With a background in finance and economics, Abdullah has spent the last 18 years of his professional career working in various sectors in Kuwait. He has previously held senior positions at Sarh Real Estate Company, The Roots for Brokerage (Egypt), Danah Al Safat Foodstuff Company and at Al-Ezdehar Real Estate in Lebanon. His extensive experience has given him plenty of insights into different sectors and regions out of Kuwait. Today, in addition to his position as Al Safat Investment's Chairman, he is also the Head of Committee of the Politics and Economics Committee at the Union of Investments Company (UIC) and is a board member of local establishments like UIC and Shuhaiba Industrial Company, as well as the Executive Manager of Gulf Cable and Electrical Industries Co for the investment sector. It is indeed inspiring to see someone of his calibre and young age achieve so much in the past few years. His professional achievements are not only limited to the ones on his resume - the 35-year-old award winner also has a long list of certifications in Marketing, Finance, Investment Management and has completed a Financial Services Program from Harvard Business School. He is currently pursuing an EMBA from the London School of Economics. AlTerkait lives by the words of Benjamin Franklin: “An Investment in knowledge pays the best interest”. Education has always been at the forefront of his priorities and his hunger for learning never ceases.

There are not many leaders who, at the very young age of 29, are able to take charge and turn a company around in the middle of a financial crisis. Al Safat Investment was going through a rough couple of years prior to 2013 when AlTerkait was appointed Chairman of the company. Debts were high, employees were in a stressful situation, shareholders and clients were extremely unhappy and there was immense pressure from the banks. At the time, it seemed like salvaging the company and bringing order out of this chaos would be a tedious challenge. Al-Safat Investment Company underwent comprehensive restructuring and embedded the institutional aspect in all of its businesses while setting clear goals with the efforts of the company’s board of directors and the executives. The company’s direction and performance improved as a result. Thereafter, Al Safat saw three consecutive years of profits due to the restructuring initiatives of Abdullah, the senior management and other departments.

Al Safat Investment is an ideal example of how teamwork could yield impressive results. The Chairman strongly believes in teamwork and encourages all departments to work together. Battling all fronts, he has put in efforts to establish a gender-equal atmosphere in the company by hiring qualified women to fill roles in the human resources and other departments of investments. His initiatives are not only beneficial for the bottom line, but they are also in tandem with his ethics and strong beliefs in Corporate Social Responsibility. Last year, for example, the company carried out a very successful Ramadan event with all employees and management personally visiting the group’s subsidiaries and distributing food packages to the labourers who work for the companies.

Al Safat Investment Company was founded in 1983 and has grown rapidly since then. All investments and financial services held or offered by Al Safat are in accordance with the highest standards of Islamic Shariah compliance, which is supervised by a CMA-Certified Islamic finance consultancy company. The company invests in real estate, financial, healthcare, industrial, energy and other economic sectors through participation in the establishment of specialised companies or purchase of stocks and bonds in these companies, or by the management of projects in various sectors.

The company is about to establish a mass investment system capable of generating substantial revenues, to be allocated for venture capital. In addition, the latter will target the investment with some strategic shares in many Kuwaiti startup companies. Part of AlTerkait’s vision for Al Safat’s future is to be involved in SMEs and to support young entrepreneurs. The Chairman strongly believes that leaders should support the next generation of leaders in the business world and promote a good relationship between corporate and small businesses. Kuwait’s 2035 vision plans to attract KD 400million to various sectors including petrochemicals, information technology, services, and renewable energy. The country plans to promote an atmosphere that enables SMEs to participate in the nation’s economic development. The National Fund for Small and Medium Enterprise Development is one of the country's key initiatives tasked with enabling the private sector to drive growth. With nearly 80% of the population still employed in the government sector, there has been a rise in young entrepreneurs and startups. Through Al Safat, AlTerkait would like to support these small businesses by offering financial advice and services and possibly a co-working space for those who work from home or coffee shops. He hopes his initiatives will help pave the way for a better future for the economy of Kuwait, while being in line with the vision of His Highness, Emir of Kuwait, to transform Kuwait into a financial hub. While supporting startups, the Chairman will also be personally looking into investment opportunities for the company, in SMEs that stand out, particularly in the innovation and tech space. 2018 had some noticeable developments in the investment activities area at both local and regional levels. This targeted the startups, tech companies and VC funds resulting in a significant rise in investment deals. The Middle East and North Africa region managed to conclude 366 deals with a total investment of USD893 million, subject to the indication of some independent statistics concerned with following up the activities of venture capital. Subsequently, there was also a notable rise in Mergers and Acquisitions declared by the commercial entities and multiple sectors. AlTerkait predicts that 2019 will witness the same trending rise of such deals, in addition to the notable growth of the investment funds and the finance sector targeting startups and SMEs. These trends will continue to attract the interest of investment and financial companies who would be keen to capitalise on this vital and promising sector.

