Infrastructure is the foundation of economic and social well-being anywhere in the world. Currently, all across the globe, there is a gap widening between infrastructure in place and what is truly needed. It is estimated by EY, a multinational professional services firm, that to close this gap by 2030 it will require upwards of $50 trillion U.S. dollars. It is now more important than ever to get this infrastructure procurement right through project financing and public-private partnerships (PPPs).
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The United States Federal Reserve’s recent rate hike after a decade has prompted fears of financial turmoil in emerging markets. This rate hike is significant to global markets because the strengthening of the U.S. dollar could cause trouble in countries where firms have borrowed heavily with American currency, and the weaker domestic currencies could make it more difficult to pay back the dollar debt. In 2015, investors have withdrawn $500 billion from emerging markets, and this new development could prompt a larger outflow in the coming months from emerging markets.
There are many risks associated with frontier markets, but there may be even more reward for investors. Compared to the popular emerging markets, frontier markets are even higher on the risk-reward scale. It is a smart move for investors now to make a move to invest some of what is already invested in emerging market into frontier markets, generating more diversification for their portfolio and to generate higher growth potential.
Across Nigeria, low cost goods imported from China are rampant, further providing evidence of Beijing’s growing dominance in global trade. While the trade flow from China has helped to keep life affordable for some Nigerian families in times of economic stagnation and plunging prices, low quality and counterfeit products are becoming a major problem within the country. For example, dozens of fires each year can be connected to electrical wiring, outlets, and power strips from China found in the homes and offices of Nigerian citizens. Not only are poor quality items posing safety risks, but they are also taking away employment opportunities from workers in Nigeria.
Over the past five years, the U.S. real estate market has been flooded with capital from Chinese investors who are eager for the opportunity to both earn high yields and move their cash outside the reach of the Chinese government. This real estate binge began when the crash of the U.S real estate market drew in thousands of Chinese investors looking to swoop up houses and commercial properties for highly reduced prices. The Chinese government limits individual's annual overseas investments to roughly $50,000; however, for years these laws have been circumvented by channeling money through friends, relatives, and employees. After the Chinese market crash in August, the government has cracked down on these laws, making it increasingly difficult to transfer capital outside the country. John Chang, a real estate broker with Re/Max in New York City described the current situation as being “like barbarians at the gate,” Chinese families want to buy, but “can’t get the money out.”
Over the duration of its rather short history, Bitcoin has gained popularity and economic clout but also its fair share of skeptics. The peer-to-peer lending system utilizes data mining, based on the idea that there is a finite number of bitcoins, and flaunts its decentralized network. Basically, there is a certain point in time when all existing bitcoins will be extracted and there is no single entity, like a central bank, that has the ability to generate more. This important distinction has led to its designation as a commodity by the Commodity Futures Trading Commission (CFTC) in the United States. Regardless of its status, the digital currency has been rallying for about two months now, thanks in part to acceptance by financial institutions like Morgan Stanley and Goldman Sachs. With a current buy price of about $400, the money system has a record $1 billion invested in it.
Ever since the 2008 financial crisis, emerging markets have received less investment from other countries. This is due to falling demand for the commodities that have traditionally powered these countries' exports. In addition to this, flows to emerging markets decreased even further in 2014 due to unease in the markets. Now it is looking even grimmer. By the end of 2015, capital inflows to emerging markets are projected to reach $548 billion, while emerging markets are only expected to have about $540 billion in outflows. These numbers are troubling, for if the gap between capital inflows and outflows continues to decrease, net capital flows to emerging markets may go negative for the first time in decades.
Private Equity and Africa are not often associated with one another. Most notable private equity firms stick to established and stable markets such as the U.S. & Europe, where there are ample opportunities to invest in mature and steady companies. However, times change, and this is apparent in Africa, where the opportunity to connect the continent like never before is drawing in unprecedented amounts of capital.
Although it’s been a long time coming and an even longer time expected, the Fed decided not to raise rates at the most recent FOMC meeting. This news comes as a bit of a disappointment to investors and economists, especially after the past week of downturn in American stock markets. However, it is the emerging markets that have experienced notable distress. Although some of the issues many of these nations face are chronic or fundamental inadequacies, the currencies have taken the hardest hit.
