According to a report co-authored by Yandong Jia, a researcher at the Research Bureau of the People's Bank of China, alongside Jun Nie, a senior economist at the Kansas City Fed, “analysis indicates that the momentum of Chinese growth is likely to slow in the near term."

As the world’s second largest economy, China’s GDP has seen a 6.9 YoY increase, according to China’s National Bureau of Statistics (NBS). However, the above report suggests further growth to be considered bleak. "An analysis of its underlying forces suggests this momentum may not be sustainable," it reads. "In addition, strength in policy-related variables has been waning, creating additional downside risks to near-term growth."

Finance Monthly, this week spoke to several expert sources on China’s economy and prospected continued growth. Here are Your Thoughts.

Josh Seager, Investment Analyst, EQ Investors:

Every so often, investor concern about a Chinese hard landing rises. There have been numbers of catalysts for this over the past three years, from Chinese equity market sell offs to expectation of capital outflow induced currency depreciation. Most have passed without issue and are now barely remembered

The biggest cause of concern, however, has been debt. This has led many commentators to predict a large credit crisis. We believe that such concerns are overemphasised and stem from a key misunderstanding: the Chinese economy is ultimately guided by the Communist party not market dynamics. Credit crises generally happen because heavily indebted borrowers lose access to financing. In China’s case, the communist party control both the lenders (the banks) and the problem borrowers (the heavily indebted State-Owned Enterprises (SOES). Consequently, they are in a perfect position to manage the riskier debts and avoid defaults.

The real risk to China is much less exciting. Without ‘creative destruction’ where unprofitable companies are allowed to default, resources become misallocated. This means that unprofitable and unproductive companies, many of whom should be bankrupt, hoover up capital, employees and materials that could be better used by more productive firms.

This is happening in China, SOEs are hoarding resources in spite of the fact that they have get 1/3 (capital economics) of the return on them that private companies do. The route out is through supply-side reform but is difficult. It requires bankruptcy, bank recapitalisation and would probably lead to higher unemployment and increased uncertainty.

The Chinese government is financially strong and can afford to do this now. However, reform will get more difficult and expensive as the stock of debt builds. If President Xi chooses to pursue reforms we are likely to see short term pain for long term stability. If not, we will see a continuation of the status quo for the next few years but future GDP will be lower as a result.

Jonathan Watson, Chief Market Analyst, Foreign Currency Direct:

The Chinese economy has been wobbling with concerns over the pace of economic growth, which peaked at nearly 15% in 2007 but has been languishing around 6.9% lately.

Both business and consumer debt is high, and there are wider concerns that the largely export driven growth the economy has seen in the last few decades is coming to a halt.

Previously voiced concerns over the legitimacy of Chinese economic data raises questions about the extent of the trouble the economy could be in. Overlooking those fears, what appears clear is that the Chinese economy is still improving. With the global economy predicted to grow by 3.6% this year and 3.7% next year, according to the IMF, China should have little to worry about.

As a net exporter, the global economy will continue to have an effect on China’s economic growth. Any readjustments could cause turbulence but I see the trajectory as positive. Rather than hitting a wall as many have been predicting for years, I expect the Chinese economy will be building over or through one…

Erik Lueth, Global Emerging Market Economist, LGIM:

The Chinese economy is indeed likely to slow from here, but it is unlikely to hit a wall. Growth has been above the official target of 6.5% so far this year, powered by exports and a buoyant property sector. But, both of these drivers are fading.

In response to runaway house inflation in prime cities, the government tightened prudential measures over the past year or so. This has led to weaker housing demand and prices with the latter now falling in tier-1 cities. Similarly, exports seem to have peaked with PMIs in advanced economies looking stretched and the Chinese currency no longer falling in real terms. In our base case the economy would slow from around 7% this year to 6.5% in 2018 and 6.2% in 2019.

We are concerned about high debt levels, but the Chinese economy hitting a wall is a mere tail event in our forecast. To begin with, a financial crisis doesn’t look likely (as I have argued here on our investment blog, Macro Matters). China’s debts to foreigners are negligible and the capital account remains tightly managed. Key debtors and creditors are state-owned—state-owned enterprises and banks, respectively—greatly reducing roll-over risks. And, shadow banking while risky is still too small to overwhelm the state banks.

Second, China still has ample fiscal space. If it were to increase its fiscal deficit – estimated at around 12.5% of GDP – by 2 percentage points over each of the next 5 years, government debt would rise from around 70% of GDP today to 105% of GDP in 2021. This is not negligible, but certainly manageable given high savings rates and potential growth.

If something has the potential to drive China against the wall, it would be the deflation of a property bubble. As always spotting a bubble is challenging, but on balance we discount it. According to BIS data real house prices have been flat since the global financial crisis on a nationwide basis. Moves in prime cities have been anything but sideways, but at 90% over 3 years, increases remain well below the 300% witnessed in Tokyo before its bubble burst in 1990.

Dr Ying Zhang, RSM Rotterdam School of Management, Erasmus University:

China’s economic growth from the factor-driven to an efficiency-driven in the past 3 decades has not only brought China to be the world manufacturing center in the past, but also leveraged China as one of the important “spinal joints” of the world-body for the future. The reason of its importance is consistent with the global phenomena and world economy integration, as well as the interdependence between China and the rest of the world.

China’s supply-driven and quantity-based catch-up model is very effective, particularly to bring China to the category of middle-income countries; however, once stepping into such a territory, the historical evidence already shows that the chance to be trapped in there is be very high, if without proper in-time transformation.

