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Finance and economics
Updated: 59 min 31 sec ago

The Trump administration plans to crack down on Chinese investment

Thu, 06/28/2018 - 16:22

PRESIDENT Donald Trump’s view of investment depends on who is doing it. On June 22nd he railed against Europeans exporting cars to America, demanding that they “build them here!” On June 26th he tweeted that all Harley-Davidson motorcycles should be made in America (see article). But when it comes to Chinese investors buying American technology, Mr Trump would prefer a frostier approach.

Investors have feared a clampdown since March, when the administration concluded that China’s unfair actions against American companies merited retaliatory restrictions on Chinese investments in “industries or technologies deemed important to the United States”. Mr Trump directed Steven Mnuchin, the treasury secretary, to come up with options. On June 24th it appeared policy might tighten dramatically, with reports of plans to limit investment in America in the sectors...

Fighting the resource curse through online gaming

Thu, 06/28/2018 - 16:22

ALAIN LILLE is not pleased. His wildcat oil firm spent a fortune looking for oil in Petronia, a former colony known for cashmere wool, long before anyone else was willing to take the risk. After sealing a deal with the long-ruling government, he was poised to reap the rewards. But in last year’s election, a new president came to power, promising a better deal for the people. Mr Lille fears she will reopen negotiations, further delaying any profits for the company or revenues for the country. She has invited four foreign “experts”, who have never set foot in the country before, to advise her. As he shares these concerns at a drinks reception at Hôtel Capitale, Mr Lille notices one of these foreign advisers sidling up to listen in.

Mr Lille does not exist. Neither does the country, Petronia. They appear instead in a new online game created by the Natural Resource Governance Institute (NRGI), a think-tank based in New York and London that seeks to improve the management of oil, gas and mineral wealth in developing countries. As a player, you take on the role of that pesky foreign adviser eavesdropping on Mr Lille. As well as the drinks reception, your adventures will take you to the presidential palace, the capital city’s cafés and markets, and the coastal district of Neftala, where the oil was discovered.

In its training courses NRGI has long...

Why foreigners are keen buyers of Chinese government bonds

Thu, 06/28/2018 - 16:22

IN MAY 1945 John Maynard Keynes wrote a memo on the post-war economy. In it he argued that Britain should seek to be in the mainstream of global commerce. It would suit finance as well as industry to have the whole world as a playground, he wrote. “We built up the pre-war sterling area because we were bankers amiable to treat with and having a long record of honouring our cheques.”

He passed over how Britain’s economic muscle had helped sterling’s dominance—perhaps because by then that muscle was wasting. Yet it is implacable economic might that leads many today to conclude that the yuan, China’s currency, will supplant the dollar, just as sterling gave way to the dollar after 1945. The yuan is already one of five constituents of the Special Drawing Right, a basket of reserve currencies created by the IMF. And China is opening up to capital flows. This year foreigners have been the biggest buyers of Chinese government bonds.

It is tempting to see this as another milestone on the way to the yuan’s preordained supremacy. But it is an error to interpret current events in the light of an imagined future. Foreign buyers of Chinese bonds are not swept along by an unseen law of history. Rather they are spurred by more prosaic considerations.

...

Italy’s resilient savers are driving consolidation in asset management

Thu, 06/28/2018 - 16:22

THE rumour mill is grinding again. In early 2017 reports swirled of a possible merger between Generali, Italy’s biggest insurer, and Intesa Sanpaolo, the country’s second-biggest bank. That deal came to nothing. But Intesa is still looking for a partner. Now it is said to be in talks with BlackRock, the world’s biggest asset manager, about a stake in Eurizon, the bank’s asset-management unit. Deal or no deal, two things are clear. Italy’s asset-management industry is consolidating. And though investors fret over a populist government and towering public debt, its pool of private savings will keep them keen.

