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Polls suggesting the Republicans would convincingly win the Senate and Congress, pushing President Joe Biden into lame-duck irrelevancy, while confirming increasing polarisation and political gridlock across the economy proved wildly wrong. US voters chose to forget the Orange Ghost of President's past, rejecting Donald Trump’s raft of election deniers.

Trump was left looking humiliated but will still stand for the Republican nomination in 2024. The consensus is any sound conventional Republican should beat him.

Had his candidates fared better, and a Trump-led MAGA-dominated party seized both houses, global markets would now be severely concerned about the risks to global trade from increasing US protectionism and isolationism, and the US pulling back from its global hegemon role by withdrawing support for Ukraine, plus the possibility Trump would threaten to pull the US out of NATO in response to Yoorp’s perceived slights on his divine personage. Trump would happily unravel global trade and security for another four years free of the threat of court action.

Fortunately for the global economy – which has been uncertain enough this past year - Biden and the Democrats held the Senate! It means they retain control of many levers of the State – theoretically; they still have to deal with serial troublemakers like Joe Manchin and Kyrsten Sinema who block Democrat legislation even more effectively than the other side. The Republican majority in Congress is razor thin, meaning there are deals to be done to move the US economy forward.

The next couple of months will determine where the US economy is likely to be in November 2024. If inflation continues to ease, the US could be coming out of a thin recession early with growth back online strongly.

The US Midterm Elections are always interesting – but make little sense to outsiders. Why do the Americans have a system which is pretty much designed to ensure any sitting US President will spend an inordinate amount of time domestically politicking, with at least half the House against him at least half his time in office?

It would seem to be a very inefficient form of government from an enabled leadership perspective. Perversely, some of the greatest stock market gains are made following the mid-terms! The data shows stocks gained 17/19 times following midterms. Markets perceive gridlock as a marvellous thing – stopping presidents from spending money or raising taxes to do anything meaningful to the domestic economy.

From the outside, the polarisation of gridlock looks like political madness, but it’s created the compromise politics that drive the US. Political management is simple and very transparent – if a sitting president’s party wants to achieve anything it has to bribe the opposition majority to achieve it.

It sort of works.

However, the headline numbers from the Election hide some fundamental crisis points.

The first is the great age of leadership in both parties. Nancy Pelosi, the retiring Democrat leader of the house of representatives is 82. Mitch McConnell, the leader of the Republicans in the Senate is 80. Biden is 78. They hardly share the same ideals as the young, struggling masses who make up the 84% of Americans under 65. The idea of Biden taking on an equally senile Trump will not fill markets with a sense of here are two men razor fit to command and control the most powerful armed forces the world has ever seen in an increasingly hostile geopolitical landscape.

The question is who replaces them?

Both parties have younger leaders in the wings, but Ron DeSantis, Florida Governor, and the current Republican bright-young-hope sounds much like Trump and focuses on the same support base. Stars of the Progressive Democrat wing, like Alexandria Occasion-Cortez, stand too far left to appeal to the majority of the small number of swing voters required to win an election!

The problem is new leaders from the extremes of each party are unlikely to seize the key middle ground voters – and will simply widen the bitter polarisation seen in US politics, egging on militia and QAnon supporters. Even moderates will be accused of standing for Left-Wing Extreme Wokery or Right-Wing MAGA Libertarianism – pushing away the key voting constituency. After years of Trump, there are few moderates left on the Republican bench – leading to risks of party fracture on left-right fault lines.

Even as the parties struggle to identify their futures, there is the economy to consider. The next couple of months will determine where the US economy is likely to be in November 2024. If inflation continues to ease, the US could be coming out of a thin recession early with growth back online strongly.

Or, we may see the US Federal Reserve contending with strong and more persistent inflation, driven by a long and painful global recession and fundamentals like increasing wage demands (which make transitory inflation spikes into long-term cycles of wage inflation), causing interest rates to remain punishingly high. In such as case the US economy may not be immune to a global slowdown – and the election of 2024 could be an economic gift to the right wing.

In short, the midterms may simply be a problem delayed for the global economy. All the issues about the role of the US in the global economy and markets remain in play.

"While we have not concluded that the various financial statements, as a whole, contain material discrepancies, based on the totality of the circumstances, we believe our advice to no longer rely upon those financial statements is appropriate," Mazars said in its February 9th letter to Trump Organization attorney Alan Garten.

Monday’s disclosure of the letter comes as part of New York Attorney General Letitia James’ civil investigation into Donald Trump’s New York-based real estate business. The investigation partially overlaps with the Manhattan District Attorney’s criminal investigation, which James joined in May, into the Trump Organization’s practices. 

New York state’s attorney general claims the Trump Organization frequently misrepresented the value of its assets to obtain financial benefits.

Mazars said it had reached its decision based on a January filing by James, as well as its own investigation, and information for internal and external sources.

Mazars has said it no longer plans to work with the former president’s company. In response, a spokesperson for the company said it is “disappointed that Mazars has chosen to part ways."

After a supermajority vote, in which Bitcoin Law received 62 out of 84 of the legislature’s vote, the digital currency will become legal tender in El Salvador. The Republic of El Salvador is the first country in the world to adopt bitcoin as legal tender, with the price of bitcoin up by 5% soon after the vote. 

President Nayib Bukele sent the proposed law to the country’s Congress earlier on Wednesday. It was stated that the purpose of the law is to regulate bitcoin as "an unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out.” 

Across El Salvador, prices can now be displayed in bitcoin in a historic first for the world. Additionally, taxes can be paid using the digital currency and any exchanges made in bitcoin will be exempt from capital gains tax. The Bitcoin Law draws attention to issues with traditional financial services, claiming that approximately 70% of El Salvador are without access. It is hoped that bitcoin will improve financial inclusion across the nation. 

However, bitcoin is well known for its volatility and has recently been labelled a scam against the dollar by former US President Donald Trump. Even the Bank of England has warned that a shift of deposits to digital currencies from traditional high-street banks could cause extensive economic turbulence. For some, it remains unclear as to how El Salvador will successfully roll out bitcoin as legal tender. 

