Author: Reuters Staff

Turkey’s ceasefire last month with the Kurdish militant group PKK could boost its trade partnerships multilaterally, as increasing prospects for stability in the region bring economic opportunities in the Middle East and Africa.

The halt in the decades-long armed campaign came on March 21 after the leader of the Kurdistan Workers’ Party, Abdullah Ocalan, sent a letter with the announcement from the island prison cell where he has been held since 1999 when he was arrested for treason.

Although the main pro-Kurdish party has recently poured doubt on the veracity of Ocalan’s statement, the prospect of greater stability in the troubled border region with Iraq could pave the way for greater trade security and pay dividends for investors.

Now that the Turkish economy is pacing along, perhaps not with so much gusto as  a few years ago, but with a young and increasingly tech-savvy population and inflation levels at relatively low levels, peace progressions with the PKK could also help the country’s prospects.

Part of Turkey’s trade is made bilaterally to the West, but increasingly it is made multilaterally with Africa, the Middle East and in particular Iraq, the second largest destination for Turkish exports in 2011, according to EU data.

HSBC analysts said in a note to clients:

We think the strength of the Turkish domestic demand story, plus the strides that the country has made in diversifying exports away from Western Europe towards the Middle East and Africa, both dilute the impact that new Cypriot-related euro zone stress will have on the country. If the Kurdish peace plan came to fruition, it would further embellish the story.

Fitch upgraded the country’s debt on 5 November 2012, citing declining government debt and a sound banking system, while a similar upgrade from Moody’s or Standard & Poor’s could provide the catalyst for more investment flows further into 2013.

Turkey has a large population of netizens (with more than 35 million Facebook users), and with around 50 percent of the population under 29, there is increasing interest the country’s prospects, according to Gokturk Isikpinar, Chief Investment Officer at AK Asset Management based in Istanbul. Turkish sovereign, corporate debt and investment in small and medium sized Enterprises (SME’s) are set to benefit as a result, he says. According to a Reuters poll, Turkey’s economy is set to grow 4 percent this year in line with the country’s government forecasts. Isikpinar says:

No one really knows where to put Turkey but everyone has a flavour of Turkey.

Isikpinar thinks a further credit rating upgrade, which could surface in Q3 this year, will be the catalyst to provide a surge of investment flows. Speaking at an investor meeting with frontier fund manager Silk Invest a few days ago, Isikpinar suggested one of the best ways to play the market is through SMEs.

Note a couple of caveats – there are some concerns the country could face ‘overheating’ and the budget deficit is still considerable at around 7 percent on an annual basis, compared with the government’s target of 2.2 percent of national output in 2013. Fitch cautioned in March the country would need a “durable” reduction in its structural deficit, lower inflation and more foreign direct investment (FDI) to warrant another upgrade.

Future IPOs such as Pegasus Airlines, set for mid-April, may also paint a promising investment picture. But the time to catch the investment wave could come before the upgrade and before more IPOs, certainly before any announcement on Istanbul’s bid to host the Olympic Games in 2020.

By Philip Baillie

Sberbank’s hypothetical Russian middle-class family metric – the ‘Ivanovs’- shows the average Russian family is concerned about high inflation, though that is still barely denting some peoples’ aspirations of getting behind the steering wheel of a new car.

April’s Ivanov index, a survey of more than 2,300 adults across 164 cities in Russia with a population of more than 100,000, notes people are still concerned about persistently high inflation, which in Russia is at around 7 percent.

Household budgets are most concerned by this factor (70 percent), up 1 percent from two months ago, as the average family spends around 40 percent on food. To put that in context, consumers in western Europe spend on average between 15 and 20 percent of income on food, according to the research. But more than 40 percent of respondents still plan to spend on one big-ticket item – to replace their car within the next two years. That is slightly down from 42 percent in the previous survey in February. Car markers have invested heavily in Russia, with sales growing more than 10 percent in 2012 according to AEB, the Association of European Business, as a relatively low level of car ownership and large numbers of older vehicles need replacing.

The Ivanovs’ worries are not surprising, given 10 percent of corporates are hiring new employees versus 47 percent seeing a headcount reduction.

A dent in consumer confidence has had a knock-on effect on the X5 retail group, according to the research. Shares in London-listed X5 retail group have shed 63.74 percent from a peak peak in Jan. 2011, but are still well above the post-crisis trough hit in 2008. The effect, the analysis concludes, is seen more in average spend, rather than because of reduced footfall. That is mainly because of a more limited assortment range, quality and freshness of the products.

