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HONG KONG BUSINESS | OCTOBER 2012 1

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ong’s Best Selling B

usiness Magazine

reckless auditors now facing time in the big house

RICHARD BRANSON:WHAT YOU NEED TO KNOW

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BOCHKLOSES MARKET SHARE

where are the iPos

TIME TO TAX THE FOREIGNERS?

HONG KONG’S

TOp

ACCOUNTING

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2 HONG KONG BUSINESS | OCTOBER 2012


This issue of Hong Kong Business begins what we hope will be a new and important part of our magazine: the rankings section. Every issue, we will aim to rank Hong Kong’s most important companies and industries to help you understand who is who in town and what they are doing. It has not been an easy task as much of the information on company size, staffing levels and turnover is not publicly available.

Our research team had to tirelessly work through checking and vetting hundreds of companies to compile a list of what we believe is the 25 largest per industry. In this issue we ranked Hong Kong’s largest public accounting firms, and the next issue will feature law firms, followed by real estate agencies.

It is our first year; pardon us if we get it a little wrong or if we don’t get everyone on the list. The hope is that by conducting this ranking and survey exercise on an annual basis, we can get a good feeling and benchmark for how different companies in our most important sectors have fared.

More importantly, it will shed more light on the top and most important companies in Hong Kong.

Enjoy the issue.

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HONG KONG

BUSINESS

Tim Charlton

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FROM THE EDITOR

Tim Charlton

PuBlIsHER & EDITOR-IN-CHIEF

AssOCIATE PuBlIsHER

AssIsTANT EDITOR

ART DIRECTOR

EDITORIAl AssIsTANT

MEDIA AssIsTANT

EDITORIAl AssIsTANT

ADVERTIsING CONTACTs

ADMINIsTRATION

ADVERTIsING

EDITORIAl


20 Gamechangers

24 Legal Briefing

48 Life and Style

REGULAR

ANALYSIS

CONTENTS

26

34 Hong Kong haunted by poor corporate governance

Will the new Companies Bill improve Hong Kong’s score?

46 Boxing CleverThe new Porsche Boxster S is way ahead of the original creation, and represents perhaps the pinnacle of Porsche’s Stutt-gart engineering. Jeff Heselwood reviewsthis incredible machine.

SPECIAL REPORTFIRST

OPINION

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 262 Des Voeux Road Central, Hong Kong

For the latest business news from Hong Kong visit the website

www.hongkongbusiness.hk

ANALYSISDeal oF tHe DaY sites: GoinG, GoinG, Gone

10 Advice from Mike: Trust your partners

10 Where are the IPOs?

11 Time to tax the foreigners?

26 Deal of the Day sites: going, going, gone

With only 3 major sites controlling 90% of the market, how will the small ones survive?

12 How to make a huge mistake by comparing China with the US

14 Second half bumps before a brighter 2013

16 How to connect with your customers through social media

22 Why let bankrupts go Scott-free?

36 CY’s good news for ex-smugglers

46 SPECIAL REPORTBoXinG CleVeR

10 FIRSTWHeRe aRe tHe iPos?


RESIDENTIAL PROPERTYResidential property market to shrink by a fourthHong Kong’s banks are in for more pain as the new and unduly strict rules to curb property speculation choke decelerating market growth even further.

The new stimulus announced by the u.s. Federal Reserve september 13 forced Hong Kong to take immediate action to prevent its tumble into recession, and from stoking an already overheated residential property bubble.

RESIDENTIAL PROPERTYMortgage loans jump 29%More used homes transactions caused Hong Kong’s approved mortgage loans to rise 29% in August from July.

Approved loans came to HK$25.2 billion last month while those financing

pushed for the minimal increase, and a loss for unions that wanted an increase to HK$33 an hour. The current wage level of HK$28 an hour was implemented in May 2011.

FINANCIAL SERVICESHKEx introduces renminbi ETFsHong Kong Exchanges and Clearing ltd has launched the city’s first deliverable renminbi or yuan currency futures contract based on the renminbi and the us dollar exchange rate.

The futures will be traded on the stock exchange and will become a new offshore risk

News from hongkongbusiness.hk

Daily news from Hong Kong

MOST READ

ECONOMYHong Kong retains AA+ Fitch ratingFitch Ratings has affirmed Hong Kong’s long-Term Foreign- and local-Currency Issuer Default Ratings at AA+.

The outlooks are both stable while the country ceiling has also been affirmed at AAA, and the short-Term Foreign-Currency IDR at F1+.

Hong Kong’s sovereign creditworthiness is founded on its strong economic fundamentals, especially a flexible economy and robust public and external balances sheets.

RESIDENTIAL PROPERTYHKMA sets restrictive guidelines to avert property bubble escalationThe Monetary Authority has issued tougher guidelines that order banks to tighten underwriting criteria for loans and to set a maximum loan tenor for all new mortgage loans.

HR & EDUCATIONHK$2 increase in hourly minimum wage comingThe government is set to increase Hong Kong’s minimum wage by HK$2 to HK$30 per hour on labour Day 2013.

The new minimum wage is seen as a win for employers who

Renminbi etFs introduced

Residential property shrinks

Wage increase, anyone?

HK$2 hourly wage increase coming

management tool for hedging renminbi currency risk.

ECONOMYHong Kong BOP deficit hits $7.1 billionHong Kong recorded a balance of payments deficit of $7.1 billion in 2Q12, as against a surplus of $63.8 billion in the first quarter.

The Census & statistics Department said reserve assets fell by the same amount. The current account recorded a deficit of $9.3 billion (as a ratio of 2.0% to GDP), as against a surplus of $10.6 billion (as a ratio of 2.3% to GDP) in the same quarter of last year.

secondary market sales gained 43% to HK$18.1 billion, said the Hong Kong Monetary Authority. Mortgages drawn down increased by 1.9% to HK$16.4 billion.

INFORMATION TECHNOLOGYHong Kong has future as top IT centerHong Kong could become Asia’s leading information technology center because of its many competitive advantages, said international commercial real estate services firm Cushman & Wakefield.

The company said Hong Kong leads the Asia Pacific region in terms of housing data centers for global IT giants. The city’s nine submarine communication cable systems and 17 land cable systems seamlessly connect Hong Kong’s advanced telecoms to the world, the report said.


FIRSTADviCe from miKe: trust your PArtNers

Your editor attended the CLSA Investor Forum in Hong Kong, which, if there were a G20 for Asian business leaders, this would be it. Getting out of the lift on the wrong floor, I saw both ex-HSBC heavyweight and now ANZ Bank supremo Mike Smith as well as Qantas CEO Alan Joyce heading off to investor meetings.

I promptly took the lift back down and headed off to see another heavyweight champion, Mike Tyson, where I asked the boxing champ what advice he had learnt from the ring that he took into the boardroom.

“Always trust your decision-making skills, always have your lawyers with you, and trust your partners.”

From the ring to the boardroom Tyson also showed the power of reinvention after a fall, and the champ was on good form on his first trip to Hong Kong. “I can’t believe I’m this guy now and I’m married, but this is what I wanted to do.

I always wanted to be this guy but I always had distractions around me that stopped me from being responsible. I want to conduct myself with dignity, and I’m proud of myself for doing my job to the best of my ability.” Surrounded by the masters of finance and champions of business, Tyson also had some advice on money and winning, which are not always the same thing.

“Its OK if you have money, but I had glory and you can’t buy that. You can have all the money in the world but if you don’t have the best fighter in the world the money doesn’t matter.”

2012 League Table for Asia Pacific Listed Equities

Source: Thomson Reuter

Hong Kong only managed one entry on the top 5 IPO list so far this year.

Where are the iPos?

If your banker buddies are looking more downbeat than usual, it could be because bonuses are

not looking good for next year. The reason is the lamentable state of the IPO market in Asia in general and specifically in Hong Kong.

Money raised in the equity markets in Asia Pacific for the first months of this year totaled US$116 billion, down 39% from the previous year, a lackluster performance not seen since the height of the financial crisis in 2009.

Worsening IPO volumesMalaysia has been the hottest IPO market this year, driven by two of this year’s top IPOs, namely Felda Global Ventures’ US$3.3 billion IPO in June and IHH Healthcare’s US$2.1 billion IPO, according to data compiled by Thomson Reuters.

Hong Kong only managed one entry on the top 5 IPO list so far this year, Sunshine Oils, which raised just US$579 million in February.

Proceeds from IPOs listed in Asia Pacific Stock Exchanges reached US$28.9 billion, a 57% decline from the first nine months of 2011.

Bankers love IPOs because they can get higher fees, often as much as 3% of the deal size, compared to a second equity issuance. The only spot of bright news was the value withdrawn IPOs dropped 63% to US$6 billion, but then again that could just be because less companies are even bringing a deal to the table.

Proceeds from Asian stake sell

downs through block trades in the financials sector reached US$20.5 billion, up 109% from the same period last year, driven by deals such as Hong Kong’s American Intl Assurance Group which totaled US$8 billion and ICBC’s US$2.5 billion sell down.

There has also been a change in the leadership rankings, with UBS besting Goldman Sachs so far this year, with deals worth US$10 billion.

Could be worseAsian markets accounted for 76% of global IPO funds raised in Q3 2012, with 102 deals raising US$18.3b compared to 119 deals which raised US$15.8b in Q2 2012, figures compiled by Ernst & Young show. Greater China alone accounted for 35% of deal numbers and 25% by capital raised (58 deals, raising a total of US$6b). Compared to the same period last year, Asian exchanges increased their capital raised quarter-on-quarter, but the number of deals declined (136 deals which raised US$13.4b altogether).

Max Loh, country managing partner at Ernst & Young noted that although activity in China and Hong Kong was down in the quarter in line with the overall decline in economic growth, some markets like Malaysia and Singapore were very active, and some sectors, including mining, industrials and health care, are pursuing IPOs.

Out of the top 10 global IPOs this quarter, six were listed on Asian stock exchanges.

“Asia has over 200 companies in the IPO registration pipeline – accounting for more than half of global IPO pipeline. As companies and investors wait for markets to improve, we could expect an uptick in activity in the last quarter of 2012,” added Loh. So there may be some hope for those bonuses yet.

Bookrunner

UBSGoldman Sachs & CoCitiMorgan StanleyJP MorganBank of America Merrill LynchDeutsche BankCredit SuisseCITICHSBC Holdings PLCIndustry Total

ProceedsUS$m

10,033.49,875.89,250.06,279.45,427.85,073.24,866.94,657.24,005.02,906.2

115,959.1

Rank

123456789

10-

% Changein Proceeds

-9.2-22.5114.8-38.93.1

-16.9-24.74.4

-17.024.5-27.2

Mkt.Share

8.7.8.58.05.44.74.44.24.03.52.5

100.0

No.Issues

65443629342730372323

1,253

2012 YTD


FIRSTFIRSTFIRST

Singapore, for example, imposes a 10 % tax on foreigners buying into the already restricted local market. That in itself has not seen prices fall, but they have stopped rising.

What then might Hong Kong do? The easiest target looks like foreign buyers, who became a driving force in the local property market since 2007 and by the second half of this year accounted for a quarter of all new development sales in Hong Kong and over a third by value. The problem for Hong Konger’s competing with the mainlanders is that their odds are slightly worse than a few in a billion. Between 2004 and 2012, notes CLSA, a senior accountant’s salary rose by an average of 11%, or HK$5,000 a month.

Yet a 600 sf Tai Koo Shing apartment, which is a favourite of the middle masses, rose by 135% or $3.6 million. And it’s not just in the buying market that the mainlanders are having an affect. Many choose to leave their apartments empty, which means rents don’t have a chance to fall either.

So buy or rent, Hong Konger’s really are losing out. Hong Kong is almost alone in Asia in having no meaningful preferential housing treatment for its citizens.

time to tax the foreigners?

It is something of a shibboleth that Hong Kong property prices are high because land

is scarce. In fact, Hong Kong has a lot of spare land that could be turned over to housing development.

In 2009, CY Leung noted that a lot of land is reserved for water catchment but this is no longer necessary as a lot of water is imported, and many country parks were made so because there was no other use for them. In other words, more can be done in country parks and water catchment areas.

The middle income flatThe appreciation of the average middle income flat over the last 8 years has been astounding. CLSA research figured out that it amounted to the equivalent of 21 university degrees or enough rice to last a household of three over a millennia – 1,105 years to be precise.

