Business

NEW YORK — After emerging market stocks led global equity markets lower in a brutal 2018, some US-based fund managers are betting that the asset class may have the largest rebound in the new year.

It may not look likely at the moment, given that an economic downturn in China prompted iPhone maker Apple Inc. to lower its quarterly revenue forecast on Wednesday for the first time in a decade. Its shares slumped nearly 10 per cent after Chief Executive Tim Cook blamed the US-China trade war and “economic deceleration”, prompting broad sell-offs around the world the following day.

Yet, fund managers from Westwood Holdings Group, GMO, T. Rowe Price and Causeway Capital Management are among those who are betting that emerging market stocks will post outsized gains in 2019. They cite a combination of compelling valuations and a likely decline in the value of the dollar that will help accelerate economic growth. 

As China continues to bear the brunt of US President Donald Trump’s focus on trade tariffs, fund managers are expecting that shares in countries like India, Thailand, Peru and Brazil will outperform the China-dominated emerging market benchmark index. 

“We want to lean into the fear in the markets,” said Sebastien Page, head of asset allocation at T. Rowe Price. He expects emerging markets will outperform in the year ahead as the Federal Reserve curtails its pace of interest rate hikes and the dollar subsides. 

“When you have a recovery in risk assets, those that have been undervalued can snap back the most,” he said. 

Emerging markets have been in a bear market since September, placing them already four months into the deep declines that rocked the US equities market in December. The average bear market in emerging markets has lasted 220 days and posted a decline of 32.4 per cent, or about 7 percentage points more than the roughly 25 per cent drop in the MSCI Emerging Market Index since it hit near-record highs last January, according to data from Ned Davis Research. 

While emerging markets started the year with another roughly 1.7 per cent loss over the first two trading sessions, fund managers say they are increasing their bets on stocks in countries that are among the most beaten-down, expecting they will have the largest rebound if and when a global bull market in equities resumes. 

“I’m actually a lot more positive than this time last year because there are tremendous opportunities to add to high-quality names in insurance and some banks,” said Patricia Perez-Coutts, portfolio manager of the Westwood Emerging Markets fund.

She has been increasing her stakes in South Africa, Thailand and Peru, she said, with the largest positions in companies such as South African life insurance company Sanlam Ltd. and Credicorp Ltd., Peru’s largest financial holding company. Shares of Credicorp are up 8.8 per cent over the last 12 months, while shares of Sanlam are down 3.9 per cent over the same time.

Perez-Coutts has been underweight on China since the start of last year, though she is starting to wade back in by buying shares in gaming and e-commerce companies that have plunged. 

“Though China’s overall economy may not be growing as strongly as it did in the past, there are still areas of strong growth,” she said. 

Joe Gubler, a quantitative portfolio manager at Causeway Capital Management, says emerging markets remain a compelling opportunity with a forward price-to-earnings ratio of approximately 10 even after the recent declines in the US market have pushed the forward price-to-earnings ratio of the S&P 500 to slightly below 15 for the first time in about five years. 

As a result, Gubler has been increasing his positions in small-cap companies in India, as well as energy companies that have sold off as the price of oil has tanked. He has also been increasing his position in companies that could benefit if there is a breakthrough in global trade talks. 

“The market is not in a mood to give emerging market stocks much credit,” he said. “If you look at the chart, the emerging market index is sitting at about the same place it was in 2009.

“If you had a let-up in trade and interest rates, you could see a decent-sized rally.” 

WASHINGTON/BEIJING — President Donald Trump on Friday downplayed a revenue warning by Apple Inc. and said slowing economic growth in China puts the United States in a strong position as negotiators from the world's two largest economies prepare for trade talks next week.

Trump has slapped import tariffs on hundreds of billions of dollars of Chinese goods as he seeks concessions from Beijing on issues ranging from industrial subsidies to hacking. China has retaliated. The tit-for-tat tariffs have disrupted trade, hurt manufacturing, roiled international markets and slowed the global economy.

US officials are heading to Beijing next week for the first face-to-face talks since Trump and President Xi Jinping in December agreed to a 90-day truce in the trade war as they sought to strike a deal.

"I think we will make a deal with China," Trump told reporters at the White House after a meeting with Democratic and Republican lawmakers. "I really think they want to. I think they sort of have to."

