globalEDGE Blog Archive December 2015

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 In 2015, investors have withdrawn $500 billion from emerging markets, and this new development could prompt a larger outflow in the coming months from emerging markets.

In 2015, the NASDAQ is up 6.1%; thanks to its tech heavy nature, with companies like Netflix, Google, and Amazon traded on the exchange. “Some of the big Nasdaq names—Amazon, Google and Netflix—those stocks have powered the market forward this year,” said Robert Pavlik, chief market strategist at Boston Private Wealth LLC. He also added, “People were looking for growth in a very low-growth economy.” This plays a predictive part for 2016 when the population will be looking for the next fast rising stock by making them focus on the tech base stocks over other ones. In 2015 alone, Netflix has increased its share price by 140%. This rapid increase is the effect of Netflix being present in the daily lives of millions of users and its gained popularity over the last twelve months.

Relations between Russia and Turkey have been strained ever since a Russian Sukhoi Su-24M bomber was downed by a Turkish F-16 fighter jet over the border between Turkey and Syria in late November. Turkey claimed the shooting was done because the bomber was violating Turkish airspace. Turkey also made a statement professing their awareness of the presence of Russian warplanes in the Syrian area, leading Russia to believe that the strike was a premeditated attack. In retaliation, Vladimir Putin signed a series of economic sanctions against Ankara on November 28. Now, Russia is discussing passing additional sanctions against Turkey.

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.

In recent years, the pharmaceutical industry has been faced with the message of “do more with less.” Companies in the industry are used to arguing with insurers over the coverage of a particular drug, searching for cures for seemingly untreatable diseases, or facing public backlash from the high prices of currently sold drugs. Overall, this underlying message is not expected to go away in 2016, and significant challenges are predicted ahead.

Since the first automobile was developed, we have been making tremendous steps towards improvement. The insertion of a braking system, turn signals, air bags, radios, automatic windows, cruise control, and parking assistance are a few of the major developments over the years. We have made advancements so that the driver is assisted at their highest level of convenience. We have not, however, thought about taking the driver out of the equation altogether. Nearly 1.3 million people are killed on the world’s roads every year. People are texting, talking on the phone, reprimanding their kids, spilling coffee, and reaching for fallen items, just to name a few. Distracted people are operating 1.3 ton vehicles. People are the problem and driverless vehicles may be the solution. 

Alibaba Group Holding Company is a Chinese e-commerce corporation that works to connect online businesses and marketplaces all over the world. The company is the largest e-commerce operation in China and has made its founder and chairman, Jack Ma, his country's richest man. Alibaba has often drawn comparisons to Amazon due to each company's respective dominance in local and global markets. A big part of Amazon's success has been due to its expansion from online retail services, and Alibaba now appears to be following a similar route. 

Alas! After months of waiting and a volatile year in the global markets, the Federal Reserve announced Wednesday that it will be increasing rates from close to zero to between 0.25% and 0.5%. This is the first interest rate rise in almost a decade, and the effects of the increase will spark volatility in domestic markets as well as international markets. The rate hike is meant to signal economic strength in the United States by showing that the economy is strong enough to handle larger borrowing costs. Janet Yellen, the Federal Reserve chair, explained that further rate hikes will be “gradual” in an effort not to slow economic recovery.

For the first time in 15 years, the International Monetary Fund (IMF) has changed the structure of the special drawing rights (SDR) basket and has announced the Chinese yuan to be a new official foreign reserve asset. This change not only acknowledges China's monetary reforms, but also accelerates the yuan’s internationalization. This blog will explain the challenges and benefits that China is facing with respect to the inclusion of its currency in the SDR basket.

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.

The Celtic Tiger is roaring again. After an economic downturn in 2008, Ireland was in dire straits. It was more often associated with the failing economies in Southern European countries than its peers in Northern Europe. In 2015, however, these troubles seem to be a relic of the distant past. Ireland’s GDP has grown at an astounding 7% through this point in 2015, while most of Western Europe is marred in low growth in the 0 to 2 percent growth range. This positive trend in the Irish economy has been spurred mainly by investment from overseas, particularly U.S. pharmaceutical and tech companies.  A skilled workforce, and a minimal corporate tax rate of 12.5% has led many of these U.S. corporations to set up their base European operations in Ireland. Companies such as Pfizer, Apple, Facebook, and Google have built up major operations in Ireland’s main cities. Some major US companies have even completed mergers or acquisitions to execute a tax inversion, and move their base of operations for tax purposes to Ireland. Not only are these countries creating jobs and bringing in tax income to help the public financing of Ireland, but they are helping to offset all of the negative aspects that were dragging down the Irish economy.

