The comments from Nigel Green, chief executive of deVere Group, come after China fuelled hopes that a deal can be reached to end its trade war with the US after agreeing with Washington to roll back on some tariffs.
The deal to reduce trade tensions could encourage the International Monetary Fund (IMF) to revise up global growth forecasts next year.
Mr Green notes: “There has been an argument that in regard to the trade war, China was holding out, playing the long game and waiting for President Trump to leave office, before dealing with another administration.
“Whilst this argument might have held water before, I now believe this is not the case – and it is what is fueling recent developments in the trade war negotiations.”
He continues: “It is likely that China is currently fueling hopes to reach a phased agreement in the trade dispute with the U.S. and cancel tariffs as soon as possible because it will help President Trump’s re-election.
“His re-election would suit them for two major reasons.
“First, because they will assume that reaching a deal with Trump to end the damaging trade war will probably be easier than with some others. These include Elizabeth Warren, the potential Democratic rival, who could, say many supporters, win next year’s presidential election.
“Ms Warren can be expected to be even tougher with China than Trump, and not only on trade, but on other difficult issues, including climate change and human and labor rights.
“And second, despite the trade war, Trump’s policies and rhetoric have proven to be strategically helpful to China in achieving its longer-term goals.
“In many respects, President Trump has undermined Washington’s global credibility, international governance bodies and key alliances, and has been indifferent if not antagonistic towards major trading agreements.
“This all compromises America’s standing as the world’s primary superpower and it provides China with openings and opportunities it has previously never had in terms of global influence and setting international trade conventions.”
The deVere CEO concludes: “The positive signs coming from Beijing and Washington on the trade talks between the world’s two largest economies have been welcomed by stock markets – some reaching all-time highs this week.
“Investors’ exuberance will grow further still should the deal be cemented, and also should Trump be re-elected.
“However, US investors should perhaps also question whether Mr Trump’s administration has, in fact, handed China a great strategic opportunity that could damage America’s preeminent superpower status in the longer-term and, therefore, its economic dominance.”
The VIX volatility index – which is commonly used to gauge the fear level among investors – jumped by 36%, leading the markets to become particularly volatile. Losses have been widespread. In the week of the 5th of August alone, the NASDAQ plunged 3.5%, the S&P 500 and Dow Jones both dropped 3%, the FTSE 100 fell by 2.5% and both the French CAC 40 and German DAX 30 saw decreases of around 2%.
With neither side willing to be the first to blink, investors are increasingly seeking out ways to properly insulate themselves from the instability of the market. However, given the unpredictability of the conflict itself, this is no simple task. So, to help you make the best decisions that you can, here André Lavold, CEO of Skilling, takes a look at what has gone on and how some key stakeholders have reacted.
The present state of play: tariffs, tweets and devaluations
Under this current American administration, trade conflicts are never truly resolved; instead being defined by periods of escalation and détente. May saw the US choose to increase the levels of tariffs on $200 billion of Chinese goods, to which the Chinese responded by raising tariffs of its own on $60 billion of US goods. At the G20 summit in Osaka, both sides publicly agreed to a ‘truce’, however this was almost immediately reneged upon by the Americans after the President tweeted that he would levy an additional tariff of 10% on $300 billion of Chinese goods.
This brings us to the current state of play. While the US and China have always treated each other in an adversarial fashion, the latest measures have escalated the conflict to a new level of significance. The latest round of tariffs, most of which will be introduced in the autumn and winter of this year, now focus on consumer-facing goods like electronics and clothing. Companies with significant exposure to China – such as Nike and Apple, who saw their stock prices fall by 3% and 5.2% respectively – were especially affected. With importers likely to pass on the price rise to consumers, these new measures will likely negatively impact consumer spending. With the US household being the backbone of the American economy, the odds of a severe economic slowdown or recession are increased.
Companies with significant exposure to China – such as Nike and Apple, who saw their stock prices fall by 3% and 5.2% respectively – were especially affected.
Knowing that this was likely to hurt its export-reliant economy, the Chinese took action. The People’s Bank took the strategic decision to allow the Yuan to depreciate below the seven per dollar rate for the first time since 2008. Being a floor that the Chinese Government had vigorously defended in past, many have suggested that this was a retaliation against the latest round of tariffs. While it’s only possible to speculate on whether this was indeed retaliation, there would be scores of evidence to suggest so. The positive current account balance which China maintains with the US means that its own tariffs are not as effectual as those implemented by the United States. However, by letting the Yuan weaken, this not only reduces the price of Chinese exports but also reduces the profit of American companies with operations in China.
