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Reuters Insider - Davos Today: Wednesday 2014

Thu 23rd January, 2014 12:38pm
Click the following link to watch video:                       
 Source:             Thomson Reuters                                   
 Description:        Top interviews and news from the World Economic   
                     Forum including Richard Olver, CEO of BAE Systems, 
                     actor Matt Damon and William Saito, special       
                     advisor to Japanese PM Shinzo Abe.                
(To access all exclusive Reuters Insider programming visit: 
 Short Link:  
Transcript (May be auto-generated)

 We're live. To you, Axel. Good morning, everyone. It is Wednesday, January 22. 
This is Davos Today brought to you by the World Economic Forum and Reuters. I'm 
Axel Threlfall. We are live 0700 until 0830 every morning this week through 
Saturday from the old library here in the very heart of Davos. Let me give you a
sneak look behind the scenes. This is the Green Room where our guests come 
before the show. 

Kris Gopalakrishnan is here, Colin Dyer from Jones Lang LaSalle, we'll speak to 
you guys in just a moment. We've got a new feature on the show this year. A 
guest host, Steve Pagliuca from Bain Capital. Great to see you, Steve. Great to 
see you, Axel. We've got you for half an hour. Plenty to talk about today – 
us, and of course, we're going to quiz the guests as well as they come through. 
First though, let me give you the headlines this morning. Syria peace talks 
begin in Montreux as world powers push for an end to three years of civil war. 
But pressure grows on President Assad to quit after allegations of systematic 
torture and executions. Thailand's capital under a state of emergency. The 
government tightening security in the latest escalation of its showdown with 
protesters looking to derail elections and oust the prime minister. 

IBM misses revenue expectations for the fourth straight quarter as it grapples 
with weakening demand for servers and storage in emerging markets like China. 
And Cardinal Peter Turkson delivers a message from the Pope to delegates her. 
The Pontiff urging them to include others in their prosperity. I ask you to 
ensure that humanity is served by wealth and not ruled by it. So we are back 
along with 2,600 participants and 40 heads of state for the World Economic Forum
here in Davos. Alongside, Iran, Syria peace talks high up on the agenda this 

Seeking growth, tackling inequality, managing migration - all topics central 
bankers, economists and CEOs will debate as they figure out how to help, not 
harm the world's fragile recovery. The WEF's 2014 theme, "Reshaping the World: 
Consequences for Society, Politics and Business", it's a big one. Some might say
it's quite unwieldy. We'll hear what Steve says in a second. We're going to 
dissect what it means with a raft of big-name interviews. In today's lineup, 
we'll talk to Bombardier's Chief Executive on taking on Airbus and Boeing; BAE 
Systems will tell us how you run a defense company when everyone's cutting 
spending on arms; plus a surprise message sent from the Pope. We'll have more on
that later in the show. We also want to hear from you. 

Any insights what you think we should be talking about or we aren't talking 
about, who should be here that isn't here, tweet using the #DavosToday. Right, 
let's kick it off with our first guest host of the week, our first ever guest 
host of the show I've got to say. You're going to help me do some of the heavy 
lifting today, Steve. Bain Capital's Managing Partner Steve Pagliuca. Steve, 
great to have you here. Great to be here. 

Why – let me cut to the chase - we hear from the Pope, we hear a lot of the 
big issues out there. Why do dealmakers like you really come to Davos? Is it to 
sort out these big problems or is it to do deals? It's a combination of the two.
Davos is a great platform for us to hear about what's happening in the global 
economy, what are the issues countries are facing. And obviously, the macro 
issues affect the performance of companies that you buy. So to me, it's been a 
wonderful experience both to understand the global issues, understand the 
political issues and how that factors into business analysis. Are you going to 
go away with some deals under your belt or at least some progress on deals under
your belt? Yeah. We have had situations that come out of here that turned into 
deals, but it's really a long-term plan: the more you come, the more people you 
know, the more industries you get to know, the more CEOs you get to know. You 
have a better feel for where you should invest and not invest. But is this year 
a better bet than last year? I've spoken to you for the last few years and they 
seem to be getting better, right? I think things hit the bottom and it was a 
shaky Davos in 2008, 2009 years. The mood at that point was, would the financial
system come back? It's now come back, it's getting better and better in each 
country. So I think there's optimism about there now. Let me get your take on a 
couple of big news items that happened overnight and this morning. Mohamed 
El-Erian and PIMCO, he's leaving, he's resigning. I saw that. Yeah. They haven't
said why. What's your thought? I have no idea but we're really – Bain Capital 
is really a company that will buy investor businesses and venture capital and 
try to build great businesses. And those folks are managing huge portfolios of 
fixed income interest rate bets. That's the problem, right? I guess if those 
bets go against you- And those bets have been going against you, so I guess 
that's the problem. 

The other big story and I mentioned in the headlines, IBM misses again. China is
the problem. How worried are you by China? And we're going to have plenty of 
time to talk about China in the next half hour but how worried are you? Well 
China's really interesting. It's been a driver of the world economy obviously 
for the last 15, 20 years. An economy that big can't keep growing it 12%, 15% 
per year. It still has robust growth compared to many places. So you're still 
seeing businesses grow in the 6% to 8% range and some even to 10%. So I think 
China's going to be slower than it was but it's still the growth engine for the 

Very quickly, any closer to the $10 billion deal for Bain? I asked you this last
year, you said it was a little way off. I think we're seeing transactions that 
are approaching at this point in time so the markets are really coming back. 
Alright. Steve, we'll come back to you in just a sec. Thanks a lot. Thank you. 
Now Iran has started to shut down its most sensitive nuclear activities this 
week, prompting the US and the EU to partially lift economic sanctions. Earlier,
I asked WEF Founder Klaus Schwab why he thinks Iran's Premier Rouhani has 
decided to attend this year's Davos. I think it's a very important moment. Do 
you know, we are just starting, we see implementation of the first phase of the 
nuclear agreement. But we all know that the first phase is a first phase. So we 
are very curious to hear what the future will be. 