South Korea is in uncharted waters. Amid recent economic turmoil in Asia, South Korea has become a safe haven for foreign assets. Some have speculated that emerging market investors have gotten smarter, and therefore can identify countries within the space that are better long term investments. Another school of thought, however, is that South Korea has transcended from an emerging market to a fully developed nation, and therefore presents more security in the face of economic trouble.
As of late, most news related to emerging markets has been overwhelmingly negative. China’s economic growth rate is dropping, and Brazil and Russia are mired in economic recession. To make matters worse, the 19 largest emerging economies have seen an outflow of more than $900 billion in investor capital over a thirteen-month period ending in July. Despite all of the negativity surrounding emerging markets, there are indicators that suggest emerging economies will be just fine.
Earlier this summer, the Millennium Challenge Corporation (MCC) announced a $70 million commitment to bring in one billion dollars in public-private investments for developing countries. This plan will take place over the next five years, and the grant money given to Africa is expected to generate $750 million in investments from the private sector. The MCC is heavily investing in the continent’s energy sector, and the ultimate goal is to reduce poverty, increase economic growth, and attract more investors to countries such as Malawi, Benin, Lesotho, Liberia, Tanzania, Ghana, and Morocco. According to Kyeh Kim, the Deputy Vice-President of Compact Operations for the MCC, “these are countries that have a good track record in terms of good governance and democracy, have made strong efforts toward anti-corruption and are investing in their social sectors: education and health, as well as creating an enabling business environment through things like good fiscal policy, trade policy.”
For the first time in nearly 80 years, Mexico is holding an oil auction in which energy firms from all over the world will compete. Is this bid for oil going to hold lackluster results or is it the key for Mexico's energy reform? Petróleos Mexicanos, mononymously known as Pemex, virtually controls the entire nation’s oil industry. Nationalized in 1938, Pemex was designed to push out external parties like the U.K. and the U.S. following major labor disputes and their ostensible domination of the energy markets. Therefore, the auctions being held are a step, or leap, in the opposite direction. The bidding marks the first time ever that private oil companies are being allowed to set up in Mexico and that oil contracts are being sold off. For a country whose oil industry has been monopolized for 77 years, the auctioning offers a world of possibilities to both Mexico and its prospective investors. To be exact, the sell-off is estimated to draw in a revitalizing $62.5 billion for the Mexican economy.
The arctic ice shelves pose a difficult question to the world’s largest oil companies. According to the U.S. Geological Survey, they may contain the largest remaining untapped oil reserves on the planet, but accessing this oil requires large amounts of time and money. Factor in the recent oil crash and the increasingly uncertain outlook for the industry, and pursuing arctic oil becomes a gamble akin to a billion dollar toss up.
Now that the cutoff date to sign up for the Asian Infrastructure Investment Bank (AIIB) has come, there is a lot of talk about why some countries chose not to participate and also what the AIIB has to offer to its members and the world. The last two countries to seize the membership opportunities were Taiwan and Norway, just days before the deadline. The plans for the AIIB are to help finance construction of roads, ports, railways, and other infrastructure projects throughout Asia.
With the March 31st application deadline quickly approaching for countries interested in joining the Asian Infrastructure Investment Bank (AIIB), Australia is rethinking its prior decision not to apply. The investment bank, led by China, recently added the United Kingdom, France, Italy, and Germany as members, even though the United States has issued warnings about the bank. The decision by these four major European countries to join the bank against United States wishes has led Australia to reconsider its position on AIIB, and look to possibly invest up to $3 billion in the AIIB.
January was the first time in 6 months that the MSCI Emerging Markets Index outpaced the S&P 500 as it gained 0.6%. Investors sent $18 billion into emerging market stocks and bonds, after an outflow of $11 billion in December. Analysts note that low commodity prices allow for quick growth in these emerging economies. As emerging markets go through reforms in order to stabilize their currencies or stimulate growth in their economies, investors see this as an opportunity to obtain higher returns.
This past Monday, Standard & Poor’s Ratings Services downgraded Russia’s credit rating to BB+, also known as “junk”, for the first time in more than 10 years. This means that it is below investment grade, reflecting the country’s struggling financial position. The Russian economy has been thrown in a downward spiral because of intensifying pressure from sanctions from the United States and the European Union over the Ukraine crisis, and the steep decline in oil prices, an industry from which Russia derives much of its revenue from.