Early trading on Thursday morning saw global share prices go into free-fall as the continued spread of coronavirus threatens to greatly impact international trade. The crash also followed a Wednesday-night speech by President Donald Trump announcing that “all travel from Europe to the United States” would be suspended for 30 days.

Though the Trump administration quickly clarified that only “human travel” from Europe would be restricted, and not trade, Thursday morning’s share price downturn indicated a lack of investor confidence in the new measures’ effectiveness.

The Dow Jones Industrial Average fell by around 8.2 %, driving US indexes further into bear market territory, while Nasdaq fell by 6.5% and the S&P 500 by 7%.

The widespread losses triggered the market’s “circuit breaker”, automatically halting trade for 15 minutes to interrupt the steep decline in prices. Once trading resumed, however, stocks continued to plummet.

Every share in the FTSE 100 was trading lower before markets closed, with the UK’s main share index having suffered a fall of more than 9% in value.

Indexes in Frankfurt and Paris also fell, as did Asian markets, as Japan’s Nikkei 225 index closed 4.4% lower than previously.

While companies have suffered worldwide, travel companies saw some of the worst blows to share prices, with airline conglomerate IAG facing a 10% drop.

Trump vs. China

Back in 1930, the US introduced the Smoot-Hawley Tariff Act, which raised their already high tariffs, triggering a currency war and, as economists argue, exacerbating the Great Depression. With President Donald Trump’s threat to put 10% tariffs on the remaining $300 billion of Chinese imports that aren’t subject to his existing levies, sending markets tumbling from Asia to Europe, the question on everyone’s lips is: Is history about to repeat itself?

In August, in a bid to hit back against Trump’s administration, Beijing allowed the Chinese yuan to plummet past the symbolically important $7 mark. Economists suggest that this currency manipulation is China’s attempt to display dominance and gain the upper hand in the trade war between the two countries as devaluating its currency could help counteract the effects of US’s long list of tariffs on Chinese goods.

As protectionist actions escalate and US-China relations continue deteriorating, investors and markets have been growing increasingly concerned even though Trump has delayed the imposition of his new tariffs until December. A full-blown trade war wouldn’t be good news to anyone and could seriously weaken the global economy, as the IMF has warned, making the world “poorer and more dangerous place”. Both sides are expected to experience losses in economic welfare, while countries on the sidelines could experience collateral damage. Furthermore, if tariffs remain in place, losses in economic output would be permanent, as distorted price signals would prevent the specialisation that maximises global productivity. The one thing that’s certain, no matter how things pan out, is that there will be no winners in this war.

Economists suggest that this currency manipulation is China’s attempt to display dominance and gain the upper hand in the trade war between the two countries as devaluating its currency could help counteract the effects of US’s long list of tariffs on Chinese goods.

Cyberattacks & data fraud

Millions, if not billions, of people’s data has been affected by numerous data breaches in the past couple of years, whilst cyberattacks on both public and private businesses and institutions are becoming a more and more frequent occurrence. With the deepening integration of digital technologies into every aspect of our lives and the dependency we have on them, cybercrime is one of the greatest threats to every company in the world.

Cyberattacks are rapidly increasing in size, sophistication and cost, as cybercrime and data breaches can trigger extensive losses. In 2016, Cybersecurity Ventures predicted that cybercrime will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015. According to them, ”this represents the greatest transfer of economic wealth in history, risks the incentives for innovation and investment, and will be more profitable than the global trade of all major illegal drugs combined”.

 Emerging Markets crisis

Since the early 1990s, emerging markets have been a key part of investors’ portfolios, as they have been offering strong returns and faster growth. However, global trade tensions, a stronger US dollar and rising interest rates have hit emerging markets hard. Still far from catching up with the developed world, many supposedly emerging markets are developing at a slower pace, which combined with the threat of a global trade war and higher borrowing costs on the rise, has made investors pull in their horns. Emerging markets are the ones feeling the strain and financial panic has been gripping some of the world’s developing economies.

With political instability, external imbalances and poor policymaking which has led to full-blown currency crises in the two nations, Turkey and Argentina have been at the centre of an emerging market sell-off last year. But they are not the only emerging economies faced with a currency crisis – according to the EIU, some economies which are already in the danger zone and could suffer from the same currency volatility include Brazil, Mexico and South Africa.

Still far from catching up with the developed world, many supposedly emerging markets are developing at a slower pace, which combined with the threat of a global trade war and higher borrowing costs on the rise, has made investors pull in their horns.

If the currency crises in Turkey and Argentina continue and develop into banking crises, analysts predict that investors could abandon emerging markets across the globe. “Market sentiment remains fragile, and pressure on emerging markets as a group could re-emerge if market risk appetite deteriorates further than we currently expect”, the EIU explains.

 Climate crisis

In recent months, the media is constantly flooded with reports on the horrifying environmental risks that the climate crisis the Earth is in the midst of poses, but we’re also only starting to come to grips with the potential economic effects that may come with it.

Despite the significant degrees of uncertainty, results of numerous analyses and research vary widely. A US government report from November 2018 raised the prospect that a warmer planet could mean a big hit to GDP. The Stern Review, presented to the British Government in 2006, suggests that this could happen because of climate-related costs such as dealing with increased extreme weather events and stresses to low-lying areas due to sea level rises. These could include the following scenarios:

Due to climate change, low-lying, flood-prone areas are currently at a high risk of becoming uninhabitable, or at least uninsurable. Numerous industries across numerous locations could cease to exist and the map of global agriculture is expected to shift. In an attempt to adapt, people might begin moving to areas which will be affected by a warmer climate in a more favourable way.

A US government report from November 2018 raised the prospect that a warmer planet could mean a big hit to GDP.

All in all, the economic implications of the greatest environmental threat humanity has ever faced range from massive shifts in geography, demographics and technology – with each one affecting the other.

Brexit

Fears that the UK could be on the brink of its first recession in 10 years have been growing after figures showed a 0.2% contraction in the country’s economy between April and June 2019. A weakening global economy and high levels of uncertainty mean the UK’s economic activity was already lagging, but the potential of a no-deal Brexit and the general uncertainty surrounding the UK’s departure from the EU, running down on stock built up before the original 29th March departure date, falling foreign investment and car plant shutdowns have resulted in its GDP decreasing by 0.2% in Q2. This is the first fall in quarterly GDP the country has seen in six and a half years and as the new deadline (31st October) approaches, economists are concerned that it could lead to a second successive quarter of negative growth – which is the dictionary definition of recession.