Did they approach you, the Iranians or did you approach them? I think it was a 
common effort. A common effort. And what is planned, are there any bilaterals 
planned with the US? We do not know yet. Of course, the framework which you'll 
find in Davos is always a very favorable framework for dialogues, for bridge 
building. So we'll see what's coming out but I'm very confident that we will 
have a positive outcome. What about a meeting between Mr. Netanyahu and Mr. 
Rouhani, or is that – or have you been tasked with keeping those two apart? 
No, I think it would be better to ask Mr. Netanyahu and President Rouhani. They 
have to decide. Professor Klaus Schwab talking with me earlier. 

See, quick word for you on that. We were talking Iran. The people you've spoken 
to so far, is there much excitement again among the dealmakers about opportunity
in Iran? I think Iran's going to be a longer term opportunity. They've got a lot
to sort out. It's obviously a very large economy and it's been isolated for 
many, many years. It has great wall reserves and more oil will help with prices 
of oil in the world. So if Iran could become a trading partner, that would be 
fantastic for the global economy. There is a big IF though, that if can it get 
its nuclear program under control or stop. So what are American dealmakers, 
American CEOs, American businesses going to be doing this year in Davos? Are 
they going to be sitting back biding their time, watching what happens or are 
they going to be on the front, pro-active speaking to the Iranians? I think 
there's a mix but I think most people are in a wait-and-see attitude because 
these talks often don't produce anything. If the talks produce something 
substantive where there can be trading, where there can be legal trading and 
Iran can sell goods or we can sell goods to Iran, I think it will be a nice 
market. But I think it's going to take a while. Alright. Steve, thanks a lot. 
Right, coming up: it's downhill all the way, our reporter Jon Gordon hits the 
slopes with the Mandarin-speaking instructor, helping bring wealthy Chinese 
gears to Switzerland. And this is worth a watch, it's coming up in a moment, a 
quick rundown of Rinerhorn, Davos' famous tobogganing-run shop and our intrepid 
Reuters production team with Google Glass. Guests are very excited about this 
Google Glass thing, right? Yes. I mean have you seen it, have you tried this 
thing on? 

I've seen it. I mean – we'll talk a little bit more about that in a sec. Let's
talk though about India. Weak domestic as well as weak foreign demand continues 
to wear on India's ailing economy while uncertainty ahead of elections in May 
keeping investors and businesses at bay. Joining me, Kris Gopalakrishnan – you
just saw him in the Green Room – he's President of the Confederation of Indian
Industry and the Founder of Infosys. Very good to see you again, Kris. Look, 
let's start with a really hard stuff, flagging growth, lack of FDI, questions 
over infrastructure corruption, worries about this election. How long is it 
going to before India really gets its mojo back? So clearly, it is going to take

But on the positive side, already analysts are predicting that next year is 
going to be 6% GDP growth from the 5% now and the year after, we're looking at 
7%. So I believe that the worst is over. We have to get through these elections.
Once the elections- Yeah but, Kris, that is a massive if, right? That's a 
massive hit for investors as well. I mean how can we see a turnaround if this 
election brings further instability, which many expected to bring? So if you 
look at the data, the underlying data, there are 10 states which are growing 
more than the national average, more than 6%, 7% already right now as we speak. 
And many of these states are actually larger than many countries, Maharashtra 
one of the states. If it was a country, it will be probably the 12th to 13th 
largest country in the world in terms of population and size. Many of these 
states are actually growing at 8%, 9% and they're ruled by six different 
political groupings. Yeah, alright. So regardless of what happens, I believe 
after the election, things are going to look better. 

Steve, yeah, come on in. I mean it was a horrible year for emerging markets last
year. I mean what do you make of India? Has it squandered its chances? I mean 
India is a great economy and as he said, is one of the largest of the world. 
Very educated, great products come out of India. The issue in India is really 
the governmental system auditing, accounting kind of rule of law type of issues 
and I think some of the states are taking that in, as you said. But that's going
to be the big issue that faces India. How are you going to get a point where you
can trust financial statements, where you can really do business in India and 
have recourse if there are some issues? Clearly we have to do better in terms of
governance. We have to do better in terms of providing a stable environment for 
business to operate. But institution building takes time. You have to remember 
that India opened up to- Indian Bank has done very well in the last 20 years, 8%
average GDP growth. So it takes a little bit time. But I strongly believe that 
after these elections, a lot of the reforms that we expect to happen would 
actually happen. I expect that because of the pressure, economic growth and 
jobs. You need investors to believe that. Yes. You need the bank capitals to 
believe that. Do you believe it, Steve? I think investors have and will take a 
cautious approach to India unless there is really top down improvement or bottom
up improvement in those systems. When you buy a company you have to trust those 
financial statements and you have to trust the fact that if those statements 
have an issue, you can go to some court of law and that's been a very, very 
difficult process for all investors that have come in. We've invested in India 
but we found great partners. So the hurdle, it's one more hurdle than what you 
have in another country, if the country had a great court system and there were 
no corruption, it would be easy to invest because there's many, many 
opportunities. I think you'd see investment pouring into India if you can fix 
the kind of rule of law, the fact that business will be treated fairly. Kris, 
back at you? So again, it's mixed actually. It's not all that black and white. 
If you look at the Korean company - the Samsung, the LG, the Hyundai - they've 
done extremely well and they've taken over the market in some sense. If you look
at some of the European, some of the fastest growing auto markets today are in 
India. So yes, every market has its own peculiarities. I'm of course defensive 
at this point, but I believe that after the election you will see a better 
environment. And what about- I want to get a question on the sector, IT 
outsourcing. I mean what do you think of the sector? Do you like the sector? I 
think the sector is a great sector. There's an accelerated trend, lower cost for
companies and I think companies do a great job in IT outsourcing. And look, I 
think you shouldn't be defensive, India's a great country and I think if they 
can really just go in the direction of supporting these new initiatives of 
reducing corruption, making the business, I think, fair, India could really take
off. Go ahead Kris. So the solutions are known actually, so it needs to be 
implemented and I'm hopeful. 

