Category: Capital Markets (stocks and bonds)

Chinese Economy Picks Up Speed
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Chinese Economy Picks Up Speed

New data released by the Chinese National Bureau of Statistics shows that the world’s second-largest economy picked up momentum in Q2 2014. Output expanded by 7.5% year-on-year between April and June, slightly up from 7.4% in Q1.

The pick-up in speed was largely driven by a raft of government support, as the Chinese authorities loosened monetary policy and unleashed a mini-stimulus in a bid to support growth after lacklustre performance in the first quarter.

The Centre for Economics and Business Research (Cebr) sees the mini-stimulus performed in March as an important turning point for the Chinese economy, as this took the form of fiscal stimulus for infrastructure, compared to the beaten path of the credit mechanism. Industrial production growth accelerated to 9.2% year-on-year in June, compared to 8.8% in May. Monetary loosening also played its part in lifting Q2 growth: credit in the economy grew at its fastest pace in the three months to June, according to data released yesterday. Overall, government stimulus helped offset the drag from weak exports and a slowdown in the property market.

While looser monetary policy helped to lift up this quarter’s growth, rising levels of credit have revamped concerns about the risks around the country’s financial sector, with many worrying about a potential “Lehman moment” in China, especially given the rise of off-balance-sheet credit (commonly referred to as shadow banking).

Cebr is less worried about this: credit’s share of the Chinese economy is much lower than the equivalent share in the pre-Lehman period in the US. Moreover, the rise of shadow banking in China is perhaps best viewed as a natural consequence of the underdeveloped financial system and the lack of profitably opportunities for banks given the interest rate cap in place.

An Asian-style currency crisis also looks to be off the cards, with capital controls presenting the government with plenty of levers to control the currency. Finally, the debt-to-GDP ratio in China is estimated to be below 30%, leaving the authorities with plenty of fiscal room at their disposal to provide more stimulus further down the line as was done in March. With this in mind, Cebr expects China to comfortably meet the 7.5% target for year-on-year GDP growth in 2014.

Whitbread Appoints New Chairman
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Whitbread Appoints New Chairman

Whitbread PLC, the multinational hotel, coffee shop and restaurant company headquartered in Dunstable, has announced the appointment of Richard Baker as chairman with effect from 1 September 2014. He succeeds Anthony Habgood who, after nine successful years as chairman, announced in January his decision to step down from the board.

Baker has been an independent non-executive director on the Whitbread board since September 2009. He is currently Chairman of Virgin Active Group, a role he has held since 2008 and chairman of DFS Furniture Holdings where he has been since 2010. Baker was previously chief executive of (Alliance) Boots Group Plc from 2003 to 2007 and prior to that was chief operating officer at Asda Group Plc.

Sir Ian Cheshire, Whitbread’s senior independent director who led the nominations committee process commented: “We have conducted a thorough search, with the help of executive search consultants, to identify the most suitable person to become the next chairman of Whitbread. We were lucky enough to have a very strong field of potential candidates but at the end it was clear to us that Richard was the best choice to take on the role of chairman. He has a very strong record in both managing and chairing consumer businesses, a deep understanding of Whitbread’s operations through his role as a non-executive and a strong empathy with our ethos, culture and commitment to serving our customers. We are delighted that he has accepted the role.”

Commenting on his appointment, Baker said: “Throughout my time on the board, I have admired the strength of the company’s businesses and brands. I strongly endorse the common values shared throughout the group and its consistent focus on putting the customer first. It will be an honour to become chairman of this great company, and I look forward to it continuing to deliver on its strategy for growth. ”

Anthony Habgood, chairman, commented: “It has been a privilege to have been the chairman of Whitbread over the past nine years. It is a company with tremendous potential and I’m sure that Richard is the right person to chair the board for the next phase of its development. I wish Richard and everyone at Whitbread every success in the future”

Rolls-Royce to Supply Power Plant in Myanmar
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Rolls-Royce to Supply Power Plant in Myanmar

Rolls-Royce has signed a long-term service agreement with RGK+Z&A for spare parts supply, supervision and maintenance for the Hlagwa Power Plant (Phase II) project in Yangon, Myanmar (also known as Burma). The agreement was signed at the Foreign and Commonwealth Office in London by Lars Eikeland, president and CEO of Bergen Engines, and Zeya Thura Mon, Group CEO of RGK+Z&A Group & Managing Director of Zeya & Associates; and witnessed by Hugo Swire, minister of state at the Foreign and Commonwealth Office, and His Excellency U Khin Maung Soe, minister of electric power (MOEP), The Republic of the Union of Myanmar.

Earlier this year, Bergen Engines, part of Rolls-Royce Power Systems (RRPS), signed a contract with RGK+Z&A Group of Myanmar for delivery of engines and associated systems for phase II of the country’s first medium speed gas engine-based power plant, the Hlagwa Power Plant.

The Hlawga Power Plant, located in Yangon near the Hlawga CCPP and main substation of MEPE, is a gas engine-based independent power plant (IPP) owned by RGK+Z&A Group. It will deliver power to the Yangon grid and the contract stipulates a capacity of 25 MW. A power purchase agreement (PPA) and other related agreements for the power plant have already been concluded by RGK+Z&A Group with MOEP.

RGK+Z&A Group is an engineering company based in Myanmar which focuses on the thermal power generation, green energy, transmission and distribution industries. The Hlawga power plant (phase I) was built last year using high speed engines and was the first plant to conclude a PPA with MOEP.

“We are excited to be a partner in further developing the electrification of Myanmar,” said Lars Eikeland, at the ceremony. “Z&A is a very competent partner and we are confident that this will be a successful project. We are also very pleased that this project could be financed by loan facilities from GIEK, the Norwegian export credit agency.”

