South Korea’s chip production bounces back

South Korea’s semiconductor industry recorded its largest gains in years last month as both production and shipments rose sharply, indicating a revival of technology momentum that offers an early positive sign for the nation’s economic outlook in 2024 and for the global tech sector.

Chip production jumped 42% in November from the same month a year ago, the biggest rise since early 2017, while an 80% jump in shipments marked the biggest gain since late 2002, according to data released from the national statistical office. Inventories rose by 36% in the smallest rise since February.

The data indicates that South Korea’s most important industry has revived from a slump that weighed on the economy for more than a year and add to optimistic signals for chipmakers such as Samsung Electronics and SK Hynix, two of the country’s biggest companies. The figures also suggest that a nascent recovery may also be taking hold in the global tech sector’s demand.

South Korea’s trade-reliant economy has not had the strongest of years in 2023 due to suppressed demand for semiconductors and is forecast by the central bank to have expanded 1.4% this year and less than 2.6% last year, reflecting higher interest rates, an economic slowdown in China and geopolitical risks.

Last month’s chip data suggest the nation’s tech manufacturers may help support growth. The strength of semiconductor makers drove a better-than-expected 5.3% expansion in the nation’s industrial output in November from a year ago. Demand for high-performance semiconductors has in particular helped the chip and machinery industries, according to the Finance Ministry.

The Bank of Korea expects the economy to grow by  2.2% in 2024 on the back of exports gaining further strength after they returned to growth in October this year. Memory-chip prices are starting to bounce back while emerging technologies such as artificial intelligence add to demand.

“We expect industrial production to pick up as global appetites for South Korean goods grows and as the local headwinds of high inflation and interest rates ease,” Shannon Nicoll, associate economist at Moody’s Analytics, said in a note.

Risks for the South Korean economy include a slowdown in global economic in 2024 with China continuing efforts to shore up its economy. US consumers may also start to feel a pinch from prolonged tightness in interest rates while global commerce continues to face the threat of protectionism.

 

S&P warns of US bank profitability remaining under pressure in 2024

US banks, whose net interest margins (NIM) have been compressed due to higher funding costs are unlikely to see relief before the end of 2024 even if the Federal Reserve cuts rates over the next 12 months, says research and data analytics firm S&P Global Market Intelligence.

It notes that the Fed’s series of interest rate hikes over the past two years have spurred customers into chasing high-yielding alternatives to bank deposits, such as money market funds (MMFs).

To stem the migration, banks have offered higher rates of interest on deposits, which has increased costs for an industry already grappling with a slowdown in loan demand as borrowing has become costlier.

Analysts expect NIM compression for 16 of the 20 largest US banks in 2024, with a median decline of 14 basis points for the group, according to S&P Global Market Intelligence data.

NIM is a key measure of banking profitability which shows how much a bank is earning in interest on loans against the amount it pays depositors.

 

China promotes veteran regulator to PBOC deputy governor

China’s State Council has appointed veteran financial regulator Lu Lei as deputy governor of the People's Bank of China (PBOC), the third new senior official at the central bank since July and the second this month.

Lu replaces Liu Guoqiang, who has been a deputy governor of PBOC since 2018, according to a statement from Ministry of Human Resources and Social Security. Liu reached 60 last June, reaching the general retirement age for Chinese officials at the vice-ministerial level.

To take on the new role, Lu is stepping down as deputy administrator of the State Administration of Foreign Exchange (SAFE), a post he has held since 2017, according to the human resources ministry. Lu served previously as director of the PBOC’s financial stability bureau and research bureau.

He overlapped with respected former PBOC governor Zhou Xiaochuan in the 1990s when he first joined the central bank as a researcher. There followed an almost three-year stint at China Merchants Bank and eight years at the Guangdong University of Finance in the wealthy southern province.

Lu returned to the PBOC in 2014, when Zhou was its governor, first as the head of its research bureau and then the director of its financial stability bureau. He became a deputy administrator of the State Administration of Foreign Exchange in 2017.

He holds a PhD in economics from the Graduate School of the People’s Bank of China, and studied and conducted research in Australia from 1999 to 2000.

Earlier this month, veteran banker Zhu Hexin was named as head of SAFE as well as a deputy governor of the PBOC. Zhu was seen as a contender to be governor of the PBOC before Pan Gongsheng — who was head of SAFE from 2016 — filled the position in July after Yi Gang reached retirement age.

Lu’s appointment was one of several new official positions announced in the same statement on Tuesday. Fu Wanjun was appointed as deputy head of National Administration of Financial Regulation and Liu Sushe was named a vice chairman of the National Development and Reform Commission, according to the statement.

