UPDATE 1-Moody’s to review France’s outlook over next 3 mths
NEW YORK Oct 17 (Reuters) - Moody’s warned on Monday it
may slap a negative outlook on France’s Aaa credit rating in
the next three months if the country fails to make progress on
crucial fiscal and economic reforms.Moody’s also will take into account any potential adverse
developments in financial markets or in the economy in
assessing the outlook, it said, noting that the government has
now less room to stretch its finances than it did during the
financial crisis of 2008.A negative outlook would be a sign that Moody’s could
downgrade France in the next couple of years.”The deterioration in debt metrics and the potential for
further contingent liabilities to emerge are exerting pressure
on the stable outlook of the government’s Aaa debt rating,”
Moody’s said in a statement.The warning comes as European Union leaders discuss
measures to protect the region’s financial system from an
expected Greek debt default. Those measures should include
injection of capital into banks with exposure to Greek debt.France may face a number of challenges in the coming
months, such as the need to provide additional support to other
European countries or to its own banking system, Moody’s said.For France to maintain a stable outlook on its rating, it
will need to prove its “continued commitment to implementing
the necessary economic and fiscal reform measures,” the ratings
agency said.The government will also have to show “visible progress in
achieving the targeted sustainability improvements” in its debt
ratios, Moody’s said.France’s debt metrics are now among the weakest of its Aaa
peers, the agency said.
Knowing me, knowing you..
For a fund company expanding out of its home market, a crucial question is whether a distribution strategy that works well locally will also work in other countries. You might call it the Abba Dilemma: Knowing me, knowing you?
The Swedish popstersâ 1977 hit single went on to suggest there is nothing we can doÂ, but new research from Lipper hopes to shed some light on this issue.
The first step is to appreciate the importance of product development. At the end of 2001 the European mutual funds industry stood at 3 trillion euros ($4.2 trillion) in assets under management. By the end of the first quarter of 2011 this had grown to nearly 5.5 trillion. Of this latest total, 43 percent (2.4 trillion euros) of assets are now managed in funds that have been launched in the past nine years. In other words, 97 percent of industry growth since the end of 2001 has come from product development.
This is not just a quirk of the statistics over a longer time period. In 2010, for example, most local fund markets in Europe saw funds which were launched in previous years (referred to as Âbacklist funds) suffering redemptions while funds launches in 2010 enjoyed inflows.
You can see a chart showing these findings by clicking here
But this is not a uniform pattern. The most successful local market in 2010 (in terms of fund sales) was the UK. And in this market the vast majority of flows were into backlist funds, accounting for 81 percent of net sales.
This market stands out in Europe for the importance of Independent Financial Advisers (IFAs) as a distribution channel. Historical data reinforces just how important this has been. The weighting of flows into funds with a track record ranges from 40 percent (2007) or 50 percent (2004) to around 90 percent (2003 and Q1-2011), but the UK industry has achieved positive net sales in every year analysed  unlike most of the rest of Europe.
While the FSAÂs Retail Distribution Review (RDR) looks set to shake-up the way that intermediaries are paid, the way that platforms generate revenues (or the way they disclose this), and the formal qualifications intermediaries must have, the benefits that the current model has achieved in not simply pushing the latest product to hit the market should not be underestimated.
By contrast, those markets that suffered the greatest outflows from backlist funds are also those where banks and insurance groups have traditionally played a dominant role in mutual fund distribution: Spain, France, Italy, Germany.
An analysis of historical trends again underlines this view. In only the boom years of 2003 and 2005 did backlist funds manage a full year of positive net sales across Continental Europe.
You can see a chart showing these findings by clicking here
REDEMPTIONS
While the retreat by banking groups from promoting their mutual fund ranges in the wake of the financial crisis has been rightly highlighted elsewhere, it is possible to establish that the slow-down actually began in the second quarter of 2006. This happened as bond funds (previously the staple diet of Continental European retail investors) entered a cycle of redemptions that they only really came out of in 2009 Â and have fallen back into since the winter of 2010.
This does not inevitably put all of the blame for the appeal of new funds at the doorstep of large financial services groups (at the very least because this is aggregate data), but it is an issue that needs to be addressed. And such a process may already be underway as the European Commission looks more closely at distribution as part of broader initiatives (e.g. the original intention of the Packaged Retail Investment Products [PRIPS] initiative) and not just at products like Ucits funds.
The missing element from the picture painted so far is cross-border funds, those funds using the Ucits passport to sell into multiple countries and tending to be domiciled in Luxembourg or Ireland. Groups that have been successful with such funds have come out well through the financial crisis (in terms of sales), selling their products to professional fund buyers that will include funds of funds, private banks, banks open (or guided) architecture platforms, as well as institutional investors.
You can see a chart showing these findings by clicking here
The cross-border sales figures are far more similar to the UK than the largest Continental European industries, with backlist funds forming between 60 percent and 80 percent of sales activity each year except during the initial sell-off in 2007-08 of the financial crisis. It is worth highlighting that new product launches actually kept the cross-border industry in positive territory in 2007, underlining the importance of product development for these groups too.
Having highlighted the broad difference between the IFA-led UK market and many bank-dominated European markets, the rise and evolution of cross-border funds adds a further twist to this story. Bank-owned and independent asset managers generated about the same level of cross-border sales in 2010, and over 70 percent of these flowed into backlist funds for both types of business.
This research provides evidence of the relationship between fund distribution channels and sales patterns, and how this varies around Europe, as well as exceptions to this in the cross-border industry. And as the European industry becomes increasingly internationalised by such developments, a steady shift away from new funds may result.