Spillover: has a trade war become a currency war?
Having considered China’s actions as combative, the United States took the historic decision of labelling China as a currency manipulator; the first time it had done so since the Clinton administration in 1994. The President has also previously attacked the Federal Reserve for not choosing to cut interest rates, stating that this has led to an appreciation in the value of the dollar; making American organisations uncompetitive on the global market.
His rhetoric, combined with the greater chances of a global economic slowdown, suggests that a devaluation in the dollar could be forthcoming. A tough business environment would vastly increase the likelihood of intervention – be it quantitative easing, or lower interest rates – and this would result in the dollar losing value.
With both sides now flirting with the idea of a currency ‘race to the bottom’, this could develop into a very dangerous game of chicken.
With both sides now flirting with the idea of a currency ‘race to the bottom’, this could develop into a very dangerous game of chicken. While China has much to gain from a devaluation, it also has much to lose. Let the currency slide too far, and there is a great risk of capital flight. Similarly, as previously mentioned, given that the US retains a trade deficit of approximately $488 billion, it will be hard to let the dollar fall without impacting its own businesses.
The ultimate effect of this will be volatility in the currency markets, especially in the USDCNY pair, and for traders, this can create lots of opportunities.
Wider reactions
With such unpredictable market forces at play, currencies and commodities that are considered ‘safe havens’ such as the Japanese Yen, the Swiss Franc and Gold have seen rises, as traders look for ways to protect their earnings. As long as the market remains volatile, they will continue to be good prospects. However, with the Japanese economy also being very reliant upon exports, traders should be wary of potential intervention.
The conflict has also led to lower oil prices, as doubts have been expressed in the general economic climate. This has impacted commodity currencies such as the Canadian Dollar and Norwegian Krona. The Australian Dollar has been doubly impacted as, in addition to being relatively reliant on natural resource exports, its economy is also uniquely exposed to the Chinese market.
Given the present impasse, it’s becoming increasingly likely that the trade war will not cease for some time. With both sides willing to dig their heels in, it may take a governmental change for the situation to develop any further. However, in the meantime, there are steps that you can take to protect your earnings. Minimise the risk of loss by auditing your portfolio and making sure that you’re comfortable with its allocation. By doing so, you ensure that you continue to earn at your fullest potential.
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:
- Decrease in agricultural areas crop yields due to hotter weather and draught.
- Rebuilding roads that have been destroyed by flooding caused by rising seas and more frequent hurricanes.
- Having to build more efficient power grids because the existing ones are not able to withstand extreme weather conditions.
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.”
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:
- The Fed: The Fed’s slow pace of hiking interest rates is meant to be just enough to keep wage inflation from accelerating, but not so much that it crushes business and consumer spending. It’s a difficult balancing act.
- Fiscal stimulus: The tightening of fiscal conditions has already created a slowdown that only time and lower rates will heal. The impact from the US Government’s lower tax rates and higher spend will end when 2019 does.
- Trade and China: The lack of clarity on trade has created an ‘uncertainty tax’, forcing companies to seek alternative means of procurement, adding to inefficiencies and holding back some investment decisions. China is trying to stimulate its consumer sector, but the country is already weighed down by high debt and defaults, and it has limited ability to create demand at present.
- European politics: Brexit negotiations and Italy’s budget situation have added to the political fog affecting investor confidence.
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.
Trump’s escalation of the trade war is going to trigger a “chain reaction of negative events around the world,” says Nigel Green, the founder and CEO of deVere Group.
This warning comes as global markets are in turmoil as Donald Trump’s administration announced a long list of new products that tariffs on $200 billion worth of goods from China will be levied against.
Mr Green comments: “Trump’s escalation of the trade war between the world’s two largest economies is going to trigger a chain reaction of negative events around the world.
“It is going to lead to higher inflation in the U.S, as import tariffs raise the cost of imported goods while domestic producers find that they can increase their prices as foreign competition weakens. This means interest rates will be hiked and the dollar will go up.”
He explains: “China’s cheap goods have helped keep prices, and therefore US and global inflation, low.
“To counteract increasing inflation, the US Federal Reserve is even more likely to raise interest rates. A jump in rates will, of course, strengthen the dollar.
