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Year’s best U.S. global stock fund sees emerging markets rallying in 2016

NEW YORK The year’s top-performing U.S.-listed global equities fund as rated by Morningstar sees Asian and emerging market stocks as undervalued and primed to outperform in 2016.

Kristian Heugh, whose $641 million Morgan Stanley Global Opportunity fund gained 20 percent for the year through Dec. 29, said his fund has been adding positions in South Korean companies such as Hotel Shilla Co Ltd and database company NAVER Corp that have attractive valuations, while trimming some positions in technology companies that have rallied this year.

“With the U.S. and developed markets in general outperforming over recent years, it makes sense that some of the other markets might represent better value now,” he said.

The move is a slight shift for Heugh, whose strong performance in 2015 was largely due to his position in U.S. companies. His three largest holdings this year – Facebook Inc, software company EPAM Systems Inc, and Inc – rose at least 37 percent over the year to date. His largest non-U.S.-based stock, Danish transport logistics company DSV A/S, gained 45 percent for the year to date.

Overall, Heugh, who is based in Hong Kong, has approximately 48 percent of his portfolio in U.S. stocks, 40 percent in international stocks, and 10 percent in cash. He is looking for companies with “strong barriers to entry” and high levels of cash, he said.

Heugh tends to own more companies in the technology and consumer discretionary sectors because they often have higher returns on invested capital and lower leverage, while shying away from higher-levered financials and materials companies, he said.

Over the last five years, Heugh’s fund has gained an average 13.8 percent a year, a performance that puts it among the top 1 percent of the 773 U.S.-listed global stock funds tracked by Morningstar.

(Reporting by David Randall; Editing by Dan Grebler)

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Icahn to buy Pep Boys for $1 billion after Bridgestone bows out

Carl Icahn’s Icahn Enterprises LP has agreed to buy Pep Boys-Manny Moe Jack for about $1 billion, the companies said on Wednesday, hours after Bridgestone Corp quit the race for the U.S. auto parts retailer.

Japanese tire maker Bridgestone said on Tuesday it would not raise its latest cash bid of $17 per share to counter Icahn’s raised offer of $18.50 per share in cash.

Pep Boys shares fell 3 percent in late morning trading on Wednesday, while Icahn Enterprises shares declined 2 percent.

Pep Boys’ retail auto parts business will be a perfect fit for Auto Plus, an auto spare parts company that Icahn Enterprises bought in June, Carl Icahn said in a statement.

“We think rising and aging (averaging about 11.4 years old according to the U.S. Department of Transportation) vehicle populations and increased miles driven bode well for demand for the automotive replacement parts industry,” SP Capital IQ analyst Efraim Levy wrote in a note.

Icahn Enterprises has been focusing on its auto business, its second largest by revenue, as a slump in crude prices slows growth in its energy business, which accounted for nearly half of its revenue in 2014.

Icahn Enterprises bought Auto Plus from Canada’s Uni-Select Inc and the company also owns an 82 percent stake in auto parts maker Federal-Mogul Holdings Corp.

Icahn Enterprises, which expects to close the Pep Boys acquisition in the first quarter of 2016, will pay $39.5 million termination fee to Bridgestone.

Pep Boys shares were trading at $18.39 and Icahn Enterprises shares at $60.19.

Up to Tuesday’s close, Pep Boys shares had risen about 93 percent this year, while Icahn Enterprises shares had fallen about 33.5 percent.

(Reporting by Ankit Ajmera in Bengaluru; Editing by Kirti Pandey)

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Apple to pay Italy 318 million euros, sign tax deal: source

MILAN U.S. tech giant Apple will pay Italy’s tax office 318 million euros ($348 million) to settle a dispute and sign an accord next year on how to manage its tax liabilities from 2015, a source with direct knowledge of the matter said on Wednesday.

The deal comes as the European Union and national governments take a tougher stand against profit-shielding arrangements used by multinationals.

Italian prosecutors have been investigating allegations that Apple failed to pay corporate taxes to the tune of 879 million euros in 2008-2013 by reducing its taxable income when it booked profits generated in Italy through its Irish subsidiary, sources told Reuters earlier this year.

