros Altmann, an independent pensions expert.

    “You do not believe your health will deteriorate further. You do not believe you will die sooner than the insurer expects. You cannot afford to delay the purchase of an income stream and keep your options open in case either your own or the market circumstances change.”

    “Clearly, there will be people who are comfortable with those decisions, and do not want to leave their options open, but many who buy annuities do not understand that they even have such options. “

    Since the beginning of the year, average annuity rates have risen by about 8 per cent largely in response to a rise in gilt yields,

    Oil-related shares rise on Syria fears

    Posted on 30 August 2013 by

    Oil-related shares were the best performers on weaker European indices this week as crude prices rose on concerns over the rising violence in Syria and the threat of the conflict becoming an international war.

    The FTSE Eurofirst 300 fell 2.4 per cent over the week to 1,195.01 with losses during the five sessions for carmakers, airlines and a selection of financial stocks.

      Oilfield services groups were the best performers after results from Oslo-listed SeaDrill and the UK’s Petrofac.

      SeaDrill reported record quarterly earnings on Wednesday and issued a confident outlook, pushing the shares up 8.6 per cent over the week to NKr282.40.

      “The sun is shining on the offshore industry and SeaDrill is taking advantage,” said Gregory Lewis at Credit Suisse.

      Among the oil producers, Statoil of Norway rose 3.7 per cent over the week to NKr134.40.

      Renault was among the week’s poorest performers.

      On Thursday, Carlos Tavares announced he was standing down as chief operating officer of the French carmaker.

      Renault shares fell 9.2 per cent over the week to €54.08.

      Zurich Insurance fell 5.1 per cent this week to SFr231.60 after it also lost top executives – chief executive Josef Ackermann quit on Thursday following the suicide of Pierre Wauthier, the company’s finance chief.

      Shares in Europe’s largest hotel group Accor fell 3.6 per cent to €28.61 over the week after the French company warned on full-year profit after a weaker than expected first half.

      Eurozone shares outperform as inflows rise

      Posted on 30 August 2013 by

      Optimism that the eurozone is turning the corner has seen regional equity markets outperform the US, UK and Japan during a volatile trading environment for August.

      While the broad European market was rattled this week by expectations that a military strike on Syria looms, sentiment has generally remained resilient, buoyed by a record-breaking $12bn of inflows into eurozone shares over the past nine weeks as investors have sold bonds and emerging market assets.

        Analysts expect eurozone shares will continue closing the gap with US equities.

        “The macroeconomic momentum is getting better in Europe relative to the US,” said Nick Nelson, global equity strategist at UBS. “If you look at industrial surveys, or purchasing managers’ indices, they have improved in Europe from a lower base – but the surprise has been greater.”

        Another key element is the role of central banks, with many investors awaiting next month’s meeting of the US Federal Reserve and a possible decision about reducing its $85bn-a-month bond purchases.

        “The US is looking to start to exit from ultra loose monetary policies whereas the ECB is maintaining loose policy for longer,” said Mr Nelson. “The fiscal austerity for which Europe is famous is starting to ease off. Next year we do not expect any major net fiscal drag, so the focus may be more on US fiscal policies.”

        The divergence in eurozone equity market returns has been most pronounced in regions that were hit hard earlier this year. Shares in Italy and Portugal have risen around 1.2 per cent, while Greece has gained 1.7 per cent this month.

        After starting the final week of August in positive territory, the broad benchmark, the FTSE Eurofirst 300 index, closed out the month with a loss of 1.1 per cent, weighed down in part by Germany lagging other key markets.

        Other major global share markets have fared far worse, with the S&P 500 down some 3 per cent in August, its worst monthly loss since May 2012. The UK FTSE 100 index dropped 3.1 per cent while Japan’s Nikkei 225 index recorded a loss of 2 per cent.

        After such a bruising month for Wall Street, investors expect further uncertainty ahead of a possible Fed taper in mid-September. The August employment report, to be released next week, is seen as a key gauge of whether the central bank will start the taper and will drive equities.