The company is in the process of rebranding with the view of transitioning from traditional to modern while offering multiple new investment products and services to its clients. When it comes to the securities market, Al Safat Investment Co. holds a license issued from Capital Markets Authority to practice managing the investment portfolios business in its various kinds for the benefit of the company’s clients, in Kuwait and globally. The company has a team that specialises in working to achieve profitable returns on the managed portfolios of the company. The total managed funds account for over USD 120 Million as of January 2019. It manages local and regional investments of USD 300 Million. The company is also working on creative strategies and solutions in partnership with international consultants in order to provide the best opportunities for the benefits of its corporate and private individual clients.

The administration of Al Safat Investment Co. is applying a secure and comprehensive strategy while managing the direct investments and the managed financial portfolios for the clients. Such portfolios target the operational companies, the leading stocks, fast-growing stocks and constant revenue stocks together with keeping up the ultimate geographical and sectoral distribution. With the company’s direct portfolio being distributed over seven sectors within five countries, the intent is to reduce the accompanying risks for these investments in addition to protecting the direct and client portfolios from the severe fluctuations of the market and the vulnerability the local and regional securities markets may be exposed to. Al Safat applies a conservative and safe strategy in the management of direct investments; managed portfolios of customer accounts are looking to further privatise government entities after the privatisation of the stock exchange and is also looking forward to being a listed company again.

Some highlights of Abdullah’s strategy for the company are:

- Set minimum investment returns that meet the company’s cost of capital.

- Grow the equity base through solid constant profits and cash dividend distributions   to shareholders.

- Divest any non-performing assets.

- Ensure that the investments are aligned and maintain synergies.

- Improve management control which is a key factor.

- Set adequate policies and procedures within the group.

- Apply proper corporate governance for the best interest of the shareholders.

Under the guidance of Abdullah AlTerkait, represented by the board of directors and the executive management, the company is seeking to restructure the financial position, address the recent financial issues, leave the unprofitable and non-strategic investments, re-employ the investments in some strategic sectors and instruments, while also promoting the expansion activities of associated companies. The Chairman hopes this plan would benefit the years to come so that a concrete plan will be established for 2023. In fact, through its subsidiaries, the company is currently focusing on the various operational and industrial activities and is seeking to establish a new chemicals factory in Kuwait. Similarly, they have also developed an interest in the Oil and Gas sector and are looking for opportunities to invest. The company has a subsidiary called ‘The Carpet Factory’ which is looking to expand and invest in state-of-the-art technology to improve business and its products. Real estate is another sector AlTerkait is keen on embarking on and is in the process of developing a commercial and industrial complex in the Al-Ahmadi Industrial area of Kuwait. The group is also participating in the health sector through Kuwait Hospital, which will start operating this year and is also looking for acquisitions in various sectors, especially since there are attractive investment opportunities with outstanding profits in the local market. Abdullah AlTerkait and the management of Al Safat hope to reach their ultimate goal of being amongst the best investment companies in Kuwait in the next five years.

Website: https://alsafatinvest.com/

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

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

The Oil Curse Explained

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

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

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

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

US Sanctions & their Impact

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

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

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

So now what?

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

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

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

Sources: 



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

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

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

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

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

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

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

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

But if you have to spend £20 every year on a replacement pair, then over three years that’s £60 spent. It makes more sense to spend that £60 at the start on a pair of shoes that will last three years or more, especially if they are more comfortable and a higher quality.