And whilst the implications of Brexit are mainly expected to be felt in the country itself, the whole Brexit process displays the risks that can come from economic and political fragmentation, illustrating what awaits in an increasingly fractured global economy, e.g. less efficient economic interactions, complicated cross-border financial flows and less resilience and agility. As Mohamed El-Erian explains: “in this context, costly self-insurance will come to replace some of the current system’s pooled-insurance mechanisms. And it will be much harder to maintain global norms and standards, let alone pursue international policy harmonisation and coordination”. Additionally, he goes on to note that tax and regulatory arbitrage are likely to become more common, whilst economy policymaking could become a tool for addressing national security concerns.

“Lastly, there will also be a change in how countries seek to structure their economies”, El-Erian continues. “In the past, Britain and other countries prided themselves as “small open economies” that could leverage their domestic advantages through shrewd and efficient links with Europe and the rest of the world. But now, being a large and relatively closed economy might start to seem more attractive. And for countries that do not have that option – such as smaller economies in east Asia – tightly knit regional blocs might provide a serviceable alternative.”

The so-called ‘resource curse’ has reduced a once prosperous nation into a financial meltdown. The increased social and economic upheaval has sparked protests on a nationwide level and led many poor people to lose faith and withdraw their allegiance to President Nicolás Maduro. Amidst the political and economic turmoil, the EU, the US and a number of other countries across the globe have recognised opposition leader Juan Guaidó as the South American nation’s rightful interim president. In a bid to alleviate “the poverty and the starvation and the humanitarian crisis” currently gripping Venezuela and stop “Maduro and his cronies” looting the assets of the country’s people, US President Donald Trump has announced sanctions against Venezuela’s state-owned oil company PDVSA. US National Security Adviser John Bolton announced that the measure will “block about $7 billion in assets and would result in more than $11 billion in lost assets over the next year”. Effective from 29th January, the sanctions guarantee that any purchases of Venezuelan oil from US entities flow into blocked accounts and are supposed to be released only to the country’s legitimate leaders.

The situation in Venezuela has puzzled social scientists for years. On paper, oil-exporting countries and their economies are supposed to be thriving. Why is this not the case for Venezuela and what does the ‘resource curse’ have to do with it?

The Oil Curse Explained

The resource curse is a concept that a number of political scientists, sociologists and economists use to explain the deleterious economic effects of a government’s overreliance on revenue from natural resources.

In Venezuela’s case, being overconfident in its status as an oil powerhouse, the country’s socialist government became so dependent on oil production that it managed to lose track of its food production. Farms and other similar industries were expropriated by the government, which combined with the lack of private ownership due to the country’s socialist regime, led to a massive decrease in food production. Crop farmers weren’t able to acquire pesticides from now-government owned chemical companies, animal farmers weren’t able to acquire feed from crop farmers and food depleted. Nationalising businesses meant that business owners were forced to stop food production, while the government ignored food production altogether due to its full reliance on oil riches, which became the main focus.

As with any commodity, stock or bond, though, the laws of supply and demand cause oil prices to change. In 2014 for example, when oil prices were high, Venezuela’s GDP per capita was equivalent to 13,750 USD, while a year later, due to a dip in oil prices, it had fallen 7%.

This example perfectly illustrates the resource curse concept. A country, in most cases an autocratic country, becomes so dependent on a single natural resource that it disregards all other industries. The government is happy because the revenue is enough to feed them and secure their position of power. Naturally though, over time all other branches of the economy slow down to the point when the commodity prices inevitably drop, the country’s economy is not equipped for survival. According to the concept, the resource curse is an issue seen in the Middle East, however, it has never been so clearly displayed as it is now in Venezuela.

US Sanctions & their Impact

As mentioned, the oil industry is the main sector that is responsible for Venezuelan government’s revenues - for more than 90% of revenues to be precise. Before delving into the way the sanctions are expected to affect the country’s economy, let’s take a look at the country’s oil production stats. According to data from Rystad Energy, in 2013, Venezuela was producing 2.42 million barrels per day, while the output today is lingering above the 1 million mark. Production has been dropping more intensely in recent months and even without the recent US sanctions, the oil production in the country would have experienced a drastic drop due to lack of investment. Trump’s administration’s restrictions are only rubbing salt into the wound.

Even though the White House’s intention is to make oil revenues reach the people of Venezuela and bypass Maduro’s government, which owns most of the oil industry through PDVSA, the sanctions have the power to be disastrous for the country’s economy and potentially set off a domino effect in the global energy market. Two things are worth mentioning here: Venezuela used to be the fourth biggest crude importer in the US (after Canada, Saudi Arabia and Mexico), while the US is Venezuela’s number one customer. Thus, the problems that arise from the sanctions are that A) US Gulf Coast refineries are frantically looking for alternate sources for the crude oil that Venezuela has been providing them with up until now and B) Venezuela, on the other hand, is struggling to find new customers. On top of this, the US was Venezuela’s key source of naphtha, which is the hydrocarbon mixture used for diluting crude. Without it, PDVSA won’t be able to prepare its crude oil for export. Rystad Energy forecasts that some operators in Venezuela will run out of the crucial diluent by March.

However, not all hope is gone. Paola Rodriguez-Masiu from Rystad Energy believes that the impact of the sanctions will be significantly lower than Washington has predicted and says that: "The oil that Venezuela currently exports to the US will be diverted to other countries and sold at lower prices. For countries like China and India, the news was akin to Black Monday. They will be able to pick up these oil volumes at great discounts." She adds that Venezuela exports 450,000 barrels of oil per day to the US – a little under half of its total output and the amount of new oil which will flood the markets. Mrs Rodriguez-Masiu also mentions that so far, oil markets have massively shrugged off this new oversupply as investors have been pricing in the crisis in Venezuela for quite a long time.

So now what?

