Shaw Capital Management and Financing - About Us

About Us

Shaw Capital Management and Financing provides export trade financing to clients in every major world market and can convert accounts receivable finance transactions in 17 currencies.

We have no minimum or maximum monthly volume requirements. Other factoring companies require a financial commitment for the amount of freight bills you factor each month.

Our highly skilled team provides full administrative support - including credit management, invoicing, collections, account reporting, expense reporting, fuel card management and much more!

With Shaw Capital Management and Financing, you get paid in full minus our fee the day we receive your freight bills. Other factoring companies holdback 10 to 15 percent of your money or more for each invoice in a reserve account. That reserve amount is not immediately provided to your company. In the end, you receive part of that percentage back, depending on how long it takes the factoring company to receive payment on the invoice.

At Shaw Capital Management - flexible funding requirements ...

Shaw Capital Management Investment Deadlock for Japan

The Democratic Party of Japan’s (DPJ) landslide victory

in the Lower House election a year ago ushered in

euphoric predictions of bold new policies, and even a

transformation of the Japanese political system.

There were widespread hopes that the DPJ would end

the run of short-lived leaders. Instead, Prime Minister

Yukio Hatoyama’s tenure proved to be a slow-motion

train wreck. Indeed, the DPJ quickly showed itself to

be no more competent in governing Japan than its

much-derided opponent, the Liberal Democratic Party

(LDP).

After shedding its two albatrosses of Hatoyama and

general secretary Ichiro Ozawa, and many of its earlier

campaign pledges, the DPJ hoped for a respectable

showing in the last Upper House election. Instead, the

ruling DPJ suffered a stunning defeat, when voters had

the opportunity to show whether they were confident

in Prime Minister Naoto Kan’s just over 1-month-old

administration.

The party ended with only 106 seats, far short of the

122 needed for an outright majority. The gap is too

large to be filled by creating a coalition, because the

most likely potential partners also lost seats.

As a result, the DPJ coalition can no longer ensure

approval of its legislative initiatives.

A twisted parliament portends even greater legislative

stalemate and political gridlock. Gerald Curtis, a

professor at Columbia University in New York and a

long-time expert on Japanese politics, said the election

had returned Japan to the paralysis and gridlock of the

past few years. “You cannot pass a budget now in this

political environment. You’ll have weak and unstable

government. While the world changes fast, the Japanese

government will change very slowly”.

Trying to put a good face on the results, Kan said he

viewed the election as a “starting point” for his push

for a more responsible government ...

The policy implications of the election outcome do not

suggest an aggressive approach to monetary, fiscal or

structural policy over the next few months.

Indeed, the attention of the large parties will most

likely be focused on internal matters, leaving less time

for focus on the economy.

Gridlock is bad for the economy and for investor

sentiment if policy drift continues for a prolonged

period.

According to Alan Feldman, managing director at

Morgan Stanley in Tokyo, there are so many pressing

problems in the Japanese economy that the costs of

gridlock could be very high.

In particular, pressure on the Bank of Japan for more

aggressive monetary policy will likely be minimal, at

least until political disarray ends.

Without strong political leadership little progress is

likely on budget priorities.

The same goes for tax decisions.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Shaw Capital Management Investment Equity Markets 2010 Part 2

For the moment attention is focused on the strength

of the German economy, and the beneficial effects that

will be felt elsewhere in the zone; and there has also

been a relaxation of tension about debt defaults, after

the rescue package agreed by the member countries,

and the intervention by the ECB to support the weaker

bond markets.

The German export performance depends of the

maintenance of strong growth in the global economy

that may not be sustained; and the odds still suggest

that one or more of the weaker countries will at least

be forced to defer interest payments on its sovereign

debt, and may even default. The latest improvement

in the markets therefore seems likely to need further

support from Wall Street if it is to be sustained.

The best performance amongst the major markets over

the past month had occurred in the UK market. The

measures announced by the new Coalition government

to reduce the size of the fiscal deficit have been well

received by the market, despite the fact that they will

slow down the pace of the economic recovery over the

coming months; and the latest estimate of a 1.1% growth

rate in the second quarter of the year suggests that the

effects of the fiscal retrenchment might even be less

than had been expected, and has removed most of the

fears about the possibility of a move into a “double-

dip” recession.

