The Bangladesh Today (12-02-2018)

ECONOMY & BUSINESS
MONDAy,
THE
BANGLADESHTODAY
FEBRuARy 12, 2018
10
The business review meeting-2018 of greater Comilla and Noakhali regions branch managers of Karmasangsthan Bank held
on Saturday at Nazrul Institute, Comilla. Managing Director of the bank Md. Abul Hossain attended as chief guest.Bank's
General Manager M H Md. Ali Karim was present in the meeting as special guest. Deputy General Manager Mohammad Shafiul
Azam presided over the meeting.
Photo: Courtesy
China's January inflation eases
on carryover effect
China's consumer price
index (CPI) rose 1.5 percent
year-on-year in January, in
line with economist
forecasts.
The index was down from
December's 1.8 percent,
driven largely by the
carryover effect, National
Bureau of Statistics (NBS)
statistician Sheng Guoqing
said Friday.
"Food and non-food prices
surged in January last year
when the Spring Festival
holiday formed a high base
effect, help bringing the
index down last month by
0.3 percentage points," said
Lian Ping, chief economist
with the Bank of
Communications.
Service and non-food
prices climbed 2.3 percent
and 2 percent year on year,
respectively, according to
the NBS.
On a monthly basis, CPI
was up 0.6 percent, higher
than the 0.3-percent in the
previous month.
The month-on-month rise
was mainly attributed to
higher food prices,
influenced by bad weather,
according to Sheng.
"The inflation in February
would probably be the
highest this year since the
CPI was 0.8 percent during
the same period last year,
the lowest month in 2017,"
Lian said. However, the
possible index hike in
February will not bring
much inflationary pressure
to the whole year as it cannot
last.
Lian forecast that the CPI
in 2018 might stand at 2
percent on average, higher
than the 1.6 percent
registered in 2017, but well
below the government target
of 3 percent.
Consumer demand will
not be strong enough to prop
up a high-rising CPI, given
that China has been
stepping up efforts to
deleverage and contain
financial risks as it looks to
move from high-speed to
high-quality growth.
The CPI figures came
alongside the release of the
producer price index, which
rose 4.3 percent year-onyear
in January, driven by
fast price rises of raw
materials and minerals.
It was down from a growth
of 4.9 percent recorded in
December, according to the
bureau. On a monthly basis,
the index was up 0.3
percent, down from 0.8
percent the previous month.
For the whole of 2017, the
PPI climbed 6.3 percent
compared with a 1.4-percent
drop in 2016, ending
declines for the previous five
years.
Looking ahead, Lian
expects the PPI in 2018 to be
around 3.5 percent, lower
than last year, driven mainly
by the carryover effect.
Analysts say the mild
inflation leaves ample room
for the government's macro
policy maneuvers.
Tian Guoqiang, professor
with Shanghai University of
Finance and Economics,
said that China would be
able to make better use of
monetary and fiscal policies
to relieve the burden for the
real economy.
China will adopt a prudent
and neutral monetary policy
and a proactive fiscal policy
this year, according to the
central economic work
conference in December.
With a low inflation level,
the country can continue to
deepen supply-side
structural reform, raise
innovation capacity and
competitiveness of the
economy and push forward
high-quality development,
Tian said.
High-quality development
is the "fundamental
requirement" for
determining development,
economic policies and
macroeconomic regulation,
according to policymakers.
Oil majors strike it
rich on rising
crude prices
The world's leading oil
companies published a
bumper crop in profits last
year as rising crude prices
helped turn their fortunes
around, but they remain
cautious and are unlikely to
rush out on a new spending
spree just yet.
In a flourish of earnings
reports over the past week,
the picture painted by
majors ranging from
ExxonMobil and Chevron to
BP, Royal Dutch Shell and
Total has been a very rosy
one. French giant Total saw
its bottom line jump by
more than a third, Shell's net
profit tripled, ExxonMobil's
fourth-quarter earnings rose
nearly five-fold, Norway's
Statoil swung back into the
black and BP's profits
soared.
In fact, "2017 was one of
the strongest years in BP's
recent history," the British
group's chief executive Bob
Dudley told his annual
earnings news conference.
Key to this success was the
steady rise in crude prices in
recent months, driven by a
landmark deal between oilproducing
countries both
inside and outside the OPEC
cartel to reduce the
worldwide glut in supply by
throttling output.
Correspondingly, after
falling from $115 per barrel
in 2014 to under $35 at the
start of 2016, oil prices have
been rising, from an average
$44 in 2016 to $54 in 2017
to nearly $70 this month.
Flush with their newfound
profits, the oil majors
have raised dividends and
announced share buy-back
programmes, eager to make
it up to their shareholders
who have become restive
after having to do with
meagre payouts for years.
But it's still a far shot from
the heady days of old.