Beijing on Friday cut bank reserve requirements for a fifth time this year amid slowing growth at home and punishing US tariffs on exports.

Official data this week showed manufacturing has slowed in both China and the United States. Trump, who last month called himself "Tariff Man", has said he wants a deal but that he would impose more tariffs if China failed to cede on key US demands.

Trump downplayed the effects of the economic woes on US technology giant Apple Inc., which this week blamed slowing iPhone sales in China behind a rare reduction in its quarterly sales forecast. 

When asked if he was concerned about Apple's share price, he said: "I'm not. I mean look, they've gone up a lot."

Shares of Apple closed at $148.26 apiece on Friday, down about 5.1 per cent this week. Apple shares fell 7 per cent in 2018 but are still up about 24 per cent since Trump took office in January 2017.

Apple's outlook revision along with a double-digit drop in earnings at commodities giant Cargill Inc. on Thursday may be among the clearest warning signs yet that the trade war's effects have begun to hit US companies.

Meeting

A team led by Deputy US Trade Representative (USTR) Jeffrey Gerrish will travel to China for talks, China's commerce ministry said in a statement on its website on Friday, news that helped boost global markets.

The USTR said separately that the delegation would also include undersecretaries from the US departments of agriculture, commerce, energy and treasury, as well as senior officials from those agencies and the White House.

While Trump and other officials have said talks between the two sides are progressing well, they have given no details on concessions that China has made. Some US demands would require structural reform that may be unpalatable for Chinese leaders.

China would deepen reform but will not yield on issues it deems to be its core national interests, a commentary in the ruling Communist Party's official newspaper said on Wednesday. 

"We know what sort of changes we need," White House Economic Adviser Larry Kudlow said in an interview with Fox Business on Friday. "Now, the question is can we negotiate these changes and can we do so with enforcement [and] with timetables."

A rare revenue warning from smartphone giant Apple triggered a new wave of selling in UK shares on Thursday as investors' fears of slowing global growth were confirmed though fashion retailer Next provided some post-festive cheer. 

Britain's FTSE 100 edged 0.5 per cent lower and FTSE 250 was down 0.1 by 10:13 GMT, outperforming European peers thanks to a strong Christmas update by Next which helped sentiment.

Trading volume for FTSE 100 remained low; just 13 per cent of the 90-day average daily turnover changed hands in the first two hours after the opening bell.

In a first in more than a decade, Apple on Wednesday cut its quarterly sales target with Chief Executive  Officer Tim Cook blaming weak iPhone sales in China and consumers upgrading their iPhones at a slower pace.

Investors reacted by dumping stocks sensitive to China, the world's second-largest economy, and to the economy and took refuge in gold, seen as a safe haven.

Concerns over economic growth in top metals consumer China sent Rio Tinto, BHP, Glencore and Antofagasta down 0.9 to 2.2 per cent in early deals but a six-month high in gold boosted miner Fresnillo 2.6 per cent higher. 

Luxury brand Burberry, sensitive to signs of slowing demand in China, lost 3.6 per cent to join the top fallers.

A bright spot helping keep a lid on negative sentiment was high street clothing retailer Next, which jumped 5.1 per cent on track for its best day in more than three months after reporting higher sales in the run-up to Christmas, allaying fears of poor festive trading. 

"November was indeed difficult for Next as well, but Christmas did arrive ultimately, with the last three weeks of December being very strong in sales terms," said Peel Hunt analysts, while Investec called it a respectable trading update.

Next's encouraging update also helped shares in Marks & Spencer, Tesco and Primark-owner Associated British Foods rise 2 to 2.4 per cent, among top blue-chip winners.

Prominent mid-cap retailers, including Superdry, Dunelm, also got a boost. AIM-listed ASOS was up 5.5 per cent, also boosted by Peel Hunt reinstating a "buy" rating on the online fashion store a month after its profit alert shook the global retail scene.

Still, investors continued to fret about the US-China trade spat, a slowdown in the global economy, Brexit uncertainties, plunging oil prices — to name a few.

Data showing growth in Britain's construction sector fell to a three-month low in December did little to help the mood, highlighting delays in commercial projects due to Brexit.

Bank and information technology shares were among the top drags on the mid-cap index, while low-cost airline Wizz Air climbed 2 per cent after reporting December traffic statistics.

