We have reached the second anniversary of the Great Unwinding of policymaker stimulus. Almost inevitably, this now seems likely to be followed by a Great Reckoning, a consequence of the policy mistakes made in response to the 2008 financial crisis.
The Great Unwinding began with China’s decision to move away from the stimulus policies adopted by the previous leadership. Since then, those who expected stimulus to return have been disappointed. The leader of the Populist faction in the Politburo, Premier Li Keqiang, has attempted to manoeuvre in this direction several times, most notably with last year’s failed stock market rally. But in the end, strategy has continued to be set by President Xi Jinping and his Princeling faction, who has consistently focused on the need for structural reform with his New Normal economic programme. Read more
As political jostling continues about the future of Europe, it is important to remember that there are six countries in the Western Balkans that have firmly tied their colours to the European mast.
Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro and Serbia are all actively working towards the ultimate goal of EU membership. All six have a formal contractual arrangement with the EU through Stabilisation and Association Agreements which are all now in force.
The European Bank for Reconstruction and Development (EBRD), an international financial institution that sees cross-border integration as one of its priorities, fully supports this goal. For the countries of the Western Balkans, EU approximation does not just mean reform and investment. It also represents a vision of lasting peace and prosperity – goals that the EU itself has achieved for its member countries. Read more
After months of speculation, the race to become the next UN Secretary-General has reached the point at which support for the official contenders is being tested where it really counts. Two rounds of straw balloting, in which countries are invited to “encourage” or “discourage” the candidacy of each nominee, have already been held by the Security Council. Another is scheduled for next week. Perhaps surprisingly, at a time when the UN is under pressure to appoint its first woman head and recognise the principle of regional rotation by giving priority to candidates from eastern Europe, the apparent frontrunner is neither a woman nor from eastern Europe. He is Antonio Guterres, the former prime minister of Portugal who completed his second term as UN High Commissioner for Refugees last year. Read more
By Chandran Nair, Global Institute for Tomorrow
At a recent World Economic Forum in Kuala Lumpur, the opening panel was invited to debate one of the leitmotifs of our age – the way in which technology and digital disruption are reshaping destinies in the Southeast Asian region.
Guided by the anchor of a global media channel, the panelists dutifully paid homage to this new religion and its scriptures. There were no questions about what the region’s biggest challenges are, how we got here in the first place, no questioning of the mindless activities that have sprung from the internet, no alternatives that did not involve “the cloud”.
The only worry about the future they discussed was the threat of cybercrime. They did not ask how many passwords are we going to need to protect our bank accounts and our data from the rewarding world of cybercrime, nor how children could be protected from the effects of on-demand pornography, nor who will buy the things made by robots when there are no more jobs to speak of. Read more
By Dorthe Fredsgaard Nielsen, GAM
This year began with a rather pessimistic macroeconomic backdrop for emerging market (EM) countries, influenced mainly by deflating of the global commodity bubble, China’s seemingly endless malaise and growing geopolitical risks.
From a micro-economic perspective, the picture was just as bleak. Since the end of the financial crisis, EM corporates had been increasing their debt loads to fund future growth in anticipation of continued strong pricing power and high growth rates. However, both pricing power and profitability were lower than expected, leaving many companies, particularly in the mining and energy sectors, highly leveraged.
This is now stabilising. Balance sheets of EM corporates look much healthier than those of their US counterparts and the strength differential is likely to increase further as US companies continue to add to their debt (figure 1). Read more
A century from now, will students of world history agree that the norms of 20th Century global finance were turned on their head early in the 21st Century?
The most obvious evidence of this is in bond markets, where some 30 per cent of the global issuance of sovereign bonds have negative yields. The bond markets of most of the eurozone, Denmark, Sweden and Japan are in negative territory. Indeed the entire Swiss bond market is now underwater. Read more
A hundred years from now, will students learning 21st Century history be taught that the Brexit vote – which saw an already sceptical Britain decidedly turn its back on the dream of a United States of Europe – was a watershed event, part of the West at large turning its back on its 200 year-long role of being the global economy’s star player, exiting that stage and leaving it to new actors from the emerging Rest?
