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China could globalize the yuan to challenge USD dominance



Former Chairman of Goldman Sachs Asset Management, Jim O’Neill, said China could use its currency to gain an edge over the U.S. — but not by devaluing the yuan.

Beijing can consider expanding the role of the yuan globally to challenge the dominance of the U.S. dollar, he told CNBC’s Tanvir Gill in an interview which aired Thursday.

While the greenback — the reserve currency of the world — is dominant today, the “only way that can ever change” is if there’s a genuine, “long-term alternative” to the U.S. currency, O’Neill said.

China has already made some strides in internationalizing the use of its currency.

Chinese A-shares — those traded in mainland China — were included in index provider MSCI’s global and regional indexes. The A-shares, as well as Chinese bonds in the Bloomberg Barclays index, are traded in yuan.

As Chinese assets are increasingly traded in global markets, more foreigners will need to trade in the yuan, which is the intent of the internationalization drive.

“Some people would say, of course, the ultimate weapon would be for China to start selling very large numbers of U.S. bonds … but it would probably hurt, of course, the value of Chinese investments, ” O’Neill said.

China is currently the largest holder of U.S. government debt, owning roughly $1.12 trillion in U.S. Treasury bonds. Analysts have debated on whether Beijing will consider the so-called “nuclear option” in its trade fight with the U.S. — defined as selling off its holdings of U.S. Treasurys and triggering a rise in interest rates, which could hurt the American economy.

A weaker yuan has been a key source of contention between U.S. and the China, with U.S. President Donald Trump accusing Beijing of intentionally letting its currency slide lower in order to make its exports cheaper.

But a weak yuan will also reduce investor confidence.

“I don’t think a renminbi … devaluation makes a lot of sense at all,” he said, referring to another name for the yuan — the renminbi.

The other way China could strengthen its global position is to tap on the growing power of its consumers, O’Neill said. Currently, domestic consumption makes up only 40% of the country’s GDP, versus 70% in the U.S., he pointed out.

“Over the next decade to 20 years, there’s no way the U.S. consumer can continue to be the dominant share … of the U.S. economy … Whereas for China to reach the BRIC-type dream … the Chinese consumers got to continue to rise,” said O’Neill.

O’Neill famously coined the term BRIC — an acronym referring to the economies of Brazil, Russia, India and China. He had predicted those four emerging countries were on their way to reshaping the world economy.

— CNBC’s Yen Nee Lee contributed to this report.

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First-half adjusted net profit slumps



A sign sits on a wall outside the offices of Julius Baer Group Ltd. in Geneva, Switzerland.

Valentin Flauraud | Bloomberg | Getty Images

Swiss private bank Julius Baer posted a 19% decline in adjusted net profit in the first six months of 2019 as tepid trading continued from its wealthy clients, a dip it nonetheless hailed as a pick-up from challenging conditions late last year.

Switzerland’s third-largest listed bank has recently contended with negative interest rates, choppy markets, and risk-averse clients, as well as lackluster growth from its Italian subsidiary Kairos, which saw outflows in the first six months related to a decline in fund performance last year.

Julius Baer’s adjusted net profit was at 391 million Swiss francs ($397.52 million) in the first half of 2019 – a 19% drop on the year but an 18% increase compared with the second half of 2018.

“Profitability has markedly improved compared to the second half of 2018, as we saw client activity and asset valuations recover substantially,” outgoing chief executive Bernhard Hodler said.

“The cost-reduction program we initiated earlier this year is on track, and we will see its effects materialize in the coming months and throughout 2020, as targeted,” he added.

Hodler is due to be replaced by the bank’s current head of intermediaries and global custody, Philipp Rickenbacher, in September.

While Baer’s overall inflows have picked up since late 2018, margins have been under pressure.

In February the bank scaled back growth targets and announced large-scale cost cuts after a tough end to 2018 caused it to miss its goals.

It said on Monday the program, which aims to save around 100 million Swiss francs by cutting its workforce by around 2% and moving out of less attractive markets, was on track.

It is aiming to hit an adjusted cost-income ratio below 68% by 2020, an improvement on the 71.0% posted through June.

It brought in 6.2 billion Swiss francs in net new money, a 3.2% growth rate that was below its 4-6% target.

