State Oil Company Ready for Privatisation

The Middle East’s biggest oil producer, Saudi Aramco, is planning international expansion via partnerships as it prepares for its IPO, encouraged by a government eager to modify its economic options.

The crude giant is seeking joint foreign ventures in the U.S. and all across Asia, CEO Amin Nasser commented to journalists at a press meeting at the company's HQ this week.
"There is a definite opportunity for international development looking at the current oil market," he said, adding that he thought global demand would increase by approximately 1.3 million barrels per day.

The changes to the company are part of a much bigger strategy for a profound re-examination of Saudi Arabia’s economy in response to an estimated dip in crude.

The kingdom is planning to sell up to 6% of Aramco via IPO and has requested that the company play a more dominant role in the industrial sector with a view to diversifying the oil-centric national economy.

Nasser declared "We will stay on point with Aramco,", as he expounded on the crude giants massive production capabilities of 10.2 million barrels per day average last year and that it will take “only a fortnight longer” to finish a recent development project at the Shaybah field.
The area’s output will increase to 1 million barrels per day once infrastructure work is complete, the development aimed at improving the kingdoms oil quality and dealing with decreased output at several other fields as they tap out, Nasser added.

The company also says a large shipbuilding complex that it is constructing at Ras al-Khair will be 100% operational in the next 5 years.

The primary area of the specialized port, part of Riyadh's strategy to seed industrial diversification, will be open in just 2 more years, and it’s long term purpose is to construct platforms and oil tankers.
It’s expected the project will create 85,000 new jobs, according to the company’s own press releases, and allow the kingdom to cut down on its imports by $11bn, while boosting the nations GDP by a cool $16bn.

Jonathon Price, Director of Mergers & Acquisitions at Nikko Holdings said “The timing is perfect for the recent announcements, and that’s no coincidence. With the company preparing for a forthcoming IPO, they are pretty much obliged to let potential investors know of development plans. Having said that, the new industrial port at Ras al-Khair is something that you would most certainly brag about anyway. It’s going to be an impressive complex.”

Cautious mood in Asian markets; bonds pick up

As the economic outlook remains bleak in China, market specialists in the region observed a global stock gain with a pinch of salt and instead turned their interest to bonds.

European markets may follow suit with the exchanges there expected to open relatively flat.
A knock on effect of fluctuations in the Chinese economy is the negative blowback on certain nations in the region dependent on the world’s second biggest economy such as Hong Kong, Taiwan and Korea, who all saw their shares decline.

A recovery in China’s growth was a possibility after first-quarter data was released in March and the country’s economy was thought to be heading in a positive direction. However, doubts have been growing since April regarding the durability of a turnaround after contradictory data and soaring debt in a number of sectors.

A news article by an un-named ‘economic oracle’ in a communist publication last week that hinted to China’s L-shaped economic trend didn’t alleviate investors’ fears over future recovery potential either.

The lone positive market was the Nikkei, which gained 4 per cent as the yen continued to move away from the highs seen last year against the greenback.

“The overall mood in Asia remains cautious I would say” Jonathon Price, Director of Mergers & Acquisitions at Nikko Holdings commented. “The lack of recovery in the Chinese markets is a down point but I think market sentiment is leaning towards a reversal in overly bearish positions” he added.
Meanwhile, bonds held firm which may be a sign that investors remained pessimistic regarding the future of less solid assets in the short term as the current environment of slow economic development continues.

In currencies, the yen remained defensive after a period of decline following authority’s comments threatening to intervene should it continue the present trend.

The greenback received good comments by the Fed President William Dudley last week, which rekindled hopes of an interest rate hike after a disappointing U.S. payrolls report. He said that there was a reasonable possibility there would be two hikes this year.

The dollar outperformed its 6 basket rivals as it gained to a weekly high of 94.156.
In the energy sector, oil prices added following wildfires in Canada and a terrorist attack on an oil platform in Nigeria. Brent and U.S. crude figures were both out approximately 0.4 per cent coming in at $45.29 and $44.30 per barrel respectively.