Among small-caps, drugmaker Vectura soared 10.5 per cent to lead the gainers after a positive trading update and AIM-listed Faroe Petroleum rose 5 per cent after DNO's takeover offer became mandatory.

LONDON — Oil fell towards $53 a barrel on Wednesday, under pressure from rising output in major producers of the Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC producers and concerns about an economic slowdown that could weaken demand.

Russian production hit a post-Soviet record in 2018, figures showed on Wednesday. Other data showed US output reached a record in October and Iraq boosted oil exports in December.

Brent crude was 60 cents lower at $53.20 a barrel at 14:22 GMT. On December 26, it hit $49.93, the lowest since July 2017. US crude slipped 73 cents to $44.68.

"The omens are far from encouraging," said Stephen Brennock of oil broker PVM, citing rising non-OPEC supply and the likelihood of further increases in oil inventories.

"The current bearish bias will therefore continue in the near term and it stands to reason that oil will struggle to break out from its current trough," he said.

However, Nitesh Shah, director of research at WisdomTree, saw the prospect of a rebound for Brent because of an OPEC-led supply cut that starts this month and moderating US supply growth.

"We believe we will see an upward correction," he said. "Recent weakness in prices should slow the growth of US shale production."

Oil prices fell in 2018 for the first year since 2015 after buyers fled the market in the fourth quarter over growing worries about excess supply and the economic slowdown. 

Surging shale output has helped make the United States the world's biggest oil producer, ahead of Saudi Arabia and Russia. Oil production has been at or near record highs in all three countries.

US President Donald Trump celebrated the low prices. "Do you think it's just luck that gas prices are so low, and falling? Low gas prices are like another Tax Cut!" he wrote on his official Twitter account on Tuesday. 

Adding to concern about a slowing global economy, a series of purchasing managers' indexes for December mostly showed declines or slowing manufacturing activity across Asia, the main growth region for oil demand.

The signs of rising production illustrate the challenge facing the OPEC and its allies, including Russia, which are seeking to prop up the market with a supply cut of 1.2 million barrels per day.

However, the energy minister for the United Arab Emirates, an OPEC member, said on Tuesday he remained optimistic about achieving a market balance in the first quarter.

LONDON — World stock markets staggered on Monday towards the end of their worst year since the global financial crisis a decade ago, rocked by rising interest rates, the global trade war and Brexit, dealers said.

London and Paris wobbled in holiday-shortened trade on New Year's Eve — but nursed dizzying double-digit annual falls after an exceptionally volatile 2018.

Hong Kong rose on Monday after US President Donald Trump hailed "big progress" on resolving Washington's trade war with Beijing, but was down almost 14 per cent over the year.

Equities have been hammered in 2018 by tighter monetary policy — from both the US Federal Reserve and also the European Central Bank, which halted its quantitative easing stimulus policy this month.

"Global stocks are set for their worst year since the financial crisis, thanks to the tightening monetary policies adopted by several central banks around the globe — especially the Federal Reserve and the ECB", said ThinkMarkets analyst Naeem Aslam. 

"The Fed stopped printing easy money a few years back and increased interest rates four times this year.”

"The ECB also ended its quantitative easing programme and there has been discussion on... normalising interest rates."

The Bank of England, meanwhile, hiked British interest rates in August for the second time since the financial crisis to help tame inflation, despite worries that Brexit could wreak havoc on the economy.

'America First' 

Sentiment was also slammed by US President Donald Trump's 'America First' trade policy which has sparked a damaging trade war with China and others.

Wall Street did however mark the longest-ever "bull market" in August, a run that began amid extraordinary crisis-era monetary policy — but for which Trump has claimed credit after his tax cuts and regulatory rollbacks.

Yet, markets have since spiralled lower on slowing global growth, Italy's fiscal woes, a US government shutdown and Trump's attacks on the Fed.

Investors also ran for cover as the uncertain nature of Britain's looming exit from the European Union in March 2019 casts a long shadow.

"Stock markets have been on a wild ride this year and the United States has been at the centre," Oanda analyst Craig Erlam told AFP.

"Tax reforms hugely boosted earnings, bringing an economic boost with it," he said.

However, "the trade war with China and skirmishes elsewhere have weighed heavily on the relevant domestic markets which has dented investor sentiment".