The improvement in sentiment amongst investors is

therefore easy to understand.

Even before the announcement of the estimate of

growth in the second quarter of the year, there had

been further evidence of an improving economic

situation.

The unemployment rate fell; retail sales volumes rose

by 1%, the strongest monthly increase in almost a year;

and the latest quarterly survey from the CBI reported

that manufacturing output increased at its strongest

rate since 1995.

The 1.1% estimated rate was well above most forecasts.

It was the result of expansion in both the manufacturing

and services sectors of the economy.

But the most surprising figure was the estimated 6.6%

rate of growth in the construction sector that accounted

for around one third of the overall growth in the period.

It has also produced considerable interest regarding

the reaction of the Bank of England to these figures.

The bank has previously been mainly concerned about

the risk of slower growth, and had even considered at

the last meeting of its Monetary Policy Committee

“arguments in favour of a modest easing in monetary

policy” because “prospects for gross domestic product

growth had probably deteriorated a little over the

month”.

The mood will have changed now; but the governor,

Mervyn King, has recently indicated that there will be

no early changes in policy as a result of one set of

figures.

The background factors affecting the market therefore

remain. Short-term interest rates will remain low, and

the economy is performing better than expected; but

the austerity measures that are to be introduced, and

especially the increase in VAT in January, will depress

demand over the coming months.

It therefore seems likely that the UK market, like the

markets in mainland Europe, will need further support

from Wall Street if the recent strength is to be sustained.

The Japanese market is lower over the past month.

There has been further evidence that the pace of the

recovery in the Japanese economy is weakening; and

the poor performance by the ruling Democratic Party

in the recent election seems likely to lead to a period

of political uncertainty that will make it difficult for

action to be taken to reverse the trend.

The earlier decision to introduce measures to reduce

the massive fiscal deficit was a major reason for the

government’s poor election performance in the

election, and may well be reversed; and the Bank of

Japan’s action to try to increase the rate of bank lending,

especially to smaller companies, also seems unlikely

to have much of an effect on the economic situation.

The background situation in Japan is therefore very

disappointing, and this is reflected in the performance

of the equity market. It seems unlikely that there will

be any early improvement in the situation, and so the

Japanese market weakness looks set to continue.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Shaw Capital Management Investment Deadlock for Japan

The Democratic Party of Japan’s (DPJ) landslide victory

in the Lower House election a year ago ushered in

euphoric predictions of bold new policies, and even a

transformation of the Japanese political system.

There were widespread hopes that the DPJ would end

the run of short-lived leaders. Instead, Prime Minister

Yukio Hatoyama’s tenure proved to be a slow-motion

train wreck. Indeed, the DPJ quickly showed itself to

be no more competent in governing Japan than its

much-derided opponent, the Liberal Democratic Party

(LDP).

After shedding its two albatrosses of Hatoyama and

general secretary Ichiro Ozawa, and many of its earlier

campaign pledges, the DPJ hoped for a respectable

showing in the last Upper House election. Instead, the

ruling DPJ suffered a stunning defeat, when voters had

the opportunity to show whether they were confident

in Prime Minister Naoto Kan’s just over 1-month-old

administration.

The party ended with only 106 seats, far short of the

122 needed for an outright majority. The gap is too

large to be filled by creating a coalition, because the

most likely potential partners also lost seats.

As a result, the DPJ coalition can no longer ensure

approval of its legislative initiatives.

A twisted parliament portends even greater legislative

stalemate and political gridlock. Gerald Curtis, a

professor at Columbia University in New York and a

long-time expert on Japanese politics, said the election

had returned Japan to the paralysis and gridlock of the

past few years. “You cannot pass a budget now in this

political environment. You’ll have weak and unstable

government. While the world changes fast, the Japanese

government will change very slowly”.

Trying to put a good face on the results, Kan said he

viewed the election as a “starting point” for his push

for a more responsible government ...

The policy implications of the election outcome do not

suggest an aggressive approach to monetary, fiscal or

structural policy over the next few months.

Indeed, the attention of the large parties will most

likely be focused on internal matters, leaving less time

for focus on the economy.