“Apple will pay the tax agency 318 million euros and will sign a new tax accord for fiscal years 2015 onwards early next year,” the source said.

The tax office earlier confirmed a report in La Repubblica newspaper that it had reached a deal with the iPhone maker but declined to say how much the U.S. company had agreed to pay.

The source said that while the judicial probe, which also regards three Apple managers, remained open for now, the settlement with the tax agency would likely have a positive impact on the investigation.

Apple could not immediately be reached for comment.

The global financial crisis spurred cash-strapped governments to crack down on tax avoidance and prompted complaints that companies cutting their tax bills to the bare minimum were getting an advantage in breach of EU rules.

The agreement with Italy comes as an EU tax ruling on Apple’s dealings with Ireland is looming. The EU last year accused Ireland of swerving international tax rules by letting Apple shelter profits worth tens of billions of dollars from revenue collectors in return for maintaining jobs.

The ruling could have a “material” impact on Apple if it was determined that Dublin’s tax policies represented unfair state aid, forcing the U.S. company to pay past taxes for up to 10 years, it has said.

Apple is one of several companies, including Google and Amazon, to become the target of tax inquiries in Europe and beyond.

The European Commission has already ordered Dutch authorities to recover up to 30 million euros from U.S. coffee chain Starbucks and Luxembourg to do the same with Fiat Chrysler for their tax deals.

Apple is also facing criticism on its home turf in the United States because of the so-called inversion deals, whereby a company redomiciles its tax base to another country.

Apple holds $181.1 billion in offshore profits, more than any other U.S. company, and would owe an estimated $59.2 billion in taxes if it tried to bring the money back to the United States, a recent study based on SEC filings showed.

(Editing by Paola Arosio and Mark Potter)

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Fidelity boosted pre-IPO value of Twilio by 31 percent in November

BOSTON Fidelity Investments, one of the largest investors in pre-IPO companies, boosted the value of Twilio Inc by 31 percent in November, as speculation builds that the provider of mobile messaging platforms may go public in 2016.

Fidelity’s $100 billion-plus Contrafund valued its Series E stake in Twilio at $43.5 million in November, compared with $33.2 million a month earlier, according to disclosures made public on Wednesday.

The Wall Street Journal has reported that San Francisco-based Twilio has filed confidentially for an initial public offering that could happen as soon as the first quarter of 2016. This past summer Twilio raised $130 million in a Series E funding round led by Boston-based Fidelity and T. Rowe Price Group Inc.

Fidelity funds are a good barometer of what is happening in the pre-IPO landscape because they disclose their holdings, and shifting valuations, on a monthly basis. Most mutual funds disclose their holdings quarterly.

Content marketing firm Ltd also got a valuation boost from Fidelity, according to disclosures on Wednesday. Fidelity’s OTC Portfolio valued its Taboola stake at $13.6 million at the end of November, a 27 percent boost from a month earlier.

Portfolio managers at Fidelity do not set the pre-IPO values. That is done by a separate committee at Fidelity.

Nutanix Inc, which filed for an IPO earlier this month, saw its valuation fall 11 percent in Fidelity funds, according to Wednesday disclosures for end-of-November holdings.

And Paris-based GenSight Biologics, which is developing therapies to fight eye disease, had its valuation cut by 44 percent at Fidelity in November. The biopharma pulled its plan for an IPO last month.

(Reporting By Tim McLaughlin; Editing by Meredith Mazzilli and Chizu Nomiyama)

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U.S. pending home sales fall in November

WASHINGTON Contracts to buy previously owned U.S. homes fell in November for the third time in four months, a signal that growth in the U.S. housing market could be cooling.

The National Association of Realtors (NAR) said on Wednesday its pending home sales index slipped 0.9 percent to 106.9. The NAR said the index rose slightly more in October than initially estimated.

Economists had expected a 0.5 percent increase in November.

