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Green asset classes are proliferating

Thu, 11/29/2018 - 15:47

IF THE WORLD is to tackle global warming, vast amounts of money—$3.5trn annually from now until 2050, according to the International Energy Agency, a forecaster—will have to flow into clean-energy research and generation. Capital will have to shift from carbon-intensive industries into clean ones. That means asset managers will have to offer more green investment products, and regulators will have to set standards that enable investors to make green choices.

Much has already been done. In a decade green-tinged assets under management have grown from almost nothing to a small but significant share of the total. In America, where scepticism about climate change is common, climate is the most frequently used “ESG” (environmental, social and governance) criterion among asset managers, reckons US SIF, an industry group. As of this year, $3trn of the $46.6trn in professionally managed American assets take climate issues into account—more...

Bitcoin has lost most of its value this year

Thu, 11/29/2018 - 15:47

ON DECEMBER 17TH 2017 the price of bitcoin on CoinMarketCap, a cryptocurrency exchange, neared $20,000. True believers hoped that was just the beginning. One analyst at a Danish investment bank predicted bitcoin could be worth $100,000 by the end of 2018. The year is not yet over. But as The Economist went to press, bitcoin’s price was $4,223, and trending downwards (see chart). Where bitcoin goes, other cryptocurrencies follow. Ether, the second-most popular cryptocurrency, is down from $1,432 in January to $120 today.

All this marks the deflating of the third cryptocurrency bubble (the others were in 2011 and 2013). The trigger is unclear. Explaining the movements of deep, liquid markets is tricky at the best of times. Cryptocurrency markets are neither. One popular theory is that the the supply of brave buyers willing to take a punt has now been exhausted.

Regulatory interest may be another reason. Cryptocurrencies have long been a...

The person who is doing most to undermine the Reserve Bank of India

Thu, 11/22/2018 - 15:53

SOMETIME IN THE 1990s Jagdish Bhagwati, one of India’s most distinguished economists, encountered Swaminathan Gurumurthy, a financial commentator associated with the Rashtriya Swayamsevak Sangh (RSS), a Hindu-nationalist organisation. Mr Gurumurthy was making the case that globalisation, brought in by well-connected financiers, was destroying India. Mr Bhagwati came to a caustic conclusion. If RSS ideologues like Mr Gurumurthy were economists, then Mr Bhagwati was a “Bharatnatyam dancer”, he said (referring to a traditional dance from Tamil Nadu performed by women).

Over 20 years later, Mr Gurumurthy’s beliefs have changed little. But today he is one of the most influential members of the board of the Reserve Bank of India (RBI), the country’s central bank, to which he was appointed by the government in August. He has led demands that the RBI loosen restrictions on India’s rickety state-run banks and hand more of its reserves to the government. Other than Narendra Modi, the...

Treaty-shopping is about to get more expensive

Thu, 11/22/2018 - 15:53

Treasure island

MBIZA, A BUSINESS that grows berries in Zambia and South Africa, and Niel Finance and Services, which owns the Central African Republic’s largest mobile firm, would seem to have little in common. But both have headquarters in Mauritius, an island of 1.2m people 2,000km off the mainland. The country, which tops the World Bank’s “ease of doing business” ranking for sub-Saharan Africa, has a robust legal system and amenities that make it an attractive place to set up shop. Perhaps a bigger draw, though, is a 15% corporate-tax rate, falling to as little as 3% on foreign income.

Mauritius also boasts an extensive tax-treaty network with many sub-Saharan African countries. It has ratified 15 since 1992; only South Africa arranged more over the period. Twelve more are in the works. Double-taxation treaties (DTTs) specify the rate applied by source countries on cross-border income, such as...

For Europe’s stockmarkets to recover, bank shares need to rally

Thu, 11/22/2018 - 15:53

NOT SO LONG ago, a stockbroker trying to interest an American fund manager in European shares would be met with an eye-roll. But sentiment is fickle and attitudes change. These days the likely response is a hard stare. Over the years in which stockmarket returns in America pulled ahead of everywhere else, any residual feelings for old-world shares had slowly turned to indifference and then curdled into something like hatred.

For what is there to like? The Euro Stoxx 50 index of euro-zone shares is lower than it was 20 years ago. Earnings forecasts have been steadily cut this year. Political risk—from Brexit to Italy’s budget stand-off with the European Union—is never far away and, seemingly, never resolved. “Call me when it’s over,” is the refrain of many American investors. Do not get them started on Europe’s structural defects: its ageing populations, scarcity of world-class digital firms and fragmented markets.