“We are committed to provide uninterrupted electricity to Myanmar by power generation with minimum resources. We believe that with the state of art solutions from Rolls-Royce Power Systems, we could achieve more output to deliver the power needs”, said Zeya Thura Mon.

The energy infrastructure in Myanmar is still developing. The country’s electrification rate is 26% and demand is expected to grow rapidly. Annual growth of 15% is projected. Gas is available in centres of electricity demand and can be the source of more environmentally friendly power through the use of high efficiency gas engines.

The new power plant will be the first medium speed gas engine based power plant in the country. The contract scope includes the supply of three B35:40V20 gas engines plus complete system engineering.

The Search for Quality Yield
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The Search for Quality Yield

Weak global growth, lacklustre equity markets, low inflation and geopolitical tensions made bonds the safe asset of choice during the first half of 2014, according to Pierre Bose, head of fixed income for Europe at Coutts private bank.

This pushed up bond prices, Bose said, and with bond yields (which move inversely to price) now very low, investors have little to cushion returns should prices fall, which increases the risk of holding bonds.

“We are generally underweight bonds given our positive view on global growth, which favours equities over bonds, and their high valuations,” said Bose. “We express this underweight primarily through our positions in government and investment-grade bonds.

“Within the government sector we remain underweight US Treasuries and UK gilts. We prefer Europe, in particular the peripheral markets, where improving fundamentals and the European Central Bank finally taking action make bonds attractive, even after a substantial rally.

“However, at these levels, European government bonds look less attractive than dollar and sterling corporate bonds with a similar risk rating, making us reluctant to increase our European positions.

“The strong performance of investment-grade bonds – an area we have long favoured – now provides an opportunity to reallocate from this sector to more attractively valued and higher-yielding markets. One such market in which we’ve maintained our modest positioning is high-yield debt.

“Another higher-yielding market we believe still offers attractive opportunities is emerging-market debt. We prefer to allocate risk selectively to some higher-quality Asian corporate credits and emerging debt markets which offer yields that are attractive relative to their risk. These are primarily dollar-denominated sovereign and investment-grade bonds.

“We believe such a diversified allocation of bonds, offering high yields relative to their credit rating, will deliver sound returns.”

Bond Prices Continue to Defy Gravity
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Bond Prices Continue to Defy Gravity

Over the past week, yields on 10-year US Treasuries reached their lowest level for a year, while the S&P 500 reached a new all-time high. A similar trend is seen across the global developed markets, but it begs the question whether equity investors are too sanguine or bond investors too pessimistic, says Alan Higgins, Chief Investment Officer, UK at private bank Coutts.

“Neither bond nor equity markets, in general, are cheap,” says Higgins. “But we believe bonds are clearly the more expensive asset class and the most susceptible to a correction of their gravity-defying trend. Our view that a gradual improvement in the global economic outlook will continue suggests little upside for low-yielding government bonds, with risks skewed toward a rise in yields by year-end.

“To be sure, there are more negative than positive risks around the continued gradual improvement in growth that we think is the most likely outcome for the global economy and markets this year. On the negative side, you have the Ukraine crisis, concerns about China’s banking system and slowing growth, the possibility that interest rates might be increased prematurely in the US or that expected easing may not materialise in the eurozone. Potential positive surprises are limited by comparison – more aggressive easing than expected in the eurozone and/or stronger growth and earnings than expected in the major economies.

“Still, bond yields are so low (prices high) that it would take a fairly dramatic deterioration in the global economic outlook to push them substantially lower. For bondholders, yields are also near or below inflation, providing little ‘real’ (inflation-adjusted) income.

“Equities on the other hand are generally around what we would consider to be fair value on a longer-term basis. Not cheap but not expensive either, and attractively valued relative to bonds. Yields on 10-year Treasuries have dipped below 2.5% for the first time in a year, but we see them rising to around 3% (prices falling) by year-end amid a continued economic recovery.”

Strong Q1 for Life Sciences Investment
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Strong Q1 for Life Sciences Investment

Venture capital funding for the life sciences sector, which includes biotechnology and medical devices, increased 15% in value during the first quarter of 2014, compared to first quarter of 2013, according to a new PwC US report.

Venture capitalists invested US$1.7bn in 173 life sciences deals during the quarter, compared to US$1.4bn in 173 deals during the same period in 2013. While there was an increase in life sciences investments, the category still underperformed the US$9.5bn total venture capital investments made in the first quarter, and is now at the lowest proportion of total investments since 2001.

During the first quarter 2014, biotechnology companies attracted US$1.1bn, or 64% of total dollars invested and 22% in deal value over the first quarter of 2013. The biotechnology industry logged 112 deals, compared with 99 during the first quarter of 2013, a 13% increase in deal volume. The Medical Devices industry finished up 5 percent in dollars, but deal volume decreased by 18% to 61 deals for the first quarter of 2014, capturing US$588m.

“Life sciences and biotechnology investments are off to the strongest start of the year since the recession,” said Greg Vlahos, Life Sciences Partner at PwC. “A strong IPO market has contributed to increased venture capital investments. We’re continuing to see interest in these businesses, especially in the early stages of their development. Venture capitals ability to monetize their earlier investments and source early-stage investments is a positive sign for ongoing investments in life sciences.”

While first quarter 2014 overall life sciences deal value and volume decreased 10% and 28% respectively compared to the fourth quarter 2013, average life sciences deal size rose 15% to US$9.5 million from the same time last year and increased 24% compared to fourth quarter 2013. In addition, the average deal size for medical devices investments was US$9.6m – the highest since the last recession.

“There is a lot of competition for capital and venture funds are being selective in their investments, which explains why life sciences underperformed total venture capital investments,” Vlahos said. “There is still a lot of interest in the space but investors recognize that these deals have longer durations and higher capital requirements. The increase in average deal value and early stage investments tells us that investors have a growing appetite for risk and are placing bigger bets on a smaller number of life sciences companies in hopes of generating outsized returns.”

