Explainer: Ant Financial's $150 billion valuation, and the big recent bump-up

HONG KONG (Reuters) – Ant Financial’s rapid climb to become the world’s biggest super unicorn valued by some investors at around $150 billion showcases investor enthusiasm for the biggest Chinese tech companies and also how quickly valuations can shift. Just two months ago, bankers and investors were tentatively talking of a figure closer to $100 billion.

FILE PHOTO: A logo of Ant Financial is displayed at the Ant Financial event in Hong Kong, China November 1, 2016. REUTERS/Bobby Yip/File Photo


Ant’s biggest and best-known business is Alipay, the biggest player in China’s $17 trillion online payments market. Ant also sells wealth management products and offers small loans and credit scores, among other ventures. Jack Ma, founder of Chinese e-commerce giant Alibaba Group Holding (BABA.N) controls Ant.

Analysts at Barclays estimate that online payments accounted for 55 per cent of Ant’s $8.9 billion revenue last year, but they expect that to fall to one-third by 2021 as the company focuses on encouraging its 600 million customers to use more of its other, higher-margin services.


At a valuation of around $150 billion, Ant will trail only the big four state-controlled banks and insurer Ping An among financial-focused firms in China. It will also be about 50 percent more valuable than Wall Street titans Goldman Sachs (GS.N) and Morgan Stanley (MS.N).

Much of the rapid rise in its valuation is being attributed to the company’s disclosure of additional performance data, which although by no means its full financials, included some 2017 full-year figures that showed faster-than-expected growth. That helped investors and analysts tweak their financial models.

Ant’s status as one of the biggest tech groups in China is also boosting demand.

“It’s not very often to get a chance to invest in super unicorns like Ant, even in China where you’ve seen a tech boom for years,” said one existing investor in Ant. “If you miss this one, you don’t know when the next one comes.”


Robert Kapito, co-founder of U.S. asset manager BlackRock, this week described himself as “shocked” at Ant’s likely valuation but many analysts are not blinking.

Barclays analysts this month valued the company at $155 billion, based on multiplying their estimate of Ant’s 2019 net operating profit less adjusted tax (NOPLAT) by what they said was its conservative price/earnings ratio of 28.

NOPLAT is often used by analysts to measure companies’ operating efficiency because it strips out the impact of interest payments and other financing costs.

Other groups have used alternative means of valuing Ant. Jefferies analysts, who believe up to 70 per cent of Ant’s 2017 business came from online payments, used Paypal (PYPL.O) as a comparison and valued Ant at $133 billion, equivalent to seven times their estimate for its 2019 sales – in line with the multiple implied by PayPal’s share price.

Based on traditional price-earnings measures, $150 billion implies a price 71 times Ant’s 2017 pre-tax profits or 85 times its net profits, assuming a tax rate of 16 per cent – the average paid by Alibaba in recent years. Ant does not disclose actual profits and its pre-tax earnings of 13.2 billion yuan ($2.1 billion) are calculated from disclosures in filings by Alibaba, which is set to become Ant’s one-third owner soon.

Alibaba itself trades at 43 times last year’s profits as does rival Tencent (0700.HK), home of Alipay rival WeChat Pay.


Ant, expected to go public in the next two years, has vowed to reach 2 billion users worldwide in the next decade and it has been investing overseas, buying a stake in Indian payment firm Paytm and Thai financial technology firm Ascend Money, among others.

“Ant has taken a very strategic view of international expansion – with highly-targeted investments, joint ventures, and partnerships across the region,” said James Lloyd, Asia-Pacific Fintech leader at EY. “While mainland China remains core, I wouldn’t underestimate the potential upside of their international endeavors.”

But it could be China itself that causes Ant problems. While Alipay holds 54 per cent of the country’s fast-growing mobile payments market, WeChat Pay holds 38.2 per cent, according to Jefferies. Both are keen to increase their dominance.

Beijing also has a history of unexpected rule changes which can derail business plans. Last year regulators suddenly took steps to rein in the online lending market – a key growth engine for Ant – as part of its wider crackdown on easy credit.

“These things that Ant is doing are quite innovative and new. They may work this year, but stop working next year, depending on China’s regulations,” said a Hong Kong-based equity analyst with a Japanese asset manager. “It’s hard to analyze their value.”

Reporting by Kane Wu and Julie Zhu in HONG KONG; Editing by Jennifer Hughes and Muralikumar Anantharaman

Exclusive: Amazon in talks with airline Azul for shipping in Brazil – sources

SAO PAULO (Reuters) – Amazon.com Inc (AMZN.O) is in talks with Brazilian airline Azul SA (AZUL.N) on shipping goods in the country, two sources with knowledge of the matter told Reuters, in the latest sign of the retailer’s big plans in Latin America’s largest economy.

FILE PHOTO: The logo of Amazon.com Inc is seen in Sao Paulo, Brazil October 17, 2017. REUTERS/Paulo Whitaker/File Photo

The talks with Azul, which serves over 50 percent more Brazilian airports than its nearest rival, are the strongest signal yet that Amazon is lining up distribution to sell products directly to consumers throughout the country.

It also shows that the U.S. e-commerce company is serious about overcoming the nation’s notorious logistical challenges, including shoddy roads, security problems and a national territory greater than the continental United States.

Representatives for Azul declined to comment on the talks.

Amazon said it did not comment on “rumors or speculation.”

The Seattle-based online retailer has so far waded slowly into Brazil’s highly competitive e-commerce market, starting with e-book sales in 2012, adding physical books two years later and offering third-party sales of electronics in October.

E-commerce accounts for around 5 percent of Brazil’s roughly $300 billion retail market, about half its share in the United States. Yet Brazil’s online sales have doubled in four years and are expected to grow at a double-digit pace in coming years.