Gridlock is bad for the economy and for investor

sentiment if policy drift continues for a prolonged

period.

According to Alan Feldman, managing director at

Morgan Stanley in Tokyo, there are so many pressing

problems in the Japanese economy that the costs of

gridlock could be very high.

In particular, pressure on the Bank of Japan for more

aggressive monetary policy will likely be minimal, at

least until political disarray ends.

Without strong political leadership little progress is

likely on budget priorities.

The same goes for tax decisions.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Shaw Capital Management Investment Financial Market Summary 2010

Financial Markets: Sentiment in the financial markets

improved considerably over the past month. There was

less concern about the possibility of a move into a

“double-dip” recession; and fears about sovereign debt

defaults also eased.

The improvement in conditions intensified the debate

about the relative merits of austerity measures and

further stimulus in the current situation, and revealed

a significant difference in the approach of the Fed and

the European Central Bank.

Equity Markets: Most of the equity markets recovered

strongly from the falls that had occurred at the end of

June, helped by some encouraging corporate results in

the US, and the relaxation of tension about debt defaults

in Europe.

Wall Street led the rally, and markets in Europe were

able to follow the upward trend, with the strength of

the German economy providing significant support.

The best performance amongst the major markets

occurred in the UK, as investors continued to react

favourably to the proposed measures announced by

the new UK government to reduce the huge fiscal

deficit. The worst performance amongst the majors

occurred in the Japanese market as economic and

financial conditions in Japan continued to deteriorate.

Government bond markets received some support

during the past month from the easing of tensions in

the sovereign debt markets in Europe. The recent

“shock and awe” support operation agreed by member

of the euro-zone, and the decision by the European

Central Bank to buy the bonds of some of the weaker

countries, has provided some reassurance for investors;

but considerable uncertainties remain about prospects

for the bond market.

The Fed is suggesting that further stimulatory measures

might be necessary, whilst at the same time the ECB is

warning that reductions in spending programmes and

increases in taxes were now necessary, in Europe, but

also elsewhere in the industrialised world. Movements

in bond markets have therefore been fairly limited

over the month.

Currency Markets: The feature of the currency markets

has been the swing in sentiment. This has allowed the

euro to rally strongly, helped also by the improving

sentiment about sovereign debt defaults; and sterling

has also moved higher after the announcement of

measures to reduce the fiscal deficit in the UK and the

more favourable economic news on the UK economy.

The best performance; has been achieved by the yen,

as its “safe haven” status has been further enhanced

by the more serious problems elsewhere in the currency

markets.

Short-Term Interest Rates: There have been no changes

in short-term interest rates in the major financial

markets over the past month.

Commodity markets have benefited from the general

improvement in financial markets over the past month.

Significant gains have occurred in base metal prices,

and in the prices of wheat and coffee amongst the soft

commodities.

Precious metal prices have fallen back, and oil prices

are basically unchanged over the month after rallying

strongly from recent lows.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Shaw Capital Management Investment Portfolio Performance 2010

We have made no changes in our portfolios this month. The swing in sentiment towards a more favourable view of prospects for the global economy is encouraging, and has been reflected in the recovery in equity prices.

We have therefore decided to maintain our holdings in Euro & US equities. We continue to retain our 10% holding in cash deposits as a contingency measure. The sovereign debt crisis remains a very serious threat, thus we have zero exposure to bonds. World Growth There has been much talk in recent weeks of a ‘double- dip’ recession, as some weak figures have come out. However wobbles of this type are fairly typical in a recovery from a severe recession. In our view the recovery remains in line with the path we have laid out before. This was for a world recovery that would be restrained by raw material shortages, which would put constant upward pressure on their prices. So we see world growth this year at around the 4.5% rate, well below the 5.5% figure being registered at the height of the boom; notice that the world is not ‘catching up’ the lost output of 2009, rather it is reverting to a slower growth path from the lower output base. Even with this pattern raw material prices have been very strong, with oil for example near the $80 a barrel mark.