UK Level with China on Manufacturing Sales Growth
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UK Level with China on Manufacturing Sales Growth

Global manufacturing executives rank the UK as one of the top destinations for future sales growth, ahead of established manufacturing economies such as Germany. The UK has risen to second place – ranked equally with China – as a country where global companies expect to derive the majority of their sales growth over the next two years. Only the US (45%) beats the UK (17%) which is ranked in joint second place with China (17%), according to KPMG’s Global Manufacturing Outlook.

Global Manufacturing Outlook, which surveyed 460 executives globally, also reveals that in terms of a country where global companies expect profit growth in the next two years, the UK is ranked third (16%), only marginally behind China (18 per cent), and marginally ahead of Germany (15%).

Stephen Cooper, KPMG’s UK Head of Industrial Manufacturing, said: “This is encouraging news for manufacturers in the UK and reflects the increasing confidence in the sector we have seen in recent months. The UK economy overall is showing positive economic signs, while comparatively, some of our overseas competitors are on more shaky ground.”

“It is also interesting that the global companies expect a higher profit growth in the UK than Germany. Germany traditionally has a reputation of being efficient in manufacturing processes, so one would expect them to rate perhaps higher than the UK as a naturally more profitable country for investors. The wider Euro crisis and European debt issues may still have a lag impact on Germany”

The report also found that manufacturers were making a dramatic move to 3-D printing technology to reduce product development life cycles. While 81% of global companies said that they were using 3-D printing in product development, this trend was even more marked with UK companies where 85% said that 3-D printing was used to speed up product development.

Global Luxury Goods Sector Remains Resilient
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Global Luxury Goods Sector Remains Resilient

The world’s 75 largest luxury goods companies generated luxury goods sales of £102 billion through the end of last fiscal year (fiscal years ended through June 2013) despite a slowdown in the global economy, according to the inaugural Global Powers of Luxury Goods report issued by Deloitte Global.

The average size of the Top 75 companies was £1.4 billion in luxury goods sales. The report identifies the largest luxury goods companies around the world—with LVMH taking the top spot. It also provides an outlook for the leading luxury goods economies, insights for mergers and acquisitions activity in the sector, and discusses the major trends affecting luxury goods companies, including the retail and ecommerce operations of the largest 75 luxury goods companies.

“Despite operating in a troubled economic environment, luxury goods companies fared better than consumer product companies and global economies generally. For the remainder of this year, we expect growth in developed economies to pick up speed while significant risks in emerging markets remain,” said Ira Kalish, chief economist, Deloitte Global. “Overall performance of the luxury sector will depend not only on economic growth, but on factors such as volume of travel, protection of intellectual property, consumer propensity to save, and changing income distribution.”

The report focuses on the high concentration of luxury goods companies headquartered in France, Italy, Spain, Switzerland, the United Kingdom and the United States. These six countries represented nearly 87 percent of the Top 75 luxury goods companies and accounted for more than 90 percent of global luxury goods sales in 2012. France, Italy, and Switzerland achieved strong composite luxury sales growth in 2012, with France and Switzerland outpacing the 12.6 percent composite growth for the Top 75 at 19.4 percent and 14.8 percent, respectively. Italian luxury goods companies grew in tandem with the Top 75 at 12.4 percent. Countries trailing the Top 75 composite were Spain, the United Kingdom and the United States, with the United States having the smallest growth at just 5.6 percent.

“In the US, luxury goods should benefit from both domestic consumers and international travellers,” said Alison Paul, vice chairman and US Retail & Distribution leader, Deloitte LLP. “A broader product selection and price advantage compared to travellers’ home countries makes the US an attractive luxury market for international tourists, which include an expanding middle and upper income groups from emerging markets. Here in the US, an increasingly more positive outlook is a result of income growth among higher-income households and the seeming wealth effect of the stock market’s recent gains.”

Smart Cities Market Worth $1.3 Billion by 2019 – Report
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Smart Cities Market Worth $1.3 Billion by 2019 – Report

The global Smart Cities market—a solution to the rapid growth in migration to the world’s urban areas—is expected to grow from $654.57 billion in 2014 to $1,266.58 billion by 2019, at an estimated Compound Annual Growth Rate of 14.1% from 2014 to 2019, according to a new study.

The rapid growth in migrations of the global population towards the urban areas has strained the planned development of various metropolises throughout the globe. This has resulted in difficulties in the governance of the non-regulated expansion of urban areas. The growing ecological crisis has led to strict environmental compliances and regulations.

These challenges could be addressed through the solution of “Smart Cities” with sustainable infrastructure for a smarter life. The Smart Cities market provides advanced solutions for smart homes, innovative industry, and smart transportation, and smart resource management, smart utility and smart security.

These solutions are implemented to create a better connectivity which provides better access to the data on real time basis for efficient management. This has driven the governments to implement innovative solutions to the challenges of urbanization. Such innovative solutions would generate feedback from the end users, creating a better relation between the citizen and service provider. It will be a mixture of all infrastructures, social capital including local skills and community institutions and digital technologies to fuel sustainable economic development and provide an attractive environment for all. This demand also includes the rising requirements for sustainability and energy conservation in the markets such as APAC and MEA.

The Smart Cities Market is expected to grow at a rapid pace in the regional markets of APAC and MEA. These regions would also be the highest revenue generating markets. Considerable growth is expected in the NA and European Smart Cities Markets. New wireless network and automation technologies like Z-Wave, Insteon, and many more are expected to be the emerging technological trends in the Smart Cities market.