The undersupply issue has not been fully redressed by the 70% increase in property supply over the last two years, but more supply may only be part of the problem. Record low interest rates and QE will naturally see demand pressure continue, so one idea being mooted is more taxes on properties to curb investor’s enthusiasm.

New supply side measuresannounced in August may alleviatepressure somewhat.

Residential vacancy rate

Living Density

Source: Rating & valuation department

Source: CLSA Asia-Pacific Markets

6.5

6.0

5.5

5.0

4.5

4.0

(%)

West Kowloon HK average Hong KongIsland

Kowloon New Territories

Hong Kong

Manhattan

Central London

Singapore

Tokyo

Mumbai

Shanghai

Beijing

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

(people/km2)

Note: Hong Kong living density calculation is based on core Hong Kong urban area, which includes HongKong Island ex Southern District to adjust for the maountanious landscape, and includes the wholeKowloon Peninsula.

Hong Kong

Manhattan

Central London

Singapore

Tokyo

Mumbai

Shanghai

Beijing

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

(people/km2)

Note: Hong Kong living density calculation is based on core Hong Kong urban area, which includes HongKong Island ex Southern District to adjust for the maountanious landscape, and includes the wholeKowloon Peninsula.

How can we alleviate pressure? Barclays property analyst Andrew Lawrence reckons new supply side measures announced in August may alleviate pressure somewhat, and that the government’s housing production target is to see an increase in private unit completions to 25,000 units pa, with an additional 10,000 units pa coming from subsidised for sale supply and a further 15,000 public housing units from 2016/17 onwards.

What about living space?Of course the other issue Mr. Leung may wish to address is living space. Singapore recently effectively banned “shoebox” units by insisting that the average size of a new unit in a development be 70 sq metres. Over the 29 years from 1982 to 2011, amazingly living space per person has increased by 39%, but from just 155 sq to 216 sq per person.

“On average each Hong Kong person has slightly more than a car space within their homes, including washrooms, kitchen and the notorious bay windows,” notes CLSA. Perhaps, its time for Hong Kong to not only make more apartments, but also make them bigger whilst it is at it.


For a long time, we have had huge issues with all those bullish arguments being made about China which are based on

comparing China with some developed countries, like the US, and expect China to reach developed countries’ level of whatever-metric-they-are-talking-about in N years by extrapolating from current growth rate.

Some of their favourite metrics would be X per capita, like cars per capita, steel consumption per capita, power consumption per capita, and capital stock per capita.

They would pull up a chart, which shows that China is using less cars, less power, less steel, less gas than developed countries, then convince you that China will be like the US in a few decades’ if Chinese demand of [insert product name] continues to grow at the current rate, so that it is very bullish for [insert an industry name].

Repetitive mistakesThe flaws are very obvious, yet bulls are making the same argument over and over again. First of all, while almost all China bulls seem to “know” China to become like the US, no one actually knows for sure if China will eventually become as rich as the US. In other words, the final destination of China’s economic development is uncertain.

Secondly, of course, the current rate of growth is not a guarantee of future performances.

And as we explained before, comparing per capita metrics of China with a developed country like the US ignores the fact that China is a poorer country than the United States, so it is not at all surprising that China is only using a fraction of things compared with the US, and this by itself is not a justification that China will become like

the US. At China’s current income level, China should be using less capital than the US, less cars than the US, less steel than Korea, less power than Europe on a per capita basis, for example. These facts tell you nothing about whether China will catch up with the developed world in these metrics.

How to make a huge mistake by comparing China with the US

ZARATHUSTRA

Dare to compare?

OPINION

By ZArAtHustrAhttp://www.alsosprachanalyst.com/

Massive failureJapan was an example of how this sort of arguments failed massively. Back in the 1980s and early 1990s, Japan was expected to become the largest economy on earth if the growth trajectory of the pre-bubble era continued.

That never happened. Michael Parker and Alex Leung of Bernstein are having the same issue with these arguments too. Specifically, with regards to commodities demand:

Over the last few years, the “developmental economics” argument for Chinese power, coal, steel and cement intensity seems to have been replaced with the “up-and-to-the-right until they hit DM levels” view. The old argument went something like this: China is a big country--lots of people, most of it is in total shambles.

The hounds of economic growth have been unleashed to address a half century of under-investment. Of course, power consumption growth is going up 10%+ next year. There is no end in sight.

Right about the time that Chinese power consumption in parts of the east coast reached European power consumption (Shanghai and Zhejiang now consume

more power on a per capita basis than Italy or Ireland), the bull case switched from “massive, developing economy catching up on 50 years of under-investment” to one of comparative consumption: China vs the Developed World, with China gaining quickly and inevitably. The absolute upper limit became the irrefutable end.

“Comparing per capita metrics of China with a developed country like the US ignores the fact that China is a poorer country than the United States.”


The Hong Kong economy looks set for a challenging few months until the end of the calendar year with further downgrades in

annual growth expectations likely. That’s hardly surprising given the uncertain state

of the global economy and its impact on the SAR’s external account. More worrisome for the rest of the year is when domestic economic activity slows even more rapidly.

Second quarter Gross Domestic Product grew by a real 1.1% year-on-year, according to government figures issued soon after the publication of our last economic column. That’s up from the 0.7% rate in the first quarter. But what really distinguished the second quarter from the first was the retreat in the pace of growth of domestic activity. Private consumption spending rose 3.7% in the second three months of the year, not far off half the 6.5% growth in the opening quarter and well down on the 8.5% growth in 2011.

Investment growth was just 5.7% down from 12.9% in the first quarter although construction investment held up well. Only government consumption increased with 3.5% growth compared to 2.3% in the opening quarter.

Easing trend continuesEven more troubling, the early figures for the second half of the year show a continuation of the easing trend both externally and domestically.

Total exports and re-exports were both 3.5% lower in July than the same month a year earlier although domestic exports (less than 2% of total exports) rose 0.3%. Imports were 1.8% lower and

the trade deficit rose to $40 billion from $36 billion.For seven months to July external trade was flat.

Exports slipped 0.3% for the period and imports rose just 0.9% when compared with a year earlier.

Total retail sales came in at $36.5 billion for July, up 3.8% on July last year and a nominal 5% on their June level, but the pace of growth is slowing. The June figure, for example, had been up 11% on the same month a year earlier.

On a more positive note, the domestic economy saw employment remaining strong with the number of employed at a record 3.67 million and

Second half bumps before a brighter 2013

Ian PerkIn

Bumps to a brighter 2013

“Investment growth was just 5.7% down from 12.9% in the first quarter although construction investment held up well.”

iAN PerKiNIndependent Economic [email protected]

ECONOMICS

unemployment at 3.2% on a seasonally adjusted basis. Household incomes also remain strong.

The weaknesses in the global economy also mean interest rates remain extraordinarily low by historic standards and negative in real terms, underpinning the property sector and encouraging investment.

The next six monthsLooking ahead, the next six months are likely to be the most testing time for the Hong Kong economy in the current economic cycle.

By the end of the year, the US Presidential election would have been decided. This means that the economic policy hiatus currently affecting Washington will ease, although with some vital fiscal hurdles to be overcome at year’s end in the outgoing Congress. Year’s end will also see the new leadership in place on the Mainland clearing the way for new policy decisions out of Beijing.

Locally, too, Hong Kong residents will be awaiting the postponed policy address from the new Chief Executive, Leung Chun-ying, to outline the policy programs he envisages for the immediate future.

There are also signs that the Eurozone economies are at last coming to grips with the sovereign and bank debt problems affecting the Euro area with European Central Bank chief, Mario Draghi, putting in place new measures to help ease the crisis.

The broad outlook for the Hong Kong economy then is that the next few months will be tough but that the outlook should improve in 2013. Nevertheless, the third quarter GDP numbers, due on November 16, will be awaited nervously to see just how bad the second half of the 2012 calendar year will be.

Hong Kong’s slow start to second half

Statistic July 2012 (HK$bill) July 2011 (HK$bill)) Annual change (%)

Retail Sales 36.5 35.1 +3.8

External Trade

- Total Exports 276.2 286.2 -3.5

-

Domestic Exports 5.13 5.11 +0.3

-

Re-exports 271.1 281.0 -3.5

- Imports 316.3 322.1 -1.8


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HKBusiness.pdf 1 10/6/2012 12:58:34 PM


In the past few years, social media has revolutionised the way

businesses interact with customers, making it easier to market new products and maintain a brand’s image. This wasn’t always obvious. Many companies were very cautious and slow to start using social media, putting in place all sorts of guidelines for their employees about what could be said and how to use these channels. My team and I jumped in quickly and started to experiment – over the years, we have always pushed each other to be innovative and approachable.

Advantages of social mediaWe soon found that these channels were an amazing tool for reaching our customers and the public. One of the first things we learned was that our new social media accounts gave us a real-time view of how we could improve. Through customers’ comments, we started learning about issues with our products and services more quickly than ever before. In response, we set up systems so that a customer who has a question or a problem can get a quick answer from our team.

Today I have 2.4 million followers on Twitter, 250,000 on Facebook, and 2.9 million on Google+; each month, 500,000 people check out my blog. Many of our businesses have their own blogs and Twitter feeds as well, multiplying the number of people we can reach directly. If we need to talk to our customers, we no longer

need to limit ourselves to placing ads with established media companies – we can just tell them directly.

Faster, real-time information disseminationOur online followers often help us to amplify our message by passing it along or linking to it. Just recently, our community of customers sprang into action when the British government decided to award the West Coast Main Line franchise – Virgin’s rail business – to a rival company rather than continuing with Virgin Trains, which has run it for 15 years.

Our social media accounts and website were overrun with messages of support from our customers and the public. One passenger, Ross McKillop, posted a petition online challenging the government’s decision and asking officials to review the award. By enlisting the support of our customers and of famous British celebrities, we managed to gather more than 160,000 signatures in just over a week, which we hope will trigger a debate in the House of Commons.

The process of spreading the word about a new business has changed now that we have a social media presence. When we bought Northern Rock, a bank in the U.K., in late 2011, people had a low opinion of banks, and we knew it would be hard to change their minds. Finally, we’ve been using our social media channels to spread the message that we are just as interested in making a difference as making a profit. I set up my

first entrepreneurial venture, a magazine called Student, to protest the Vietnam War, and in many ways I use my social media accounts today for the same purpose – to comment on issues I feel strongly about, such as the pointless war on drugs and the cruel practice of shark finning. Many followers respond, donate, or even volunteer.

Maximising of social mediaWhether you are launching a startup or leading an established company, you should start establishing your social media presence if you haven’t already. The easiest way to start is often by setting up a help line so that customers can ask questions about your product or service. Listen and respond thoughtfully, and you’ll be on your way.

Above all, remember to be authentic and organic, answering questions in a straightforward manner – there’s no need to check with your PR team first. You know your products and services, and people will see through any effort to parrot slogans or broadcast a marketing message. Like everything, if you’re having fun rather than just doing a job, you’re more likely to find success.

I try to answer a few questions every day from followers. People often wonder how I find time to tweet and update my blog so regularly. How do they not find the time, I wonder? Social media is such a terrific way to connect with our customers that I would never miss out.

Do you agree? Let me know with a tweet!

“Whether you are launching a

startup or leading an established company, you

should start establishing your

social media presence if you

haven’t already.”

How to connect with your customers through social media

RICHARD BRANSON

OPINION


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Jeckle Chiu

DEALMAKERS

Bonds Away: iCBC’s offshore rmB BondHerbert smith corporate partner Tom Chau advised ICBC

on its first overseas RMB bonds issue, an important milestone for the bank. The Chinese bank issued RMB 1

billion (us$157 million) three-year fixed-rate bonds due 2015. This is the first overseas RMB bond issued by ICBC, the world’s largest bank in terms of market capitalisation.

The relationship between ICBC and Herbert smith dated back to 2006, when the firm advised ICBC on its us$21.9 billion initial public offering, which was the world’s largest IPO at the time and the first simultaneous dual listing on the Hong Kong and shanghai stock exchanges.

Chau was supported by associates Isaac Chen and Lawrence Wang on the Hong Kong law aspects of the ICBC transaction while the us securities team was led by partner Kevin Roy supported by counsel Zhong Wang, consultant Cindy Kao and associate Jin Kong.