Last year Amundi, a French asset manager, bought Pioneer, the fund-management arm of UniCredit, Italy’s biggest bank. Over half of assets under management are owned by 10% of Italians, which makes the wealthier end of the business especially appealing. Mediobanca, an investment bank, last year opened a private bank and bought 69% of RAM Active Investments, a Swiss investment manager. And in May Indosuez, the wealth-management arm of Crédit Agricole, a French bank, acquired Leonardo, a private bank.

There is lots to fight for. Although Italy’s savings rate has fallen by more than half since the 1990s, at 10% of personal income it still beats Britain’s or Spain’s. The financial crisis a decade ago saw assets under management contract by €290bn ($335bn...

The changing world of work

Thu, 06/28/2018 - 16:22

“MONEY often costs too much,” quipped Ralph Waldo Emerson. But a new study suggests that since 1950, the price of buying it with labour in America has fallen. Greg Kaplan of the University of Chicago and Sam Schulhofer-Wohl of the Federal Reserve Bank of Chicago have linked measures of how Americans today feel about various jobs to changes in employment.

Both men and women are less likely to be farmers, for example, now than in 1950, and more likely to be in management. Women are less likely to be secretaries, and men more likely to be in service-sector jobs. Assuming that people in 1950 felt the same way about particular jobs as people do now, workers today are less sad, less tired and in less pain.

But changes in other measures of well-being, and a separate analysis of men and women, are less uniformly positive (see chart). The economists find that modern employment patterns probably mean that today’s workers are more stressed. And although the jobs women have moved into are ones they...

As China mulls its response to Donald Trump’s tariffs, cool heads are prevailing, for now

Thu, 06/21/2018 - 14:48

The serried ranks

FOR now, at least, when speaking of the trade dispute with America, China’s government is taking a more-in-sorrow-than-in-anger tone. That helps explain the Chinese public’s surprisingly measured views of Donald Trump, and gives the Chinese government some breathing room to consider its options.

The state media have so far taken the high ground. True, the Global Times, a chest-thumping tabloid, accused the American president of “gambling” that China will be cowed by his “capricious and obstinate attitude”. No country can isolate itself from globalisation, said the Xinhua news agency: “The wise man builds bridges, the fool builds walls.” A new Xinhua web page popped up on June 20th, tracking multilateral deals that Mr Trump has quit, including on trade, climate change and Iranian nuclear arms.

But China has yet to debate, publicly, how to handle an American president who is an avowed populist and won...

Abraaj, a Middle Eastern private-equity firm, files for bankruptcy

Thu, 06/21/2018 - 14:48

UNTIL recently the Abraaj Group, aprivate-equity firm based in Dubai, was riding high. It was one of just a few such firms focused on emerging markets, and a darling of “impact investors”, who seek social or environmental returns, not just financial ones. Assets under management of $13.6bn made it the largest private-equity firm in the Middle East, and the 42nd-largest globally in 2017. Its Pakistani founder and boss, Arif Naqvi, a regular at Davos and a patron of the arts, had won awards for philanthropy. It is all the more surprising, then, that basic corporate-governance missteps led his firm to file for provisional liquidation on June 14th.

The problems began in late 2017 when four investors in its $1bn health-care fund, including the Bill & Melinda Gates Foundation and the private-sector arm of the World Bank, grew worried. Nearly $280m of $545m they had been asked for was not promptly spent on acquisitions, as is standard in the industry. Abraaj blamed delays in the...

As China mulls its response to Donald Trump’s tariffs, cool heads are prevailing, for now

Thu, 06/21/2018 - 14:48

The serried ranks

FOR now, at least, when speaking of the trade dispute with America, China’s government is taking a more-in-sorrow-than-in-anger tone. That helps explain the Chinese public’s surprisingly measured views of Donald Trump, and gives the Chinese government some breathing room to consider its options.