The rises in these prices forced China and India to tighten policy and restrain their fast recoveries to prevent inflation. Even now in India inflation is not yet under control, having reached 13.9% in May, and policy will need to tighten further. On a lesser scale inflation has become threatening in a number of emerging market countries. So what we are seeing is that the fast-recovering countries mainly in East Asia are having to restrain their growth. Meanwhile in the OECD countries where inflation remains muted … or in the case of Japan deflation remains entrenched; growth is much weaker than in East Asia. The reason for the disparity of growth lies

in the disparity of productivity growth.

In East Asia the movement of people out of low- productivity agriculture into high-productivity manufacturing using the technology imported from advanced countries implies huge productivity growth. In advanced OECD countries productivity growth is dependent on innovation, a much slower process. So we observe a world in which productivity and so GDP growth is restrained generally by tight raw material supplies and in which the OECD countries growth relatively more slowly also. This adds up to a weak recovery in OECD countries, which is what we observe. The picture is not likely to change. It will take time for new technologies and discoveries to shift the shortage of raw materials; there are parallels here with the 1970s and 1980s when it took until the end of the 1980s to ease the acute shortages built up in the earlier decades. By 1990 for example oil per unit of real world GDP had

roughly halved from the mid-1970s and oil prices fell to low levels. Nevertheless this does not mean that employment growth need be weak or unemployment remains high.

Labour market flexibility … i.e. real wages falling relative to general productivity and willingness to adopt new practices … can encourage substitution of more labour for capital and raw materials. This is most obvious in service industries where there is plenty of scope for higher labour-intensiveness. Furthermore, service industries themselves can grow faster when labour is more flexible. So could this weakness turn into a double-dip recession in the OECD? It might seem so if growth there is restrained by tight raw materials and if also

governments are pursuing fiscal tightening; the only way might seem to be downward pressure on growth. But this is to leave out the role of monetary policy. In the OECD inflation targeting has been the unsung hero of macro policy; inflation has stayed down in the recovery and deflation kept at bay during the 2009 recession.

The reason lies in the effectiveness of inflation targeting in anchoring expectations. Surprisingly also, many inflation expectations mirrored in wage settlements and bond yields have remained around the 2% mark, reflecting the inflation targets set by most OECD central banks or governments. But it should not be a surprise; the targets have reflected a popular change in overall policy, towards outlawing

high and variable inflation. We had it, people did not like it, and policy changed to stop it during the 1980s or at latest by the early 1990s. In the debate over recession and public debt the idea

that inflation should be used to tackle either problem has barely been discussed, let alone advocated in any serious way.

What this has meant is that monetary policy has been quite unhampered by the fear of inflation in its aim to keep recovery on track. With OECD banking systems mostly in difficulties credit growth has been held down — in most countries it is hardly positive. So monetary policy has had to use unconventional

means to encourage investment and consumption. Interest rates on official lending have been kept close to zero and central banks have aggressively bought financial assets from the public, with the effect that the yields on these assets have been reduced.

These purchase programmes have now been stopped. But if recovery looks threatened they can be restarted and will again have a powerful effect through these asset markets.

Two decades ago such programmes would have raised inflation expectations. Today they are given the benefit of the doubt. Some people argue that they are quite safe because bank credit and broad money therefore are hardly growing; however, one cannot be sure that other financial channels are not replacing banks while they are so weak.

The truth seems to be that firms and people who need finance are mostly able to obtain it on quite cheap terms, so banks are being bypassed to a substantial degree. But inflation is not expected to result because it is widely (and correctly) believed that if inflation were to start rising monetary policy would be tightened. This belief does free central banks to take aggressive action to prop up the economy if it falters.

In short we think that the recovery will continue much along the current lines because from above it is held down by raw material shortages while from below it is held up by potentially aggressive monetary policy, with the power to more than offset the dampening from fiscal retrenchment.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Shaw Capital Management Investment Equity Markets 2010 Part 1

 Equity markets have rallied over the past month, sentiment has swung once again towards a more

optimistic view of the prospects for the global economy, and concerns about sovereign debt defaults in Europe have eased. Wall Street has recovered from the sharp sell-off in late-June, helped by some encouraging second quarter earnings reports; and markets in Europe have responded, with the UK market providing the best performance over the month. The worst performance amongst the major markets has occurred in the Japanese market because of disappointing economic news and increased political uncertainty after the setback for the government in the recent election. The general improvement in the markets over the month is a welcome development. The gloom in April and May about economic prospects was clearly overdone. The US economy is performing as expected, and the Chinese authorities are clearly intent on preventing their economy from overheating.