Although Venezuela is still seen as an oil powerhouse, especially due to its production of heavy crude (which is not widely available in the world), the oil world is expecting the historic collapse of its oil output to only intensify. The country needs to offset the effects of the US sanctions, find new financing and not let the people of Venezuela bear the brunt.

This will not be easy though. As the government desperately courts new buyers for its oil, it may find them hard to come by, with Chinese sales in a pattern of decline and new markets such as India worried about quality and transport issues due to much of Venezuela’s shipping designed for shorter distance travel. Indeed the government and prospective buyers will only be too aware that it is always harder to negotiate from a position of weakness.

Unfortunately for the people of Venezuela who are struggling to get basic supplies, and are facing starvation and illness, the actions and the effects of the country’s government and the oil curse look set to reverberate for some time.

 

 

Sources: 



https://www.thetimes.co.uk/article/venezuela-frustrated-poor-losing-faith-in-beleaguered-maduro-22cf7f66z

https://edition.cnn.com/2019/02/04/americas/europe-guaido-venezuela-president-intl/index.html

https://edition.cnn.com/2019/01/28/politics/us-sanctions-venezuelan-oil-company/index.html

https://www.investopedia.com/terms/r/resource-curse.asp

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=IVE0000004&f=A

https://www.forbes.com/sites/ellenrwald/2017/05/16/venezuelas-melt-down-explained-by-the-oil-curse/#39dcb3d0282b

https://www.ogj.com/articles/2019/02/rystad-energy-venezuela-production-could-fall-below-700-000-b-d-by-2020.html

https://www.bbc.co.uk/news/world-latin-america-47104508

 

Market Outlook

Mihir Kapadia, CEO and Founder of Sun Global Investments

When it comes to investment trends, every year appears to have a certain theme which dominates the markets and beyond throughout the course of those twelve months. 2017 was largely a stock market year, with global markets closing at record highs thanks to a booming global growth rate, loose tax and monetary policy, low volatility and ideal currency scenarios (for example, a weaker pound supporting inward investments). It was also a crazy year in the consumer segment with market momentum captivated with crypto assets, leading to established financial services firms to create special cryptocurrency desks to monitor and advise.  Today, things are looking very differently.

Markets have since moved from optimism (led by stock markets) to a cautious tone (with an eye out for safe haven assets). This is largely due to the concerns over slowing global growth rates (especially from powerhouse economies like Germany and China), volatile oil markets and Kratom Powder For Sale induces significant market threats with the likes of Brexit and the trade wars. The rising dollar has also not helped much, with Emerging Market and oil importing economies suffering with current account deficits.

At the World Economic Forum’s annual meeting in Davos last month, the International Monetary Fund (IMF) has warned of the slowdown, blaming the developed world for much of the downgrade and Germany and Italy in particular. While the IMF does not foresee a recession, the risk of a sharper decline in global growth is certainly on the rise.  However, this risk sentiment doesn’t factor in any of the global triggers – a no-deal Brexit leading to UK crashing out of the EU or a greater slowdown in China’s economic output.

While the IMF does not foresee a recession, the risk of a sharper decline in global growth is certainly on the rise.

Volatility expected

 We have lowered earnings expectations globally due to more subdued revenue and margin assumptions. We believe investors will be confronted by increased volatility amid slower global economic growth, trade tensions and changing Federal Reserve policy. Our base case relies on the view that the US may enter a recession in 2020. As the market dropped 9% in December, the worst market return in any 4th Quarter post World War II, many risks are starting to be discounted by the market. We have reduced industrials, basic materials and financials due to heightened risks.

There are a number of factors that are driving this view, but it is important to note that upsides to the risks do exist:

In uncertain markets like these, we should look to do three things: reduce risk, focus on high quality and stay alert for opportunities due to dislocations.

So what do you do?

We have dialled down risk in 2018 and will likely continue to do so in 2019 as we expect global growth to slow. However, the expected volatility could cause dislocations that are not fundamentally driven, resulting in tactical opportunities to consider.

The best piece of advice to be relayed is: “Don’t run for the hills”. In uncertain markets like these, we should look to do three things: reduce risk, focus on high quality and stay alert for opportunities due to dislocations.

It would be ideal to shift allocations from cyclical to secular exposures, especially away from industrials, basic materials, semiconductors and financials due to heightened risks. It would also be ideal to focus on high-quality companies with secular growth opportunities that can generate dividends as well as capital appreciation.

Two sectors stand out as both strategically and tactically attractive - aging demographics and rapidly improving technology are paving the way for robust growth potential in healthcare. Accelerating growth in data, and the need to transmit, protect, and analyse it ever more quickly, make certain areas in technology an attractive secular opportunity as well. Where possible, our advice to investors is to maintain a tactical portion of their risk assets, because volatility may give them the opportunity to find mispriced sectors, themes and individual securities.

Still, in this climate, the bottom line is that you should be increasingly mindful of risk in your portfolio so that you can reach your long-term investment goals. 

Eastern Economies vs. Western Economies: Countries, Sectors and Projects to Watch

Dr. Johnny Hon, Founder & Chairman, The Global Group

The global economic narrative in 2018 was characterised by growing tensions between the US and China, the world’s two largest economies. The US imposed 10% to 25% tariffs on Chinese goods, equivalent to more than $250bn, and China responded in kind.

This had a seismic effect on global economic growth which, according to the IMF, is expected to fall to 3.5% this year. It represents a decline from both the 3.7% rate in 2018 and the initial 3.7% rate forecast for 2019 back in October.

Although relationships between Eastern and Western economies are currently strained, suggestions that a global recession is on the horizon are exaggerated. China’s economy still experienced high growth in 2018.

However, it is clear that trade wars have no winners. The rise of protectionism in the West is creating more insular economies and we are at a time when increased efforts are needed for mutual understanding. There are still enormous opportunities across the globe: India is among several global economies showing sustained high growth, and innovations in emerging markets such as clean energy or payments systems continue to gather pace. Investors who are savvy and businesses with true entrepreneurial flare can triumph at a time when others may be stagnating.

The rise of protectionism in the West is creating more insular economies and we are at a time when increased efforts are needed for mutual understanding.