Just a quick final question on the turnaround. I think you laid off what, 1,800 
people last year. For a company that's, let's face it, has been hiring like mad 
for years, what does that say about Infosys, what does that say about the 
economy? So we hired ahead of time and the sector slowed down. We grew 25- about
26% in 2011 and came down to about 6%. This year we are growing, projected to 
grow around 12%. So we didn't lay off. Our attrition went up last year but 
that's it. We didn't lay off really the people. Alright, Kris. We'll have you 
back next year. We could talk about the election then, we could talk about some 
of this growth- Thank you. That is elusive right now but hopefully will come. 
Kris Gopalakrishnan from Infosys and one of the WEF Chairs last year. Steve, 
just a quick word from you. I put this to a number of people, I want to put it 
to you and it's one of our Twitter questions as well. Who should be here, would 
like you to see here who isn't here. 

I know some of the big disruptors aren't here this year. What do you think, 
who's missing? Well there's a lot of people here so there's not many that's 
missing. First of all you can probably touch almost every sector in every 
country in the economy. I think there could be more people from the energy 
industry here. Energy is really a key issue in powering global growth. The 
United States for example I think they're estimating energy cost at 40% to 50% 
lower than in Europe. That obviously has given a great kick start to our 
manufacturing. So- Why do you think they're not here? I think they're here but 
they're not here. Probably the numbers are representative of their impact on the
globe. Alright. Steve, thanks a lot. Now as I said, I'd been asking a lot of 
people that. 

This is what Charles Schwab said when I asked him. I would have liked to see the
Pope here because he is a strong message but I'm very pleased to know such a 
Pope will send a message to be read by one of his foremost cardinals. I want to 
remind you to send in your thoughts, who do you think should be here in Davos 
who isn't here. We've had a number of responses so far. Where are all the 
traders, is one of the comments we've had. Do tweet responses using #DavosToday.
Any other thoughts of course welcome as well. So a rally with a long way to run 
or a bubble that already looks dangerous. 

Joining me now with this thoughts on the global property market, Jones Lang 
LaSalle CEO Colin Dyer. Good to see you Colin. We had you out in the balcony 
last year. Glad to have you in the warmth of the studio with Steve today. You 
just launched the latest global property outlook, super cities London, Paris, 
New York and Tokyo still dominating. Are you worried about bubbles in those 
markets? Not yet. The recovery from the great financial crisis is probably going
to be a six-, seven-year process. And so we're only three or four years into 
that. The equity markets are strong. There's a lot of equity flowing into real 
estate and at this point, only a moderate amount of debt. And bubbles really get
going when debt takes over and we get very high levels of debt financing in real
estate. From an investment's perspective Steve, should investors be looking at 
lower tier cities as investment bets because of the bubble danger? And I know 
you talk about bubbles a lot and I don't think you like talking about bubbles 
that much. You get that question too often. I think in general if you look at 
markets we know the US, there hasn't been a lot of building in the last four or 
five years. When the crisis hit, these projects take a long time to come up. So 
there is right now a stability in many cities excess- there's more demand, there
is supply for properties. Now we're not in the real estate business, but I agree
we haven't seen anything in terms of our companies or ourselves even looking for
space where it looks like it's ridiculously expensive. So it's coming back, it's
in mid-cycle and probably it has room to run. Interest rates are also still very
low which helps the property. 

Colin, come in. Absolutely. There's a lot of corporate demand picking up as well
which is good for the fundamentals of real estate. You got capital flowing in 
and debt flowing in to fund the purchase and sale of real estate. The 
fundamentals are driven by corporate demand. And that's only just beginning to 
pick up again. What excites you more in the US, commercial or residential? 
Commercial at this point. Why is that? Simply because it's got the more stable 
long term profile. The sector in general, I mean is it something, I mean you're 
clearly active in it. What in particular do you like and what don't you like? 

Well bank capital was founded on the principle of kind of helping businesses to 
grow and add value. So we do not look at real estate per se pure assets, but we 
look at companies like hotel companies or cruise companies, companies that have 
real estate components and we've actually done some investments in that area. 
And we're excited about that because that's also starting to come back in the 
economy. What does a city to get to super city status? Well what puts it on that
list, how do you measure that? A number of things. Most importantly, 
transparency which is to say ease of access to information about markets, good 
regulatory systems, low levels of bureaucracy and most of all to the point that 
you're making about India earlier on, a good judicial systems so people can be 
sure that the real estate they buy they can access. Then you have 
infrastructure, education, communications, and all those other factors at play. 
And I'd say population you throw in there, too. Educated population. Give us 
your thoughts on emerging market property. I mean with that in mind, what you 
just said. Anything emerging markets you've got to be taking a long term view, 
because with the short term you're always going to be suffering cycles. Again 
India was booming four years ago. It's got political issues now. China has 
slowed up a lot. These economies are on long term growth patterns and the real 
estate in those economies are similarly on a long term growth trajectory. But in
any one period of three or four years, the cycle can take it anywhere. As a 
global firm do you see an advantage that you can identify these cities? 

Because you have corporate relationships all over the world, find the right 
places for corporations so you can add value to the process and filling up 
buildings? There are two sorts of clients. There's the investor clients who want
their buildings filled up. They are the ones that have interest, corporations 
have another. And corporations are looking for sure, good quality real estate in
major cities but they have a lot of other considerations from tax to access to 
good people. Put all that together and that dictates where corporations would 
like to be situating their offices and real estate needs. As a test, if you add 
up a million or two to invest or your own hard earned cash and you wanted to put
it in to a property, which city would you look to now? I'm writing this down. I 
want to hear what you have to say as well, Steve. 

If you had a 10-year horizon and as I said you should, then the second tier 
Chinese cities are a very good bet. So Xi'an, Wuhan, Shenyang. Okay. So you 
don't think this- the China property market's going to crash, clearly. No, no. 
Okay. Steve, what about you? Is there infrastructure in those cities, firms that
are building buildings that you can work with? Oh sure. I mean they're not quite
what we could Western investment grade yet, but the infrastructure's in place, 
the education system is coming together. These are vast cities of multimillion 
population. And they have a very long, good long term growth. China has what, 
224 cities and over a million- Europe has 50 or something like that. 