The global economic recovery will therefore proceed at a slow pace. The sovereign debt crisis in Europe remains unresolved and defaults remain a real possibility. The risks have therefore increased in the bond markets, and this has provided support for the equity markets. So long as monetary policy remains supportive, the global recovery should eventually produce a sustainable improvement in bond prices; but some of the current uncertainties in the bond markets must be resolved before this can occur.

The performance of the US economy remains the key factor is assessing the prospects for the equity markets. There has already been a request to Congress for additional spending programmes “to keep the economic recovery on track”, and although there has been no response so far, some action may become necessary. The excess gloom has disappeared, fears about sovereign debt defaults in Europe have eased, and there have been encouraging corporate results from a number of major companies, including Microsoft, Caterpillar, UPS, and Intel. Problems still remain in the banking sector, and have been reflected in the fall in earnings from investment banking at Goldman Sachs, Citigroup, Bank of America, and JPMorgan; but overall investors have been reassured that corporations are coping fairly

well with the present situation. Mainland European markets have also recovered from the sharp falls. There has been encouraging news about the economic background in the euro-zone; fears about

sovereign debt defaults have eased; and the latest “stress tests” have only revealed weaknesses in seven of the ninety-one banks that were included in the survey. Euro Markets have therefore been able to follow the upward trend on Wall Street, and regain recent losses, despite the uncertainties that have still to be resolved.

Conditions are clearly continuing to improve in many areas of the euro-zone economy, and especially in

Germany, helped by the big fall in the value of the euro in the first half of the year, and the strong growth in many of the export markets in the developing world. German companies have taken full advantage of the competitive currency and the available export opportunities, and so, even though domestic demand has remained relatively weak, the German economy is now expected to grow by around 2% this year. The situation is very different in Greece, Spain, Portugal, Ireland, and even in Italy, and these weaker economies are obviously acting as a drag on the overall performance of the area. The latest purchasing managers indices for both the manufacturing and services sectors of the area are higher, and argue against a pessimistic view of growth prospects; but for the moment we have left unchanged our modest forecasts of overall growth around 1.5% this year. The European Central Bank is clearly more optimistic about prospects. So far it has not raised its growth forecasts; but based presumably on the assumption that the recovery from recession is soundly based and self-sustaining, its reaction to the present situation contrasts sharply with the cautious view of the Fed.

The president, Jean Claude Trichet, is arguing that further public spending cuts and tax increases should be introduced immediately, especially in Europe, but also elsewhere in the industrialised world. “Without the swift and appropriate action of central banks” he recently argued, “and a very significant contribution from fiscal policies, we would have experienced a major recession. But now is the time to restore fiscal sustainability”.It is not clear what the consequences of this view might be; but the central bank might even be encouraged to tighten monetary policy as the present programme of fiscal retrenchment develops.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

Shaw Capital Management August 2010: Financial Markets

Sentiment in the financial markets has improved over the past month. There has been further evidence that

the recovery in the global economy is continuing; the sovereign debt crisis in Europe has not yet produced a major casualty; there has been a modest rally in the euro; and the Chinese authorities have announced that they intend to adopt a “more flexible” policy towards the renminbi that is expected to allow it to appreciate at a slightly faster rate.

Shaw Capital Management August 2010: Financial Markets - These developments have suggested that the gloom was overdone. The effect in the currency markets had been to slightly weaken both the dollar and the yen, as the “risk appetite” amongst investors and traders has increased, and to strengthen the commodity-linked currencies and ease the pressures on the euro. Sterling has also improved over the month, helped by the measures announced by the new coalition government in the UK, both before and during the recent budget statement, to significantly reduce the huge fiscal deficit.

Shaw Capital Management  views on financial market - But overall movements in the major currencies have been fairly small, and there is still considerable optimism about prospects.

The latest evidence on the performance of the US economy has enhanced the prospects for the dollar, and this should also continue to provide some stability for the yen.

The sovereign debt problems in Greece, Spain, Portugal, and even in Italy, continue to worsen, and may well lead to defaults and put further pressure on the single currency system.