The survey was carried out on behalf of Sberbank by market research firm Cint.

Investors are reaching for a glass of Burgundy as fine wines have enjoyed a more robust start to 2013 after the weaker performances seen in 2011 and 2012.

Wine investors will rejoice that the Liv-ex 100 index, the industry’s main benchmark, has posted four consecutive monthly gains and is now 8.7 percent up from its last November low. Cellar Watch, the market data provider, says that the wider fine wine market has begun to recover over the last four months, with  the Liv-ex 100 having risen 7.3% year to date.  That’s not too far behind the 10 percent gain on the S&P500 and 8 percent on the FTSE100 share indices. And after a lacklustre couple of years, turnover in Liv-ex fine wine indices is also on the rise,  hitting a one-year high in March, up 21 percent on February.  (For the non-connoisseurs  among us, the Liv-ex Fine Wine 100 represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market).

Cellar Watch attributes the gains to the surge in interest in Burgundy, which increased its share of trade to 9% for the second time this year—well above its 2012 average of 5.5%. Top sellers were  Pape Clement (2010),  Pichon Baron (2004) and Talbot (2000) , with gains of 45.9 percent, 18.9 percent and 13.3 percent respectively.

Cellar Watch notes that last month the DRC index, which tracks the price moves of recent Burgundy vintages, was just 1.8% shy of its April 2012 peak. In contrast,the Bordeaux 500 Index was off its peak of June 2011 by 13.2.

But actually, Bordeaux, the mainstay of most wine investment portfolios, isn’t doing too badly either — Liv-ex Fine Wine 50—the Bordeaux equivalent of the DRC 50 Index—has gained 6.8%, Cellar Watch points out. The question now, according to Cellar Watch, is:

With prices for DRC hitting new highs—often in excess of £2,000 per bottle— is this growth unsustainable? As the Bordeaux market gains more traction, will DRC continue to outperform?

Fund managers searching for yield are increasing exposure to frontier markets (FM) as a diversification from emerging markets (EM), as the latter have been offering negative relative returns since January, according to MSCI data.

Barings Asset Management  said on Monday it plans to launch a frontier markets fund in coming weeks, with a projected 70 percent exposure to frontier markets such as Nigeria, Saudi Arabia, the UAE, Sri Lanka and Ukraine.

Emerging markets indices posted relative negative returns compared to developed and frontier markets in the first quarter, index compiler MSCI’s 2013 quarterly survey showed. The main emerging benchmark returned a negative 2.14 percent for the quarter, with the BRIC index also posting a loss, though a better performance of Latin American markets offered some promising signs  with a 0.48 percent increase.

Southeast Asia posted the top returns, with double-digit figures from the MSCI Philippines Index of 17.87 percent growth and Indonesia returning 13.19 percent. That was a stark contrast to the Brazil, Russia, India, China and Korean indices, which delivered negative Q1 results.

Weak relative performance has turned investors further afield to boost earnings with top performers Kenya, UAE and Bulgaria returning more than 20 percent. In 2012 the Kenyan benchmark rose 54 percent, the data showed.

Frontier economies have young, growing populations and a strong base for domestic demand and labour, and according to Barings, FM countries hold around 30 percent of global oil resources. FM markets are boosted by strong foreign direct investment trends and generally low levels of government debt.

Michael Levy, investment manager at Barings, said in a statement:

“Over the last 20 years, the free float market capitalisation of core emerging markets (MSCI Emerging Markets) has increased 25 fold and we believe that frontier markets are now positioned where emerging markets were 20 years ago, poised to become the next big opportunity in the coming years.”

Countries included in the MSCI FM index include Kenya, UAE, Bulgaria, Vietnam, Nigeria, Bangladesh and Slovenia. Barings research focuses on Iraq, Ghana, Qatar, Nigeria, Sri Lanka, Bangladesh, Vietnam and Kenya – all with compound annualised GDP growth rate projections above 5 percent from 2010 to 2017, according to IMF and the World Economic Outlook database.

HSBC, however, points out that FM equity markets overall have performed less well over a four-year time period, but with three countries ( Sri Lanka, Romania and Estonia) outperforming the EM benchmark.

HSBC analysis shows frontier markets dividend yield is set to rise to 5.5 percent in 2013, compared to 2.9 percent in emerging markets, while return on equity for FM is seen at 20.5 percent versus 13.6 percent for EM.