Due to the high-interdependence, China’s reduced economic growth rate, though not pulling China’s economy moving down, has pulled exponential impact on some countries in terms of their employment rate and economic performance. Such symptom calls for worries and blaming to China, with two different messages: one, China hits the wall; second, China is transforming and preparing for the innovation-driven economic growth model.

China’s current transformation, in terms of being inclusive and quality-based and dramatic rising evidence in domestic consumption and prosperous service sector, implies that China will not be falling into the first proposition. It is also supported by the vision and the joint effort of Chinese citizens, global participants, and Chinese government to build China as an inclusive society and sustainable economy for the sake of world integration and global sustainability. In principle, this direction is presented as a paradox where China’s transformation is empowered by massive entrepreneurship and innovation in the current technology-driven and digitalization era ,while presented with a reduced GDP growth rate. The underlying matter is our perception and the angle to view it.

China’s economy does not hit the wall. Instead, it is on drive with much more power. With corrected understanding on the relationship between what China is working on and what the statistics simply presented, there would be more space for the world to grow together, for the world economy to be more stabilizing, sustainable and integrative.

Franklin Allen, Executive Director, Brevan Howard Centre for Financial Analysis:

Academics and journalists often predict that the Chinese economy’s growth will “hit a wall” and slow down dramatically. So far this has not happened. The Chinese economy has slowed down from about 10% annual real GDP growth several years ago to the current 6.5-7.0%. My own view is that this kind of growth rate is likely to continue for the next few years at least. The Chinese government still has a large degree of control over many aspects of the economy and if growth appears to be missing this target, they can ensure enough extra activity is undertaken that it hits it. There is a significant amount of debt in the Chinese economy but much of this is local government debt. The problem is that the funding of local governments is not well structured currently. They do not have taxing powers and do not receive large block grants from the central government. At some point the Chinese government will need to solve this problem. However, in the short run debt figures in China should be interpreted in a different way than equivalent numbers in Europe or the US.

In the long run, I think the Chinese economy has the capability to grow more quickly than current rates. The problem is that the financial system does not provide productive small and medium sized enterprises with the financing they need. They are the growth engines the economy requires and has used in the past during the fast growth period. If you look at the interest rates these firms are prepared to pay in the shadow banking sector, it seems likely they can grow quickly if they could obtain finance through the formal financial system. At the moment this is geared up to provide large state-owned enterprises with finance but they do not require very much. They do not have many prospects for growth. Hopefully, reforms to the financial system that have long been discussed and that will allow flows to the firms that need then will be implemented before too long.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Lee Wild, Head of Equity Strategy at Interactive Investor comments for Finance Monthly:

On the FTSE 100 rally:

There have been a number of key drivers behind the FTSE 100’s latest rally, among them a weaker pound, likely increase in UK interest rates, government housing policy and a lack of any viable alternatives for investors.

There’s an inverse relationship between sterling and the FTSE 100. A weak currency is great news for the FTSE 100’s army of overseas earners who receive a windfall when expensive dollars are converted back into sterling. The US economy is thriving too, and many UK companies, like Ferguson (the old Wolseley), InterContinental Hotels and Ashtead, make much of their money there.

A more hawkish Bank of England has been good for banks, which typically generate higher margins when interest rates rise. The government’s promise to extend the Help to Buy scheme is also a massive boost to UK housebuilders Barratt Developments, Persimmon and Taylor Wimpey.

While it’s true there are fewer bargains around, investors can still find plenty of companies trading on reasonable valuation multiples paying a generous and affordable dividend. And it’s much harder to find the level of returns on offer from equities in other liquid investments.

This should underpin confidence in the stockmarket and possibly steer the FTSE 100 to an all-time high at 7,600, especially if Brexit talks go badly or a threat to Theresa May’s leadership puts pressure on sterling.

On Bitcoin:

The value of bitcoin has almost doubled in less than a month which is clearly attracting further interest from speculators. There’s evidence of growing institutional activity, too, and if China reopens cryptocurrency exchanges after the Communist Party Congress which starts next week, some believe the price could reach $10,000 by the end of the year.

However, there could be near-term turbulence around changes to the code the bitcoin network runs on, due to be implemented in mid-November.

It is crucial that retail investors understand the many risks involved in cryptocurrency trading, not least the volatility - bitcoin has lost more than a third of its value on two occasions since June. It is clearly not for the faint-hearted.

Following the recent disasters that hit the US mainland, Finance Monthly reached out to Nalanda Matia, Lead Economist at Dun & Bradstreet, to gather thoughts on the overall impact felt by supply chains throughout the various industries, regions and markets.

Mother Nature hasn’t been kind to the United States in the past month or so; Hurricane Harvey left a trail of destruction on several counties in Texas, while Hurricane Irma devastated parts of the Sunshine State, most notably The Keys. The stormy season doesn’t look like it will abate anytime soon. The market impacts of these natural disasters are significant, particularly on densely populated and urban cities.

While the financial repercussions of Irma are still being counted, let’s take a closer look at the impact of Harvey, including affected industries, the supply chain and the future outlook of the affected areas.

Impacted industries

Early estimates have placed the impact of Category 4 Hurricane Harvey at around $75 billion, with losses from insured and uninsured residential and commercial properties making up the majority. With the addition of other costs associated with business interruptions, lapses in employment gains, and additional flooding or damage to contents of the properties, the toll could be much higher.

The top industries in the state with the largest number of jobs that have been potentially impacted by the hurricane are services; manufacturing; wholesale and retail trade; mining; construction; finance, insurance, & real estate and agriculture, forestry & fishing.