“A stronger dollar also increases stress in emerging markets, many of which have borrowed heavily in recent years in dollars and who now find interest and capital repayments on these loans have shot up in local currency terms. In addition, emerging markets are particularly vulnerable to a downturn in exports resulting from a rise in quotas and import by the US, given that exports are a key driver of growth for many under-developed countries with China the most obvious example’.
Mr Green goes on to say: “Trump’s trade war is a masterclass in self harm for the US and global economy.”
The deVere CEO stated last week that investors must now avoid complacency and ensure their portfolios are properly diversified to mitigate risks and take advantage of potential opportunities that all bouts of market volatility bring.
He said: “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)
In January this year, Trump slapped tariffs of up to 30% on imports. In March, he added tariffs of 25% and 10% on imported steel and aluminium respectively. China and the EU retaliated with actual or threatened tariffs on hundreds of imported US products, but Trump hit back with a threat of further taxes.
Companies and investors caught in the cross-fire between tit-for-tat trade wars are concerned because:
- The US and China appear to be taking a hard-line approach to recent trade hostilities and so, escalation is possible and the economic consequences could be worse.
- The warring parties (EU, US, and China especially) are dominant economic powerhouses and their actions affect global and domestic GDPs, as well as the fortunes of millions of companies and people around the world.
- History tells us that trade wars have few, if any, winners.
The Financial Times suggests that a global trade war could knock 1-3% off GDP over a few years. They also reported that whereas capital expenditure (capex) by some US companies had risen, a Credit Suisse survey suggested that many businesses remained more hesitant about investing. Some have opted to hold onto their mountains of cash because of the uncertain outlook caused by trade war and geo-political tensions.
Capex
With reduced capex comes reduced employment and reduced productivity gains. Inefficiency eats into profit margins and competitiveness, lowering company values and economic growth, which leads to less capex, and so the vicious downward spiral continues.
Some companies might manage the situation by shifting production overseas, but in the process losing exported jobs. Relocation would also consume investment and time to raise production and adjust to the new dynamic, and in the meantime, the profit margin would diminish.
Uncertainty
A great drag on companies’ profits and a disruptive influence on supply chains, is the uncertainty that trade wars create. When will they end? Will they escalate? Which sectors will be affected and to what extent?
Chinese parts, for example, relied upon by US manufacturers, could become unavailable, or they might not. Just a month later, the US is backpedalling on its April 2018 ban on selling US company parts to Chinese company ZTE, a reversal that will cause turmoil among exporters and importers that must now reverse their plans to circumvent the ban.
Governments might retaliate to their counterparts in other ways. In 2016, China shut down Korean companies operating in China in retaliation to South Korea's actions. Hyundai and Lotte (both Korean) were denied car parts from local suppliers and 100 Lotte shops were closed. Countries have been known to expropriate foreign companies’ assets.
In the aftermath of the 2007 global financial crisis, investors stood on the sidelines for years with their pockets full of cash until asset prices and markets stabilised from the shock. The same hesitation could occur during trade wars and other geopolitical crises.
Higher funding costs
We have already seen some shareholders switching out of volatile equity investments into safer havens such as government bonds. That is likely to raise yields for borrowers, especially for high-yield borrowers, increasing interest payments and lowering corporate profits.
Currency risk
Investors’ flight to safety could significantly impact exchange rates as they dump risky currencies (such as those of some emerging market countries) and buy safer ones (such as USD), causing currency losses for companies that have not hedged their currency risks. Conversely, companies with a depreciating currency could benefit – for example, from the increase in value of overseas earnings that are reported in the depreciating currency. Those gains could be offset more or less, by higher import costs.
The IMF reckons that (without trade retaliation) the USD could appreciate by 5%. Appreciation of the USD could accelerate, causing further rises in costs of USD-denominated commodities, such as oil.
Commodity prices
Higher oil prices would adversely affect heavy users of energy, such as aviation, motoring, and manufacturing sectors. For example, American Airlines’ share price went down 6% after it expected $2.3 billion in additional fuel costs.
Winners and losers are expected from conflicts, such as trade wars, but sometimes the outcome can be unexpected.
Unintended consequences
American company Metal Box International was going to shut down after its sales had been decimated by cheap imports, but Trump’s protectionist trade policies changed its mind.
Metal Box, and other US manufacturers of products slapped with US import duties, should have seen its market sales rise as it filled the market gap created by reduced imports.