 

Hong Kong regulators want mandatory licences for stablecoin

Hong Kong’s main financial regulators have published proposals for supervising stablecoin issuers through a licencing regime and a regulatory sandbox to communicate  “supervisory expectations and guidance on compliance” to prospective issuers.

The jurisdiction’s central bank, the Hong Kong Monetary Authority (HKMA), and the Financial Services and the Treasury Bureau (FSTB) are requesting feedback by 29 February 2024. Fiat-referenced stablecoins are a type of cryptocurrency designed to maintain its value on par with sovereign currencies such as the US or Hong Kong dollar.

Hong Kong wants to position itself as a dominant regional crypto hub in Asia. It implemented a licencing June that recognises retail crypto trading as a regulated activity. The jurisdiction has for some time been planning regulations for fiat-backed stablecoins.

The regime will be introduced through legislation requiring issuers who meet certain conditions to obtain a license from the HKMA. Firms wishing to issue a fiat-referenced stablecoin in Hong Kong, to issue a Hong Kong dollar-referenced stablecoin or to market stablecoins to the Hong Kong public will require a licence to operate.

“We are supportive of financial innovation and believe that it is essential to put in place the necessary regulatory guardrails and standards to enable the long-term, sustainable and responsible development of the virtual asset ecosystem,” commented HKMA CEO Eddie Yue.

 

Egypt’s banks have six months to apply new AML regulations

The Central Bank of Egypt (CBE) has announced that banks operating in the local market have six months to apply new anti-money laundering (AML) and terrorism financing regulations.

In a newly-released  circular, the central bank stressed that the new guidelines represent the bare minimum that banks are required to follow and that they should implement further measures according to their own risk assessments.

Replacing the 2008 regulations, the latest amendments to the CBE’s guidelines empower the bank to better monitor cash flows and transfer activity.

The CBE highlighted that the updated regulations are part of its commitment to keeping up with international standards in fighting money laundering and terrorism financing.

The new regulations cover assessments on large or frequent cash deposits or withdrawals that are inconsistent with the client’s profile, large or frequent foreign currency transactions without valid reasoning, and deposits by outside parties without justified reasoning.

It also noted new regulations on transfers to or from near border crossings or in high-risk countries, frequent transactions in which assets are withdrawn immediately after being deposited, and transfer activity with e-payment companies or those known for dealing with cryptocurrencies.

The CBE explained that the new regulations apply to all banks operating in Egypt and their branches abroad and includes the local branches of foreign banks operating in the country.

 

Investor interest in China “shockingly low”, says BoA

Global investors remain bearish on the Chinese market due largely to concerns about the stability of its property market, according to a Bank of America survey.

A majority of investors (62%) prefer to take a wait-and-see approach or seek opportunities elsewhere, according to BoA’s survey of global and regional fund managers.

In the longer term, 74% of respondents expect a structural derating of Chinese equities, with only 19% expecting stronger growth over the next 12 months. 

Investor interest towards risk assets in China is “shockingly low,”according to the report authored by BoA strategists including Ritesh Samadhiya, citing a belief that Chinese households will stay put in “preservation mode” as a driver.

According to nearly one-in three global investors, China’s property sector is the most likely source of a systemic credit event, surpassing US commercial real estate. A banking crisis in China was also named as another event, though with low likelihood. 

The survey was based on responses from 254 managers overseeing US$691 billion in assets under management (AUM), including 140 in Asia with US$310 billion in AUM.

 

Fitch declares Ethiopia in “restricted default” after payment missed

Fitch announced that it has downgraded Ethiopia’s credit rating to “restricted default” after the East African country missed a $33 million coupon payment. The credit agency said that it also cut the rating of Ethiopia’s US$1 billion Eurobond to “default” for the same reason.

But Fitch said the country’s local-currency debt rating was unchanged at CCC- because the government “has continued to service” the debt.

The Ethiopian government is currently in talks with creditors to restructure debt held in Eurobonds. The country has already reached an agreement with other creditors, including China, to secure US$1.5 billion in debt relief.

After missing the payment on 11 December, the Ethiopian Finance Ministry declared its intention to ensure “consistency and fairness” towards creditors. “Ethiopia's decision to withhold the December coupon payment on its Eurobond,, despite the affordable amount at stake, stemmed from the intention to treat all external creditors equitably,” the ministry announced on 15 December.

“A failure to do so could indeed jeapordise ongoing discussions with other external lenders on the same matter.”

The government is holding talks on an aid package with the International Monetary Fund (IMF) but must reach an agreement on debt restructuring with a majority of creditors. The finances of Africa’s second most populous country have been hit by the two-year conflict in the northern region of Tigray that ended with a peace deal in November 2022.