        “A down market on stronger than expected indicators or an up market on weaker than expected indicators suggests that a taper at the meeting will put serious pressure on stocks,” said analysts at Bespoke Investment Group. “An up market on stronger than expected indicators or a down market on weaker than expected indicators suggests that the market is ready to deal with a taper.”

        Zurich investigates any pressure on CFO

        Posted on 30 August 2013 by

        Zurich Insurance will investigate whether its former finance chief had been put under undue pressure before his death, as it seeks to deal with the aftermath of his apparent suicide.

        Conceding that the tragedy had “cast a shadow over Zurich”, Tom de Swaan, the insurer’s acting chairman, said that the board saw it as its “prime responsibility” to look into any tensions surrounding Pierre Wauthier in the run-up to his death.

          “Let me be absolutely clear. The board and management of Zurich take corporate culture and behaviour very seriously. In addition, from my own personal perspective, I am not aware of any behaviour that would be considered inappropriate in a board setting,” Mr de Swaan said.

          Wauthier was found dead at his home in the Swiss canton of Zug on Monday, triggering a series of events which culminated on Thursday in the resignation of Zurich’s chairman, Josef Ackermann.

          Mr de Swaan admitted on Friday that Wauthier had left a letter, and confirmed that it had contained information about his relationship with Mr Ackermann, but declined to provide further information.

          “We were informed that such a letter exists and we are aware of its content. And it’s correct that it’s related to the relationship between Pierre Wauthier and Joe Ackermann,” he said.

          “But it would be inappropriate for me to further elaborate on it. It is a very difficult situation, especially for the family and the friends of Pierre Wauthier, and we all need to respect their privacy during this difficult time.”

          Mr Ackermann said that he felt compelled to resign because he was under pressure from the Wauthier family to take some responsibility for his death.

          A person familiar with the situation said that Wauthier’s widow had been pushing for Mr Ackermann’s departure because she felt that her husband’s death was partly due to the ex-Deutsche Bank boss’s demanding management style.

          This person told the Financial Times that Mr Ackermann and Wauthier had disagreed during preparations for the presentation of the company’s second-quarter results, which were released two weeks before Wauthier’s death.

          However, both Mr de Swaan and Martin Senn, chief executive, were adamant that there was no link between Wauthier’s passing and the way in which Zurich presented its financial figures.

          “With respect to what happened in the last few days, I want to make it crystal clear that there is no link between this news and Zurich’s business and financial performance,” said Mr Senn.

          “We continue to be very profitable and we continue to generate very healthy cash flows. Second, we have a strong and resilient balance sheet, with solvency at the half year comfortably within our target range.”

          Mr Senn said Zurich was keen to appoint a new CFO as soon as possible, but would not compromise on quality in a quest for a quick appointment.

          Mr de Swaan said that the group hoped to have a new chairman in place for next year’s annual general meeting, but would not be drawn on whether he favoured an internal or external candidate.

          Stronger Carrefour lifts European stocks

          Posted on 29 August 2013 by

          Equity markets were broadly higher on a big day for results in Europe, helped by a strong showing for the region’s biggest retailer.

          Carrefour, which is the world’s number two retailer after Walmart, reported first-half operating profit up nearly 5 per cent to €766m, broadly in line with expectations, as earnings in its biggest market of France jumped 75.4 per cent.

            “The improvement in France gives much credibility to the bull-case that a great deal of self-help is available to the business and swift recoveries in earnings possible,” said Alastair Johnston at Citigroup.

            Carrefour shares climbed 5.6 per cent to €24.06.

            Zurich Insurance was among the biggest fallers after chief executive Josef Ackermann stepped down following the death of colleague Pierre Wauthier, chief financial officer, this week. Its shares were down 2.5 per cent to SFr228.80.

            The FTSE Eurofirst 300 climbed 0.8 per cent to 1,207.52. In Germany, the number of unemployed rose unexpectedly but, after falling 3.3 per cent in the previous two days, the Xetra Dax pushed 0.5 per cent higher to 8,194.55.

            French media, television and telecoms group Vivendi climbed 1.6 per cent to €15.60 as it added new customers in the second quarter, saw a decreased rate of customers leaving and a slower rate of profit decline than in previous quarters.