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 last month, India has been making quite a few changes to its foreign investment policy with a goal of facilitating more money coming into the country. So far, India has eased local-sourcing requirements for international businesses setting up shop in the country, lifted foreign investment restrictions in a multitude of industries, and has publicized a series of other measures meant to invite investment from overseas.

Earlier this year, we wrote about how the Brazilian e-commerce industry was growing rapidly despite a troubling economic state. This is due in part to the growth of an online payment system called EBANX. Partnered with local banks, this system allows Brazilians to make online purchases from international vendors. More than 60% of Brazilian citizens lack access to an international credit card, and before EBANX, this segment was unable to purchase from international e-commerce sites at all.

Brazil’s economy shrank 1.7% between July and September, marking the third straight period of economic contraction. As Brazil’s economy has slipped further into recession, it has led to the downfall of its surrounding nations’ economies. Being the largest economy in Latin America, the slowdown could be detrimental to its neighboring nations’ economic growth.

Since American shale oil has joined the oil industry, oil prices have plummeted. Brent crude oil is down more than 60% since last summer, pricing at under $43 a barrel. American light crude oil is trading at the lowest prices in 10 years at under $40 a barrel. Predictions from Goldman Sachs suggest that prices could fall even further. The main concern driving this price drop is supply and demand imbalances--there is too much oil being produced and not enough customers purchasing it all.

Have you had the chance to check out the latest segments from the globalEDGE Business Beat? These brief audio segments feature conversations between globalEDGE Director Tomas Hult and prominent members of the international business community. The most recent segments feature the following topics: the appeal of Brazil as a market, the 2030 Agenda for Sustainable Development put forth by the United Nations Foundation Advocacy, the business climate in Greece, the viability of franchising, the driving forces behind entrepreneurship, and the importance of measuring customer satisfaction.

China, Africa’s 50-year trading partner, just announced a $60 billion funding support for development in Africa at the recent China-Africa Cooperation Forum. This strategic funding plan aims to not only assist Africa in improving its poor infrastructures, but also maintaining the long-time trade relationship between Africa and China.

With the holiday season on the near horizon, it’s crunch time for people across the globe to find the best deals on presents, especially those that aren’t usually affected by seasonal sales. This past weekend and subsequent “Cyber Monday” marks the annual event of the consumer discretionary sector marking down retail goods, offering exceptional savings for a very limited time. Generally, a jolt in sales due to Black Friday is expected to be a harbinger of a relatively healthier Q4 earnings report, especially if previous periods had stagnant growth or lackluster earnings. The holiday shopping season is vital to the fiscal success of many retailers and yet historically, sales during this time of year don’t follow any particular pattern or have any distinctly profound impact on overall economic trends. But for many, Black Friday is a time of year that can make or break a company’s financial statements.

From November 30 to December 11, leaders and negotiators from 195 countries are meeting in Paris to reach a deal on global carbon emissions and rising global temperatures. The meeting is officially known as the United Nations Paris Climate Change Conference and the 21st session of the Conference of the Parties, or COP21 for short. The Conference of the Parties is an annual U.N.-supervised global meeting that has taken place since 1995 and is dedicated to reducing the effects of climate change. COP21 is one of the largest conferences organized yet, meeting with the goal of creating the first legally binding global climate agreement. Past climate change agreements, including the Kyoto Protocol and the Copenhagen Accord, either focused mainly on curbing carbon emissions or introduced measures that did not reach unanimous global approval. The nations meeting in COP21 aim to change this with a new agreement.

On December 1st, the SPDR S&P 500 Fossil Fuel Free ETF (SPYX) will be launched as the greener version of the SDPR S&P 500 ETF Trust (SPY). This shows an overall global trend to investing in lowering our carbon footprint. This trend could have huge implications as the world shifts to less fossil fuel based industries because it could spell trouble for companies that rely heavily on the non-renewable energy business. The new ETF (Exchange Traded Fund) breaks up the S&P 500 of companies that own fossil fuel reserves. “While that's far from totally cleaning up an index that includes several carbon-emitting companies in different industries—namely, transportation—it does remove Big Oil, one of the largest offenders.” This statement made from Bloomberg Business also shows how important this could be, as it could set off a chain of events that cause more companies to invest more heavily in renewable energy, as well as cutting off companies who are huge in the oil business.