Japan's Abe Backs Cameron in Brexit Affair

Japan’s PM Shinzo Abe added to the Brexit banter, saying that Japanese organizations contribute resources to England because they consider it to be a door to the European Union.

Abe told a question and answer session in London, following conversations with UK PM David Cameron that Japan wants Brits to vote to stay in the 28-country coalition in the June 23 referendum.

"Japan attaches significance to our partnership with the U.K. as a door to the EU," he said. "A vote to leave would make the U.K. less appealing as a destination for Japanese venture."

Abe made his remarks as new figures underscored the effect the choice, is having on companies in the UK. Markit Economics said the economy is “slowing right down" after its manufacturing plant, development and administrations indexes all fell more than experts anticipated a month ago.

Abe is the most recent world leader to back Cameron's battle to keep Britain in the EU, with U.S. President Barack Obama and New Zealand Leader John Key among those voicing their support. In support of his argument to legislators on Wednesday, Cameron contended that no nation friendly to the U.K. is in favour of a Brexit.

Nikko Holdings Director of Mergers & Acquisitions, Jonathon Price said “It’s important for world leaders to share their comments on the issue of Britain and the EU. Their viewpoint is valuable not only as outsiders looking in but also as partners in the global economy”.

Japan's Priority

Obama's intercession was singled out by the "Remain" groups as a sign of the troubles England may confront on the off chance that it leaves the EU. The U.S. president said, during a three-day visit to the U.K. a month ago, that the U.K. would go to the "back of the line" with regards to arranging a U.S. trade agreement.

Abe echoed his sentiments, stating that Japan's priority would be establishing a trade agreement with the EU.

“More than 1,300 Japanese organizations have visibility in the U.K., employing more than 140,000 individuals,” Cameron told journalists.

England benefits more from Japanese venture than any other nation apart from the U.S.

Towards the end of 2014, Japan had interests in the U.K. estimated at 38 billion pounds ($55 billion).

Whilst "this is a matter to be decided on by the English people," Abe said, "Japan's own interests are also at stake."

Oil Prices Decline Following OPEC Production Figures

After it was revealed that oil stockpiles are rising in the U.S. oil prices fell sharply in the U.S. as well as in the other parts of the world. This is a cause for concern as OPEC has shown continued increase in production.

Jonathan Price of Nikko Holdings says, "Oil is both over bought and over supplied."
According to the data released by Genscape Inc., the key U.S delivery hub, supply levels have increased by 871,000 in comparison to last week. Economists are of the opinion that inventory levels will fall in concurrence with the decreasing price of oil in the U.S.

Mr Price added, "According to a report released by Reuters, the daily output for the month of April had increased by 170,000 barrels a day. OPECs total production could have been much higher but it was prevented due to the outage in Kuwait, UAE, Nigeria and Venezuela."
The U.S crude benchmark went down by 2.5% and ended at $44.78 per barrel on the New York Mercantile Exchange. The global Brent also registered a downfall of 3.3% and ended at $45.83 at the ICE Futures Europe Exchange.

Analysts have already begun to caution businesses regarding the surplus of refined fuel products. It is quite likely that gasoline will also register a decrease in demand. This is cause for concern as refineries have already begun to increase gasoline output in the hope of an increased demand.
"The refineries are pushing production without taking demand in perspective. This could lead to an oversupply of products," says Price.

Currently, production is being driven by financial pressure. The revenue of service companies has reached unsustainable levels and these companies are reacting by increasing demand.

More recently, Energy Aspects, a London-based research consultancy, said that many key players are experiencing losses. Giants like Schlumberger Ltd. and Halliburton Co. have registered operational losses. Halliburton also announced that on Monday the company will formalize its takeover of Hughes Inc. at a cost of $35 million.

Both gasoline and diesel have registered a drop. While gasoline went down by 2.6% and ended at $1.5628 per gallon, diesel went down by 2.2% and ended at $1.3555 per gallon.