You haven't told us where your million or two is going. Boston. Alright. I got 
to stop it. Colin, thanks a lot for coming in. Colin Dyer Jones Lang LaSalle. 
Let's get a quick rundown on what's on today's agenda here at the World Economic
Forum. Reuters' Amy Gardner has details for us. As central bank starts scaling 
back stimulus, and the supply of cheap easy money dries up, what sectors and 
industries will offer scope for expansion? IMF Deputy Managing Director Min Zhu 
and French Innovation Minister Fleur Pellerin are two of the big names giving 
their suggestions. Mass customization, sensory technologies and the internet of 
things. Yahoo's Marissa Mayer and leaders from BT and Cisco offer their insights
into the next big breakthroughs in the world of tech. 

Is Europe back? Break-up speculation has quieted down and equities are on the 
up. But doubts remain about the continent's recovery. Economist Kenneth Rogoff 
and ad man Martin Sorrell are joined by executives from Accenture and UBS to 
debate the question. After lunch, there's Africa's next billion. Nigerian 
President Goodluck Jonathan and business magnate Aliko Dangote discuss the state
of the growth on a continent where the population is set to hit two billion by 
2050. Are the markets safe for now? Barclays CEO Antony Jenkins and other 
industry leaders debate whether the international financial system is more 
secure now than it was five years ago. 

Right. There are lots of Reuters photographers of course on the ground in Davos 
and we'll be bringing you some of the best shots of the week. Let's take a quick
look at our first Pic of the Day. Security tight around the latest addition to 
the world of luxury hotels in Davos. The futuristic-looking Intercontinental 
only opened in December but it'll be home to many of the big names attending the
World Economic Forum this week. We'll hear by the way from the group's CEO later
on in the show. Now, this should have been the year that Bombardier's biggest 
ever gamble paid off. 

The company's new small airliner was used to enter service and take on Boeing 
and Airbus but it's been delayed again. And analysts are questioning whether the
orders will ever come. Joining me, Bombardier's CEO Pierre Beaudoin. Good to see
you again, Pierre. Good to see you. It's been a tough year. We'll come on to the
C Series in just a moment, but what's this week for you? Is it about doing 
deals? Is it about doing deals on the infrastructure side? Well, it's about 
relationship. We have customers from world leaders to people who represent 
cities, airlines are here, and of course private aircraft owners also. Let's 
talk about the C Series, we've got to do that. Investors are clearly worried 
about your cash position. Investors are worried about the series. Investors are 
worried we're going to see further delays. Investors are worried that the 
Boeings are going to steal a march. What do you say to those worried investors? 
Well, it's been a big program. We've been developing the aircraft for five 
years. We're into flight tests now so I'd say from a development perspective. 
We're really in the execution phase where I think most of the risk was in the 
development. The aircraft is very well-accepted. We have 198 orders. 

We've given ourselves a target to be at 300 orders before first delivery. So 
we're almost there. What do you make of the sector? I think it's a good sector. 
You had a big downturn after the crisis. But people— activities are picking up
and activity generates, you know, needs to be everywhere and these planes are 
great planes. But how – and I'll put this to you, Stephen, and I want to hear 
what you say, Pierre – how does Bombardier win back the trust of investors in 
a climate like this and given these delays that we're seeing. Well, you saw the 
issues with Boeing. I mean Boeing really dipped down when they had their issues,
and Boeing is a great company as well. They came back. Bombardier has been 
making planes for years so, you know, people are used to seeing the fact that 
this is a very complex industry. It's very complex to get these planes out. But 
what they really want is a great quality plane and they're doing the right thing
I think taking the time to build it. Okay, so you're giving it the benefit of 
the doubt, Steve, right? You're giving them the benefit of the doubt? 
Absolutely. Are investors going to give you the benefit of the doubt? Yes. 

I just like to add also that if you look at our development program, we're 
actually a year-and-a-half to two years shorter than the programs we spoke 
about. Our program is doing well in terms of development. It takes a little bit 
longer but it's got to be done right. We'll be delivering this aircraft for the 
next 20 to 25 years. When's it going to come into shelves? Is it late summer? 
Are we all trying for that? We're seeing mid— we're seeing second half of 
2015. From a news perspective as well, I should mention you've just announced I 
think what, 1,700, 1,800 job cuts. It that it or are we likely to see more? 
Well, we've seen a lot of growth since 2008. We've added about 5,000 jobs even 
during recession time because we're investing into our future. We've decided to 
make an adjustment now more from an efficiency perspective. I feel now that 
we're looking at growth both in the business aircraft and commercial aircraft, 
and definitely in the train business. What about— sorry, Stephen, you want to 
comment on that? Which one of those markets do you see growing faster, the 
business or the commercial? I know business really took a setback in 2007, 2008,
2009. But I see it kind of coming back seeing all the companies using these 
planes. Is that coming back faster or the commercial or both? Yes. There's more 
and more global companies that are investing in corporate airplane to make sure 
that they can connect and see their customers across the world. In the large 
aircraft, we've seen a comeback already. In fact, it didn't really slow down 
after 2008, large business aircraft. But what we're seeing now is the smaller 
business aircraft come back as the economy comes back in the US. Can ground 
transport, the ground transport units make up for the lost revenue on the 
aerospace side? Well, it's half of Bombardier's revenue. It's growing. There's a
lot of investment in infrastructure, and I think this is a good growth area for 
us. Which last year you told me it's a great opportunity to have to speak to 
country leaders about infrastructure projects, where is your greatest hope right
now in terms of infrastructure? Let me ask you this with Steve sitting next to 
you. Is America finally going to get serious about rail investment? Well, you 
asked me growth, we just announced a big contract in Australia, in Queensland, 
2.8 billion, big infrastructure project. There's more going on in Asia of 
course. In the US, we're seeing replacement of system that are aging. We just 
announced a big order in San Francisco, just modernizing the fleet of Metros 
there. So I think America is serious about the transit in the cities. Alright, 
Pierre, we're going to have to stop you. Thanks a lot for coming in today – 
Pierre Beaudoin. Steve, just on the back of that investment in infrastructure, 
is the US going to get serious about it? I mean Pierre mentioned San Francisco, 
where else are you looking? It is critical the US has to get serious about it. 
During this recession, there's been money taken away from all those 
discretionary programs and investment in infrastructure. 

