Financial Times Europe - 21.02.2020

Friday21 February 2020 ★ FINANCIAL TIMES 19

MARKETS & INVESTING

P H I L I P STA F F O R D

JPMorgan,Goldman Sachs nda Jane
Street Capital ave joined rival Wallh
Street firms in backing Members
Exchange, a new stock trading venue
that aims to shake up the US equity
market.

The trio joined in a new round of fund-
ing this month for the marketplace,
known asMemx, which has emerged as
a challenger to the big three of theNew
York Stock Exchange,Nasdaq nda
CBOE Global Markets. The platform is
scheduled to launch this summer.
The trading houses join nine of the
biggest participants in American mar-
kets, includingMorgan Stanley,Virtu
Financial,Citadel Securities,Fidelity,
TD Ameritrade nda ETrade, which are
already backing the new arrival.
Memx aims to increase transparency
in the industry with what it calls “simple
and fair pricing” on costs for connectiv-
ity and market data, while introducing
new technology.
It declined to say how much money it
had raised in total and how much the
three new backers had contributed.
Jonathan Kellner, Memx’s chief exec-

utive, said adding strategic investors

was more important than the financing

itself. “One aim is that [these investors]

have a strong voice in the market

structure debate alongside exchanges,”

said Mr Kellner, who once ran Instinet,

the electronic brokerage.

Memx’s development comes amid a

heated debate within the industry about

prices charged by incumbent exchanges

for their data and trading information.

In late 2018, the Securities and

Exchange Commissionblocked pricea

rise for market data for NYSE and

Nasdaq, in what was a rare move, and

followed up with guidance last year

calling on exchanges to justify any

increase in fees.

Memx will not charge initially for

market data or for connecting to its

venue but plans to do so at a later date.

It will begin testing the platform from

May ahead of a launch on July 24, pend-

ing regulatory approval. It will offer

trading in all regulated US shares.

Memx is just one of a wave of new

entrants that should increase the

number of fully regulated stock

exchanges in the US beyond the current

total of 14. All but two are owned by

CBOE, Nasdaq andIntercontinental

Exchange, NYSE’s parent.

JPMorgan and Goldman were the two

largest equity trading houses in 2019 by

fees collected,according to data romf

Refinitiv.

Jane Street, an electronic market

maker specialising in exchange traded

funds, claims to trade a daily average of

$13bn of equities around the world.

Broadhaven Capital Partners acted as

exclusive adviser to Memx in the latest

fundraising.

Equities

JPMorgan and Goldman Sachs throw

weight behind stock exchange start-up

L E O L E W I S A N D R O B I N H A R D I N G

TOKYO

The yen’s reputation as a haven has

taken a heavy blow as the currency sold

off sharply against a backdrop of a

weakened economy and the deadly

coronavirus epidemic.

The yen softened by 1.4 per cent on

Wednesday to a near nine-month low

of ¥111.4 to the dollar from ¥110 earlier

in the week.

Traders said the move had been

driven by non-Japanese institutions

trading in London and New York

hours. It weakened further to ¥112 by

yesterday afternoon in Europe.

The fall represents a departure from a

pattern in recent years whereby the yen

strengthens whenever unsettling news

prompts investors to sell riskier assets.

That change could reflect pessimism

about the outlook for Japan withdismal

economic data nd spread of the coro-a

navirus leading to strong investment

outflows from domestic institutions.

“There were a lot of big investors who

had been holding yen positions as a

hedge and, as it headed below ¥110 [to

the dollar], those started to unwind,”

said Mansoor Mohi-uddin, a foreign

exchange strategist at NatWest Markets.

Mr Mohi-uddin said markets were

probably worried about Japan’s econ-

omy, particularly given the spread of the

coronavirus. The latest trade data

suggested Japan would continue to run

deficits, which could push the yen lower

in the long term.

Japanese gross domestic product data

this week showed that the economy

shrank by an annualised 6.3 per cent in

the final quarter of 2019.

That was worse than analysts’ fore-

casts and puts the world’s third-

biggest economy on course for a techni-

cal recession — or two consecutive quar-

ters of negative growth.

That economic weakness increases

the likelihood of Japan’s central bank

further easing monetary policy, which

would risk pushing the yen even lower.

The yen has mainly traded in a range

of ¥105-¥115 per dollar over the past

three years. In 2016, it rallied from ¥

to ¥100 over concerns about the global

outlook, illustrating its haven function.