There must also be serious doubts about the latest improvement in sterling.

The new government in the UK is making credible efforts to reduce the size of the fiscal deficit; but it faces a daunting task, and will find it very difficult to maintain its tough stance.

There is therefore a serious risk of a crisis in the UK currency market, and so it is crucial that the international agencies prepare contingency measures to enable them to act quickly if the situation appears to be running out of control.

The latest available evidence on the performance of the US economy; show the recovery from recession remains on track.

Retail sales were 1.2% lower in May than in April, emphasising the cautious mood amongst consumers; non-farm payrolls increased by 431,000 in May, but 411,000 jobs were accounted for by temporary government hiring to complete the 2010 census, leaving the increase in “real” jobs well below expectations; new home starts fell sharply in May following the withdrawal of government measures to prop up the market, and existing home sales also fel.

And the M3 measure of broad money growth is also continuing to decline because of weak loan demand from reliable borrowers, and the reluctance of the banks to lend to anyone else. There are offsetting factors in the strength of the manufacturing sector; and consumer confidence figures remain reasonably strong.

The Commerce Department has recently revised its estimate of growth in the first quarter of the year down to a 3% annualised rate; but this rate may not have been maintained in the current quarter; and this has already led to a strong plea to Congress from the government to authorise additional spending programmes costing up to $50 billion “to keep the recovery on track”, it is not clear how Congress will respond.

The Fed chairman, Ben Bernanke’s recently testimony to Congress; that the pace of the recovery will not be strong enough to fix the jobs market or reduce the budget deficit without further help, also argued that, despite the size of that deficit, “to avoid sharp, disruptive shifts in spending programmes and tax

policies in the future, and to retain the confidence of the public and the markets, we should start planning now how we will meet these budgetary challenges”. This view about the economy is repeated in the statement after the latest meeting of the bank’s Open Market Committee, and so, although the bank believes

that the recovery is continuing, it is not surprising that it is quietly considering what steps it might have to take if the recovery unexpectedly falters.

There has been a modest recovery in the euro from a low-point in the early part of the past month, although it is still ending the period slightly lower.

The economic background in the euro-zone is continuing to improve, and there has been evidence of support for the euro, particularly from the Swiss National Bank, which reported an increase in its foreign currency reserves of more than $100 billion in May. But the benefits have been limited by the on-going sovereign debt problems amongst some member countries of the euro-zone, and especially by the serious deterioration in the situation in Spain, and so the improvement that has occurred remains very fragile.

Shaw Capital Management August Newsletter: Financial Markets Focusing Europe

The big fall in the euro in recent months is clearly having a significant impact on the performance of the

euro-zone economy.

Shaw Capital Management, Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Factory output expanded at a record pace in April, helped by investment spending associated with the export effort, and overseas demand for European capital equipment, and the trend appears to be continuing. The major beneficiary has been Germany, but other northern member countries are also involved.

However the situation is much less encouraging in Greece, Spain, and Portugal, because they are less competitive in export markets, and are being forced to introduce austerity measures to reduce their fiscal deficits.

Domestic demand across the entire euro-zone remains weak, and so, despite the export performance of some member countries, it seems unlikely that the overall growth rate for the zone this year will reach 2%. The European Central Bank remains reasonably optimistic about prospects; but fortunately it has not moved towards an “exit strategy” that might involve reversing the measures that were introduced to counter the recession.

Short-term interest rates have been left unchanged and close to zero, the programme to provide unlimited three-month loans to the banking system is continuing, and the bank is also still intervening in the markets to buy the bonds of weaker member countries that had been sold heavily because of fears about debt defaults. The bank is therefore continuing to provide support for the system; but it is not really doing enough to offset the concerns about the debt crisis.

Greece remains in the eye of the storm; but there have been increasing concerns about the situation in Spain; and the situation has been made worse by the latest warning from the Fitch Ratings agency that it may take further massive asset purchases by the European Central Bank to prevent the sovereign debt crisis in the area escalating out of control.

Shaw Capital Management August 2010: Financial Markets Focusing Europe - There are fears that Spain will need to follow Greece in requesting help from other member countries and the IMF to enable it to avoid a default, and that Portugal, and perhaps even Italy, may also need to be rescued.