            Domestic rival Bouygues, which rose nearly 10 per cent on Wednesday following its first-half results, came back to earth with a 3.8 per cent drop to €24.37.

            Earlier this year, Bouygues entered into talks with Vivendi’s SFR mobile unit about sharing some of their network resources.

            “Bouygues has now outperformed both the European construction and telecoms sector,” said Frederic Boulan at Nomura. “We would be reluctant to chase the shares at these levels considering the recent rally.”

            Shares in beverages producer Pernod Ricard fell 1.9 per cent to €89 after it reported full-year sales growth below market expectations as the slowdown in China took its toll.

            Continental, the German tyre and car parts maker, climbed 3.9 per cent to €116.35 as the motor sector recovered following recent losses.

            New York regulator asks Lloyd’s about Iran

            Posted on 29 August 2013 by

            New York’s leading financial services regulator has called on Lloyd’s of London to provide it with fresh information about the insurance market’s supposed links with companies that do business in Iran.

            Lloyd’s had acknowledged to the state’s Department of Financial Services that some of its members had contracts with two companies that had done business in the Islamic republic, said people with knowledge of the matter.

              The regulator, led by Benjamin Lawsky, has asked Lloyd’s to provide it with details of enquiries the market has made about its members’ compliance with Washington’s intensified sanctions against the country.

              The department has been probing alleged links of non-US insurers with Iran after President Barack Obama signed new rules into law this year that restrict companies’ dealings.

              The rules target Iran’s energy and shipping industries but such companies rely on insurers to manage their risks. Failure to comply could result in tough punishments of non-US companies’ American operations.

              Mr Lawsky’s investigation takes place as he aggressively scrutinises the financial services sector.

              In June, Bank of Tokyo-Mitsubishi UFJ agreed to pay $250m for violating New York state’s banking laws over transactions involving Iran, Sudan and Myanmar.

              Last year, the regulator alleged Standard Chartered hid $250m in transactions with Iran’s government, moving ahead of federal regulators. The bank eventually agreed to pay a $340m fine to the New York regulator, as well as another $327m to other US authorities.

              In a statement, Lloyd’s said: “The New York regulator is engaged in an industry-wide review. Lloyd’s takes sanctions compliance very seriously and there is no evidence of any breach.”

              Partnership first-half sales disappoint

              Posted on 29 August 2013 by

              Partnership Assurance has become the latest recently floated company to publish disappointing debut results after the specialist retirement group missed first-half sales forecasts, pushing the shares down as much as 9 per cent.

              The assurer, whose backers Cinven fetched about £350m when the private equity house reduced its stake in the listing three months ago, on Thursday cautioned that recent regulatory reforms had “disrupted” annuities business.

                Partnership, which focuses on offering higher pensions to retirees with low life expectancies, wrote £631m worth of new business in the six months to June 30.

                Although up by 12 per cent from a year ago, that was 5 per cent shy of the number pencilled in by analysts at Bank of America Merrill Lynch, which brought the company to market along with Morgan Stanley.

                Investors including the Government of Singapore Investment Corporation, were lured to the listing of what was one of Britain’s fastest-growing private companies.

                However, the sell-off on Thursday pushed shares in Partnership, whose board is headed by London Stock Exchange chairman Chris Gibson-Smith, down 27p to 435p.

                Unlike motor insurer Esure – which also floated this year but lost more than a fifth of its market capitalisation when it paid a smaller than expected interim dividend – shares in Partnership remain at more than their listing price, of 385p.

                Alan Devlin, analyst at Barclays, described the first-half as “disappointing” but added that if the factors Partnership cited were “genuinely one-off” then the “investment thesis is on track.”

                Steve Groves, chief executive, said fresh EU rules to prevent insurers using consumers’ gender to help determine premiums had prompted men to buy annuities before the reforms took effect at the end of the year.

                Meanwhile, he maintained, some financial advisers who bring it business had been distracted by a regulatory shake-up to their industry, including a ban on receiving commission.

