Tag Archives: markets
Islamic Investors Chase Yield, Assets In Australia
PUBLISHED: 16 APR 2013 19:00:50 | UPDATED: 17 APR 2013 To avoid interest payments, Islamic finance structures favour physical assets that are often effectively bought by the investors. Photo: Ben Rushton SHAUN DRUMMOND The prospect of higher yield in Australia is driving Islamic investors Down Under just as it is the broader global investment community, but the focus on capital-intensive industries is adding to its appeal for this source of funds. Managers of two fledging Islamic funds set up in Australia in the past 18 months say they knew these factors presented opportunities, but they were still surprised by the level of interest from Islamic investors. Amanie Advisors’ Melbourne-based representative, Mark Darras, says he was virtually mobbed by Islamic banks and sovereign wealth funds on a trip to the Middle East in November. The Advisor has identified asset leasing as the best entry into the Australian market for Islamic investors as it is “very sharia compliant”, says Darras. The founder and chairman of Amanie, Mohd Daud Bakar, visited Australia on Tuesday to host the firm’s first Islamic investment forum in Australia which brought together Middle Eastern and Malaysian investors with Australian companies to discuss opportunities and what Australian companies would have to do to create the appropriate structures for investment. A private meeting between about 20 investors, primarily from the Gulf States, and about eight representatives of Australian companies was scheduled for Wednesday. SUKUK YIELDS NEAR RECORD LOWS Samar Madini, vice-president of fixed income and islamic finance products at Dubai-based SJS Markets, said a shortage of “safe” investment instruments and the growth in cash liquidity globally have pushed yields on Islamic bonds to near-record lows of less than 3 per cent for five years tenure. As a result, he expects more Western firms issue sukuk (Islamic bonds) to take advantage of the demand and the low rates. “We are already seeing Western institutions issuing sukuk, such as GE and Nomura and I expect more Western institutions are going to issue sukuk to attract the islamic banks, and other institutional investors.” Australian companies are also considering issuing sukuk in Malaysia . As well as prohibiting the payment of interest, sharia law doesn’t allow Islamic investors to put money into anything connected with gambling, alcohol, tobacco and pork products. To avoid interest payments, the Islamic finance structures favour physical assets that are often effectively bought by the investors, which then collect a lease off the issuers in lieu of interest payments. CLEAR GUARANTEES ON CASH FLOW WANTED Bakar says the funds being targeted in the Middle East needed to invest a minimum of $50 million and the primary areas in Australia that would be suitable would be financing asset leasing in aviation, infrastructure, mining, power plants and in the medical and pharmaceutical industries. He says they only have “soft commitments” from investors at the moment, but it is understood the first foray will be into aircraft leasing, with a possible $US107 million investment being discussed. “We help co-fund the purchase and then lease the aircraft on,” explained Darras. They are keen to invest in assets linked to companies with clear guarantees on cash flow, such as mining offtake agreements in India and China. “Investors are looking at the underlying economy, and production of this kind of assets in this country,” said Bakar. Sydney-based Crescent Wealth, meanwhile, is accelerating its push into introducing offshore Islamic institutional investors to Australian companies. Managing director Talal Yassine says both investors and issuers have shown interest, prompting the fund to accelerate plans beyond their present super fund directed at Australian Islamic investors, with their first official trip to see investors in the Middle East and Malaysia in May. SELF-MANAGED ACCOUNTS FAVOURED Bakar says his fund is “targeting a few sovereign funds and a few other dedicated funds”. Some want to put their money into a managed fund, but many favour a self-managed account because they want to show they are the direct owner of the asset, Bakar says. Bernie Ripoll, federal parliamentary secretary to the Treasurer, told the forum in Melbourne on Tuesday that the Labor government wants to reduce any barriers to Islamic finance in the country but that it was still considering the recommendations of a Board of Taxation review handed to the government last July. He said there were no “substantive” barriers at the Commonwealth level. One of the biggest impediments is state-based stamp duty on property transfers, which affects Islamic investments as they involve a transfer of assets into and out of special purpose vehicles in order to avoid interest payments. Continue reading
If Carbon Markets Can’t Work in Europe, Can They Work Anywhere?
