SoftBank is at the center of yearlong Nikkei rally

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TOKYO – It’s no surprise, perhaps, that SoftBank Group’s 22% stock rally these last 12 months exactly mirrors that of the broader Nikkei 225 index.

Few Japanese conglomerates have benefited more from the Nikkei rally – or from the Bank of Japan’s ultra-loose policies – than the one that Masayoshi Son built.

Case in point: SoftBank’s telecom unit just pulled off one of the biggest yen bond sales in recent memory thanks to wide-scale market expectations that the BOJ will keep its foot on the monetary gas.

SoftBank‘s feat in raising US$840 million managed to lift confidence in credit markets that big debt issuance deals were back. It more than confirmed promising hints from earlier sales by Mitsui Fudosan Co and Kubota Corp. It was even better that the SoftBank sale was supersized from an initially planned US$350 million amid demand that was more than twice what SoftBank anticipated.

Yet as much as SoftBank is benefiting from the Nikkei rally and the BOJ’s largess, it remains unclear if one of Japan’s three richest men is ready to return the favor.

The reason Son is a subject of global intrigue is the US$100 billion SoftBank Vision Fund he created in 2017. It has since remade the global venture capital game, with Son adding the financial firepower of a Vision Fund 2. Very quickly, a meeting with Son’s team became the top aspiration for young entrepreneurs from Silicon Valley to Hyderabad to Seoul.

Son’s VC ambitions were always a way to tap growth outside aging Japan. Japan’s deflation, dismal demographics and a play-it-safe corporate culture had Son deploying billions and billions in China, India, South Korea, Indonesia, Bangladesh, Brazil, Kenya, Israel and elsewhere.

The plan was to ride a herd of tech “unicorns” around the globe to riches SoftBank could no longer find at home in Japan.

At the core of Son’s vision, of course, was recreating the magic he achieved with China’s Alibaba Group 23 years ago, around the same time the BOJ pioneered quantitative easing.

In 2000, Son had the remarkable foresight to hand US$20 million to an obscure English teacher in Hangzhou. By the time Jack Ma took Alibaba public in New York in 2014, SoftBank’s stake was worth more than $50 billion.

Softbank Group founder Masayoshi Son and Alibaba founder Jack Ma. Photo: Asia Times files / Getty via AFP

The feat earned Son a reputation as the Warren Buffett of Japan. The launch of his Vision Fund was an attempt to replicate that success over and over again.

Yet Son has found that to be easier said than done. Among the big swings that Son missed: a perplexing fascination with WeWork, which over time became the Vision Fund’s cornerstone investment. Son bought into founder Adam Neumann’s claims to be creating the next Apple Inc with his office-sharing empire.

By 2019, as WeWork looked more like a financial house of cards and epic losses mounted, Son admitted “really bad” judgment in having championed the company as the next big thing. As Son scrambled to stabilize the Vision Fund, sandbagging efforts included selling roughly $7.2 billion worth of Alibaba. Son’s team is also working on an initial public offering of Arm Ltd, SoftBank’s chip unit.

Might Son now pivot to investing big in Japanese startups as opposed to prospective Chinese unicorns?

A few big data points have changed some Asia-region calculus since Son’s WeWork debacle:

  • slowing Chinese growth following leader Xi Jinping’s crackdown on mainland tech;
  • a deepening Sino-US trade war aimed particularly at tech goods; and
  • a Nikkei rally that has top global investors like Buffett rediscovering Japan.

In recent days, US Treasury Secretary Janet Yellen and Chinese Premier Li Qiang tried their hand at rebooting the Sino-American relationship. But with US President Joe Biden’s team determined to limit Chinese access to key technology like semiconductors — and Xi curbing exports or rare earth materials — tensions appear to be going from bad to worse.

This has Team Son rethinking its aversion to putting big money to work in Japan. Here, Buffett’s own bets on Japan’s economy may come into play.