                “We are slightly behind where we expected,” Mr Groves acknowledged. But he added: “We’re not dealing with major variances.”

                “The impact of the disruption I think was fully disclosed” to investors in advance of the stock market launch, he added.

                Partnership said it remained on track to deliver annual operating profits consistent with City expectations, of about £137m.

                The chief executive added Partnership had outperformed rivals and denied it had been hurt by intensifying competition from mainstream annuity providers such as Legal & General, Friends Life and Scottish Widows.

                The initial public offering cost Partnership £15.6m in fees for advisers and other expenses, contributing to a fall in pre-tax profits from £17.5m to £8.56m.

                Stripping out these and other exceptional items, the company said operating profits rose 31 per cent to £59.3m.

                The company paid no interim dividend but said it expected to make a payout for the second half. Diluted earnings per share fell from 5p to 1p.

                Asia: Storm defences tested

                Posted on 28 August 2013 by

                Indian sand artist Sudersan Pattnaik (R)©AFP

                Eroded currency: the Indian rupee, which has been weakening for months, on Wednesday recorded its largest single-day fall in 18 years

                These days it seems practically everything is made in Asia. Everything, that is, apart from economic crises. For the moment, at least, those can still be produced in the US.

                Ever since Ben Bernanke, chairman of the US Federal Reserve, hinted in May that there may be an end in sight to the policy of aggressive monetary easing, emerging markets have been severely tested. Talk of tapering the Fed’s purchase of $85bn a month in government bonds from as early as September has pushed up long-term US interest rates. That in turn appears to have triggered a partial reversal of the carry trade in which investors borrow in dollars to purchase higher-yielding assets, often in emerging markets. Currencies and stock markets around the world, especially in countries with current account deficits financed by fickle capital inflows, have tumbled.

                In Asia, which came through the 2008 financial crisis seemingly unscathed, questions have been raised about economies that, until fairly recently, were counted as success stories. Indonesia, a country of 240m people with a 10-year record of solid growth, is in the spotlight as its currency and stock market slide. Between April and July, its central bank spent nearly $15bn, or 14 per cent of its total reserves, defending the rupiah, according to Morgan Stanley. In spite of that, the rupiah has fallen nearly 15 per cent against the dollar since May.

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                India, where problems have been brewing for some time, has become the focal point of market concerns about countries with twin current account and fiscal deficits. Heavily dependent on energy imports and with only a limited manufacturing capability, India runs a current account deficit of about 5 per cent of gross domestic product and a fiscal deficit approaching 10 per cent of GDP if regional government debt is included. Concern about an Indian economy whose growth has halved to 5 per cent since 2010 has knocked about 20 per cent off the value of its currency in a matter of months. The rupee on Wednesday recorded its largest single-day fall in 18 years on worries that its oil import bill would rise as a result of threatened western intervention in Syria.

                Asian markets

                  Even Thailand, which had been growing at about 5 per cent after recovering from devastating floods in 2011, has moved into a technical recession because of weak exports. There has also been concern about the cost of its generous rice subsidy. Since May, Bangkok’s equity market has fallen about 15 per cent.

                  Just as the Asian financial crisis of 1997 began with an assault on the Thai baht, so some fear that pressure on several Asian currencies could spell a new period of turmoil in a region that many thought was building up immunity. Investors had put faith in what was described as self-sustaining growth driven by urbanisation and the rise of the middle class.

                  Many investors are keeping faith with that long-term trend but the short-term outlook has darkened. Not only is capital being repatriated to the US, some Asian economies are also feeling the effects of a slowing China, which has been the engine of regional growth and the main factor in a commodity supercycle that now appears to have ended. The resulting turbulence is by no means limited to Asia. Countries from South Africa to Turkey and from Brazil to Australia have also been buffeted. Investors, however, will be scrutinising Asia to see whether its long, uninterrupted growth streak is now at risk.

                  “If the global shifts are large enough, there’s very little an emerging market economy can do about it,” says Jonathan Pincus, director of the Jakarta-based Center for Policy Research and Education, referring to the expected outflows of capital from Asia as the US economy improves.