On a meeting in Berlin on Thursday, thirty wealthy nations pledged to donate $9.3 billion towards the Green Climate Fund, a sum dedicated toward reducing emissions and helping to protect developing and poorer nations from the stark effects of climate change. This is a little short of the $10 billion goal that was supposed to be reached, but it is a big step forward in investing to prepare help prepare for the effects of climate change. Environmental officials everywhere have highly praised the fund, and more countries are to offer donations by the end of the year.
India has recently seen an explosion in startups, becoming the third largest country in terms of startup companies. These can be attributed to the rapid economic growth and the large amount of available capital in the country. Also, with all of the rapid growth the country has been undergoing, mergers and acquisitions activity has increased as well. The country added around 650 startups last year and more than 800 this year to reach 3,100 startups in total. India’s government has undergone many changes as of late, and once these changes are fully implemented and supportive of business owners, the startup scene is projected to grow even more.
“Iran is the last, large, untapped emerging market in the world.” These were the words of Ramin Rabii, a chief executive of the top foreign investment company in Iran, following The 1st Europe-Iran Forum. At this forum hundreds of international investors met with Iranian business leaders, and also heard from speakers such as the United Kingdom’s former foreign secretary Jack Straw.
Regulations and guidelines involving international business have recently changed in Thailand. The Thai Department of Employment issued new guidelines for trade and investment related activities which streamline business activities in the region. These changes will make it easier for business travel to happen within the country and potentially increase the amount of international business that takes place with companies located in Thailand.
Leaders from almost 50 African countries and the United States met in Washington DC on Monday, kicking off a three day conference that hopes to boost trade between the US and the largely untapped African continent. The summit highlights the realization by many US officials that greater attention needs to be paid to African countries who hold great economic potential. Leaders at the summit expect many trade and business deals to be signed during the three day conference, with some estimating that over $1 billion worth of deals will be announced by Wednesday. With these deals in hand, US African trade relationships could increase greatly in the coming years.
Recent tremors in emerging markets have investors worried about whether or not their money is in the right place. There is a riskier alternative for investors, that being investment in frontier markets. Frontier markets are markets that are neither developed nor emerging, and with this definition, frontier markets include twenty-three of the twenty-five fastest-growing economies over the last ten years. However, most of these countries do not have stock markets nor are they listed in the MSCI frontier market index, and this is due to the countries' stocks being unable to meet size qualifications and accessibility standards.
Technology has shaped our world in almost every way possible. Interaction with it is not only common on a day to day basis, but it is also required to get things accomplished. This simple fact has led to amazing feats and incredible efficiency, but there are also externalities. Technology can be good or bad depending on how it is used and how it is viewed. This is what lies at the core of high frequency trading.
High frequency trading is a relatively new development. Essentially, it is a collection of massive computing power that takes in stock market trading information in order to buy stocks before large orders can be fully processed. This is possible because of thirteen stock exchanging platforms. If a company, mutual fund, hedge fund, etc. places an order for a large block of shares, those shares must be found on the stock exchanges. When this information hits the first stock exchange, it is picked up by high frequency trading computers that quickly go out and purchase that very stock and then sell it to the purchasing institution at a higher price. All of this takes place in milliseconds.
The FBI has launched an investigation into this type of activity to test its legality. Basically what these high frequency trading computers are doing is front running stocks. Seeing orders in the pipeline and having computers that are faster by only milliseconds allows them to make slight profits on trades of others. Repeated millions of times a day, this quickly adds up. The investigation is a question of whether this constitutes insider trading and thus securities fraud. In order to be considered insider trading, the FBI must find evidence that this information is sufficiently out of the public's reach. When dealing with such quick time intervals, this portion may prove extremely difficult. The other finding that could lead to securities fraud is if the FBI can prove that some of these exchanges, especially the slower ones, simply serve as a way for traders to make money without actually serving a true purpose for trading fairly. Again, a difficult task.
The grayness of this issue is the same as many technological problems confronted today; the world’s technology is advancing so fast that laws and legal structures cannot keep up. Because there is no definitive authoritative texts on this matter, it will be tough to legally challenge this practice. The impact this has on the markets of the world is immense and the answers, as of right now, seem to be few.