By Bryan Walsh April 17, 2013 But the ETS—and carbon trading more generally—is not doing well, and its problems are taking some of the green shine off of Europe. Since its launch the ETS has struggled, with the price of carbon falling as the 2008 recession and overly generous carbon allowances undercut the market. In the ETS business are given free allowances to emit carbon—too many free allowances mean they don’t need to reduce their carbon emissions much, which erodes the demand for additional carbon allowances on the market and causes the price to drop. Prices fell from 25 euros a ton in 2008 to just 5 euros a ton in February. There was a way to fix this—take 900 million tons of carbon allowances off the market now and reintroduce them in five years time, when policymakers hoped the economy would be stronger and demand would be greater. As anyone who’s taken Econ 101 would know, artificially reducing the supply of carbon allowances in such a drastic way—something called “backloading”— should force the price back up.America may be a bit of a mess when it comes to climate policy—though that mess has been surprisingly effective in reducing carbon emissions in recent years—but environmentalists could always look across the Atlantic Ocean to Europe , where greens are green, cars are small and global warming actually matters. Countries like Germany and Spain have led the way in supporting renewable energy, and cities like Amsterdam and Copenhagen put America to shame when it comes to encouraging dense development and carbon-free cycling. But the green jewel was the Emissions Trading Scheme (ETS)—the European-wide carbon market, by far the largest such system in the world. The ETS, launched in 2005, allowed Europe to put a common price on a ton of carbon, which was meant to encourage utilities and factories to reduce carbon emissions in the most efficient way popular. A similar system carbon cap-and-trade system for the U.S. died in the Senate in 2010, and there’s little chance it will be revived any time soon. ( MORE: As the World Keeps Getting Warmer, California Begins to Cap Carbon ) But on April 16, the European Parliament surprised observers by voting down the backloading plan. In turn, the European carbon market collapsed, with the price of a carbon allowance falling by more than 40% over the day. “We have reached the stage where the EU ETS has ceased to be an effective environmental policy,” Anthony Hobley, the head of climate change practice at the London law firm Norton Rose, told the New York Times. The ETS is a mess. Backloading failed because even in very green Europe, economic concerns seemed to trump environmental ones. European Parliamentary members worried that any action that would cause the price of carbon to rise would add to European industry’s already high energy costs. Europe, unlike the U.S., doesn’t have relatively cheap, relatively clean natural gas to help cushion that blow. At the same time, European nations like Germany are rethinking some of their renewable energy policies, concerned by the rising cost of electricity. It looks like a textbook example of what Roger Pielke Jr. calls the “ iron law of climate policy “: when climate policy starts to hurt economically, even the greenest states start to back away. It’s possible that backloading may get a second chance before the European Parliament, and even without a viable carbon market, Europe is still the global leader in climate action. Nor is the ETS the only game in town. California launched its own cap-and-trade system this year—though that’s come under political pressure as well—and Australia has introduced a price on carbon. China may do so as well. But the hope that we may be able to reduce carbon emissions the same way we cut pollutants like sulfur dioxide and nitrous oxide—through a well-run cap-and-trade —seems to be dimming, a victim of its own complexity and a sluggish global economy. That might leave the door open for other policies, including a straight carbon tax, more support for renewables or increases R&D funding for carbon-free power. We could use all three, but carbon markets may be finished. If carbon trading can’t make it in Europe, it can’t make it anywhere. Read more: http://science.time…./#ixzz2QjSZABlC Continue reading
Thai Stocks Worth A Look, But Be Cautious
