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Prices of prime properties around the world are falling

The Economist - Thu, 03/07/2019 - 15:49

ONE BLACKFRIARS soars into the sky from the south bank of the River Thames, announcing its presence to central London. The new 50-storey tower contains 274 luxury flats that range in value from a merely expensive £1m ($1.3m) to an eye-watering £15m. Thanks to its distinctive midriff the building has been nicknamed “The Tummy” by Robert Shiller, who won a Nobel economics prize for his work on spotting asset bubbles. The name might also apply to London’s bloated housing market. Prices have nearly doubled since 2009.

It is not only in London that property values bulged in the decade after a housing bust that nearly took down the world’s financial system: prices are near new highs in many places, according to The Economist’s latest roundup of global housing markets (see chart). In five of the world’s most desirable cities—Hong Kong, London, New York, Sydney and Vancouver—home prices climbed steadily for several years after 2009.

Now,...

National development banks are back in vogue

The Economist - Thu, 03/07/2019 - 15:49

TONY OKPANACHI could be a dealmaker in the City of London or on Wall Street. Smart tie, winning smile, he recounts his 28-year career as a high-flying financier, from his MBA to his last private-sector job as an executive at Ecobank, a pan-African lender. He says profits are important and dismisses handouts to small businesses as “government largesse”. Yet appearances can deceive. “I’m an economist by training, and a commercial banker by profession,” he says. “Now I’m a development banker.”

Mr Okpanachi is the boss of Development Bank of Nigeria (DBN), a wholesale lender to small firms that started operating in 2017. His institution is part of a proliferation of national development banks (NDBs) worldwide. Kevin Gallagher, of Boston University, and Rogerio Studart, of the Federal University of Rio de Janeiro, believe there are more than 250, with total assets of $4.9trn, four times those of multilateral peers. Poor countries account for over three-quarters of the tally, but NDBs are also popular in the rich world. France and Canada have recently opened three between them. Myanmar and Ghana are rolling out new ones. Britain unusually, has no NDB—but some politicians want one.

NDBs are a unique species. Generally state-owned, they lend in pursuit of missions set out by the government. They cater to those often neglected...

China’s trading day is starting to influence global markets

The Economist - Thu, 03/07/2019 - 15:49

IN HIS BOOK “The Death of Gentlemanly Capitalism”, Philip Augar described a shift in the culture of London’s financial industry during the 1980s and 1990s. The old City of public-school amateurism, late starts, early finishes and long, boozy lunches disappeared. In its place, a new City emerged under the sway of American investment banks. The morning meeting started two hours earlier. Lunch was a sandwich at your desk. And instead of port and cigars, try mineral water.

It was time to sober up, too, because America’s influence on the London market went well beyond the acquisition by its banks of a few old-school stockbrokers. America was home to much of the world’s capital. As more buying and selling of assets took place across borders and time zones, the New York trading day set the tone for markets everywhere else. A City broker had to be at his desk, and with his wits about him, when the New York market opened just after lunchtime in London.

The global trading day still only truly begins when New York clears its throat. Markets in the rest of the world then take note of what has been said. But listen closely, and you hear the beginnings of a dialogue. China has barely opened its capital markets to foreign investors and the yuan is still a managed currency. Yet its say in how global markets rise and fall is already...

The London Stock Exchange is thriving despite Brexit

The Economist - Thu, 03/07/2019 - 15:49

WHEN LSE Group, the parent company of the London Stock Exchange, Europe’s largest, released its 2018 annual results on March 1st, there was an elephant on the trading floor. During the hour-long earnings call, LSE’s boss, David Schwimmer, mentioned Brexit just eight times. Six of those occasions came after slide 28.

Mr Schwimmer need not have been so cautious. Britain may be in political turmoil and banks may be shifting jobs and assets out of London, but Brexit is doing little to perturb LSE. Last year the group’s revenue grew by 8% and its operating profit by 15%. Its share price is up by 22% since December. LSE did announce 250 job cuts, 5% of its staff, but after 27 acquisitions and investments in the past decade, it has some tidying to do. It retains five different offices in New York, for example.

In theory, Brexit chaos could harm the exchange, either because investors shun British companies or because they are too nervous to trade at all. Yet last year they traded more, as they swapped racier holdings for more defensive stocks. Opportunistic buyers also jumped in. Because the LSE collects a fee on every transaction, volatility has meant more money coming in.

More important, it has diversified away from cyclical activities since the financial crisis of 2007-08. Trading now accounts for a mere fifth of...

More banks are caught up in money-laundering scandals

The Economist - Thu, 03/07/2019 - 15:49

THE MONEY-LAUNDERING scandal that struck Danske Bank last year was staggering. The Danish lender’s Estonian branch is suspected of handling up to $230bn of iffy funds from former Soviet states. Aftershocks are rumbling under other European banks. Shares in Austria’s Raiffeisen Bank International tumbled by more than 12% on March 5th after a complaint was filed accusing it (and, to a lesser extent, other Austrian banks) of “gross negligence or acquiescence” in connection with suspicious flows from Danske. Raiffeisen says it is investigating.

Raiffeisen is just the latest bank to be suspected of channelling dirty money from Europe’s eastern fringes. Helsinki-based Nordea and Sweden’s Swedbank are among those embroiled in the Danske affair. Swedbank’s share price has shed 18% since it was linked to Danske last month (see chart). Some banks have been stained by a separate scheme, the “Troika Laundromat”. European banks caught up in such allegations have lost €20bn ($22.6bn) or so in stockmarket value in the past six months.

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China’s economy might be nearly a seventh smaller than reported

The Economist - Thu, 03/07/2019 - 10:33

FOR A COUNTRY that is regularly accused of manipulating its statistics, China is remarkably diligent about collecting them. The government has dispatched two million boffins to visit companies, stores and even street stalls in the first few months of this year, as part of a new national economic census. Ads plastered on billboards implore people to co-operate. In a flashy promotional video on its website, the national statistics bureau warns that any fabrication of data is against the law.

But these laudable efforts do not appear to be solving the basic problems with Chinese statistics. A new paper, by Chang-Tai Hsieh of the University of Chicago and three co-authors from the Chinese University of Hong Kong, finds that industrial output and investment have been consistently embellished. As a result, they argue that China overstated real GDP growth by two percentage points on average every year from 2008 to 2016 (see chart). Over time that adds up: official figures for 2016 would have exaggerated the size of the economy by 16%, or more than $1.5trn.

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