For the first time in China’s history, a Chinese company defaulted on its bond payments, signaling a change in the country’s economic policy. Shanghai Chaori Solar Energy Science and Technology, a company that produces solar panels, could not make its interest payments on a one billion yuan bond, and defaulted after the Chinese government refused to bail the firm out. This is a stark change from previous actions by China, which has always bailed out onshore companies that were on the verge of defaulting. This decision to allow Chaori to default shows China’s commitment to a more open economy, in which investors cannot fall back on the government to bailout bad business decisions.
Just how much does it cost to host an Olympics? The 2014 Winter Olympics in Sochi, Russia are more expensive than every other Winter Olympics combined. The cost is projected to be around $51 billion, which is ten million dollars more than the 2012 Summer Olympics in Beijing, China. This money goes towards construction, transportation, hospitality, security, lodging and more. For events like the Olympics, it is starting to look like a waste of money for all of the over-extravagant, luxurious decorations and celebrations that take place. It has become less about the athletics, and more about which country can make their Olympics look the best to the world. A country like Russia has a lot larger problems that it should allocate $51 billion to, especially if they are trying to clear up their image.
In January, mergers and acquisitions (M&A) volume in terms of number of deals made in the Asian-Pacific region rose 60% from a year earlier. Volume in dollar terms more than tripled to about $25 billion. This drastic surge has been fueled primarily by Chinese and Japanese companies. In contrast, M&A activity in Southeast Asia has been falling as of late, as the region only accounted for 13% of Asia’s M&A activity this January – down from 18% a year ago.
After a 4 day meeting in Beijing, party leaders agreed to make changes to the infamous one-child policy in China. This previous policy allowed one child to be born into each family unless both parents were only children, in which case they may have another child. Additionally, couples in rural areas were allowed to have a second child provided that their first was a girl. Although theoretically this law was implemented to combat poverty by decreasing the total amount of births, the result instead was a long-term imbalance of genders and a capped labor force. Consequently, the Chinese government has altered the policy to ensure continual manufacturing growth in the coming years.
Within the next two decades, Brazil is expected to triple oil production and move from the 12th top oil producer to the 6th according to the 2013 World Energy Outlook Report generated by the International Energy Agency (IEA). The predicted success of Brazil’s energy industry can be attributed to the auctioning of the Libra oil field which holds 8 to 12 billion barrels of recoverable oil. With a supply of oil this substantial, the world’s crude oil demand could be fulfilled for up to 9 weeks alone by Libra.
While the European economic crisis appears to be gradually resolving, the International Monetary Fund (IMF) is insistent that the improvement being observed is not actual. Although the deficits of struggling economies such as Greece, Portugal, Ireland, and Spain are contracting, this is due to a collapse in imports as a result of the recession, not an increase of trade exports. The IMF has also taken note of lowering labor costs, but attributes the decreases to mass unemployment rather than pay cuts for workers. Consequently, even though economic indicators are showing signs of improvement, these events could be causing an even larger cyclical downtown for Europe. Since European banks have allowed large amounts of loans to be taken out, they too are unable to invest in businesses which might support infrastructural growth. As a result of this, the United Kingdom in particular is seeking help from international business partners to mitigate the issue.
As of late, the Philippines have experienced robust economic growth coupled with low inflation. These positive economic indicators, among other factors, have led Moody’s Investor Services to give the country an investment-grade rating. An economic growth rate of 5.2% in 2006 has continued to climb and currently is at 7.6%- a rate that is consistent with the fastest growing countries in the region and high-growth emerging markets around the world.
For the first time since last October, the Japanese economy has reported figures that do not include deflationary prices. Japan's core consumer price index, which includes energy but not volatile fresh food prices, rose 0.2 percent in May from April's recording of a 0.6 percent annual decline in prices. The Bank of Japan's fight against deflation, which has persisted for 15 years and caused the Japanese economy to fall behind China as the world's third largest economy, has set their sights on reaching a 2% inflation rate within the next two years. Prime Minister Shinzo Abe has also made fighting deflation one of his top priorities since taking office 6 months ago, which he claims has been the source of waning profits, wages, and consumption.
