The_Wall_Street_Journal_Asia__September_13_2016

THE WALL STREET JOURNAL. Tuesday, September 13, 2016 |B

property funds remain shut,

including those at Standard

Life Investments Ltd., Aviva

Investors and M&G Invest-

ments. In August, Aviva told

investors it wouldn’t reopen its

fund for at least six months.

But the reopening of even a

few funds signals that

investors’ concerns about the

impact on U.K. property market

have eased since the EU

referendum in late June, when

the property market was hit

hard. In addition to funds

suspending trade, shares of

listed landlords sank, deals

collapsed, and completed sales

were done at a discount.

So far, the market has held up

better than some property experts

had expected. The discounts on

In recent months, Chinese

venture-capital firms have

reined in investing after a

frantic 2015. Valuations are

falling and some startups are

struggling to find investment.

But top venture firms are still

able to raise money because

returns from other assets have

been disappointing.

“We still see many good

ideas and trends to invest in,”

Mr. Lee said. “High-quality

startups won’t be cheap and

will require a lot of invest-

ment as they grow.”

Sinovation Ventures, for-

merly known as China’s Inno-

vation Works, is among the

most aggressive Chinese ven-

ture funds betting on startups

that use artificial-intelligence

technology to develop prod-

ucts from driverless cars to

enterprise software.

It has invested $100 million

in 25 such companies in the

U.S. and China in the past

three years.

golia’s sovereign credit rating,

sending it further into junk

status. Standard & Poor’s

made a similar move.

If Mongolia turns to the In-

ternational Monetary Fund for

help, that could prop up inves-

tor confidence that it will be

able to pay its debt, said Kevin

Daly, a portfolio manager at

Aberdeen Asset Management,

with $9 billion in emerging-

market debt under manage-

ment, including Mongolian

bonds. The IMF visited the

country in August.

External debt as a

percentage of GDP

Emerging markets’ bond

performance in August

Digging Out

A looming debt pile in Mongolia is spooking even the most

yield-hungry investors.

Sources: Moody’s (debt); J.P. Morgan (bonds) THE WALL STREET JOURNAL.

200

0

50

100

150

%

2004 ’06 ’08 ’10 ’12 ’

Forecast

’

Zambia

TOP FIVE

BOTTOM FIVE

Iraq

Cameron

Ghana

Mozambique

Philippines

Honduras

Chile

South Africa

Mongolia

12.0%

8.

5.

5.

5.

0.1%

–0.

–0.

–0.

–7.

and Norway will produce about

190,000 barrels a day more

than expected in 2016, a sign

that production outside the

cartel has remained resilient

despite low prices.

By 2017, the cartel’s data

suggests, oil supplies will out-

strip demand by an average of

about 760,000 barrels a day,

over three times higher than

OPEC predictions made just

last month. Those dynamics

suggest that OPEC members

may not want to institute a so-

called freeze on their output,

which would limit their ability

to compete with rising produc-

tion from outside the cartel.

“I am very concerned,” said

an OPEC official involved in the

negotiations. If non-OPEC

members are producing more,

“it won’t be easy” to agree on

capping OPEC production, the

official said.

Oil prices fell in London after

the report was released, as

traders determined there was

now less hope of a deal next

month. Brent, the global bench-

mark, fell 1.5% to $47.27, but

later rebounded slightly.

Overall, OPEC production

declined only slightly in August

to 33.2 million barrels a day.

But with a few exceptions

such as economically depressed

Venezuela, OPEC members have

been pumping at full tilt in the

past two years despite the fact

all that output has kept prices

at historic lows. OPEC members

had hoped that a period of low

prices would chase out produc-

ers who have high costs in the

U.S. and elsewhere, causing

supply to naturally fall as in-

vestment across the world de-

clined. Monday’s report showed

the obstacles to that strategy.

OPEC said American produc-

tion is set to decline at a

slower rate than previously ex-

pected after the U.S. oil indus-

try added 77 drilling rigs in the

past two months. The U.S. is

still set to pump about 340,

barrels a day less this year at

13.63 million barrels, but that is

66,000 barrels a day more than

previously expected, OPEC said.

Those figures include about 9

million barrels a day of crude

production, along with output

of lighter types of petroleum

such as condensates.

—Kjetil Malkenes Hovland

in Oslo contributed

to this article.

FINANCE & MARKETS

tract wealth from under-

ground. Among the bonds’

holders are BlackRock Inc.,

Franklin Templeton , Gold-

man Sachs Group Inc. and

UBS Global Asset Manage-

ment, according to the latest

holder data from Thomson

Reuters. Mongolia’s debt levels

swelled 264% in the five years

ended 2015, the largest in-

crease in the world during

that period, according to

Moody’s Investors Service.