Supply chain concerns

The disruption in energy exports and other supply chain activities as ports in the state remained closed to vessel traffic until floodwater damage was assessed affected consumers and trade, creating build-ups and delays.

Many industry supply chains will take a hit as the transportation industry looks to get business back to normal. The Houston area in particular accommodates several major airports with flights to more than 70 international destinations. With some of these airports closed for a few days, the air transportation sector faced considerable backlog that they’re still coping with today.

Waterborne transportation is also in crisis due to the closure for several days of all major ports in the Houston and Corpus Christi areas. Large container ships headed to Houston to load cargo were stranded or diverted to nearby ports to wait out the storm and port closures. This caused severe supply chain disruptions in both parts of the United States and internationally. Based on the diverse nature of cargo that goes through the Houston area ports, the supply chain interruptions were not just limited to energy or chemicals, but extended to other commodities, such as agricultural products.

Business and economic impact

The parts of the United States affected by Hurricane Harvey have relatively high populations and are economically developed areas, which has contributed to high economic losses, perhaps one of the highest economic costs incurred due to a natural disaster in the US. With thousands of businesses and their employees stricken, the economic outlook for the region as a whole is expected to be lacklustre, but this prognosis may be true only in the short term.

Looking more closely at what businesses were affected, the vast majority were micro and small businesses with fewer than 10 and fewer than 100 employees, respectively. Also, close to 40% of the affected businesses are fairly young – within the first five years of their life cycles.

According to our estimates, the county of Harris, TX seems to have undergone the maximum disruption as far as the number of affected businesses are concerned. The county contains more than 60% of the businesses that have been declared at risk.

What to expect from Irma

While Irma seems to have been a slightly stronger storm in terms of wind, its financial impacts – without diminishing its severity – might be slightly less than Hurricane Harvey’s. Dun & Bradstreet estimates over two million businesses to have been in the monster hurricane’s path. This includes 49 counties in FL, three in Georgia, four in PR and two in Virginia that have been declared as disaster regions by FEMA.

Early estimates regarding these businesses are that nearly 60% of the jobs affected are in Services and Retail – with the affected regions in scenic and tourist-frequented areas. Pre-Irma, about 12% of the businesses located in the path of the storm were in the riskiest class of the Dun & Bradstreet Delinquency Predictor score. Because of the hurricane, these businesses, which were already at risk of becoming severely delinquent, will have an increasingly difficult time meeting their obligations.

Early estimates put the damage from Hurricane Irma in Florida and the surrounding areas at closer to $50bn, but the exact number is hard to predict exactly at this stage. As the southern coastal states count the cost of these disasters, we envisage a number of months until all services, transportation systems, supply chains and the economy are back to normal.

Although these current disasters are not expected to leave a permanent imprint on the economy of the United States, the immediate consequences of these increasingly frequent events cannot be ignored.

There are mixed thoughts across the UK on the current state of the property market and the prospects to come. In some regions economists believe it’s the best it’s been in the last ten years, while others are confident in the current slump, particularly in London. Here Paresh Raja, CEO of Market Financial Solutions (MFS), talks Finance Monthly through his thoughts on the future of the UK property market.

The UK has developed something of an obsession with homeownership. While our European neighbours are content with long-term leasing contracts, homeownership in the UK is as much of a personal milestone as it is a popular financial investment – a report by YouGov found that 80% of British adults are aspiring to buy a property within the next 10 years. As an investment, property is a resilient asset able to withstand periods of market volatility. At the same time, price appreciation as a consequence of demand positively contributes to home equity, increasing its resale value and potential to deliver long-term returns.

The allure of residential real estate has remained consistently high in the UK, and the Brexit announcement has done little to dampen investor appetite for property. The average house price has risen by an average of 0.37% per month since the referendum vote in June 2016. Should this trend continue, house prices could rise by as much as 50% over the next decade. While an impressive feat, the same YouGov report stated that 85% of respondents believes that owning a home is very difficult in today’s economic climate.

To ensure homeownership remains an attainable goal, the Government has pledged to increase the housing stock by promoting the construction of new homes across the UK. A housing white paper released earlier in the year has also set out the Government’s plan to reform the housing market and contribute to housing supply, though little has been done since then to demonstrate the Government’s commitment to supporting property investment. While this is a welcome measure, such a pledge needs to be informed by a long-term strategy that lays down the foundations for the ongoing support of the property market against any future economic and political shifts.

Of course, there are variety of different avenues for aspiring homeowners to jump on the property ladder should they struggle to acquire finance from traditional lenders. The Bank of Mum and Dad (BOMAD) has fast become a leading source of finance for millennials struggling to acquire a mortgage or buy a house in a desirable location. Parents are predicted to lend over £6.5 billion in 2017 to support the property aspirations of their children – a 30% increase on the amount loaned in 2016.

Considering the amount of property wealth that has been amassed by UK retirees and the Baby Boomer generation, the transfer of such wealth through inheritance constitutes a significant proportion of property transactions – a study by Royal London anticipated that over the coming decade, £400 billion worth of real estate would be passed on from older generations to those aged between 25 and 44. This transition will have profound impact on the wider property market.

Recent research commissioned by MFS found that that 36% of people across the country will be inheriting a property – equivalent to 18.64 million people. Interestingly, the research found that over half of people due to inherit a property will be looking to sell it as soon as possible so they can re-invest the money in a different asset or property of their choosing. A third would also look to take advantage of the long-term returns on offer by undertaking some form of refurbishment so that the house is in a better condition to sell or place on the rental market.