Chau advised China Construction Bank, the third largest bank in China, when they reorganised a HK$71.5 billion (us$9.2 billion) share listing on the Hong Kong stock Exchange, the largest IPO worldwide in four years and the largest ever in Hong Kong at the date of listing.

King & Wood Mallesons partner Helena Huang acted for SPARX Asia Capital Management Ltd. in a US$500m deal to buy a 49% interest in a China-based real estate developer Grandday Group Limited from Chinese Estates Holding Limited. SPARX Group is Asia’s second largest hedge fund and the deal was done by its private equity arm.

Other China deals Huang has done include advising a U.S. fortune 500 company in the glass fibre business in connection with its negotiations with the local bank in China and the sale of its Chinese subsidiary and acting for a Hong Kong listed company in its proposed $500m acquisition of a state-owned iron and steel manufacturing and mining group.

Baker & McKenzie securities partner Rossana Chu advised CITIC securities on Hong Kong regulatory issues in its us$310 million deal to buy 19.9% of ClsA, one of Hong Kong’s top rated brokerages and home of the famous annual Investor Forums. Credit Agricole has an option to sell the remaining 80.1% stake to CITIC securities for us$942 million.

Chu has a long history with CITIC securities, having acted for the securities firm in its us$1.7 billion Hong Kong floatation in 2011.No doubt clients of ClsA will be hoping the big name acts such as Katy Perry and Mike Tyson who came out for this year’s conference will continue to make fireworks under the new ownership.

Mayer Brown JSM corporate finance partner Jeckle Chiu advised Hong Kong-listed China State Construction International on its HK$2.2 bn rights issue. CSCI is one of the largest construction contractors in Hong Kong, with a number of flagship construction and civil engineering projects in the China market. It has undertaken over 780 projects in Hong Kong, Mainland China and Macau over the past 30

years. Chiu said the firm had a long-

standing working relationship with CSCI since 2005 when it advised them on their listing on the Stock Exchange of Hong Kong. Earlier this year, Jeckle also advised CSCI on their takeover of Far East Global Group Limited.

Ashurst corporate partner Lina Lee acted for Greentown China, a Chinese property development company, on a strategic us$658 million share sale to Hong Kong-listed conglomerate Wharf.

Wharf is likely gearing towards a takeover of the debt-laden Chinese developer with the transaction that consisted of a us$329 million share placing as well as a us$329 million placing of perpetual subordinated convertible securities. After the deal, Wharf’s stake in Greentown rose to 24.6%, making it the second largest shareholder.

lee led the team with counsel Jonathan Hsui, assisted by Tracy Li and Allison lau. Partner Robert Ogilvy Watson assisted in relation to Takeover Code issues and partner Stuart Rubin advised on us securities aspects.

Helena Huang

Lee Lina

Rosanna Chu

Tom Chau


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GAME CHANGERS

stock trading just got more exciting

8 Securities, a local startup which started operations last April, bills itself as Asia’s first socially networked trading portal. According to founders

Mathias Helleu and Mikaal Abdulla, the company was born from a mission to empower individual investors and reinvent the way people trade. Through a personalized trading portal, the founders are proud to give their customers global trading, market data and research and a private social network on a single dashboard.

Hong Kong Business spoke with the makers of the this revolutionary trading portal which aims to make investing easier for both experienced investors and people who don’t have a stock-trading background.

What sets your company apart from traditional brokers?We were witnessing dramatic shifts in technology that we felt could be harnessed to build a better online stock trading service. We knew that the only way to fulfil our mission of delivering a totally unique and valuable customer experience was to do it ourselves without the organisational bureaucracy and legacy technology of a large company. The brokers in Hong Kong simply were not evolving and we felt we could launch simpler, faster and more secure trading for our customers than anyone else in the market. Furthermore, by having a 100% online

model we are able to pass savings on to our customers with some of the lowest rates to trade Hong Kong and US stocks in all of Asia. Quite simply, we can run 8 Securities at almost 10X lower cost than a traditional broker running on older technology and infrastructure.

Our technology was built from the ground up to be global. Our platform is multi-market, multi-product, multi-currency and multi-lingual. This gives us the power of launching our service from Hong Kong to the rest of the world. It is our ambition to become Asia’s first global online stock trading service which connects investors to global markets and with each other regardless of location or device. We are assessing expansions plans in many of the larger markets across the globe.

Our website, Trading Portal and customer service is available in Chinese and English. Soon customers will be able to trade any global market from their Portal and engage investors from across the globe via our integrated social network.

What was your source of funding for the business?We targeted US$10 million in funding. We elected to raise all of our financing up front rather than in multiple rounds so we could focus on building great products and services and not on raising more capital. Our investors are all private investors. We did not raise capital from any institutional investors so we could ensure independence for ourselves and customers. We raised in the form of equity capital with no debt. Our major investors are Velocity Capital B.V. and Leitmotif Private Equity.

What’s so unique about the Hong Kong market that you choose to do business here?Hong Kong is the 7th largest equities market in the world and was the top IPO market last year. Growth outlook is positive as China will continue to fuel Hong Kong’s growth in the long-term. There are today over 1.2 million brokerage accounts online and the city is amongst the countries with the highest mobile penetration rates in the world. Of course, there is also a very strong adoption of social media here. We simply feel the brokerage industry in Hong Kong has been unimaginative and stagnant while customer behaviours and technology adoption has accelerated. Why do so many people in Hong Kong carry an iPhone? Its because they value usability, simplicity and great design. Why should online financial services be any different?

What are your future plans and offerings?Today we offer HK & US equity trading. We will be adding more stock markets across Asia, Europe and Canada. We are currently working on our mobile trading application which we believe will be a huge improvement for the market. We listen to our customers and build the products and features that are most important to them rather than a pre-defined road map. We are always listening and very agile. We will be announcing a second office in Asia within the next few months and we are excited to extend Hong Kong’s global footprint.

8 Securities offers transparent and real-time peer-to-peer exchange of ideas and trading on one screen.

Mathias Helleu and Mikaal Abdulla, founders of 8 Securities


OPINION

Why let bankrupts go Scott-free?TIm hamleTT

Well, pardon me if you find the topic depressing, but an interesting--if not genteel--debate has been going on about bankruptcy. This does not seem to be a hot topic

in Hong Kong. Bankruptcy proceedings are rarely or never reported here, and the territory-wide figures only surface in downturns, when they are regarded as a sort of secondary symptom. From time to time I suppose the system is tweaked a bit. These tweaks arouse no political interest.

Perhaps they should. On one side of the argument are those who say that bankruptcy should be quick, painless, free from stigma, and designed to allow the bankrupt person back into business as soon as possible. On the other side are those who say that owing people money you can’t pay is dishonourable and economically disruptive. Some stigma is deserved and there is a public interest in keeping bankrupts out of running a business at least until there has been time to clear up the wreckage of their last effort. The more painful versions are found in Europe, where there is perhaps more nostalgia for the idea that people running companies should be gentlemen on whose word you can rely. However, this is held to contribute to the less enterprising and innovative business culture in Europe, by those who believe they can discern cultural differences on this scale.

The Chinese modelI suppose Hong Kong more or less follows the European model, though this clearly sits oddly with the fact that most business here is conducted by Chinese people in a Chinese way. My impression is that most people starting a precarious business here borrow from their friends and relatives. These debts have to be repaid for reasons which have little to do with the law. Loan sharks also have their own arrangements. So it seems bankruptcy doesn’t really meet local needs at all.

In my early days as a reporter on a local newspaper, I was regularly sent to cover bankruptcy proceedings. Newspapers took their obligations seriously in those days and we covered almost everything. Bankruptcies were something of a treat because they were held in a hall built into the outer wall of Lancaster Castle. As the rest of the castle was used as a prison, this was the only bit you could visit. It was an architectural gem with a spectacular timber roof. The proceedings themselves were less spectacular. In fact, they usually were rather pathetic. Most of my small sample comprised young men who had been apprenticed to local butchers. Having completed their training and married, they decided to start their own shop. This was not as daring as it would be now; specialist butcher’s shops were still quite common, at least in North Lancashire, and large supermarkets were not. Still it seemed that the young men who finished up in the castle wall were more talented in butchery than in business. The sums involved were quite modest, and I imagine most of them went back to working for someone else. Your real crooks did not go bankrupt. They started their businesses with a

tim HAmlettFormer Editor of Sunday Standard and Associate Professor of Journalism

limited company and the creditors were left squabbling over scraps. This did not produce reportable proceedings though it seemed a lot of people knew who the local practitioners of this art were.

Analysing bankruptcy statisticsAnyway, it appears to me that, in general, people who go bankrupt are rather small potatoes who started businesses labouring under a great shortage of working capital and frequently in an area where the chances of success are quite modest. Only 40% of newly opened restaurants, for example, survive for two years. So from this point of view you might say forgiveness should be easy, the procedure should be painless, and the victims should have nothing to be ashamed of. And, indeed, this seems to be the way it works in the US, and Americans are quite happy with it.

But there is another side to the story. The person who goes bankrupt is not the victim, or at least not the only victim. He goes bankrupt because he has creditors and those creditors are not going to get the money they are owed. Actually, the bankruptcy proceedings, if they are a punishment at all, are not a punishment for failure. They are a punishment for failure while using other people’s money.

If you open a restaurant in Central (optimist!), you may well discover that because the only meal most people eat in Central is lunch, you will not actually make a profit. If you then decide to close the restaurant, pay off your staff, suppliers, and landlord, and return the loan to the bank, then you do not need to be bankrupt at all. You have ventured your own money and lost it. Nobody else has been harmed and there can be no possible objection to your trying again.

But that is not what happens in the real world. In the real world, the proprietor discovers in the first month that he is losing money and puts it down to teething troubles. Income rises gradually but does not rise enough. After a while, we are living on hope that the economy will turn up, that the rival establishment across the road will be evicted by his rapacious landlord and replaced by an expensive clothes shop, that the Hong Kong glitterati will suddenly develop a taste for Patagonian cuisine, that Time Out’s anonymous reviewer will give us the thumbs up... and when none of these things happen, and the creditors can no longer be kept at bay, we have spent a large amount of other people’s money.

It is only human to hope. But to hope at other people’s expense is probably something which should be discouraged

as much as possible. A certain amount of stigma is justified, and even desirable. If you order goods,

you are implicitly promising to pay for them. A person who breaks a promise is ... well, not a gentleman. This is no doubt an old-fashioned view, but the fruits of “all’s fair in love and investment banking” are now with us and they are not sweet. People should take their

obligations seriously. Show me the money!


LEGAL bRIEFING

What is the new companies ordinance about?It has taken longer to write than a JK Rowling novel, but after 6 years in the making, the new company ordinance consists of 921 sections and 11 schedules, and was financially passed into Law in July. It will come into effect in 2014 and one of the key changes is auditors of Hong Kong incorporated companies now face criminal liability if the auditors fail to declare in their audit reports the existence of certain accounting discrepancies or are unable to obtain all information and explanations necessary for the preparation of the audit.

Why the push for a new companies ordinance?This reform follows other recent efforts by Hong Kong to enhance investor protections, including a recent proposal by the Securities and Futures Commission of Hong Kong to impose criminal liability on sponsors of initial public offerings for untrue statements including material omissions in a prospectus, said Fried Frank partner Joshua Coleman. He noted that a recent landmark court decision in which the SFC was able to require a Chinese textile company accused of overstating its earnings to convene an independent shareholders’ meeting to approve making an offer to investors to repurchase shares sold in its initial public offering or purchased in the secondary market.

How likely is it that an auditor will go to jail?The key test here is “recklessness,” not sloppiness. The new legislation will require auditors to include appropriate statements in audit reports if the auditors are of the opinion that the financial statements are not in agreement with the accounting records of the company in any material respect or the auditors fail to obtain all the information or explanations that, to the best of such auditor’s knowledge and belief, are necessary and material for the purpose of the audit.“However, unlike the existing Companies Ordinance, the new legislation will make the omission of any of the above statements from an audit report, if done knowingly or recklessly by the auditor, a criminal offense with each instance punishable by a fine of up to HK$150, 000,” said Mr Coleman.

What should auditors beware of?Patrick Perry, a partner with Clyde & Co, warns the introduction of clause 399 raises a number of practical concerns for auditors. “Questions that

reckless auditors now facing time in the big house

arise from the legislation, which many auditors may wish for clarity upon, include whether an auditor can be criminally liable for the acts and omissions of junior audit team members? Or failing to obtain all necessary information and audit evidence as a result of say completing the audit under huge time pressure? Or not carrying out certain audit procedures at the request of the client? Or placing excessive reliance on representations made by the client’s management during the course of the audit?”

