globalEDGE Blog - By Author: Sachin Diraviam

China has gained a valuable foothold in the nuclear energy industry as Britain’s new Prime Minister has given the green light for a power plant to be built in Hinkley, England. The project is worth a reported $24 billion and has many people worried about the economic ramifications of allowing China and France to fund this large scale project on English soil. “In response, the U.K. has set out new restrictions on the project's builders, saying the companies would not be able to sell their stakes in the plant without prior approval from the government. Going forward, the British government will take a stake in all nuclear power projects, giving it control over a change of ownership.” (CNN) The restrictions that the UK has put on this project eases the fears of many, but some still are worried over the consequences of this act.

This Monday, Puerto Rico defaulted on a $422 Million dollar debt payment, a significant development as the island faces an impending economic crisis. As stated by Heather Long in CNN Money, “Puerto Rico, a tropical paradise in economic purgatory, faces a $70 billion debt bill it knows it cannot pay, a staggering 45% poverty rate and a shrinking population as citizens flee to the mainland.” This quote shows what kind of state the island is currently in and its outlook for the future does not look any better. Governor Alejandro Garcia Padilla says that they are facing a “humanitarian crisis”, and he claims that he is prioritizing the basic needs of his people over what the territory owes to banks. 

Many of the world’s poorest countries have been struggling as of late in terms of growth. This is due largely in part to a strong dollar, which makes it harder for other countries to pay back the U.S. “Many impoverished country governments are being hit by the fall in prices for the commodities they export, and large depreciations of currencies against the dollar,” said Tim Jones, economist at the Jubilee Debt Campaign. This means many of the countries who rely on exporting world commodities are being hurt in multiple ways recently. This is because both the strong dollar and the dropping prices of these commodities are driving their development budgets into the ground. An example of this is in Sierra Leone, where the price of iron ore dipping as well as the Ebola breakout have hampered the country’s ability to develop. The World Bank will be dealing with an increase in loan requests due to the fall of commodity prices as well.

In 2015, India took over the title of the fastest growing economy from China. This is partly due to China’s slowest growth year in a quarter of a century. Even with the fast rising economy, India is a still a nation filled with poverty. Tim Worstall from Forbes stated that “Poverty is, after all, simply a lack of both stuff to consume and the wherewithal to purchase such, and economic growth is defined as more stuff and the incomes to purchase such. Thus economic growth is, by definition, the solution to poverty.” This is great news for the politicians as well as the people, as it shows a solution to a problem that has long plagued the sub-continent. The rupee, India’s currency, has been on a down swing lately, as value has stayed relatively low given the economic gains. This, however, may also be beneficial as it makes exports cheaper for foreign consumers, which leads to a greater volume of exports and thus a boost in GDP. 

Auto maker giant, General Motors, recently announced its fourth quarter earnings. After a record year, GM reported net income of $6.3 billion in the last quarter of 2015. This was caused by consumers buying less gas efficient models, as gas in United States has continued to stay very low at around $2 a gallon. Sales in North America rose 8.6% in the final quarter and 14% in China. This could have a great impact heading into 2016, where consumers were initially predicted to go more into electric vehicles and more gas efficient models. If the current trend stays true, then the first quarter of 2016 could spike as well. In Europe, the company continues to struggle as they are still in the negative in the difficult continent. However, GM's CFO has stated “Breaking even in Europe in 2016 is a companywide focus and we’re confident that we’re going to achieve that,” leading many to view GM's prospects in the region optimistically.

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.

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.

As of October 29, 2015, China has abolished the one child policy that had been in place since 1979. Couples will now be allowed two children under the new policy. China originally started the policy due to “fears that an exploding population would slow economic growth.” This change in policy has huge economic implications due to the prospective increase in population in the world’s most heavily populated country. Mead Johnson Nutrition (MJN) saw its shares increase 4% on Thursday since the announcement, in part due to MJN being one of the leading sellers of baby formula in China. More children means that companies that make goods tailored towards a younger clientele will see their profits increase in China.

The European Court of Justice declared the 2000 “Safe Harbor” agreement between the United States and the European Union invalid on October 6. This is important because the agreement allowed U.S. tech firms to transfer large amounts of data from European users to American servers. The lawsuit first came to light when Max Schrems, an Austrian law student, noticed that “Facebook transfers his personal data to the U.S., where it can be accessed by authorities with little respect for his privacy.” Many companies such as Facebook, Google, Amazon, and Twitter are left in a sort of “legal limbo”, as described by The New York Times. This essentially means that large tech companies, like those aforementioned, can no longer transfer such data to the United States.

The world electric car market could get a shake up soon as Porsche unveiled a concept for a four door electric sports car known as the Mission E. This so called “Tesla Killer” won’t hit the streets until at least 2019, but it puts a statement out there that other companies have put a target on Tesla’s back. This is all part of Porsche’s parent company, Volkswagen (VLKAY), push to have a greater presence in the electric car market. The impact this could have the global economy could be huge as the United States is the world’s largest purchaser of hybrid/electric vehicles in 2015, with the Tesla Model S near the top of the list. Tesla is an American company so the impact that a prominent foreign electric car manufacturer could be huge as Porsche claims their car will charge faster and last longer than the current Model S. All hope isn’t lost for Tesla as they still have at least four to five years to improve their current battery technology to compete the Mission E.