Your shopping habits have a huge effect on the environment too, and it is certainly suffering for these so-called ‘fast-fashion’ trends. While scooping up a dress for £5 might seem like an exciting bargain, let’s be honest, the price might be more the motivator in the purchase than the style, quality, or comfort. More and more of these clothes just end up being worn once or twice before heading to the bin. In fact, in a survey by Method Home, of 2,000 British shoppers, nearly a fifth admitted to throwing clothes in the bin.

What impact can fast fashion have?

With fashion trends changing faster than ever before, there’s an increasing pressure on consumers to change up their wardrobes faster. But, with our money only stretching so far, many of us are turning to cheaper outlets for our clothing.

Cut-cost fashion must also find somewhere to make savings along the production line. You can’t sell a £5 dress without using cheaper materials and such. This often leads to garments made quickly with non-organic fabrics. Plus, as the Independent reported, the process of dying these clothes is the second largest contributor to water pollution.

While the short-term purchase may be cheaper, the cost to keep replacing the item over the years will add up. If a more expensive version will last a number of years, it could end up being comparatively cheaper.

By its very nature, it is expected that the garment you have purchased will not be kept long, nor will it be expected to last for years. On the flip side, fashion with an emphasis on quality and durability will see you through. This manifests particularly in the threads lost during washing. Cheap clothes tend to shed tiny microfibres when washed, which end up polluting our oceans.

The cost of quality

As Life Hacker rightly states, a high price doesn’t always mean high quality. Here’s some top tips for spotting good quality shoes and clothing:

1. Spares for repairs — this is like a calling card from the designer. If the item comes with spare buttons, then the item is expected to last enough for it to require a button mend at some point!
2. Check the pattern matches at the seams — it’s the little things that are the biggest giveaway!
3. Look for gaps in the stitching — an item that will last will have no gaps between stitches on the seam, and also have more stitches per inch. Take a good look at those stitches!
4. Don’t look at the price tag — as mentioned before, this isn’t always an indicator or quality. People can, and will, charge good money for a poor product. Take a look at the item itself.
5. For clothes, scrunch them up a bit — take some of the material in your hand and ball it up for a few seconds, then let go. A good quality material will survive and the wrinkles will fall out. Cheap material will stay wrinkled and creased.

Leather ankle boots for example are versatile and can be used for range of occasions, so make sure to buy a quality pair to withstand all those wears! Divide its cost by the amount of times you think you’ll wear it and that will give you the cost per wear. If it’s something you’ll wear every day, definitely check the quality of the item! Remember, the ‘bargain’ comes in how many times you think you’ll wear the item. It’s always recommended to invest a little in timeless staples that can be mixed and matched for a variety of outfits.

Sources:

https://theecologist.org/2018/oct/30/fast-fashion-method-madness

https://lifehacker.com/cheap-clothes-are-too-expensive-buy-quality-instead-1751019637

https://fashionunited.uk/news/fashion/method-soap-brand-wants-to-clean-waste-in-fashion/2018101239428

http://www.wrap.org.uk/content/love-your-clothes-waste-prevention

https://www.independent.co.uk/life-style/fashion/environment-costs-fast-fashion-pollution-waste-sustainability-a8139386.html

https://www.itv.com/news/2018-10-31/britains-love-of-fast-fashion-is-harming-marine-life/

https://www.cbc.ca/news/canada/london/like-uber-for-clothes-stmnt-startup-fight-fast-fashion-closet-rentals-1.4902265

https://www.buzzfeed.com/alisoncaporimo/clothing-quality-clues?utm_term=.dewknndvZ#.jdqgLLJQ3

https://www.liveabout.com/how-to-spot-quality-clothing-1387970

China's economic growth is slowing down. But what's really going on in the world's second largest economy? In this video, Dharshini David takes a look at the figures behind the headlines for Reality Check.

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 29^th 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.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, looks back at the history of globalisation to understand why it was on the agenda in Davos.