The challenge remains for the property sector to provide clear guidance around the options that exist for those seeking to maximise the potential gains of their real estate inheritance, while at the same time bringing new properties onto the market in improved conditions. Taking into account the full range of trends underpinning the property market, homeownership does not have to be an attainable goal for the few. The market is at a critical juncture, and with demand for property consistently high, there are likely to be significant opportunities arising over the coming year.

Money laundering represents the fifth largest economy in the world and equates to 3% of global GDP.

Leading defence and security organisation, BAE Systems has set out six criminal types responsible for money laundering around the world, to help global businesses understand the motivations and modus operandi of criminals targeting their business. The company hopes to help businesses fight the significant threat posed by financial crime.

Accounting for almost $2trn each year[1], money laundering is having an increasingly devastating effect on societies around the world. The criminals behind money laundering are finding ever more sophisticated ways of disguising their activity. Research shows that money laundering activity has a significant impact on society as it drives up property prices and increases taxes and insurance premiums while also funding other criminal activity such as the drugs trade and international terrorism.

BAE Systems’ subject matter experts analysed customer data to identify the people most commonly involved in money laundering. They are:

1. The Source – White collar fraudsters and organised crime gangs making illegal profit from their crimes. As a result of operating outside the law they need their money ‘cleaned’ before it can be used.
2. The Leader – Leaders are clinging to power and stripping their country of wealth to line their own pockets. Their outcast status causes the Leader to resort to subterfuge to hide their funds and spend money on the things that keep them in power.
3. The Bystander – Bystanders don’t facilitate crime but are happy to turn a blind eye while their mysterious client lines their pockets.
4. The Watched – People on international watch lists who could either be corrupted or facilitate corruption for a price.
5. The Shark – Sharks enable crime by helping move illicit funds through the banking system, profiting themselves along the way.
6. The Shop Front – Legitimate-looking businesses that exist to launder money, catering specifically to criminals.

Rob Horton, Head of Financial Crime Solutions EMEA at BAE Systems said: “In today’s digital world, criminals are constantly exploring new ways to find and exploit loopholes in legitimate channels to make the proceeds of crime look like legal tender. But the real issue isn’t simply the illicit money, it’s the wider impact of these criminal acts. Money laundering keeps hospitals, schools and libraries from being built as the proceeds of crime contribute nothing to the public purse. Launderers are also bending the property market, pricing first time buyers out of many cities. And the profits of money laundering are the cause of organised crime across the world, from drug trafficking and gun smuggling, to fraud and modern slavery.

“The fight against money laundering needs a new era of collaboration between the financial services industry, government and technology and compliance specialists. Understanding the motivations and modus operandi of the people behind it is the critical first step. Businesses need to understand the enemies they face in order to successfully protect themselves against them.”

(Source: BAE Systems)

[1] https://www.unodc.org/unodc/en/frontpage/2011/October/illicit-money_-how-much-is-out-there.html

Latest figures release show that a fall in income receipts from foreigners have pushed the US deficit up to 2.6%, bringing it back towards the levels of 2008, but well short of the 2005 high of 6.3%.

According to the Department of Commerce, the increase in the account deficit during the second quarter rose from $113.5 billion to $123.1 billion and pushed the figure up to a level equivalent to 2.6% of the US’s total economy when measured against the GDP. This reflects an increase from the first quarter of this year, where the deficit measured 2.4%. The news came as a surprise to many who had pencilled in a deficit figure of $110 billion for the months ending in June.

The increase is largely being attributed to a $5.2 billion decrease in receipts of secondary income from foreigners alongside a decline in government fines and penalties.

Import of goods and services increased by $11.8 billion by the end of June, however these figures accelerated more quickly than sales to overseas markets which were up $2.2 billion, benefitting from a weaker dollar and an upturn in global growth.

The current account is widely viewed as the most accurate measure of US trade because it includes goods and services in addition to payments and investments from the rest of the world to America.

The government will be keen to try and reduce this deficit, given it was a significant campaign pledge from the current administration who have repeatedly claimed that it is reducing the number of jobs for Americans, particularly in factories across the country.

ICOs are like IPOs, but for new coins. By now you’ll have heard about Bitcoin and blockchain, except that by now there are already over 900 other brand-new cryptocurrencies, just like Bitcoin, competing for a cryto-market in which digital money has created its own markets, with its own B2B markets and so forth.

One of China’s latest bans involved the absolute ban on introducing new currencies, whereby neither private companies nor banks can make a move on the cryto-markets. This is widely considered, by FinTech and crypto-enthusiasts at large, as a bad move.

However, Jakob Drzazga, co-founder of Brickblock, a firm that is on the verge of its own upcoming ICO, welcomes this ban, and explains to Finance Monthly why.

The Chinese know very well that pigs get fat and hogs get slaughtered. The country’s rich list is often dubbed the 'Hogs-slaughtering List' and appearing on the list can immediately attract attention, investigation, and sometimes even prison time for financial misconduct.

Initial Coin Offerings (ICOs) seem to have suffered a similar fate – getting too fat and attracting too much attention. On 4th September 2017, People's Bank of China declared ICO as an illegal fund-raising activity following weeks of intense and critical media speculations.  ICOs have reached a state of frenzy in China with reportedly USD 400 million raised since the beginning of 2017, in comparison to the global total of USD 2.16 billion. Millions were raised based on a white paper containing fancy concepts elegantly outlined, but understood by few, and scrutinized by fewer still.