“In a low interest rate world, dividend yield is likely to be an increasing focus for  investors – and this clearly plays to the strengths of FMs.”

Frontier markets take an increasing share in global growth

By Philip Baillie

Emerging equities may have significantly underperformed their richer peers so far this year (they are about 4 percent in the red compared with gains of more than 6 percent for their MSCI’s index of developed stocks) , but almost a third of high net-worth individuals are betting on a rebound in coming months.

A survey of more than 1,000 high net-worth investors by J.P. Morgan Private Bank reveals that 28 percent of respondents expect emerging market equities to perform best in the next 12 months, outstripping the 24 per cent that bet their money on U.S. stocks.

That gels with the findings of recent Reuters polls where a majority of the 450 analysts surveyed said they expect emerging equities to end 2013 with double-digit returns.

(Note a caveat on the survey – the responses were collated before recent unsettling events in Cyprus – which could have some knock-on effects on emerging markets, especially given the banking exposure to countries such as Slovenia, Luxembourg, Malta and Russia).

However, regardless of the growing list of risks, 60 percent of the investors pick equities as their top performing asset class for the next 12 months –  more evidence that the so-called Great Rotation — the offloading of bond holdings in favour of equities — remains a theme despite some growth and political risks.

This from Cesar Perez, Chief Investment Strategist for J.P. Morgan Private Bank in EMEA:

For the first time in four years we are not underweight in our global equities allocation…..Similar to respondents, we believe there is considerable value in global equity markets. In the current environment, we have tilted our equity allocations towards the U.S. and emerging markets, increasing exposure to Asian equities in early 2013.

Despite the tilt towards equities, almost half the  respondents cited global growth as their biggest investment concern. Politics (23 percent) geopolitical unrest (15 percent) and monetary policy mistakes (11 percent) also emerged as acute risk themes. A mere 4 percent worried about inflation.

Nevertheless,  14 per cent of those surveyed believe the supposedly riskier European periphery will perform better than the European core which garnered the votes of just 10 percent.  Interestingly, Japan, the best performing equity market so far in 2013 with gains of almost 20 percent, was least favoured at  just 6 per cent.

The J.P. Morgan Private Bank (assets of $878 billion) survey was conducted throughout January and February. See below for a graphic detailing the survey’s findings.

By Stephen Eisenhammer

As the way we shop changes,  commercial property investors might be the ones losing out.

The rise of online retail is hitting demand for bricks and mortar shops, according to analysts at Aviva Investors, and could spell an end to rental income growth over the next two decades.

An estimated 20 percent of UK retail space will become surplus to requirements in the coming years due to shoppers using the web, according to research by the British Council of Shopping Centres. David Skinner, Chief Investment Officer of Real Estate at Aviva, reckons the trend has just gone up a gear:

The growth of internet shopping has been a key issue of commercial property investors for years but the pace and scale of change has been greater than many had anticipated

According to Skinner average real rental value growth will fall to between 0 percent and 1 percent per year throughout the next two decades.

Retailers will require less space… In many mature markets, internet retailing will be a force behind lower aggregate floorspace demand, which implies a depressive effect on rental growth.

Skinner also said falling demand would lead to rising income risks as well as effect leases, forcing landlords to offer more flexible tenancy agreements.

The winners for Trevor Green, head of institutional equities at Aviva Investors, are companies with a successful, multi-channel strategy that can adapt to the rise of online retail. Green names supermarket chain J Sainsbury as a good pick.

By Stephen Eisenhammer

Over the past few years we’ve become used to the global economy resting on a knife-edge. So when dramatic events like the levy on bank deposits in Cyprus happen we wait for the dominoes to fall. Two days on we’re still waiting…

The recovery in the euro zone, so vital to Europe’s emerging markets,  is undoubtedly fragile but the incident in Cyprus doesn’t seem to be enough to knock it all down now that the European Central Bank seems willing to step in if borrowing rates go to high.

Overall, this should not be read as a game-changer for the global markets but more as background noise creating indeed some volatility, on top of the uncertainty created after the Italian elections – Societe Generale.

Cyprus is unique due to the size of the economy (the bail-out is 56 percent of the country’s GDP) and the role of the country as an off-shore tax haven, according to Societe Generale.

