Over many years, China has gained acclaim as the world’s manufacturing powerhouse. But today, innovation is flourishing in the world’s most populous nation, which is rapidly becoming a trendsetter with the potential to disrupt business models globally.
On a recent research trip to China, we were struck by the huge enthusiasm for locally developed smartphones and the entrepreneurial spirit sweeping the country. Indeed, the number of patents filed by Chinese residents has surged in recent years, both locally and abroad, to exceed the world’s largest developed economies. Read more
The ever ingenious Chinese financial system has developed a new kind of shadow bank – insurance companies.
China’s $586bn stimulus package in 2009 caused a flurry of lending through the country’s financial arteries. Some of this money ended up leaking out of the banks into unofficial channels, including the country’s state banks and the giant provincially-owned pseudo banks called Trust Companies. By the end of 2014, these off-balance sheet loans accounted for 18 per cent of all financing, up from less than 2 per cent a decade earlier. Read more
It seems to be getting harder and harder to find a news story about the Middle East and North Africa (MENA) that doesn’t fall within the narrow narrative of disorder and political violence. From state collapse in Libya and the tragic conflict in Syria to the geopolitical flashpoint in Yemen, the headlines from the broader region make for bleak reading indeed.
These challenges are real and they are significant, but there is another story about the region that remains under-reported. It is a story of dynamism and entrepreneurship, and it’s one of how private capital is playing a critical role in creating new realities for the region and its people. Read more
How worried should you be when the US Federal Reserve goes ahead with its first interest rate hike? After all, following years of close to zero policy rates and three rounds of quantitative easing, this will be a significant change in policy.
Financial markets do not appear too concerned. One could even say that they are being complacent. Nevertheless, the usual commentators are once again stating that Fed hikes will bring the end of the world and of emerging markets.
So who is right, the complacent markets or the doomsayers? We think neither. Read more
A lot has been made of the IMF’s recent warning that potential growth has fallen dramatically in emerging markets (EMs). Many have correctly pointed out that potential output is expected to fall from to a yearly average of 5.2 per cent in the 2015-20 period while developed markets (DMs) are expected to see potential growth increase to 1.6 per cent. This has, in turn, caused renewed cries of concern about emerging economies. It is, however, possible to draw a dramatically different conclusion using the same data set. The IMF predicts that the growth differential between EMs and DMs will be higher in the 2015-20 period than it was in 2001-07, a period when EMs were very much in favour. Read more
With a decision due next year, the process of choosing the next United Nations Secretary General is already under way against a background of tectonic international change. The incumbent, Ban Ki-moon, was appointed in 2006 when the world was still very much in the midst of a “unipolar moment”. The US may have been bogged down in Iraq, but the desire and capacity of the Bush administration to project power on a global scale was beyond doubt. The context in which Ban’s successor takes office will be very different. It will be one still grappling to come to terms with the aftermath of a global economic crisis and a reordering of world power that has accelerated the rise of China and other developing nations, weakened the eurozone, forced the US to retrench and encouraged Russian to challenge the post-Cold War settlement with force. Read more
The increased tensions between Russia and the west, the continuing problems in the global economy and the rising threat from extremism have rightly caused concern in capitals around the world. The crisis of confidence in international relations has further weakened the abilities of all states to deal with modern challenges and threats. Viewed from Kazakhstan and Central Asia, however, these shadows over our collective hopes seem even more menacing.
Ukraine is a country with which we have deep historical and personal ties. The continuing conflict there has had a deep impact on us and the wider region. We have responded by working tirelessly to help settle the Ukrainian crisis. The Minsk agreements have created conditions for a long-term solution. Read more
Saudi Arabia is making all the headlines at the moment. Firstly, it convinced the OPEC oil cartel to maintain production levels at its November 2014 meeting, helping to trigger the oil price crash. It has also overseen the smooth accession of King Salman after King Abdullah’s death in January, and intervened in the conflict in Yemen during the last month.
Last week, Saudi Arabia announced it is pressing ahead with plans to open up the stock market directly to foreigners, giving a precise date of 15 June, ahead of its original deadline of the end of June. The final ‘rules’ will be published on 4 May, giving foreign investors a few weeks to get organised. Read more
As the Chinese economy posts its slowest growth in six years, major reforms to China’s state-owned enterprises are now in the final planning stages. The Xi Jinping administration has pledged to overhaul and consolidate the state-owned economy to tackle widespread inefficiency and corruption.
A wave of mega-mergers among state-owned firms has already been announced in railways, nuclear power and other industries. Consolidation may be easier politically than market reforms, but it’s not the right way forward. China’s crown jewel firms don’t need to be bigger; they need to be better. Read more
One year on since new trade mark laws took effect in China and there is little evidence to show it is becoming any easier for global brands to enforce their rights in the country. The new laws and practices were intended to make it easier to enforce trade mark rights and provide greater levels of transparency and accountability surrounding intellectual property (IP) infringement.