Washington and Beijing imposed tit-for-tat tariffs on more than $300 billion worth of goods in total two-way trade earlier this year, locking them in a conflict that has begun to eat into profits and contributed to stock market plunges.

While investors remain concerned, relations have thawed since Chinese President Xi Jinping and Trump agreed to a 90-day trade truce in early December while the two sides work to ease trade tensions by March 1.

Chinese state news agency Xinhua quoted Xi as telling Trump both leaders want "stable progress".

In Europe, on Monday, London's benchmark FTSE 100 index dipped 0.1 per cent to finish at 6,728.13 points, marking a sharp annual loss of 12.5 per cent.

The Paris CAC 40 climbed 1.1 per cent to end at 4,730.69 points — which was drop of nearly 11 per cent for the year.

Many investors were away for Christmas and New Year holidays, while trading hubs including Frankfurt, Rome, Tokyo, Shanghai and Seoul were shut.

Return to recession? 

"2018 has been characterised by a shift from low volatility, high liquidity and expectations of equity out-performance to high volatility, low liquidity and the return of a bear market in equities," said VTB Capital economist Neil MacKinnon.

"For 2019, a global economic slowdown — perhaps recession — looks increasingly likely," he warned.

Key Asian markets also limped towards the end of the year in bear market territory — meaning that they are 20 per cent below their most recent peaks.

Tokyo's benchmark Nikkei index had rounded out 2018 on Friday with its first annual loss since 2011, and Shanghai became the worst-performing major global stock market, dropping by nearly a quarter.

NEW YORK — The Japanese yen jumped on Friday as investors sought protection against volatile stock moves, while the greenback dipped as stocks traded higher after a dramatic week capped by large price swings. 

The benchmark S&P 500 tested its 20-month low early in the week and was at the brink of bear market territory before the three main indexes roared back with their biggest daily surge in nearly a decade on Wednesday and a late rally on Thursday.

The yen gained despite higher stocks, soft domestic data and a decline in benchmark Japanese bond yields, which fell back into negative territory for the first time in more than a year.

"That suggests that there's still demand for some insurance against extended volatility over the holiday period that's keeping the yen better supported," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

The Japanese currency was last up 0.66 per cent against the greenback at 110.26 yen. Another safe-haven currency, the Swiss franc, also jumped 0.82 per cent to 0.9794. 

"Markets are a bit more cautious on risk appetite, with the Japanese yen and the Swiss franc gaining," said Lee Hardman, an FX strategist at MUFG in London.

The dollar index, a gauge of the greenback against a basket of six major currencies, fell 0.22 per cent to 96.265.

The US currency has been hurt in recent weeks by rising expectations that the Federal Reserve will pause its tightening cycle sooner than expected, or risk harming the US economy with further interest rate increases.

A partial shutdown of the US federal government, trade tensions between the United States and China and complications relating to Britain's exit from the European Union are also keeping investors cautious.

"There's still a lot of potential risk and uncertainty out there," said Osborne.

Both chambers of the US Congress convened for only a few minutes late on Thursday, but took no steps to end the partial federal government shutdown before adjourning until next week.

FRANKFURT AM MAIN — The euro turns 20 on Tuesday, marking two tumultuous decades that saw the single currency survive a make-or-break crisis and become a fixture in financial markets and Europeans' wallets.

But it is destined to remain a fragile giant without closer eurozone integration, observers say.

Born on January 1, 1999, the euro initially existed only as a virtual currency used in accounting and financial transactions.

It became a physical reality for Europeans three years later, and its coins and notes are now used by over 340 million people in 19 European Union countries.

The currency was not immediately loved, with many perceiving its arrival as an unwelcome price hike. In Germany, it was nicknamed the "teuro", a pun on the German word for expensive.

But the ease of travelling and doing business across borders in the euro area without having to worry about foreign exchange fluctuations quickly won hearts and minds.

Today the euro is more popular than ever despite the rise of eurosceptic, populist movements in a slew of countries.

In a November survey for the European Central Bank (ECB), 74 per cent of eurozone citizens said the euro had been good for the EU, while 64 per cent said it had been good for their nation.

"The euro is anchored in the population, even anti-establishment parties have had to acknowledge that," said Nicolas Veron, a fellow at the Bruegel think tank in Brussels and the Peterson Institute for International Economics in Washington.

The euro is now the world's number-two currency, although it remains some way off from challenging the dominance of the US dollar.