Hedge Fund Traders are Out of Their Depth

They may not admit it, but numerous merchants at investment banks harbour a fantasy – that some time or another they will give up banking and go to work at a hedge fund outfit.
In the previous year, many have found themselves in a situation where they are forced to chase that aspiration, as redundancies have hit City exchanging floors. Yet, despite the fact that traders are not acclaimed for thinking little of their own capacities, the individuals who make the move to hedge funds frequently find that it is not as simple as they thought.

For a few, that is on the grounds that their bank experience is not the perfect preparation for the new employment – huge numbers of those recently let go at Deutsche Bank, Credit Suisse, Barclays and Morgan Stanley had settled into their fixed income desks, which probably hadn’t prepared them for most hedge funds.
The workers to leave Nomura, in mid-April (it was revealed that the bank was arranging 500 employment cuts in Europe, the Middle East and Africa) may be better prepared. Yet, even brokers with a solid foundation can find it difficult to adjust to hedge fund work.
One thing traders miss is the sheer volume of flow. The flow at a major bank is a consistent chance to profit. What's more, they leave a stream of business as well as data – what partners are doing and what customers are exchanging. Moving to a hedge fund cuts off that consistent opportunity.
Jonathon Price, Director of Mergers & Acquisitions at Nikko Holdings, who oversees $4.9 billion over a scope of assets, comprehends the complexity.

Price says, "You have to get used to the diminished stream of customer data. Ten years back, you could simply take your pick from all the data that was accessible."
He includes the proviso, "It’s not so much a major variable now, as most exchanges are done electronically."

In addition there were trade-offs, one being a more prominent flexibility than most bank merchants need to exchange more resource classes. Sir Michael Hintze, who established CQS, with $12 billion of assets under the administration of one of Europe's biggest multifaceted hedge fund managers, in 1999, is also a veteran of bank exchanging floors, at Salomon Bros, Credit Suisse, First Boston and Goldman Sachs.

Hintze said, "Numerous dealers underestimate the value of the seat and the stream of data at a bank. At a hedge fund, you have obligations regarding your exposures, capital, accounting report, margin and financing."

Star traders new to the hedge fund game might be perplexed to find that not all clients are inspired by their record.

Bank of Japan's Next Move in Late April after the Disappointment of Negative Rates

The recent experiment of the Bank of Japan with negative interest rates has not produced any encouraging results till date, and thereby Japan's central bank is running out of options. Given the current situation of affairs with the central bank, it's no wonder that analysts are speculating that the most probable next move of the Bank of Japan will have to be the massive acquisition of assets from the stock market.

Jonathon Price, the director of Mergers & Acquisitions for Nikko Holdings who oversees all corporate allocation of assets explains: "They have tried using negative rates to stimulate the markets but you and I know that it hasn't worked, so we are anticipating that their next move will probably be directed at the stock markets". This further quantitative easing expected of the bank is due to the fact that inflation still remains well below the 2 percent mark targeted by the bank. This situation has also resulted in bleak economic forecasts for the Japanese economy. The next policy announcement from the bank is scheduled for the 28 of April. It may then become clear if the government will be making any moves to stem the strengthening Yen, which is creating concerns among exporters that stand to lose their competitive advantage due to a stronger Yen and therefore more relatively expensive exports.

The central bank has traditionally focused its massive 80 trillion Yen, about $700 billion a year quantitative easing budget on the purchase of Japanese government bonds (JGBs), Japanese Real Estate Investment Trusts (J-REITs) and selected Exchange Traded Funds (ETFs). But that strategy seems to be reaching its limitations now as the Bank of Japan currently holds over 30 percent of Japan's government bonds. Jonathon Price explains further: "What all this has come down to now, is just a massive build-up of excess currency reserves in the country's banking system."

The negative interest rates had a negative effect.

Having piled up enough government bonds, the BOJ must have in desperation turned to negative interest rates in January. As it turns it, the negative rates policy has not brought about much positive results. Rather than the expected weakening of the Yen with this policy, the currency instead continued to strengthen.