You can't keep not doing that. So I think it's getting to the point that they're
going to have to invest. What's happened in the US is you have kind of a 
polarized congress so not much is happening in the federal level. That's 
almost— there's a good and a bad to that. Back 20 years ago, 50% of the 
Dollars in infrastructure come out of the federal government and help cities 
like Boston build things. Now, it's like 25%. So cities will have to do it on 
their own. We've got some great leaders coming to the cities. We've had Mayor 
Bloomberg and new mayors coming in to New York and Boston that want to improve 
the infrastructure. So I think that bodes well. And the city finances in those 
cities are a lot better than smaller places. So it's all going to happen at the 
local state level. 

Specifically on Bain Capital, how's fund raising for you? We can't really talk 
about our fund raising but it looks very good for bank capital. We've had the 
same investors for 30 years, very well. Which sectors do you really like for 
this year? Well if we break the rule down into kind of the growth sectors which 
are T&T medical, and then there's industrial. We like all three of those sectors
because there is a comeback in industrial. And we're seeing companies perform 
really well. 

What we try to do is find companies that – number two or number one companies 
– that we think we can transform and make it a bigger global player, open it 
in new markets. We're finding several of those opportunities. We're very excited
about that for the future. You know, this whole time has gone really, really 
quick. I have one final question for you. I know it riles you sometimes talking 
about bubbles. But look, there are a number of areas we could see bubbles. We've
talked about China, you know. Let me throw the Davos bubble in there was well. 
Everyone here talking about these big issues. What's – we'll come to the Davos
bubble in a sec – but what's the most dangerous view right now, would you say?
I would say the largest bubble is, in the global economy, is there going to be a
laid out path to reduce the deficits, the sovereign deficits that have happened 
in the United States and Europe and other countries so that we can kind of see a
sustainable, reasonable economic path going forward. If we keep borrowing and we
keep building up, you know, bigger and bigger deficits for the future 
generations to pay back, at some point that's going to hurt us. And it's going 
to be great until it isn't. 

You know the situation in Greece, one day you're on the beach, the next day 
there's a financial crisis. Sure. And not much had changed between those two 
days except people recognize you've hit some tipping point. Now the good news is
the global economy has performed very well in the last couple of years. Banks 
are more stable. The banks in the US are about as stable as they've ever been. 
We're starting to get that in Europe. You're starting to get consumers with more
savings, so there are positive signs. But I think the big picture is, if the 
global fiscal deficits can be brought down over a long period of time, we'll be 
a better world economy. I've got to let you go, I'd been told. Steve, it's been 
great to have you on the set, I really appreciate it. I really appreciate it. 
Steve Pagliuca from Bain Capital, our very first guest host. You're watching 
Davos Today. The time is 7:31. 

The headlines: Syria peace talks will start in Montreux as well. Palace push for
an end to civil war. Will they begin in disarray after a botched UN invitation 
to Iran, an explosion in Beirut, and a new evidence of torture by President 
Assad's government? Thailand's capital under a state of emergency. The 
government tightening security in the latest escalation of its showdown with 
anti-government protesters. Toyota says it may cut production if the unrest 
doesn't stop soon. IBM shares slumped a fourth straight revenue miss. The 
world's largest tech services firm suffering as the Chinese government puts the 
brakes on IT spending. And what are the chances of a bilateral between the US 
and Iran at this year's World Economic Forum. 

Founder Klaus Schwab thinks we shouldn't rule it out. We should find that Davos 
is always a very favorable framework for dialogues. Right. Intercontinental 
Hotels has launched its new Davos Hotel to coincide with the WEF meeting here. 
The futuristic horizontal leg design is encased in a bronze-toned metal shell 
that changes according to the weather. There it is. No shortage of high rollers 
in town just now of course, but is the rest of the world rediscovering its 
wanderlust. Reuters' Jon Gordon spoke to company CEO Richard Solomons. Medium 
term, a hotel business is very exciting. If you look at the best correlative 
hotel revenues, its GDP growth, if you look at infrastructure investment, if you
look at growing middle classes, if you look at behaviors of your disposable 
income, it's all very positive particularly for the branded hotel industry. And 
we sit right in the middle of that. So I think long term it looks very good. I 
think short term, we're driven by economic cycles whether that's supply and 
demand imbalance or whether it's purely economic malaise that we've seen in 
Europe. But overall, it's actually I think very positive outlook. And for us, as
one of the biggest brand families out there, then the future looks very 
positive. When you talk about short term versus long term, you know you're 
famous for your asset light model. When you look at what stimulus has done to 
property prices, I mean does that not tempt you to say, okay maybe we can tweak 
the model a little? No because it's more than just purely financial. I mean 
financial to the extent that I think being a pure play and having investors 
understand you and for your own employees to understand what you're about and be
focused – really, really important. But I think we work very closely with real
estate investors worldwide. And to put it in context, we've got 4,600 hotels 
under our brands, we only own eight. So I think, every day I'm delighted when 
our owners are making money from their hotels because we're hoping to trade well
where they're making money from real estate. 

