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North Korea seeks help opening up?

There was an interesting story in the German press a week ago claiming that the North Korean authorities had asked some German specialists to help develop a framework for attracting foreign investors. From Der Spiegel’s English site:

According to an article to be published on Saturday by the daily Frankfurter Allgemeine Zeitung, the communist regime in Pyongyang is preparing to open up the country’s economy to foreign investors. Moreover, it has enlisted the assistance of German economists and lawyers to lay the groundwork for the move.

“There is a master plan,” one of the economists involved in the plan told the paper. “They want to open up this year.” The FAZ did not identify the economist, but noted that he works at a respected German university and that he had advised other governments in Asia in the past.

Whether comes to anything is another matter, although news there suggests some tentative steps towards change. In terms of what might happen, this is worth noting:

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CSRC tries to clear IPO pipeline

China’s securities regulator has decided to toughen its review of companies aiming to list on the A share market, according to several recent stories including a couple of  reports in Caixin.

All of the 882 companies waiting for China Securities Regulatory Commission (CSRC) approval to go public have been required to submit their financials for 2012 by the end of March. The regulator said it would check the results at randomly chosen firms to prevent fraud.

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RDR update: Alliance Trust Savings and ICICI Bank UK

The temporary but large reduction in funds available for investment on the Alliance Trust Savings platform – give quite high profile coverage in the Daily Telegraph – is another example of why picking a new fund supermarket requires caution while the effects of the Retail Distribution Review are still working their way through.

I am not inclined to castigate ATS too much over this – it is reacting to RDR and the platform review far more pre-emptively than most of its peers and it’s to be commended for moving to clean pricing as quickly as possible. Perhaps the change could have been better communicated, but ATS seems to have a fairly comprehensive RDR changes page to update users on progress.

The new terms on fund charges [PDF] generally look significantly better. Obviously, you need to allow for ATS’s charges on top of the clean fees, but seeing some firms already bringing their fees down on a transparent basis should hopefully drive competition across all platforms.

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Wegelin ends with a whimper

The Wegelin saga has reached its conclusion with a somewhat unexpected guilty plea:

Switzerland’s oldest bank is to close permanently after pleading guilty in a New York court to helping Americans evade their taxes.

Wegelin, which was established in 1741, has also agreed to pay $57.8m (£36m; 44m euros) in fines to US authorities.

It said that once this was completed, it “will cease to operate as a bank”.

The bank had admitted to allowing more than 100 American citizens to hide $1.2bn from the Internal Revenue Service for almost 10 years.

The Swiss banking industry seems decidedly rattled by the plea and by what the Wegelin partners have said, as demonstrated by this commentary:

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What Glaxo’s India offer says about EM affiliates

Any investor familiar with emerging markets will be aware that often find partly-owned subsidiaries and affiliates of major multinationals with their own listing on the local stock exchanges. For example, Unilever has listed divisions in India, Indonesia and Pakistan, while Wal-Mart owns Wal-Mex (Mexico) and Massmart (South Africa)

The reasons why these subsidiaries are publicly traded varies, although it sometimes reflects local rules that at some point prohibited foreign companies from being the sole owner of a local company. Where these rules have changed, the local listings can often look like an anachronism today, especially given that many of them are lightly traded.

So one might expect the shareholders in the stocks to jump at the parent multinational’s offer to buy them out at a premium. Which makes it interesting to see what’s going on with GlaxoSmithKline’s bid to increase its stake in its Indian affiliate, GlaxoSmithKline Consumer Healthcare.

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Brief Asean Trading Link update

An article in AsianInvestor on the Asean Trading Link provides a few snippets on how the service is going so far – the story will probably disappear behind the paywall soon, so the main points are:

Bourses in Malaysia, Singapore and Thailand are gauging investor interest in trading ETFs, structured products and Islamic bonds via the recently established Asean Trading Link.

This makes sense – the exchanges need to ensure the link evolves and with the other three countries (Indonesia, Philippines and Vietnam) unlike to join soon, they need to find ways to grow it through their own efforts.

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New EM Exposed index from Stoxx

Index provider Stoxx announced an interesting new benchmark – the Stoxx Global 1800 EM Exposed Index. In brief, this is a sub-index of its Stoxx 1800 Global Index (which holds 1,800 developed world stocks) focusing on companies that get a substantial portion (at least 33%) of their revenues from emerging markets.

The press release [PDF] has a bit more detail, as does the index data page on the Stoxx site (although there isn’t much data up yet). Conceptually, this is pretty similar to the Russell Geographic Exposure Index series launched in September.

In both cases, the idea is that you can get exposure to EM growth through developed world stocks that offer better liquidity, corporate governance and other desirable factors. It’s a fairly popular theme and with two related indices launched in the last few months there’s a good chance that we will see an exchange-traded fund based on it sooner or later.

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China and corruption in context

An interesting working paper called “Is Corruption in China ‘Out of Control’? A Comparison with the US in Historical Perspective” came out at the beginning of December. It’s worth reading the whole thing, but the succinct abstract does a good job of summarising it for those in a hurry.

This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries. The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.

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Iraq gets ready for biggest IPO

For those of us who like to monitor frontier markets, a Reuters piece on the forthcoming IPO of Iraqi telecom group Asiacell is worth reading for a bit of background on the state of the market there.

Obviously, Iraq is a fairly tricky investment for foreign individuals, although DUTrade mentioned a while ago that it is interested in adding to its multimarket Middle East and North Africa platform at some point. There are of course English-speaking local brokers – Rabee Securities seems to be the one most commonly featured in articles in the world media, although I have no idea whether they accept foreign individual clients.

Whether the country is a sensible investment is another matter – resource-heavy frontier markets tend to be very prone to boom and bust and Iraq obviously has specific problems of its own. But there are a handful of specialised funds investing there – the Babylon Fund is probably the best known. (As usual in these kinds of vehicles, minimum investments sizes tend to be high – for understandable reasons, they’re not really geared to the retail investor taking a small punt on something exotic.)

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New quality indices from MSCI

“Quality” is clearly a popular theme among nervous equity investors at the moment, so it’s not surprising to see that MSCI has just launched a series of quality indices. The press release [PDF] and methodology [PDF] give more details, but essentially the components are screened on three factors: High return on equity, stable earnings and low financial leverage.

This is what most investors would consider to be a simple standard definition of quality, as opposed to the two obvious comparison indices: Société Générale’s new-ish Global Quality Income Index (which is a somewhat more complicated combination of the Piotroski score and the Merton distance-to-default model) and the older Standard and Poor’s S&P 500 High Quality Rankings Index, which is based on stability and growth of earnings and dividends (and in my view doesn’t seems to provide a very satisfactory quality filter).

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