The category of stocks that captures the prevailing euro-misery best is banks. They have everything that makes investing in Europe such a wretched experience. In a dispiriting year for European markets, the shares of banks and financial firms have been among the worst-performing. Even after the selling, they are a fifth of the MSCIpan-European index. The gloom is now so deep that it would take just a few rays...

British regulators mull the future of audit

Thu, 11/22/2018 - 15:53

AUDITS EXIST to shore up trust in financial statements. Investors look to professionals to tell them whether companies’ managers are squandering their money. What happens when trust in auditors evaporates? Britain provides an illustration.

The country has seen a spate of high-profile company failures in the past year, most notably that of Carillion, a construction firm with many public-sector contracts. Angry lawmakers want to know why auditors did not raise the alarm. The result has been a number of official reviews. The Competition and Markets Authority (CMA), Britain’s antitrust agency, is assessing ways to improve the audit market. A separate review is looking at the Financial Reporting Council, the audit regulator. Both will publish initial findings by the end of the year. Three more reviews—by MPs, the opposition Labour Party and an accountants’ trade body—are also in the works.

The case against auditors is...

Emerging markets’ currencies have staged a comeback

Thu, 11/22/2018 - 15:53

AFTER DUSK men from Lea Lea, a village in Papua New Guinea, wade into the Coral Sea to spear fish sleeping near the seabed. Their torches twinkle in the darkness. But they are easy to miss against the riot of illumination from a $19bn liquefied natural gas plant. Built by ExxonMobil, it stores natural gas from the country’s highlands, which is piped to tankers at the end of a jetty over a kilometre in length.

When the plant was opened in April 2014, the oil price was well over $100 and gas was similarly valuable. Energy prices have since plummeted, but Papua New Guinea’s currency, the kina, has been allowed to fall only gradually. Its strength has hurt the country’s other exports, including coffee, tourism and fish. And because foreign exchange is underpriced, the central bank has been forced to limit its availability. A decline in Papua New Guinea’s currency would, then, be a relief for many.

That sets the country...

A retreat in share prices finally reaches tech stocks

Thu, 11/22/2018 - 15:53

STOCKMARKET BOOMS tend to narrow with age, as investors double down on the shares that have served them well. Throughout 2017 and into the early weeks of this year, a handful of favoured technology stocks, known as FAANG(Facebook, Amazon, Apple, Netflix and Google, part of Alphabet), were the motor for a rapid rise in the S&P 500 index of American stocks (see chart). In this year’s choppier markets, they seemed like a refuge. But this week FAANGand other tech stocks were at the centre of a broader sell-off in global stockmarkets.

Over two trading days, on November 19th and 20th, the FAANGstocks retreated further from the peaks they each achieved earlier this year. At their lowest point all five were down by more than 20% from their pinnacle. Billions of dollars in stockmarket value have evaporated. Apple, which had reached an equity capitalisation of $1trn in early August, was valued at $840bn by the time New York’s stockmarket closed on November 20th. The market...

As firms struggle with seasonal hiring, Amazon turns to automation

Thu, 11/22/2018 - 15:53

Elf plan included

TO BE HIRED as Santa Claus at Boscov’s, a department store in Pennsylvania, you will need to “be tolerant of unexpected behaviours from children”. But what really sets an applicant apart is a “natural white beard”. The insufficiently hirsute can apply for one of over 880,000 other holiday vacancies across America. The number of positions in retail is the highest since 2014. With consumer confidence close to an all-time peak, the National Retail Federation expects retailers to sell 4.3-4.8% more than last year in real terms, up from an average rise for the past five years of 3.9%.

Shops are looking for hordes of temporary staff to stock shelves, gift-wrap merchandise and say “ho ho ho” in the foyer. Among the biggest bricks-and-mortar retailers, a record number of 120,000 people are to be hired at Target. Macy’s is hiring 80,000. Since online sales are expected to be a fifth higher...

There is more to high house prices than constrained supply

Thu, 11/22/2018 - 15:53

TO GET HOUSE prices down, increase supply. The logic seems unarguable. Britain’s house prices have inflated hugely in recent decades: by 161% in real terms since 1996. Barriers to construction, such as the green belt—zones of protected countryside around cities—are clear to see. If politicians were to remove them, overcome nimbyism and build more houses, more people could afford to buy. That would arrest a decline in home ownership that has been particularly sharp among young people. In 1991, 67% of British 25- to 34-year-olds owned property; today only 37% do.