Here are the exciting countries, sectors and projects to look out for in 2019:

Countries

Recent trends in foreign direct investment (FDI) reveal a growing trend to support developing economies. In the first half of 2018, the share of global FDI to developing countries increased to a record 66%. In fact, half of the top 10 economies to receive FDI were developing countries.

This trend will accelerate in 2019 - the slow economic global growth, and subsequent currency depreciation means the potential yield on emerging market bonds is set to rise dramatically this year. More and more investors are realising the great potential of these developing economies, where the risk versus reward now looks much more attractive than it did in recent years. Asia in particular has benefited from a 2% rise in global FDI, making it the largest recipient region of FDI in the world.

India and China are both huge markets with a combined population of over 2.7 billion, and both feature in the world’s top 20 fastest growing economies. However, the sheer quantity of people doesn’t necessarily mean the countries are an easy target for investment. There are plenty of opportunities in both India and China, but it takes a shrewd investor with a good local business partner to beat the competition and find the right venture.

Other Asian economies to invest in can be found in Southeast Asia, including Vietnam, Singapore, Indonesia and Cambodia. In a recent survey by PwC, CEOs surveyed across the Asia-Pacific region and Greater China named Vietnam as the country most likely to produce the best investment returns – above China.

Investors who are savvy and businesses with true entrepreneurial flare can triumph at a time when others may be stagnating.

Sectors

One sector in particular which remained resilient to the trade wars throughout 2018 was technology. By mid-July, flows into tech funds had already exceeded $20bn, dwarfing the previous record amount of $18.3bn raised in 2017. This was a result of the increased accessibility and popularity of technologies in business.

In the area of Artificial Intelligence (AI) for example, a Deloitte survey of US executives found that 58% had implemented six or more strains of the technology—up from 32% in 2017. This trend is likely to continue in 2019, as more businesses realise AI’s potential to reduce costs, increase business agility and support innovation.

Another sector which saw significant investment last year was pharmaceuticals and BioTech. By October, these had already reached a record high of $14 billion of VC investment in the US alone. One particular area to watch carefully, is the rising demand for products containing Cannabidiol (CBD), a natural chemical component of cannabis and hemp. Considering CBD didn't exist as a product category five years ago, its growth is remarkable. The market is expected to reach $1.91 billion by 2022 as its uses extend across a wide variety of products including oils, lotions, soaps, and beauty goods.

Projects

At a time of rising trade tensions and increased uncertainty, cross-border initiatives are helping to restore and maintain partnerships and reassure global economies. China's Belt and Road Initiative is a great example of how international communities can be brought closer together. From Southeast Asia to Eastern Europe and Africa, the multi-billion dollar network of overland corridors and maritime shipping lanes will include 71 countries once completed, accounting for half the world’s population and a quarter of the world's GDP. It is widely considered to be one of the greatest investment opportunities in decades.

The Polar Silk Road is another international trade initiative currently being explored. The Arctic offers the possibility of a strategic commercial route between Northeast Asia and Northern Europe. This would allow a vast amount of goods to flow between East and West more speedily and more efficiently than ever before. This new route would increase trading options and would make considerable improvements on journey times – cutting 12 days off traditional routes via the Indian Ocean and Suez Canal. It could also save 300 tonnes of fuel, reducing retail costs for both continents.

Since founding The Global Group - a venture capital, angel investment and strategic consultancy firm - over two decades ago, I have seen the global economic landscape change immeasurably. The company is built around the motto ‘bridging the frontiers’, and now more than ever, I believe in the importance of strong cross-border relationships. Rather than continuing to promote notions of protectionism, we must instead explore new ways of achieving mutual benefit and foster a spirit of collaboration.

Brexit, Trade Wars and the Global Economy

Robert Vaudry, Chief Investment Officer at Wesleyan

If there’s one thing that financial markets do not like, it is uncertainty - which is something that we’ve faced in abundance over the last couple of years.

The UK’s decision to leave the European Union and President Trump’s 2016 election in the US, sent shockwaves through markets, and the two years that followed saw increased volatility across asset classes. This year looks set to be fairly unpredictable too, but in my view there are likely to be three main stabilising factors. Firstly, I expect that the UK will secure some form of a Brexit deal with the EU – whatever that may look like – which will give a confidence boost to investors looking to the UK. Secondly, the trade war between America and China should also come to an end with a mutually acceptable agreement that further removes widespread market uncertainty. Thirdly, the ambiguity surrounding the US interest rate policy will abate.

The Brexit bounce

A big question mark remains over whether or not the UK is able to agree a deal with the EU ahead of the 29th March exit deadline. However, with most MPs advocating some sort of deal, it’s highly unlikely that the UK will leave without a formal agreement in place. So, what does this mean? Well, at the moment, it looks more likely than ever that the 29th March deadline will need to be extended, unless some quick cross-party progress is made in Parliament on amendments to Theresa May’s proposed deal. While an extension would require the agreement of all EU member states, this isn’t impossible, especially given that a deal is in the EU’s best interests as the country’s closest trading partner.

The ambiguity surrounding the US interest rate policy will abate.

The result of any form of deal will be a widespread relief that should be immediately visible in the global markets. It will bring greater certainty to investors, even if the specific details of a future trading relationship between the UK and EU still need to be resolved. Recently, it was estimated that Brexit uncertainty has so far resulted in up to $1trn of assets being shifted out of the UK, and I personally don’t see this as an exaggeration. Financial markets have been cautiously factoring Brexit in since the referendum vote in 2016 and, if we can begin to see a light at the end of the Brexit tunnel, it is likely that some of these vast outflows will be reinvested back into the UK. We can also expect to see a rise in confidence among UK-based businesses and consumers, at a time when the unemployment rate in the UK is the lowest it has been since the mid-1970s.

All of these outcomes would help lead to a more buoyant UK economy and the likelihood that UK equities could outperform other equities – and asset classes – in 2019.

Trade wars – a deal on the table?

Looking further afield, the trade tensions that were increasingly evident between the US and China last year could also be defused. The last time that China agreed to a trade deal, it was in a very different economic position – very much an emerging economy, with the developed world readily importing vast quantities of textiles, electronic and manufacturing goods. However, given China’s current position as one of the world’s largest economies, it has drawn criticism from many quarters regarding unfair restrictions placed on foreign companies and alleged transfers of intellectual property.