Anti-subsidy and anti-dumping duties imposed by the US on Chinese imports did result in a pick-up in Metal Box’s sales, but it was short-lived, because, according to the company, consumers and retailers feared trade war disruption so they stocked up pre-emptively. The company increased its capex in anticipation of higher sales volumes, but the machinery now sits idle.
The company’s hopes for business success were set back further by tariffs imposed by Trump on imported steel, because the company will now probably have higher costs of steel raw material.
Stagflation and GDP
Moody’s notes that workers employed by US business sectors that use steel far outnumber those employed in its manufacture, by around 5:1. That is also the ratio of job losses: gains predicted by Trade Partnership as a consequence of US tariffs.
“Protectionist trade policies, including tariffs on raw-material imports, could exacerbate these inflationary pressures [caused by global economic growth], running the risk of tighter margins and possible supply-chain disruptions in the manufacturing sector,” said Moody’s. Inflation could necessitate faster monetary policy tightening, i.e., more interest rate hikes. That would raise companies’ costs, denting their profits.
Sustained high interest rates and inflation could stymie global economic growth and create stagflation. A March survey by BoAML found that 90% of investment managers thought protectionism would cause either inflation or stagflation, and protectionism was investors’ primary fear.
Whereas some steel users will have the ability to pass on rising metal costs (either contractually, or through their brute forces of negotiating or price-setting), smaller companies will have to absorb higher input costs to maintain market share. For the former, profit margins will be protected, for the latter, they will contract.
Where investors are concerned, borrowers also need to be concerned, because the fortunes of both are intertwined. When investors become risk-averse and hoard cash, borrowers lose access to capital or pay a higher cost. Reduced profits ultimately hurt workers’ incomes, the economy’s GDP, and investors’ return on investment.
Unchecked, stagflation could deteriorate into recession, leading to job losses, reduced investment and further corporate financial distress. With many companies and individuals already highly geared with debt, a recession or stagflation that reduces income and the ability to service debt interest obligations, could trigger a wave of personal bankruptcies or corporate insolvencies, reducing GDP further and leading potentially to recession.
Companies might have to lay off employees to remain profitable or in business. Where last-in-first-out stock valuation accounting policies are used, profits will be quickly dented, reflecting higher stock costs. Cashflow will fall because of more expensive stock, or else companies will try to stretch their trade creditors’ goodwill even farther. Companies that can control their working capital interactions are more likely to survive than those with poor credit, stock, and trade creditor management practices.
Credit insurance
Companies’ trade credit insurance premia might increase, or be stopped of their financial position deteriorates. Credit insurance providers stopped providing credit protection to Woolworths’ suppliers, meaning it had to pay in cash, exacerbating the strain of its debt pile and leading to its administration. Without credit insurance, factoring of invoices, and conventional credit from suppliers, Toys R Us had to buy its games and toys as they were delivered. Without cash, a company’s shelves soon begin to empty, payments become overdue, staff are not paid, and operations grind to a halt, i.e., bankruptcy or insolvency ensues.
Gearing
Companies that have low gearing or operate in strong cashflow sectors such as fast-moving consumer groups, might withstand a cash crisis by raising additional debt, but companies already creaking under a mountain of debt and/or debtors, are more likely to break under the strain, and relatively sooner.
Almost 2/3 of aluminium and 1/3 of steel are imported by the US. Caterpillar and Boeing were caught in the firing line between the US and its trading partners because of their heavy and critical reliance on metals, and their international operations. Investors realised the negative implications so both companies’ shares dumped, sending their prices down more than 5%.
Winners and losers
Shareholders in US steel makers made a mint from US tariffs, US Steel and AK Steel, for example, rose 6% and 10% respectively. In the longer-term, US steelmakers could lose out from trade wars, however, for example, if manufacturers relocate, cut back on domestic production volumes, or use alternatives materials.
Other winners in the latest trade spat are companies that are more inward-looking or resilient to tit-for-tat retaliation, such as healthcare and BioTech. For example, shareholders in Johnson & Johnson, Merck, and Pfizer were some of the biggest winners in March. Other defensive regions and sectors include: Australia, Brazil, parts of Europe and Japan, and sectors such as telecoms, utilities, insurance, and retail. Countries whose GDP depends heavily on exports to the US, such as Mexico and Canada, are likely to suffer most from US protectionism.