The major question mark hangs over Russia, however. The majority of large depositors in Cypriot banks are Russian companies, banks and individuals. Moscow’s blue chip RTS stock index subsequently lost 3 percent as markets opened after the announcement. But falls have been minimal since and the index is largely flat on Tuesday.

Despite the fact that Russian banks and companies stand to be among the biggest losers of the deal, the effect on the Russian economy or the banking system as a whole should be limited – Capital Economics.

The bank notes that data on Russian deposits in Cyprus is patchy but estimates that any losses wouldn’t harm the economy considerably.

If the deal goes ahead as currently proposed, Russian depositors may lose around $3bn. This is equivalent to 0.4% of Russia’s total bank deposits and just 0.15% of Russia’s GDP. Accordingly, these losses look manageable for Russia.

The main question for Timothy Ash, analyst at Standard Bank, is whether Russia will step into protect its citizens’ savings. The matter is complicated with a lot of the money suspected of being dodgy.

Russians look set to be hit as well – and likely wealthly/connected individuals, so the question is will Russia finally step in, especially if the Cypriot parliament rejects the latest bail-out plan and more of the burden extends to larger (likely Russian) depositors.

The impact on Russia, Ash says, might even boost the currency.

Interesting, in terms of capital flight, whether this latest move brings a reversal of capital flight from Russia, which we estimate at $40 billion per annum, at least for the past decade. Arguably the latest Cyprus news could actually be a rouble positive!

By Stephen Eisenhammer

Rivers of gold? Maybe not, but there can be money to be made in Chinese water systems.

With the world’s largest population rapidly moving from the countryside to the city, Chinese water supplies are becoming horribly polluted and the companies wading in to clean and purify them are set to benefit.

Investors are taking an interest in water cleaning companies which are supported by the Chinese government as the country attempts to avoid a dawning crisis.

China is under increasing domestic pressure to clean up its water supplies and is promising to invest 4 trillion yuan ($650 billion) on rural water projects between 2011 and 2020.

Fen Sung, senior investment manager at the asset management fund Premier, said cleaner water would be high on the agenda for the new Chinese leadership:

I hold China Everbright, who are a superb company in China who specialise in water treatment and waste to energy. Recent results and company announcements continue to show strong demand in the sector.

I have recently added a new holding called Sound Global, who are dual-listed in Singapore and Hong Kong. They specialise in the water treatment sector and are trading at an attractive valuation.

China Everbright has risen 40 percent in the last 12 months. Sound Global, meanwhile, has a price to earnings multiple of nine compared to 16 among its peers, according to Thomson Reuters data, and has traded largely flat so far this year. Sung says:

Pollution control will be on the agenda for the new Chinese government and I am confident that both companies can achieve good earnings growth for the coming years.

 

By Stephen Eisenhammer

Does a sovereign credit rating from a glass tower in London or New York impact life in the country being rated? Apparently in Africa it does.

According to research by the rating agency Fitch, sovereign credit ratings significantly boost foreign direct investment (FDI) to Africa.

Credit ratings added 2 percent to Gross Domestic Product in sub-Saharan Africa each year from 1995 to 2011 through increased  FDI when compared to countries in the region which do not have a rating, Fitch said in a note.

There are a number of possible factors behind this.

Firstly the rating works as a kind of advert to investors, showing that the country is open to foreign capital. It also helps investors to make a more informed decision as to where to put their money, as the ratings come with reputable data and risk analysis.

There’s also, Fitch said, a “positive effect” on economic policy in the rated countries as they attempt to implement reform in order to achieve an upgrade or at least avoid a downward revision.

The majority of FDI goes to resource rich countries such as South Africa and Nigeria, but recently other countries have entered the fray.

“In addition to South Africa and Nigeria (the main FDI recipients), new commodity countries have gained in importance (e.g. Angola, Ghana, Mozambique, Uganda, Zambia),” Fitch said.

But service sectors such as banks and drinks companies, booming off the back of a growing consumer base, are also starting to attract FDI.

“FDI in service sectors accounted for 34% of total greenfield projects in Africa in 2011,” Fitch said.

The benefits of a credit rating are not lost on African governments.  Since 1994 when Fitch assigned South Africa a rating, it and other ratings agencies have rapidly expanded their business on the continent. A total of 20 African countries now hold credit ratings, Fitch says.

By Stephen Eisenhammer

Mexico appears to be the new Latin American darling for investors. With Brazil stalling, Latin America’s second largest economy is back in, after nearly two decades out in the cold.