Ethiopia has said it needs around US$20 billion to rebuild northern Ethiopia after the war that claimed the lives of around half a million people, according to US estimates. The landlocked country has about US$28 billion of external debt and must also contend with rampant high inflation and a shortage of foreign currency reserves.

On coming to power in 2018, Prime Minister Abiy Ahmed announced an ambitious reform package to open up the country’s tightly controlled economy. But in recent years the economy has deteriorated sharply and the drive to continue the reforms has largely stalled.

 

StoneX to adopt Swift payment pre-validation service

Global financial services network StoneX announced that that it will adopt Swift’s payment pre-validation service, aiming to streamline and secure cross-border payments for its clients.

“Cross-border payments have notoriously been plagued by complexities, including regulatory hurdles, bank downtime, and rising competition,” the company stated in a release. “In addition, inaccurate beneficiary details alone account for nearly a third of failed cross-border transactions, incurring significant costs and delays, according to the financial services company.

In response, Swift said it has introduced its payment pre-validation service, which allows pre-emptive verification of beneficiary account details before initiating international payments. The service aims to “reduce errors, expedite transaction speed, and improve straight-through-processing.”

“Payment pre-validation utilises pseudonymised and aggregated data from billions of historic transactions on the Swift network to provide enhanced security and speed in cross-border payments,” said Mireia Guisado Parra, Product Owner of the Payment Pre-validation service at Swift. “We are pleased that StoneX are extending these benefits to more financial institutions, thereby reducing friction in the payments ecosystem.”

 

Savings platform Hakbah taps Tarabut’s open banking technology

Hakbah, Saudi Arabia’s-major decentralised savings platform, has partnered with Tarabut, an open banking platform, and an investor in the region’s digital transformation.

“The partnership has several benefits for Hakbah as it simplifies and expedites various tasks,” a release stated. “It will enable streamlined onboarding and enhanced data processing for customers, reduce the cost of Hakbah’s service, cut data processing time by 40%, and expand the customer offering by 20%.”

Naif AbuSaida, the founder of Hakbah, said: “This partnership is a combination of industry leaders. We are delighted to collaborate with a stellar platform such as Tarabut, as we further digitise traditional savings habits. Hakbah prides itself on the robust AI-powered technology base underpinning its savings engine and will always look to align with world-class partners to give the company a further competitive edge. Tarabut has significant appeal technologically and commercially, which aligns perfectly with Hakbah and its ambitions for future growth.”

The release added that the improvements will be facilitated by Tarabut’s open banking connectivity platform and other products. Tarabut’s mechanisms will also empower Hakbah to deliver innovative and tailored solutions, addressing current and future customer needs.

“Hakbah’s social savings platform – which strengthens financial inclusion and fully integrates with any banking system in less than a week – includes the digitisation of traditional group savings (Jameya) with the purpose to spend on financial needs,” the release stated. “Hakbah’s model tackles the Middle East savings crisis. Savings are a key strategic objective in ‘Saudi Vision 2030’ and critical to the country’s Financial Sector Development Program.”

 

GCP closes CNY3 billion China income fund

Multinational alternative asset manager GLP Capital Partners (GCP) has closed its China Income Fund XI with yuan (CNY) 3 billion (US$419.7 million) of assets under management (AUM) in partnership with a leading domestic insurance institution, reports The Asset.

The fund is seeded with four modern logistics parks from GLP’s balance sheet, with total leasable area of 540,000 square metres, located in core logistics hubs of Shanghai, Jinan and Harbin. The parks serve customers in automobile manufacturing, pharmaceutical, e-commerce and third-party logistics industries.

“We are pleased to have meaningfully expanded our renminbi (RMB) onshore funds platform in 2023, raising over CNY16 billion of domestic capital for our real asset and private equity strategies in China,” says Teresa Zhuge, president of China at GCP. “We continue to see outsized demand from domestic institutions and insurance companies for our proprietary pipeline of high-quality logistics and industrial assets and look forward to deepening our partnerships with them to support their long-term real estate investment goals.” 

Year-to-date, GCP has established five new unlisted income strategies in China with over 2.6 million sqm of matured GLP balance sheet assets across 18 cities injected into these GCP-managed funds. Additionally, GLP C-real estate investment trust (REIT) achieved another milestone last June with a successful secondary offering worth CNY1.85 billion to acquire three new logistics facilities. The offering was supported by 16 leading domestic institutions, making it one of the first non-state-sponsored C-Reits to participate in the growth of China’s publicly traded Reit programme.