Either way, global financial markets are eager for Washington and Beijing to reach a mutually agreeable trade deal to help stimulate the growth rates of the world’s two largest economies.

It was estimated that Brexit uncertainty has so far resulted in up to $1trn of assets being shifted out of the UK.

Be kind to the FED

2018 saw an unprecedented spat between the US President and his Head of the Federal Reserve. What began as verbal rhetoric quickly escalated into a full-frontal assault on Jerome Powell, and the markets were unimpressed. With the added uncertainty about the impact of a Democrat-led US House of Representatives, we headed into a perfect storm, and equity markets in particular rolled over in December. Ironically, this reaction, coupled with a data showing that both the US and the global economy are generally slowing down – albeit from a relatively high level – has resulted in a downward revision of any US interest rate rises in 2019. The possibility of up to four US interest rate rises of 25bps each during 2019 is now unlikely – I expect that there will only be one or two rises of the same level.

 Transitioning away from uncertainty

So, in summary, 2019 is set to be another big year for investors.

The recent protracted period of uncertainty has hit the markets hard, but we’ll have a clearer idea of what lies ahead in the coming months, particularly regarding Brexit and hopefully on the US and China’s trade relations too. If so, this greater certainty should pay dividends for investors in the years to come. UK equities are expected to strongly bounce back in 2019, which is a view that goes against the current consensus call.

Towards the end of July the price of gold steadied after US President Donald Trump who criticized the Federal Reserve's interest rate tightening policy. In more recent events, Trump doubled tariffs on Turkey’s steel and aluminium.

In the US gold prices have hit a 17-month low, falling down to the $1,200 mark and are increasingly trading lower. In other countries the price of gold continues to rise.

Daniel Marburger, Managing Director at Coininvest told Finance Monthly: “Gold prices soar in times of uncertainty, which is why many people expected gold price to fall once Trump was elected.

“Throughout his presidency, Trump has proved to be a controversial character and we’ve seen movement in gold price reflect this.

“He has had a positive impact on the value of the US dollar which usually lowers the gold price, however, current trade wars Trump has started with the EU, Canada and China are offsetting this, slowing the decline.  

“High interest rates make gold a less attractive investment, unlike other investments it doesn’t offer interest. It will be interesting to see how the US president’s decisions will impact the value of gold throughout the rest of his presidency – especially as we approach the mid-term elections in November.”

Ingmar Rentzhog is a Swedish entrepreneur who founded and serves as the CEO of We Don’t Have Time, a tech start-up aiming to become the world’s largest social media platform for the climate crisis. He is also a Climate Reality leader trained by US former Vice President Al Gore. Here Ingmar tells all about his company, its mission and accomplishments in its endeavour to raise awareness of and combat the ways in which we contribute to climate change before we run out of time.

 

 

What inspired the foundation of We Don’t Have Time? How has it faired compared to your initial goals?

The election of Donald Trump for US President was a climate wake-up call. He got me and many others to wake up and realise that our leaders won’t solve the climate challenge by themselves. We are the ones who need to do it, all together. My first step was to set up a small team of professionals that I knew well, and like myself were dedicated to the cause. Earlier this year, we raised US$1.2 million through the equity crowdfunding platform FundedByMe. It was a success and we got 200% oversubscribed where we attracted over 430 investors from more than 15 countries all over the world, a mix of both ordinary citizens and angel investors. Right now, we are concentrating our efforts on building our platform. So far, as a kind of “teaser”, we have launched three action tools, one for sending climate love and climate bombs to chosen world leaders’ tweets, one for making a short selfie-video with a personal climate resolution, and a tool for carbon compensating your emails.

 

What motto does We Don’t Have Time live by? What is its long-term objective?

Our name – We Don’t Have Time – is our motto. We also have a manifesto on our website that basically states that climate change is an on-going catastrophe and that we need to act now. We all need to step up and come together.

The political and economic elites are clearly not taking climate change and the threat against our ecosystems seriously enough, or we wouldn’t be where we are today. We can’t trust that political leaders, government officials and financial stakeholders will do enough by themselves – the challenge is too great, the issue too important, the catastrophe too imminent. We believe that real change will only come if a movement of ordinary citizens from all over the world demands change. We must push them, ourselves, and our peers, to do much more, and faster. By building the world’s largest social media platform focused on climate change, you, me, my friends, your friends, our families, all and everyone – can be the change by the power of many.

If a large enough number of ordinary citizens come together to share information, policy proposals, solutions and demands for action, change will happen. Our platform could make that happen. Everyone – ordinary citizens, politicians, organisations and climate friendly companies could participate. We would like to involve everyone that shares our concern for the future.

The long-term objective is to acquire at least 100 million active users that can propel real change on our platform. This will be financed through a revenue flow from advertising by climate-friendly corporations that want to engage conscious customers.

 

 

What impact has We Don’t Have Time made on its cause since its creation? Is it what you expected?

We launched the tools that I mentioned by hosting the world’s first “no-fly” global, climate conference, The 2018 We Don’t Have Time Climate Conference. Experts from all over the world participated on video call and in our studio. The conference attracted a global audience of 9,000 attendees from 90 countries. We haven’t launched the platform yet, but we publish blog posts regularly and are very active on social media. Over a million people either follow us, have interacted with our action tools, have watched clips from our launch or read our blog and our newsletter.

 

What is the current threat that climate change poses on the world and the economy?

We are already seeing it: Extreme weather, droughts, wildfires and floods. It will get worse. Climate change is an existential threat to our civilisation and thus, by extension, to the economy. We all, including investors and business leaders, have a moral obligation to take a long-term perspective, but it’s also in our self-interest. If we don’t solve this, the future will belong to warlords, not businesspeople. If you want to run a profitable company some years from now, then you need to focus less on maximising profit for the next quarter and more on how you and your peers can be part of the change that must happen.

 

What would you say is the vital first step in raising awareness of climate change?

It is to realise basic scientific facts about climate change. The level of CO2 in the atmosphere, global warming and the frequency of extreme weather events are undeniable facts that all point in a very alarming direction. Then you need to analyse the connection between your current lifestyle choices and green-house gas emissions. If you are a business leader, you need to analyse the carbon footprint of your organisation. From there, you can start making choices towards reducing your emissions.