In May 2022, Prime Minister Fumio Kishida took his campaign to lure more foreign capital to London, where he implored businesspeople to “invest in Kishida.” It was a play on a plea that Kishida’s mentor had made in New York nine years earlier.

In September 2013, then-Prime Minister Shinzo Abe brought his “buy my Abenomics” tour to the floor of the New York Stock Exchange. Abe pledged to reduce bureaucracy, loosen labor markets, incentivize innovation, boost productivity, empower women and reclaim Tokyo’s place as Asia’s undisputed financial center.

Mostly, though, Abe relied on BOJ easing to juice Japanese gross domestic product via a weaker yen. That, and some modest tweaks to corporate governance had Buffett and his ilk kicking Japan’s tires.

The so-called “Buffett effect” first hit Japan in August 2020. The Oracle of Omaha surprised many in the Tokyo establishment with sizable investments in five old-economy companies. Buffett took 5% stakes in rather stodgy “sogo shosha” trading houses: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.

The bets paid off handsomely. Last month, around the time Buffett topped up those investments — to an average 8.5% — shares had roughly doubled among his initial five investments. Buffett, true to his value-investing-guru reputation, front-ran the Nikkei’s biggest rally in 30 years.

The question now is how Son responds. Part of it involves how Kishida plays things.

Japan Prime Minister Fumio Kishida in London seeking investment, May 5, 2022. Photo: Prime Minister’s Official Residence

Kishida took power in October 2021 with grand plans to implement a “new capitalism.” Part of the scheme involved redistributing wealth to increase domestic consumption. Kishida also aimed to enliven Japan’s startup scene.

One early Kishida idea that holds great promise: devising a way to harness the $1.6 trillion Government Pension Investment Fund – the largest of its sort – to finance a startup boom. There, Kishida talked of facilitating the “circulation” of GPIF’s ginormous asset pool “into venture investment.” He talked of championing “stock options and other measures to promote the growth of start-ups.”

According to Ranil Salgado, an economist at the International Monetary Fund, there’s a need for a “holistic approach to address the constraints in the labor market, as well as improving the financing options and entrepreneurial education.”

Salgado adds that the “grand design of the new form of capitalism” includes measures to support venture capital, such as through public capital investment. In addition, it recognizes the constraint of personal guarantees on entrepreneurship, highlights the importance of entrepreneurial education, and strengthens the role of universities as startup hubs.”

Increased availability of venture capital equity funding, Salgado says, “is crucial to support startups and innovation. Reduced personal guarantees could help encourage entrepreneurship and allow unproductive firms to exit, which could in turn support investment and innovation, generate employment and improve productivity.

“Furthermore,” he says, “a more flexible labor market and a gradual shift from the lifetime employment system could encourage the most talented college graduates to venture and create new companies and have a reasonable backup option in case startups fail.”

Yet how SoftBank responds to these challenges and myriad others may decide how Asia’s number two economy fares in competition with the continental colossus that’s number one.

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Dedicated colleague, gentle legal giant: Law fraternity pays tribute to late NUS professor Tan Yock Lin

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SINGAPORE: Members of Singapore’s legal fraternity on Sunday (Jul 9) paid tribute to the late law professor Tan Yock Lin, describing the 70-year-old as a learned mentor always generous with his time for others. “We are profoundly saddened by Professor Tan Yock Lin’s passing, and our deepest condolences go outContinue Reading

AI will continue to create smarter robots

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Job loss caused by new technology is a constant in the history of industrial development. Innovations make obsolete some industrial activities while creating new ones – creating winners and losers.

Such changes are unpopular among those affected. Some examples of resistance were violent. A famous example is the resistance to new textile technology in Great Britain in the early 19th century that eliminated the jobs of some of the most skilled textile workers, which led the destruction of new equipment – to no lasting effect, as mechanization continued.

Machines continue to replace workers and at the same time create new, more sophisticated jobs that add more value than the jobs replaced by machines. And automation continues because it drives economic value creation that benefits society at large. A visit to a modern production plant will quickly show how robots have replaced manual workers with people operating computers.