Currently, Amazon relies on third-party vendors to ship their own goods sold on its Brazilian website, but that appears to be changing.

In February, Reuters reported that Amazon was looking to lease a 50,000-square-meter warehouse just outside Sao Paulo, in a sign the retailer may bring storage and distribution in-house.

In March, Reuters reported that the company met with an array of manufacturers in Sao Paulo to discuss plans to stock and sell products directly.

Both developments drove down shares in Brazilian e-commerce competitors, such as Magazine Luiza SA (MGLU3.SA) and B2W Companhia Digital SA (BTOW3.SA). MercadoLibre Inc (MELI.O) has also fought Amazon tooth-and-nail in Mexico and Brazil.

By partnering with Azul, Amazon would immediately gain access to a network of more than 100 airports in Brazil, implying its ambitions go far beyond metropolitan Sao Paulo.

Azul has built up an 18 percent share of Brazil’s domestic air travel market over the past decade by flying regional jets and turboprop planes into second- and third-tier cities underserved by other carriers.

Azul’s cargo unit, Azul Cargo Express, takes advantage of excess cargo capacity in its passenger flights to offer rapid delivery to locations ranging from far-flung Amazonian outposts to Brazil’s major metropolitan centers.

The company offers shipping to more than 3,200 municipalities, as well as a specialized e-commerce service known as Azul Cargo E-Commerce. Azul’s hub, Viracopos International Airport, is about a 45-minute drive from the warehouse Amazon has been eyeing northwest of Sao Paulo.

The sources, who requested anonymity as the negotiations are confidential, did not specify how advanced conversations were, nor did they say if the retailer has also engaged Azul’s rivals.

Competing airlines with Brazilian cargo operations include Latam Airlines Group SA LTM.SN and Gol Linhas Aereas Inteligentes SA (GOLL4.SA). Neither responded immediately to requests for comment.

Last week, Azul announced it has leased two Boeing Co (BA.N) freight aircraft “to support the rapid growth of its cargo business unit.”

Reporting by Gram Slattery; Additional reporting by Flavia Bohone, Gabriela Mello, and Tatiana Bautzer in Sao Paulo and Felipe Iturrieta in Santiago; Editing by Brad Haynes and Cynthia Osterman

Mapping startup Mapbox hires head of product from Google

SAN FRANCISCO (Reuters) – Digital maps startup Mapbox Inc told Reuters on Tuesday that it has hired a lead product manager from the local search unit of Alphabet Inc’s Google to serve as head of product for maps and search.

Andrew Chen is charged with helping engineers at Mapbox, which licenses maps to software developers, better understand consumer desires, Mapbox Chief Executive Officer Eric Gundersen said.

“Any engineering-heavy company is constantly wanting the perspective of the users, and we’re looking to people who can help illustrate how maps are being used,” Gundersen said.

Mapbox competes with Google, OpenStreetMap and other firms to license maps to software makers. The data have become a bedrock of thousands of mobile apps, with Mapbox customers including social media company Snap Inc, food delivery service DoorDash and credit card giant MasterCard Inc.

Mapbox has less live traffic information and fewer details on “social” places such as bars than Google, Gundersen said.

But Mapbox’s system, an amalgamation of 130 data sources, is appealing to some developers because it allows greater customization, Chen said. Google’s emphasis remains on its consumer Maps app, he said, while Mapbox exclusively focuses on developer tools.

Google did not respond to a request for comment.

Chen said he spent more than five years at Google overseeing development of Google Maps features including estimated wait times at restaurants and a question-and-answer system for users to learn more about businesses.

SoftBank Vision Fund led a $164 million financing of Mapbox in October.

Reporting by Paresh Dave; Editing by Leslie Adler

Gilead: Yescarta Faces Unforeseen Hurdles

Former Kite CEO Arie Belldegrun

Gilead (GILD) bulls were euphoric last August after the company pulled the trigger on its $12 billion acquisition of Kite Pharma. The clinical stage biotech company was expected to energy growth with its breakthrough immunotherapy technology. Now Yescarta, its CAR-T treatment for lymphoma, is facing unforeseen hurdles:

Well, now CMS has determined how it’s going to pay for Yescarta, and its decision may not do much to help Gilead spur sales of the product. CMS will pay $395,380 for Yescarta when it’s used on an outpatient basis, with a minimum co-payment charged to patients of $79,076, a spokesperson for the agency confirmed in an email to FiercePharma. The out-of-pocket burden won’t be that high—it is capped under law at the inpatient deductible amount, plus the Part B deductible if that has not yet been met.

Many patients will receive Yescarta in the hospital, however, so they can be monitored for dangerous side effects. The cost of that, estimated by some analysts to run as high as $1 million, will be bundled into CMS’s payment for hospital stays. A spokeswoman for Gilead declined to estimate what proportion of patients would receive Yescarta on an outpatient vs. inpatient basis and said the decision would be “at the discretion of the treating physician and center.”

Yescarta still has the chance to save lives and become the breakthrough we once thought. Its success could be delayed, however. I will explain below.

Initial Costs For Treatment Could Be Astronomical

Kite’s breakthrough therapy helps patients fight cancer by harnessing the power of their immune systems. Kite received FDA approval for Yescarta, which treats B-cell non-Hodgkin lymphoma, within months of the deal. Centers for Medicare & Medicaid Services (“CMS”) indicated it would pay the full price of $395,380 for Yescarta when used on an outpatient basis, with a minimum co-payment of around $79,000. Compared to the $94,000 initial cost for Gilead’s HCV blockbuster Harvoni, a $79,000 co-pay appears in the range for a breakthrough drug.

