Protests in Hong Kong Impact on Investors

Investors have been impacted by the protests currently taking place in Hong Kong. The protests have left their mark on those whose investment portfolios include exposure to Hong Kong in a range of ways.

Pro-democracy protestors have been occupying spaces outside government buildings in reaction to recent government decisions. The protestors are unhappy about reforms which allow future leaders to be democratically elected, but only by a comparatively small group of people who have been approved to vote by Beijing. Early on Monday morning, riot police fired tear gas at thousands of protestors, and there are concerns that the situation could further intensify before things come to an end. These protests are being called the most severe political unrest that Hong Kong has seen in the seventeen years since the former British territory was handed back to China in 1997.

The protests are having a significant economic impact, which is in turn having an effect on investors’ portfolios. A number of large banks have announced that their operations in Hong Kong are to be suspended. Many branches, cash withdrawal machines, and cash deposit machines are being closed amidst the unrest, and many staff are being instructed to go to secondary sites or to simply stay at home.

A number of businesses are also being affected by the unrest. It is believed that the most vulnerable business types will include retailers and those whose activities relate to tourism or benefit from tourist trade. This is particularly true with the approach of China’s National Day Holidays this week, usually a peak tourist season.

These economic factors are naturally impacting upon investments in the region. Those who hold investments in Hong Kong’s stock market, for example, have seen their portfolios affected by the unrest as the market suffers. By the end of Monday’s session, the Hang Seng index found itself 449 points lighter than it had been when it began. This represents a rapid 1.9% drop, with the market eventually closing at 23,229.21.

Forex traders with investments in Hong Kong have also been affected by the protests. In light of unrest, the value of the Hong Kong dollar against the US dollar plummeted. It ended up at a six month low of just 0.13 US dollars (GB£0.079).

According to IG Markets’ Ryan Huang: “The recent stream of China macro data has not been particularly strong to bolster investor confidence, and worsening sentiment will not do the markets any favours.”

FOREX traders at the centre of a criminal investigation

A criminal investigation has been commenced by the Serious Fraud Office following alleged fraudulent conduct by traders dealing in foreign exchange currencies. The criminal investigation is set to examine the actions of several traders employed at top city banks who have allegedly colluded to fix exchange rates in order to profit from the lucrative £3 trillion a day market.

The SFO were unwilling to name and shame at such an early stage, however it is understood that the collusion spread across top banks and several financial institutions. Regulators worldwide among which are Hong Kong, the US, Switzerland and the UK authorities have taken steps by digging into allegations of exchange rate fixing. However, the SFO marks the first official criminal investigation to take place. 

London is said to be the capital of the foreign exchange rate market where somewhere around 40% of trading takes place. It is in the capital where several traders are facing allegations of collusion following discoveries of online chatroom messages which have discussed business affairs. The Financial Conduct Authority, which is the British financial regulator begun an in depth review of the foreign exchange market in 2013.

The matter was also taken very seriously by the Bank of England who appointed Lord Grabiner QC to investigate whether some of its own members were involved in the currency manipulation which is said to have taken place in the years between 2005 and 2013. To date, over 25 traders some of which work in the world’s biggest banking institutions have been put on suspension or have been fired worldwide as the regulators continue their investigations.

There are large concerns looming especially over the benchmark which is popularly known as the 4pm fix which is used among insurance and pension funds in order to determine what they should pay for foreign currencies. This London fix was established in 1994 and is run in partnership between Reuters and WM. If however, the fix is discovered to have been manipulated then it is almost certain that this would have cost British businesses and investors millions of pounds which in turn would have been pocketed by the fixers.

Some of the world’s biggest banks are concerned that this scandal could likely escalate to the level of the Libor crisis which resolved to multi million pound fines for Britain’s lagers financial institutions. The several banks involved in the Libor rigging scandal have shared fines which combined total to almost £3bn.

Calls For Less QE Cause Rising Tensions In Asian Markets

Last week, Brazil became the latest country to act in order to shore up its currency as investors piled out of emerging markets. The Brazilian currency’s value went down 20% against the dollar since the start of the year, while the rupee is down 15% and the Turkish lira down 10%. The situation reminds many investors of the catastrophic Asian financial crisis of 1997-98. During this crisis, Thailand was the first of the fast-growing “Asian tiger” economies forced to turn to the International Monetary Fund (IMF), as foreign investors lost heart and left and the nation’s thus  currency plunged, sparking a chain reaction.

Back in 1997, it was Alan Greenspan’s decision to push up interest rates that sparked investors to pull out their equity from riskier markets to take advantage of better returns back home. Today, it’s the announced intention of Ben Bernanke, the chairman of the Federal Reserve, to begin “tapering” its unprecedented $85bn a month programme of quantitative easing (QE), perhaps as soon as next month. The crisis, if there is one, may be caused by the change of heart by the Federal Reserve, thousands of miles away in Washington.

Under the QE project, the Federal Reserve buys up assets, mainly US government bonds or US treasury notes in a bid to push up their prices. This funded purchasing helps to reduce interest rates across the economy and create the conditions for recovery. The notable side-effect of the QE policy is that banks and other investors use the cheap cash to go on a global shopping spree, looking for tempting investment prospects from all over the world. When the money is starts to roll in, this inflates share prices and drives down the cost of government borrowing. It’s easy for authorities in third world countries to believe their own hype – political stability, the rising middle class, a large and growing workforce, huge untapped potential. But when the tide turns, they can suddenly become acutely vulnerable.

However, there are quite a few reasons that can be listed that can be a cause for us to stay optimistic. Many emerging economies have piled up vast stockpiles of foreign currency reserves in the past 15 years in a deliberate bid to avoid being forced into the hands of the dreaded IMF. Few are actually reliant on the type of loans that were a problem back then, and the Federal Reserve is acutely aware of the potential risk of sparking a new financial crisis.