The state media have so far taken the high ground. True, the Global Times, a chest-thumping tabloid, accused the American president of “gambling” that China will be cowed by his “capricious and obstinate attitude”. No country can isolate itself from globalisation, said the Xinhua news agency: “The wise man builds bridges, the fool builds walls.” A new Xinhua web page popped up on June 20th, tracking multilateral deals that Mr Trump has quit, including on trade, climate change and Iranian nuclear arms.

But China has yet to debate, publicly, how to handle an American president who is an avowed populist and won...

A full-blown trade war between America and China looks likely

Thu, 06/21/2018 - 14:48

IT IS becoming increasingly likely that the phoney trade war between America and China will develop into the real thing. On June 15th the Trump administration published two lists of Chinese products it plans to hit with tariffs of 25%, worth $50bn in 2018. The first will come into force on July 6th. The Chinese snapped back with their own list, laying out a retaliation of equal size. Then on June 18th President Donald Trump directed Robert Lighthizer, the United States Trade Representative (USTR), to draw up a further list of products worth $200bn that would face tariffs of 10%, and threatened yet another, covering an additional $200bn of goods, if the Chinese retaliated again. At least some of these tough words will probably turn into deeds. Both sides can expect to take casualties.

China regards the first round of American tariffs as a unilateral violation of global trading rules. It has lodged a complaint at the World Trade Organisation (WTO). But Mr Trump’s team maintains that China started...

Why countries like Argentina and Turkey fret about exchange rates

Thu, 06/21/2018 - 14:48

IMAGINE if Milton Friedman had been put in charge of a central bank, only to lose his job for expanding the money supply too quickly. Or if Robert Shiller, the Nobel-prizewinning author of “Irrational Exuberance”, were given a similar post, only to depart having allowed a stockmarket bubble to inflate. That is the kind of irony that attended the resignation under pressure of Federico Sturzenegger as governor of Argentina’s central bank on June 14th, a casualty of deepening turmoil in emerging markets.

Mr Sturzenegger was a former professor at Universidad Torcuato Di Tella in Buenos Aires. His most-cited paper showed that stated currency policy was often a poor guide to actual policy. Many countries claim to let their currencies float freely but in fact “intervene recurrently to stabilise their exchange rates”. Their deeds often belie their words.

Mr Sturzenegger lost his job for much the same thing. Financial markets struggled to reconcile his statements on the currency with his...

France and Germany finally have a common position on euro-zone reform

Thu, 06/21/2018 - 14:48

Roofers’ convention

THE president of the European Commission, Jean-Claude Juncker, likes to compare the euro zone to a house in need of repair. Fix the roof, he counsels, while the economic weather is favourable. Leaders from across the European Union will have the opportunity to take that advice when the European Council meets in Brussels on June 28th-29th.

In preparation Emmanuel Macron, France’s president, and Angela Merkel, Germany’s chancellor, laid out joint proposals for reforms on June 19th. The result of weeks of ministerial negotiation, they reconciled long-standing differences on the future of the currency bloc and set the scene for discussion at the wider summit. In a victory for Mr Macron, the Germans have consented to a euro-zone budget. In other areas, notably banking reform, progress is likely to be halting.

The reforms aspire to mend the institutional weaknesses revealed during the years following the financial crisis. Lacking control...

Giddy property prices are a test for Swedish policymakers

Thu, 06/21/2018 - 14:48

ULF DANIELSSON is thinking of buying a holiday home—or even a new house, so that he, his wife and two children can have a garden and more space than in their flat in Uppsala. He can afford either, he says, and as a professor of astrophysics is surely able to work that out. But he is hesitating, lest the giddy rise in Swedish property prices end in an ugly crash. “You risk having a big loan that’s worth more than the house,” he says.

The property market has fallen a little closer to Earth: prices dropped by 9% between September and January, largely because of a surfeit of pricey new flats. They then steadied, and are around 5% below the peak—and 50% higher than at the start of 2013, calculates Valueguard, a data provider. As Swedes have borrowed to buy, their debts have risen. Finansinspektionen (FI), the financial-stability supervisor, estimates that borrowers’ debts rose by 36% between 2012 and 2017, while disposable incomes went up by 13%. Almost a fifth of households with new mortgages owe more than six times net income.