But the pattern of yen strength on bad

news has weakened over the past 18

months, partly because of large invest-

ment outflows from Japan.

Japanese companies have increas-

ingly made overseas acquisitions while

theGovernment Pension Investment

Fund, the world’s biggest pension inves-

tor, has invested more money into for-

eign bonds.

Data from the Ministry of Finance

showed that Japanese trust accounts

made a record ¥2tn ($18bn) in net

acquisitions of foreign bonds in January.

“Underlying the yen’s recent move is

market expectations of the GPIF’s

update on its portfolio balancing before

the end of the fiscal year,” said Shusuke

Yamada, a strategist at Bank of America

in Tokyo.

Mr Yamada said there was specula-

tion that other pension funds were

rebalancing their portfolios ahead of a

potential GPIF move to further increase

its weighting to foreign bonds.

Currencies

Yen’s sharp sell-off tarnishes historic

status as haven against riskier trading

‘There were a lot of big

investors holding yen

positions as a hedge and

those started to unwind’

Memx is aiming to challenge the big

exchange venues on Wall Street

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L AU R A P I T E L —ISTANBUL
TO M M Y ST U B B I N GTO N A N D A N N A G R O S S
LONDON

When the Turkish lira was struck by
a bout ofselling early a year ago,n
President Recep Tayyip Erdogan vowed
that speculators would pay a heavy
price for their“provocations”.
Hewarned: “Our currency is the
Turkish lira and we will protect it.”
Some dismissed the remarks as
bluster. But over the past 12 months,
Turkish authorities have backed up the
president’s words with measures
designed to support the currency — and
offsetinterest rate cuts aimed at
rebooting economic growth.
On Wednesday, Turkeycut ts bench-i
mark rate for thesixth time in a row,
with the one-week repo rate moving to
10.75 per cent, from 24 per cent last July.
The falling interest rate — together
with a general emerging market sell-off
and concerns over the conflict in Syria —
has piled pressure on the currency.
Rising inflation means that real inter-
est rates have turned negative.
In response, state banks have sold
billions of dollars in an attempt to
prop up the lira, according to traders,
while the banking regulator hastaken
furthersteps o curb short-selling oft
the currency.
The stakes are high. A stable lira is
vital both for Turkish companies,which
are saddled with large amounts of
foreign currency debt, and to keep con-
sumer prices stable.
The exchange rate is seen in Turkey as

a barometer of Mr Erdogan’s manage-

ment of the economy.

But the intervention has come at a

cost, helping to push foreign money out

of Turkey’s capital markets.

“The market doesn’t like these kinds

of measures,” said Yerlan Syzdykov,

global head of emerging markets at

Amundi, the asset manager.

Overall foreign investment in Turkish

stocks has fallen $1.6bn year-on-year,

according to the latest Bloomberg

figures.

Meanwhile, about $3bnhas been

pulled from bond markets in the year to

January, reducing foreign investors’

share of local currency debt to arecord

low f 11 per cent.o

“Government efforts to control

financial markets are clearly a deterrent

for investors like us,” said Gilles Seurat,

a fund manager at Paris-based asset

manager La Française.

Mr Seurat saidhis fund had been

directly affected by controls imposed by

the banking regulator, which limit

the amount of swaps, forward contracts

and other derivative transactions that

Turkish banks can carry out with

foreign counterparties.

“Short-selling is still possible, it is just

more expensive,” he said.

Julian Rimmer, a trader at Investec

Bank, added thata ban imposed last

year by Turkey’s capital markets regula-

tor on betting against bank stocks had

made it impossible to “pair” them — a

common way of hedging bets.

The heavy management of the cur-

rency makes it difficult to “hop in and

out of positions”, said Mr Syzdykov.

That is one of the reasons why

Amundi is neutral on local bonds and on

the lira, he said — though he is still

drawn to Turkey’s high-yielding foreign

currency-denominated debt, and

bought into a recent $4bn eurobond

syndication.

The measures have fed intobroader

concerns in the minds of investors.

“Economic policy is just so unpredict-

able,” said Viktor Szabo, a fund manager

at Aberdeen Standard Investments. “It’s

hard to have a strong conviction.”

Another portfolio manager, who

asked not to be named, described Tur-

key’spolicy mix as “completely incoher-

ent”.

He cited rising inflation and the lack

of an interest rate premium as reasons

for sitting on the sidelines when it came

to Turkey’s local currency debt.

But some analysts and foreign inves-

tors accept that the measures appear to

have helped to keep the lira steady.