Rising transport costs and higher wages in China are tipping manufacturing competitiveness  back in favour of Mexico for the first time since the Asian giant joined the World Trade Organisation in 2001.

Mexico’s new president, Enrique Pena Nieto of the PRI party which governed continuously for 71 years until 2000, appears serious about wringing necessary changes to the state-run oil company – Pemex, the education system, and the monopolised telecoms sector.

JP Morgan said the improvements could call for an outlook upgrade from the ratings agencies in the near future.

“The approval of the labor reform last year was quickly followed by important first steps to overhaul the educational system, signalling the administration’s commitment to the reform agenda,” the bank said in a note.

A ratings upgrade from the current triple-B investment grade was probably further away, but certainly not out of the question, the note said.

“The prospects for reform progress in Mexico have not been better in over a decade and, if the authorities deliver meaningful fiscal and energy reforms, an upward revision seems very likely.”

The resurrection of Mexico’s manufacturing sector was singled out as a key factor by JP Morgan.

“Part of Mexico’s healthy recovery since mid 2009 likely reflects the improved competitiveness of Mexico’s manufacturing sector – which has outperformed its U.S. counterparts by nearly 6 percentage points since the mid-2009 trough.”

However, a number of severe challenges lie ahead, particularly on the fiscal side. The government takes an embarrassingly small 10 percent of GDP in non-oil tax returns and remains reliant on Pemex, a company starved of investment for decades whose production has been falling since 2004.

It will take some skillful manoeuvering from Pena Nieto to change this, especially from within a political party historically so interlinked with the system he is trying to change.

By Stephen Eisenhammer

Luxury brands are set to grow further in 2013, as the sector continues to dodge the fallout from stalling European and U.S. economies by appealing to consumers in emerging markets such as Brazil, China and the Middle East.

The industry is set to grow 6-8 percent this year according to the Zurich-based asset management fund Swiss & Global, with 90 percent of that growth coming from consumers in emerging economies.

The global industry, which is estimated by luxury consultants Bain & Company to be worth more than $34 billion, has been a counter-intuitive success story of the past years of economic crisis and government austerity measures.

Swiss & Global said it expected luxury brand purchases in emerging economies, which already accounts for half of all sales, to increase further, driven by rising demand in China.

“Chinese luxury consumption, which nearly constitutes 30 percent of the market, is expected to continue to grow on average at a double-digit pace in the coming years,” the fund said in a note.

Swiss & Global, which has holdings in Prada, Estee Lauder, and Pernod Ricard, said consumption of luxury brands will also rise in Brazil, Russia and the Middle East.

“Investing in luxury goods offers investors exposure to the rapid growth of consumption in emerging markets via well-managed western companies with strong balance sheets and financials. One third of the companies we invest in have a net cash position and the average operating margin is 18 percent,” it said.

“Cash-rich firms could prompt an increase in mergers and acquisitions in 2013, though good brands remain expensive, whilst the best are usually not for sale.”

By Dasha Afanasieva

Management consultants often urge their clients to view setbacks or difficulties as opportunities. The cost of reducing environmental impacts are often cited as one such “opportunity”.

But a global study from consultancy BCG and MIT Sloan Management Review has shown that companies are increasingly putting this advice into practice and succeeding in getting the returns.

The study is based on a survey of 2,600 executives and managers from companies around the world and found that the number of companies achieving a profit from introducing changes aimed at making their business more sustainable rose 23 percent last year, to 37 percent of the total.

Nearly half of the companies have changed their business models to try to make the most of sustainability opportunities—a 20 percent jump over last year.

Nor is a preoccupation with sustainability the reserve of the developed world.

Companies in emerging markets change their business models as a result of sustainability at a far higher rate than those based in North America, the study found.

In fact, North America has the lowest rate of sustainability-driven business-model innovation and the fewest so-called “business-model innovators”.

The authors of the report reckon food group Kraft is a perfect example. Through sustainable sourcing, adopting models such as the Rainforest Alliance – a guarantee of environmentally and socially responsible harvesting – and Fair Trade and branding their products accordingly, Kraft, the report argues, has been able to open up new consumer segments. In the UK, the Rainforest Alliance Certified seal is gaining double digit growth. In addition, making packaging more sustainable has cut Kraft’s costs.