Grow Africa Partners Double Investment Plans for Agriculture to $7.2 Billion
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Grow Africa Partners Double Investment Plans for Agriculture to $7.2 Billion

Investment commitments by partner companies of Grow Africa – a programme established by the World Economic Forum, NEPAD and the African Union to accelerate the transformation of African agriculture – doubled to $7.2 billion in 2013. The increase in committed funding is captured in the Grow Africa Annual Report, released today.

Of the $7.2 billion in new commitments, Grow Africa partners have already invested $970 million. This has directly led to the creation of 33,000 new jobs and the assistance of 2.6 million smallholder farmers throughout the continent.
Grow Africa measures both these metrics in order to ensure that investment contributes to both economic growth and food security. The assistance it provides to smallholders includes provision of new services, sourcing, contracts or training.

According to the report, most investment to date has been made by companies from within Africa. Half of all invested funds to date have been directed to Nigeria. This reflects the size of the country’s economy, but also renewed political commitment in the country to agriculture that has made it attractive for domestic and international investors.

The increase in investment confirmations outlined in the report is consistent with a broader growth trend in African agriculture which, according to the World Bank, will triple in size by 2030 to become a $1 trillion industry.

As well as highlighting investment, the Grow Africa Annual Report also identifies a number of innovative best practices that are designed to assist African farmers looking to scale up their businesses. Some promising models in this area, highlighted in the report, are new public sector bodies such as the Agricultural Transformation Agency in Ethiopia, as well as frameworks to attract private sector investment into specific regions, including Tanzania’s Southern Agricultural Growth Corridor (SAGCOT).

The report also reveals the challenges that Africa’s agriculture sector must address if it is to achieve its potential. The most frequently reported challenge is lack of access to, and affordability of, relevant financial products. The second most referenced constraint is a lack of alignment between (and within) public sector institutions and the private sector, which slows down, or deters, investments and project execution.

Trade Organisation Highlights Scottish Referendum Risks
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Trade Organisation Highlights Scottish Referendum Risks

The UK’s aerospace, defence, security and space trade organisation, ADS Group, has expressed its concerns about the uncertainties and risks associated with the outcome of the Scottish Referendum on the global competitiveness of companies across the UK.

The aerospace, defence, security and space sectors make a valuable contribution to the UK economy, employing hundreds of thousands of skilled engineers, manufacturers and support staff and supporting an extensive and mature supply chain. Together, these sectors deliver billions of pounds worth of exports each year, helping the UK rebalance its economy through innovation and a high-tech export-led growth strategy.

The uncertain outcome and timetable for negotiations on a range of important financial, regulatory and international relationships is a cause of concern for many businesses operating within or trading with the UK. This could affect export opportunities and inward investment and impact the UK’s international influence and global competitiveness.

Paul Everitt, chief executive of aerospace and defence trade organisation, ADS Group said: “ADS members in the UK aerospace, defence, security and space industries benefit from the stability, strength and scale of the whole of the UK. September’s Referendum on the future of Scotland could have a profound impact on these sectors’ global competitiveness. ADS believes such economic risks and long-lasting consequences are a legitimate part of the pre-Referendum debate.

“In addition to the debates about monetary and fiscal policy, there is genuine uncertainty about the impact of independence on the UK’s – and Scotland’s – international influence, export opportunities and inward investment. Companies are concerned about the costs and consequences negotiation and transition arrangements might have on procurement budgets, mature supply chains and highly-skilled workforces.”

Recent data shows that the global commercial aerospace market grew by more than a quarter (28%) in 2013 with the UK holding 17% of the global market share. Meanwhile, the UK is the second largest exporter of defence equipment and services in the world, after the US.

BAE Systems Wins US Navy Contract
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BAE Systems Wins US Navy Contract

BAE Systems has received a multi-ship, multi-option (MSMO) contract from the U.S. Navy to repair, maintain, and modernize nine destroyers and cruisers, either homeported in or visiting Pearl Harbor, Hawaii.

The five-year contract, awarded by the Naval Sea Systems Command, includes modernization, maintenance, and repair work for the USS Chafee, USS John Paul Jones, USS Chung-Hoon, USS Hopper, USS Michael Murphy, USS O’Kane, USS Halsey, USS Milius, and USS Preble. The award marks a continuation of work BAE Systems has been performing on the same type of ships in Hawaii under a previous seven-year contract.

“Our sustained, outstanding performance on the first MSMO award paved the way for this follow-on contract,” said Bill Clifford, president of Ship Repair at BAE Systems. “The Navy clearly recognizes our achievements and success in maintaining and modernizing these ships to ensure the readiness of the fleet. This award speaks volumes about the dedication and commitment of our highly skilled workforce, as well as our island suppliers and small businesses.”

The new contract, coupled with similar MSMO contracts in Norfolk, Virginia; Mayport, Florida; and San Diego, California, reinforces the company’s trusted partnership with the Navy. BAE Systems has successfully completed more than 300 cruiser and destroyer availabilities over the last 20 years.

Global Smartphone Shipments Grow 33% Annually
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Global Smartphone Shipments Grow 33% Annually

Global smartphone shipments grew 33 percent annually to reach 285 million units in the first quarter of 2014, according to new research. Leaders Samsung and Apple lost slight traction in the quarter, while Huawei and Lenovo each held five percent market share worldwide.

Ken Hyers, Senior Analyst at Strategy Analytics, which conducted the research, said global smartphone shipments grew 33 percent annually from 213.9 million units in Q1 2013 to 285.0 million in Q1 2014. “Smartphone growth was mixed on a regional basis during the quarter, with healthy demand in Asia counterbalanced by sluggish volumes across North America due to changes in the operator subsidy mix,” said Hyers.

Samsung shipped 89.0 million smartphones worldwide and captured 31 percent market share in Q1 2014, dipping slightly from 32 percent a year earlier, according to the research. This was Samsung’s first annual market share loss in the smartphone category since Q4 2009.