Secondly, Yescarta is expected to be used for the most critical care cancer patients for whom other treatments may not have worked. The rub is that for patients who receive Yescarta treatment in the hospital the cost could run as high as $1 million. I would imagine it would be prudent for patients, Gilead and the healthcare community to have initial treatments done in the hospital to monitor any potential dangerous side effects. There would be a limited number of people who could afford this high cost; the number of patients Gilead could treat initially would then be limited and so would Yescarta revenue.

Per Cowen up to 5,300 relapsed/refractory patients would be candidates to be treated by Kite’s Yescarta. Gilead was anticipated to treat bout 1,000 patients in 2018, which could have equated to over $350 million in revenue. Given new information from CMS that figure seems extremely high. The 5,300 relapsed/refractory patients that could have equated generated peak revenue of over $2 billion also appears overstated. The number of patients that can be realistically treated at CMS’s $1 million cost estimate needs to be firmed up by Gilead’s management.

The Bottleneck Could Be New Technology Add On Payment

Capacity constraints at certain hospitals were expected to create a bottleneck pursuant to the number of patients that could be treated. The major constraint now appears to be cost of in hospital treatment. Gilead and Novartis (NVS) have a new technology add-on payment (“NTAP”):

In an effort to ease the cost burden for hospitals, Gilead has filed for a new technology add-on payment (NASDAQ:NTAP), which the agency sometimes provides for new treatments that are deemed to be breakthroughs. Novartis, which launched its $475,000 CAR-T Kymriah last year, has also requested the additional CMS reimbursement for inpatient treatments.

Given the potential for Yescarta to save lives the treatment could meet the requirements for NTAP, which could reduce the costs for the treatment. Not only could NTAP reduce costs, but CMS could also serve as a model for how private insurers reimburse new treatments. Until CMS decides Gilead’s NTAP filing new treatments for Yescarta could be in a holding pattern.

That does not bode well for Gilead. Its Kite deal was a masterstroke because of the technology the company acquired, and the fact that it received FDA approval shortly after the deal was approved. The first to market advantage it and Novartis enjoyed could have been insurmountable. Since, Celgene (CELG) has acquired Juno Therapeutics (JUNO), and announced a strategic partnership with BlueBird Bio (BLUE) in the area of CAR-T therapy. The longer it takes for CMS to make Yescarta more affordable the more Gilead’s first to market advantage dissipates.

What’s Next For Gilead?

Pursuant to Yescarta it could be prudent to move previous estimates for the treatment out a year. For instance, if 1,000 people were expected to be treated in 2018 then the expectation could extend into 2019. Gilead’s HCV revenue is continues to run off. Total Q4 2017 revenue was down 9% sequentially, while HCV fell 36%. HCV has an annual run-rate of $5.3 billion in revenue. Even at peak sales of about $2 billion Yescarta would not be able to replace lost HCV revenue.

The company has $37 billion of cash on hand. It can use this as a currency to make future acquisitions to offset the HCV run-off. If financial markets continue to decline Gilead’s cash has more value and its buying power increases. GILD is up over 13% Y/Y, despite its massive earnings slide. Earnings will likely slide further as Q4 EBITDA margins fell to 45% when they had been above 60% historically. If financial markets falter then GILD could be a long-term by and hold play. For now sell the stock.

Disclosure: I am/we are short CELG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Portfolio Review: Continued Market Outperformance In Q1 2018

Following the teaching of Philip Fisher – who is Warren Buffett’s mentor – we maintain the core of the Integrated BioSci Investing (“IBI”) as a long-term oriented growth-investing community. Notwithstanding, we are cognizant of the needs to service our partners, who are interesting in the capturing of short-to-medium terms profits. Therefore, we are nearing the completion of the new Index portfolio to enable traders to leverage our edge in data and binary events trading.

Figure 1: Notable IBI Performers. (Source: Morningstar).

Overall Performance

In Q3 2017, our returns were 8%, an equivalent to the average performance for the Dow Jones Industrial Average (INDEX:DJI). With more companies added and longer time for theses to play out, our performance was boosted to 20% for Q4. In Q1 this year, the earnings further amassed to roughly 30% (as shown in table 1). Notably, our results were calculated based on the data produced since almost a year prior (at the inception our marketplace inception back on June 6 in the previous year). The “big picture” outlook best reflects our long-term oriented approach. For the same period of comparison, the SPDR S&P Biotech (NYSE:XBI), DOW, and iShares of NASDAQ Biotechnology Index (NASDAQ:IBB) procured 27%, 16%, and 9%, respectively.

Table 1: Comparative market performance (Source: Dr. Tran BioSci)

Gargantuan Winners

Subsequent to the Kite Pharma (NASDAQ:KITE) acquisition by Gilead Sciences (NASDAQ:GILD), Celgene Corporation (NASDAQ:CELG) bought out Juno Therapeutics (NASDAQ:JUNO) for a hefty premium. Both Kite and Juno procured 83% and 48%, respectively. Of note, the key winners from the previous quarter continue to appreciate aggressively such as Nektar Therapeutics (NASDAQ:NKTR) that delivered 437% profits for us. Moreover, the robust winners, Spectrum Pharmaceuticals (NASDAQ:SPPI), Crispr Therapeutics (NASDAQ:CRSP), Atara Biotherapeutics (NASDAQ:ATRA), Amicus Therapeutics (NASDAQ:FOLD), Madrigal Pharmaceuticals (NASDAQ:MDGL), Sparks Therapeutics (NASDAQ:ONCE), and Enanta Pharmaceuticals correspondingly earned 147%, 164%, 190%, 48%, 44%, 47%, and 52%.