Outdoor clothing manufacturer Patagonia used what some might call a gimmick – in a New York Times advert, it invited customers to not buy a jacket and sign a pledge that committed both the customer and Patagonia to reducing consumption and waste by only buying items when needed, repairing and eventually recycling items.

It appears that investors are also waking up to the potential profitability.

Principles for Responsible Investment (PRI) – a UN initiative which connects investors working to incorporate principles of sustainability into their investing –   has attracted some 1,100 signatories that represent over $30 trillion in assets since its inception in 2006.

PRI’s signatories – a mixture of asset owners, investment managers and professional service partners – commit to working towards responsible investment goals and to being transparent on their progress.

For example in PRI’s 2011 Reporting and Assessment process, 38 per cent of asset owners reported that they made investments in social and environmental areas.

But for all the Krafts and Patagonias of this world, plenty of companies still struggle to see sustainability as an opportunity.

Almost half of those surveyed by BCG find it hard to quantify the effects of sustainability, and 37 percent say it conflicts with other priorities.

Security risks, shoddy governance and black markets have propelled West African countries up the risk rankings of consultancy Maplecroft’s annual Global Risks Atlas, released today.

As the French continue to battle Mali rebels in the Sahara, how big is the risk of the trouble spreading to Mali’s already fragile neighbours?

According to Maplecroft, Mali is an example of how

the security situation in one country can significantly increase the risk of violence and instability in the surrounding region, with implications for the operations of foreign firms

Refugees fleeing the Malian conflict have added extra pressure to already-stretched food resources in next-door states and may add to tension, Maplecoft says. In fact, the estimated 30,000 people who returned to Mali from Libya because of the war there were

a key factor in prompting the Tuareg uprising and the subsequent coup and annexation of the north

An additional pressure in the region is a controversial kind of South-South trade – drugs making their way to Europe through West Africa. As “conventional” routes become more challenging, the use of Guinnea-Bissau and Mali as stops on cocaine export routes from Latin America has increased, providing additional funding for militants and criminal groups. Maplecroft warns –

An increase in the funds available to these groups significantly increases the viability of the threat they pose to mining and oil and gas interests across the region

But according to a report from Standard & Poor’s, it is Mali’s economic isolation that will insulate its neighbours’ creditworthiness, unless the fighting is not great.

The rating agency’s view is that the the risk of fighting spreading into neighboring Senegal and Burkina Faso is currently very low for three reasons:

1)       Mali’s unrest is for the time being concentrated to the north – far from Senegal and Burkina Faso – but political risks in Mauritania, Algeria, and Niger could rise

2)       the core of the rebels are Tuareg secessionists with no historic grievances against nearby rated sovereigns – not including Niger and Mauritania, where Tuareg separatists have been active

3)       the separatists, 2,000-4,000 in number, probably do not have the capacity to spark conflicts elsewhere

However Burkina Faso may be an exception – it is serving as a base for French air attacks against the rebels and is contributing troops to the ECOWAS mission to Mali and is particularly in danger of retaliatory attacks, Standard & Poor’s says.

Mali’s economic isolation may also serve to protect its neighbours, S&P adds:

Foreign direct investment flows between Mali and its neighbours are small in comparison with investment from outside the region, and portfolio investment flows are negligible, owing to the underdeveloped nature of capital markets in the region

By Dasha Afanasieva

Europe is a likely suitor for much of the $560 billion in outbound foreign direct investment China plans to make in the five years leading to 2015, according to a survey out today.

Ninety-seven percent of the 74 firms surveyed said that they will make future additional investments in the EU, with  most planning to invest higher amounts than currently, with more investment and acquisitions of technology brands and expertise, according to a study by European Union Chamber of Commerce in China, a lobby group for Chinese firms in the EU, with consultants Roland Berger and professional services firm KPMG.

In return for access to European markets and consumers, EU countries will get a boost in investment that they can ill afford themselves with such feeble growth prospects: in November the European Commission slashed its 2013 economic growth forecast for the EU’s euro zone bloc to just 0.1 percent, having predicted a much stronger recovery of 1 percent just six months before.

Chinese firms see the EU as a:

safe and stable place to invest, with a transparent and predictable legal environment, social stability, trusted brands, advanced technologies and an educated workforce

But getting your head around European laws and visa restrictions, as well as the fear that tough economic times could spark more political instability, make Europe hard to navigate for Chinese firms.

In fact the surveyed firms perceive Africa and the Middle East as having a more favourable business environment than the EU.