Samsung continues to face tough competition from Apple at the higher-end of the smartphone market and from Chinese brands like Huawei at the lower-end. Apple grew a below-average 17 percent annually and shipped 43.7 million iPhones worldwide for 15 percent market share in Q1 2014, falling from the 17 percent level recorded during Q1 2013.

Apple remains strong in the premium smartphone segment, but a lack of presence in the entry-level category continues to cost it lost volumes in fast-growing emerging markets such as Latin America.

The combined global smartphone market share of Samsung and Apple has slipped from 50 percent in Q1 2013 to 47 percent in Q1 2014. There is more competition than ever coming from the second-tier smartphone brands. Huawei remained steady with 5 percent global smartphone market share in Q1 2014, while Lenovo has increased its global presence from 4 percent to 5 percent share during the past year.

Huawei is expanding swiftly in Europe, while Lenovo continues to grow aggressively outside China into new regions such as Russia. If the recent Lenovo takeover of Motorola gets approved by various governments in the coming months, this will eventually create an even larger competitive force that Samsung and Apple must contend with in the second half of this year.

High Speed Cameras Market Worth $274.46 Million by 2020
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High Speed Cameras Market Worth $274.46 Million by 2020

The total high speed camera market is expected to reach $274.46 Million by 2020, at a compound annual growth rate of 5.39%, according to a new market research report.

A high speed camera is a device used for capturing slow motion events with frame rates ranging from zero frames per second to a number of millions of frames per second, with resolutions ranging from 1 mega pixel to a number of mega pixels.

The overall value chain of high speed camera market is closely interlinked with the traditional image sensors and components industry’s value chain, and has been expanding rapidly and shaping into a strong, well-connected chain over the past few years. Several new frame rates allocations, product developments, and new models have come up owing to the application potential of high speed cameras in various applications.

The global high speed camera market is a fragmented one, finding uses in industrial manufacturing, research and design, military, defence and aerospace and entertainment and media. The industrial manufacturing field offers a huge potential for the high speed camera technology to grow, especially due to advanced & suitable features offered by the high speed camera over the other technologies.

Research and Design is the primary field responsible for the commercial birth of high speed camera technology on a large scale, while the entertainment and media field is still an emerging market offering lots of space for high speed camera technology to penetrate.

Some of the major players in the high speed camera market include vision research, Inc., Photron LTD, Olympus Corporation and Mikrotron GmbH.

Unisys Wins Passport Office Contract
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Unisys Wins Passport Office Contract

Worldwide information technology company Unisys Corporation has been selected by Her Majesty’s Passport Office (HMPO) to implement its new Facial Recognition System (FRS).

The FRS will increase efficiency within the application process by automating manual operations to analyse facial biometric data and quickly identify issues associated with passport applications.

Under the terms of the five-year agreement, Unisys will provide systems integration services to implement its open standards LEIDA platform, which will manage identity verification for United Kingdom passport applicants based on their facial biometric data.

“We are excited to be chosen for this important project,” said managing director of Unisys UK, Nick Fraser. “Unisys has applied facial and other biometrics technologies to build leading-edge passport, citizen registry and land border control systems for the United States, Australia, Mexico and other countries around the world. We look forward to applying our expertise to help the UK manage the throughput of travellers.”

Unisys provides a portfolio of IT services, software, and technology that solves critical problems for clients, specializing in helping clients secure their operations, increase the efficiency and utilization of their data centres, enhance support to their end users and constituents, and modernize their enterprise applications.

Need for Precision Military Strikes Driving Navigation Systems Market
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Need for Precision Military Strikes Driving Navigation Systems Market

Ongoing operations, force modernisation efforts, and the rising importance of precision strikes in contemporary military conflicts are driving the demand for global navigation satellite systems (GNSS), according to new analysis from global growth consulting firm Frost & Sullivan.

Military end users are gravitating towards these solutions as a single strike of a 155mm GNSS-guided artillery can cause more impact than a dozen unguided rounds.

Frost & Sullivan’s research finds that the market earned revenues of $1.98 billion in 2013 and estimates this to reach $2.18 billion in 2022 at a compound annual growth rate of 1.1%. The study covers receivers, data applications, and services. North America is the biggest market for military GNSS while Central Asia, Asia-Pacific, and the Middle East represent the fastest growing markets.

The launch of major projects such as the European Galileo and Chinese Beidou/Compass, as well as the introduction of two new regional navigational systems – Indian Regional Navigational Satellite System and the Japanese Quasi-Zenith Satellite System – is increasing the availability of GNSS solutions. These new developments are also intensifying competition between solution providers, in turn decreasing the cost of GNSS and attracting more end users.

“Another initiative that is likely to aid market growth is the implementation of commercial off-the-shelf (COTS) GNSS solutions,” said Frost & Sullivan Aerospace & Defence Industry Analyst Dominik Kimla. “COTS GNSS will benefit both industry players and military end users – while it gives the former a chance to implement solutions developed and verified in the civil sector in military projects. The latter as well gets access to mature and robust products at low prices.”

However, the increase in deployment rates of non-satellite-based navigation systems and alternative systems due to their ability to function without interference in dense urban areas and deep canyons is disrupting market momentum. Past incidents of successful cyber-attacks on military GNSS data applications despite encryption is also weakening the case for these solutions.

“Solution providers should focus on boosting the cyber security of military GNSS receivers and data applications,” said Kimla. “They should also consider integrating military GNSS with alternative and non-satellite-based navigation systems to enhance their product offerings.”

UK GDP to Grow by Over 3% in 2014
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UK GDP to Grow by Over 3% in 2014

The UK economy looks set to expand by over 3% this year, according to the latest projections from economic forecasters the Centre for Economics and Business Research (Cebr).