Tue Apr 16, 2013 3:24pm EDT (The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s ) By John Wasik (Reuters) – Most emerging market talk focuses on BRICS – Brazil , Russia , India, China and South Africa – or maybe even TIMPs – Turkey , Indonesia, Mexico and the Philippines. But one sizzling emerging market that has not been adopted into an investing acronym is Thailand . Thailand has been growing rapidly relative to sluggish Western economies. Like its Southeast Asian cousins Indonesia , Singapore and Vietnam, Thailand has a relatively young population and a growing middle class, and it is building infrastructure along with a commodities trade. Thailand has had its political problems, including a coup, in recent years, but now it is focused on an export economy, driven by demand from China and India. Global investors are attracted to the country’s cornucopia of natural resources such as alumina, cocoa, gas, oil and sugar. Some 60 percent of the Thai gross domestic product is export-driven, which also consists of autos, rice and electronics. Thailand’s GDP rose by almost 20 percent in the fourth quarter of 2012 over that same period the year before, bringing growth for the full year to 6.4 percent, according to the Bank of Thailand , which on Friday raised its projected estimate of this year’s growth to 5.1 percent from 4.9 percent. Domestically, the Thai government is applying a Keynesian stimulus to the economy through large infrastructure projects, paying above-market prices to farmers and raising the minimum wage, according to Patricia Oey, an analyst for Morningstar . The country is a major agricultural supplier and manufacturer for the world’s most populous region. It’s not well known to most individual investors that Thailand has had one of the best-performing stock markets in the world during the past decade. Two closed-end funds that invest in Thailand offer the opportunity to get in on that growth: Thai Fund Inc and Thai Capital Fund. But I don’t recommend them because of their high annual expenses of 1.46 percent and 2.1 percent, respectively. Only one exchange-traded fund concentrates exclusively on Thailand: the iShares MSCI Thailand Capped Investible Market ETF, which has returned an annualized 27 percent in the three years through April 15. That compares to 5 percent for an Asia-Pacific (ex- Japan ) index. The fund’s annual expense ratio is 0.60 percent of assets. Some of the fund’s gains have been extraordinary: 81 percent in 2009, 57 percent in 2010 and 40 percent last year. It lost 4 percent in 2011, a sour year in general for U.S. stocks as well. That compares to a roughly 5 percent annualized gain during the past five years for the SPDR S&P 500 fund – an ETF representing the largest U.S. companies – and almost an 8 percent annualized gain over the decade through April 15. As a mostly passive vehicle tracking an index of Thai companies, the iShares fund employs a method for capturing 99 percent of the total value of the Thai stock market. The 90 stocks within the index include banks such as Siam Commercial Bank PCL, technology companies like Advanced Info Service PCL and energy companies such as PTT Exploration and Production PCL. While the fund is probably the most diversified and least expensive way to invest in Thailand, it has drawbacks. For one thing, investors have been pouring money into it. It has gone from $600 million in assets in November to more than $1 billion, says Todd Rosenbluth, director of ETF fund research for S&P Capital IQ in New York. That means you run the risk of picking a market that’s already too hot. The fund is also top-heavy in financial services stocks, representing some 40 percent of the portfolio. Overconcentration in any one sector always elevates portfolio risk. Indeed, the fund is so volatile that it has double the risk of the Standard & Poor’s 500-stock index – not unusual for a developing market but a consideration when you are making your investment choices. For instance, the fund may decline if China’s growth eases because all commodities producers will see lower demand for their output. Any reverberations will also sting. Remember the “Asian contagion” some 20 years ago? That sank Asian currencies – including the Thai baht – and stocks in short order, burning myriad investors. Beyond just volatility, there’s diversification to consider. It’s best to invest in a country like Thailand as part of a larger investment in all emerging markets, since any market can quickly turn south in today’s hyper-connected world. (Follow us @ReutersMoney or here Editing by Beth Pinsker, Lauren Young and Douglas Royalty) Continue reading