The secret formula of getting rich quickly spread. For a country that has produced more millionaires than any other in the last 30 years, ICO is seen as a fast track to join the millionaire’s club.

When ICOs have become a business model, rather than a financing method for an innovative business to grow, something has to be done. The Chinese regulator has rightly done just that.

According to the regulator’s in-depth study of numerous white papers circulated in the local market, the fund-raising activities of 90% of ICO projects were distinctly dubious. Of the rest, less than 1% is genuinely invested in the technology claimed behind most ICO projects – blockchain. Therefore, there is an important distinction between China’s ICO ban and its support to the development of blockchain technology which has been included in the country’s 13th Five-Year Plan (2016-2020).

So why would Brickblock, a start-up that is just about to launch its ICO globally next month, welcome the China ICO ban?

The ban will help to tame the ICO hype and provide a healthier eco-system for genuine and committed blockchain businesses to stand out and stand up to the test.

The ban will have an adverse effect on the short-term speculative investment but not too much on long term strategic investment committed to developing sustainable blockchain businesses.

The future of asset allocation is no longer about different asset classes, not even about including crypto currencies as an asset class, it is about bridging the digital and real world asset through tokenization.

At Brickblock, we have a grand but simple vision: building a trading platform on the blockchain where transactions are done seamlessly and asset classes transcend beyond forms or borders.  We believe in tokenization as the future and as the new derivative market.

Just like the internet bubble, the fittest will survive and thrive. Neither ICO hype nor ban will help or hinder us to achieve our vision. To achieve that, we need strategic partners, visionaries, talents and the community who share our passion and long-term commitment.

EY further expands it growing consultancy and advisory practice with the appointment of Chief Economist Neil Gibson. Former Professor with Ulster University, Gibson who has been economic advisor to the firm for over 10 years will provide economic analysis and insight to clients on a range of issues arising from continued change within Ireland’s economic landscape.

Prior to taking up the role at Ulster University, as an economist with Oxford Economics, Gibson developed marco, regional and sub-regional economic forecast models and most recently has worked with clients across the Island of Ireland on scenario planning for current and future implications of Brexit.

This appointment follows a number of strategic appointments the firm has made recently including, Shane Mac Sweeney as Partner and Head of Government & Infrastructure, along with a number of Senior Directors including Ferga Kane, Anthony Rourke and Conor Gunn who will work alongside him in providing solutions for Government and private sector clients in collaboration with EY’s existing government and infrastructure experts.

Mike McKerr, Country Managing Partner, EY Ireland: “EY Ireland welcomes the appointment of Neil Gibson as Chief Economist to the firm, having served as economic advisor to EY for the past ten years. Ireland in particular is at a critical economic cross-roads with Brexit, wider geopolitical and technological disruption.  We believe that it’s essential we work in collaboration with business and Government to ensure that the UK’s exit from the EU has limited impact on the free movement of labour and trade, not just between Northern Ireland and the Republic of Ireland, but also with the mainland UK. Neil will bring unique perspectives to both the public and private sectors and I would personally like to welcome him to EY Ireland.

Neil Gibson, Chief Economist with EY Ireland: “I’m delighted to be joining the EY team to take up this new role at a time of great change in the economy. I have worked with EY over the last decade and I look forward to working with our clients, helping them to continue to succeed during what is set to be a period of unprecedented uncertainty. Tapping into the global EY economic team and working alongside our local EY teams, I am looking forward to enhancing our economic services in Ireland.”

(Source: EY)

Between hurricane Harvey and Irma, states in the US have been truly ravaged by disaster. The effects of destruction have now left long lasting marks on local economies and the performance of markets, among many other things.

OPEC, for example, was severely impacted by the hurricanes, as we saw demand pitfall despite continued production and refining. Goldman Sachs stated that both Harvey and Irma will leave a huge dent in the oil market, leading to a global reduction in consumption of oil by 600,000 bpd in September.

We asked Finance Monthly’s expert contacts what they made of the situation, and have heard Your Thoughts on the overall impact of hurricanes on oil markets and beyond.

Nathan Sage, Market Analyst, PhillipCapital UK:

Hurricane Harvey was one of the biggest storms to hit the gulf coast in a decade with the total damages now estimated at upwards of $180 billion. The category four storm made landfall in Texas as it peaked in intensity and now holds the record for the wettest tropical cyclone to hit mainland US states. The significance of its landing is important as Texas and States along the gulf coast are a major refining point of crude oil and are responsible for around 12% of the country’s refining capacity.

Before Harvey hit, traders were already nervous, and crude, both Brent and West Texas Intermediate, ground lower until dropping as Harvey made landfall. The major moves were in the markets for distillates especially in the gasoline market which gained over 16% as fears of a fuel shortage spread across the state and surrounding areas.

The low of oil was a good buying opportunity for traders as the drop in refining would ultimately lead to higher inventories but the lasting effect of the rise would only be temporary for traders with a moderate outlook. Brent and WTI have both added 3.74% this week and 7.5% since its low last week. The short term effects of Harvey have already been seen in the data with initial jobless claims rising 62,000 in the week to September 2nd totalling 298,000 way above the expected 245,000.

The lasting effects of Harvey from the oil industry’s point of view has now largely worn off with pipelines and refineries coming back online earlier this week and business is mostly back to normal. In the same breath, traders will now be focussing on Hurricane Irma which has already devastated most of the Caribbean and is expected to make landfall this Sunday. Florida has less of a significate for oil markets but insurance companies will weigh on US stock markets as the costs from both Harvey and Irma start to mount. The full extent of the losses are yet to be seen but some are expecting the most Harvey-exposed insurers to take an earnings hit of around 25-30%. It’s no surprise that heading into the weekend risk appetite has waned and we can see US markets edging lower on the open.