Notable Losers

As with any portfolio (and especially for those focusing bioscience), it is the norm to witness a good number of underperformers. The key is to ensure that there are more winners than losers. Peter Lynch stated that if you are good in this field, you’ll be able to pick six out of ten winning stocks. That said, our losers, Versartis (NASDAQ:VSAR), Edge Therapeutics (NASDAQ:EDGE), Melinta Therapeutics (NASDAQ:MLNT), Intercept (NASDAQ:MLNT), Acadia Pharmaceuticals (NASDAQ:ACAD), Mallinckrodt (NYSE:MNK), and Protalix Biotherapeutics (NASDAQ:PLX) posted the respective 91%, 88%, 57%, 44%, 33%, 40%, and 43% declined. Even though these firms experienced significant depreciation, our portfolio still outperformed: this is due to the fact that we are long-term oriented investors. In betting on a company, you can at most lose 100% while potentially gaining multiple folds profit (on a company like Nektar) to make your efforts worthwhile.

Despite the losses posted, we still hold those companies for at least a year to enable them to make a comeback. Asides from Edge and Versartis, aforementioned firms have a robust chance of making a turnaround. And, they’re only suffering from temporary paper losses due to negative market sentiments. Nevertheless, the situation can change rapidly due to the underlying fundamentals as their various catalysts materialized. Omeros Corporation (NASDAQ:OMER) is a prime example. When the concerns regarding Omidria was recently abated, the stock rallied over 41%. For the equities mentioned, we recommend that you to either hold tight or to purchase more.

It’s imperative to be cognizant that the chances of Edge and Versartis to make a successful comeback are extremely low. We neither recommend investors to hold those stocks nor to purchase more. We keep them in the portfolio to remind our mistakes to better our due diligence.

Closed Positions

Given our long-term oriented nature, we rarely exit a position unless the company is outright acquired. As said, we moved both Juno and Kite to the closed positions (as presented in table 3) because they were acquired. Fonar Corporation (NASDAQ:FONR) is the exception to our rule. After many years of recommending it to friends (and now clients), we recently closed the position for nearly 6X profits. We exited Fonar, as the company has been experiencing substantial profits for many years but is most likely to face industry headwinds – the increasing competition and the reimbursement reduction of its diagnostic imaging business. The experience with Fonar reinforced the need to go ultra long for reaping the most profits out of your investment.

Table 3: IBI Closed position (Source: Dr. Tran BioSci)

Leveraging Partners’ Intelligence

IBI is your community just as much as ours. Hence, your feedbacks have been instrumental in the platform’s growth. Following your recommendations, we implemented salient changes to the portfolio as presented. The relative performance, as well as price target, are the products of your ingenious minds. And, we greatly appreciate your wisdom. Moreover, we take heed from partners and further innovated the Specialty Reports, for capturing the essence of the new bioscience investing. All firms featured in a Specialty Report are presented at one convenient place for you.

Final Remarks

In all, we expect IBI to perform well in the long-term despite the volatile market in the recent months. Whether you’re a long-term oriented investor or a trader, our aim is to assist you in your own research due diligence – for you to enjoy an edge in data analysis. Last but not least, we encourage you to provide us with more feedback, as we wish to streamline our operations to best serve you for years to come.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I like to inform our readers of Seeking Alpha’s recent policy change, in which the company implemented the paywall (not only to my articles but to all articles that are published over 10-day). This is in place, as the company is, after all, a business. And, the revenues from ads are not adequate to support the high-quality research that the company is providing. If you are a REAL TIME FOLLOWER, you will be notified immediately of our new research for you to continue to benefit from our due diligence. You can also gain access to all of my old articles and much more by taking the 2-week FREE trial of my marketplace, Integrated BioSci Investing.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Weekly Commentary: Bizarre And Ominous

Things have gone from surreal to the bizarre. The President points blame directly at Putin for a chemical attack in Syria. Russia threatens to shoot down any missiles fired into Syria. President Trump tweets “Get ready Russia, because [missiles] will be coming, nice and new and ‘smart!'” A presidential tweet the next morning provided an unequivocal update: “Could Take Place Very Soon Or Not So Soon At All.” Russia claims false flag. “U.S. Says Syria Has Used Chemical Weapons at Least 50 Times During War.” Missiles were flying Friday night.

The President’s personal attorney, target of a criminal investigation, had his office and residences raided by the FBI. An enraged President is said to be considering firing the special counsel and/or the Deputy Attorney General. “Trump Sees Inquiry Into Cohen as Greater Threat Than Mueller.” The Speaker of the House announces he’s through with Washington.

The former Director of the FBI will release his memoirs next week, with interviews lined up. It’s not going to be pretty. Leaks began to flow this week. James Comey likens the “unethical” President to a “mob boss.” The President tweeted that Comey is an “untruthful slime ball.”

The Treasury department announced the U.S. budget deficit had reached $600 billion during the first-half of the fiscal year. March’s deficit of $209 billion was 12% above the consensus estimate. Federal spending during the month was up 7% y-o-y, while revenues increased 2.7%. The CBO announced that Trillion dollar annual deficits will commence soon – about two-years sooner than expected only recently.

“President Xi Jinping presided over the Chinese navy’s largest-ever military display on Thursday…, the country’s latest show of force in the disputed South China Sea.” On board a navy destroyer dressed in full military garb, XI announced China would hold live-fire military drills in the Taiwan Strait next week. “…The task of building a strong navy ‘has never been as urgent as present.'”