'Whatever it takes' 

The euro reached a defining moment when the aftershocks of the 2008 financial crisis triggered a eurozone debt crisis that culminated in bailouts of several countries, pushing the currency union to breaking point and severely testing the club's unity.

Experts say the turbulent time exposed the original flaws of the euro project, including the lack of fiscal solidarity through the pooling of debt, investments and therefore risks, or the lack of a lender of last resort.

The turmoil also highlighted the economic disparity between member states, particularly between the more fiscally prudent north and debt-laden southern nations.

ECB chief Mario Draghi was credited with saving the euro in 2012 when he uttered the now legendary words that the Frankfurt institution, in charge of eurozone monetary policy, would do "whatever it takes" to preserve the currency.

The ECB promised to buy up, if necessary, unlimited amounts of government bonds from debt-stricken countries. The scheme, known as outright monetary transactions, succeeded in calming the waters but has never actually been used.

To keep money flowing across the eurozone and ward off the threat of deflation, a crippling downward spiral of prices and economic activity, the ECB has still taken unprecedented action in recent years.

It has set interest rates at historic lows, offered cheap loans to banks and bought more than 2.6 trillion euros ($3.0 trillion) in government and corporate bonds between 2015 and 2018.

With inflation inching closer to the bank's goal of just under 2 per cent, the stimulus has been widely judged as a monetary policy success story.

But observers say the 19 single currency nations have not done enough to carry out the political reforms necessary to better arm the region for future downturns and achieve greater economic convergence.

 'Feet of bricks' 

The long-mooted banking union remains incomplete, amid disagreement over the creation of a Europe-wide deposit insurance scheme.

French President Emmanuel Macron's flagship proposal for a eurozone budget has been considerably watered down, with members in December agreeing only to exploring a scaled-down version of the idea while staying vague on details.

Macron's more ambitious plans for a eurozone finance minister or a European version of the International Monetary Fund have been pushed aside.

The ECB, meanwhile, has gone "as far as it can" in shoring up the euro, said Gilles Moec, a former French central bank economist. 

But analyst Vernon took a more upbeat view, saying the euro had been strengthened by the clean-up of banks' balance sheets, efforts to rein in public debt and the ECB's extraordinary actions.

The euro is now "a giant with feet of bricks rather than clay", he said.

TOKYO — It's a rite of spring in Japan: Major corporations hire fresh university graduates en masse every April, starting them all at the same salary with assurances of rising pay and lifetime employment.

But lately, some companies, including Rakuten, SoftBank and Line Corp., are breaking with that tradition, signing up new employees with coveted technical skills months earlier — and paying them more than other new recruits.

As competition for workers grows in Japan's shrinking labour pool, traditional seniority and group dynamics are giving ground to the more individualised, merit-based employment system found in the West.

It is a welcome sign for Prime Minister Shinzo Abe's government and the central bank, which have been pushing for a more flexible labour market that would boost wages and revive consumption.

Takashi Murakami, a 23-year-old producer at Mercari, which developed a popular flea market app, says seniority-based pay and lifetime employment are relics.

"I'm grateful that the company seems to value me with pretty good pay," he said. "I already got a pay hike after joining the company, which motivated me to work even harder. Merit-based pay is more fitting to the times."

In recent years, Mercari said, it has been hiring college students throughout the year to grab workers with needed skills. The company even offers jobs to some second-year or third-year students.

Mercari also has a programme called "Mergrads" to provide internships and training to improve new graduates' skills.

Since April, it has started offering higher pay to some job candidates with skills in information technology engineering and computer programming, said Ayano Okuda of Mercari, who is in charge of hiring new graduates. She declined to discuss the company's pay scale.

"The competition is surely heating up," she said. "We judge each individual's ability and offer them attractive salaries reflecting their skills." 

Mass hiring 

For decades, Japan's traditional spring hirings underpinned the economy and provided a clear corporate and social ladder, grounded in — and reinforcing — the cultural emphasis on loyalty and conformity.

Under Japan's often choreographed business practices, the Keidanren, the largest business lobby, had a "voluntary" timetable that many companies followed: Start recruiting new employees on March 1, begin job interviews with fourth-year students on June 1 and informally offer jobs on October 1 ­ six months before graduation.