Conclusion
Companies are in the cross-fire between trading countries, so they need to, above all, pay close attention to their cash flow and their survival over the longer term, even at the expense of near-term profit and revenues. They also need to monitor a changing geopolitical landscape and adapt accordingly. At such times, a company is likely to soon find out how committed banks and other investors really are to the company’s survival.
Website: www.permjitsingh.com
With the ongoing spat between the United States and China, which seems to be only getting uglier, Katina Hristova explores the history of trade wars and the lessons that they teach us.
Trade wars date back to, well, the beginning or international trade. From British King William of Orange putting steep tariffs on French wine in 1689 to encourage the British to drink their own alcohol, through to the Boston Tea Party protest when the Sons of Liberty organisation protested the Tea Act of May 10 1773, which allowed the British East India company to sell tea from China in American colonies without paying any taxes – 17th and 18th century saw their fair share of trade related arguments on an international level.
Boston Tea Party/Credit:Wikimedia Commons
Trade wars were by no means rare in the late 19th century. One of the most infamous examples of a trade conflict that closely relates to Donald Trump’s sense of self-defeating protectionism is the Smoot-Hawley Tariff Act (formally United States Tariff Act of 1930) which raised the US already high tariffs and along with similar measures around the globe helped torpedo world trade and, as economists argue, exacerbated the Great Depression. As a response to US’ protectionism, nations across the globe began striking each other with an-eye-for-an-eye tariffs – countries in Europe put taxes on American goods, which, understandably, slowed trade between the US and Europe. As we all know, the Depression had an impact on virtually every country in the world – resulting in drastic declines in output, widespread unemployment and acute deflation. Even though most countries began to recover between 1932 and 1933, the world was hit by World War II shortly after that. In 1947, once the war was over, the World Trade Organisation (WTO) was established - in an attempt to regulate international trade, strengthen economic development and hopefully, avoid a second global trade war after the one from the 1930s.
Schoolchildren line up for free issue of soup and a slice of bread in the Depression/Credit:Flickr
Another more recent analogy from the past that could be applied to the current conflict between two of world’s leading economies, is the so-called ‘Chicken War’ of 1963. The duel between the US and the Common Market began when European countries, feeling endangered by US’ new methods of factory farming, imposed tariffs on US chicken imports. For American poultry farmers, the Common Market tariffs virtually meant that they will lose their rich export market in West Germany and other European regions. Their retaliation? Tariffs targeting European potato farmers, Volkswagen campers and French cognac. 55 years later, as the Financial Times reports, the ‘chicken tax’ on light trucks is still in place, predominantly paid by Asian manufacturers, and has resulted in enduring distortions.
President Trump may claim that ‘trade wars are good’ and that ‘winning them is easy’, but history seems to indicate otherwise. In fact, a closer look at previous examples of trade conflicts seems to suggest that there are very few winners in this kind of fight.
For now, all we can do is wait and see if Trump’s extreme protectionism and China’s responses to it will destroy the post-World War II trading system and result in a global trade war; hoping that it won’t.
March started off with a bang when US President Donald Trump announced that his administration will impose steep tariffs on imported steel and aluminium in order to boost domestic manufacturing, saying that the action would be ‘the first of many’. This has brought about threats of retaliation by a number of the main US allies and the fear that Trump’s extreme protectionism may destroy the post-World War II trading system and result in a global trade war. Claiming that other countries are taking advantage of the US, the 45th President seems confident about the prospects of a global trade war, tweeting: ‘Trade wars are good, and easy to win’ a day after his initial announcement. Although the tariffs are stiff, they are considerably small when seen in the context of US economy at large. However, the outrage that his decision has fuelled and the fact that China has already taken steps to hit back signal global hostility and economic instability.
The Response
Donald Trump’s decision from the beginning of March was followed by a chain of events, including the EU publishing a long list of hundreds of American products it could target if the US moves forward with the tariffs, the US ordering new tariffs on about $50 billion of Chinese goods and China outlining plans to hit the United States with tariffs on more than 120 US goods. In an attempt to soften the blow, the White House announced that it will grant exemption to some allies, including Canada, Mexico, the European Union, Australia, Argentina, Brazil and South Korea. Trump gave them a 1 May deadline to work on negotiating ‘satisfactory alternative means’ to address the ‘threat to the national security of the United States’ that the current steel and aluminium imports imposes. Trump said that each of these exempted countries has an important security relationship with the US. He also added: “Any country not listed in this proclamation with which we have a security relationship remains welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports of steel articles from that country”.