Cebr’s latest forecasts show UK economic growth in 2014 and 2015 of 3.1% and 2.2% respectively, up from forecasts of 2.8% and 2.0% released at the start of the year. The upward revisions reflect a continued improvement in forward-looking indicators for the UK economy. In addition to record high business confidence, we have seen consumer confidence rising again in recent months after plateauing towards the end of 2013 (according to the YouGov/Cebr Consumer Confidence Index).

Households are likely to see their living standards improving, as earnings growth accelerates and headline inflation remains below 2% for the remainder of 2014. Declining unemployment is also likely to support household finances. Overall, Cebr expects real household disposable incomes to grow by 1.5% this year after declining by 0.6% in 2013.
Following concerns about the unbalanced nature of the economic recovery – consumer spending accounted for over 80% of the growth seen last year – growth should becoming more evenly spread as business investment grows strongly (by 10.1% in real terms this year) and the construction sector is supported by a robust pickup in housebuilding, especially in London. While household consumption accounted for 81% of the economic growth seen in 2013, this is expected to decline to 46% this year as the economic recovery becomes more balanced.

Beyond the short term, though, challenges remain. Economic growth is likely to peak this year and fall back in 2015 and 2016 as some of the factors driving economic expansion at present – such as reduced saving and a return to typical levels of consumer confidence – wear off. In addition, the UK still faces a huge challenge in improving its trade position. Cebr expects a record-high current account deficit of £79 billion this year, with the deficit remaining high throughout much of its forecast period. This deficit could lead to a depreciation of sterling going forward as markets becoming concerned about the persistence of this trade weakness.

Deep government spending cuts will also need to be implemented beyond 2015 if the Chancellor is to even come close to meeting his deficit reduction targets beyond this fiscal year. Despite much rhetoric about austerity and “savage” spending cuts, the incumbent government has made little process in bringing down the total amount of government spending. Real government spending in 2014 is expected to stand 1.8% higher than in 2010. Over the course of the next parliament, 2015-2020, we expect real government spending to decline by 2.1% as spending cuts kick in. This will weigh on economic growth prospects in the outer years of Cebr’s forecast horizon.

Scott Corfe, Managing Economist at Cebr and main author of the report, said: “The UK’s economic position has improved significantly since the start of 2013 and we expect solid growth of over 3% this year. However, challenges remain and economic growth is likely to fall back after 2014. There will be difficult government spending cuts to be made in the next parliament and the parlous state of the UK’s trade position could become a significant economic issue going forward.”

Investors to Profit Strongly From IPOs
Capital Markets (stocks and bonds)Markets

Investors to Profit Strongly From IPOs

 

With the IPO market bursting into life in 2014, new research from Capita Asset Services, which provides expert shareholder and corporate administration services, shows investors who buy into an IPO would see their returns outstrip the wider market.

Detailed analysis of 10 years of UK IPOs shows that in their first month, new listings outperformed the FTSE All Share 7.0% on average. After six months, they are 11.5% ahead. After a year, the average listing has outpaced the index
by 10.5%.

Not only that, but the all-important first day bounce, necessary to give investors some instant gratification, is alive and well. On average, new listings rise 5.7% on day one, outperforming the market by 5.4%. But this is not just the result of a minority of companies seeing strong gains. On the first day of trading, investors stand a 70% chance of seeing a price rise.

Outperformance

Equally, 70% of companies analysed ended their first month of public trading with greater gains than the FTSE All-share, while a majority (53%) still outperform a year on.

Over the longer term, while the probability of a company outperforming the wider index inevitably falls, the gains made by those that outperform outweighs the losses by those that see worse growth than the FTSE All-Share. 57% of companies see slower growth than the index after two years, although across the board, there is an average outperformance of 7.6%.

Five years from IPO, the trend persists. Although the number of companies outperforming the market falls to a third (32%), on average there is still an outperformance of 3.7%, even accounting for companies that went into administration or were bought out.

The prospects for a PLC

The 10-year analysis also highlights the prospects of a newly listed company. Following an IPO, an average of 77% of companies are still listed on the London Stock Exchange 10 years on. Of the 23% that are no longer listed, around 18% have either been acquired or involved in a merger, with the remainder going into administration. However, it is worth noting that often an acquisition or merger can be as a rescue or means to prevent administration.

Justin Cooper, CEO of Shareholder Solutions at Capita Asset Services, said: “The IPO market has been reaching fever pitch so far this year, with a steadily increasing queue of companies looking to take advantage of strengthened market conditions. As things stand, our preliminary forecast made last summer that the value of IPOs would increase by 50% this year is already looking conservative. IPOs perform a vital function, bringing fresh life to the market, boosting the variety for both retail and institutional investors in light of the long-term attrition that takes place on the market as companies go through their life cycles. For issuers, listing presents a key exit opportunity for owners, or a means to raise new capital for investment.

“Our research shows investors should be confident about buying into new issues, as long as they do their homework. Pricing is paramount. Leaving too large an upside for investors suggests companies have undersold themselves, which can be very politically sensitive if the owner is the taxpayer, as the Royal Mail example shows.

“On the other hand, overpricing means a bad start for the stock, alienating investors from the outset; a bad way to kick off your investor relations campaign. Broadly, companies seem to have been getting it right – even through the turmoil of the last few years. Over the longer-term, beyond the usual holding period of a typical institution, the IPO bounce subsides, and the chance any individual stock will continue to outperform reduces. But this is the same with any share, so investors must keep their portfolio under review.”

Never Too Late
Capital Markets (stocks and bonds)Markets

Never Too Late

 

As a product that is barely a year old, Accredited Investors High Yield Bond (AI HYB) funds are still in the process of gaining acceptance among investors in Thailand.