Russian stocks sank 4.5% this week. Russian bond yields surged 43 bps to 7.49%, and the ruble fell 6.2%. Russia canceled a ruble bond auction, as Russian sovereign CDS posted their biggest jump in five years. “The Russian government on Monday called the latest US sanctions against the country ‘scandalous’ and ‘illegal’ and vowed it would retaliate…” Russia is putting together a list of banned U.S. imports, including rocket engines and titanium. With the lira down another 1.3% to record lows, Turkish President Erdogan warned that those committing “economic terror” would pay a steep price.

“Vitaly Churkin, Russia’s ambassador at the United Nations, said he unfortunately ‘cannot exclude any possibilities’ when asked about the danger of war between the US and Russia.” An ominous Friday evening Bloomberg headline: “Russia, U.S. Near Brink in Syrian Standoff With Nuclear Risks.”

The Hong Kong Monetary Authority intervened three straight sessions to support the Hong Kong dollar peg against the U.S. dollar. It was their first currency intervention since 2005.

Aluminum prices surged 15% this week. Palladium jumped 9.2%, and Nickel increased 3.0%. Crude (WTI) surged 8.6%, trading at a three-year high. “Americans Face Highest Pump Prices in Years.” Gasoline rose 5.7% this week, and heating oil jumped 7.3%. The GSCI Commodities index jumped 5.5% this week to the high since December 2014.

FOMC minutes offered added confirmation that the Powell Fed is not rushing to coddle the markets. Increasingly, they see upside risks to both growth and inflation. Rates remain much too low. “Fed Leans to Faster Pace of Hikes…” “Excluding food and energy, the core consumer-price index rose 2.1% from March 2017, the most in a year…” “U.S. wholesale prices advanced in March by more than forecast, reflecting broad increases in the costs of services and goods…” Even Chicago Fed President Charles Evans is calling for more hikes.

April 11 – Wall Street Journal (Nick Timiraos): “Federal Reserve officials at their meeting last month expressed greater confidence inflation would rise to their 2% target over the coming year, a development that could affect how much they raise interest rates in coming years. They also debated the costs and benefits of allowing the economy to run hot and discussed how they might need to later raise rates to a level that would deliberately slow growth… The minutes highlight just how much Fed officials’ outlook has changed since last fall, when surprisingly slow inflation raised questions about the need for continued rate increases.”

April 10 – Bloomberg (Alexandre Tanzi): “Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to… the Institute of International Finance. Among mature markets, household debt as a percentage of GDP hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. That’s a worrying signal, with interest rates beginning to rise globally… Still, the ratio of global debt-to-gross domestic product fell for the fifth consecutive quarter as the world’s economic growth accelerated. The ratio is now around 317.8% of GDP, or 4 percentage points below the high in the third quarter of 2016…”

Failing to make the top 1000 newsworthy items of the week, Chinese Credit data nonetheless continue to fascinate. China’s March growth in total Social Finance was reported much weaker than expect. At $212 billion (1.33 trillion yuan), growth was about 25% below estimates. Bank loan growth ($180bn) slightly missed estimates. The big story is the intensifying slowdown in shadow lending, which posted a net contraction during the month. Total Social Finance has expanded about $1.49 TN over the past six months, down 17% from the comparable year ago period.

The marked slowdown in system lending is leading a deceleration in money supply growth. March saw a notable slowdown. M2 money supply expanded 8.2% y-o-y versus estimates of 8.9%. And at this point it would appear the slowdown in money and Credit has impact general pricing pressures. March CPI was reported up 2.1% y-o-y versus estimates of 2.6%. PPI came in up 3.1% y-o-y against estimates of 3.3%.

Curiously, China also report disappointing March trade data. China posted a trade deficit of $5.8 billion, the first deficit since February 2017. Imports surged a stronger-than-expected 14.4% y-o-y, while imports were down 2.7% (after a huge February). It’s worth noting that China’s first quarter trade surplus with the U.S. was up 19.4% to $58.25bn.

Stocks, well, they enjoyed just a splendid week. The S&P500 rose 2.0%, outdone by the Nasdaq100’s 3.0% jump. The Biotechs surged 8.6%, and the Semiconductors advanced 5.0%. The DJIA was up about 440 points at Monday’s trading highs following Chinese President Xi’s “conciliatory” weekend speech. Not enamored with the interpretation, Chinese officials pushed back: “Beijing says Xi speech wasn’t a concession to US, it’s ready to hit back at any escalation.” With option expiration next Friday, it’s been another month to tease – then torment – put buyers.

Earnings season started off with a bang. “JPMorgan Q1 Earnings Beat on Better Rates and Trading.” “Citi beats, profits jump 13%.” “Wells Fargo beats by $0.05 and beats on revenue.” On Friday’s earnings reports, JPMorgan’s (NYSE:JPM) stock fell 2.7%, Citigroup (NYSE:C) dropped 1.6% and Wells Fargo (NYSE:WFC) sank 3.4%. Mark Zuckerberg travels to the nation’s capital and is grilled for 10 hours. My nine-year-old son asked me why the Democrats were meaner to him than the Republicans. Reasonable question. Facebook (NASDAQ:FB) rallied 4.7% this week.

Treasuries were a little worried that stocks remain oblivious to an extraordinary host of mounting risks. Ten-year Treasury yields added five bps to 2.83%. Two-year yields jumped nine bps to 2.36%, the high since August 2008.

It will be interesting to see how markets respond to the missile strikes on Syria. It appears as many as 100 missiles hit at least three targets, in a more intensive operation than a year ago.

Russia’s ambassador in Washington Anatoly Antonov said in a statement on Friday immediately after the first strikes on Syria. ‘The worst expectations have materialized. Our warnings fell on deaf ears. A pre-planned scenario is being acted on. We are being threatened again. We have warned that such actions will not remain without consequences. All responsibility for them rests upon Washington, London and Paris. Antonov stressed that insulting the Russian president was inadmissible.’