China vs. the United States
China is one country that is not listed. However, by the looks of it, China is not a country that will be discussing “alternative ways to address the threatened impairment of the (US) national security”. Instead, they fire back. China is the main cause of a glut in global steel-making capacity and it will be hardly touched by the US’ import sanctions. However and even though they do not want a trade war, they are ‘absolutely not afraid’ of one. Following Trump’s intentions for tariffs on up to $50 billion of Chinese products and the proposed complaint against China at the World Trade Organization (WTO) connected to allegations of intellectual property theft, China's Ministry of Commerce said it was "confident and capable of meeting any challenge”.
In response to Trump’s attacks, the Asian giant published its own list of proposed tariffs worth $3 billion, which includes a 15% tariff on 120 goods worth nearly $1billion (including fruit, nuts and wine) and a 25% tariff on eight goods worth almost $2 billion (including pork and aluminium scrap). Despite their actions, China’s Commerce Ministry urges the US to ‘cease and desist’, with Premier Li Keqiang saying: "A trade war does no good to anyone. There is no winner."
Is Trump going to win?
During his presidential campaign, one of Trump’s promises was to correct the US’ global imbalance, especially with China, however, it seems like his recent actions are doing more harm than good. Even if his tariff impositions result in a few aluminium smelters and steel mills in the short term, they risk millions of job losses in industries that rely on steel and aluminium; potentially endangering more jobs than they may save.
A country’s trade patterns are dictated by what the country is good at producing. China is known to be the world’s largest producer of steel, whilst steel is simply not one of the US’ strengths. Steel produced in America is 20% more expensive than that supplied by other countries. Naturally, it makes sense for US-based manufacturers to prefer buying their steel from overseas. Once Trump’s suggested tariffs are added onto steel and aluminium shipments from abroad, they will worsen US’ trade deficit and will impact the stock market. In an article for Asia Times, PhD candidate at the University of California at Berkeley Zhimin Li explains: “Domestic companies will inevitably suffer from higher input costs and lose their competitiveness. As a result, they will become less able to sell to foreign markets, leading to a deterioration of trade balances for the US.”
He continues: “Moreover, more expensive manufacturing materials will translate to higher prices at the cash register, putting upward pressure on inflation and prompting the US Federal reserve to raise interest rates even more aggressively than anticipated. This will add to investors’ anxiety and foster an unfavourable environment for equities.”
Looking at it all from China’s perspective doesn’t seem as scary or impactful. The tariffs on metals wouldn't hurt Chinese businesses considerably, as China exports just 1.1% of its steel to the US. But steel tariffs are not as significant as the coming fight over intellectual property.
On the other hand though, China has the power to do a lot to infuriate Trump. One of the products that the country depends on buying from the US are jets made by the American manufacturing company Boeing. However, Boeing is not China’s only option - they could potentially turn to any other non-US company such as Airbus for example. The impact of that could be tremendous, as in 2016 Boeing’s Chinese orders supported about 150 000 American jobs, according to the company’s then-Vice Chairman, Ray Conner.
China could also target American imports of sorghum and soybeans, whilst relying more on South America for soy. NPR notes: “Should China take measures against US soybean imports, it would likely hurt American farmers, a base of support for Trump.” An editorial in the state-run Global Times argues: “If China halves the proportion of the U.S. soybean imports, it will not have any major impact on China, but the US bean farmers will complain. They were mostly Trump supporters. Let them confront Trump.”
The list of potential actions that can threaten the American economy goes on, but the thing that we take from it is that the US could well be the one to lose, regardless of where China may apply pressure. So, is businessman Donald Trump, in an attempt to cure America’s international trade relations, on his way to be faced with possible unintended consequences and do more damage than good? Are his seemingly illogical policies threatening to make Americans poorer, on top of firing the first shots of a battle that no one, but him, wants to fight? Will this lead to hostility in the international trading system that will affect us all?
We’ll be waiting with bated breath.
With this week’s market commentary from Rebecca O’Keeffe, Head of Investment at interactive investor, Finance Monthly learns about global markets, the US-China trade war and about recent activity in the M&A sphere.
A turnaround in Asian markets has seen US futures rise and eased the pressure on European equity markets. The last two months have seen global sentiment become more fragile, but the one thing that has kept markets going is the reliance on investors to buy on the dips. The last week had undermined that position in what was a worrying sign for the wider markets, but investors appear to be feeling slightly more resilient this morning.