Enabling these transformations are, of course, computers and new communications systems. Computers and new software have been creating and destroying jobs for many years. But new technology, with highly visible benefits, has been taken for granted as an obvious “good thing.”

But now we have reached a new stage, with dramatic advances in AI (artificial intelligence) technology, as demonstrated by ChatGPT, software recently released by Microsoft. What caught public attention is that the technology demonstrates the software’s ability to produce remarkable documents and respond well to questions based on massive storage of data.

‘Thinking’ robots?

Such results look like robots with human characteristics. This drew enormous public attention as well as fear, leading to demands for government controls placed on the AI technology to limit its “dangerous” applications.

Are robots finally “thinking like humans?” Such results immediately set off predictions of the massive replacement of lawyers and many other workers. An analysis by Asia Times’ David Goldman, “The great chatbot bubble,” suggests that the near-term potential of the technology has been overstated.

We now have smarter robots, but they have been getting smarter for a long time.

Robots are not humans. Human intelligence is the combination of many skills. Acquiring and applying knowledge and reasoning to solve problems are not quantified is a key human characteristic. The ability to discover related connections is a source of invention. Above all, human intelligence can deal with solving problems where related information is ambiguous.

The history of industrial development is that employment patterns adapt to enable ever more sophisticated functions. As machines replace humans, new jobs emerge, enabling new products and services hitherto impractical. Just look at the low US unemployment in recent years in the face of growing economic sophistication.

Ultimately, robots are machines that perform functions that they are trained to do. The software cannot reliably quantify uncertainty, and human involvement is needed.

For example, in medical applications where computers are tasked to read images such as X-rays, radiologists are needed to view and judge the importance of certain features in correlation with other features. The possibilities are infinite; hence human judgment and experience are essential.

Robots will remain our tools, and any ideas for controlling AI technology through regulations will remain speculative.

Henry Kressel is a technologist, inventor, author, and long-term private equity investor.

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165 firms with over S0 million in shareholders’ equity headed by Singaporean CEO, managing director

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SINGAPORE: A total of 413 companies in Singapore with more than S$500 million (US$370 million) in shareholders’ equity have filed CEO or managing director information with the Accounting and Corporate Regulatory Authority (ACRA).

About 40 per cent of these CEOs or managing directors, or about 165, are Singapore citizens, said Deputy Prime Minister and Finance Minister Lawrence Wong on Tuesday (Jul 4).

Mr Wong was writing in response to a parliamentary question by Non-Constituency Member of Parliament (NMP) Leong Mun Wai (Progress Singapore Party), who asked how many such companies have Singaporean chief executives.

Potential presidential candidates looking to qualify under the private sector service requirement must have served for at least three years as chief executive of these companies.

Those in the public sector must have held office – for at least three years – as a minister, chief justice, Speaker of the House, attorney-general or permanent secretary among others. Chief executives of key statutory boards or government-owned companies like Temasek also qualify.

It was revealed in parliament in May that there are around 50 public service positions that may fulfil the public sector service requirement to run in Singapore’s next presidential election.

Potential candidates must also satisfy the committee that they are people “of integrity, good character and reputation”.

A Presidential Elections Committee – made up of members such as chairpersons of the Public Service Commission and Accounting and Corporate Regulatory Authority – determines whether candidates are eligible to run.

Senior Minister Tharman Shanmugaratnam and businessman George Goh, founder of Harvey Norman Ossia, have both announced their intention to run for the presidency.

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MAS posts record net loss of S.8 billion amid rise in Singapore dollar, higher interest expenses

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SINGAPORE: The Monetary Authority of Singapore (MAS) recorded its largest net loss of S$30.8 billion (US$22.8 billion) in the financial year that ended Mar 31, widening from a S$7.4 billion loss in the year before that.

This was due to a rising Singapore dollar resulting in negative currency translation effects, as well as higher interest expenses incurred as part of mopping up excess liquidity in the banking system, MAS managing director Ravi Menon said on Wednesday (Jul 5) at the release of the central bank’s annual report.