The week was bizarre and ominous. Reports had President Trump livid after Monday’s FBI raid on his personal attorney. I can imagine Putin is absolutely livid in Moscow. For different reasons, I worry increasingly about them both.

For the Week:

The S&P500 jumped 2.0% (down 0.6% y-t-d), and the Dow rose 1.8% (down 1.5%). The Utilities fell 1.4% (down 5.9%). The Banks gained 1.2% (down 0.3%), while the Broker/Dealers rose 1.5% (up 7.2%). The Transports rallied 2.2% (down 2.3%). The S&P 400 Midcaps gained 1.6% (down 0.9%), and the small cap Russell 2000 jumped 2.4% (up 0.9%). The Nasdaq100 recovered 3.0% (up 3.6%). The Semiconductors surged 5.1% (up 6.1%). The Biotechs jumped 8.6% (up 9.5%). With bullion up $12, the HUI gold index advanced 3.3% (down 4.6%).

Three-month Treasury bill rates ended the week at 1.72%. Two-year government yields jumped nine bps to 2.36% (up 47bps y-t-d). Five-year T-note yields gained nine bps to 2.67% (up 47bps). Ten-year Treasury yields rose five bps to 2.83% (up 42bps). Long bond yields added a basis point to 3.03% (up 29bps).

Greek 10-year yields jumped nine bps to 4.07% (unchanged y-t-d). Ten-year Portuguese yields declined four bps to 1.65% (down 29bps). Italian 10-year yields added one basis point to 1.80% (down 22bps). Spain’s 10-year yields increased a basis point to 1.24% (down 33bps). German bund yields gained a basis point to 0.51% (up 8bps). French yields rose one basis point to 0.74% (down 7bps). The French to German 10-year bond spread was unchanged at 23 bps. U.K. 10-year gilt yields rose four bps to 1.44% (up 25bps). U.K.’s FTSE equities index advanced 1.1% (down 5.5%).

Japan’s Nikkei 225 equities index rose 1.0% (down 4.3% y-t-d). Japanese 10-year “JGB” yields were down one basis point to 0.04% (down 1bp). France’s CAC40 gained 1.1% (unchanged). The German DAX equities index rose 1.6% (down 3.7%). Spain’s IBEX 35 equities index increased 0.9% (down 2.8%). Italy’s FTSE MIB index jumped 1.7% (up 6.8%). EM equities were mixed. Brazil’s Bovespa index slipped 0.6% (up 10.4%), while Mexico’s Bolsa rose 1.8% (down 1.2%). South Korea’s Kospi index gained 1.0% (down 0.5%). India’s Sensex equities index advanced 1.7% (up 0.4%). China’s Shanghai Exchange rallied 0.9% (down 4.5%). Turkey’s Borsa Istanbul National 100 index sank 4.5% (down 5.0%). Russia’s MICEX equities was hit 4.6% (up 3.1%).

Investment-grade bond funds saw inflows of $3.346 billion, and junk bond funds posted inflows of $989 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates added two bps to 4.42% (up 34bps y-o-y). Fifteen-year rates were unchanged at 3.87% (up 53bps). Five-year hybrid ARM rates slipped a basis point to 3.61% (up 43bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates down one basis point to 4.48% (up 33bps).

Federal Reserve Credit last week declined $9.6bn to $4.342 TN. Over the past year, Fed Credit contracted $92.2bn, or 2.0%. Fed Credit inflated $1.531 TN, or 54%, over the past 284 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $12.4bn last week to $3.450 TN. “Custody holdings” were up $238bn y-o-y, or 7.4%.

M2 (narrow) “money” supply added $4.5bn last week to a record $13.940 TN. “Narrow money” gained $575bn, or 4.3%, over the past year. For the week, Currency increased $0.3bn. Total Checkable Deposits fell $7.9bn, while savings Deposits rose $10.0bn. Small Time Deposits gained $3.6bn. Retail Money Funds dipped $1.5bn.

Total money market fund assets declined $5.3bn to $2.827 TN. Money Funds gained $183bn y-o-y, or 6.9%.

Total Commercial Paper gained $10.0bn to $1.058 TN. CP gained $72.9bn y-o-y, or 7.4%.

Currency Watch:

April 11 – Bloomberg (Justina Lee and Emma Dai): “Hong Kong’s dollar fell to the weak end of its permitted band for the first time since the range was imposed in 2005, a warning sign for a city where easy money has stoked a property boom and underpinned the stock market’s record rally. The spot rate reached HK$7.85 per dollar on Thursday… The Hong Kong Monetary Authority, which is obligated to defend the band, said in a statement that it stands ready to fulfill any requests from banks to support the currency.”

The U.S. dollar index slipped 0.3% to 89.80 (down 2.5% y-t-d). For the week on the upside, the New Zealand dollar increased 1.4%, the Canadian dollar 1.4%, the Mexican peso 1.4%, the Australian dollar 1.0%, the British pound 1.0%, the Norwegian krone 0.7%, the euro 0.4% and the Singapore dollar 0.3%. For the week on the downside, the Brazilian real declined 1.6%, the Swedish krona 1.0%, the Japanese yen 0.4%, the South African rand 0.3%, and the Swiss franc 0.3%. The Chinese renminbi gained 0.45% versus the dollar this week (up 3.69% y-t-d).

Commodities Watch:

April 11 – Bloomberg (Thomas Wilson): “Aluminum approached a six-year high after top exchanges said they’ll stop accepting metal from United Co. Rusal, increasing concerns about how the market will replace supplies from the Russian smelting giant hobbled by U.S. sanctions.”