                  In some ways, today’s Asian economies have little in common with their 1997 incarnations. Back then, many countries had fixed exchange rates and their companies were heavily exposed to foreign debt. As currencies came under pressure, central banks desperately spent reserves to defend them. When the peg finally broke, currencies collapsed and companies’ foreign-denominated debts soared.

                  Thailand, Indonesia and South Korea had to seek help from the International Monetary Fund. Partly as a result of now largely discredited IMF austerity packages, they subsequently plunged into deep recession. Indonesia, the worst affected, lost 13.5 per cent of GDP in a single year. Suharto, the dictator, was toppled.

                  . . .

                  If the global shifts are large enough, there’s little an emerging market can do about it

                  – Jonathan Pincus, director of the Jakarta-based Center for Policy Research and Education

                  Today the picture is very different. Asian economies have flexible exchange rates, much higher reserves and sounder banking systems. India, for example, has reserves to cover seven months of imports compared with only about three weeks when it had its own “come-to-IMF” moment in 1991. Nor, this time around, has India’s central bank wasted much firepower on defending the currency. Instead, it has largely allowed the rupee to slide. A weaker currency should boost exports and slow imports, closing the current account deficit automatically.

                  “Some of this stuff about a repeat of 1997 is well off the mark in our opinion,” says Paul Gruenwald, an economist at Standard & Poor’s. “No one’s defending the exchange rates. They’ve got more reserves than they used to. I don’t think anyone’s going to be going hat in hand to the IMF in the foreseeable future.”

                  Most economists agree that this will not be a rerun of 1997. But that does not mean that a different type of crisis can be excluded. “Every crisis is different,” says Ruchir Sharma of Morgan Stanley. “We only learn about the factors behind each new crisis post facto.”

                  One concern is that much Asian growth since 2008 has been bought on credit. Most of China’s huge 2009 stimulus package was paid for by credit expansion. Loans were sluiced through compliant, state-owned banks to favoured projects and businesses, many of them unproductive.

                  Public debt in China looks relatively modest, but when all debt – including private and corporate – is counted, it reaches about 200 per cent of GDP, according to HSBC. That is approaching US levels of 233 per cent. China is not alone in ratcheting up the credit. In Thailand, consumer debt has risen from 55 per cent of GDP to 77 per cent since 2008, while in Singapore it has risen from less than half of GDP to more than two-thirds. Malaysia’s household debt is at 80 per cent of GDP.

                  The danger of a bubble could be exacerbated in some economies by the fact that, until recently, currencies were exceptionally strong. That was the result of big inflows of money from the US that are now reversing. One consequence was that central banks kept monetary policy as loose as possible, encouraging the build-up of more credit.

                  “History tells us that when policy normalises, a certain amount of this debt will not be serviceable,” says Michael Spencer, an economist at Deutsche Bank. “There are people who have never had a loan before and may not fully understand what happens when interest rates go up.”

                  Fred Neumann, chief Asian economist at HSBC, is also concerned about the build-up of debt. “In virtually all of the Asian economies, we’re at leverage levels which make these economies very sensitive to a margin change in the cost of capital. From that perspective, it’s actually quite worrying,” he says of the prospect of further rises in US interest rates.

                  Some take a more alarmist view. Kevin Lai, an economist at Daiwa Securities, predicts an unfolding debt crisis. “We are talking about a huge credit bubble because in Asia we didn’t need quantitative easing in the first place,” he says. “We are talking about a potential balance of payments crisis, currency crisis and debt crisis.”

                  That is a minority view but even those who rule out a systemic crisis concede that some emerging economies will be stress-tested by sharp reversals in interest rates and capital flows. That could put companies under pressure if they have borrowed cheaply, particularly if, as in 1997, they are exposed to unhedged foreign currency risk.

                  . . .

                  In Asia, the spotlight has fallen on India and Indonesia. In an ideal world, says Mr Gruenwald of S&P, those countries would respond to market concern not by tinkering with capital controls, as India has done, but by pushing through bold economic reforms. Such measures could take the form of reducing budget deficits, for example by scaling back subsidies on things such as fuel or food, he says. Alternatively, they could aim to attract more capital inflows, particularly by improving the environment for foreign direct investment.