MAS said it made a “small” investment gain of S$0.6 billion on the country’s official foreign reserves amid the challenging market environment where both bond and equity markets performed poorly.

But this was outweighed by the appreciation in the Sing dollar and higher interest expenses on domestic money market operations.

The Sing dollar saw a “broad appreciation” against currencies – such as the US dollar and the euro – that the official foreign reserves were held in, as the central bank tightened monetary policy three times during the financial year to tame inflation.

This resulted in “significant negative currency translation effects” as MAS’ financial results are reported in the Sing dollar, it said.

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MRANTI partners pitchIN as it targets to help 15 startups/spinoffs raise funding by end 2023

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aims to plug into the specialized Funding Accelerator program of pitchINA vibrant and dynamic technology environment may be made possible by collaboration and nbsp.A partnership between Malaysian Research Accelerator for Technology & amp, Innovation( MRANTI ), a catalyst for commercialization in the technology and innovation ecosystem, and MANAn & nbsp( a…Continue Reading

PwC Australia: Accounting giant splits business after tax leak scandal

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The PwC logo seen in the lobby of their offices in Barangaroo, Australia.Reuters
By Annabelle Liang
Business reporter

PwC Australia says it will sell its government business for A$1 ($0.70; £0.50) after a scandal over the misuse of confidential government tax plans.

The accounting giant has also announced the appointment of a new chief executive.

The move will allow the firm “to move forward with predictability and focus,” PwC Australia said in a statement.

In January, it emerged that a former PwC Australia partner had leaked the classified information.

The ex-partner, who was advising the Australian government, had shared drafts of corporate tax avoidance laws with colleagues, who used it to pitch to potential clients. The leaks occurred between 2014 and 2017.

The company has said that no confidential information had been used to help clients pay less tax.

However, politicians and officials have called for PwC Australia to be banned from being awarded government contracts until it satisfactorily responded to the scandal.

On Sunday, PwC Australia said it had appointed Kevin Burrowes as its new chief executive. He was previously PwC Network’s global clients and industries leader.

“He will work with his colleagues and management team to re-earn trust with PwC Australia’s stakeholders,” said Justin Carroll, the chair of PwC Australia’s governance board.

The company also said it would sell its Australian federal and state government business to private equity firm Allegro Funds, with the aim of reaching a binding agreement for the deal by the end of next month.

The sale will create two independent firms without any “disruption in vital services to public sector clients,” PwC Australia said.

In May, Tom Seymour, the previous chief executive of PwC Australia, stepped down after he admitted to being one of at least 67 recipients of the sensitive information at the centre of the scandal.

Later that month, the company put nine partners on leave and overhauled its governance board.

Australia’s Treasurer Jim Chalmers called the revelations a “shocking breach of trust”.

For the current financial year, the Australian government is committed to contracts with PwC worth A$255m, according to official data.

Since the scandal first emerged, major pension funds including AustralianSuper, as well as the country’s central bank, have said they would not sign any new contracts with PwC.

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How CPEC went off the rails in Pakistan

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Back in 2015, there was immense optimism surrounding the China-Pakistan Economic Corridor (CPEC), with expectations that it would elevate Pakistan’s global standing and position it as a leading force in South Asia. However, what was initially hailed as a well-intentioned effort to strengthen the bilateral relationship has become one of the primary factors contributing to Pakistan’s economic decline.

While there were a few significant Chinese-backed infrastructure projects in Pakistan prior to CPEC, the Belt and Road Initiative (BRI) ushered in a new era for Pakistan’s struggling public-sector projects and its chronically weak power and transportation industries. These sectors had long relied on government subsidies, leading to budget deficits.

After China announced its intention to support Pakistan and promote its ambitious Silk Road Economic Belt initiative, CPEC quickly emerged as the flagship project of the BRI.