Piotr Matys, a currency strategist at

Rabobank, said last week that the cur-

rency seemed to be on an “invisible

string” attaching it to the level of six to

the dollar. The rating agency Standard &

Poor’s has described the FX regime as a

“managed float”.

Orkun Saka, an assistant professor in

finance at the University of Sussex, said

it was “quite common” for governments

to adopt more illiberal measures in the

wake of a crisis. He saidthere could be

benefits for financial stability, provided

that restrictions were temporary.

But not everyone is convinced that

the government’s efforts are working.

Among the sceptics is Robin Brooks,

chief economist at the Washington-

based Institute of International

Finance. He saidthere was little evi-

dence that themeasures ad supportedh

the lira, pointing toits weak perform-

ance comparedwith other emerging

market currencies in recent months.

“That doesn’t look to me at first

glance like a managed float,” he said.

Erik Meyersson, a senior economist at

the Swedish bank Handelsbanken, said

Mr Erdogan would “most ikely get whatl

he wants” with interest rates falling

even further in the months ahead — but

warned that would riskmore currency

weakness and rising inflation.

Headded: “The question is, how long

can they do this? How long can they keep

this up before the lira goes off again?”

Measures to fight speculation

have helped to push overseas

investment out of Turkey

‘Efforts to

control

financial

markets

are clearly

a deterrent

for

investors’

Clean sweep:

authorities in

Turkey have

pledged to take

action against

speculative

interests

Ismail Ferdous/Bloomberg

Currencies. tate interventionS

Erdogan mission to defend lira

unnerves foreign investors

A N J L I R AVA L

Global demand for liquefied natural gas

is expected to double to 700m tonnes by

2040 as energy consumption, particu-

larly in Asia, rises and the world shifts

away from dirtier burning fuels,Royal

Dutch Shell aid yesterday.s

In its annual outlook for the super-

cooled fuel, the energy major said that

gas will play a significant role in shaping

a lower-carbon future.

About 80 per cent of global energy

demand growth is forecast to be met by

renewables and gas.

The forecast demand growth is set

against current weakness in consump-

tion. Global LNG prices have fallen to

record lows this winter amid milder

weather and the outbreak of the corona-

virus in China, which has hit demand

just as supply has swelled.

Shell has invested heavily into gas

infrastructure in recent years as it aims

to shift the balance of its portfolio away

from oil and banks on surging demand

for the fuel, led by rising electrification

of the energy system.

While burning gas releases fewer

emissions than oil and coal, it is still a

fossil fuel and has come under attack by

environmentalists who are calling for a

rapid shift to renewable energy to pre-

vent global warming.

Climate activists have also criticised

gas usage because of methane emis-

sions. Methane is the main component

of natural gas and is released into the

atmosphere during oil or gas production

by incomplete flaring or leaks in pipe-

lines. Even though it breaks down faster

than carbon dioxide, it is a bigger

contributor to global warming.

Advocates for gas such as Shell say the

fuel will guarantee reliable power sup-

ply and will be essential for meeting

energy demand over coming decades.

China is expected to see gas demand

double. In 2019, global demand for LNG

grew by 12 per cent from the year prior

to 359m tonnes.

“The global LNG market continued to

evolve in 2019 with demand increasing

for LNG and natural gas in power and

non-power sectors,” said Maarten Wet-

selaar, Shell’s head of gas and new ener-

gies. “Record supply investments will

meet people’s growing need for the most

flexible and cleanest-burning fossil fuel.”

He added: “While we see weak

market conditions today due to record

new supply coming in, two successive

mild winters and the coronavirus situa-

tion, we expect equilibrium to return.”

LNG prices in Asia have fallen so

much that state-backed importers in

China have declared “force majeure” to

release themselves from contracts,

invoking a clause usually reserved for

war or natural disasters. Prices in the

region have dipped below $3 per million

British thermal units, down from more

than $5/mbtu in mid-January.

Commodities

LNG demand

to double by

2040, Shell

forecasts

‘While we [at Shell] see

weak market conditions

today, we expect

equilibrium to return’

Turkey’s falling interest rate piles pressure on its currency

Lira per 

Source: Refinitiv

  















Turkey switches to a rate-cutting cycle 

Central bank announces rate rise

FEBRUARY 21 2020 Section:Markets Time: 2/202020/ - 17:52 User:stephen.smith Page Name:MARKETS1, Part,Page,Edition:EUR , 19, 1