The pressures on the euro will therefore be intense; and whilst there may well be further support from the Swiss National Bank and others, the future of the single currency system clearly remains very uncertain. The latest modest rally in the euro must therefore be treated with great care.

Sterling has recovered from the weakness that developed in May, and is ending the month higher. The economic background in the UK has not provided any real support, and the Bank of England is clearly intending to maintain short-term interest rates at very low levels; but there has been some movement of funds out of the euro into sterling, and the new coalition government in the UK has introduced measures to reduce the massive fiscal deficit that have been well received in the markets and led to an improvement in sentiment.

There is clearly a risk that these latest measures in the Budget will depress the level of activity still further, and fail to solve the fiscal problems; but for the moment it seems that the new government is being given the benefit of the doubt.

The evidence on the performance of the economy ahead of the Budget announcement was still pointing to a very slow recovery in activity.

The manufacturing sector is reasonably buoyant, with exports expanding rapidly; and retail sales also increased more quickly than expected.

But unemployment rose again to 2.47 million, and the latest survey from the CBI indicated that the value and volume of business in the services sector fell, and that further weakness was expected in the second half of the year.

However the situation has obviously been changed significantly by the latest Budget measures, and the latest estimates from the newly-formed Office for Budget Responsibility are that growth will now only be 1.2% this year, rising to 2.3% next year, and improving slightly in succeeding years.

The Bank of England has welcomed the decision by the new government to introduce measures to address the problems created by the huge fiscal deficit. The governor, Mervyn King, argued recently that they would “eliminate some of the downside risks…and are desirable to remove the risk of an adverse market reaction.”

Financial Markets Focusing Greece and Spain - Shaw Capital Management Newsletter

The situation in Greece and in Spain has obviously caused great concern in London. But the Bank is also aware of the risks as a time when the economy is still in a very fragile state, and of the need to compensate for the fiscal retrenchment by maintaining a supportive monetary policy, and low short-term interest rates. There are therefore reasons for concern about the prospects for sterling. If the latest measures do succeed in reducing the fiscal deficit to manageable levels without aborting the economic recovery, and if the problems affecting the euro continue, or become even more serious, then sterling may well maintain current levels or even appreciate further.

Shaw Capital Management, Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

But the situation is very uncertain, and the odds do seem to favour a further period of weakness until the effects of the latest government measures can be more accurately assessed.

The yen has weakened slightly over the past month as the improvement in market sentiment has increased

the “risk appetite” of investors for the equity markets, and for commodity-related currencies.

The economic background in Japan has continued to improve, helped by the export performance; but there are still doubts about whether this improvement can be sustained, and these doubts have been increased by the latest announcement by the new prime minister that the main priority of his government will be a reduction in the huge fiscal deficit, rather than the promotion of fresh measures to accelerate the growth rate.

There is also a further uncertainty created by the decision by the Chinese authorities to adopt a “more flexible” policy on the renminbi that presumably means that it will be allowed to appreciate slightly faster. It is not clear what the consequences of this move will be; but overall it seems likely that conditions elsewhere, especially those affecting the euro, and some disappointment with “risky” investments in global markets, will continue to provide some stability to the Japanese currency.

Shaw Capital Management Korea: Postal Reform Rollback

The Japanese government has decided to revise the

proposed reforms of the postal system …

Shaw Capital Management Korea: One of the world’s largest financial institutions

The government now proposes to absorb Japan Post

Network Co. and Japan Post Service Co. into Japan Post

Holdings on October 1, 2011.

The newly consolidated holding group will continue

to have two financial units, turning the system into a

three-company structure, from the current five

companies (currently, the system consists of Japan Post

Holdings Co. and four units — a postal service, a savings

bank, a life insurance company and a retailer for the

services of the other three).

Under the new plan, the current Democratic Party of

Japan-led government (DPJ) also plans to double the

maximum amount of deposits that Japan Post’s banking

unit can accept per person from the current ¥10 million

to ¥20 million and to raise postal insurance coverage

from the current ¥13 million to ¥25 million.

The government is also likely to hold on to more than

a third of the postal group’s shares in a turnaround

from full privatization — this will enable the

government to veto any major changes in the firm.