Introduced in May 2013 during Chinese premier Li Keqiang’s visit to Pakistan, the economic corridor was lauded for its design, addressing Pakistan’s infrastructure gaps, establishing industrial zones, and creating trade routes to China through the strategically located Gwadar Port on the Arabian Sea.

The project initially required a substantial investment of US$46 billion, which quickly escalated to $62 billion in pledges, accounting for around 20% of Pakistan’s GDP. It encompassed several significant Early Harvest Projects (EHPs) in a country in dire need of international investment.

From a geopolitical standpoint, India has been a vocal opponent of the BRI since its inception in 2013. India viewed one of the key components of CPEC as a violation of its territorial integrity and sovereignty, particularly in relation to its claims on Pakistan-controlled Kashmir.

The initiative was seen as part of China’s broader strategy to encircle India and gain influence in the region. Concerns also arose regarding China’s easy access to Pakistani ports and the potential establishment of a naval base, raising significant security apprehensions for India.

India opted to oppose the BRI and focused on its own connectivity initiatives, such as the International North-South Transport Corridor and the Chabahar port in Iran, although it lacked a comprehensive strategy to enhance regional connectivity.

Initially, the introduction of the CPEC project brought hope and relief to the people of Pakistan, who had been grappling with persistent power and energy issues. Widespread blackouts caused by severe power shortages had paralyzed economic activities and cast bustling market areas into darkness.

The energy crisis stemmed from exorbitant energy rates charged by independent power producers (IPPs), neglected power plants, deteriorating transmission lines, and years of populist government policies.

For more than three decades, citizens endured daily electricity outages of about 10 hours in urban areas and up to 22 hours in rural regions. These power cuts disrupted revenue-generating markets, industries, educational institutions, health-care facilities, and social activities.

Figure 1: Division of CPEC Projects

Source: Planning Commission of Pakistan

China’s initial focus on constructing new coal-fired power plants within the framework of CPEC was initially seen as a positive step. However, in late 2021, China shifted its stance to align with the objectives of the UN Climate Change Conference (COP26), committing to avoid developing coal-fired power plants overseas and striving for carbon neutrality.

This change had dire consequences for Pakistan’s coal-dependent power sector, as ongoing CPEC projects aimed at expanding the country’s power-generation capacity by 20 gigawatts were halted or shelved.

The economic viability of CPEC projects, along with Pakistan’s ongoing financial distress and its involvement in the “war on terror,” further complicated the situation. Rumors of impropriety on the Chinese side added to the challenges, leading to project delays and an increasing burden of unproductive debt.

While Pakistan’s unsustainable external debt and economic difficulties predated the CPEC agreement, the initiative exacerbated the country’s widening current account deficits and depleted foreign-exchange reserves. Despite recommendations from the International Monetary Fund (IMF), Pakistan imported significant volumes of materials for the projects before seeking a $6.3 billion bailout from the intergovernmental body.

The foundation of CPEC, heavily reliant on Chinese equity holdings in Pakistan’s infrastructure projects, has made Pakistan liable for 80% of the investments related to the corridor. This has raised concerns that the former flagship initiative of the BRI is flawed and a costly misstep for China.

China has consistently refused to defer or restructure pending debt repayments, fearing that it would set a precedent for other debtor nations and result in a collapse of bad loans. However, it is in China’s interest to assist Pakistan in maintaining its image as a reliable ally to the developing world.

Given these circumstances, it is crucial for economies in the region, particularly BRI countries like Pakistan, to monitor closely and manage the share of China’s debt in their total external debt.

Pakistan’s involvement in CPEC has led to impractical projects heavily reliant on foreign loans, exacerbating the country’s economic difficulties. Soaring trade deficits and low levels of foreign direct investment have been caused by excessive reliance on external borrowing without addressing underlying macroeconomic challenges.

Therefore, Pakistan needs to prioritize credit diversification and debt restructuring to regain control of its external sector and tackle the pressing macroeconomic issues at hand.

A more detailed article by this author can be found here: Debt ad Infinitum: Pakistan’s Macroeconomic Catastrophe.

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