...

Hedge funds worry about the legal risks of using “alternative” data

Thu, 06/21/2018 - 14:48

“QUANT” (quantitative) hedge funds, which craft elaborate algorithms to make trading decisions, rely on access to information. That used to mean market data, such as prices and trading volume. But some now seek an edge in novel sources. An industry has sprung up to serve them with, and help them analyse, “alternative” data, such as those gleaned from satellite images or by scraping websites. Many of these data firms have been founded by entrepreneurs, but some quant funds themselves are getting involved. Winton, a large London-based fund, is spinning off Hivemind, a data-analysis unit. A full-time management team was announced on June 18th.

For funds making macroeconomic bets by trading in, say, currencies or government bonds, real-time measures of inflation (scraped from e-commerce sites) or trade flows (from shipping data) can be better and more timely than the output of national statistics agencies. Funds trading in individual firms’ shares can infer information on sales from satellite...

Most stockmarket returns come from a tiny fraction of shares

Thu, 06/21/2018 - 14:48

IN his book about the use of language, “The King’s English”, Kingsley Amis describes a tug-of-war. On one side are “berks”, careless and coarse, who would destroy the language by polluting it. On the other side are priggish “wankers”, who would destroy it by sterilisation.

The battle lines look similar in investment. The divide is not on points of grammar but on attitudes towards a handful of modish companies, known as FAANG. These stocks (Facebook, Amazon, Apple, Netflix and Google) have been the motor of the S&P 500 (see chart). All but Apple hit record highs on June 20th. Fill your boots is the attitude of coarse stockmarket berks. FAANG makes more sense than stocks in dying industries. For the prigs, the mania for FAANG stocks is as abhorrent as a split infinitive. The high-minded investor stands apart from the herd.

In matters of grammar, the unsure often follow the sticklers. They at least have rules. But they are often too rigid. Stockmarket sticklers can similarly lead others...

Abraaj, a Middle Eastern private-equity firm, files for bankruptcy

Thu, 06/21/2018 - 14:48

UNTIL recently the Abraaj Group, aprivate-equity firm based in Dubai, was riding high. It was one of just a few such firms focused on emerging markets, and a darling of “impact investors”, who seek social or environmental returns, not just financial ones. Assets under management of $13.6bn made it the largest private-equity firm in the Middle East, and the 42nd-largest globally in 2017. Its Pakistani founder and boss, Arif Naqvi, a regular at Davos and a patron of the arts, had won awards for philanthropy. It is all the more surprising, then, that basic corporate-governance missteps led his firm to file for provisional liquidation on June 14th.

The problems began in late 2017 when four investors in its $1bn health-care fund, including the Bill & Melinda Gates Foundation and the private-sector arm of the World Bank, grew worried. Nearly $280m of $545m they had been asked for was not promptly spent on acquisitions, as is standard in the industry. Abraaj blamed delays in the...

Sino-American interdependence has been a force for geopolitical stability

Thu, 06/21/2018 - 14:48

IN THE 1990s America and Europe had a trade dispute over bananas. No one worried that tanks might soon roll as a result. But trade is about more than economics. The European Union, the world’s most ambitious free-trade area, was founded on the idea that trade integration would make war between members “not merely unthinkable, but materially impossible”. As the risk of a serious Sino-American trade war grows, attention is mostly focused on the prospect of dearer iPhones and unhappy soyabean farmers. But the stakes are much higher.

China’s economic miracle could not help but provoke geopolitical stress, given its size and illiberality. Relations between America and China are built on mutual suspicion. Geopolitical rivalry has been moderated, however, by economic interdependence: a mutual entanglement some economics wags have dubbed “Chimerica”.