And will those students of tomorrow also learn that, irony of ironies, Britain, the original architect of the liberal democratic capitalist house, having ruled the waves of free-flowing global trade and capital for much the 18th and 19th Centuries before amicably passing the baton onto the US in the 20th, then became the first major Western nation to waive those rules in the 21st? Read more
At a July 20 news conference announcing charges that a group – allegedly linked to Malaysian Prime Minister Najib Razak – had siphoned approximately $1bn from Malaysia’s sovereign wealth fund, deputy FBI director Andrew McCabe said that “the Malaysian people were defrauded on an enormous scale.” Mr Najib has repeatedly denied any wrongdoing.
In the coming months we will learn more about the lavish and colourful ways in which the alleged perpetrators of this massive heist spent that money. But, if this latest example of illicit global financial flows follows a familiar pattern, we will hear little about the painful and unaddressed tragedy of the very people Mr McCabe cites. Indeed, when such cases are resolved, too often the recovered assets are merely transferred back to the control of the government of a source country. That usually means the people who lost out – the real victims – are unlikely to see any benefit. Read more
Robert F Kennedy once said that a country’s GDP measures “everything except that which makes life worthwhile”.
Understanding how people feel or do not feel included in the benefits of economic growth is now more important than ever. Across the globe, citizens are taking action to articulate a feeling of disconnectedness from globalisation and capitalism. Turning growth into gains in well-being matters. Read more
Oil market volatility has reached near-record levels in the first half of this year, as the first chart shows. It has averaged nearly 10 per cent a week, and over the past quarter-century its three-month average has only been higher during the Gulf War and the subprime crash. Yet there have been no major supply disruptions or financial shocks to justify such a dramatic increase. Instead, July’s report from the International Energy Agency reminds us that:
“OECD commercial inventories built by 13.5 mb in May to end the month at a record 3 074 mb. Preliminary information for June suggests that OECD stocks added a further 0.9 mb while floating storage has continued to build, reaching its highest level since 2009.” Read more
If a week is a long time in politics, how does one gauge the tumultuous days in Westminster following the Brexit vote?
The unprecedented sequence of events in the wake of the EU referendum has culminated in mass resignations followed by leadership battles at Britain’s two main political parties. This, coupled with the extraordinary electoral contest unfurling across the Atlantic, has bred a greater sense of economic and political uncertainty in Europe and the US than many can remember.
For those of us at Actis, with a legacy of over 70 years of investing exclusively in emerging markets, the post-Brexit, pre-Trump landscape of the developed world makes us wonder whether our growth markets should now be regarded as a relatively safe haven for investors’ capital. Read more
Smart investors are recognising that China intends to lead the US and other countries in the race to develop green technologies as part of its ambitious new strategy for economic growth.
China’s 13th Five-Year Plan, for the period from 2016 to 2020, is guided by five principles: innovation, coordination, greening, opening up and sharing. When Zhang Gaoli, vice-premier, described these principles this year to a group of overseas business and academic leaders at the China Development Forum, he spent longest on ‘greening’, providing a clear indication of the importance being placed on green development for China’s future growth. Read more
Emerging equity markets have cumulatively underperformed developed equity markets by 70 per cent over the past six years. Most investors are now underweight EM equities as a result. But, based on the record number of queries we are receiving from institutional investors, it appears that large asset owners around the world are looking to rebuild these positions. We encourage investors to maintain a strategic allocation to the asset class.
It’s possible that emerging markets are finally poised to outperform: growth opportunities are superior and valuations less demanding. More importantly, we believe that EM is amongst the richest of all equity markets in alpha opportunities, or the potential to generate excess return. Read more
On my way to the second morning of the 2016 Global Entrepreneurship Summit (GES), I took an Uber. Originally from Bolivia, my driver had fully embraced the Silicon Valley ethos — even its extraordinary “valley-centricity.” My evidence: as we were discussing Facebook founder Mark Zuckerberg, who was scheduled to speak the next day at GES, he looked into the rearview mirror and earnestly asked, “Can you imagine that Facebook was started so far away, like in Massachusetts, right?”