But that's not where our core skills are. Okay. You know, more asset light would
be a competitor, in a sense, Airbnb. How do you regulate something like that? 
Well, we're no stranger to competition. It's a competitive marketplace. Where 
you got growing demand, you're always going to have new competitors whether it's
cruise ships or Timeshare or Airbnb. I think regulation is the important point 
though, which is that if mass market businesses like ourselves are regulated, 
which they ought to be to protect consumers whether it's health and safety, life
safety, food safety, whatever it might be, building safety, think of the rules 
and regulations that go into building something like this to make it suitable 
for paying guests. But that would kill the model, basically. Is there a middle 
ground? Well, I think if it will kill the model, I think you have to ask whether
that model is appropriate. I think it's one thing to let a friend sleep on your 
couch, I think it's quite another for an organization like Airbnb to market 
itself, to go out publicly and say, we're going to bigger than IHG as one of the
biggest hotel companies. And then say, but actually we don't need to regulate 
the properties that are under our brand. I think if legislators are serious 
about consumer safety, which they ought to be, and what actual product they're 
buying and services they've been given, there ought to be a level playing field.

That's all I'm asking for, is a level playing field. I think that's only 
appropriate. All right, interesting on Airbnb. We're going to speak with Brian 
Chesky, by the way, the founder of Airbnb on Friday. We'll no doubt play that 
sound bite to him and see what he has to say. Now, Japanese Prime Minister 
Shinzo Abe has done at least two surprising things. He stayed in office for more
than a year and he's taken some decisive action. I see my next guest chuckling 
here. It's a decisive action on the economy but his biggest test could be yet to
come. Joining me, William Saito, Special Adviser in Japan's Cabinet Office. 
Great to have you back. Thank you very much. 

When I spoke to you last year, you said, "Japan needs to reconnect with the 
world. It thinks it's an island, it's not." How much progress have you made? I 
think it's considerable progress to have the sitting Prime Minister make the 
first keynote at Davos is a big event. We have a big presence here but I think 
gaining that confidence and going out into the world and reconnecting the last, 
at least 12 months has been definitive of that. The big test comes in the spring
when Abe is set to raise the consumption tax. 

Is he going to pass or flunk this one, do you think? The first stage, I think 
everybody's accepting this will happen. It's a catch-22 for him though in some 
ways, isn't it, this? I don't think so. I think that we have it as a two-stage 
process. Going from 5% to 8% is pretty much a feat to complete. People accept 
this. I think the bigger test is from going from 8% to 10% later next year. 
Deregulation another big test. Is he going to deliver on the structural reform 
packages? When is the market going to be convinced that he's coming through with
this? Right. 

This is euphemistically called the third arrow. Right, exactly. And I think 
he'll be giving a keynote speech later today. You'll hear a lot of his plans 
being outlined and 2014 will be a definitive year in making sure and seeing 
those actually happen in concrete examples. What else is he going to say this 
morning? Give us a heads up. A sneak preview. A lot of these things are in terms
of like you mentioned, privatization. Energy issue is obviously a topic that 
affects the country. How you make the country competitive again in connecting to
the global environment. Things like women empowerment, entrepreneurship. Yeah, I
want to talk about both of those things actually. Let's start with women 
empowerment. It's clearly a priority but the West's own Global Gender Gap Report
I believe in 2012 put you 105 out of 136 countries. Huge mountain to climb. Are 
you making any progress on that front? I do think so. The Prime Minister has 
outlined plans to make sure that board members and politicians have certain 
requirements in terms of a woman in those positions and so, those targets I 
think are reasonable and there's progress being made, to make that happen. And 
then entrepreneurship, again, this is something I suppose you- last year on your
blog you call yourself an entrepreneur and innovator. I think this is, I mean, 
you tell me but one of the reasons you were brought in, in the first place to 
reconnect with science, technology, new industry. How key is that to driving the
change that Japan so desperately needs? I think it's critical. I think that 
while the research of R&D is very good in Japan, changing that to development, 
new products, new companies, new industries, something that's been lacking in 
the last few decades. Entrepreneur, thinking outside the box, doing new things 
in different ways. This is, I think a pillar of the third arrow, I believe. 

Okay, stay with us, William. I'm just going to introduce our next guest. I want 
to get a discussion going there as well. Japan, we've been talking about it. 
It's finally tackling deflation. The US recovering. Chinese growth worries 
overstated, some say, and even Peripheral Europe bouncing back. So all is rosy 
in the global economic garden, right? Some will say wrong. Joining me now is 
former IMF Deputy Managing Director John Lipsky. Great to have you back in the 
studio, John. Glad to be here. Are you having a good week so far? I mean, I 
know, it's only just started but- Very good, thank you. Big meetings planned, no
doubt. Let's kick it off with Japan. Thank you. I don't know if you've been 
listening to what William has to say. I have. 

This year we're going to find out whether this Japanese monetary experiment has 
worked. What are we going to find out? Well, first, we're going to find out if 
it's more than just a monetary experience. As Kaito has said, what is going to 
be the effect of the fiscal policy changes and of course, most importantly, what
is going to happen to productivity of the Japanese economy going forward, the 
result of the structural reforms that are upcoming. I think everyone is looking 
forward to hearing the Prime Minister speak later today but more importantly, 
looking forward to implementing changes that will make the Japanese economy 
perform better in the future. Are they going to get to 2% inflation on time? The
time frame they set for themselves. That's a difficult and open question. Not 
necessarily clear that that has to happen but it's obvious that there has been a
change in expectations and that Japanese consumers no longer expect extended 
deflation. And that already is an important accomplishment. William, if you were
a betting man, where would you say inflation would be? That was a slightly 
unfair question but where is inflation going to be at the end of this year? I 
don't know if that's the right question. I think what's shown is that the 
problem with Japan is deflation and it's clearly showing that we're getting out 
of deflation and I think a little bit of inflation is not a bad thing. What that
is, whether that between one, two, I can't say but to get out of deflation is I 
think the big story here. The IMF has warned on deflation especially in Europe. 
They came out with their report yesterday. How worried are you about deflation 
in Europe? Well, obviously, this continued decline of core inflation has been 
very, very notable. Inflation rates, if you strip out the effect of tax changes 
or administered price changes, you'll find in most European economies inflation 
that in that sense underlying inflation is perhaps close to 0.5%. It's really 
quite low. So, the- but to get from there to outright deflation in the sense 
that the Japanese dealt with in this that consumers and producers expected 
falling prices over time, that's a long way. 