 

What can we do as individuals to aid in the battle against climate change?

By making conscious, informed choices, and sticking to them. The best way to influence others is to set a strong example. Don’t try everything at once, instead try to become really good at something – for instance eat more green food – and be vocal about it. Above all, be a positive role model by showing your peers that you can come a long way by choosing a green alternative, be it a vegetarian diet, train travel, or something else. Show that living green is not a sacrifice, it’s a better lifestyle!

 

What importance does social media have in today’s professional business world and associated activism? How do you think this has changed over the years?

I think it’s beyond doubt that social media is a real game changer. Institutions and organisations don’t have the same control over their message and the image they project. So they must be much more proactive in terms of building relations with influencers and creating innovative strategies that work in today’s media landscape. It’s much harder for corporations to gloss over irresponsible behaviour. The crowd, or actually, the market, will immediately punish them for that. With We Don’t Have Time we want to accelerate this trend with a strong focus on sustainability.

 

What difficulties, if any, have you run into in the process of building We Don’t Have Time from the beginning? How did you work through them?

As a tech company, we are dependent on much sought-after, and expensive, technical competence and to continuously work hard on QA. It takes time to find, educate and manage the development team. I don’t think we have had more difficulties in this area than any other start-up, but it’s the single most challenging issue that we face, especially for a fast-growing company like ours. But that sort of makes sense, because developing the platform is key to building company value.

 

 

How have your previous experiences and professional roles prepared you to run this company?

I have been an entrepreneur my entire adult life. I founded one of Sweden’s biggest financial communications firm back in 2004 and it has been a profitable company ever since. Along the way, I have founded and managed many associate companies and subsidiaries, developed communication platforms and established my old firm in its current position as a top-tier financial communications consultancy.

 

What has been We Don’t Have Time’s greatest achievement so far? What would you attribute this to?

We have come from nothing and gained a fantastic reach. As I mentioned, over a million people have interacted with us through social media, our blog and our action tools. What makes me proudest is that we get daily requests from people that want to help our organisation from all around the world. For me, this is proof of concept. We are already attracting ordinary citizens that are concerned about this issue. When our platform is launched, they will join it and our movement will gain momentum.

 

What do you anticipate in the year ahead for We Don’t Have Time and yourself?

The launch of the first version of the platform will be a huge milestone for us. We also plan to follow up on our successful conference.

 

Find out more at wedonthavetime.org

Daniel D. Morris is the Founding Partner of the Silicon Valley, Los Angeles, and Portland (Oregon) based CPA firm, Morris + D’Angelo, which focuses on servicing entrepreneurial families and their businesses. The firm utilises an integrated and holistic approach designed to help customers navigate the most complex and sensitive of matters.

Below, Daniel discusses the impact of Donald Trump’s new tax legislation, as well as the things that make Morris + D’Angelo unique when compared to other tax and business advisory firms in Silicon Valley.

 

What have been any recent tax policies or reforms in the US and how have they impacted your clients?

In December last year, President Donald Trump signed new tax legislation that changed the landscape of business and individual taxation. Corporate tax rates have been reduced by 40% and initiated a quasi-territorial tax system for corporations. Individual tax brackets have likewise been reduced, albeit only slightly. Individual based tax deductions have been significantly curtailed while increasing allowable standard allowances. Self-employed and associated pass-through businesses in most categories will also see reduced rates.

The most notable challenges the new legislation created are in the international arena. The new provisions created a global tax on intangibles (called GILTI) and imposes an effective 10.5% corporate level tax with the remainder excluded from income under the aforementioned quasi-territorial regime. Global structures owned and operated by individuals, families, estates, trusts, joint ventures, and pass-throughs pay a GILTI at upwards of 37% and do not receive the corporate level territorial exclusion.

This corporate versus individual disparity is creating terrific drama and challenges as advisers and taxpayers regroup their thinking as to how best to navigate global business operations while avoiding excessive taxation.

Morris + D’Angelo reacted swiftly to protect our customers’ options while providing best-of-class advisory and choices. This is an ongoing process as the legislation is so radically different in approach than the previous underlying taxation philosophy that served our country so well for nearly seventy years, that the primary concept we champion is to “hold on and prepare for more changes”.

 

Tell us about Morris +D’Angelo’s key priorities towards your clients? What differentiates the company as opposed to other tax and business advisory firms in Silicon Valley?

Our priorities are clearly developed around providing world-class services and options to a selected group of customers. Unlike traditional firms that charge by the hour and have a shotgun approach to customer attraction, selection, and retention, we utilise a more sniper-driven process.

Our customers share the following characteristics:

 

What would you say are the challenges of providing effective tax and business advice to entrepreneurial and family-based enterprises?

Challenges, of course, are certainly situational as no two families are alike. The most common challenge is likely gathering their full attention. Entrepreneurs are doers and they are hyper-focused on achieving measurable results and rarely invest in activities that require them to reflect and ponder their futures.

Additionally, there are inherent conflicts among generations in regards to desired outcomes, where to invest the family attention, and the legacies to be fulfilled. We’re also often faced with the, unfortunately, common challenges of blended families due to divorce, or changing demographics relative to marriage and family, and the likelihood of a geographically and/or societally mixed marriage (e.g. mixed religions can create estate and inheritance issues should people of mixed faiths marry, have children, and reside in countries that base inheritance laws on religious attributes compared to for example common law or civil law countries).

On top of this, the availability of information to both the lay and professional person exponentially increases the challenge. While the internet is great for research and ideas, it fails to provide context, wisdom, or judgement. True professionalism integrates knowledge, context, and experience to blend a better result. Accordingly, there are conflicts upon perceptions of what options might be available, in the minds of customers, compared to the conclusions provided by professionals. These conflicts are best resolved by active engagement, communication, compassion, and listening. These are hallmarks of our firm. We leverage both ears before we exercise our one mouth.

 

What are the most tax efficient structures for US entrepreneurial and family-based enterprises?

This depends on the context of the specific case. For global enterprises, operating in a traditional cross-border CFC (controlled foreign corporation) environment, the most tax efficient structure today is likely a corporation, as it limits the global GILTI tax impact, provides for territorial tax benefits and domestic tax (on domestic earnings) of 21% or less.