Longer term and away from the storms, the overarching themes in oil markets remain focused on the global supply glut. Russian finance minister Anton Siluanov has said that Russia would benefit from extending its agreement with OPEC to limit global supply and said the benefits would extend to “everyone involved”. Without an extension of the agreement and if the world’s largest oil producers were to have full autonomy on their own output it would likely lead to a huge correction lower in prices. This would be especially true, as the recent higher oil price has allowed shale producers to become more efficient and are now able to operate at a lower breakeven point than before.

Fiona Cincotta, Senior Market Analyst, City Index:

The markets are breathing a sigh of relief as the trail of devastation left by Hurricane Irma was not quite as bad as was initially feared. Whilst Florida is still receiving a pounding from the now Category one storm, notably Miami managed to dodge the most dangerous part of the storm. So far news of catastrophic damage hasn’t come through, which is a promising sign that the markets are focusing on.

As a result of the severe but not catastrophic Hurricane Irma the dollar index enjoyed its biggest 1 day jump in 10 days, gaining 0.5% versus a basket of currencies. Meanwhile the Dow Jones futures surged over 100 points, whilst the S&P 500 futures were also pointing to a positive start for the index.

The markets were on edge in the days leading up to the hurricane given the difficulty in assessing the financial impact of natural disasters. However, although the initial assessment is that the impact of the storm is not as bad as first feared, we still expect some evidence of economic damage from this hurricane and hurricane Harvey to feed through to the economy in the form of weaker economic data such as labour market numbers, economic growth and retail sales. Therefore, investors will be paying particular attention to Thursday’s retail sales numbers. Significantly weaker than expected data could weigh heavily on sentiment.

The other point to keep in mind is that the economic impact of hurricanes tends to be short lived and often the rebuilding effort offsets the damage the hurricane caused to the economy. Therefore, if economic data is slightly weaker, this should only be a blip rather than the start of a new trend. Federal Reserve Official Dudley confirmed this last week by saying that he didn’t expect the outcome of Hurricane Irma to impact on the monetary policy outlook.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Russell Smith, founder of Russell Smith Chartered Accountants discusses with Finance Monthly poignant financial lessons we can all take away from HBO’s hit TV series Game of Thrones.

In the quest for financial supremacy, we often take advice from those who’ve already achieved great success. Many will read articles about how to secure wealth and maintain steady finances. Others will go as far to train in the art making money, or at least attend conferences and seminars that promise to unlock secrets of healthy financial perpetuity.

Yet, the pursuit of financial wisdom need not always be sought from real life examples. Game of Thrones is a fascinating, brutal world; one that inspires great creativity and has millions of viewers revelling in world-class entertainment. For many, what makes Game of Thrones enjoyable is that, while it’s a world inhabited by swords, magic and dragons, it is grounded in realism that parallels our world and history.

It’s a fantasy, but a fantasy mired with the harsh reality of our own world.

The result is that, while it may be a fictional land, Westeros is a continent full of genius minds from which we can learn some very real lessons about finance. To pick the great business minds of Westeros is just as valuable as picking those in our own world. So, what exactly can we learn from masterminds of G.R.R Martin’s Ice and Fire saga?

Chaos is a Ladder

Lord Petyr Baelish, otherwise known as Littlefinger, is a true rags-to-riches story. Through a combination of intellect and circumstance, he manages to go from low-born peasant to one of the wealthiest and powerful men in all of Westeros — and he did all by climbing that ladder of chaos.

But how exactly can real business owners climb a chaos ladder to financial success? It’s all about stabiliy.

Petyr Baelish took advantage of chaos by offering those around him stability. His climb to success began when he became a Customs Officer in a small provincial town. In an era following war and uncertainty, he proved himself to be a reliable moneymaker, which resulted in him rising to the rank of Master of Coin in King’s Landing. Littlefinger kept out of the conflicts and turmoil and instead focused on being a sturdy pillar on which others could rely. While others fell, he continued to climb.

In Westeros and in the business world, people appreciate stability. They appreciate a sure bet. Anyone can climb a ladder of chaos to financial success by proving themselves to be a safer, more reliable option than their competitors.

Personal Survival is All About Limited Liability

Before Robert’s Rebellion, the Lannisters were in trouble. Their gold mines were running dry and Tywin had to find a way to keep his family’s wealth alive. He managed it, of course, by helping to defeat the Targaryens and putting Robert Baratheon on the throne. But how did this allow him to stay the wealthiest man in Westeros?

First, it allowed him to rake in money through marriage to the crown, taxation and the acquisition of assets such as castles. However, it also allowed him to do something any business owner can in the real world can do as well: protect his personal financial health through limiting liability.

Through the acquisition of the crown, Tywin was able to shift financial burdens and responsibilities off the Lannister House and onto the Kingdom of Westeros itself, just as a business owner establishing a limited company can ensure they are protected should their business go bankrupt.

Through this tactic, Tywin could earn money through the crown while securing loans against it that allowed him to maintain his family's wealth; all while ensuring, should they be unable to pay their debts, the Lannister family would be spared financial ruin.

Business owners of the real world can follow Tywin’s example, setting up LTDs instead of taking on all the financial risks involved in business by running their operation as a self-employed entrepreneur.