Labour ministry data show the entry-level salary stands at about 200,000 yen ($1,775) a month, compared with roughly 30,000 yen in 1968, or 130,000 yen in today's money. 

Demand for workers is stronger now than it has been in decades; there are 1.62 jobs available per applicant, nearly a 44-year high.

In response, the Keidanren decided to ditch its timetable guidelines by spring 2021, meaning member companies are expected to follow them until then.

But more companies, particularly in "new economy" industries such as technology and e-commerce, have adopted much more flexible hiring practices, including offering select employees higher pay.

Disparity 

Internet advertising firm CyberAgent Inc. scrapped its uniform starting pay scale in April.

Now it offers annual starting salaries ranging from 4.5 million yen ($40,000) to 7.2 million yen ($64,000) or more for IT engineers, who account for about 40 per cent of its 5,000-person workforce. 

"We face stiff competition in securing able workers," said Yuko Ishida of CyberAgent.

That means some young, incoming employees are paid more than their older co-workers. CyberAgent pays exclusively based on ability without taking seniority into account, Ishida said.

"Our competitors are also offering better salaries for high-quality workers, so we believe we can attract able workers by offering appropriate salaries," she said.

Although some say Japan is long overdue for a shift toward a more flexible, merit-based employment system, it could upset long-standing social order.

"If it spreads throughout corporate Japan, it would mean a collapse of Japan's employment system," said Hisashi Yamada, a senior economist at Japan Research Institute and an expert on labour issues.

"That would cause a disparity among workers, causing uneven distribution of work and loss of motivation among those who feel left behind," he said.

TOKYO — Asian stock markets retreated again on Wednesday, extending a rout that began last week as US political uncertainty exacerbated worries over slowing global economic growth.

Investors were unnerved by the US federal government partial shutdown and President Donald Trump's hostile stance towards the Federal Reserve chairman. 

US Treasury Secretary Steven Mnuchin had also raised market concerns by convening a crisis group amid the pullback in stocks.

S&P 500 emini futures were last down 0.6 per cent, pointing towards a lower start for Wall Street when the US market reopens after Christmas Day, when many of the world's financial markets were shut.

Markets in Britain, Germany and France will remain closed on Wednesday.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5 per cent, brushing a two-month low.

The Shanghai Composite Index lost 0.4 per cent while South Korea's KOSPI shed 1.6 per cent.

Japan's Nikkei, which slumped 5 per cent the previous day, had a volatile session. It swerved in and out of the red, falling more than 1 per cent to a 20-month-low at one stage, before ending the day with a gain of 0.9 per cent. 

"In addition to concerns towards the US economy, the markets are now having to grapple with growing turmoil in the White House which has raised political risk ahead of the year-end," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

US stocks have dropped sharply in recent weeks on concerns over weaker economic growth. Trump has largely laid the blame for economic headwinds on the Fed, openly criticizing its chairman, Jerome Powell, whom he appointed.

That has further rattled investors as they grappled with fears of slowing global growth, corporate earnings and US -China trade tensions.

In an effort to reassure investors, Treasury Secretary Mnuchin spoke on Sunday with the heads of the six largest US banks, who confirmed they have enough liquidity to continue lending and that "the markets continue to function properly".

"In the end, we believe that the Fed is the only presence capable of ending the current confusion in the markets," Kenta Inoue, senior market economist at Mitsubishi UFJ Morgan Stanley Securities, said in a note.

"The White House will probably keep making gestures intended to halt the rout in stocks, but the federal government is likely to remain shut into the new year. The US-China trade war also shows no signs of a resolution."

US bond yields have declined amid the rout, including a steep sell-off in oil, prompted investors to move into safe-haven government debt, adding to the growing pressure on the dollar.

The dollar traded at 110.35 yen after retreating to a four-month low of 110.00 overnight against its Japanese peer, which tends to attract demand as a perceived safe-haven during times of market volatility and economic stress.

The euro was 0.15 per cent higher at $1.1412.

The 10-year US Treasury note yield extended its fall to touch 2.722 per cent, its lowest since early April.

In commodities, US crude futures were up 0.4 per cent at $42.70 per barrel after tumbling 6.7 per cent on Monday.

US crude futures plunged to the lowest level since June 2017 on Monday, as bearish stocks added to fears of an economic slowdown.