Companies have learned
to live with low oil prices,
slashing costs and
investment to become leaner
and fitter, and said they have
little intention of
abandoning that regime any
time soon. Shell's CEO Ben
van Beurden said he now
always works on the
assumption that oil prices
would remain "lower
forever".
"We're sticking to the costcutting
programmes, despite
the rise in crude prices," said
Total chief executive Patrick
Pouyanne. Such prudence is
evident in the only modest
uptick in investment in
upstream exploration and
production activities.
Globally, these
investments rose by four
percent to $389 billion last
year and should increase by
a modest two-to-six percent
again this year, according to
estimates published by IFP
Energies Nouvelles this
week.
By comparison, the
amount totalled $683 billion
in 2014.
Developments vary from
region to region, and the
anticipated growth this year
is driven almost entirely by
independent companies and
US shale firms, whose
overheads are much lower.
The majors, for their part,
expect to cut investment in
exploration and production
by 16 percent this year.
"There's been a sigh of
relief across the boardrooms
of the global oil and gas
companies as higher prices
have boosted results
significantly," said David
Elmes, energy specialist at
the Warwick Business
School.
"But there's also a
hesitancy and uncertainty
about the longer term which
is tempering any return to
full speed ahead," he said.
Companies are holding
back because oil prices look
set to remain volatile and
vulnerable to fluctuation.
Demand for oil from
energy-hungry economies,
such as China and India, is
expected to remain robust.
But the market's muchneeded
rebalancing could be
jeopardised by increased
production by US shale
companies.
"I'm certain that US
independents will again
invest a lot to profit from a
price of $60 per barrel and
ramp up shale production,
so the market is going to
remain volatile," said Total's
Pouyanne.
China central bank skips
open market operations
for 13th consecutive
working day
China's central bank
suspended open market
operations for the 13th
consecutive working day
Sunday, citing sufficient
liquidity in the banking
system.
The move is to offset the
influence from factors such
as the use of Contingent
Reserve Arrangement
(CRA) and fiscal
expenditure to maintain
stable liquidity in the
banking system, said the
People's Bank of China
(PBOC) on its website.
Wall Street's plunge this week has
brought scrutiny to complex niche
products to trade on volatility that
market experts believe were poorly
structured and exacerbated swings in
stocks.
Only days before markets began to
go haywire, Barclays chief executive
Jes Staley warned about the risky
investments at the World Economic
Forum in Davos.
Many investors were using the
exchange-traded products to place
bets that volatility would stay low or
go down, a "very smart" wager during
a period of persistently low volatility,
Staley said. "But if this thing turns,
hold on to your hat," he added.
That change took place on Monday
as the Dow Jones Industrial Average
was in the midst of a more than 1,000
point drop that included a violent
800-point dive in the blue-chip index
over 10 minutes.
During that period, the CBOE
Volatility Index, known as the "VIX"
index, also shot higher.
That shift spelled instant losses for
"short-vol" trading vehicles,
including exchange traded products
by Japanese bank Nomura and
Credit Suisse that had predicted
volatility would go down, known as a
"short" investment.
Because the VIX is known
unofficially as Wall Street's "fear"
index over possible bad future
outcomes, a sudden surge likely
S.Korea's exports fall
in early February on
less business days
South Korea's exports fell in the first 10
days of February due to less business days,
the customs office data showed Sunday.
Exports, which account for about half of
the economy, reached 14.8 billion U.S.
dollars during the Feb. 1-10 period,
according to the Korea Customs Service.
It was down 1.8 percent from the same
period of last year as the number of working
days reduced to eight days from 8.5 days a
year earlier. The daily average exports,
however, gained 4.4 percent to 1.85 billion
dollars in the cited period.
The country's export kept an upward
contributed to the brutal losses in the
equity markets.
Short bets on volatility had become
a popular stance, outnumbering
trades that anticipated a rise in
volatility and in one case earning a
return of almost 200 percent in 2017,
according to a note from Goldman
Sachs.
"Hedge funds, prop traders, retail
investors... everybody was on the
same exposure," said Brett Manning,
senior market analyst at
Briefing.com. "It worked really well
for a long time."
But the investment suddenly went
south when markets turned sharply
on February 2, when a surprisingly
strong US jobs report sparked
worries about inflation.
"Everybody was on the same side of
the trade," said Manning. "Hedge
funds started to move out and people
started to panic to cover these
investments." Conditions worsened
this week, leading both Credit Suisse
and Nomura to liquidate their funds
amid heavy losses.
In the aftermath of the turbulence,
Fidelity Investments halted trading
on exchange traded funds that bet on
low volatility.
While it's impossible to know the
exact losses, the market was
estimated at between $3 billion and
$4 billion, a small part of the overall
market for exchange traded products,
a growing type of investment that is
momentum for 15 months through January,
but it was widely forecast to fall in February
as the number of working days reduce due to
the Lunar New Year's holiday next week.