There's- It shouldn't happen, there's no need for it to happen. Let's get a word
on, from both of you actually on US and tapering and the way the markets are 
dealing with this. What are your expectations? Are they going to get that right?
Yes. I actually don't think that it's been as crucial as many observers have 
thought. I don't expect the economy or markets at this point to be all that 
sensitive to the decisions on tapering especially because they are going to be 
guided by the economy. In other words, the Fed is not going to be taking 
preemptive steps in the current environment. What's going to be most important 
is the evolution of the of the real economy. Five seconds on tapering from you, 
William, before I let you go. 

Yes, I think the biggest concern here is how to properly affect the Yen/Dollar 
exchange rates and that's probably going to be something monitored carefully in 
Japan. Okay. John, thanks so much for coming again. Sorry, it was so brief. 
William, thank you very much for coming back. Hopefully we'll see you and next 
year as well, both of you. Thank you. Thank you. Now the chronic gap between 
rich and poor poses the single biggest risk to the world this year, so says the 
World Economic Forum. Often criticized for being elitist but just how elitist is
it? Here's a cautionary factoid from an Oxfam report released on the eve of the 

The charity calculates that the world's 85 richest people have as much wealth as
the poorest 3.5 billion on the planet. Carlos Slim and Davos regular Bill Gates 
still the top two names on that list. Another way of putting it, almost half the
world's wealth, about a $110 trillion is owned by that famous 1%. More than a 
few of them of course here in Davos today. Send us your thoughts on that. Tweet 
us all your thoughts. We're on the Twitter of course. Our question as well, who 
do you think should be in Davos but isn't here? Is it Apple boss Tim Cook, 
President Obama, Warren Buffett, Mark Zuckerberg, some of the disruptors that 
we've been talking about this morning. Tweet your opinion using: #DavosToday. 
Winter tourism was practically invented in Davos. 

Visitors have been riding the Schatzalp railways since it was built back in 
1899. This year, Reuters has been riding the famous vehicular with pioneers of 
the future. In today's episode, our reporter Jon Gordon takes Proteus CEO Andrew
Thompson up the Schatzalp to ask him about taking on traditional healthcare. 
Andrew, there's a lot of things wrong with medicine today. What part of medicine
do you want to fix? What we want to do is build a healthcare system to 
complement the sick care system that we built in the 20th century. And how do 
you do that because you've got a few- you're a tech company, what are you doing 
to address that? So sick care system built to solve the problems of the 20th 
century, cure disease, does a great job, buildings where you plug into 
electricity, people with knowledge in their heads, products that were designed 
to be safe for everybody and work in somebody, a healthcare system got to be 
designed to deal with the 20th century healthcare challenges that's 
non-communicable or chronic disease, use the best technologies we have now. That
means mobile devices where you log-on, it means software and servers with 
intelligence in the cloud and it means services that are tailored to you, your 
genes, your lifestyle, your behavior. Let's talk about a bit about how you're 
doing that. 

So you've got an ingestible pill or a digestible pill that you can gather data 
from a patient's stomach. How is that going to work? Exactly. So what we've 
built is an ingestible sensor designed specifically to become manufactured by 
drug, so it turns the everyday medicines that everybody uses into a digital 
device that when they swallow it, it puts data on their phone about what they 
swallow and how their body reacts. So my stomach will talk to my phone? Yes, 
that's exactly right, yes. And it's going to be powered completely by you so 
this device is built only from ingestible minerals - things that you have in 
your diet anyway. If you know anything about potato battery, potato batteries 
are made of a bit of copper, a bit of magnesium, you put it in a potato. When 
you swallow one of our devices, you become a potato, Jon. There you go. Okay. So
I'm the potato, I'm the sensor. Where does that data go? How are you going to 
work with that? So it goes from your body into a wearable device to your phone 
up into the cloud, the data gets processed, it gets dropped down into 
applications that are designed to be relevant to you in the situation you're in.
So how we give data to a patient or family? If they are an Alzheimer's patient, 
it's different; if they're a heart failure patient or a hypertension patient or 
a diabetic patient, you just- you build it for the patient. Right. Now when I 
talk to a lot of tech companies, a lot of these big data models, it's about 
owning the data and sort of- there's a lot of privacy questions about that. 

How is your philosophy looking at that? Yes. So for us, it's very clear in our 
architecture that the patient owns the data. If they want to share it then they 
have to make a positive decision to do that - they can share it with their 
family members, maybe with their physician if they have one; they can share with
us if they think that as a company we can help them gain better insight into 
their own health. But that's a choice they make. So privacy in sharing is a 
really important philosophical and architectural question. Now, in healthcare, 
if you want to make it big, you really have to go to the states. It's a bit of a
mindful politically as well as in terms of regulations. 

So what's your plan there? So we're a company that's based in the United States.
We spent many years working with US regulators. I would say that one of our very
best assets as a company is the partnership we've built with the US FDA and to 
some extent also with the European Medicines Agency, so that these products are 
already cleared and ready to be built into pharmaceuticals. Alright. Andrew, 
thank you so much. Thank you. Well, we talked a lot about emerging markets 
already this morning. Emerging market woes proved costly for some asset managers
last year. So is 2014 the time to play it safe, to double-down on emerging 
markets or even to push out along the risk of the frontier markets. Joining me, 
Anne Richards, CIO of Aberdeen Asset Management. Thanks so much for coming by so
early in the morning, Anne. Certainly. 