The bill with these latest changes, is expected to be

submitted to the Diet.

“We made the bill’s outline with the aim of ensuring

that Japan Post will sufficiently offer universal services

throughout the nation”, Shizuka Kamei, Japan’s Finance

Minister, told reporters at a press conference.

The Japan Post group provides insurance services

through its 24,000 post offices across the nation

especially in rural areas where private banks have little

or no presence or have trouble gaining the trust of

locals, and holds savings accounts for about 57 million

people.

The group as a whole employs about 226,000 people

and, with assets of more than ¥300,000 billion, sits at

the heart of a system of public institutions that own

almost half of Japan’s national debt.

Moreover, it helps to keep the government’s cost of

borrowing low even as its gross debt closes in on 200%

of annual output.

Japan Post was nominally privatised in 2003; with the

reforms spearheaded by former Prime Minister

Junichiro Koizumi, the champion of structural reforms

for a more market-oriented economy.

Under the previous plan, Japan Post’s financial units

were to be fully released from government control by

2017. With these latest moves, Prime Minister Yukio

Hatoyama’s government, which took power last

September from the long-ruling Liberal Democratic

Party (LDP), is halting the sale of its shares to maintain

control over the company’s plentiful assets, long a

source of public financing.

Behind the proposal is the government need for a

growth strategy.

In the fiscal 2010 budget, general-account expenditures

stand at a record ¥92 trillion, so politicians are pushing

for postal savings to be used to finance their policies.

But these proposed changes to postal reform raise

numerous concerns.

First of all, if the massive postal group attracts even

more money with the lifting of the savings cap, it will

hamper private-sector financial businesses and spark

an outflow of funds from private banks.

Tadashi Ogawa, chairman of the Regional Banks

Association, says raising the deposit cap is “truly

regrettable” because small regional banks in particular

will be affected in times of financial crisis because

depositors may flee to Japan Post Bank.

Moreover, the two subsidiaries — the postal bank and

insurance company — are likely to be permitted

substantial operational freedom.

This would, for example, enable them to offer housing

loans or sell cancer insurance policies.

The uneven public-private playing field, however,

would no longer be just a domestic problem. The US

and Europe have already expressed concerns about

these developments.

Also, creating an even bigger public financial entity

will loosen the government’s fiscal discipline through

increased purchases of government bonds (JGBs) and

accelerate wasteful spending on public works projects.

The system of public institutions buying JGBs has been

central to the economic status quo that has kept Japan

afloat since its stock market plunged in 1990.

“The revision will be a turning point for the worse”,

says Naoko Nemoto, a banking analyst at rating agency

Standard & Poor’s in Japan.

The deep misgivings over public spending originate

from the way postal savings were used for years.

The money had long been used to fund unnecessary

public projects such as highways, bridges and airports

in the middle of nowhere via the Finance Ministry’s

fiscal investment and loan program, which was

reformed in 2001.

These expenditures were not only inefficient but also

lacked transparency because they were made through

government-affiliated organizations.

Creating an even bigger public financial entity is also

risky because it will distort the entire interest-rate

structure of financial markets, where loans with higher

risks should reflect higher returns.

If a public institution extends loans with below-market

interest rates to support certain industries, we are back

to the government ‘picking winners’ or worse just

backing losers.

In other words, this is yet another example of how the

DPJ is mis-managing the Japanese economy, pandering

to voters and reversing necessary reforms passed by

the Koizumi government.

Shaw Capital Management Korea: World Trade

The fall-out from the failure of the Doha Round of trade

liberalisation measures, and the impact of the recession,

are continuing to increase the threat of further

protectionist restrictions on world trading activities.

The US Commerce Department has recently launched

an investigation into whether certain forms of

aluminium made in China is being dumped, or sold at

less than its fair value, in the US; and the Chinese

Commerce Ministry has responded by launching its

own anti-dumping enquires into imports of

caprolactam, a widely-used synthetic polymer, from

both the US and Europe, and has finalised the ruling

on some nylon imports.

These developments are not likely to lead to early and

dramatic changes; but they do provide a further

illustration of the dangers if the global economic

recovery does not accelerate and lead to a relaxation

of the pressures in the trading system.