Restricting Speculative Investments: The Volcker Rule

The Volcker Rule forms a key part of the Dodd-Frank Wall Street Reform and Consumer Act – specifically section 619 – aiming to restrict banks in the United States from making speculative investments that will not, and do not, benefit their customers.

Though the Dodd-Frank act is already law, the Rule itself is set to come into play in July of 2014 (the Act allows for a two year conformance period), having been the centre of regulatory debates since it was first proposed, and will affect every US federally insured depository institution. It will also affect any company that controls an insured depository institution (IDI). Any private investment funds dealing with the affected banks will also be subject to the rulings.

What does the Volcker Rule do?

The Volcker Rule aims to prohibit banks from engaging in what it terms “proprietary trading” – which is, in the words of the Rule itself, defined as: “engaging as principal for the trading account of the covered banking entity in any purchase or sale of one or more covered financial positions.  Proprietary trading does not include acting solely as agent, broker, or custodian for an affiliated third party.”

The Rule does not stop the banks from trading completely, but it tightens the controls on such activity and requires stronger documentation. It will be overseen and implemented by five separate government entities: the Federal Reserve, the U.S. Securities and Exchange Commission (SEC), U.S. Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC).

Who will the Volcker Rule affect?

Although the rule primarily bounds only banking institutions in the US, all global banks will likely be subject to Volcker, as any party to a trade that is in the US will be included in the agreement. This means any affiliates of US banks, including overseas bank branches, as well as any foreign banks with operations in the States, will be affected.

Non-banking financial institutions like insurance companies and hedge funds are not affected, and only the larger investment banks – such as Morgan Stanley, who agreed during the financial crisis to become banking institutions – will come under the remit of the Rule.

Ensuring conformity

Any organisations that are affected by the Rule will need to establish a compliance program to address their conformity, and meeting these standards will not be easy for many more complex institutions. Distinguishing market-making from proprietary trading, which is restricted by the Volcker Rule, requires regulators to apply five factors: risk management, source of revenues, revenue relative to risk, customer facing activity and payment of fees and commissions.

Institutions have two years from the date of Dodd-Frank’s enactment, giving a final deadline for compliance of July 21st 2014. During this time, they must perform four key duties:

- Prepare for full compliance in 2014

- Put together a detailed conformance plan

- Show a “good faith” effort to achieve compliance during this period

- Prepare for possible record-keeping and reporting requirements that federal agencies may impose before the 2014 implementation

Tools such as the London Stock Exchange’s UnaVista can help with conformance by providing data consolidation, regulatory reporting, reconciliation and advice for any one affected by these and similar legislations.

How Long Before You’re Reimbursed PPI

The mis-selling of PPI has become a huge issue in the UK. While there are some people who bought their payment protection insurance or PPI from their bank when they took out a loan, credit card or mortgage, many started paying for their PPI without them even realizing its costs had been added on. This is because many loan providers instantly added a PPI policy to the accounts of their clients – the huge commissions they got for each PPI policy sold explain why.

This is the reason why many individuals today are advised to check their loan or credit card accounts to see if they were paying for PPI all this time. Of course since you paid a lot of money for it, it’s only natural that you want to make use of it in case you too experience financial issues when paying for your debt. Unfortunately, banks will now reject PPIs and the only way you can still get money out from your PPI account is by filing a PPI claim.

How Long Do I Have Wait to Get Compensated?

Let’s say that you are one of the many people who filed for their PPI claims and you’re wondering when you will be reimbursed. Sadly, the compensation you’ll get from your PPI claim will take a while to be processed. While the help you’ll get from the Financial Ombudsman Service is free, your documents will take a couple of months to be processed. Keep in mind that there is a large backlog at the Financial Ombudsman Service. The FOS receives around 750 cases every week and PPI claims and complaints make up for more than ¼ of all these new cases. You can expect your PPI claim to be settled by the FOS after 8-9 months.

However if you’re experiencing financial or health troubles and you need the money fast, or you just don’t want to do all the paperwork yourself, you can also get in contact with a PPI claims specialist, like PPI Claims Advice Line.  With this company, some people have had refunds within 2 months of filing for a PPI refund. Note however, that claims companies will do all the work and get you a payment more quickly, in return for a fee from your compensation payout should it be successful.

PPI Crisis May End by 2016 States Analysts

Financial analysts predict that the PPI crisis may finally end by 2016, based on the current speed of claims processing by banks and the Financial Ombudsman. The FOS recently stated that it is handling at least 1,500 claims a day, which is entirely “plugging up” the entire claims process. Banks blame claims management companies and the Financial Services Authority for the high number of PPI claims coming in on a daily basis.

Natalie Ceeney, the chief FOS ombudsman, stated that CMCs and the FSA are not to blame for the fiasco as the banks themselves started the entire ordeal. She states that CMCs are the reflection of mistrust that customers have with their banks regarding PPI. Ceeney also points out that the FSA only advised banks to call customers and invite them to make a claim if they find themselves ineligible for the insurance policy, and given the mis selling of PPI, the best way to know if they’re mis sold is by contacting the lender directly or employing a no win no fee PPI claims company.

Some claims management companies have been warned to advertise the PPI claims process correctly as some customers become confused about their claims and instantly make a claim when unnecessary. However, many reputable claims management companies have upped the effort and stated that they are only “customer helping hands” that they can count on if they have numerous claims. They state that a customer can handle one or two claims, but having three or more than four can be problematic.

Currently, the banks have set aside £13 billion in compensation for the mis selilng of PPI in the United Kingdom. Analysts see that banks want “to get this done with”, which makes the process faster. As fraudulent claims decrease, the analysts estimate that around 2015 to 2016 would be the end of the PPI crisis.