Not surprisingly, Hong Kong’s accountants are unhappy with the legislation.

The main concerns raised by the HKICPA, and supported by a number of the major accounting firms in Hong Kong, included the necessity of imposing criminal sanctions when the HKICPA already has the power to discipline its members, the exercise of professional judgement in making the required statements, and exactly who will be liable to prosecution. Many questioned the disproportionate effect of a criminal record on the career of the auditor concerned. Nevertheless, the laws are on the books, and reckless auditors need to beware.

What else is new in the companies ordinance?Mayer Brown partner Jeckle Chiu said the replacement of the headcount test was a major change. The current headcount test became a cause for concern during the high-profile PCCW case in 2009. In that case, the problem that emerged was that, while the existing law empowered the court not to sanction a scheme—even if the scheme had been approved under both the headcount test and share value test—it did not empower the court to sanction a scheme where the headcount test had not been passed, even in cases where share splitting had increased the headcount of members opposing the scheme. For specified privatisation and takeover schemes, the headcount test is to be replaced with a new requirement: the number of votes cast against the resolution to approve a scheme of arrangement must not be more than 10% of the votes attached to all disinterested shares.

Company auditors can now face criminal prosecution under the new Companies Ordinance set to come into law, but how worried should they be?

patrick perry

Jeckle Chiu

Joshua Coleman

“The new legislation will require auditors to include appropriate statements in audit reports.”


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CV business ad-3.pdf 1 24/07/2012 5:58 PM


It has been a brutal year for Hong Kong’s group buying sites, many of which have either shut down or

given up the virtual ghost. There are now just 3 major deal sites in Hong Kong which control over 90% of the market, whilst more than 40 sites scrabble over the scraps.

The group-buying landscape Brian Tong, co-founder and director at Deals Hong Kong, a platform which reviews and presents latest deals from over 14 deal sites in Hong Kong, reckons there are about 40 different group-buying sites in HK with 80% offering deals only in Chinese. The group-buying landscape in HK is evolving to see a split between the larger group-buying sites with gross billings, based on voucher price multiplied by the number of vouchers sold, of over HK$1 million per month, and the smaller group-buying sites, with less than HK$1 million a month. Tong mentioned that recently the group-

There are now just 3 major deal sites in Hong Kong which control over 90% ofthe market.

Deal of the Day sites: going, going, goneWith only 3 major sites controlling 90% of the market, how will the small ones survive?

degree of that seen in Singapore, where three in four online deal sites ceased operations over the last two years. “There are three major daily deal and group-buying companies in Hong Kong offering both English and Chinese listings: Groupon HK, BeeCrazy, and Baby Bamboo. The larger ones continue to grow while the smaller ones are struggling to compete. We have seen some group-buying companies exit the HK market in 2012 yet have still stayed active in other regions within Asia.”

The group buying niche Group buying is still a growing niche in Hong Kong. According to Experian Hitwise, an online competitive intelligence service providing over 1.8 million Hong Kong Internet users online search behaviour, visit shares of group-buying sites in Hong Kong increased 644% from January to September in 2011. Despite the slight drop towards the end of 2011, the visit shares increased steadily throughout this year. “In fact, we continue to see new local group-buying companies entering the market, such as Sharpon by Next Media, creating a dynamic and increasingly competitive market environment that benefits online shoppers,” said Experian managing director for marketing services in Asia Pacific John Merakovsky. “Hong

buying market has seen fluctuations in the monthly gross billings from HK$20 million in January to HK$47 million in March and to HK$24 million in August, among English-listing deal sites.

Groupon, which takes more than a third of deal site visitors in Hong Kong, says that whilst some small group-buying sites that have ceased operations over the past two years, they remained optimistic about the relatively young group-buying market in Hong Kong. “e-Commerce in Asia especially Hong Kong is still relatively in its early stage of development when compared with the USA and Europe. With the growing popularity of social media in Hong Kong, we see great market potential in the online shopping and e-Commerce industry sector.”

The playing fieldTong says there is consolidation in the Hong Kong daily deal and group-buying market but not to the


COVER STORYKongers love discounts and coupons, and many look for such deals on local forums or hear about it from their friends on social networking sites. While this has helped group-buying sites flourish in the market, it has also resulted in increased competition,” he added.

The money they makeTong believes that many of the deal sites in Hong Kong companies are making money, especially when you consider that they can take in anywhere between 30-60% of each voucher sold. “Most of these companies are privately owned, so they don’t publicly divulge their financial performance, but if you consider that Groupon had gross billings of over US$5 billion and net income of US$30 million from the trailing 6 months ending on June 30, 2012. In Hong Kong, BeeCrazy is another large group-buying company with a really good reputation which rivals Groupon Hong Kong in monthly gross billings. So if operating costs and fixed costs are similar, we would estimate that they are also profitable. Even smaller companies can be profitable as operating costs would be lower and many are resorting to selling a plethora of small product items, ranging from cell phone chargers to scarves to olive oil,” he said.

BeeCrazy CEO Krzysztof Marszalek told Hong Kong Business that third quarter was their best ever, as they were profitable with triple-digit revenue growth YoY. “While we believe that next year growth of the group-buying segment will be somewhat slower, we remain very excited about the opportunities in broader e-Commerce market in Hong Kong,” he said.

Soul searchingNicolas Reille, founder of a surviving small deal site, Twangoo, sees a bleak outlook with the playing field expected to stay tilted in favor of the larger companies.

Reille thinks that the group-buying industry lost its soul and that that will impact the competitive landscape. “Group buying was initially a great idea because it was the cheapest way for merchants to advertise their businesses and get clients. Today, with group-buying websites delivering three newsletters a day, featuring dozens of new deals every day and selling spa services next to mattresses, there is no more

advertising value for the merchants, and that’s a major issue,” he said. He added that Groupon clones will disappear soon because they do not offer a valuable service anymore.

Still immatureDespite the relatively weak market, this is still an immature market. “It is in the Hong Kong culture to go out to eat and shop and to literally “walk the streets” in Chinese to take in all of the city’s events and offerings. Another unique aspect of Hong Kong group buying is the language as many people understand English but prefer Chinese when communicating. As many local businesses still conduct their day-to-day activities in Chinese, as a successful daily deal and group-buying company, you will need to be effectively targeting both English and Chinese audience,” noted Deals Hong Kong’s Tong.

BeeCrazy’s Marszalek concurs, adding that discovering and sharing good deals is always a part of HK culture, deeply intertwined with its workaholic culture. “Hong Kongers, especially working females, love to enjoy good deals, from beauty treatment to dessert buffet together, to unwind after work, and of course deals that can benefit the whole family are and will always be popular as a quality holiday package or movie-and-popcorn combo deal can greatly lessen the holiday spending of a family with kids,” he said.

Social networks also play a key role. Experian’s Merakovsky says that Hong Kongers love discounts and like to ask for opinions from other users, as shown by Experian Hitwise, which found that social networking sites such as Facebook were one of the main drivers of traffic for Hong Kong online users to group-buying websites in addition to search engines. Merakovsky adds that smartphone penetration in Hong Kong is currently one of the highest in the world, reaching 50-60% as at the end of 2011. “This growing popularity of smartphones in Hong Kong has resulted in mobile becoming a cost-effective way to engage with consumers as more and more of them are surfing the web with their mobile devices. Smartphones will reach near ubiquity as device and data plan prices continue to fall,” he said.

Building a brandTo start a daily deal and group-buying site is not expensive but to

build a successful and profitable company is a completely different matter, which some of the smaller companies are learning the hard way. Even a major newspaper in Hong Kong, Tong says, had briefly entered the group-buying market with their own offshoot, only to stop several months later.

The key to successSo, what does it take to succeed? Experian highlights the importance of targeted audience when it comes to engaging and connecting with customers. Experian’s recent survey of 1,046 consumers in Hong Kong earlier this year that explored how effectively the general population responds to and engages with marketing efforts found that 47% of Hong Kong respondents have stopped engaging with four or more brands as a result of poorly targeted communication.

A further impact of this is four out of ten consumers or 41% said they now ignore the emails, direct mail, and social media messages they receive from brands. Further, over a third of all respondents have actively taken the upper hand when it comes to managing the consumer-brands relationship, with 35% creating a separate email address to avoid being personally targeted by brands. Almost two-thirds or 63% of participants only actually read targeted communications that are personally relevant, with everything else being deleted or thrown.

“The current trend of sending undifferentiated emails and SMS campaigns to consumers no longer works. In response, group-buying sites must start listening to consumers to drive targeted campaigns, to test and learn, and provide more customised, one-to-one marketing communications. In

Deal sites in Hong Kong companies aremaking money, especially when you consider that they can takein anywhere between 30-60% of each voucher sold.

Group buying activity in2012

source: Blip a Deal


COVER STORYGroupon’s revenue per customer isUS$67.12 as of June 30, 2012 for the trailing 12 months

addition, group-buying sites should use online intelligence such as visits to popular shopping categories to keep track of the products that are top-of-mind amongst consumers when developing website content and forecasting product demand throughout the year,” said Merakovsky.

Reille says that deal sites must go beyond a business model which merely involves going out to raise funds, investing in marketing, and then growing their sales team. “Now that it is clear that the business model does not generate enough profits to achieve this, they are stuck under heavy pressure from investors and competition or move towards selling products at discount, so far away from the ‘city’ experience. Those were the most common mistakes we’ve seen from competitors and that’s why they are closing shops or will be closing shops soon,” he said.

BeeCrazy, which boasts of around 2,000 local and international partner brands, says that they aimed at being ahead of the competitors in responding to and predicting market needs. “We were the first one to launch a separate Luxury Shopping Channel, launch the groundbreaking Live Redemption Service (buy online and redeem by showing the digital voucher on your phone for instant redemption) and introduce our own online currency for customers who prefer non-credit card payment,” said Marszalek. The CEO adds that BeeCrazy has just launched a Live Chat Service and extended the working hours of its Logistics Centre for convenient weekend redemption.

Catering to both Chinese and English audienceTong says that they must have the ability to source interesting and attractive deals for both English and Chinese audience, creating a reputable brand through marketing and technology, and the ability to scale the business beyond offering a few deals here and there. Much of the internal metrics of the group-buying sites are not publicly divulged, but from Groupon Inc as a whole, Tong estimates that it spent 18% of their total revenue on marketing costs in the first 6 months of 2012 compared to 64% over a year ago which highlights the substantial initial investment required in marketing to build a reputable brand in this space, especially during the infancy of this industry. “A new entrant into

this industry should be aware of the marketing requirements in building their brand especially among the larger, already established companies. Groupon’s revenue per customer is US$67.12 as of June 30, 2012 for the trailing 12 months,” he said.

According to its spokesperson, Groupon’s secret to success lies on seeing themselves as an experience- provider rather than a voucher and/or discount website. This is important, he says, as the market has evolved from offering discounted deals to offering experiences.

The merchant pressureAccording to Tong, the feelings of the merchants are somewhat mixed. For those looking to sell products, Tong says that it’s all about the margins and if the price is right, then it can be profitable for them to run a group-buying deal. “From what we have gathered by speaking with restaurant merchants, many are concerned about the effectiveness of running a group-buying deal. Specifically, they are unsure of the ability of them to bring about repeat customers who would purchase items at regular price and they fear attracting those customers who only want a cheap deal for the purposes of trying a restaurant with no intentions of coming back or purchasing additional items that are not included with a deal. As well, there are always the logistical issues with running a group-buying deal when many vouchers are sold and smaller restaurants have trouble dealing with a spike in volume during the already peak periods,” he said, noting that this is especially problematic in a city like Hong Kong where space is already at a premium.

Sidnei Budiman, co-founder of deal site Blip A Deal, notes that while merchants are still favorable towards

daily deals and group buying, they are now more inclined to give out instant coupons or coupons that are geolocation- and user contextual-based. Budiman says that it seems that the market is moving into an area where merchants have more control and have the ability to log into their accounts, place coupons or offers that appear almost instantly to the customers nearby and can allow merchants to clear merchandise to customers that are within their vicinity geographically.

