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Taiwan Jobless; Japan Confidence

ECONOMICS: The Conference Board releases its China Leading Economic Indexfor November at 10 a.m. The U.S. economy probably expanded at a 1.9 percent annualized rate in the final estimate of third-quarter gross domestic product, according to the median estimate of economists, 9:30 p.m. Sri Lanka‘s central bank will make an announcement regarding its policy rates decision at some point from today until Dec. 31

WHAT TO WATCH: Taiwan‘s unemployment rate is forecast to have increased slightly to 3.8 percent in November from 3.79 percent previously, 8:30 a.m. Japanreports on small business confidence in December, with economists expecting a reading of 49 compared with 49.9 previously, 1 p.m.

GOVERNMENT: Indian Prime Minister Narendra Modi visits Moscow for a summit with Russian President Vladimir Putin.

COMPANIES: Lotte Group says its Hotel Lotte Co. unit will apply for a public listing in South Korea in what could be the country’s largest public offering in recent years.

MARKETS: Brent crude futures were 1.8 percent lower, falling as low as $36.04 on Monday, the lowest since July 2004. Government bonds in Spain tumbled, with 10-year yields increasing as much as 19 basis points to 1.88 percent.

2-Year JGB Yield Falls to Record After BOJ Policy Tweak

The yield on 20-year Japanese government bonds fell below 1 percent for the first time since January yesterday after Bank of Japan Governor Haruhiko Kuroda’s latest tweak to monetary policy. The decline came after two-year yields dropped to a record of minus 0.055 percent on Friday following the BOJ board’s decision to lengthen the average maturities of JGBs it buys to as long as 12 years from the current limit of 10. Rates dropped even as the BOJ kept its main monetary stimulus target unchanged, a move Nomura Research Institute Ltd.’s Tetsuya Inoue says keeps the door open for further easing next year. The decline in sovereign note yields will help reduce long-term borrowing costs for Japanese companies as the central bank struggles to fuel inflation and growth.
JAPAN
Kuroda’s $2.5 Billion Plan to Buy ETFs That Don’t Exist

Bank of Japan Governor Haruhiko Kuroda has a new plan. He’s going to buy $2.5 billion of something that doesn’t exist.

Markets were roiled Friday after the BOJ unveiled measures including purchasing exchange-traded funds that track companies which are “proactively making investment in physical and human capital.” The central bank will spend 300 billion yen ($2.5 billion) a year from April buying such securities to offset the market impact as it resumes selling stocks purchased earlier from financial institutions.

The only problem is such ETFs have never been made in Japan, at least not yet. Even as fund providers start hundreds of so-called “smart beta” products that choose stocks based on everything from dividends to volatility, ETFs that pick companies for how they deploy their cash are rare in global markets.

“These kinds of ETFs don’t exist now. Using capital spending as a factor in deciding what goes in an ETF is quite unusual,” said Koei Imai, who oversees $25 billion of ETFs at Nikko Asset Management Co. in Tokyo. “I think the message from the BOJ is for us to go out and make them.”

The central bank is aware such products aren’t yet available and in the meantime will buy ETFs tracking the JPX-Nikkei Index 400, a government-backed equity measure started last year that chooses companies based on return on equity and operating profit. The BOJ also already purchases ETFs linked to the Nikkei 225 Stock Average and Topix index and owns roughly half of the market for ETFs in Japan.

The Nikkei 225 whipsawed on Friday as investors digested the central bank announcement, ending down 1.9 percent after jumping as much as 2.7 percent. The index extended its declines on Monday and closed 0.4 percent down.

For Okasan Online Securities Co., the program runs the risk of meddling in the equity market when such ETFs are eventually created, by favoring certain shares over others.

“It’s the same as if the Bank of Japan were buying individual stocks, rather than pushing up the overall market,” said Yoshihiro Ito, chief strategist at the brokerage. “This part also left a bad taste in the market.”

Central Bank’s ETF Holdings Through September

CHINA- S. KOREA

China’s Record M&A Boom in Korea Furthers Xi’s New Economy Dream

Companies in China are buying their South Korean counterparts at a record pace, tapping into one of the world’s most innovative countries to accelerate President Xi Jinping’s push for an economy led by technology and consumer services.