Brent crude futures were down 0.18 per cent at $50.38 a barrel, having skidded 6.2 per cent in the previous session to their weakest since August 2017.

Safe-haven gold was well bid, with spot prices brushing a six-month peak of $1,272.83 per ounce.

BERLIN/MADRID — Models testing fashion brands like Adidas, Benetton and Gap are finding that almost a third of the shoes and clothes they try on are bigger or smaller than the size on the label indicates, explaining why many clothes bought online are sent back.

Calculating sizes more accurately could help online retailers like Germany’s Zalando and Britain’s ASOS cut costly returns and improve customer satisfaction.

“If you try on the same brand in a different colour it is sometimes a different size,” Zalando fitting model Savina Bellotto said as she squeezed a foot into a stiletto shoe with a shiny silver buckle that dug into her ankle.

Discounting to shift stock means fashion retailers are struggling to preserve profit margins, and ASOS’s warning on Monday of a major downturn caused retail shares to tumble.

Targeting returns, fast fashion firms like Zara and H&M have introduced software that suggests sizes for online customers. Customers type in height and weight, which are processed alongside historic data on purchases and returns.

“It’s a big burden for the retailer,” said Nivindya Sharma, director of retail strategy at trend forecaster WGSN. “Free returns started off as being a competitive advantage but now they’re the norm.” 

Fast fashion 

Around half of Americans expect to return clothes ordered online this holiday season due to poor fit, according to a survey by technology firm BodyBlock.

“Returns cost you a fortune. Firstly, you’ve got an unhappy customer, but also you’ve got the re-processing and putting it back into stock,” said Charlotte Kula-Przezwanski, a partner at Columbus Consulting, which specialises in retail processes.

To crack the sizing problem, Zalando, Europe’s biggest online-only fashion retailer, told Reuters it was augmenting the data it gathers online with feedback from models who check new styles.

“If we can put an article on a fitting model, just before or as an article is online, we immediately know there is a fitting problem,” said Zalando’s Director of Engineering Stacia Carr, adding that models flag about 30 per cent of stock as too big or too small.

Returns are a major issue for Zalando as about half the products it sells are sent back. A tradition of catalogue shopping with free returns means customers in its German home market are comfortable sending back unwanted goods. 

Problems with processing returns contributed to a third-quarter loss that prompted a sell-off in Zalando shares and sparked speculation it could be a takeover target for Chinese e-commerce giants like Alibaba or JD.com.

Zalando co-CEO Rubin Ritter said in November the problems with processing returns had been resolved and the company was taking steps to increase the profitability of smaller orders such as making size recommendations to reduce returns.

A change in fabric or design can have a big impact, Carr said, noting that size-related returns soared recently for one major denim brand after it adjusted its design. When Zalando flagged the issue, it changed back.

“In this era of turning around articles very quickly, the corners that get cut sometimes impact the fit of the garment,” she said.

Zalando’s small team of models initially tested shoes, but now they try on clothes too. Dresses, its top selling category, also have the highest rate of returns.

Models try on up to 120 shoes a day, measuring the inside with a special ruler and noting how each fits at heel, ankle and toes, while also looking for strong smells or quality issues. 

“It is very subjective. That is why we get the average between three models,” said model Gerard Nieto, as he measured a fleece-lined leather lace-up boot.

Cracking the sizing challenge is like solving a Rubik’s cube, because there are so many variables, Carr said.

“We know the Nordics like things more loose and oversized. The further south you go, it’s a tighter fit, the bodies are different,” she said. “We’ve all been surprised that we’ve been able to put a dent in this because it is such a complex topic.”

A rise in returns is an inevitable part of the e-commerce boom, retailers say.

“There’s a growing trend in return rates globally as the market matures,” said Roger Graell, director of e-commerce at Spain’s Mango, which expects to make at least one-fifth of sales online by 2020.

“What we hope to do with technology is make that growth rate slower.”

Mango uses sizing tools powered by Berlin-based software firm Fit Analytics, which was launched eight years ago and works with more than 200 companies — including ASOS, Tommy Hilfiger, Calvin Klein and Hugo Boss — across 95 countries. 

Fit Analytics has more than doubled revenue every year over the past three years, says CEO Sebastian Schulze.

“Margins are under pressure across the industry, you have to make sure people buy several times otherwise you don’t make money,” said Schulze. 

“If the fit isn’t right, customers will walk.”