My surprise at his amusing myopia was only magnified later that day by comments from a venture capitalist in the Valley, who seemed summarily — and surprisingly — to dismiss social entrepreneurship as “meaningless” in a public session. When discussing social entrepreneurship, he said that it conjured images of “investing a million dollars to build a well in the Congo,” which, he argued, “could never be sustainable.” Read more
A few comments on Brexit from a British/EM perspective:
First, on the idea that somehow Brexit can be avoided. Frankly, I just don’t buy that. It was made crystal clear that this was an in-out decision, and we all voted on that assumption. It is patronising to the electorate to think we can change the rules because the majority voted the wrong way, at least in some peoples’ view. Read more
What once seemed impossible happened in Paris last December, when 195 nations agreed on a framework for maintaining the level of global warming at or below 2° Celsius. In Paris, CEOs from industries as far ranging as cement, transportation, energy and consumer goods manufacturing announced their own climate commitments to decrease their carbon footprints, adopt renewable energy and improve natural resource management.
Keeping the world on a low-carbon path, however, will not come cheap and is counted in the trillions of dollars. Just for having in place low-carbon, climate resilient infrastructure, an estimated $93tn in cumulative investments is needed globally from 2015 to 2030. Read more
By Dimitris Tsitsiragos, International Finance Corporation
Climate change is not just an environmental challenge— it is a fundamental threat to development in our lifetime. Without immediate action targeted at emissions reductions by the international community, climate change could result in an additional 100m people living in extreme poverty by 2030 and reverse many of the development gains of the last decade. A 2007 United Nations study projected adaptation finance needs for developing countries would start at $28bn annually by 2030.
The costs for this cannot be borne by the public sector alone. There is a key role for the private sector, including the financial industry, to play in the struggle for a greener future. In fact, the private sector is the largest source of climate finance, devoting $243bn in 2014 to climate-related investments, according to the Climate Policy Initiative’s Global Landscape of Climate Finance 2015. Read more
By Felipe Calderón, Global Commission on the Economy and Climate
Over the next fifteen years, the world needs to invest more in new infrastructure and upgrades than everything that exists today. This means we have a crucial window of opportunity to build it right, reflecting the new international priorities of the Sustainable Development Goals and the Paris Climate Agreement.
If we continue on our current high-carbon economic model, the world will need to invest more than $90tn in infrastructure. But it won’t cost much more to build our energy, transport, water, and telecommunications systems in a low-carbon way. Making our infrastructure cleaner and more sustainable could add as little as 5 per cent to upfront costs, which could be fully offset by lower operating costs. It would also make our economy cleaner, more efficient, and more productive. Plus, it would reduce the enormous costs of adapting to climate change. Read more
Matthew Blake, World Economic Forum and Gloria M. Grandolini, World Bank
Maria owns a tiendita, a small local shop on a side of the road in Medellin, Colombia, where she sells various items, including local soft drinks. But some potential customers are unable to buy anything at this tiendita — Maria’s shop is a cash-only operation. This scenario is not unique to this store: it demonstrates the omnipresent role cash has across the globe.
We estimate that in 2015, global cash and cheque payments among micro, small, and medium-sized retailers (MSMRs) stood at $19tn, compared to total payments to MSMRs – including those from various types of card – of $34tn. The majority of these cash transactions happen in emerging markets.
This first estimate of the size of the cash-based economy reveals the prevalence of cash in the global economy and suggests the size of the opportunity for electronic payments, which include swiping a card or tapping a smartphone. To put $19tn into context, it is larger than the GDP of the United States. Read more
The European, regional and global economic and political spillovers from the Middle East-Africa refugee crisis continue to defy lasting solutions, particularly in financing the absorption and resettlement of displaced millions where immediate costs reach billions of dollars.
The main UN refugee agency was chronically underfunded before the outbreak of the Syrian civil war and the Islamic State menace, which have caused additional lost output of $35bn in frontline countries according to development agency estimates. Read more