                  Both India and Indonesia, however, are counting down to a general election, making it far less likely that they will adopt unpopular measures. India has recently taken some steps to attract foreign investment but even if it succeeds, money is unlikely to flow in rapidly enough to offset any immediate funding needs. Walmart, the US retail group, recently put its Indian expansion plans on hold, partly because of unpredictable regulations.

                  Mr Sharma argues that the recent wobble is more than a market glitch. He says across-the-board growth in emerging markets in the past decade was an aberration. That has lured pundits and policy makers into believing the “convergence myth”, the process through which living standards of poorer countries inexorably close the gap with richer ones. Over the course of any given decade since the 1950s, he says, only a third of emerging markets have been able to grow consistently at 5 per cent. Only one in 10 developing countries has managed to grow by that amount for three straight decades.

                  In Mr Sharma’s view, many countries have failed to capitalise on a once-in-a-generation confluence of easy money and souped-up Chinese demand. As those factors wane, he suspects old patterns of growth will reassert themselves. In other words, some emerging economies will continue to grow fast but most will not. Those less geared to Chinese commodity demand will do better.

                  Christopher Wood, chief strategist of CLSA, a broker, says that countries are likely to be buffeted by outflows of capital if the Fed ends quantitative easing and raises short-term rates. However, he says, most Asian economies, including Indonesia, which has public debt of approximately 30 per cent of GDP, ought to be able to weather that kind of storm.

                  Far more worrying, he says, is the matter of whether China will be able to maintain reasonable levels of growth as it attempts to wean itself off credit-led investment. “Whether China pulls off this rebalancing is to me a million times more important than all this tapering neurosis,” he says. Asian economies, Mr Wood concludes, are strong enough to withstand economic headwinds emanating from Washington. Events that could unfold in Beijing, he says, are a different matter.

                  . . .

                  Central Europe escapes the carnage

                  The emerging-markets bloodbath has swamped countries from Asia to Latin America but central Europe has been largely spared, a result of the region’s close ties with a recovering EU and of stable macroeconomic fundamentals in Poland, the Czech Republic and Hungary, writes Jan Cienski.

                  As investors flee emerging Asian economies in the wake of the impending end of the US Federal Reserve’s easy money policies, some are finding a haven in central and eastern Europe. Poland, the region’s largest economy, has been a strong performer, with investors pouring money into exchange traded funds.

                  The broad Warsaw Stock Exchange is up by almost 15 per cent since June. Prague, too, has had a sharp recovery since late June, with its main index rising by more than 11 per cent.

                  Emerging Europe is largely shielded from the stresses in other emerging markets because it is part of the EU and closely tied to the eurozone. Those links dragged the region down early in the crisis but the nascent recovery in Europe is now providing a boost.

                  “Central Europe’s recovery is largely linked to Germany. Poland, the Czech Republic and Hungary have seen a stronger than expected rise in exports,” says Mateusz Zawada, an analyst with Wood & Co, an investment bank.

                  Central Europe, with cheap but qualified workers, has become the EU’s workshop, making everything from cars to furniture, as well as components used in German production.

                  There are also local strengths. Debt to gross domestic product ratios are lower than in most other emerging markets and interest rates are at record lows. Leading indicators show that the Czech Republic and Hungary have emerged from recession while Poland, which experienced a slowdown but no contraction, looks healthy.

                  While benefiting from EU membership, the region has also been protected from some of the costs of being in the eurozone. Floating currencies have reinforced competitiveness and the region has not had to pay for rescuing eurozone periphery countries such as Greece.

                  “I believe the region will continue to do well over the long term,” says Mr Zawada. “Yields in Poland and the Czech Republic will show much less volatility than, for example, Turkish yields.”

                  Accor slips after earnings warning

                  Posted on 28 August 2013 by

                  Earnings from two of France’s blue-chip stocks were responsible for the best and one of the worst performances on pan-European stock indices.