Luminaries from across the political and business world gathered last week for the World Economic Forum (WEF) Annual Meeting in Davos, Switzerland,

Although concerns about near-term global economic growth and trade tensions dominated conversations, the official theme of this year’s forum was ‘Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution’.

But what does this mean and why is it expected to be important for the future?

To understand what Globalisation 4.0 means, it’s useful to look back on the previous waves and consider how they have shaped the world we live in.

Technology driving trade

Globalisation 1.0 refers to the rapid growth in world trade, mainly during the nineteenth century.

It was driven by innovations in transport and communications, including the railways, steamships and the electric telegraph.

The subsequent reduction in the cost of global transport enabled the separation of production and consumption across international borders, making previously exotic products like tea, sugar and cotton readily available and affordable in markets like the UK for the first time.

Globalisation surged again after the Second World War – dubbed Globalisation 2.0.

Driven by greater international cooperation, the post-war period saw less protectionism and a rapid growth in world trade, at least in western economies.

Enabling offshoring

The third wave of globalisation is thought to have started around 1990.

Further advances in technology, including the spread of the internet, made it easier for different stages of production to be based in various locations across the globe, leading to the emergence of modern supply chains.

This enabled firms to further cut the cost of producing products and delivering services by moving their operations to cheaper locations, known as offshoring.

However, it’s also likely have contributed towards rising disenchantment, particularly where people in more advanced economies feel that they have not reaped the rewards.

The next wave, dubbed Globalisation 4.0, is set to be driven by the Fourth Industrial Revolution, which is happening right now.

The development of advanced technologies like artificial intelligence, big data, nanotechnology, the internet of things, 3D printing and autonomous vehicles all have the potential to significantly impact global productivity.

Opportunity and inequality

Unlike the previous waves, which have mainly affected goods-producing sectors, Globalisation 4.0 is predicted to have a much greater impact on services.

Unlike the previous waves, which have mainly affected goods-producing sectors, Globalisation 4.0 is predicted to have a much greater impact on services.

And we live in an increasingly connected world, so the speed of its adoption may also be faster than in previous waves.

Attendees at Davos not only discussed the opportunities that Globalisation 4.0 is expected to create, such as increased productivity, but also considered the growing evidence of a backlash against globalisation.

The WEF could be regarded as the ultimate representation of globalisation, so it is no surprise that meeting the challenges this latest wave of economic change brings for individuals and society were high up on the delegates’ agenda.

The comments from Ian McLeod of Thomas Crown Art, follow growing concerns that the global economy is likely to experience a significant slowdown before the end of 2019.

Leading economic indicators tracked by the OECD have weakened since the start of the year and suggest slower expansion over the next six to nine months.

Similarly, the wider global expansion that began roughly two years ago has plateaued and become less balanced, according to the International Monetary Fund.

Mr McLeod observes: “There’s a growing list of investment tailwinds to consider for 2019. These include significant trade tensions, rising interest rates, political uncertainties, including Brexit, and complacent financial markets.

“The US, the world’s largest economy, has, of course, considerable influence on Asian and European economies. As such, should ther US stock market plunge – as it did recently scrapping all of its 2018 gains during a major sell-off - global markets are vulnerable too.”

He continues: “Against this backdrop, we can expect cryptocurrencies will increasingly be seen as investors’ ‘safe havens’ in 2019 and beyond.

“When the downside of the economy hits, digital assets cryptocurrencies like Bitcoin and Ethereum are likely to be viewed by investors as a robust means of storing wealth, in the same way they do with gold.”

Mr McLeod adds: “There are several keys reasons why the likes of Bitcoin and Ethereum will be safe havens. These include scarcity, because there’s a limited supply; permanence, they don’t face any decay or deterioration that erode their value; and future demand certainty as mass adoption of cryptocurrencies and blockchain, the technology that underpins them, takes hold globally.”

Of this latter point, he comments: “As mainstream adoption is going to dramatically gain momentum in 2019 as the world, especially business, realise ever-more uses for and value of crypto and blockchain.

“Ethereum’s blockchain, for instance, is used in our art business. It has allowed us to create a system to use artworks as a literal store of value; it becomes a cryptocurrency wallet.