At present, these funds can only be sold to institutions and high-net-worth individuals, feeding their appetite for risk. The funds have also gained traction due to their short durations and exposure to global bond fund themes

The next step could be to widen the customer base to include retail investors. “With enough acknowledgement and acceptance from the public, the ideal development in the next stage is for AI HYB funds to be allowed for mass retail purchase,” says Alec Ng, an analyst with Cerulli.

Even if the customer base is not expanded to include retail investors, the high-yield bond market in Thailand is set to continue developing at a rapid pace in 2014. In January alone, 13 AI HYB funds were launched and there are even more funds being registered.

“This product could end up becoming a mainstay of the Thai mutual fund industry, like property funds and equity trigger funds,” says Yoon Ng, Asia Research Director with Cerulli.

Food Retailers Feel the Aldi/Lidl Squeeze
Capital Markets (stocks and bonds)Markets

Food Retailers Feel the Aldi/Lidl Squeeze

Ahead of Sainsbury’s full year results, Michael Hewson takes a critical look at its performance and how the new kids on the block Aldi and Lidl are affecting the big supermarkets market share.

Within the report Michael discusses:
• How the performance from supermarket contenders Aldi and Lidl are affecting Sainsbury’s, Morrisons and Tesco
• Morrison’s profit warning and decline in share price
• Whether Aldi and Lidl could replace one of the big four

If Sainsbury’s outgoing CEO Justin King were looking at an exit strategy he really couldn’t have timed it much worse. Having turned the supermarket chain around over the last few years, he is now leaving at a time when his managerial skills are probably likely to be most needed, particularly if last week’s share price declines are indicative of the challenges ahead.

Sector peer Morrisons profits warning last week pulled the rug from under the sector as it strives to take on the budget retailers Aldi and Lidl, and in the process slash their margins to the bone to arrest a sharp slide in sales.

Even Tesco last week gave up on sticking to a benchmark profit margin.

It would be all too easy to bracket Sainsbury in the same block with Morrisons and Tesco, but there is the potential for Britain’s number three supermarket to weather the competition from Aldi and Lidl better than its rivals.

For a start it is in much better shape than its other two rivals who bookend the supermarket sector, Tesco at number one, but on the slide and Morrison’s at number four, while at its last trading update in January, Sainsbury was the only supermarket to hang onto its market share, though its profit margin was already lower than Tesco and Morrisons and that could be a worry if they feel compelled to follow suit in implementing heavy discounting to compete.

While the decline in Morrison’s share price is more understandable given that it is playing catch-up with respect to its on-line presence, its decision to bring in a loyalty card is much less understandable given these cards are ten a penny. Tesco’s have Clubcard and their market share is declining while Sainsbury don’t have one and appears to be holding on to its share, though you can collect nectar points.

Morrisons also announced it would be selling off £1bn worth of property assets as well dispensing with its stake in US online grocer Fresh Direct, as it looks to become a “value leader” and take the fight to the young upstarts from Germany. The key question is will it be enough given that the shares are at 6 year lows and the fact that the super market chain is playing catch up from a long way back.

This week’s results could well give important clues as to how Sainsbury’s will perform going forwards after Justin King has gone, and whether it has the ability to take on the competition from the low cost budget retailers, while at the same time maintaining market share, at the bottom end as well as the higher end.

While there is no question that the emergence of Aldi and Lidl has shaken up the status quo with respect to the food retail sector, it may be overstating it to claim that they could replace the big four supermarkets in terms of market share, given the current limited nature of their product ranges.

Of all the four major supermarkets Sainsbury’s is probably best equipped to handle this threat given it has managed to not only close the gap on Tesco in the past few years, but has also been well managed under Justin King’s tenure.

Last week’s falls have seen the share price trade below its lows of last year and further declines could well bring it back to levels last seen in June 2012, but it would be a surprise to see it fall much further. 

Time to Buy Emerging Markets Again?
Capital Markets (stocks and bonds)Markets

Time to Buy Emerging Markets Again?


Following the recent sell-off in emerging markets, there is a view developing that now is the time to invest. The numbers certainly on the face of it look compelling: the MSCI Emerging Markets Index is trading at 1.5 times price-to-book value and poor sentiment has already resulted in outflows of over $30billion from emerging market equities so far this year.

However, we believe that it is still right to tread cautiously. Recent capital outflows and the past three years of market underperformance have not happened without good reason. The biggest challenge facing emerging markets is growth. Many emerging economies are not growing as fast as they were: China’s underlying growth rate continues to decline, while other large emerging economies have seen their growth rate plummet. Mexico recorded GDP growth of just 1.1% last year, while Russia grew by 1.3% and will struggle again in 2014.

The reasons for this are both structural and cyclical: a common issue is the need for further reforms to encourage growth and investment. This will be a slow process and so far the actions by policymakers in emerging economies have mostly lacked transparency.

Perhaps and more importantly, emerging economies continue to be vulnerable to external factors, while domestic political risk also has the potential to affect investor sentiment. One such external factor has been the US Federal Reserve’s move to reduce its quantitative easing programme; many emerging markets have faced heavy capital outflows and violent currency movements as investors have reacted to anticipated higher interest rates in the US.

Furthermore, a number of emerging market countries are also facing elections this year, which brings political risk into the picture. Civil unrest grips Thailand and Ukraine, and concerns about government corruption plague countries such as Turkey and Nigeria.

Taking all these factors together, it is difficult to hold a very optimistic view of emerging market assets at this time, even if lower valuations have made them appear more attractive. Emerging markets are not homogenous; we do see pockets of value appearing in some areas but a targeted approach is, we believe, a more sensible approach rather than making sweeping statements as to whether emerging markets as a whole are a buy or not.

Stephen Campbell on the Growth Capital Market
Capital Markets (stocks and bonds)Markets

Stephen Campbell on the Growth Capital Market

2014 – What is in store for the UK growth capital market?