                  Shares in Accor, Europe’s largest hotel group, fell 4.4 per cent to €27.52 after the company warned on full-year profit after reporting weaker than expected first-half results.

                    The owner of the Novotel and Ibis chains said operating profit in its first six months fell 6.4 per cent to €198m and forecast full-year profit to come in at between €510m-€530m, just below market estimates of €535m.

                    “Even with significant help from the cost savings programme, Accor still expects full-year core earnings to be below last year,” said Geof Collyer at Deutsche Bank.

                    At the other end of the FTSE Eurofirst 300 stood Bouygues, the conglomerate, up 10.5 per cent to €25.33 after it maintained its profit outlook following a 10 per cent rise in second-quarter operating profit to €432m, beating expectations.

                    Overall, however, market sentiment remained clouded by the sell-off in emerging markets and the Syrian crisis. The Eurofirst 300 fell 0.3 per cent to 1,198.56.

                    Among the top gainers, oil groups were prominent as the threat of international involvement in Syria drove up oil prices.

                    Spanish oil producer Repsol added 3.2 per cent to €18.11 while Norway’s Statoil gained 4.2 per cent to NKr137.60.

                    Oilfield services groups were also strong after forecast-beating results from Oslo-listed Seadrill, which climbed 2.9 per cent to NKr273.50. Italian rival Saipem gained 2.4 per cent to €16.58.

                    The sharp rise in oil prices over past couple of sessions hit shares in the region’s airlines. Lufthansa fell 3.2 per cent to €13.49 and Air France-KLM lost 3 per cent to €5.74.

                    Ryanair fell 0.1 per cent to €6.51 after the UK Competition Commission ordered the Dublin-based airline to cut its holding in rival Aer Lingus from nearly 30 per cent to no more than 5 per cent.

                    Utilities were broadly higher as gains took on a more defensive feel. France’s GDF Suez rose 2.2 per cent to €16.60 after Credit Suisse raised its rating to outperform from neutral.

                    Financials feel the force of EM sell-off

                    Posted on 27 August 2013 by

                    Financial stocks in Europe most exposed to emerging market assets found themselves nursing heavy losses as the EM sell-off gathered pace.

                    The region’s EM and periphery equity markets were particularly hard hit – Turkey’s BIST 100 index fell 4.7 per cent, while Spain’s Ibex and Italy’s MIB both made losses in excess of 2 per cent.

                      Austria-listed financial duo Raiffeisen International and Erste Bank were among the biggest fallers, down 5 per cent to €25.60 and 5.5 per cent to €24.10, respectively.

                      Both banks have operations in eastern European markets.

                      Germany’s Commerzbank
                      also stood at the bottom of the FTSE Eurofirst 300 index, down 5.5 per cent to €8.45, while Dutch bank ING
                      fell 5.2 per cent to €8.22 and France’s Société Générale
                      shed 4.7 per cent to €32.81. Italy’s Intesa Sanpaolo
                      fell 4.4 per cent to €1.45.

                      Shares in Italy’s UBI Banca
                      had been higher in early trade after forecast-beating second-quarter earnings. However, market momentum left the stock 3.4 per cent lower at €3.33 by the close.

                      The FTSE Eurofirst 300 ended the session 1.7 per cent lower at 1,202.36.

                      “The uncertainty is being created by the potential for some form of military action in Syria, political uncertainty in Italy and the timing of a Fed tapering programme,” said Michael Hewson at CMC Markets.

                      Carmakers were the weakest industry group on the pan-European index.

                      Germany’s Daimler
                      fell 4.8 per cent to €52.89, despite winning a domestic court appeal to overturn the suspension of sales of Mercedes-Benz models that use a coolant EU regulators want to ban.

                      France’s Renault
                      fell 4.7 per cent to €56.45 and Italy’s Fiat lost 3.7 per cent to €5.78.

                      Few stocks were on the positive side of the Eurofirst index, most of them London-listed after UK investors returnedafter Monday’s public holiday.

                      , the Austrian oil company, climbed 1.5 per cent to €35.47 after SocGen raised its target price on the stock €38 from €35.