Merchants’ control “This kind of service really helps the merchant as they can run a deal when they want and can close the offer once they have cleared any backlog of items that they might have otherwise had to throw away (restaurants and food products). So as an example, before they have to officially throw away food, a restaurant merchant can put an offer up for 90% discount and people nearby will receive this information on their smartphones.

Users nearby subscribing to the specific category of coupons can get this information and make use of it right away at the store. This allows consumers to get great discounts on things they like that is also geographically within their reach, so as you can see it’s beneficial for both the customer and the merchant on many different levels,” he said.

Twangoo’s Reille shares one strategy they employ that makes 98% of their merchants want to work with them again. “We search for interesting/new/surprising merchants in town and feature only one new idea a day for our customers to discover. That’s the only way to give great marketing value to the merchant which justifies the deep discount on the service and make the whole operation successful.”


Matthew CockerillAtradius Country Manager - Hong Kong

CO-PUBLISHEd CORPORATE PROFILE

Tips for effective credit management and risk assessmentClear vision in today’s murky economy

ATRADIUS CREDIT INSURANCE N.V Tel: +852 3657 0700E-mail: [email protected]

“Good credit management and constant risk assessment is vital to the financial health of companies. ”

According to the World Economic Situation and Prospects 2012 mid-year report released by the UN, global

growth would likely remain tepid for the rest of 2012 with its biggest threat coming from the seemingly unending Euro debt crisis. The report estimated that world trade growth would slow further to 4.1% this year, down from 13.1% in 2010 and 6.6% in 2011.

While trouble seems to be brewing more in the West, export-driven open economies like Singapore and Hong Kong are not immune. The inter-linking of global trade, export consumption and capital markets means that businesses need to carefully consider their counterparties in every transaction and ensure they mitigate risks associated especially with non-payments.

Risk is everywhere and the key to business success and stability often comes down to recognizing and managing these potential risks. Good credit management and risk assessment plays a significant role in helping protect businesses from the prospect of payment default, by signalling potential risks before any transaction has even been conducted. This essential process helps maintain a company’s cash flow, and also makes a significant contribution to its financial health and strength.

Atradius Country Manager Matthew Cockerill offers some credit management and risk assessment tips to ensure your business stays clear of the red:

A. Credit VettingThe potential for payment default or bad

debt due to insolvency is an ever-present risk when trading on credit, so the process of assessing the creditworthiness of customers i.e. credit vetting is vital. Such information helps the supplier company decide how much credit to allow their customers as well as what credit period should be allowed under terms of business.

While specialized credit vetting agencies can provide a range of up-to-date and robust information, individual businesses should also undertake their own research, using publicly available information or through direct contact with their customers. These include company name, registration details, principal activities, directors and shareholder details, legal civil judgments or cases pending, internet news and information, company accounts, etc.

Obtaining the information is one thing. Interpreting this information correctly is more vital to build an accurate picture, so investing

in credit information can often help avoid bad debts later.

B. Terms & ConditionsThe importance of terms and conditions (T&C’s) are often overlooked, however they are integral in providing a sound basis in the event of a dispute. Some points to note include:- T&C’s help provide trade protection. Ensure they are up to date- When possible always include a ‘Retention of Title’ clause- Avoid buyer ‘purchase agreements’ as they can over-ride the T&C’s- Ensure customers are aware of the T&C’s before the goods are dispatched- When trading overseas, ensure the T&C’s reflect legal practices for credit terms in both the buyer’s country as well as the supplier’s- Establish a clear and robust credit policy that is applied consistently in line with the T&C’s- Always ensure buyers are credit checked before trading with them- T&C’s should be verified or prepared by qualified legal professionals- Always obtain a signature from buyers on any agreed contract incorporating T&C’s

C. CollectionsThere is a natural tendency for businesses to want to hold on to their cash, particularly in times of financial uncertainty, as it provides the added benefit of improving liquidity, even though the bills will have to be paid at some point.

So what can be done to tackle overdue debts?- Send an early reminder that payment is becoming due- Segment accounts by size and amounts owing- Ensure the invoice is correct- Check there are no outstanding disputes- Set a DSO (Days Sales Outstanding) tolerance and adhere to it- Call in third party help

D. Credit InsuranceCredit insurance is a way of protecting your

domestic and export contracts of sale against the risk of not getting paid when you’re trading on credit payment terms. Having such a policy covers you against financial loss in the event a customer becomes insolvent or defaults on an amount owing, a contract cannot be performed due to political intervention or other reasons, and ultimately protects your bottom line. As part of this service credit insurers underwrite (credit vet) your buyers for you, and offer an integrated collection service.

ConclusionGood credit management and constant risk assessment is vital to the financial health of companies. Businesses that spend time and effort on the aforementioned processes enhance their collections successes when their invoices are due as well as are protected against any risks.

About AtradiusThe Atradius Group provides trade credit insurance, surety and collections services worldwide, and has a presence through 160 offices in 45 countries. Atradius has access to credit information on 100 million companies worldwide and makes more than 20,000 trade credit limit decisions daily. Its products help to protect companies throughout the world from payment default risks associated with selling products and services on credit.www.atradius.com


The new favorable applicable two formulas are:FORMULA A:

FORMULA B:

Monthly IIT payable

= X

Total monthly IIT payable on salaries and wages received from

inside and outside of Mainland China

Actual days present in Mainland China in the month

Total calendar days in the month

Monthly IIT payable

= X X

Total monthly IIT payable on salaries and wages received

from inside and outside of Mainland

China

Actual days present in Mainland China in the

month

Portion of income borne in Mainland China in the month

Total calendar days in the month

Total monthly income

Formula (A) should apply when the remuneration is entirely borne in Hong Kong, whereas formula (B) should apply when the remuneration is borne both by a Hong Kong entity and a mainland Chinese entity or permanent establishment.“IIT” means “individual income tax”

CO-PUBLISHEd LEGAL REPORT

Less taxes for Hong Kong tax residents working in mainland China

New regulation reducing the tax exposure of Hong Kong tax residentsOver the past two years the SAT and the IRD have raised the issue of double taxation in respect of cross border workers to try to solve it. After having taken into consideration the opinions expressed by businesses and the accounting sector, on 26 April 2012, the SAT issued a New Regulation, Circular 2012 No. 16, effective 1st June 2012.

The New Regulation introduces favorable calculation methods when determining the tax exposure of eligible Hong Kong tax residents.

Those eligible to apply for this favorable tax treatment includes Hong Kong tax residents employed either only in Hong Kong or both in Hong Kong and mainland China, and exercising their job duties in mainland China more than 183 days during a Chinese fiscal year.

The new calculation methods are favorable because they take into consideration the exact number of days during which the Hong Kong tax resident had a physical presence in mainland China, the date of arrival and the date of departure from mainland China being both counted as half a day.

Written by Eric Mayer, Managing Partner of TMA

or SAT), and the lack of cooperation and coordination between the IRD and the SAT did not help.

For instance, Hong Kong tax residents working and spending in mainland China more than 183 days within a Chinese fiscal year had to pay a high amount of taxes because the tax calculation method did not take into consideration the exact number of days spent in mainland China. Attention had then to be paid by workers and their employers to ensure, if possible, that the threshold of 183 days was not crossed to avoid being taxed heavily.

In 2006, mainland China and Hong Kong concluded an Arrangement for the Avoidance of Double Taxation and the

Prevention of Fiscal Evasion with respect to Taxes on Income, or the Arrangement. The purpose of such Arrangement was to eliminate double taxation, and with regard to personal income, the Arrangement set forth the following principles:

Under Article 14(1), salaries, wages and other similar remuneration derived by a resident of Hong Kong in respect of an employment shall be taxable only in Hong Kong unless the employment is exercised in mainland China. If employment is so exercised, such remuneration as is derived therefrom may be taxed in mainland China.

Notwithstanding the provisions of Article 14(1), under Article 14(2), Hong Kong tax residents, employed and paid by Hong Kong business entities, and spending at most 183 days per year in mainland China, can be exempted from tax in mainland China.

The persistence of double taxation and of a high level of taxesHowever, despite the fact that such Arrangement is aimed at eliminating double taxation, many tax residents of Hong Kong continued to be subject to double taxation and to a high level of taxation in mainland China. The differing income sourcing rules applied by the tax authorities of Hong Kong (Inland Revenue Department or IRD) and of mainland China (State of Administration of Taxation

“Many tax residents of Hong Kong continued to be subject to double taxation and to a high level of taxation in mainland China.”


Bank of China (Hong Kong) surprised the market with all-positive results in 1H12, and superior capital, liquidity and funding positions relative to its peers.

Bernstein Research senior analyst Mike Werner reckons that BOCHK exhibited the best all-around earnings performance in 1H12 as it reported the sharpest increase in return on assets (ROA), the best expense control and the strongest increase to its capital ratios among the stand-alone Hong Kong banks.

With a cost-to-income ratio of 29.7%, BOCHK now has the lowest cost-to-income ratio among the HK banks, replacing Hang Seng Bank. “On a YoY basis, BOCHK reported the strongest increase to its ROA of 29bp. In addition, its NIM improved 21bp HoH,” says Werner.

positive surprisesMaybank Kim Eng analyst Ivan Li notes that BOCHK’s 1H12 net profit reached 57% of their estimates. The bank’s profit was HKD11.2 billion, down 6% year-on-year but up 33% HoH.

Li also notes that BOCHK’s asset qualities held up better than expected with 1H12 provisions at just HKD87 million up 135% YoY but down 75% HoH, not to mention NPL amount which just rose 5% YTD. “Another positive surprise came from CAR. BOCHK’s 1H12 core and total CAR reached 13.0/17.4%, which is significantly higher than peers, and the YTD improvement was also one of the

BoCHK loses CNH deposit market share

COMPANY SNAPSHOT: bOCHK

BOCHK performed well in 1H12, but analysts warn of rising risks to CNH margin next quarter due to stiffer competition for loans and deposits.

Net interest margin – 1H12 h/h

BOCHK Tower in Hong Kong

best in the sector,“ says Li.

possible downfallsAlthough BOCHK posted positive results in 1H12, it is still not safe from the risks and challenges in Hong Kong’s banking industry. The low interest rate environment will persist for at least several more years as the Federal Reserve has made it very clear that it will keep the Fed Funds interest rate low for the foreseeable future, warns Werner. He adds: “The highly competitive environment in Hong Kong has resulted in weak pricing power on loans for the banks operating in HK. Based on management guidance during the recent earnings presentations, this weak pricing environment for the banks is expected to extend into the second half.”

As Werner puts it, whilst there are signs of improvement coming from the banks’ offshore RMB businesses especially from BOCHK, this will not be enough to offset the challenging environment in 2012. And true enough, BOCHK was already hit by the fierce pricing competition which led

to a loss in CNH deposit market share. According to Barclays analyst Sharnie Wong, the bank’s market share was estimated to have fallen from 27% in FY11 to 23% in 1H12. “CNH deposit balance declined by -17% h/h, which helped to mitigate funding cost pressure somewhat, but further loss in the deposit market may weaken expectations for BOCHK’s CNH business prospects,” reckons Wong.

Squeeze or easeBarclays remains cautious on whether BOCHK’s liquidity will squeeze or ease. Wong notes that if loan demand remains strong, funding costs will rise. However, if loan demand weakens (ie falling LDR) as economic outlook deteriorates, it will be even worse for the bank’s profitability and margin.

“We see limited upside in both scenarios and reiterate our cautious view on the Hong Kong banks. We most prefer BOCHK (2-EW), but see rising risks to CNH margin in 2H12 due to rising loan and deposit competition and impact from PBOC’s steps in interest rate liberalisation.”

Source: Company data, Barclays Research

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HONG KONG’S TOP 25 ACCOUNTING FIRMS

Hong Kong haunted by poor corporate governanceWill the new Companies Ordinance improve Hong Kong’s score?

A joint study by CLSA Asia-Pacific Markets and Asian Corporate Governance

Association has revealed that cracks in corporate governance have become more obvious elsewhere in the region with most corporate scores either falling or rising marginally this year compared to 2010 results. Hong Kong is no exception, which saw its score barely rising by one percentage point (ppt) to 66 points. Singapore edged out Hong Kong after scores improved by 2 ppts to 69.