Steve Mnuchin has taken on the unenviable task of attempting to resolve the trade dispute between the US and China via negotiation – however, he may be trying to reconcile the irreconcilable. The idea that, as one of the largest holders of US treasuries, China will be expected to help finance the growing US fiscal deficit but is also expected to reduce its trade surplus with the US by as much as $100bn to satisfy Trump’s demands appears to be a major contradiction. The question for investors is whether this adds up.
Another day, another flurry of activity in what has become one of the most vitriolic and antagonistic hostile merger bids since Kraft purchased Cadbury in 2010. GKN and Melrose investors have just three days to wait until the final count is in and much will depend on short versus long term investors. This bid has raised several questions about the difference in UK takeover rules versus other European countries and, irrespective of the result, may provide a catalyst for the Government to review the current rules to make sure they have the right balance between competition and protection.
United Steelworkers (USW) International President Leo W. Gerard issued the following prepared statement at a press conference this week where the Economic Policy Institute (EPI) released a study outlining the jobs lost from the US-China trade deficit since 2001. The EPI study identifies job losses in every state and congressional district.
"EPI's study paints a stark picture of the damage that the growing US trade deficit with China has inflicted on workers. Since China joined the World Trade Organization (WTO) in 2001, more than 3.4 million jobs have been lost across the country. No state or congressional district has been immune from the negative impact of China's trade policies.
"China has used virtually every tool, legal and illegal, to steal our jobs and undermine our manufacturing base and economy. Subsidies, dumping, overcapacity, currency manipulation and cyberespionage are all practices used by China to help amass a $3.9 trillion trade surplus since 2001. Mounting trade deficits are sapping our economic strength and undermining our national security. It's time to demand that China play by the rules.
"The USW is the largest industrial union in North America. Our members know firsthand the impact of China's policies. We have participated in or initiated dozens of trade cases at tremendous cost - money and jobs - to respond to China's actions. Our government needs to recognize how its flawed trade policies have damaged workers and their communities, while corporations and Wall Street have reaped profits. We need a new approach to trade that puts working families first.
"Trade played an enormous role in last year's campaigns. Promises have been made to address these problems, but time is growing short. Working Americans want change and expect their leaders to take action rather than continuing to cater to the special interests who offshore production and outsource jobs. Talk is cheap and threats are easy.
"What is needed is a clear, consistent and comprehensive approach to deal with China's protectionist and predatory trade practices. Politicians have talked about the need to change our nation's trade policies, but slogans and speeches are no substitute for action."
To see full report, click here. For more on the EPI, go to www.epi.org
(Source: EPI)
Though the US’ 45th President, Donald J. Trump stole the headlines last week, Alpine resort Davos saw a sweep of discussions, announcements and interesting statements come from this year’s 47th World Economic Forum.
Here below we have picked out some of the top highlights from the four-day annual forum.
US-China Trade War
Keynote speaker Chinese President Xi Jinping opened the forum stating that “Protectionism is like locking yourself in a dark room, which would seem to escape wind and rain, but also block out the sunshine…No one is a winner in a trade war.”
Jinping and other Chinese spokespersons, throughout the forum, set out a strong position, a warning even, against Trump's intimidations to start an American trade war against China.
Chairman of Ali Baba stated at the forum that a trade war between the US and China would be disastrous, and that he would do all he could to prevent it. "I think that China and the US should never have a trade war, will never have a trade war, and I think we should give President-elect Donald Trump some time - he’s open-minded, he’s listening," Ali Baba’s Chairman said in a speech.
AIi Baba executives also announced the signing of an Olympic sponsorship deal and provoked the US on its concerns towards its military rather than prioritizing infrastructure.
Europe & Brexit
On topics of European politics, and their effect on global economic matters, delegates met to discuss, and thereafter agree or disagree, on how political shifts, due to ground-gaining anti-establishment political parties, can be addressed by institutions.
Brexit was of course a big talk at the forum; in the UK Prime Minister's attempt to woo London’s banks, describing the institutions as a “huge value” to the economy despite their announcements of accelerated action in transferring executives to the EU, May shifted her Brexit priorities towards financial services in the UK capital. She said: “I value financial services in the City of London, and I want to ensure that we can keep financial services in the City of London… I believe that we will do just that.”