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Analysts on Shanghai’s new Nasdaq-style STAR tech board



People take pictures during an opening ceremony of the Shanghai Stock Exchange’s Sci-Tech Innovation Board in Shanghai on July 22, 2019.

STR | AFP | Getty Images

The first tranche of companies on China’s new Nasdaq-style tech board started trading on Monday, with all the stocks seeing gains on their public debut.

Still, some are cautioning against jumping quickly into the action.

“I think this market, it needs to … basically take a little bit of patience to develop,” Eugene Qian, president of UBS Securities, told CNBC’s “Squawk Box” on Monday.

“For anything new in China, there is a tendency for retail-oriented markets like China to overly speculate,” Qian said, adding that this would contribute to a “short-term bubble” that may not be sustainable.

The new technology board — the Science and Technology Innovation Board, or “STAR Market,” which is operated by the Shanghai Stock Exchange — comes as China attempts to address investor concerns about market volatility and the lack of governance.

It’s easier for firms to go public in the new STAR Market tech board, compared to listing on the Shanghai A-share market, as companies need to go through a registration instead of waiting for regulatory approval which could take longer.

“I think a lot of people are going to really be behind this,” Gareth Nicholson, head of fixed income at Bank of Singapore, told CNBC on Monday. “This is gonna be pretty wild.”

‘Focus on individual companies’

Prior to their public debut, initial public offerings on the STAR Market saw an average over-subscription of about 1,700 times among retail investors, Reuters reported. In the first five days of a company’s listing, no daily price limits will be placed. But after that period, a stock will be allowed to trade within a 20% range.

In comparison, listings elsewhere in China are subjected to a gain cap of 44% on their debut and limited to a 10% gain or loss thereafter.

J.P. Morgan’s Chief China Economist and Head of China Equity Strategy, Haibin Zhu, urged investors to “focus on individual companies.”

“You need to focus on the sector and the company itself, and make sure that they have decent or stable earnings outlook,” Zhu told CNBC’s “Street Signs” on Monday.

With the new stock board primarily aimed at domestic investors, opportunities for foreign participation will be minimal for now.

UBS Securities’ Qian said foreign investors are likely to watch “with a lot of interest” but will likely “wait a little bit out.”

Many of the stocks listed on the new tech board are similar to those on the Chinext in Shenzhen, which is already included by MSCI in its indexes, Qian said.

“I think there will be opportunities for long-term, value-driven … international investors later on,” he said.

Looking ahead, the Shanghai Stock Exchange said an index tracking the STAR Market will be launched on the 11th trading day following the debut of the 30th company on the board.

— CNBC’s Evelyn Cheng, Yen Nee Lee and Reuters contributed to this report.

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Australia grounds Mahindra’s GA8 planes after Swedish crash



The Airvan 8 utility aircraft manufactured by Mahindra Aerospace stands on display in front of the company’s booth in Geelong, Australia, on Tuesday, Feb. 24, 2015.

Mark Dadswell | Bloomberg | Getty Images

Australia’s air safety regulator has grounded operations of a small aircraft manufactured by Mahindra Aerospace for up to 15 days following a crash in Sweden that killed nine people earlier this month.

The Civil Aviation Safety Authority (CASA) said it had suspended operations of all GippsAero GA8 planes in Australia and all Australian-registered GA8 planes flying overseas from July 20 through Aug 3.

The GA8 single-engine aircraft, built in Australia by GippsAero, is typically used for skydiving, tourism, air patrols, medical evacuations and humanitarian missions in remote locations, according to Mahindra Aerospace’s website.

There are 228 GA8 planes worldwide, 63 of which are registered in Australia, CASA said.

Mahindra Aerospace, a unit of India’s Mahindra and Mahindra Ltd, said CASA’s move was precautionary during the preliminary investigation in Sweden, with which GippsAero was cooperating.

“The preliminary investigation has not identified the root cause of the incident,” GippsAero Chief Executive Keith Douglas said in an emailed statement.

Nine Swedes were killed when a GA8, dubbed the Airvan 8, crashed during a skydiving trip near Umea in northern Sweden on July 14.

CASA said it has been working closely with Swedish authorities and the European Union Aviation Safety Agency (EASA), which has also issued an emergency directive to European GA8 aircraft owners and operators to suspend operations except for ferry flights.

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