Fair share of scandalsAccording to ACGA secretary-general Jamie Allen, both Singapore and Hong Kong have had their share of scandals, frauds, and conflicted IPO processes and both lack world-class systems of corporate governance. Singapore however outscored Hong Kong because the former’s government has been focusing greater attention on corporate governance reforms in the past two years. “Singapore has improved regulations and regulatory enforcement. Retail investor engagement is also growing. It also sets the benchmark for the independent regulation of auditors,” he said.

Hong Kong, he adds, continues

to outflank Singapore in regulatory enforcement and has also improved some rules and regulations but it still has no sign of any clear government strategy on corporate governance. “Influence remains excessive and there there is no properly independent audit regulator,” he said.

According to this year’s report, the main issue in Hong Kong is audit regulation and audit quality. Hong Kong’s audit quality is said to have deteriorated to 75% in 2012 from 85% in 2010.

Government actionsDavis Polk & Wardwell (DPW) notes that in recent years there have been considerable developments in corporate governance standards applicable to companies listed on the Hong Kong Stock Exchange (HKEX) and it has now adopted its extensive proposed changes to the corporate governance code and listing rules, most of which took effect in early 2012.

One of the key changes to the Listing Rules – the requirement that independent non-executive directors (INEDs) comprise one-third of a listed company’s board – will take effect on 31 December 2012, and the new rule requiring a mandatory 15

hours of professional training in each financial year for company secretaries will take effect on a staggered basis according to the date of appointment of an individual as company secretary.

A significant number of the revisions are directed at the main actors in the implementation of corporate governance – the directors and the company secretary – and the constitution and responsibilities of various committees of the board. In respect of directors, DPW said that the revisions generally are designed to heighten the level of active participation required from directors such that mere attendance at board meetings is not sufficient.

Last July, the Legislative Council also marked a significant milestone in improving corporate governance when it finally passed into law the revised Companies ordinance. It will come into effect in 2014, and one of the key changes is that there is now a criminal liability on auditors of Hong Kong-incorporated companies if the auditors fail to declare in their audit reports the existence of certain accounting discrepancies or the inability to obtain all information and explanations necessary for the preparation of the audit.

Auditors’ oppositionsThe revised law was generally accepted by the Hong Kong public except the auditors. The Hong Kong Institute of CPAs has lobbied against clause 399 which introduced criminal offences on auditors.

Winnie C. W. Cheung, chief executive and registrar of the Institute, said, “The consequence and harm done for the profession and Hong Kong will be huge if the clause is passed. Clause 399 will unduly lower the barriers to prosecution and bring great risks to good people in the profession. Talented young members of the profession will seek other career options with fewer risks and the quality of the profession will suffer.

The Institute’s position is to remove the clause altogether. It has also proposed a way to reduce the damage and alleviate the uncertainty the clause creates. It asked to change the prosecution threshold from “knowingly or recklessly” omitting a required statement from the audit report to making such an omission “dishonestly or with intent to defraud.”

The proposed amendments intended toreinforce ACRA’s monitoring of firmwidequality controls and policies willenhance audit quality.


HONG KONG’S TOP 25 ACCOUNTING FIRMS

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largest Accounting firms in Hong KongLARGEST ACCOUNTING FIRMS

ACCOUNTING pROFESSIONALS HEADCOUNT (HK)

HEAD OF HONG KONG OFFICE WEBSITE

PRICEWATERHOUSECOOPERS

DELOITTE TOUCHE TOHMATSU

ERNST & YOUNG

KPMG

BDO

RSM NELSON WHEELER

CROWE HORWATH

MAZARS

SHINEWING

CCIF

HLB HODGSON IMPEY CHENG

GRANT THORNTON

BAKER TILLY HONG KONG

CHENG & CHENG

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WONG BROTHERS & CO

HLM & CO

PATRICK WONG

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CHANG LEUNG HUI & LI

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Joseph Kin-Ching Lo

Agnes Chan

Andrew Weir

Albert Au

Wong Poh Weng

Charles Chan

Stephen Weatherseed

Barry lp

Charles Wai-Dune Chan

Raymond Cheng

Daniel Lin

Andrew D. Ross

Cheng Hong Kei and Cheng Hong Cheung

Patrick Ng

Henry Hok-Lim Leung

Charles C L Chow

Clement Leung

Patrick Wong Lung Tak

David Kai Pung Yim

Wayne Sun-Wing Tam

Stephen Ting

Paul C Y Tsi

Philip Poon Chin Chung

Joseph Yau

www.pwchk.com

www.deloitte.com

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www.kpmg.com/cn

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www.rsmnelsonwheeler.com

www.crowehorwath.hk

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www.shinewing.hk

www.ccifcpa.com.hk

www.hic.com.hk

www.grantthornton.cn

www.bakertillyhk.com

www.chengcpa.com.hk

www.ncncpa.com.hk

www.pkf-hk.com

www.wongbros.com.hk

www.hlm.com.hk

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www.ccthcpa.com

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www.thkccpa.com

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Lest we forget: quite a lot of the parallel traders who exploit glaring arbitrage opportunities by carrying goods like phones and Yakult yogurt

drink north across the border are Hongkongers, not Mainlanders. The Shenzhen authorities would like to remind us of this, and are clamping down on these people in what the Standard calls ‘apparent retaliation’ for the Big Lychee’s crackdown on the Mainlanders swamping Sheung Shui.

It is hard to see the logic here. The Mainlanders transporting cargoes back to Shenzhen are breaking Hong Kong immigration laws by working here without the correct permit. Both they and the Hongkongers carrying goods are breaking Mainland laws by trying to evade payment of import/sales taxes. Hong Kong is applying its law correctly, and Shenzhen customs should be doing the same by requiring all travellers, from anywhere, to pay the duties and taxes they owe on items they are carrying.

Haughty Hong Kong officials?Maybe that’s what this ‘retaliation’ is for. Could it be that when Chief Secretary Carrie Lam went to Beijing recently to moan about the Great Mainland Courier Menace, she effectively snitched on Shenzhen for not running its customs department properly? If so, it’s yet another in a long line of snubs by haughty Hong Kong officials towards their peasant-like counterparts around the Pearl River Delta.

People carry all this junk across the border because it pays better than washing dishes or picking metal and plastic out of garbage dumps. (Mainland demand for Yakult, I am reliably informed, arises from its supposed properties as a female breast-enhancer. Do they drink it or rub it on? No idea.) If smuggling is no longer an option, we can surmise, people will be poorer. What

better time, then, for Hong Kong to announce that it will adopt an official poverty line for the first time and revamp the old Poverty Commission?

CY Leung’s governmentChief Executive CY Leung seems to divide his administration’s time three ways: doing stupid things

CY’s good news for ex-smugglersHEMLOCK

The ‘apparent retaliation’

OPINION

By HemloCKwww.biglychee.comEmail: [email protected]

that provoke hostility; doing things that provoke hostility but could have been popular if better handled; and doing things that deserve acclaim but aren’t presented well enough to get it. This is in the third category; they should have made a bigger splash about it. Like the minimum wage – which the last government also bent over backwards to avoid before giving in – a poverty line will force officials and everyone to examine, measure, monitor and possibly end up with no choice but to do something about a problem previously swept under the carpet.

The ‘poverty line’Welfare groups already use a poverty line: an income that is half the median household income adjusted for household size. In Hong Kong, where the median income for the top 10% of families is 27 times that of the bottom 10%, some 18% of the population live

on such an income. The welfare lobby say that the cash benefits system is faulty in that it denies handouts to the poor if they live in (i.e., burden) a somewhat-less-poor household, and can be humiliating to apply for. Oxfam’s account seems to support this.

For an idea of how screwed up our redistribution of wealth is, consider an example that legislators could be shouting from the rooftops but for some reason don’t. A family on

HK$100,000 a month with two kids gets HK$60,000 knocked off their annual salaries tax for each one. In other words, the rest of the community pay them the equivalent of HK$5,000 a month for each kid. A family on HK$15,000 a month with two kids meanwhile gets… nothing, pretty much. Weird or what? This will probably be a less warped system by 2017.

“Hong Kong is applying its law correctly, and Shenzhen customs should be doing the same by requiring all travellers, from anywhere, to pay the duties and taxes they owe on items they are carrying.”


See how Macau is turning up the razzle-dazzle to attract tourists, especially the lucrative but finicky MICE business crowd.

In its bid to become the MICE (meetings, incentives, conferences, exhibitions) capital of Asia, the Chinese territory has been aggressively rolling out visitor incentives

and perks, and spending on infrastructure upgrades. This has helped lift tourist arrivals and spending for the first seven months of 2012, and grow Macau’s economy in a year when other Asian countries are on the brink of recession.

Double-digit growth in 1H12While other Asian economies are threatening to plunge into recession due to a combination of factors such as China’s growth slowdown and sluggish Western demand, Macau’s economy has grown by 12.6% in real gross domestic product (GDP) terms in the first half of 2012.

Travel and tourism currently contributes to around 40% of Macau’s GDP, which buoys other major sectors such as hotels and gaming. Nearly 14.5 million visitors arrived in Macau during the first seven months of 2012, and nearly a third of those stayed in hotels. Meanwhile, gross gaming receipts in the first eight months amounted to MOP118 billion ($14.75 billion), up 63.2% from the same period last year, according to the Gaming Inspection and Coordination Bureau.

This continued strength in tourism can be attributed in part to government efforts to promote itself as a business tourism hub, with increasingly attractive perks for the MICE market.

The MICE capital of AsiaMacau is striving to become the MICE capital of Asia,

Fascinating Macauattempting to compete against China, Japan and the Republic of Korea, three countries which rank in the top 20 destinations for MICE business, according to the 2011 International Conference and Convention Association rankings. The rankings were based on the number of confirmed major meetings held in each country. (Notably, singapore failed to make the top 20 country rankings but placed fifth in the top 20 city rankings.)

To raise its appeal among the MICE crowd, Macau has been allotting millions in subsidies for business groups traveling to the territory for meetings and conferences, or those spending their well-earned incentive tours.

MICE Market Stimulation ProgramIt was in early 2009 when the Macau Government Tourist Office (MGTO) first began its ambitious long-term plan to support business tourism. MGTO rolled out the strategic MICE Market stimulation Program specifically for the MICE business tourism segment with a budget of MOP65 million ($8.125 million)

The strategic MICE Market stimulation Program has proven so effective in financially supporting thousands of MICE events since its launch that the government has extended it three times already.

In 2012, the MICE program decided to focus on courting the incentives travel segment through the launch of an Incentive Travel stimulation Program, which provides subsidies to groups with over 50 non-local participants staying in Macau hotels for more than two consecutive

SPECIAL ADVERTISING FEATURE


SPECIAL FEATURE: MACAU

nights. Each non-local participant will receive a subsidy of up to MOP $300 ($37.50), lavish welcome gifts, comprehensive information kits which will help them navigate the territory’s many attractions, and free admission to both Wine Museum and Grand Prix Museum.

Luxury transportationMICE clientele are known for their exacting standards, which led Macau to develop a selection of luxury transportation going to, from and around the territory.

sky shuttle helicopters can fly in visitors straight from Hong Kong and shenzhen, providing both privacy and convenience through exclusive charter services and even a sightseeing aerial tour of Macau. For the oversea route, TurboJET ferries take passengers to Macau in value luxe style, complete with complimentary meals, snacks, drinks and the option to rent VIP cabins for sea travel meetings.

Once on land, limousine services, whisk gamblers, and travelers to and from their chosen hotels, casinos and recreation centers. Macau has been spending aggressively to improve its transport infrastructure. It recently proposed a new hub in Tai Pa that includes a bus interchange, a light rail station, taxi and private car drop-offs as well as underground parking for cars and coaches.

High life for high rollers The rise of MICE visitors, which often includes high net-worth managers and executives, has also helped boost revenues in gaming. The take at the Macau casino tables is rising with financial officials predicting MOP155 billion ($19.375 billion) in gross revenues for 2012, representing a 30 per cent increase from last year.

For these so-called high rollers, Macau hotels present lavish presidential suites and private villas to suit their status. service is just as luxuriant: VIPs are treated to credit line privileges, in-room personal massages, private dinners presented by celebrity chefs, personal butlers, access to wine and cigar lounges, and exclusive invitations to nightclubs and events.

Must-see hotel spectaclesMacau hotels also offer unique, must-see spectacles that make them even more compelling destinations.

For example, the Venetian Macao’s long-running Cirque du soleil production ZAIA continues to enact the dreams of a young girl’s adventures in space, while Galaxy Macau’s nine-screen 3D Cineplex draws in jam-packed audiences to its international film festival screenings and blockbuster premieres.