The Goldman Sachs Commodities Index surged 5.5% (up 5.8% y-t-d). Spot Gold added 0.9% to $1,345 (up 3.3%). Silver gained 1.8% to $16.658 (down 2.8%). Crude jumped $5.33 to $67.39 (up 12%). Gasoline surged 5.7% (up 15%), and Natural Gas gained 1.3% (down 7%). Copper increased 0.4% (down 7%). Wheat jumped 3.6% (up 15%). Corn declined 0.6% (up 13%).

Weibo to ban gay, violent content from platform

SHANGHAI (Reuters) – China’s Sina Weibo will remove gay and violent content, including pictures, cartoons and text posts, during a three-month clean-up campaign, the microblogging platform said.

FILE PHOTO – A man holds an iPhone as he visits Sina’s Weibo microblogging site in Shanghai May 29, 2012. REUTERS/Carlos Barria

Friday’s announcement comes amid a clampdown targeting content across social media platforms as China’s leaders look to tighten their grip on a huge and diverse cultural scene popular with the young.

Weibo announced the move on its official administrator’s account, saying the action aimed to comply with China’s new cyber security law that calls for strict data surveillance.

The post drew more than 24,000 comments, was forwarded more than 110,000 times, and prompted users to protest against the decision, using the hashtag “I am gay”.

“I am gay and I’m proud, even if I get taken down there are tens of millions like me!,” said one poster, who used the handle “rou wan xiong xiong xiong xiong” and posted a photo of himself.

Some posts were quickly blocked by the platform, with the message displayed that they contained “illegal content”.

This week, news and online content portal Toutiao, which is luring investors, was forced to pull a joke sharing app after a watchdog denounced its “vulgar and improper content”.

Award-winning gay romance “Call Me By Your Name” was also dropped from a Chinese film festival last month. Homosexuality is not illegal in China, but activists say the conservative attitudes of some parts of society have prompted occasional government clampdowns.

Weibo has so far cleared 56,243 pieces of content, shut 108 user accounts and removed 62 topics considered to have violated its standards, it added.

Reporting by Brenda Goh; Editing by Clarence Fernandez

Singapore to test facial recognition on lampposts, stoking privacy fears

SINGAPORE (Reuters) – In the not too distant future, surveillance cameras sitting atop over 100,000 lampposts in Singapore could help authorities pick out and recognize faces in crowds across the island-state.

FILE PHOTO: SenseTime surveillance software identifying details about people and vehicles runs as a demonstration at the company’s office in Beijing, China, October 11, 2017. REUTERS/Thomas Peter/File Photo

The plan to install the cameras, which will be linked to facial recognition software, is raising privacy fears among security experts and rights groups. The government said the system would allow it to “perform crowd analytics” and support anti-terror operations.

GovTech, the Singapore government agency in charge of a “Lamppost-as-a-Platform” pilot project scheduled to begin next year, has given companies until May to register their interest in providing technology for the network.

“As part of the LaaP trial, we are testing out various kinds of sensors on the lampposts, including cameras that can support backend facial recognition capabilities,” a GovTech spokesman said in an emailed statement to Reuters.

“These capabilities may be used for performing crowd analytics and supporting follow-up investigation in event of a terror incident.”

Singapore says the project is part of a broader “Smart Nation” plan to use cutting-edge technology to improve people’s lives and has pledged to be sensitive to privacy.

Video surveillance networks are common in cities like London or New York. But Ian Wilson, a security lecturer at Australia’s Murdoch University said he believed that Singapore’s would be different in that it might involve extensive facial recognition technology.

Such technology has become commonplace in Chinese cities like Beijing and Shanghai.

Some top officials in Singapore played down the privacy concerns.

FILE PHOTO: People take photos with the skyline of the central business district in Singapore September 10, 2015. REUTERS/Edgar Su/File Photo

Prime Minister Lee Hsien Loong said last week that the Smart Nation project was aimed at improving people’s lives and that he did not want it done in a way “which is overbearing, which is intrusive, which is unethical”.

The spokesman for GovTech said: “The need to protect personal data and preserve privacy are key considerations in the technical implementation of the project.”

The government also hopes to use other sensors on the lamp posts to monitor air quality and water levels, count electric scooters in public places, and collect footfall data to aid urban and transport planning, GovTech said.

GovTech did not say how many lampposts would be used in the initial pilot project. But a former head of Singapore’s civil service, Peter Ong, said last year that the country aims to bring all of its 110,000 lampposts into the sensor network.

Adam Schwartz, senior staff attorney at the U.S.-based rights group Electronic Frontier Foundation, urged Singapore and other governments not to adopt facial recognition surveillance technology, in a response to a request for comment from Reuters.

He said he was concerned such technology could be turned on political opponents or used to curb free speech by deterring peaceful protest. Facial recognition technology typically allows authorities to match people picked up on cameras with those in databases.

Singapore’s only opposition party in parliament, The Workers’ Party, declined to comment.

Slideshow (6 Images)


Yitu Technology, a Chinese company that has recently opened its first international office in Singapore, told Reuters it was weighing a bid with its partners.

Yitu opened a sales and marketing operation in Singapore this year and also plans to set up a research and development hub in the country.

The company says its facial recognition platform is capable of identifying over 1.8 billion faces in less than 3 seconds. Singapore has a population of 5.6 million people.

“We see a big potential in this country. They are ready for the AI revolution” said Lance Wang, Yitu’s general manager for Southeast Asia, Hong Kong and Macau, adding that the firm was discussing a potential bid with partners.

Xjera Labs, a Singapore-based company, said it was putting in a bid with partners.