Demand for semiconductors kept a
double-digit expansion this month, with
exports for oil products and cars rising.
The shipments of smartphones continued
to fall as local manufacturers increased
production in overseas factories.
Imports advanced 17.6 percent to 16.6
billion dollars in the cited period, sending the
trade balance to a deficit of 1.84 billion
dollars.
Stocks' drop brings scrutiny of
complex low-volatility bets
traded on exchanges and based on
assets, such as stocks, commodities
or indices.
The investments were widely
known in the financial world as
failure-prone because of the tendency
of markets to eventually become
volatile. Credit Suisse even warned in
its prospectus that the "long-term
expected value" of the investment is
"zero."
"The main purpose was to be an
insurance but people started buying
and selling it in sort of a casino
fashion," said FTN Financial chief
economist Chris Low.
Regulators are now looking more
closely at the vehicles. Swiss
regulators are following up with
Credit Suisse, and New York Federal
Reserve President William Dudley
pledged more scrutiny of the
products.
Asset manager BlackRock called for
a "regulatory classification system
that would label levered and inverse
exchange traded products differently
than plain-vanilla (ones) in order to
clarify for both regulators and
investors the risks associated with
those products."
One consequence of this week's
shakeout is that the products in
question have been "significantly
defanged," making a repeat
peformance of the February 5 chaos
unlikely anytime soon, said a note
from Bank of America Merrill Lynch.
First Security Islami Bank sponsored 'FSIBL 3rd Diplomat Cup Tennis Tournament-2018 has been
inaugurated recently. Md. Shahriar Alam, MP, State Minister, Ministry of Foreign Affairs, People's
Republic of Bangladesh and President, Bangladesh Tennis Federation was present as chief guest and
Mr. Syed Waseque Md. Ali, Managing Director, First Security Islami Bank Ltd was present as special
guest on the program. Among others, Golam Morshed, General Secretary, Bangladesh Tennis
Federation, Shahajada Basunia, Head of Public Affairs and Brand Communication Division, First
Security Islami Bank Ltd and other officials were present on the program. Photo: Courtesy
Over 20 m new
companies
registered in China
in past 5 years
Some 21.6 million
companies were registered
in the past five years in
China, thanks to the
government's push for
entrepreneurship and
innovation to bolster growth.
Since China introduced
mass entrepreneurship and
innovation policies in 2014,
more than 4,200 new
hackspace companies have
been created, serving over
120,000 start-up businesses
and raising over 5.5 billion
yuan (870 million U.S.
dollars) In 2017, online sales
increased by 28 percent and
express delivery volume
grew by nearly 30 percent. A
string of new growth engines
such as sharing and digital
economies have been
established.
The government has cut
red tape, reduced taxes and
slashed fees for enterprises.
Mass entrepreneurship
and innovation has been an
effective driver for both
economic growth and the
consistent transition
between traditional and new
growth engines.
Crude oil futures to boost
China's pricing power,
cautiously : Economic
China will launch crude oil futures on
March 26, as the world's second largest
economy moves to gain pricing power over
commodities.
After years of false starts, the crude futures
contract will make its debut at the Shanghai
International Energy Exchange (INE), the
China Securities Regulatory Commission
(CSRC), the country's top securities
regulator, announced Friday.
Preparations for the launch of the oil
futures have almost been completed, Chang
Depeng, spokesperson for the CSRC, told a
press conference.
China set up a petroleum exchange in the
early 1990s but soon ceased trading due to
reform and market factors.
The contract will enable China to develop
its own benchmark for oil pricing in addition
to current global benchmarks.
The Asia-Pacific region has surpassed
America and Europe in crude consumption,
but a benchmark with high recognition is
still missing.
China is the world's second largest oil
consumer after the United States. Demand
is likely to soar in the future as the country is
thirsty for the source of energy to fuel its
economic boom.
In the absence of a crude benchmark in the
region, Asian countries pay more than
Europe and America for imported oil. It is an
additional two billion U.S. dollars a year in
the case of China.
The WTI and Brent futures contracts are
not accurate reflections of oil prices in Asia.
China's crude contract offers companies in
the real economy a hedging tool which better
reflects market conditions in Asia, said Wu
Jian, a senior researcher with the Bank of
Communications.
The new move will also boost yuan's global
use through increasing the trade of yuandenominated
oil. Currently, the main global
benchmarks for crude oil are priced in U.S.
dollars, threatening China's energy and
economic security. The yuan-denominated
contract means the Chinese currency will
play a greater role in trade between China
and other oil-producing countries.
But analysts said it could take time before
China's new oil futures challenge the
dominance in oil trading of the two current
global benchmarks, or the prominence of
U.S. dollar in the global financial system.
Bai Ming, a researcher with China's
Ministry of Commerce, said it is natural that
competition arises after long time of
development, but challenge will not
necessarily happen in the end.