It’s easy to understand why an increasing number of western companies are looking to take advantage of the Chinese market as e-commerce sales have recently rocketed, outpacing the US. However, some companies are still finding it difficult to protect their brands in China. Read more
The first whispers of worry about a Chinese property bubble surfaced in late 2009. Since then, the local real estate market has quickened and slowed in line with government measures to stoke or cool the market, but has never crashed. Nonetheless, some market watchers insist that the Chinese property bubble will burst one day. Recent sector weakness has given them further ammunition, as has the near collapse of Kaisa, a mid-sized Shenzhen-based developer.
Until December 2014, Kaisa’s finances were perceived to be strong and sales were rising. Now its survival is at the mercy of lenders and rivals. Its woes started when the government halted some of its Shenzhen projects in December without giving a reason. The chairman abruptly resigned, while debts to banks and bondholders have gone unpaid and the firm is in the process of being acquired by its competitor. It has yet to reach a consensual solution with its creditors. Read more
I have just returned from abroad. It felt like déjà vu from a distant past. Explaining Brazil has become complex again. “I read about corruption accusations, popular protests, deficits and crises; what is happening in Brazil?” I was asked by an important investor. The answer inevitably tends to be long and full of Buts and Ifs.
Nevertheless, I will make an effort to summarize it here in a straightforward way. Brazil did not invest enough during the favorable commodity cycle. Policymakers did not recognize the end of the cycle in time. When they did, they tried to go back to a past that no longer existed. Now, Brazil must adjust everything at once to avoid a worse crisis. But markets are dynamic: with the recent depreciation of the real, there are already investors looking for opportunities. That is the reason Brazilian assets rebounded lately. Read more
Academics and market practitioners often agree that, in the long run, a country’s equity market tends to reflect its broader macroeconomic conditions. When Zimbabwe formally dollarised its economy in 2009, the economy and the stock market soared. Between 2009 and 2012 real GDP growth averaged 10.5 per cent a year; in like fashion, the equity market went up by an annual average of 13 per cent.
The euphoria quickly wore off as Zimbabwe’s poor macroeconomic conditions became apparent. Read more
As finance ministers gather this week in Washington DC they cannot but agree and commit to fighting extreme poverty. All of us must rejoice in the fact that over the past 15 years, the world has reportedly already “halved the number of poor people living on the planet”.
But none of us really knows it for sure. It could be less, it could be more. In fact, for every crucial issue related to human development, whether it is poverty, inequality, employment, environment or urbanization, there is a seminal crisis at the heart of global decision making – the crisis of poor data. Read more
After a lull of several weeks, an upsurge of fighting near Donetsk is once again threatening Ukraine’s fragile ceasefire. A resumption of the Russian-backed offensive had been widely expected to follow last weekend’s Orthodox Easter celebrations, although Vladimir Putin’s precise intentions remain unclear. Is this the next phase of a slow-motion land grab, with Mariupol possibly the next target, or is it just a means of ratcheting up the pressure in an effort to force new concessions? Either way, Ukraine is going to need a lot more international support to weather the crisis. Read more
Vladimir Putin, Russia’s president, likes to say that Russians and Ukrainians are one people. Such views are reminiscent of the Tsarist Russian Empire and negate Ukraine’s recognition as a separate nation in the Soviet Union, whose collapse he laments as the “major geopolitical disaster” of the past century. Moscow, indeed, views the Ukrainian state as at best a legend or fantasy.
Yet Russians and Ukrainians hold widely divergent attitudes to their Soviet past. Nearly half of Russians believe the “sacrifices” (mass murder) made under Soviet leader Joseph Stalin were justified by rapid economic growth. Nearly 40 per cent of Russians view Stalin positively, according the a poll by the Levada Centre. Read more
Geo-economics was defined by its intellectual godfather, Edward Luttwak, as a contest defined by the grammar of commerce but the logic of war. Today, one of the most pernicious tools in this global contest is the evolving role of government in a market economy. It was one thing to fight the battle of communism v. capitalism. It is quite another to fail to recognize today’s competition is increasingly over the rules, norms and tools of state involvement in capitalism itself.
For decades, the US led global economic order largely advocated the position that the economic role of government should be limited. Ideally, governments should set the ground rules for investment and commerce via just laws and regulations and enforce them fairly both domestically and internationally. Beyond that, let the free market rule. Read more
As revelations about cyber-attacks launched against the US last autumn show, Russia is engaged in a relentless intelligence war against the west. Other targets of Russian cyber-warfare have included Germany, Estonia, Romania, Ukraine and Georgia. As James Clapper, the US director of National Intelligence, recently told the US Senate, the Russian threat is “more severe than we have previously assessed”. The ability of Russian hackers to successfully access the State Department and White House computer networks should serve as a wake-up call. The US and its Nato allies must respond by developing a more effective tool kit for dealing with this threat. Read more
Whatever the result of Argentina’s presidential election later this year, the country will be in a different place a year from now with a new and more pragmatic government running the country. All the main contenders for president in the next government have similar ‘four pronged’ approach to address Argentina’s economic problems. Investors should look through this election ‘noise’ and towards the new government’s coming macro-economic reforms which we believe will usher in a new Argentina.
The era of Cristina Fernández de Kirchner, president, is set to be remembered as a strange epoch that began with default and ended with default. The Kirchners oversaw the restoration of order in Argentina after the chaos that accompanied the 2001 default, but then became bogged down by unnecessary confrontations and economic mismanagement. Read more