($1 = 0.713 Euros)
Sierra Leone arrests 39 in oil palm land lease dispute
* SOCFIN part of France’s Bollare GroupBy Simon AkamFREETOWN, Oct 12 (Reuters) - Sierra Leone authorities have
arrested 39 protesters in the south of the West African nation,
following tensions between the local population and a unit of
international agro-investor Socfin .The locals were protesting a multi-million dollar land deal
in which the government is leasing to Societe Financiere des
Caoutchoucs (Socfin) 12,500 hectares for oil palm production in
the Pujehun district.The initial phase of the deal is worth $112 million.Green Scenery, an NGO in Sierra Leone, said some locals have
complained they were not properly consulted and were not given
information concerning the deal, signed in April.Farmland in many developing countries has attracted foreign
investors in recent years, but a U.N. Food and Agriculture
Organisation official last year warned some big land lease deals
might risk deepening poverty and ramping up social tensions.Green Scenery said in a statement locals had blocked Socfin
operations in the area since Oct. 3 because they were angry
about not receiving information on the lease agreement, in which
a local chief was involved.The statement did not give details of what information the
farmers said they were deprived of.Gerben Haringsma, the general manager of Socfin Agricultural
Company Sierra Leone Ltd, told Reuters the company was investing
in social projects and the protesters were in the minority.”We tried for weeks to reason with these guys (the
protesters).”“The government decided to stop it, saying this was getting
out of hand,” he added.Socfin, part of France’s Bollore Group , owns more
than 51,000 hectares of palm estates in Nigeria, Ivory Coast and
Cameroon.David Sesay, assistant inspector general of police for the
southern region of Sierra Leone, said officers arrested 39
people on Tuesday and took 27 to the country’s second city of Bo
for questioning.”The people were continually rioting, blocking the road, and
impeding people from going to work,” he said.Sierra Leone was devastated by civil war between 1991 and
2002, and held presidential elections in 2007.Since the end of hostilities the minerals-rich country with
abundant resources such as iron ore, bauxite, diamonds and
titanium ore, has attracted a number of foreign investors.African Minerals is developing a site at Tonkolili in the
centre of the country which it has said is potentially the
world’s largest deposit of the iron ore magnetite.In the agricultural sector, alongside Socfin Swiss
commodities trader Addax, has leased a large area for sugarcane
for biofuel use near the town of Makeni.”In some ways the renewed interest in agriculture is a
welcome reversal of decades of underinvestment in the
agricultural sector that has contributed to rural poverty and
urban migration,” Oli Brown, environmental affairs officer with
the United Nations in Freetown, said in an email.”However agricultural investment needs to be carefully
managed and designed to ensure that it contributes to rural
development and does not exacerbate food insecurity.”
UPDATE 2-China unveils steps to ease credit crunch for small firms
* Analysts say the move does not mark any policy shiftBEIJING, Oct 12 (Reuters) - China on Wednesday unveiled a
set of measures to expand financing supports for cash-starved
small businesses, a step signalling some relaxation of credit
controls but not amounting to a fundamental shift in monetary
policy.The steps, including allowing small companies to issue more
bills and bonds while paying less taxes, were announced on the
government’s web site (www.gov.cn) after a cabinet meeting
presided over by Premier Wen Jiabao.Small banks will continue to implement “relatively” low
reserve requirement ratios (RRR) compared with big banks, the
cabinet said, falling short of announcing a cut in RRR as
expected by some investors.China’s RRR for big banks now stands at 21.5 percent, and
the ratio for smaller banks, which tend to be more focussed on
financing smaller firms, is 19.5 percent or even lower.”Currently, some small- and micro- sized firms are facing
operating difficulties and the problem is also that they are
facing a heavy tax burden and finding it hard to get finance,
all of which we need to give high attention to,” said a cabinet
statement.The government will raise the threshold for levying
value-added and business taxes for such firms, easing their
burdens.Despite the move, analysts believe the government will
refrain from easing monetary policy in the near term for fear of
reigniting inflation pressures.Guo Tianyong, an economist at Central University of Finance
and Economics in Beijing, said the move should be seen as a
“targeted” easing of credit curbs, rather than an
across-the-board policy easing, given inflation remains
elevated.Small firms hold the key to a stable job market in China as
they account for 75 percent of employment.”It is far-fetched to read these measures as a signal of
Beijing relaxing its macro policies,” said Qiao Yongyuan, an
analyst at CEBM in Shanghai.”It is a set of detailed guidelines concerning more about
providing support for smaller firms and regulating private
financing,” he added.China’s annual inflation pulled back to 6.2 percent in
August from July’s three-year high, cementing expectations that
Beijing will hold off further policy tightening amid
uncertainties hanging over the global economic recovery.Since last October, the central bank has raised interest
rates five times and increased bank reserve requirement ratios
— the percentage of cash deposits they must set aside in their
vaults — nine times.The State Council, or cabinet, also vowed to step up a
crackdown on the high-interest underground lending market.Cash-strapped Chinese private firms have struggled to win
bank loans during a credit clamp-down by Beijing, often forcing
them to borrow on the underground markets that pool money from
individuals and firms — at annual interest rates as high as 100
percent.The eye-watering rates, more than 15 times China’s benchmark
lending rates, have pushed some firms to the limit. And a string
of private company bosses in China’s entrepreneurial capital,
Wenzhou in coastal Zhejiang, have skipped town after failing to
repay such loans.