At City of Dreams Macau the spectacle is The House of Dancing Water, a $2 billion water show punctuated with breathtaking acrobatics over a stage lake the size of five Olympic swimming pools. Water is also a focal point at Wynn Macau with its fountain show, a mesmerizing showcase of 200 geysers, 1,000 colored lights and pyrotechnics.

MGM Macau captivates through its Magic of Butterfly Reinvention exhibition which pays homage to the bright-winged wonders of nature and is accompanied by an aerial ballet performance.

Annual extravaganzasAll travelers and tourists venturing to Macau during the next two months can also attend two annual extravaganzas unique to the territory.

The Macau Grand Prix revs up for its 59th running from November 15 to 18. Motor racing enthusiasts can cheer their favorite racers in the Formula 3 headline event, one of the most competitive junior open-wheel competitions worldwide. The historic Guia Circuit has long served as the launching pad of future Formula 1 stars, and will see the 2011 champion Daniel Juncadella defend his crown from a hungry pack of challengers.

Meanwhile, the Macao International Music Festival serenades audiophiles from October 5 to November 7 with soul-stirring acts from East and West. Violinist Vadim Repin and pianist Itamar Golan will perform Violin sonatas by Brahms and Debussy, while the san Francisco symphony joined by Yuja Wang and led by Michael Tilson Thomas will present Prokofiev’s Piano Concerto No. 2. The Puccini Festival Foundation will also stage one of the Italian composer’s most famous operas, Tosca, accompanied by the Macao Orchestra and led by lü Jia.



Galaxy Macau offers rest, relaxation, and swish hangouts that will intrigue even the most seen-it-all elites.

All rooms are exceptionally well-appointed and leisure and retail offerings expansive in this five-star hotel resort located in Macau’s posh Cotai strip. But for

those who can afford the kicker, unprecedented exclusivity and indulgent pampering will be the service de rigueur.Guests can choose to stay in the 1,500-room Galaxy Hotel tower, with its convenient proximity to the casino and entertainment areas; the 410-room Hotel Okura known for its harmonious blend of exquisite Japanese interiors and modern comforts; or the 254-suite Banyan Tree Hotel whose “sanctuary of the senses” philosophy seeks to cleanse and rejuvenate.

No matter the choice between the three, respite comes easy for the weary travelers who choose to take shelter in Galaxy Macau. The well-heeled set though is known to crave for a more luxurious sojourn, which Galaxy Macau delivers through its ultra-exclusive China Rogue club and world-class 3D movie screenings.

China RogueChina Rogue, which describes itself as the forbidden chamber for the southern China elite, lives up to that decadent claim. The selective private members club is utterly seducing with its authentic boudoir setting that its chief designer, Hong Kong’s esteemed Alan Chan, says harkens back to 1930’s shanghai when the city glowed in the golden era of Art Deco.

Translated literally from Chinese, the name China Rogue means “Red Hot Diva” – a phrase that draws to mind that modern woman with an effortless mix of classic beauty and avant-garde sensibilities. This “deliberately contradictory je ne sais quoi” is what guided the design decisions for China Rogue.

On the club’s walls hang a sensual mix of oil paintings, digital art, sculpture and photography from China’s preeminent artists, from Buhua’s “Viva la Diva” that demonstrates the very essence of femininity in surrealistic strokes, to Deng Xinli’s contemporary “Goddess in Cloudy ship”, to ling Jian’s sexually provocative “The East sun is Red No.2”. Decorative artifacts such as traditional Chinese carvings and mosaic murals further infuse the club space with vivid Eastern elegance.

Not only alluring in its ambiance, China Rogue also seduces with a delectable feast and a line-up of entrancing performances.

“Members can enjoy top-quality Champagnes and wines, innovative signature drinks concocted with a nod to the classics, expertly mixed cocktails and premium spirits. Drinks are accompanied by delectable, shanghai and internationally-inspired dishes covering the spectrum from

Galaxy Macau: Asia’s Pinnacle of Privilege

modern cuisine to comfort food -- all made from the finest ingredients,” said Galaxy Macau of its super chic club, while “Eastern chanteuses perform contemporary cabaret.”

UA Galaxy CinemasAfter an unforgettable night at the China Rogue club, Galaxy Macau guests can then spoil themselves in the resort’s world-class, nine-screen 3D cineplex known as the uA Galaxy Cinemas.

The uA Galaxy Cinemas routinely show the biggest blockbusters, and is becoming the newest epicenter for international film festivals, gala film premieres and other movie events. These star-studded screenings are usually held at the Grand Theatre with its limited 400 seats and four exclusive balcony boxes.

Four premium Director’s Clubs can also be reserved by guests for private functions – parties, stage performances, meetings and business presentations – with attendees provided five-star dining and service, a lounge with wait staff, and self-adjustable reclining sofa seats, among other amenities.

In coddling the comforts of its guests and fulfilling the lavish whims of its most discerning patrons, Galaxy Macau is guaranteed to more than satisfy.

About Galaxy Macau Galaxy Macau is the only truly authentic Asian five-star integrated destination resort in Macau. Facilities include the Grand Resort Deck with lush oasis gardens covering its 52,000 square meters, the world’s largest skytop wave pool and a 350-ton white sand beach; a selection of more than 50 food and beverage outlets, including the widest selection of pan-Asian cuisine under one roof in Macau; two boulevards of distinctive retail shopping; uA Galaxy Cinemas, a nine-screen, 3D-equipped complex unlike anything in Macau; and CHINA ROuGE, an exclusive members-only performance lounge. For more details, please visit http://galaxymacau.com.


The Proving Ground of Champions


Macau Grand Prix revs up for a riveting 59th anniversary running.

From November 15-18, the Macau Grand Prix will host its 59th running as the world’s fastest and most promising drivers seek to conquer its high-octane, 15-lap race

track.This year promises to offer its share of nail-biters, especially

in the Formula 3 junior open wheel race. Challengers are lining up the grid to dethrone the 2011 champion Daniel Juncadella, who himself is eager to defend the title after a commanding win in last July’s Masters of Formula 3.

Storied reputationThe Macau Grand Prix has a storied reputation for crowning the best of the best – no fewer than eight future Formula 1 World Champions have stood on its winner’s podium since its debut in 1983.

First among these was Ayrton senna, the winner of the founding Macau Grand Prix, who went on to dominate as the F1 World Champion in 1988, 1990 and 1991.

What followed was a pattern of champion-making proportions -- Damon Hill, Michael schumacher, Mika Häkkinen, Jacques Villeneuve, Jenson Button, lewis Hamilton and sebastian Vettel – all world champions who tested their mettle and prevailed in Guia Circuit.

The Formula 3 at Macau has also played host to several sport-defining moments. The 1990 Macau F3 race, for example, saw the infamous overtaking duel between Mika Häkkinen and Michael schumacher that resulted in the former’s crash and subsequent ascension to the F1 ranks.

Currently, 17 of this year’s 24 registered F1 drivers have raced at Macau, showing that mastering this track is critical to preparing for and securing a seat in the premier ranks.

Defending championF1 hopefuls competing in the F3 Macau Grand Prix, widely considered as the world’s most prestigious junior open wheel competition, will be gearing up for a gritty chase as they attempt to unseat the determined reigning ace Juncadella.

“I’m not coming to Macau to participate as last year’s winner, I’m coming to win. I want to win again, it’s the best weekend of the year, and winning is very, very special,” said Juncadella in an interview last month with The Macau Grand Prix Bulletin after his Masters of Formula 3 win in Zandvoort, Netherlands.

Other races to watch out forApart from the F3 event, the Macau Grand Prix will feature other closely fought races spread over four days beginning November 15.

The Macau Motorcycle Grand Prix is on its 46th running and could prove to be a comeback stage for injury-ridden Briton Ian Hutchison, all the more made sweeter since in

doing he will have beaten the top riders invited across Europe, North America and Asia Pacific.

There is also the season finale of the FIA World Touring Car Championship, where defending champion Yvan Muller of France, who remains at the top of the leaderboard with only three race weekends remaining, hopes to keep his title for another year.

Corporate-sponsored cups and challenges will also be held alongside these main events, including the Hotel Fortuna MAC / HKG Interport Race, suncity Group Macau Road sport Challenge, City of Dreams Macau GT Cup and CTM Macau Touring Car Cup.

Macau Grand Prix tickets can be purchased through the 24-hour ticket reservation hotlines: (852) 23805083 (Hong Kong). Or e-mail [email protected] and visit www.macau.grandprix.gov.mo for more details and online reservations.


REGIONAL ECONOMY bRIEFING: PHILIPPINES

Philippines posts stellar growthphilippine GDp grew 6.1% in the 1H, exceeding expectations.

The Philippines kicked off with a good start in 2012, growing 6.4% YoY in the first three months, the strongest in Southeast Asia and the second-strongest in Asia behind China, thanks to the robust service sector which accounted for more than half of its GDP. The growth momentum was sustained in 2Q with a better than expected 5.9%.

According to Moody’s economist Katrina Ell, an interesting trend within services is the outperformance of business process outsourcing, which already employs around 600,000 Filipinos or almost 1% of the population.

The Philippines’ closest competitor in the BPO space is India, still considered an easier environment to do business in according to the World Bank. Ell however argued that the Philippines is taking steps to improve, while India has stumbled recently.

Nomura meanwhile believes that improved government spending is also acting as catalyst. The fiscal deficit in H1 was PHP34.5 billion or 2.1% of GDP, well below the government’s target of PHP109.3 billion.

Nomura analyst Euben Paracuelles however notes that compared to last year, expenditures rose by a much faster 13.6% YoY from just 2.3% in 2011. “We estimate that the fiscal impulse turned positive in H1, which means that fiscal policy has become expansionary, reversing last year’s trend and hence has started to boost GDP growth. Yet, we see scope for stronger fiscal support this year, with the government addressing spending bottlenecks and increasing overall expenditures.”

Moody’s Ell believes the same, adding that while government consumption is only 10% of GDP, it will continue to lift growth in the runup to the general elections in May 2013. As of July this year, disbursements were 52% of the 2012 budget and the government has reiterated its commitment to accelerate spending and invest in necessary infrastructure.

What does it take to sustain growth?The Philippine government targets a 5% to 6% growth this year

but for it to be achieved, Ell says that the Philippine economy needs both exports and remittances to be growing solidly. The Philippines has been fortunate that remittances from offshore workers have so far held up, but Ell cautions that if the global environment takes a turn for the worse, labour demand and remittances could dry up, weighing on household consumption. She warns that a more severe European recession would crimp export growth and that higher government consumption will not be enough to alleviate the impact.

Exports were still relatively resilient, rising 8.3% in Q2 versus 10.9% in Q1, which Nomura believes were partially due to some outsourcing of electronics production following the Thai floods. The contribution of net exports was still positive but fell to 2.1pp from 7.1pp in Q1.

Is inflation posing risks?The recent floods in the Philippines, which caused supply disruptions, higher global commodity prices, and high domestic demand drove up August inflation. It rose at the fastest pace since January at 3.8% YoY. Nevertheless, experts say that inflation remains manageable as it remains within the 3-5% target, giving more room for the central bank to be more accommodative. According to Trinh Nguyen, while the Bangko Sentral ng Pilipinas remains “mindful of weather, calamity-related disturbances as it affects supply,” it would not be able to deny the elevated costs of commodity prices such as oil as well as pent-up demand in the economy.

Nomura however believes otherwise, noting that a further rate cut cannot be ruled out. According to Paracuelles, BSP cutting rates for the third time by 25bps in July signalled a neutral stance. “What is more surprising to us are the reasons cited for the decision. First, BSP said that inflation is likely to remain within the low end of the 3-5% target. This is not a change from its previous assessment, and while oil prices are below the levels when it last cut in early March, they have started to creep up once again. In addition, there are looming risks of weather-related food supply shocks to which the Philippines tend to be vulnerable. Second, and more interestingly, BSP said this is ‘a pre-emptive move against the risks associated with the global slowdown.’ GDP growth surged in Q1, driven by both public and private sector spending, and the latest trade data in May suggested that domestic demand strength has been sustained into Q2. Because of this backdrop, our thinking was that it was more prudent for BSP to save space to be able to cut rates given the unusually high level of uncertainty in the external outlook.”