For real estate type businesses, pass throughs like LLCs and Limited Partnerships are likely to provide better after tax cash flows due to reduced tax rates on real estate activities and a single layer of taxation.

As for more common business, my advice is to model out their cash flows and determine which of the available models provides the best tax-based results, ease of management and control, long-term family considerations, privacy matters, and asset protection.

I should note that trusts are generally overlooked as an operating vehicle, but they can provide many benefits of ownership along with control, asset protections, and longevity. This is something that our customers frequently consider.

 

How can entrepreneurs structure their business portfolio in such a way that their personal tax liability is mitigated?

Our recommendation for the families that we advise is to utilise dynastic trust concepts where the trusts are formed in excellent asset protection jurisdictions. These protector-driven trusts mitigate the risk associated with claims, allow for multi-generational transfers, and provide protection for the family’s daily operations.

 

What are Morris + D’Angelo’s goals moving forward?

Our goals are to continue to expand our offices to more geographies with our targets to include Dallas, Miami, Washington, DC, New York, London, and Geneva. We will continue to grow our cross-border and multinational services dedicated to helping families achieve their goals, objectives, and success. We will remain nimble, flexible, and current as it relates to technology, economics, and governance. Finally, we will continue to have fun each and every day as it makes life easier and certainly more enjoyable.

 

Website: https://www.cpadudes.com/

 

About Daniel D. Morris

In addition to his work for Morris + D’Angelo where he serves customers in over 20 countries and 25 states, Dan is also the Co-founder of The VeraSage Institute, a think tank dedicated to helping professionals improve their pricing and customer centric economics. He’s been an author/instructor with professional CPA and related associations since 1998 and has been an adjunct professor for Foothill College located in Los Altos Hills, California. Dan is the only American to hold the prestigious Post Professional Graduate Diploma in Private Wealth Advisory - a programme sponsored by the Society of Trust and Estate Professionals in the UK.

Daniel has served numerous regional and national professional associations (California CPA Society and the American Institute of Certified Public Accountants) where he’s held several leadership positions including President of the Silicon Valley/San Jose Chapter along with the state-level governance council. He is also active in FinTech, including the blockchain and associated crypto currencies and is frequently interviewed by regional and national publications.

 

About Morris + D’Angelo

Morris + D’Angelo’s registered trademark is Not Just Another CPA Firm – and this really is the case! The company never charges clients by time incurred, but instead, they price for purpose which ultimately means that the customers pay for the results they’ve managed to achieve.

The firm was founded in the Silicon Valley in 1994 and over the years, has helped startups and entrepreneurs that have changed the world. The team at Morris + D’Angelo listens and understands what their customers want and need and strives to deliver results in abundance. Along with the company’s physical offices, Morris + D’Angelo has a personally crafted network of affiliations throughout Europe, Asia, Australia, the Caribbean and Latin America. The firm coordinates services in a timely basis in nearly every location that deliver results that are instrumental for success.

As the trading week gets under-way, once again it is the political world that has the attention of markets. Below David Jones, Chief Market Strategist at Capital.com, discusses his thoughts on this week’s markets.

The decision by the UK's Brexit Secretary David Davis to resign late on Sunday evening may have been expected to unsettle some - but that hasn't been the case so far. At mid-morning, the UK stock market was slightly higher and that Brexit-barometer - the pound - was trading at its best levels for almost a month. At first glance, this rise might seem somewhat illogical. But traders seem to be taking the weekend discussions and Davis's resignation as the sign that a soft Brexit could be on the cards - although the resignation does not exactly add much stability to Prime Minister May's government.

Politics is likely to be making the headlines for the rest of the week as US President Trump visits the UK. But it's another important week for the US markets as it is the start of earnings season. It kicks off on Tuesday with Pepsico but the main focus is likely to be Friday when the banks such as JP Morgan and Citigroup reveal how the last quarter was for their businesses. Expectations are running high that the last three months have been good ones - any misses here could well dent the near 105% recovery US stocks have enjoyed over the past three months.

In other markets, oil remains just below its recent three and a half year high. The last 12 months have seen the crude price rise by 70%, with little impact so far on the bigger economic picture. It does feel as if something needs to give here - $100 a barrel oil would surely start to slow down the world economy, but for now at least any dips in the price of crude just serve to fuel more buying.

(Source: Capital.com)

Investors need to avoid complacency as Trump potentially marches off to a multiple front trade war, warns deVere Group’s boss.

The warning from Nigel Green, founder and CEO of deVere Group come as worries of a trade war between the US and China have further increased, causing markets to slide around the world. The fears intensified after it emerged that President Trump is preparing a new crackdown on Chinese investments in America.

Mr Green comments: “Up until now the markets have been remarkably nonchalant regarding the escalating tensions between the world’s two biggest economies over the last couple of months.

“However, as the Trump administration sets out increasingly aggressive restrictions on what they see as China’s unfair trade practices, and because Trump is on the trade offensive on many fronts, including against traditional U.S. allies, the worries are now becoming much more focused.”

He continues: “There really hasn’t been any major asset class or any part of the world Trump hasn’t spoken out against in recent weeks. As such, if investors are serious about growing and safeguarding their wealth, complacency should no longer be an option. Vigilance is crucial.

“Now is the time for investors to ensure that their portfolios are properly diversified.

“As history teaches us, diversification is the best way an investor can position themselves to mitigate risks - and also, importantly, to benefit from the buying opportunities that all bouts of market volatility present.”

Mr Green goes on to add: “It is likely that Mr Trump’s bombastic tactics are just negotiating strategies and he will not totally overhaul and/or disrupt trade patterns.

“However, due to the scope and depth of the potential fall out of a U.S.-led trade war on international trade and global growth, investors should be actively looking to review and, if necessary, rebalance their portfolios.”

The deVere CEO concludes: “Investors need to brace themselves for months of heightened posturing from the different parties, which is likely to increase market turbulence.

“And as Trump potentially marches off to a trade war, a good fund manager will help investors sidestep the risks and embrace potential opportunities.”

(Source: deVere Group)

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