Emotion and Financial Success Do Not Mix

Emotions and financial success do not go hand in hand. In Westeros, we’ve seen countless examples of leaders making decisions based on their emotional ties — and the results are not good.

This includes Robb Stark marrying his true love despite brokering a deal with the Freys, nearly destroying House Stark, and Daenerys suffering huge losses after failing to respect the culture of her new home, losing support the people until she eventually reopened the fighting pits. Cersei also lets her emotions control her actions, which ultimately leads to the death of two of her children, Tommen and Myrcella.

Other characters, characters who don’t allow emotions to cloud their judgement, find much greater success in Westeros. Tywin is a man who runs on cold, calculating plans and his only folly was not locking his bathroom door. Petyr Baelish also thinks in terms of practicalities and not allegiances, which has seen him become the wealthy man he is today. And, of course, we have the sellsword Bronn, who never mixes emotions with business, allowing him to make a killing off the Lannisters.

Those who have assured themselves financial success have done so by making choices that are in their best interests, casting off any emotional involvement. Despite his daughter’s disdain, Tywin was determined to see her marriage to Ser Loras Tyrell go ahead for the sake of the family’s wealth, and Bronn refused to fight as Tyrion’s champion, as he knew it wasn’t a smart decision on his part — even though his friend was doomed without him.

What Game of Thrones teaches us is that you must follow the examples of those who don’t let emotions impact their judgement. Survival in Westeros and in the financial world is about actions that benefit you and help you move forward, not that support others at your own expense.

Prepare for Your Financial Winter

In Westeros, winter has come.

While Jon Snow is hurriedly preparing to help his people survive, most others in The Seven Kingdoms are ignoring the impending threat. When winter comes for the south, how do you think King’s Landing will fare?

This isn’t the first time winter has come for our characters, though. The Lannisters faced a metaphorical winter when their gold mines ran dry. But, like Jon Snow, Tywin was prepared for the cold months ahead. The Lannister leader had been planning for the days when his resources would run out and was ready to keep the family out of financial danger.

Being ignorant of upcoming threats to your financial health is a surefire way to collapse. Preparation is key to survival. In Westeros, winter was inevitable. In business, financial hardships are the same. At some point, you will likely have to weather an economic winter. It may be a global financial crisis — which many predict is coming sooner rather than later — or it may be something specific to your firm, such as a move in consumer interest, supplier demands or a lack of gold in your mines.

Whatever the potential is for hardship, if you do not prepare, you will not survive. Winter will come. It isn’t a question of if, but when.

The Maltese economy has grown strongly in recent years, with the online gaming sector playing a key role. Just how key that role is can be difficult to imagine for people that are not based on the Mediterranean island.

In the government policy arena there is a global desire to create business and innovation “clusters”. These are geographic areas where many companies in a small number of sectors congregate. Great examples of this are the Silicon Valley and Wall Street. With that in mind, when it comes to online gambling, Malta is Europe’s Wall Street. There are now several hundred businesses in Malta covering the range of bingo, casino, live casino, lotto and sportsbook. This has encouraged the ecosystem to grow so that there is now a wide range of associated firms – payment providers, game creators, specialist recruiters, management services and many more – who are also located in the same small geographic area.

Malta worked hard to attract these businesses. It was early in creating legislation and oversight enabling gaming companies to relocate. While this might not sound like much of an advantage, there are many countries within the EU that are still discussing their own legislation a decade later. The combination of favourable tax laws and the right specific gaming legislation made it the clear choice for many companies. Over time that situation has evolved so that it is now difficult for most gaming firms to not have some sort of presence on the island.

There are other jurisdictions with a strong gaming presence, such as the Isle of Man and Gibraltar, but Malta’s onshore rules, easier access and larger working population provide it with an edge.

Europe’s gambling legislation is something of a muddle with very different rules in place from one country to another and some countries having almost no rules at all. The result is that where specific country rules are not in place, most firms use a Maltese license to market within Europe’s internal market.

As might be imagined, this confused situation provides opportunities for smaller, nimble, operators. In contrast, the biggest gambling companies are taking active steps to encourage more regulation because of the protection that more legislation and enforcement will provide them.

Is It All Fun In The Sun?

Estimates vary about just how many people are employed in Malta’s gaming sector, with the most common numbers nestling between eight and ten thousand people. While this number ought to be easy to verify, there are many firms using Malta as a base of operations because of the high concentration of experienced staff, but that are not actually licensed locally.

We spoke to Dan Andersson, co-founder and CEO of Vera&John, an international online casino, which is now part of the much larger UK-listed Jackpotjoy Group. As he explained, “Malta has become a great home for us and for online gaming. Any online business needs young, multi-lingual digital natives to help it operate. The combination of sunshine and a nice lifestyle helps to attract those people to Malta, while there are also many people with years of relevant gaming experience here as well”.

Trouble In Paradise?

This environment of fun online companies, cosmopolitan colleagues and great weather has attracted the talent that has helped to transform the Maltese economy into something much stronger than it once was.

However, this is putting some parts of Malta under great strain. One problem area is the rental market. The majority of the incoming gaming firms have settled in a small number of towns that are very close together. Many of their staff can live locally and walk to work, but the continual influx of people into what are actually very small towns has forced rents upwards substantially in the last few years.

In larger countries, people would simply live further away and commute each day, but on an island as small as Malta is, there are some very real constraints to this. Needless to say, many Maltese landlords have seen the value of their assets rise substantially, helping to share the wealth around, but for Maltese first-time buyers, getting onto the housing ladder is now very difficult.

Will It Last?