So goes the conventional wisdom. But even as policymakers have at last begun to embrace building, a new school of thought has gained prominence. Its advocates, the most vocal of whom is Ian Mulheirn of Oxford Economics, a consultancy, say high prices have little to do with supply shortages. They put the blame somewhere else: global financial markets.

Most studies of Britain’s housing market link a 1% increase in the number of...

Borrowing by mobile phone gets some poor people into trouble

Thu, 11/15/2018 - 15:49

Mobile money’s too tight to mention

MOBILE MONEY, which offers the equivalent of a basic bank account to almost anyone with any sort of phone, has long been seen as a boon for financial inclusion. So recent evidence that it is leaving problems in its wake is causing dismay. Digital credit through mobile phones is leading in some places to overborrowing, hardship and—horror of horrors—even more financial exclusion.

The starkest evidence is in east Africa. Thanks to M-PESA, its largest mobile-money service, with over 20m users, Kenya has been a pioneer in both mobile money and mobile financial services, such as lending. Anecdotal evidence is mounting of abuses—most notoriously of young Kenyans borrowing to splurge on online betting sites. The number of Kenyans blacklisted by the country’s credit bureaus, and so unable to borrow, has risen to more than 500,000, up from 150,000 three years ago. The...

America’s trade relations with its allies are extremely fragile

Thu, 11/15/2018 - 15:49

AFTER A TRIP to France for the centenary of the end of the first world war, President Donald Trump quickly turned his Twitter feed over to trade-related tirades. On November 12th he opined that “Trade must be FREE and FAIR!” The next day he complained about French tariffs on American wine, concluding “Not fair, must change!” A day later came another reminder of the brittleness of transatlantic trade relations, when reports emerged that Mr Trump was meeting his officials to discuss an investigation launched in May into whether imported cars and car parts threaten America’s national security. If it concludes that they do, he can impose whatever trade restrictions he wants.

The idea that importing cars from close allies threatens America is barely plausible. In reality the investigation is intended to strong-arm trading partners into concessions. The tactic met with some early success. In July Jean-Claude Juncker, the president of the European Commission, and Mr Trump agreed to...

The economy of the Philippines wobbles

Thu, 11/15/2018 - 15:49

Marching rations

FOR DECADES economists wondered why the Philippines was doing so badly compared with its less gifted, more tigerish neighbours. In recent years, they have wondered how it was doing so well. The economy has grown briskly, without intolerable inflation or too much borrowing from abroad. And it has done so despite stagnant investment, lousy infrastructure and a narrow manufacturing base. Economists have long urged it to “walk on two legs”, expanding industry rather than placing all its weight on services. Instead it has kept hopping—but with impressive speed and balance.

Now, however, that balance is at risk. Inflation hit 6.7% in September, close to its highest rate in a decade and far above the central bank’s target of 2-4%. The current-account balance (which remained in surplus for 13 years in a row, thanks to strong remittances from emigrant cleaners, carers, nurses and the like)...

Stock exchanges find novel uses for blockchain

Thu, 11/15/2018 - 15:49

BLOCKCHAIN, THE technology underlying bitcoin and other cryptocurrencies, was designed with an ideological aim: to sidestep central authorities and governments. But many people have become intrigued by its practical uses, such as updating back-office processes. And few institutions have shown more interest in such applications than financial exchanges.

Although stock trades are often made in milliseconds by algorithms, completing them involves co-ordinating payment and delivery among a mess of databases and then reconciling the records. In big financial centres trades take two full days to settle. Some stock exchanges wonder whether blockchain’s distributed, tamper-proof ledgers and immutable and transparent transaction records could speed up and simplify the process.

Exchanges from America and Australia to Switzerland and Singapore are studying the concept. Australia’s stock exchange, the ASX, has moved furthest towards using blockchain to replace its main...

Marjorie Deane internship

Thu, 11/15/2018 - 15:49

Applications are invited for a Marjorie Deane internship in our New York bureau. The award is designed to provide work experience for a promising journalist or would-be journalist, who will spend three to six months at The Economist writing about economics, business and finance. Applicants are asked to write a covering letter and an article of no more than 500 words, suitable for publication in the Finance & economics section. Applications should be sent by December 14th to

A study measures the cost of lack of competition

Thu, 11/15/2018 - 15:49

What’s Italian for sticker shock?