Chinese firms find EU law particularly troublesome because there is no unified inbound investment approval process and some member states have their own security reviews.

Perhaps unsurprisingly, one Chinese state-owned enterprise (SOE) said anti-trust investigations put them off

The in-depth investigations conducted by the European Antitrust Commission on Chinese SOEs will inevitably bring huge challenges to the antitrust declaration work of Chinese companies, and severely influence the investments from Chinese companies to Europe. We suggest that the barriers of the antitrust investigations should be lowered.

Six in 10 of the firms surveyed were SOEs and the most popular EU country for Chinese investment was Germany, with France a distant second.

Chinese firms asked for more support with the operational issues they face from policymakers in Europe and back home.

They also want Europe to simplify tax structures, perhaps with a few tax breaks thrown in!

Few respondents made recommendations relating to the lifting of market access barriers in the EU market – a contrast to the priorities of European businesses in China.

By Dasha Afanasieva

Central European markets have studied hard to impress investors, says Angela Merkel, but have they passed the test?

In Davos on Thursday, the German chancellor urged business leaders to head for the region:

I’m saying this to investors who are pondering investment in Europe: Central and Eastern Europe has done, almost flying below the radar, a lot of reforms… Look at the investment climate in Europe; it has changed for the better.

But the region did not look so rosy to investors this week.

The Polish stock index was down more than 1.2 percent. Data out on Thursday showing the biggest drop in retail sales in almost eight years prompted more calls to cut the interest rate again, and sent the zloty lower on the day.

Hungarian shopaholics too stayed on the wagon at the end of last year.  Retail sales there fell 4.1 percent in November year-on-year, according to fresh data which pushed the forint to a new seven-month low as investors expected further rate cuts.  Hungarian markets also have to contend with uncertainty over central bank policy in anticipation of a leadership change at its central bank in March.

Meanwhile, Romania asked the IMF for an extension of its aid deal.

For Poland, Hungary, Romania and the Czech Republic, the last recorded quarterly growth was flat, at best.
All four saw their unemployment rate rise in December, with Central Europe’s biggest economy, Poland, registered a worse than expected jobless rate of 13.4 percent.

Luis Costa, head of CEEMEA FX and fixed income strategy at Citi said:

If you look into central Europe you see a lot of weakness. Polish numbers – the industrial output, the retail sales numbers are pretty bad and in Hungary we again had a batch of horrible numbers so with the exceptions of a few credits such as Turkey the picture is still very depressed.

By Dasha Afanasieva

Markets got a fright today when luxury goods maker Richemont reported stagnant Asian sales in the last three months of 2012.  Richemont shares as well as those in its rivals such as LVMH (maker of Louis Vuitton handbags and Hennessy cognac) tanked after the news.

Like many of its peers in the west, Richemont the maker of Cartier watches, looks to China to drive its growth as the United States and Europe face the stark prospect of stagnation.

But the fastest growing class of the world’s fastest growing economy will probably not be Cartier-clad.

By 2030, emerging and developing economies will account for more than four fifths of the world’s middle class, as defined by consumers who spend between $10 and $100 a day, according to consultancy Roland Berger. Fashion, leisure and communication are likely to see growth rates of 30 percent in the next seven years, the report said. According to Bernd Brunke,  a partner at Roland Berger:

 In the next few years, we will see rapid population growth and a major improvement in the standard of living in emerging regions of the world …Accordingly, the consumers in these countries will buy more and demand high-quality products.

The report does predict a rise in demand for branded products across the developing world. However Roland Berger defines the “global middle class” as those of relatively modest means, meaning their budgets will probably not stretch to designer clobber.

For example, it says the top selling brands in oil-rich Saudi Arabia are high-street names Mothercare, Next and Zara – not the sorts of brands owned by Richemont or Prada.

Inditex, the maker of Zara, said last month it would step up expansion in China where it already has almost 350 stores. It  launched the Zara brand online in China last September.

Cardinal Tarcisio Bertone during a news conference in Santiago April 12, 2010/Ivan Alvarado

It is homosexuality, not celibacy, that is linked to pedophilia, the Vatican’s Secretary of State Cardinal Tarcisio Bertone said on Monday, seeking to defuse the sex scandal that has battered the Roman Catholic Church.

On a visit to Chile, Bertone, dubbed the Deputy Pope, also said Pope Benedict would soon take more surprising initiatives regarding the sex abuse scandal but did not elaborate.