Until now, China has never shown much interest in Middle Eastern investment. If it is able to establish a relationship with the Middle East, it can take advantage of arguably one of the most volatile areas in the world. In an area where westerners have long feared to go, China seems very interested in the diplomacy, economics, soft power and security. Upon helping in the war in the Middle East, China has begun to fully immerse themselves in the Middle East in an effort to increase their involvement in the area.
Often times, raising capital is a stumbling point for entrepreneurs starting a business. Sometimes personal funds just aren’t enough and venture capital can be tough to come by. Because of this, entrepreneurs often turn to angel investors. Angel investors are generally similar in practice; that is, most of them look for specific traits in the founder and business model that indicate whether the new firm has the potential to be successful.
Despite looming budget cuts that sequestration has promised for the United States, investors seem unconcerned, considering the record-breaking levels the Dow reached just last week. With help from the Chairman of the Federal Reserve, Ben Bernanke, propping up the market, the Dow reached 14,286.37 last Tuesday to break the previous record of 14,198.10 from October of 2007. Although this is exciting news for investors and publicly traded companies, there are several concerns resounding with this new, record-breaking high.
In a move that always stirs controversy and can enflame international relations President Evo Morales, of Bolivia, has moved to nationalize the energy sector by overtaking the largely Spanish owned company, Electropaz. President Morales has accused the Iberdrola, the company based in Spain that owns the majority of Electropaz, of charging artificially high prices to residents in rural areas of the country. Morales argues that under the constitution this move is permissible by acting in the public’s interest.
The European Union is pushing back the implementation of the global banking reforms, which were supposed to take place on January 1st. It has been delayed at least six months, with talks that it may get pushed back even further. Basel III is the name of the reform plan, and it is a global response to the financial crisis from 2007-2009. Basel III is a critical step to protect large institutions against future financial shocks. Until the European Union can agree on the plan, the delay holds a risk of throwing off the recovery process. However, if the regulations in Basel III are too harsh, it could risk cutting economic growth and an increase in unemployment.
Falling interest rates worldwide and a more stable Africa have together created a perfect storm for debt investment in Africa. Globally, central banks are driving down interest rates and because of this; investors seeking higher yields are investing their money elsewhere. Countries like Zambia, Nigeria, Ivory Coast, Senegal, and Namibia have begun issuing global bonds and investors around the world are quickly buying up these debt securities. Many African countries are finally reaching the point of political and economic stability that is necessary to attract foreign investment.
Without government involvement, Indonesia is experiencing good times with one of the highest economic growth rates in the world. Needless to say, things could have been even better if the government provided assistance to help the economy and take Southeast Asia’s largest economy to a whole new level. It has been estimated that if Indonesia made certain changes to its economy, each citizen would be more than forty percent wealthier by 2030. Also by this time, if it has the right reforms and remains on this path, it would be the world’s sixth largest economy. The main areas of renovation would be the outdated infrastructure along with the increase in bureaucrats.
Way back in 2001, Jim O’Neil coined the term “the BRIC countries.” These countries were to be the building blocks of the “post-American world.” Businessmen and investors flocked to these locations to see what the future held.
Fast forward to 11 years later and the story is a very different one. Uncertainty now resonates throughout the BRIC (BRICS if you want to include South Africa) countries due to an increasingly slow growth rate, coupled with widespread corruption, political failure and currency woes. This paints a familiar picture to some who witnessed the former “American Killers” such as Europe (1960), Japan (1970) and the Asian Tigers (1990) unable to sustain steady growth during those times.
Over the past five years, Singapore has revamped its central business district. Marina Bay, located in Southern Singapore, is now home to a unique blend of entertainment and business. As regional headquarter buildings for companies like Google and Citigroup were being built, so too was a $5 billion Sands casino-resort that seemed a bit out of the ordinary for the typically conservative country. Nonetheless, the casino and revamped business district are attracting both domestic and foreign investment and so far “Singapore’s new skyline” has experienced huge success.
Dubai was always seen as the future and had unimaginable developments throughout the emirate. After tough economic times Dubai had temporarily stopped many of its large glamorous projects. Why is it then that Nigeria has invested US$52.2 million into the emirate’s property market in the first six months of this year? Without ever stepping out of Dubai airport Central Bank of Nigeria official, Osita Nwanisobi, was convinced to buy a flat in Dubai. He believes Dubai is a guaranteed return on investment and sees it as a world center.