As China opened up, American consumers hoovered up cheap Chinese goods. American firms built China into their supply chains, enjoying low...

Can refugees help to plug Europe’s skilled-labour gaps?

Thu, 06/14/2018 - 15:09

THE canteen of Stockholm University could scarcely be more Swedish. Young blond students sip coffee and tap away on Macs. In room 3.89, an outpost of the campus, is another, newer Sweden. Refugees, all of them teachers, from lands far to the south and east are preparing for the classrooms of their new home. Several keep their coats on as Khadije Obeid takes them through the basics of the curriculum and shows a YouTube clip about education law. “In Syria the teacher has much authority,” says Samer, an English teacher, as he raises his hand above his head. “Here he is equal to the students,” he adds as he lowers it.

The ten women and seven men are on a “fast-track” programme for refugees with experience in occupations where labour is short. As well as learning Swedish, they get 26 weeks of daily classes, teaching practice and mentoring. The hope is that they will then train or, if their previous qualifications are recognised, go straight to the classroom. The government is running some 30 other...

The hounding of Greece’s former statistics chief is disturbing

Thu, 06/14/2018 - 15:09

IMAGINE the tale of Sisyphus, the mythical king doomed to spend eternity pushing a boulder up a hill only for it to roll back down, retold by Kafka. The result would be very like the tortuous story of Andreas Georgiou, Greece’s former statistics chief.

Since 2011 Mr Georgiou has faced several criminal charges. One is that he inflated budget-deficit figures, forcing Greece to seek a bail-out and resulting in alleged damages of €171bn ($190bn). Another is that he violated his duty by failing to seek approval from the statistical agency’s board before sending the figures to the European authorities.

Although Mr Georgiou was acquitted several times on both charges, the acquittals were annulled and he was retried. In 2017 he was found guilty of a violation of duty. He has now learnt that the Supreme Court had rejected his appeal, rendering the conviction final. It carries a two-year suspended sentence. In May prosecutors said they were refiling the charges that he inflated...

As Western lenders retreat, African banks see an opportunity

Thu, 06/14/2018 - 15:09

ADE AYEYEMI’S office in Lomé, the capital of Togo, is a good place to think about crossing borders. Ghana is ten minutes’ drive away. From his window the boss of Ecobank can watch trucks rumble along the seafront, some bound for Burkina Faso, a day’s journey, or Mali, perhaps another day on. At night, cargo ships twinkle offshore. From here Ecobank’s vision—“to integrate the continent”, Mr Ayeyemi says—is clear. Whether it will be profitable is less obvious.

Ecobank was founded in 1985 by business leaders with backing from the Economic Community of West African States, a regional bloc. It has branches in 33 countries, more than any other African bank (see chart). It is not alone in its ambitions. Nigeria’s United Bank for Africa (UBA) wants to make half its profits elsewhere in the continent by 2022. South Africa’s Standard Bank recently opened in Ivory Coast, its 20th African country. Moroccan banks are trekking across the Sahara.

African bankers have long preached some version...

Rate rises affect global markets—and may feed back to America

Thu, 06/14/2018 - 15:09

ON JUNE 13th the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point, the seventh such increase since it began shouldering rates away from zero in December 2015. Markets shrugged—a rather different reaction from the one that followed a policy adjustment made five years ago this month. The chairman then, Ben Bernanke, dared advise investors that the Fed might soon start winding down its stimulative bond-purchases. Traders fell to their fainting couches, but not before pausing to sell. Yields on ten-year Treasury bonds leapt. Currencies around the world flopped. This “taper tantrum”, as it became known, raised concerns that Fed tightening might so perturb global markets that America itself could suffer. Having survived both tapering and rate increases, Fed officials now seem inclined to dismiss such worries. They should not. The danger of a nasty Fed feedback loop remains.

Wise central bankers are prepared for ill winds blowing from abroad. Thanks to...

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