“Many psychologists and psychiatrists have shown that there is no link between celibacy and pedophilia but many others have shown, I have recently been told, that there is a relationship between homosexuality and pedophilia,” he told a news conference in Santiago.

“This pathology is one that touches all categories of people, and priests to a lesser degree in percentage terms,” he said. “The behavior of the priests in this case, the negative behavior, is very serious, is scandalous.”

Bertone’s visit to Chile comes as the Catholic Church has been buffeted by scandals concerning sexual abuse of children — most of them boys — by priests. There also have been allegations of cover-ups and even that the Pope mishandled cases when he was a bishop in Germany and a Vatican official before his election in 2005.

What do you think of this? Is homosexuality to blame for pedophilia? Or did the Catholic Church ordain too many men who were sexually immature and fatally attracted to children at their emotional level?

Lawrence Grech, a victim of church child abuse, at a news conference with other victims near Valletta, April 12, 2010/Darrin Zammit Lupi

Ten Maltese men, who have taken three priests to court for alleged child abuse, on Monday requested a private meeting with Pope Benedict XVI when he visits Malta during the coming weekend.

So far, the pope has not spoken out directly on the new wave of sexual abuse allegations that is hounding the Church in a number of coutries, including the United Satates, Italy and his native Germany.

There has been a high incidence of allegations of abuse on the Mediterranean island of Malta, where 45 cases have been reported involving the clergy going back to the 1970s.

“We are asking to meet the Pope for a few minutes to help us heal and to overcome this trauma,” Lawrence Grech, a spokesman for the ten men, told a press conference.  He said the victims, who were resident in a home for children when the alleged abuse took place, were seeking justice, not financial compensation.

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The signature of then-Cardinal Joseph Ratzinger on a 1985 letter about Father Stephen Kiesle, shown after its release to Reuters April 9, 2010/Sam Mircovich

The Vatican has defended Pope Benedict from accusations that, in a previous post as a senior Church official, he tried to impede the defrocking of a California priest who had sexually abused children. In a statement, a California-based Vatican lawyer accused the media of a “rush to judgment” and said the case had never been referred to the Vatican as an abuse case but as one of a man who wanted to leave the priesthood.

In a 1985 letter from the Vatican, typed in Latin and translated for The Associated Press, then-Cardinal Joseph Ratzinger told the bishop of Oakland he needed more time “to consider the good of the Universal Church” as he reviewed a request by the man to leave the priesthood.

Vatican lawyer Jeffrey Lena said he could not confirm the authenticity of the letter but indicated that it appeared to be “a form letter typically sent out initially with respect to laicization cases,” when men ask to leave the priesthood.

Lena “denied that the letter reflected then-Cardinal Ratzinger resisting pleas from the bishop to defrock the priest,” the statement said. “There may be some overstep and rush to judgment going on here,” Lena said on Saturday.

“During the entire course of the proceeding the priest remained under the control, authority and care of the local bishop who was responsible to make sure he did no harm, as the canon (Church) law provides. The abuse case wasn’t transferred to the Vatican at all,” he said.

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Sexual abuse victims meet journalists outside the Cousin's Center, owned by the Milwaukee Archdiocese in St. Francis, Wisconsin March 25, 2010/Allen Fredrickson

Stung by fresh charges of priestly sexual abuse and allegations of a cover-up that reach the Vatican, the Roman Catholic Church in the United States faces a crisis of empty pews and empty coffers.

Attendance was down noticeably at some Easter Sunday services in Milwaukee, reflecting the litany of troubles facing the U.S. Church and a torrent of criticism over its handling of abuse cases.

“The Church is at a crossroads,” said Tim Flanner, 51, a member of St. John Vianney church. “There are people who are really ticked off, and there are a lot of them.  The Church needs to address its own failures, acknowledge its own guilt, and ask for forgiveness, and heal as a family.”

Last month, amid explosive charges that a now-dead priest molested some 200 boys at a school for the deaf over more than two decades, Milwaukee Archbishop Jerome Listecki apologized to the victims and acknowledged the Church was wrong to not defrock the priest, Rev. Lawrence Murphy.

But beyond the church’s tarnished reputation, the financial fallout from paying settlement claims to victims is being felt in Milwaukee and dioceses across the United States. Four lawsuits are pending in Milwaukee, and the diocese has put its headquarters, the Cousins Center, up for sale to help pay $27 million in settlement costs that have threatened to bankrupt the diocese.

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