This past week, ratings agency Standards & Poor’s warned India that it risks a sovereign debt downgrade which would result in the country falling off the list of an investment grade country. Currently, India is rated at the lowest investment grade rating – BBB. Falling below this level would mean that India bonds would be considered junk bonds. Much of the blame is assigned to the Prime Minister, notes S&P, pointing out specific problems with the political system “that has more gridlock than the United States,” coupled with high inflation and a falling currency and GDP.
In China, the domestic economy is struggling just like the rest of the world with slow sales and declining construction. The cost of labor has also increased drastically, with wage rates increasing upwards of 15% in some cases, year over year. Compared to May of last year though, exports have increased 15.3 percent, twice as fast as economists had predicted. How are Chinese companies finding success when Europe is in a debt crisis and the United States is still recovering from rampant unemployment though? Easy – exporting and automation.
U.S. billionaire investor Sheldon Adelson has plans to open a £17 billion hotel and casino resort in Spain. The resort, being called “EuroVegas", would contain 12 hotels, six casinos, a concert hall, several theaters, and golf courses. It would be about half the size of the Las Vegas Strip in the United States. If plans for the resort follow through, it would be a huge stimulus to the Spanish economy.
There has been a debate going on for many years, the true value of investing in frontier markets. The results of investing in frontier markets seem inherently leveraged when compared to the results of investing in the more steady paced developed markets. While people with safety as the forefront of their current investment philosophy may not have any desire to invest in these markets, the intelligent investor with the time and knowledge to invest for the long run can benefit greatly from investing in the frontier. I believe that right now is a good time to put money down for the long run in these growing markets.
With all of the talk about how frontier markets are growing so rapidly and returning investors very handsomely, it can be easy to forget about the negative side of these markets. When people hear that they can make a 159% return on their money in 12 months (as Sri Lanka is estimated to do according to Thompson Reuters: Frontier Markets), they tend to overlook the risks that must be taken in order to invest in such a country. This blog post is here to gently remind readers why frontier markets are not yet a standard investing destination yet, and why they are considered a step below emerging markets.
Although many people would not expect it, the eighth largest economy in the world is gradually remaking itself into the silicon valley of the rainforest and the next hot venture capital market. This is being fueled by a predicted growth rate of 7.1% and expectations to continue this tear through the end of the decade. It also sports 1.7 million IT professionals, 123 national institutes of science and 400 technology incubators throughout the country. There is also a great political environment where the government and private companies are currently spending 1% of GDP on developing high-tech industries such as aerospace, agribusiness, information technology, business-process outsourcing, semiconductors and telecommunications.
Investors have their checkbooks ready and are catching up on their Portuguese.
South African President Jacob Zuma has recently visited India in a bid to strengthen bilateral trade and investment between the two countries. Both are developing nations and are very interested in attracting investment from each other. India and South Africa are thirsting for more business from companies in both countries. India is specifically looking towards bigger investments in infrastructure and a chance to tap into South Africa's rich natural resources.
Last week, the Government of Sierra Leone, together with the Department for International Development, the World Bank and the United Nations got together for an investment conference in London, showcasing the opportunities for doing business in Sierra Leone. Over 500 ruputable companies and 1,000 participants were in attendance.
China has just recently launched its brand new Growth Enterprise Market, a Nasdaq-style stock market that has been over 10 years in the making. Twenty eight small- and medium-sized companies will be debuting on the Gem as it is called, made to attract financing of new high growth industries. These industries include software companies, pharmaceutical firms and creative industries. But investing in these companies will be risky business, since there will less than 30 companies to begin with.
While more developed countries have been faced with huge financial problems and equities have advanced just under 50% this year, markets in developing countries such as China and India are trading at 52-week highs. Furthermore, emerging markets account for about 50% of world GDP. It seems likely that they will be the source of global growth over the next few years, seeing that developed countries are spending resources in reducing debt and rebuilding banking systems.
Solutions to this economic mess may seem to necessitate complex plans, but a deceptively simple old visa program is starting to garner growing attention as a means to lift especially troubled areas of the U.S. out of their economic woes.
It works like this: immigrants invest $500,000 in a new or struggling business via an approved regional center, get green cards for their families, don't have to manage day-to-day issues with the businesses, and get to pull their money out after 2 years if they pass an audit. Sounds good?