“It also solves authenticity and provenance issues – essential in the world of art. All our works of art are logged on the Ethereum’s blockchain with a unique ‘smART’ contract.”

The tech expert concludes: “We are some way off from cryptocurrencies replacing the Swiss Franc, the Japanese Yen or gold as the preferred safe haven assets.

“However, as the world moves from fiat money to digital, and as adoption of crypto picks up, there can be no doubt that cryptocurrencies will be firmly in the pantheon of safe haven assets within in the next decade.”

(Source: Thomas Crown Art)

Assetz Capital investors are predicting the worst economic quarter of the year, according to the Q3 Investor Barometer.

Last quarter, the peer-to-peer lending platform surveyed its 29,000-strong investor base. When asked ‘how will the economic situation impact you in the next three months’, only 9% thought it would be positive, while 40% thought it would be negative.

This compares poorly to Q1 (13% positive, 36% negative) and Q2 (10% positive, 31% negative), as the potential future relationship models with the EU post-Brexit start to become clearer.

Stuart Law, CEO at Assetz Capital said: “While the government may release statistics that claim the economy is in good health, our investors are not as bullish. In fact, with confidence fading in the government’s ability to secure a good Brexit deal, our investment community is expecting this quarter to be the worst of the year.

“Until this uncertainty is lifted, we expect that conventional means of business investment will continue to stall, breeding further concern for the economy. Although peer-to-peer lending has inherent risks, it now represents the best opportunity for SMEs to secure growth capital, drive employment and give the economy a shot in the arm.”

(Source: Assetz Capital Limited)

A decade after the global recession, the world’s economy is vulnerable again. Ryan Avent, our economics columnist, considers how the next recession might happen—and what governments can do about it.

Zac Cohen, General Manager at Trulioo, discusses the key considerations for businesses before engaging in commerce in high-risk countries.

Doing business internationally is a complicated undertaking. Aside from the standard logistical challenges associated with doing business globally, organisations have to factor in considerations specific to different regions and countries. These considerations may include factors such as legislative, political, currency and transparency challenges.

Nevertheless, globalisation is storming ahead and businesses must be prepared to look beyond their domestic surroundings if they are to remain competitive in our global marketplace. International trade secretary Liam Fox has endorsed a move for UK-based businesses to adopt a more international focus, highlighting the importance of global competitiveness. Consequently, UK businesses are feeling the pressure to ramp up their efforts to target a more international consumer base. As if this wasn’t enough for international businesses and investors to grapple with, further complications and difficulties are liable to arise when doing business with “high risk” countries.

1. Fraud and Corruption

A recent study by the World Bank estimated that an extra 10 per cent is added to the cost of doing business internationally as a direct result of bribery and corruption.¹ Considering the immense amount of international trade, this figure is significant. The danger of doing business with countries considered to be “high risk” – defined by the Financial Action Task Force (FATF) as any country with weak measures to combat money laundering and terrorist financing – is the heightened potential of inviting transactions that are either fraudulent or otherwise corrupt.¹ The following considerations should be carefully observed before entering into any commercial dealings with a country considered to be high-risk.

2. Enhanced Due Diligence

As a result of the 4^th Anti Money Laundering (AMLD4) directive, developed by the European Union, businesses have to adopt a risk-based outlook. The AMLD4 specifies that EU-based businesses must collect relevant official documents directly from official sources like government registers and public documents, rather than from the organisation in question. If a potential trading partner is located in a high-risk country, or serves an industry that has a higher than normal risk of money laundering, then that partner must conduct Enhanced Due Diligence (EDD) on the business entity. This Enhanced Due Diligence process involves additional searches that must be carried out by any firm seeking to do business with this kind of organisation. These searches may include parameters such as the location of the organisation, the purpose of the transaction, the payment method and the expected origin of the payment.

3. Ultimate Beneficial Owners

AMLD4 also outlines the need to discover the ultimate beneficial owner of a business, whether they are customers, partners, suppliers or connected to you in another business relationship.

According to the Financial Action Task Force (FATF),

Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.