Additionally, the UK PM was confident in portraying post-Brexit Britain as a champion in free trade, claiming that “The UK will step up to a new leadership role as the strongest and most forceful advocate for business, free markets and free trade anywhere in the world.”
An interesting comment came from Sergio Ermotti, CEO of the UBS Group AG: “2017 will be a very challenging year for Europe…You see what's going on with Theresa May (and Brexit) but also, we have elections coming in Holland, most likely it's going to come out that the Populist party will have a relative majority. You will see France elections, you will see German elections, Italian elections and they are all pointing out to a lot of divide within the EU on how to tackle these issues."
Trump’s Presidency
On the other hand, much discussion also surrounded the inauguration of Trump, populist politics and business confidence on the back of his intentions… and tweets.
“I think that these very rational people will be very thoughtful when they go about the actual policy,” said Jamie Dimon, CEO of JPMorgan Chase & Co., discussing the need to focus on Trump’s cabinet nominees, rather than worrying about his one-line tweets.
Dimon told reporters he was not concerned about the US’ future and its effect on the world’s economy, given that the real estate magnate and TV star has enlisted “very serious people” for the new US administration.
Though financially, many were on the fence in discussions surrounding Trump’s intentions in relation to finance, Wall Street’s high flyers spoke about being confident that the incoming administration will relax regulatory limits on financiers, though they are not counting on the new President to overturn Obama’s Dodd-Frank Act (2010).
On the last day, a discussion took place as to whether populist politics can be positive for the global economy, markets and moving onward. Both the election of Trump and Brexit were prime examples used to define whether populism is a detriment to economic affairs or not, and one of the overall conclusions that can be taken from the discussion was that Trump and similar scenarios “will be disruptive and bring the economy forward,” (Indian billionaire Anil Agarwal).
This however, was not a majority opinion shared by all, and has been an ongoing debate through various speeches at the forum. Philip Jennings, General Secretary of the UNI Global Union said: “I think Donald Trump is going to turn out to be the betrayer in-chief. If you look at the people that he’s surrounded with, there’s not one of them that’s got the working man’s interest at heart.”
But again: “In Davos, I’ve got the impression that the Trump election is being interpreted as thoroughly positive in economic terms,” stated Swiss Finance Minister Ueli Maurer to reporters on the final day.
Technology, Motoring, Climate Change and R&D
But of course, politics did not dominate the forum necessarily, leaving ample space for tech and manufacturing companies to make announcements and analyses.
Toyota Motor Corp. Chairman Takeshi Uchiyamada, says that due to the need for further infrastructure, fuel-cell automobiles will eventually become popular, but it will take much longer than it took gasoline-electric cars to gain status.
“The hybrid sold much faster than we had anticipated…as for the FCV cars, we assume it won’t be as fast as hybrid as the infrastructure needs to be prepared before it becomes major in the market,” he told Bloomberg.
Co-founder of Alphabet Inc., Sergey Brin said in a speech that the company was one of the biggest spenders on AI in the world as of late, stating that the boom in uses of AI technology “has been very profound, and definitely surprised me even though I was right in there and could throw paper clips at them."
Much of his speech revolved around advances in AI technology, their application to a variety of segments from law to manufacturing, the threat of job eliminating and further shifts in society. He says it is a priority now to focus on the “inherently chaotic” tech steps and how the world must adapt appropriately.
Another hot topic during the week was climate change. Campaigners are worried the US’ new administration will be the demise of fresh policies, action and protection. Norwegian Prime Minister Erna Solberg spoke on behalf of the many in stating that Trump may very well not implement the Paris agreement, which aims for nations to keep global warming levels “well below” 2C. Many activists said their prime focus now is on Trump’s moves and how they might affect global climate concerns.
On top of these developments, the Gates Foundation also announced the joining of a global coalition for vaccines, against infectious diseases worldwide, the Coalition for Epidemic Preparedness Innovations. Starting off with a funding of $460 million from the Wellcome Trust, Germany, Japan, Norway, and now the Gates foundation, the coalition aims to develop and deploy vaccines in record times to curb the spread of global diseases.
And finally, the entire forum itself went to prove to the world the gigantic advent of drone technology, in the form of security. Across the Davos resort, security staff were armed not only with counter-human measures, but also with anti-drone technology. Dedrone, a leader in said technology, provided the personal with a drone defence system. Police in the Canton of Graubünden then used the system to monitor critical airspace above the resort area in real time.