GDP growth - It’s more fun in the Philippines

Fiscal impulse vs the output gap

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

Expansionary

% of GDP Fiscal impulseOutput gap

2003 2005 2007 2009 2011


more time working than the one using the PAMM system.

If you decided to abandon classic trading in favor of modern technologies, choose the broker that not only has these unique systems but also guarantees their proper functioning.

In addition, make sure the broker you have chosen has an extensive client base to give you a wide choice of traders to invest in or to follow. The PAMM system has been very popular for a couple of years already; you can find it among the services of at least 10 large Forex brokers.

As for the ForexCopy system, it was introduced by InstaForex international broker in 2012. At present, it is the only company providing a full-featured version of the system.

Today anyone having a computer connected to the Internet can either trade on Forex and be responsible

for the result or employ experienced and successful traders through the PAMM and ForexCopy systems.

Despite both systems being related to money management and Forex market, the trader’s role and the very philosophy of trading differ.

What does Instaforex offer?Being registered with the PAMM system, an investor transfers money to the account of a chosen trader and, depending on the efficiency of a trader’s strategy, receives profit exclusive of the commission.

After registering with the ForexCopy system, an investor enjoys the opportunity to open the same trades as a chosen trader does. It means that an investor trades on his own yet following the model of a successful trader. The system allows you to both earn profit and learn the principles of trading.

However, an investor registered with the ForexCopy system needs to spend

Forex trading is no longer currency rate speculation. The essence of investment in Forex market has become closer to the conventional idea of investment and even moved beyond its borders.

All the Colors of Forex Trading

“InstaForex broker is famous for its innovative services such as the best PAMM system on the market, free VPS hosting, and many others.”

The first among manyBy the way, InstaForex Company was one of the first brokers that offered the PAMM system, which is still outstanding, compared to other brokers.

So, if you think that Forex trading is something more than just investing, InstaForex Company is your choice.

Even for those who refuse to rely on somebody’s luck, InstaForex Company has prepared an exclusive offer – intraday binary options.

Binary Forex options have a very important distinction from the typical financial instruments: transparent risks. A possible loss when buying an option is equal to its value, and a possible profit is calculated before the deal.

InstaForex Company offers put and call options on 11 currency instruments with $1 minimum value. The number of options per day is not limited, and the profit can reach 80% of the invested amount.

The essence of option trading is simple: if an option wins, your account is credited with its value plus profit; if it loses, only the option value is debited from your account. So, your losses are always limited to the option value, which enables you to control your expenses and manage risks.

Modern traders do not need to spend days and nights in front of the screen. They live their lives and know that their money works while they are busy doing other important things.

CO-PUBLISHEd CORPORATE PROFILE


The two-seater Porsche Boxster was initially introduced in 1995, the first of a raft of new models from the renowned Stuttgart manufacturer in recent years. It was however radically different from the 911 which had sustained the company since as long ago as 1963. The original Boxster had a 204 bhp, 2.5 liter

flat-six engine which was mid-mounted as opposed to the 911’s rear-mounted unit. At the time – because it was a Porsche – it was criticised as being underpowered. This was perhaps true, as its handling surpassed anything else in its class. That has now been completely remedied.

The latest Boxster S is without doubt a significant step forward and now boasts a 3.4 liter all-aluminium engine, delivery a magnificent 315 bhp at 6,700 rpm and 360 Nm of torque, produced between 4,500 and 6000 rpm. The power unit is not quite a racing engine but it’s not far off. Four valves per cylinder, horizontally opposed and with dry-sump lubrication, it is a very sophisticated power plant. The valve timing is variable to increase torque at lower speeds, while there is a fly-by-wire throttle and an auto stop-start function. This gives the Boxster a benchmark sprint time of 4.6 seconds from a standstill to 100 km/h and a top speed of 277 km/h.

The power is transmitted to the rear wheels through a 7-speed dual clutch gearbox and there is an automatic rear spoiler – located within the rear LED lights - which activates at speed to increase stability. Braking from high speeds is taken care of by ventilated,

MOTORING REPORT

“There is only one word To describe The performance of The boxsTer s: impressive.”

perforated discs and 4-piston light alloy, classic red calipers.The interior, while initially it appears a little cramped, quickly

becomes a driver’s cockpit allowing complete control at all times. Finished in a mix of cloth and leather, it exudes luxury through and through. The leather-rimmed steering wheel adds to the feeling of opulence. For convenience there are a number of storage compartments, including a lockable glove box, while there is additional storage space behind the seats.

On the roadThere is only one word to describe the performance of the Boxster S: impressive. In Sport mode – which effectively increases power and stiffens the suspension – the acceleration is stunning. It can be left in automatic mode when in heavy traffic, but on a clear road, switch to manual shift and, using the steering wheel-mounted paddles, go through the gears for maximum effect.

It also features the automatic stop/start system which initially

The new porsche Boxster S is way ahead of the original creation and represents perhaps the pinnacle of porsche’s Stuttgart engineering. Jeff Heselwood reviews this incredible machine.

BOXING CLEvER


MOTORING REPORTcauses a little paranoia in the form of will-it-or-won’t-it restart when the accelerator is pressed. However, as you would expect from Stuttgart, it all works effortlessly.

The steering wheel is adjustable, as of course are the seats, so the perfect driving position is easy to arrive at. Rearward visibility is limited, although the large door mirrors alleviate this considerably. All ancillary controls fall readily to hand and all appear to have been placed perfectly logically – unlike some manufacturers.

As with the original, the roadholding and handling are superb, yet it is surprisingly comfortable, soaking up bumps and road undulations with ease.

The Boxster S is not just a conveyance; a means of getting from A to B. It is a driving experience that is as exciting as the styling of the car. On downshifts the electronics blip the throttle, emitting a lovely throaty roar from the exhaust. This just adds to the overall satisfaction to be derived from driving a Porsche such as this.

An unusual electronic aid is what they term a ‘torque-vectoring’ system, which improves turn-in by gently braking the inside rear wheel. McLaren introduced a similar system on its F1 cars a few years back, but it was instantly banned by the sport’s governing body, the FIA. Quite why remains unexplained.

Electric power steering has two benefits: it allows the steering wheel to be turned even when stationary at lights with the engine off, and it does not consume any significant horsepower as a hydraulic power device would. All-round win-win: more power and accurate steering.

Up or downThe soft-top roof is raised and lowered electronically, using a switch mounted on the center console. Open or closed it is relatively draught-free, but particularly with the hood up and the windows closed, there is virtually no wind noise, unlike many soft-top cars. Much of the interior is shared with the other current Porsche models: the Panamera, Cayman and 911.

Interestingly, the wheelbase of the latest car has been extended by almost five centimeters but overall length remains approximately the

same as the outgoing model, giving the car a much more balanced appearance.

Since its introduction, Porsche has delivered close to a quarter million Boxsters and the latest incarnation is sure to add to this tally in the forthcoming years.

The Boxster S is priced at $975,000, but equiped with the usual options this rises to $1,223,971.


LIFE & STYLE

Five masterful massages in the metroSutherland-Chan Centre19/F World Trust Tower, 50 Stanley Street, Central, +852 2544 5838This is no mere massage parlour. Sutherland-Chan’s team includes only Registered Massage Therapists as regulated by the College of Massage Therapists of Ontario, and are dedicated to deeply working through issues of pain and muscle tension. Their registered status requires a thorough knowledge of anatomy, allowing them to target the cause of pain as well as dole out a thoroughly enjoyable massage experience. Their customized clinical massages have been well reviewed by those with chronic pain, and there are also osteopaths on site if clients need to be referred for deeper probing.

10 Feet Tall20/F & 21/F, L Place, 139 Queen’s Road, Central, +852 2971 1010You cannot visit, let alone live, in Hong Kong without experiencing the city’s signature foot massage, a ritual delightfully intermingling pleasure and pain based on ancient Chinese principles of reflexology. The therapist targets areas of the feet to treat problems in other regions of the body. While most reflexology centres are definitely of the substance over style variety, Gilbert Yeung (owner of hotspot Dragon-i) has combined both in 10 Feet Tall, a sunny St. Barthes-inspired venue designed by famed French team, Patrick Gilles and Dorothee Boissier, that includes plush chairs and massages beds, state-of-the-art entertainment systems and even tasty refreshments.

Chuan SpaLangham Place, Level 41, 555 Shanghai Street, Mongkok, +852 3552 3510Langham Place’s Chuan Spa has received accolades for its integration of Traditional Chinese modalitiesinto modern spa treatments, and their massages perfectly showcase age-old techniques like acupressure and the stimulation of the meridians to promote the flow of Qi (the body’s life force). The signature Chuan Balancing and Harmony massage uses these methods to relax and ease muscles, while the more robust Traditional Chinese incorporates stretching for a more intense experience.

Xi ShiTreat the entire team to a well-deserved massage with Xi Shi’s “Office Revitalise” – this door-to-door service rarely services gentlemen, but makes an exception with their express office treatments, allowing each member of staff to relieve some of the neck and shoulder strain that comes with hunching in front of the computer all day. All you need is an office chair and the therapist will do the rest.

Recommended by Quintessentially Lifestyle, the world’s leading Members Only Concierge Club. Contact: [email protected]

Massages of the cheap ‘n’ cheerful variety are ubiquitous in Hong Kong’s streets, but here are the best for your every need.

Gentlemen’s TonicB47-B48, 15 Queens Road, Central, +852 2525 2455While swish Mayfair import Gentlemen’s Tonic may be better known for its male grooming specialties, including one of the city’s best wet shaves, their menu of manly treats also includes a host of massages, including Swedish, Thai, Indian, aromatherapy and hot stone. Their signature “The Traveller” is a 90-minute journey aimed at easing muscle tension that plague today’s frequent fliers. Massages can also be enjoyed as part of a package along with shaves, facials and even a Bloody Mary.


Commercial projects:Carlsberg 12,000 S.F.Escada 7,000 S.F.Leica 5,000 S.F.Residential projects:House, Belleview Drive, Repulse Bay 6,000 S.F.Apartment, The Mayfair 6,000 S.F.Apartment, The Leighton Hill 2,200 S.F.

傑出室內設計獎2011Outstanding Interior Design Award 2011

榮獲 Hong Kong Business 頒發

Interior Design Architecture

www.zchron.com查詢熱線: (852) 2239 6888

HAPPY VALLEY HONG KONG

普特朗建築及室內設計工程管理

3/F, No. 77, Wong Nai Chung Road

客戶心聲:

畢架山峰獨立屋(4,000尺)–劉先生

“2002年第一次找普特朗為我家設計新居,由於他們設計工程準時、專業、收費準確，所以本人十分滿意；

今年(2012)再於九龍塘購買了新的獨立屋，本人樂意再次與普特朗合作。”

嘉士伯啤酒廠香港有限公司–梁先生

“2003年是我們首次合作，完成位於小瀝源近20,000尺的辦公寫字樓設計及工程項目，設計時尚實用之餘，他們可以在既定的預算成本及限期內完成；2009年進行翻新，他們專業認真的服務態度是我們再次合作的原因。”

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1%4% 10%

20%

16%14%

15%

9%

11%

NUMbERS

For more information contact: ipsos, tim Hill ([email protected]); nielsen, Jackie Helliker ([email protected])

84%decision makers who expect their

business to grow in 2012

Business leaders stay optimistic

Source: Ipsos Business Consulting Business Outlook Survey, Q3 2012

Business leaders plan to increase investment in sales & marketing and to get into new market development.

Men tend to be more active investors than women in Asia Pacific but with small difference

between genders

42% 45%

5% 8%



Source: Copyright © 2012 The Nielsen Company

Business leaders are optimistic about their local economic outlook

Very optimisticQuite optimisticNot very optimisticNot at all optimistic

GROW BY >10% SHRINK BY 1-5%GROW BY 5-10% SHRINK BY 5-10%GROW BY 1-5% SHRINK BY MORENO CHANGE THAN 10%

3%

1%

31%

29%

5%

6%

24%

Logistic Product Development/R&DOperations Human ResourceSales and Marketing Distribution/Retail NetworkNew Market Developement OthersTechnology

Global AverageAsia Pacific

% Of POPuLATION THAT HAVE INVESTMENTS

33%48%

38%51%

28%44%

Stocks are the most popular asset class for investment portfolio.

Source: Copyright © 2012 The Nielsen Company

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