Pending home contracts become sales after a month or two, and the declines in recent months could point slower growth in homebuying in 2016, when interest rates are expected to rise. Mortgage rates have only inched higher since the Federal Reserve raised its benchmark rate by a quarter point on Dec. 16, but Fed policymakers expect to continue hiking next year.

Pending home sales had been posting strong gains earlier in the year and were still up 2.7 percent from a year ago.

But contracts fell 3 percent in the Northeast in November from a month earlier and were down 5.5 percent in the West. They rose 1.3 percent in the South and gained 1.0 percent in the Midwest.

(Reporting by Jason Lange; Editing by Chizu Nomiyama)

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China suspends forex business for some foreign banks: sources

SHANGHAI China’s central bank has suspended at least three foreign banks from conducting some foreign exchange business until the end of March, three sources who had seen the suspension notices told Reuters on Wednesday.

Included among the suspended services are liquidation of spot positions for clients and some other activities related to cross-border, onshore and offshore businesses, the sources said.

The sources, speaking on condition that the banks were not named, said the notices sent to the affected foreign banks by the People’s Bank of China (PBOC) gave no reason for the suspension.

The PBOC did not immediately respond to a request for comment.

Separately, three financial market sources in Europe said Deutsche Bank was one of the banks to have part of its foreign exchange business in China suspended.

A spokeswoman for Deutsche in London declined to comment.

The measure follows a slew of steps taken by the Chinese government to steady the yuan since it devalued the currency in August.

The spread between the onshore and offshore markets for the yuan, or renminbi, has been growing since the devaluation, making it increasingly difficult for the central bank to manage its currency and stem an outflow of capital from an economy that is facing its slowest growth in 25 years.

The sources told Reuters that authorities had warned the banks that if they engaged in lucrative carry trade, taking advantage of the different exchange rates, the central bank would move to further block arbitrage channels.

“This is part of the PBOC’s expedient means to stabilize the yuan’s exchange rate,” said an executive at a foreign bank contacted separately.

The sources said the banks might have been targeted due to the large scale of their cross-border forex businesses.

An economist at a top government think-tank said the measure was a temporary bid to curb demand for dollars that has been strengthening towards the end of the year as the gap between the onshore and offshore yuan exchange rates widens.

“They hope to ease foreign exchange buying pressure and ease depreciation pressure on the yuan,” said the economist who declined to be identified by name. “But I don’t think the authorities will take very strong capital control measures, they are likely to reinforce the existing measures.”

The move could also ease pressure on the PBOC for direct intervention in offshore markets to support the yuan, which has contributed to a fall of more than $400 billion in China’s foreign exchange reserves this year.


In common with forex markets worldwide, there are no official data on which banks are the most active in trading foreign exchange in China.

A 2015 Asiamoney survey asking market participants which brokers they used named Deutsche as the top foreign forex provider in China, followed by Australia and New Zealand Banking Group, HSBC, Citigroup and BNP Paribas.

Asked if they had received the central bank’s suspension notice, Citi, HSBC and BNP Paribas declined to comment. There was no immediate response from ANZ.

Standard Chartered and DBS, which also conduct trading in foreign exchange in China, did not respond to requests for comment.

The latest move comes just three months after the PBOC ordered banks to closely scrutinize clients’ foreign exchange transactions to prevent illicit cross-border currency arbitrage between the offshore and onshore yuan.

On Wednesday, the country’s foreign exchange regulator also said it would improve its reserve position and contingency plans to curb risks from abnormal cross-border capital flows.

The yuan has come under renewed pressure since late November amid speculation that Beijing would permit more depreciation after the International Monetary Fund announced the currency’s admission into the fund’s basket of reserve currencies.

The onshore yuan traded in Shanghai has lost 1.44 percent of its value since the end of November, and has repeatedly hit 4-1/2 year lows.

The offshore market has traced a similar pattern. The Hong Kong-traded offshore yuan hit an intraday low of 6.5965 on Wednesday morning, its weakest since late September 2011.