“We think 2014 will be the year of the exit, which is good news because exits are the heartbeat of our industry: they increase the speed at which money flows round the system, benefiting everyone – funds, accountants, lawyers, listing brokers, management and even PR advisers.”

“The re-emergence of the Alternative Investment Market as a viable exit route, particularly for fast growth businesses, will encourage greater investment by funds in these types of companies.”

The general election is set for the first half of 2015. Will this have an impact on the market next year? What factors might influence activity?

“The build-up to the general election will affect our industry because it is likely to prompt closer scrutiny of investment practices – that may result in pressure for further regulation and oversight of the finance sector. For example, the current focus, quite rightly, on some banks’ treatment of SME customers is bound to lead for more calls for responsible investment practices.”

“In the short term, the Scottish independence referendum will result in some background noise but so far we have not seen any anxiety or concerns from either our portfolio companies or our investors. As a pan-UK investor, we do not expect the referendum to have any effect on our business.”

Where will the opportunities lie? Key sectors/regions of opportunity and why?

“As the economy comes out of recession, companies start overtrading. That’s where we see our opportunities lying – in good businesses that can’t service the rising demand for their goods and services with their present capital structure. In particular, we can step in where the banks won’t help.”

Do you see a trend for any particular kind/structure of deal – e.g. MBIs and why?

“MBIs have become viable once again after being completely out of favour. Debt funding has finally become available once more and we have seen a number of good backable candidates who are looking for businesses to buy.”

“MBOs are on the increase as rising house prices have given managers the means with which they can contemplate buying a stake in their businesses. We expect this trend to accelerate as larger companies look to divest non-core activities.”

What will the fundraising environment be like?

“The British Venture Capital Association says private equity funds raised an average of £28.5bn a year over the four years from 2005 to 2008, but in the whole of the four years that followed the total amount raised was just £20bn – an average of £5bn a year, which is 82 per cent down.

“Private equity funds that raised money during the boom period that ended in 2008 will now have finished investing the money, or be reaching the end of their five-year investment cycle. Demand for these funds is rising once more and the debt markets will not be able to fill that void, so this strongly suggests that fundraising will pick up again. And if, as we expect, there are more exits in 2014, this will also boost fundraising.”

What about the exit environment?

“Large companies are holding historically high levels of cash – one recent US Fed study showed companies were holding 12 per cent of assets in cash against a long run average of 6 per cent. Meanwhile, organic growth is still patchy and cost cutting has reached the point where there is nothing left to cut. All of this points to a great market for exits in the coming year.

“The growing understanding of the potential benefits of the UK’s Patent Box Regime, which offers very valuable tax concessions, will increase foreign interest in buying UK companies.”

Mindset of UK entrepreneurs – what are they most concerned about? Attitude to equity investment?

“The UK’s entrepreneurs continue to be cautious about diluting their own equity, but as opportunities that require capital present themselves, they generally have to make a judgement – do they avoid dilution and miss out on the opportunity or accept the investment and hope that the opportunity means they end up with a smaller stake in a much bigger business? As economic confidence grows this decision becomes easier.”

Is there any expected regulatory change that will impact your business?

“The renewables sector is one which we invest in and what is really needed there is a period of stability. If 2014 proves to be a year of limited regulatory change and consistency on policy, it would greatly help this industry.”

What would you call on Government to do to support investment into SMEs?

“Easing the administrative burden on SMEs is of paramount importance: for example, by making it easier to hire staff, or even incentivising companies to do this, the Government would create a significant economic boost.”

How is Panoramic placed for 2014? What’s in store for your portfolio companies?

“We are very excited about the opportunities that 2014 holds. We have two portfolio companies very likely to exit in 2014 at impressive multiples. The demand for our brand of responsible, involved SME equity financing will only grow in the months ahead as companies start thinking again about growth opportunities. We see an environment where companies are looking to thrive, rather than simply to survive as has been the prevailing mood over the last few years.”

UK Investors are Underweight
Capital Markets (stocks and bonds)Markets

UK Investors are Underweight

The majority (50%) of UK independent financial advisers (IFAs) believe sophisticated investors are underweight in the venture capital sector according to new research commissioned by leading venture capital investor Albion Ventures.

IFAs estimate that less than a fifth (17%) of their clients’ currently have direct exposure to venture capital, with most of those surveyed (48%) believing that their clients’ exposure to venture capital will increase in the next five years. Just 3% expect a decrease. Only a handful of IFAs (2.2%) believe their clients are overweight in the sector.

Sophisticated investors can access the venture capital sector through venture capital trusts (VCTs), investment companies listed on the London Stock Exchange. VCTs provide investment for smaller companies and offer investors a range of incentives including: 30% income tax relief, tax free dividends and no tax on capital gains. VCTs have continued to grow in popularity in recent years. In 2012-13 £370m of funds were raised by VCTs, £45m more than 2011-12.3

Patrick Reeve, Managing Partner of Albion Ventures said, “IFAs recognise there is currently an investment gap in the UK venture capital sector. Most investors are not realising the potential benefits of investing through VCTs.
“Financial advisers need to explore alternative tax efficient methods to help their clients build up a suitably sized nest egg. VCTs are a great option offering investors significant tax incentives and long-term capital growth.

Investors in VCTs also benefit in the knowledge they are helping small firms grow and are supporting the wider UK economy.”

The research follows the launch of Albion VCTs Top Up Offers, which are seeking to raise up to £15 million across its six venture capital trusts. The Offers are targeting a monthly tax-free income of 5% (should investors choose to invest equally across all Offers), equivalent to 7.1% on the net cost of investment after up-front tax relief at 30%. Investors in the Offers also have the option to boost their capital growth by participating in the dividend reinvestment scheme (“DRIS”), under which dividends are reinvested in the form of new shares in Albion VCTs.