Malta’s position is possible, in part, because of the laws in place across the rest of the European Union. As more countries enact licensing laws, things may change. However, much of the work to operate online properties in country with strict rules, such as the UK, is currently being done within the offices of larger firms based in Malta.

With the prospect of the UK – and therefore Gibraltar’s – EU status changing because of Brexit, there are gaming operators investigating their options to relocate. Malta is an obvious potential beneficiary.

However, there have been moves within the European Union to change the way sports betting is regulated. The sizable potential impact to the sector has lead Malta to block these changes. Whether this tiny country can block the changes desired by much more powerful Member States forever remains to be seen. What seems clear is that Malta will resist for as long as possible to protect this economic crown jewel.

About the author:

Stuart Langridge is originally from the UK and has lived in Malta for 6 years. He has worked as a freelance writer on a wide range of economic and financial topics for many years and now works in marketing for an online gaming company.

 By Mihir Kapadia, CEO of Sun Global Investments

In November 2016, for most observers, a Donald Trump win was a slightly worrying possibility and a Hillary Clinton victory seemed to be the best route for economic continuity and stability.  But then the unexpected happened; Trump won the Presidential Election and the market rallied strongly from the next morning onwards.  

 This optimism continued as Trump’s inauguration approached, with markets anticipating the sweeping economic reforms promised by his campaign.  In the market, this was christened the ‘Trump Trade’, and over half a year since President Trump took office, some of the optimism seems to be showing signs of fading.

Markets were apprehensive mainly because Trump seemed to be an unknown political factor and a threat to the established order.  Some people feared a similar panic to the one that swept global markets in the aftermath of the BREXIT vote.

However, with hindsight, Trump’s ascent represented a great investment opportunity for investors. His economic policies emphasised large scale infrastructure investment, significant reforms and a large stimulus which is likely in aggregate to be positive for economic growth and activity.

Trump exhibited a more conciliatory tone towards Janet Yellen and the Federal Reserve, compared with the more hostile rhetoric of the campaign.  This emphasised continuity and stability and reassured the markets further.

The dollar surged to new heights and the situation seemed promising for investors who had hoped to see progress in the US economy by an administration that would not be mired in a political stalemate.  Trump achieved a Republican majority in both houses, a fact which in theory increased his chances of pushing through his legislative agenda.  Compared with the Obama administration which often faced a hostile and partisan Congress, the Trump administration seemed to represent a more decisive direction for the US economy with pro-growth policies and promises of tax cuts and deregulation.

These factors ensured some progress for the US dollar and for US assets.  However, some more troubling questions have arisen about the administration in more recent days.  It has been argued that campaign promises have not materialised, and in some cases, such as the President’s tough stance on China, these seem to have reversed altogether. In addition, the numerous scandals and controversy to have hit the White House since January have led to questions as to whether the Trump administration will be competent enough to deliver on their economic agenda.

One key event was the release of US first quarter GDP figures that showed the slowest growth in years.  Although it is still early days for the Trump administration, it was viewed by some as indicating the failure of the Trump administration to boost the economy. On this view, despite the promises of tax reform and infrastructure investment, few if any of Trump’s economic policies seem no closer to fruition than they did before the election. It is this which seems to have cooled investor optimism. However, this is not the complete picture - while the US dollar has declined in 2017, US Stocks (especially the NASDAQ) have powered away and are at new all-time highs at the time of writing.

During the campaign Trump criticised the Fed for its policy of keeping interest rates low. Whilst Trump’s opinion on interest rates has varied, he has argued for a lower dollar which many see to be somewhat inconsistent with lower interest rates. Whilst the Fed has raised interest rates once this year, with officials indicating that two or three more interest rate increases were on the way, recent events have seen interest rates on hold and the likelihood of more rises this year is again under question.

Many controversies have pervaded Trump’s time in office; this did not seem to affect markets much until a flare-up of the James Comey – FBI issue which eventually rattled the stock markets and the US dollar. This soon evolved into a larger ongoing investigation into the administration’s links with Russia.

Foreign policy has also proven fraught with uncertainty, with the latest economic sanctions on Russia straining relations with the allies in the EU. Both US and European businesses have expressed concerns over the prospect of being penalised by the very same sanctions aimed at punishing Russia, due to the amount of partnerships and contributions involved. For investors, some of the allure of Trump during his time in office would appear to have faded for the time being.

However, Trump’s time in office has seen a very different story unfold within emerging markets, with its biggest loser being Mexico. The key effect was Trump’s controversial policy for a border wall between USA and Mexico for tackling illegal immigration.

Upon Trump’s victory the Mexican Peso crashed to record lows, with more details of the President’s plan hurting the emerging market’s economy – and relations with the US, further.  The threat to use remittances as a tool to fund the wall, amongst other ideas, also served to threaten other Central American economies.

However over half a year since Trump’s inauguration the markets tell a very different story. The Mexican peso has become one of the world’s best performing emerging market currencies, rallying to a 14-month high since January after Trump took office. After the volatility seen at the beginning of the year, the peso has seen far more positive movement over the first seven months of Trump’s presidency. This positive sentiment has boosted other risky assets including Emerging Market Assets.

In conclusion, the Trump Presidency presented an opportunity for a resurgent US economy with comparisons made early with President Reagan’s time in office. Half a year later, Trump’s presidency has proven to be tumultuous, subverting expectations for some and confirming them for others. Although US stocks and emerging markets have gained strength, global risks for investors have also risen under the turbulent Trump administration. If this is taken as a sign of things to come, it is likely that investors will see more volatility over the next 4 years.