(Reporting by Shanghai Newsroom; Writing by Lu Jianxin, Nathaniel Taplin and John Ruwitch; Additional reporting by Lawrence White and Umesh Desai in Hong Kong, Kevin Yao in Beijing, Patrick Graham in London and Andreas Kroener in Frankfurt; Editing by Will Waterman, Rachel Armstrong and Jane Merriman)

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Julius Baer reaches preliminary deal in U.S. tax case

ZURICH Julius Baer has reached an agreement in principle with U.S. authorities to settle an investigation into allegations it helped wealthy American clients evade taxes, potentially drawing a line under the Swiss bank’s biggest legal issue.

Switzerland’s third largest listed bank said it had set aside nearly $200 million in additional provisions for the settlement, bringing the total amount earmarked for potential penalties to $547.25 million, which the bank will charge to its 2015 full-year results.

Julius Baer’s penalties potentially look much lighter than those paid by larger rival Credit Suisse, which in 2014 was fined $2.5 billion for helping Americans evade taxes and pleaded guilty to a U.S. criminal charge.

U.S. authorities have conducted criminal investigations of several Swiss banks after UBS agreed in 2009 to pay $780 million and identify certain U.S. clients to resolve criminal charges that it helped Americans evade taxes.

Julius Baer’s deal with the U.S. Attorney’s Office for the Southern District of New York, which conducted the investigation, remains subject to approval by the U.S. Department of Justice (DOJ), Baer said in a statement.

Zurich-based Baer said it hoped to settle the Justice Department investigation, which began in 2011, in the first three months of next year‎.

The bank said it still expected to report a net profit for the current financial year and would remain adequately capitalized.

Baer’s shares rose as much as 4.4 percent, versus a 0.4 percent fall in the European banking index, on relief that the provisions were lower than expected. A Swiss media report earlier this month suggested a settlement might cost Baer double the $350 million it set aside in June.

Resolving the U.S tax case would ‎end the uncertainty over potential fines for the bank.

“The exactness of the additional provisions suggests that the agreement with New York authorities is just a formality, while the DOJ fine could still change,” Zuercher Kantonalbank analysts said. “Visibility is still lacking.”

It is also not clear whether Baer will need to follow Credit Suisse and Wegelin Co. in pleading guilty to criminal charges.

Wegelin, Switzerland’s oldest private bank, shut its doors permanently in 2013 after over two and half centuries in business following its agreement to plead guilty to U.S. authorities.

The U.S. Justice Department is also running a separate voluntary program to allow Swiss banks to resolve potential criminal charges by disclosing cross-border activities that helped U.S. account holders conceal assets.

(Editing by Edwina Gibbs and Jane Merriman)

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Global growth will be disappointing in 2016: IMF’s Lagarde

BERLIN Global economic growth will be disappointing next year and the outlook for the medium-term has also deteriorated, the head of the International Monetary Fund said in a guest article for German newspaper Handelsblatt published on Wednesday.

IMF Managing Director Christine Lagarde said the prospect of rising interest rates in the United States and an economic slowdown in China were contributing to uncertainty and a higher risk of economic vulnerability worldwide.

Added to that, growth in global trade has slowed considerably and a decline in raw material prices is posing problems for economies based on these, while the financial sector in many countries still has weaknesses and financial risks are rising in emerging markets, she said.

“All of that means global growth will be disappointing and uneven in 2016,” Lagarde said, noting that mid-term prospects had also weakened as low productivity, ageing populations and the effects of the global financial crisis dampened growth.

In October the IMF forecast that the world economy would grow by 3.6 percent in 2016.

Lagarde said the start of a normalization of U.S. monetary policy and China’s shift toward consumption-led growth were “necessary and healthy” changes but needed to be carried out as efficiently and smoothly as possible.

The U.S. Federal Reserve hiked interest rates for the first time in nearly a decade this month and made clear that was a tentative beginning to a “gradual” tightening cycle.

There are “potential spillover effects”, with the prospect of increasing interest rates there already having contributed to higher financing costs for some borrowers, including in emerging and developing markets, Lagarde said.

While countries other than highly developed economies were generally better prepared for higher interest rates than previously, she was concerned about their ability to absorb shocks, she said.

Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases.