“The scope we are bidding includes most video analytics related components, such as facial recognition, crowd monitoring and human attribute detection,” Ethan Chu, Xjera’s co-founder, told Reuters.

A spokeswoman for SenseTime, a facial-recognition software company dual-based in Beijing and Hong Kong, said it was “exploring the situation” and declined further comment. The company includes Singapore’s state investor Temasek as one of its backers following a $600 million funding round which closed on Monday.

Wilson, the security lecturer at Murdoch University, said that unlike cities like London or New York, Singapore did not have a high crime or terror-threat level that justified such surveillance capabilities.

In its 2018 risk map published this week, AON, a professional services company, ranked the terror threat in Singapore as “low”.

The government says, however, that the country faces threats from both home-grown militants and foreign terrorists.

Reporting by Aradhana Aravindan and John Geddie; Additional reporting by Fathin Ungku and Sijia Jiang in HONG KONG; Editing by Jack Kim and Philip McClellan

Sequoia Capital's Raanan launches cyber-focused fund

TEL AVIV (Reuters) – Gili Raanan, general partner at Sequoia Capital Israel, has raised $50 million for a new venture capital fund called Cyberstarts.

Investors in the fund include Shlomo Kramer and Marius Nacht, two of the co-founders of Check Point Software; Amichai Shulman, co-founder of Imperva; Mickey Boodaei and Rakesh Loonkar, two of the founders of Trusteer, which was acquired by IBM; Nir Zuk, the founder of Palo Alto Networks; and Assaf Rappaport, a founders of Adallom, which was acquired by Microsoft.

California-based Sequoia is also an investor in the fund, which will invest in 10 cybersecurity firms.

The fund recruited 10 U.S.-based chief information security officers, who will support the decision making process and will help the portfolio companies reach the market.

Raanan will continue to manage Sequoia’s portfolio in Israel.

“We are interested specifically in investing in cybersecurity companies that are just setting out and have not yet raised any meaningful investment,” he said of Cyberstarts.

Reporting by Tova Cohen; Editing by Steven Scheer

Exclusive: Walmart close to buying majority of India's Flipkart, deal likely by end-June – sources

HONG KONG/MUMBAI (Reuters) – Walmart Inc (WMT.N) is likely to reach a deal to buy a majority stake in Indian e-commerce player Flipkart by the end of June in what could be the U.S. retail giant’s biggest acquisition of an online business, two people with direct knowledge of the matter said.

FILE PHOTO: A Walmart store is seen in Encinitas, California, U.S. on April 13, 2016. REUTERS/Mike Blake/File Photo

Reuters reported last week that Walmart completed its due diligence on Flipkart and had made a proposal to buy 51 percent or more of the Indian company for between $10 billion to $12 billion.

A deal with Flipkart would step up Walmart’s battle with Amazon.com (AMZN.O) for a bigger share of India’s fledgling e-commerce market, which Morgan Stanley estimates will be worth $200 billion in a decade. Local media have reported that Amazon is exploring a possible counter offer for Flipkart.

Both sources declined to be named as the talks are private.

Walmart will buy both new and existing Flipkart shares, with the new shares expected to value the Bengaluru-based firm at at least $18 billion, the sources said. The price for existing shares would value the firm at about $12 billion, one of the people said.

Japan’s SoftBank Group (9984.T), which owns roughly one-fifth of Flipkart via its Vision Fund, is unlikely to sell any of its shares due to the low price being offered for the existing shares, this source said.

Reuters has previously reported that early investors such as Tiger Global, Accel and Naspers will likely sell their entire stakes in Flipkart to Walmart if a deal is reached.

FILE PHOTO: The logo of India’s largest e-commerce firm Flipkart is seen on the facade of the company’s headquarters in Bengaluru, India July 7, 2017. REUTERS/Abhishek N. Chinnappa/File Photo

A deal is not yet finalised, and talks between Walmart, Flipkart and its investors are ongoing, one of the people said.

Flipkart also counts eBay (EBAY.O), Tencent Holdings (0700.HK) and Microsoft Corp (MSFT.O) among its investors.

Flipkart did not respond to a request for comment, a representative for Walmart in India declined comment while SoftBank said it doesn’t comment on speculation.


For Walmart, the world’s largest retailer known for its superstores, a deal with Flipkart would open up the vast Indian market.

Walmart has for years tried to enter India but has remained confined to a ‘cash-and-carry’ wholesale business amid tough restrictions on foreign investment. It currently operates 21 such stores in India.

By comparison, Amazon closely trails Flipkart, which along with its fashion units controls nearly 40 percent of India’s online retail market, according to estimates by researcher Forrester.

Flipkart’s investors are concerned that any deal with Amazon would run into regulatory hurdles as a combination would have more than 70 percent of India’s online retail market, one of the sources said.

Walmart’s push into e-commerce comes as Amazon has embraced offline retail, with an affiliate of the Seattle-based company picking up a $27.6 million stake in Indian retailer Shopper’s Stop Ltd (SHOP.NS).

In the United States, Amazon also bought high-end grocer Whole Foods Market Inc for $13.7 billion last year.

Walmart’s investment would give Flipkart not just additional funds to fight Amazon, but also arm it with a formidable ally with extensive experience in retailing, logistics and supply chain management.

Former Amazon employees Sachin Bansal and Binny Bansal founded Flipkart in 2007 in India’s tech hub of Bengaluru.

Like Amazon’s founder Jeff Bezos, they began by selling books, but have diversified rapidly, including by selling smartphones, such as those made by China’s Xiaomi, through exclusive flash sales, and now compete with Amazon in almost all product categories.

Writing by Miyoung Kim; Editing by Martin Howell