But the commodities bust

that began in 2011 crimped the

country’s growth. Now, the

prospect of higher U.S. inter-

est rates, which could make

bonds in developing econo-

mies less attractive, could

worsen a troubled situation.

As of the first quarter,

Mongolia’s total debt owed to

foreign creditors stood at

$22.6 billion, compared with a

still tiny $11.8 billion economy.

Meanwhile, a $580 million

Mongolian bond taken on to

help finance a still-unfinished

project to connect 21 prov-

inces with roads comes due in

2017, part of $2 billion in ma-

turing public- and private-sec-

tor debt in 2017, according to

the International Monetary

Fund.

Investors are pinning hopes

on a vast gold and copper mine

that is expected to lead to

huge economic growth. In De-

cember 2015, the government

approved a $4.4 billion financ-

ing deal for Rio Tinto PLC’s

second phase of the Oyu Tolgoi

copper and gold mine, believed

to be the world’s largest un-

derdeveloped reserve of cop-

per, concluding a four-year-

long negotiation. But delays in

the projects have been costly:

During the wait, copper prices

more than halved.

As the country’s current fi-

nancial woes deepened, the

government resorted to emer-

gency measures. In August,

the government said it may

soon stop paying its civil ser-

vants and the military and

raised interest rates by 4.

percentage points, to 15%, to

combat capital outflows.

Moody’s also lowered Mon-

FRANKFURT—The European
Central Bank published new
proposals on Monday aimed at
forcing eurozone banks to face
up to a mountain of bad debt, a
€900 billion ($1.01 trillion)
problem that policy makers
worry is curbing new lending
and hindering the region’s eco-
nomic recovery.
The proposals are part of a
broader effort by the ECB, the
eurozone’s top banking supervi-
sor, to restore confidence in Eu-
rope’s battered lenders, which
are contending with ultralow
interest rates and sluggish eco-
nomic growth. They call on
banks to establish separate
units to manage bad debt, dis-
close more information to su-
pervisors, and set clear one-
year and three-year targets for
winding up problem loans.
“Banks can and, in many
cases should, be doing more to
reduce the level of” bad loans,
said Sharon Donnery, Ireland’s
deputy central-bank governor,
who heads an ECB task force on
nonperforming loans.

ECB officials have expressed
concerns that bad loans are
weighing on bank stocks and
preventing lenders from pass-
ing on ultralow interest rates to
consumers and businesses. Eu-
ropean bank stocks have fallen
more than 20% this year.
In a call with journalists on
Monday, Ms. Donnery said asset
quality was “a serious challenge
for many European banks,”
which could constrain credit
growth and economic activity
and lead to higher funding
costs.
Around 7% of the loans of
the biggest eurozone banks
have turned sour, according to
ECB data, but the problem is
most acute in Southern Europe,
where about 47% of loans in
Greece and 45% in Cyprus are
nonperforming. That compares
with 2% in Germany. The ECB
defines nonperforming loans as
those that are more than 90
days past due, and for which
the debtor is deemed unlikely to
repay in full.
In Italy, where about 12% of
loans are nonperforming, offi-
cials have said that the govern-
ment hopes to inject as much as
€40 billion in capital into do-
mestic banks, though such a
move would likely face opposi-
tion in Brussels and Berlin.
Under the ECB’s guidelines,
banks will be required develop
clear strategies to accelerate
loan disposals, including quan-
titative targets and greater in-
vestment in information tech-
nology and staff. They will also
be required to provide incen-
tives to tackle the issue quickly.
While the proposals aren’t
binding, banks will have to ex-
plain failures to comply.

BYTOMFAIRLESS
ANDTODDBUELL

ECB Aims

To Tackle

Bad Debt

At Banks

There is nary a corner on

Earth where investors won’t

journey to find extra yield. But

the trip to Mongolia is proving

treacherous.

Money managers piled into

assets from the world’s most

sparsely populated country in

past years on the prospects of

vast untapped mines rich with

copper and gold. Mongolian

debt got an additional boost

this year, soaring 6% in July,

as raw-material prices picked

up and investors sought alter-

natives to low and even nega-

tive bond yields in developed

countries.

But in August, Mongolia’s

finance minister stunned

global investors by saying that

its government debt would

reach 78% of the gross domes-

tic product, far above the

country’s 55% target. The rev-

elation triggered a selloff in

Mongolia’s markets, with the

country’s dollar-denominated

debt tumbling 7.7% last month

and the nation’s currency fall-

ing the most among all its de-

veloping-economy peers, be-

fore rebounding slightly this

month.