Lagarde warned that rising U.S. interest rates and a stronger dollar could lead to companies defaulting on their payments and that this could “infect” banks and states.

But she said the risks associated with these changes could be overcome by supporting demand, maintaining financial stability and reforming structures.

“Most highly developed economies except the USA and possibly Britain will continue to need loose monetary policy but all countries in this category should comprehensively factor spillover effects into their decision-making,” Lagarde said.

She said emerging markets needed to improve monitoring of the foreign exchange risks their big companies face.

Lagarde also said countries which export raw materials and had scope for fiscal policy measures should use that so they can adjust more smoothly to lower prices. Others should focus on restructuring their budgets in a growth-friendly way such as through tax and energy price reforms and changing their spending priorities, she said.

(Editing by Louise Ireland)

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Oil rebound fizzles, sending global shares lower

NEW YORK Global stock markets fell on Wednesday as oil prices slumped back towards 11-year lows, sapping investors’ appetite for risky assets and hurting the shares of mining and energy companies.

Stock markets rallied the previous day as oil prices rebounded on prospects for lower temperatures on both sides of the Atlantic. But on Wednesday benchmark Brent crude slid back below $37 a barrel LCOc1, with investors worried about slowing demand and high supplies.

The fall in oil prices has been a major driver of financial markets this year, hammering energy companies, lowering inflation expectations and reinforcing bets on loose monetary policy in Europe and a slow tightening in the United States.

Wall Street was lower, led by declines in energy shares; Apple Inc (AAPL.O), the most valuable public U.S. company, exerted the biggest drag on the SP, falling 0.8 percent en route to what will be its first down year since 2008.

The Dow Jones industrial average .DJI fell 0.23 percent to 17,680.98, the SP 500 .SPX lost 0.31 percent to 2,071.82 and the Nasdaq Composite .IXIC dropped 0.4 percent, to 5,087.54.

The MSCI All World Index .MIWD00000PUS dipped 0.4 percent.

The pan-European FTSEurofirst 300 index .FTEU3 fell 0.4 percent, while the euro zone’s blue-chip Euro STOXX 50 index .STOXX50E declined by 0.6 percent, having both gained in the previous session.

Asian shares unwound earlier gains, with continued weakness in Chinese stocks. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged down 0.1 percent, on track for a flat monthly performance and down 12 percent for the year.

“The ongoing weakness in the oil price is dragging down the markets,” said John Plassard, senior equity sales executive at Mirabaud Securities in Geneva.

Crude prices have plunged by two-thirds since mid-2014 as soaring output from the Organization of the Petroleum Exporting Countries (OPEC), Russia and the United States led to a global surplus of between half a million and 2 million barrels per day.

The yen, which is traditionally sought at times of market uncertainty, inched up to 120.56 yen JPY= per dollar. The dollar was 0.2 percent higher against a basket of major currencies .DXY.

China’s yuan hit its weakest in over four years in offshore trading, after the People’s Bank of China set a lower midpoint. It was lately slightly stronger against the dollar, at 6.5710 yuan. Sources told Reuters the PBOC was temporarily suspending some foreign banks’ foreign exchange, in an effort to curb the yuan’s depreciation.

China’s blue-chip CSI300 index .CSI300 rose 0.1 percent, while the Shanghai Composite Index .SSEC gained 0.25 percent.

Japan’s Nikkei .N225 ended the country’s final trading day of the year up 0.3 percent, off session highs but still gaining 9.1 percent for 2015.

Benchmark U.S. Treasuries were little changed, with the 10-year Treasury US10YT=RR yielding 2.31 percent.

On the last trading day of 2015 for European bond markets, 10-year German Bund yields DE10YT=TWEB were flat at 0.63 percent and up nearly 10 basis points on the year.

Gold ticked higher, with gains capped by weaker oil, although the metal remained on track for a third successive yearly fall.

(Additional reporting by Jemima Kelly, Sudip Kar-Gupta and Patrick Graham in London, and Lisa Twaronite in Tokyo; Editing by Catherine Evans and Nick Zieminski)

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