A survey of some of Japan's largest manufacturers last week by the central bank showed that the majority of manufacturers maintain a negative outlook especially after the disappointment of the negative rate policy. It will most definitely be disastrous for the BOJ to further pursue negative rates; therefore a change in policy is most definitely due.

All these conditions indicate a possible change of policy for the central bank, with the purchase of stock market assets being the most likely move.

Mr. Price of Nikko holdings explains that the central bank is expected to increase its purchase of Exchange Traded Funds by about 5 trillion Yen, with a comparable increase in the purchase of J-REITs.

The central bank may also increase its JGB purchases, a move which is favored over the purchase of foreign bonds or instruments. As the prime minister, Shinzo Abe has said recently, the Japanese government and economy must avoid all forms of competitive devaluation and that he thinks the government must stay away from all manner of intervention in the currency markets. Without such a strong statement from the prime minister, it would have been safe to assume that the central bank may try to purchase foreign bonds. Such a move will most likely bring about the desired weakening of the Yen, solving one problem at least, but with the prime minister's statement, any such announcements are not expected in the next policy meeting statement.

Jonathon Price explains that the prime minister's statement is a bad signal to the market and to investors, meaning that the bank will not be stepping in to stem the strengthening Yen. This is an especially very difficult period for corporate Japan as most Japanese corporations are hedged at 115, therefore the Yen, which is currently at 109 is bleeding them dry and if it goes lower, then the effects will even be more disastrous.

The Yen is currently at 109.47 Yen to the Dollar, which is its strongest rate since October 2014.

Although the Yen traded at 120 Yen to the Dollar in January of this year, its rapid strengthening and sustained strength poses a huge economical problem to an already economically troubled Japan.

At the current state of the economy, a snowball effect may even be developing, because if there ever happens to be a widespread posting of losses from corporate Japan, as a result of a strong Yen, then consumer spending will fall again and inflation may probably never reach the central bank's target of 2 percent. There have been hopes of wage increases, which should then encourage consumer spending and therefore stimulate economic growth. But with Japanese companies facing tough times, those hopes are now jeopardized. If these difficulties continue and the firms' losses are sustained, then the central bank will definitely find itself exactly where it started.

But the central bank may get it right this time

The Central Bank of Japan has not always gotten it wrong. "Take for instance the inflation figures", notes Mr. Price, Japan has the best inflation performance of all the G10 countries. Over the last three years, the economy was able to reverse a slight economic recession with an inflation rate of a negative 0.5, into a 1 percent inflation rate. "The central bank's performance is definitely laudable", adds Mr. Price.

There is also some comforting news from the Tankan report that was published last week.

Although it basically reported grim economic news, Mr. Jonathon Price explains something rather interesting: "There was a substantial improvement of the lending attitude diffusion index of medium and small businesses within the fourth quarter from positive-20 to positive-17."

This was before the adoption of negative interest rates in January, but Mr. Price considers this metric to be a good indicator of domestic demand, because according to him "small and medium enterprises comprise an essential part of every economy which includes real estate and construction. You can therefore use this metric to gauge economic growth."

As had happened with the Swiss Francs a few years ago, it is also very possible that the rise of the Yen is due to increased international demand of the currency because it is a safe-haven currency. In such a situation as it also happened in Switzerland, the foreign influx of cash was so enormous that it started to actually hurt the economy, especially exports.

Another reason for the strengthening Yen may be the weakening U.S Dollar, although a weak Dollar alone will never make a strong Yen.

Another reason, and a very probable reason at that, is that the strengthening of the Yen is caused by speculative traders who are covering their large Yen positions. These are people who bet heavily on the effectiveness of the Bank of Japans policies and quantitative easing efforts. They are reportedly closing those positions now to cut their loses.

Established in 2006, Nikko Holdings is an independent, full-service brokerage, wealth management and business management provider dedicated to providing wealth preservation solutions from Asia to Europe for affluent individuals, families and Institutions.

Corporate headquarters based in Tokyo, Japan, which are responsible for the oversight of more than $6.5 billion-worth of assets on behalf of esteemed clientele located in Europe, and Asia.