“Until recently, Mongolia

was a darling of the markets

and they couldn’t do anything

wrong,” said Bejoy Das Gupta,

chief economist for Asia Pa-

cific at the Institute of Inter-

national Finance. “But when

the hard landing happens,

markets adjust very quickly.”

Mongolia is among a hand-

ful of countries with once-

bright futures that took on

massive debt loads during a

period of investor enthusiasm

for frontier markets. In 2011,

the nation was the world’s

fastest-growing economy, ex-

panding at a 17% rate as prices

of copper, gold and iron ore

soared.

Foreign lenders handed

over billions of dollars to the

government, its banks and

mining companies to help ex-

BYCAROLYNCUI

ANDJULIEWERNAU

Investors Flee Indebted Mongolia

Once a market darling,

the high-yielding,

commodity-rich nation

turns into a pariah

Houses in Ulan Bator, Mongolia. In August, the government said it may soon stop paying civil servants and the military due to debt.

WU HONG/EUROPEAN PRESSPHOTO AGENCY

LONDON—OPEC said Mon-

day that crude-oil output from

rival producers is turning out

to be stronger than expected

and will result in a bigger glut

of petroleum than previously

believed this year and next.

The findings present a di-

lemma for the Organization of

the Petroleum Exporting

Countries before the 14-nation

oil cartel meets in Algeria from

Sept. 26 to 28 to talk about

ways to limit output and bring

the crude market back into bal-

ance. OPEC members are strug-

gling with oil prices that have

fallen over 50% in the past two

years because global supply is

outstripping demand.

In its closely watched

monthly report on market con-

ditions, OPEC said non-OPEC

members like the U.S., Russia

BYBENOITFAUCON

OPEC: Rivals’ Output Tops Expectations

Change in non-OPEC supply expectations between

August and September

Bucking Up

OPEC now believes its rivals will produce more oil than expected.

Source: OPEC THE WALL STREET JOURNAL.

Europe

Former Soviet Union

U.S.

Latin America

Total non-OPEC supply

90,000 barrels a day

60,

50,

–20,

190,

Around 7% of the

loans of the biggest

eurozone banks have

turned sour.

HONG KONG—A Chinese

venture-capital fund raised

about 4.5 billion yuan, or

about $674 million, in capital

as the country’s top venture

firms build up their cash piles

amid a cooling environment

for funding.

Sinovation Ventures ,co-

founded by former Google Inc.

and Microsoft Corp. executive

Kai-Fu Lee, said Monday it

closed two venture-capital

funds: a dollar-denominated

fund of $300 million—in

which Apple Inc. supplier Fox-

conn Technology Group was

the anchor investor—and a

yuan-denominated fund total-

ing the equivalent of $374 mil-

lion.

Sinovation Ventures plans

to invest the funds raised in

startup companies involved in

artificial intelligence, building

enterprise software, and creat-

ing entertainment content.

BYLIYUAN

Sinovation Ventures

sales haven’t been as big as they Raises $674 Million

were in previous downturns.

Shares have rebounded.

The stability has been

reason enough for some asset

managers to resume business.

“Any effects of the Brexit

vote on the overall U.K.

economy, negative or other-

wise, will take many months, if

not years, to transpire, and

sometime after that for the

property market,” Don Jord-

ison, managing director of

property at Columbia Thread-

needle Investments, said in a

statement.

Open-ended funds have been

popular with investors because

they offer real-estate returns

without the volatility that

comes with owning the shares

of listed real-estate companies.

Yet these funds often face

criticism over their structure:

They promise investors the

ability to withdraw their money

daily even though property

assets can take months to sell.

—Elizabeth Pfeuti

contributed to this article.

Some U.K. real-estate funds
have started thawing out after
the post-Brexit freeze.
Asset manager Columbia
Threadneedle Investments
said Monday that its U.K.
property fund would reopen
later this month. The London-
based firm had shut down
trading in early July when
investors were rushing to pull
their money out after Britain
voted to leave the European
Union.
Earlier this month, asset
management firm Canada Life
lifted the suspension of
redemptions on its U.K. real-
estate fund. And U.K. fund
manager Aberdeen Asset
Management PLC reopened its
property fund in mid-July,
having taken a slightly different
approach after Brexit,
suspending its fund for a short
time and charging a steep fee if
an investor still insisted on
pulling money out.
Some of the biggest U.K.

BYARTPATNAUDE

Property Funds Back After Brexit Closure

London’s market has fared better than some property experts expected.

JONATHAN BRADY/ZUMA PRESS

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