Last time I saw you, we were in Oxford debating Europe. We were. And I do want 
to talk about that in a second because I think you lost that debate, didn't you?
Yes, but by a narrow margin. Alright. Emerging markets, it was very tough for 
you. It's been very tough for you there. But you think this situation is going 
to recover. You're hanging in there. What's the timeframe? Well, I think if you 
look at how emerging markets have performed relative to developed markets, 
people think, oh, the underperformance all started with the taper tantrum last 
year and that's not actually true. The underperformance of emerging markers 
versus developed markets goes back probably at least four years. And if you look
at the progression of earnings versus that underperformance, the elastic is 
really quite stretched. So given that the companies have continued to perform 
really well for the most part in emerging market space, we think actually it's 
quite a good contrarian call for 2014. Alright, okay. You need staying power 
though. You really do. You really need staying power, you absolutely do. And you
have to, to a degree, to screen out the politics and focus on what the companies
are doing on the ground and there are companies that had been working in all of 
these markets for a very long time. Equity markets bore the brunt; emerging 
market debt and property though funds did a better job. Do you stick with those 
now or are you going back into equities? Well, I mean I think, again, it's not 
for the faint-hearted necessarily because there are so many elections coming up 
in emerging markets. Basically, you will inevitably see volatility through this 
year. But I think, for choice, we would say that volatility in the equity side 
is actually an opportunity; it's not a threat. And you can use that to get into 
some of these companies at lower levels, lower multiples and you would be able 
to for some time. Emerging markets aside, you're poised to make further moves 
into the US. What are we going to see Aberdeen doing in the US this year? Well, 
I think this year obviously we've done a fairly major transaction which is 
poised to complete hopefully in the next month or two which is quite a UK-based 
transaction which is the investment management arm of Lloyds Bank, Scottish 
Widows Investment Partnership. For us, the US is a huge market and we are 
relatively under-represented there. So I think for the time being, our focus is 
very much on the organic side and trying to grow our own business organically 
there. But it's such a huge market. We made a small acquisition there last year 
of a high yield- of an investment-grade and high yield bond company called 
Artio. And I think if we could see the right bolt-on, we might consider doing 
it. But you know for us, it's really primarily about organic growth in the short
term. Have equity markets discounted too much good news though? I mean are we 
going to see a real pullback in the equity markets? I don't think so, I don't 
think so. Short of a really big surprise, probably not but clearly they've gone 
very far, very fast, and so a bit of a steadying in the short term seems most 
likely. Okay. 

Final question, I mentioned our Oxford debate. It was about the European dream 
whether it's dead; you said it was. The audience didn't believe it. When you 
look at what's happening now in Europe and things start to recover, do you still
really think that dream is over? I think Europe faces some very major problems 
on the demographic side. I think deflation- I think I might have come out and 
said very recently deflation is a real risk in Europe. But I have to say that 
the periphery is getting a little bit more traction, perhaps Portugal being one 
of the examples and people thought it would, and France and Italy in the middle 
are actually probably the biggest challenges for Europe right now. So it's a 
long way to go in Europe, but it is not dead yet. We'll see you at the Bern's 
Party tonight. 

Excellent. I look forward to it. Anne, thank you very much indeed. Thank you. 
Anne Richards, Aberdeen Asset Management. Coming up later in the show, BAE 
Systems Chairman Richard Olver tells us how he hopes to buck a defining global 
defense spending. That's at the top of the hour. But before we go, on a party 
with a lot of Seoul - the Korean government hopes to lure investment with a 
get-together featuring food, music and country's Chief Cultural Ambassador, 
international pop star Psy. I don't know who writes this stuff. Anyway, bye-bye 
austerity; hello, growth - one of the world's biggest accountants should know 
how corporate bottom lines are looking. Earlier, I spoke to Ernst & Young CEO 
Mark Weinberger. Well, the good news is we're talking about growth; we're now 
talking about what's managing from crisis to crisis. Growth, natural growth is 
going to come from getting people back to work. 

It's going to come from managing the technological disruptions that are 
happening in the workforces. And it's going to come from getting government and 
business working together to address some of the geopolitical and economic 
issues. You talk about employment. You're hiring, what, 50,000-60,000 this year?
Yes, we're bullish in virtually every market - developed and emerging. 50,000 
this year; we're looking for 60,000 next year. We have a very young workforce. 
The average age is in the late 20's. So this whole topic of youth unemployment 
something we're very focused on; we have to get people with the right skills to 
be able to come into our business like every other employer. Number one worry 
for CFOs and CEOs and your other big clients, when I spoke you last year, it was
regulation, it was compliance, it was trying to work out what's happening where 
and when. What is it this year? Well, it's a great question. I mean, I think 
we're still worried about regulation. Now, we're going to start seeing some of 
the enforcement of the regulations that were written over the last couple years 
whether they'd be things like Dodd-Frank or the accounting rules or things like 
there. We're also focused however though on the normal factors of production - 
getting more people with the right skills in the workplace and that's what I 
think all of us are focused on. I will tell you, we're also looking though at 
geopolitical issues and seeing where in different parts of the world if there's 
going to be any major government changes that we have to worry about. And what 
worries you most? What worries your clients most, geopolitical? Well, we 
certainly want the governments to stay open. We look for hopefully the end of 
austerity and government intervention and letting the market forces come back 
and start to drive the overall economy. Tapering, obviously a very real issue 
right now for your clients. How are you advising companies to prepare for this? 
Well, you know tapering, if it's managed, will be the right move obviously. I 
think we're worried about tapering. We also worried about overexpansion of 
monetary policy which could have negative effect. So we are hopeful that the 
government's going to a measured and transparent approach to reduce the amount 
of investment in these long term obligations so there won't be any increase in 
interest rates which would be one of the big concerns we all have or an increase
in inflation. I mean, with that as a backdrop, is the time horizon for 
investments getting longer would you say? Well, it's a good question. You 
certainly hope it would be. 

I think we're going to talk a lot at this conference about sustainable growth. 
We are going to have volatility especially in emerging markets and parts of our 
businesses there. But you have to look for what's going to happen over the next 
5-10 years and not only focus on financial issues, focus on economic and social 
issues and focus on creating a workforce for the future. Who are you talking 
with this here? Any big names we should know about to get this coming out on the
back of that? Well, I talk to a lot of people here from both the NGOs to 
government, from our clients and just getting a good feeling about what they're 
thinking, what's in their mind, kind of like what you're doing with me to 
understand what their big issues are. E&Y's Mark Weinberger. China's economy 
didn't quite hit expectations for growth to fall to a 14-year low in 2013, but 
it wasn't far off. Is a cooldown inevitable or will the
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