THAT COMPETITION keeps prices down is well known. But it is hard to measure by just how much, because prices vary for all sorts of reasons, from differences in labour costs and rents to taxes. Rising to the challenge is a new paper in The Economic Journal by Giacomo Calzolari, Andrea Ichino, Francesco Manaresi and Viki Nellas, economists at the European University Institute, Bologna University and the Italian central bank. They looked at pharmacies and specifically at customers who may be particularly easy to rip off: new parents.

Using data for 2007 to 2010 covering about a fifth of pharmacies in Italy, the researchers measured the way in which prices of hygiene products for babies changed as the number of babies varied. They took advantage of a peculiar law from the 1960s, according to which municipalities with at most 7,500 people are allowed...

Should investors diversify away from America?

Thu, 11/15/2018 - 15:49

IN THE MID-1980S Carol Goland spent two years in the Andes. The subsistence farmers she studied in Cuyo Cuyo, in Peru, planted as many as 20 fields scattered around the mountain. They used up precious calories going back and forth between each field. Yet on closer inspection, this pattern had a logic to it. Crop yields varied widely from field to field, because of erratic microclimates. By spreading their bets the farmers reduced their risk of starvation.

The farmers knew the penalty for failing to diversify. That lesson ought to be heeded in investing, too. But it isn’t. Three-quarters of equity funds in America are held in shares listed there, according to Morningstar, a data-tracking firm. American stocks have beaten a broad index of other rich-world stocks in seven of the past ten years. Even so, it is a lot of eggs to have in one basket. Those who seek to diversify by buying a global index find they are still heavily exposed...

Superstar cities have a big advantage in attracting high-paying jobs

Thu, 11/15/2018 - 15:49

IN THE END, Amazon disappointed everyone. A year ago the e-commerce giant said it would open a second headquarters, and solicited bids from cities keen on the 50,000 new jobs and $5bn in investment it would bring. The gambit might have produced a fascinating experiment in urban development, and a departure from the concentration of top tech firms in a few favoured places. It did not. Though local governments wooed the firm with juicy incentives, no city nabbed the promised co-headquarters. On November 13th Amazon said it would split its new office between New York City and Arlington, a suburb of Washington, DC.

The decision to bring tens of thousands of high-paying jobs to two of America’s richest metropolitan areas is a notable example of a broader trend. Another came a few days earlier, when the Wall Street Journal reported that Google planned a dramatic increase in hiring in New York City. Politicians...

The oil price swings dramatically

Wed, 11/14/2018 - 14:39

THE OIL price was supposed to be soaring around now. With American sanctions against Iran taking effect earlier this month, exports from that country, the world’s fourth-largest producer of crude oil last year, were expected to shrink to close to zero. In anticipation the price of Brent crude, the international benchmark, went above $86 in early October, a four-year-high, and some warned of prices above $100 a barrel.

Instead, by November 8th oil had entered a bear market. The price of Brent crude stood at $66.53 on November 14th. West Texas Intermediate, the American oil benchmark, dropped for 12 straight trading sessions, until November 14th, when it at last ticked up (see chart). That was the longest uninterrupted decline in over three decades. American crude futures have plunged by 20% from their recent peak.


What China talks about when it talks about stimulus

Tue, 11/13/2018 - 14:53

THE CAREER of China’s biggest property tycoon can be divided into two stages. Xu Jiayin started slowly, focusing on Guangzhou, a southern city. Then came the global financial crisis and the government’s response, a giant economic stimulus, launched a decade ago this month. For Mr Xu it was a signal to become far bolder. His company, Evergrande, now has projects in 228 cities. Last year it completed enough floor space for 450,000 homes, up from 10,000 the year the stimulus began. It has bought a football club, built theme parks and entered the insurance business.

Yet expansion has come at a cost. Evergrande’s debt has soared to nearly $100bn. Short-sellers regularly target its stock. So far Mr Xu has defied the naysayers. But the market bears are taking another run at him. Evergrande’s stock is down by more than a third this year. Last month it struggled to sell new bonds, until Mr Xu bought $1bn worth with his own cash. As one of the richest people in China, a billionaire many times over, at least he...