Chinese investments in Korean companies soared 119 percent this year to $1.9 billion, led by deals in the insurance, technology, health-care and cosmetics industries, according to data compiled by Bloomberg. The acquisition spree is likely to accelerate as China seeks to hasten a transformation away from smokestack industries that South Korea began more than 20 years ago, according to Samsung Asset Management Co. and Hyundai Securities Co.

South Korea’s spending on research, patents and post-secondary education made the country No. 1 on the Bloomberg Innovation Index in 2015, versus China’s global ranking of 22. Listed Chinese companies, whose cash reserves rose 12 percent from a year ago to 15.2 trillion yuan ($2.3 trillion), are taking advantage of Korean know-how to serve a domestic consumer market that now accounts for more than half of the country’s economic expansion.

“The proximity and the high level of technology available in Korean companies make them more attractive to China,” said Bernard Aw, a strategist at IG Asia Pte. in Singapore. “Chinese companies are snapping up acquisitions because they are sitting on a good cash hoard.”

Anbang Insurance Group Co. agreed to buy Tongyang Life Insurance Co. for 1.13 trillion won ($934 million) in February in this year’s biggest deal, while Champ Investments Ltd. acquired a stake in Jeju Semiconductor Corp. for $35 million. Jumei International Holding Ltd. made a $125 million cash investment in cosmetics maker It’s Skin Co. and biological researcher Dream Cis Co. lured a $23 million injection.

Research-driven Korean companies are spearheading a “creative economy” envisioned by President Park Guen Hye,

Chinese Investment in Korean Companies Rises to Record

helping revive growth in Asia’s fourth-largest economy. Medical and consumer companies based in the country dominate the top 10 performers on the MSCI Asia Pacific Index this year, with Hanmi Science Co. surging eightfold after clinching deals to sell lung cancer and diabetes treatments overseas. Celltrion Inc. more than doubled after developing an arthritis medicine.

Acquiring new technologies could help Chinese companies meet demand for a growing domestic market. Consumption accounted for more than 58 percent of the nation’s expansion in the first nine months of the year, versus 43 percent for investment. Retail spending climbed 11.2 percent in November, its fastest pace this year.

“Entertainment, media platforms or games companies are among sectors they are targeting,” said Lee Seung Jun, managing director for active investment at Samsung Asset Management in Seoul, the nation’s largest fund manager. Chinese companies “need cutting-edge technology and high-end design for quality of growth.”

Chinese investment in Korean companies remains comparatively small. China’s acquisitions involving companies worldwide jumped 83 percent in 2015 to $516 billion as buyers snapped up

premier assets ranging from the world’s biggest luggage handler to Italian tire brand Pirelli & C. SpA. The Asia-Pacific region represented 87 percent of the total, followed by Europe at 5.9 percent.

Investors betting that Chinese investment will lead to sustained share-price gains may be disappointed, said Im Sangkook, Seoul-based head of portfolio strategy team at Hyundai Securities.

Redrover Co. has fallen about 4 percent since Suning Universal Co. agreed to invest $10 million in the company on June 15. Chorokbaem Media Co. has given up most of an 89 percent rally sparked by DMG Entertainment and Media Co.’s investment of $21 million on Sept. 29.

“People tend to blindly pursue these names without considering the synergy effect or actual fundamental improvement,” Im said.

Still, Chinese deals in Korea are likely to increase as the country’s increasingly affluent middle class spend more on health care, entertainment and technology, according to Li Xiaoyang, a professor at Cheung Kong Graduate School of Business in Beijing.

“The booming middle class in China tends to care about brands and quality,” Li said. “Korean firms tend to emphasize quality and efficiency, which are lacking among Chinese firms.”

E-Commerce

Alibaba heads into 2016 struggling with knock-off reputation

Billionaire Chairman Jack Ma is struggling to shake off the reputation ofAlibaba Group Holding Ltd.’s Taobaoas a haven for cheap knock-offs and unauthorized merchandise, 21 months after calling counterfeits cancerous. He heads into 2016 after a bruising year that saw more than $50 billion wiped off its market value amid lawsuits and criticism from Chinese and U.S. regulators. Cleaning up its image next year is crucial to Alibaba’s goal of winning the trust of merchants and shoppers overseas, from where Ma wants to get more than half the company’s revenue within a decade. A cooling Chinese economy makes that effort even more pressing. At home,
JD.com Inc. is winning customers partly because it holds the inventory itself and sells directly to consumers, similar toAmazon, a business model easier to police and regulate than the eBay-like Taobao, said Michelle Ma, an analyst with Bloomberg Intelligence. (Dec. 21)

Solar goes on a building boom despite memories of past bust

The solar industry is on a building binge. Top manufacturers are adding almost 7 gigawatts of factory capacity, comparable to the energy produced by

seven nuclear reactors, as they anticipateglobal demand will continue to rise. Asbullish as the outlook is, the plans arealso raising concerns: The last time theindustry poured billions into new factoriesand equipment, the result was a massiveoversupply that triggered two years oflosses and dozens of bankruptcies. Arturo Herrero, chief marketing officer atJinkoSolar Holding Co., told investors on a conference call last month. For 2016, “we don’t have enough production to cover all our customers.” Jinko predicts global demand will grow by 20 percent next year, to 65 gigawatts. (Dec. 18)

Exchanges

CME eyes China, India in hunt for higher-margin derivatives

CME Group Inc., the world’s largest futures market, is targeting China and India as it scours the globe for higher-margin products to sustain recent profit growth. The firm, which toppled HongKong Exchanges & Clearing Ltd. as the biggest exchange operator earlier this year, will offer futures on Asian equity indexes and commodities as both China and India open their markets to foreigners. “China happens to present more opportunities at this time; India is a focus area also important to us,” CME Chief Executive Officer Phupinder Gill said in an interview in Shenzhen, China this month. “Our growth rates around the world are highest in Asia.” (Dec. 15)

Real Estate

Vanke to detail revamp plan as investor showdown looms

China Vanke plans to disclose details of a restructuring plan by January as the nation’s largest homebuilder looks set for a showdown with its biggest shareholder, a group backed by Baoneng Group. Vanke, whose shares were suspended on Friday, said trading will restart by Jan. 18, should the board fail to convene and seek a delay in their resumption by that date, or if the Shenzhen stock exchange doesn’t approve an extension of the trading halt. Baoneng Group replacedChina Resources as Vanke’s largest shareholder this month, prompting the rare public spat. The suspension of trading, pending a share sale, has sparked speculation it’s seeking to dilute Baoneng Group’s ownership. (Dec. 20)

Prada hits record low after missing forecasts on poor sales

Prada SpA plunged to a record low in Hong Kong trading after the company reported third-quarter profit that missed analyst estimates. Prada is struggling to deal with the weakest market for luxury goods in six years. The company said it will increase prices in Europe to compensate for slumping sales in Asia and the U.S. Price increases in Europe are designed to narrow a gap with China, where luxury goods are more expensive, partly because of import duties. “We want to flatten the spread as much as possible,” Co-CEO Patrizio Bertelli said. The gap between Europe and China will narrow to 10 percent to 15 percent from 35 percent, he said. (Dec. 16)

Americas

The Federal Reserve is seeking public comment on the standards it would use in requiring the biggest banks to set aside additional capital as a buffer in periods when market risks raise the threat of future losses.The countercyclical capital buffer is meant to ensure that internationally active financial institutions have enough capital to absorb shocks without threatening the broader economic system. It will apply to banks with more than $250 billion in assets and those with more than $10 billion in foreign exposure.

Chile’s central bank slashed its growth forecast for next year as the world’s biggest copper exporter struggles with falling commodity prices. GDP will grow between 2 percent and 3 percent next year, less than the previous estimate of 2.5 percent to 3.5 percent, the bank said in its quarterly monetary policy report. The inflation forecast for 2016 was raised to 3.8 percent from 3.7 percent.

Europe

Spain’s Socialists said they’ll vote against Prime Minister Mariano Rajoy if he seeks parliamentary approval for a second term, signaling drawn out negotiations over the shape of the next government. With anti-austerity party Podemos making clear they’ll vote against Rajoy’s People’s Party, the Socialists’ opposition means it’s almost impossible for the prime minister to renew his mandate at the first attempt.

The European Union renewed economic sanctions on Russia for another six months as questions remained over the implementation ofUkraine’s peace plan. The penalties, which EU leaders agreed should remain in place as long as Russia fails to honor in full the cease-fire deal agreed in Minsk in February, will now expire on July 31 unless they are renewed again.

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