This is important as businesses need to understand who they are dealing with when physical verification is not a practical option. Difficulties could arise when verifying UBOs in high-risk countries as some national jurisdictions impose secrecy policies which block access to verification documentation. This problem is compounded when checking UBOs against international sanction and watch lists as there are more than 200 lists, which vary in scale and uniformity.

4. Virtual Identification

However, verification can still be successful. Many are now turning to software that helps businesses to perform the necessary diligence checks. We gave a lot of consideration to the specific complexities of working with high-risk countries when developing our Global Gateway platform. Programmes such as these are designed to allow companies to perform the Enhanced Due Diligence, Know Your Business and Know your Customer checks that are required when doing business internationally, particularly with high-risk countries. Compliance with the various pieces of legislation on this topic should be at the forefront when implementing the necessary verification checks.

Across the world, markets are becoming increasingly more open, paving the way to a truly global economy. If companies can get to grips with the key due diligence requirements, this is a move that will ultimately benefit the global consumer and customers alike.

With the 10^th anniversary of the Lehman Brothers’ shocking and unprecedented bankruptcy this month, Katina Hristova looks back at the impact the collapse has had and the things that have changed over the last decade.

Saturday 15 September 2018 marked ten years since the US investment bank Lehman Brothers collapsed, sending shockwaves across the financial world, prompting a fall in the Dow Jones and FTSE 100 of 4% and sending global markets into meltdown. It still ranks as the largest bankruptcy in US history. Economists compare the stock market crash to the dotcom bubble and the shock of Black Friday 1987. The fall of Lehman Brothers was a pivotal moment in the global financial crisis that followed. And even though it’s been an entire decade since that dark day when it looked like the whole financial system was at risk, the aftershocks of the financial crisis of 2008 are still rumbling ten years later - economic activity in most of the 24 countries that ended up falling victim to banking crises has still not returned to trend. The 10^th anniversary of the Wall Street titan’s collapse provides us with an opportunity to summarise the response to the crisis over the past decade and delve into what has changed and what still needs to.

As we all remember, Lehman Brothers’ fall triggered a broader run on the financial system, leading to a systematic crisis. A study from the Federal Reserve Bank of San Francisco has estimated that the average American will lose $70,000 in lifetime income due to the crisis. Christine Lagarde writes on the IMF blog that to this day, governments continue to ‘feel the pinch’, as public debt in advanced economies has risen by more than 30 percentage points of GDP – ‘partly due to economic weakness, partly due to efforts to stimulate the economy, and partly due to bailing out failing banks’.

Afraid of the increase in systemic risk, policymakers responded to the crisis through quantitative easing and lowering interest rates. On the one hand, quantitative easing’s impact has seen an increase in asset prices, which has ultimately resulted in the continuation of the old adage, the rich get richer and the poor get poorer. The result of Lehman’s shocking failure was the establishment of a pattern of bailouts for the wealthy propped up by austerity for the masses, leading to socio-economic upheavals on a scale not seen for decades. As Ghulam Sorwar, Professor in Finance at the University of Salford Business School points out, growth has been modest and salaries have not kept with inflation, so put simply, despite almost full employment, the majority of us, the ordinary people, are worse off ten years after the fall of Lehman Brothers.

Lowering interest rates on loans on the other hand meant that borrowing money became cheaper for both individuals and nations, with Argentina and Turkey’s struggles being the brightest examples of this move’s consequences. Turkey’s Lira has recently collapsed by almost 50%, which has resulted in currency outflow and a number of cancelled projects, whilst Argentina keeps returning for more and more loans from IMF.

Discussing the things that we still struggle with, Christine Lagarde continues: “Too many banks, especially in Europe, remain weak. Bank capital should probably go up further. 'Too-big-to-fail' remains a problem as banks grow in size and complexity. There has still not been enough progress on how to resolve failing banks, especially across borders. A lot of the murkier activities are moving toward the shadow banking sector. On top of this, continued financial innovation—including from high frequency trading and FinTech—adds to financial stability challenges. In addition, and perhaps most worryingly of all, policymakers are facing substantial pressure from industry to roll back post-crisis regulations.”

The Keynesian renaissance following that fateful September day, often credited for stabilising a fractured global economy on its knees, appears to have slowly ebbed away leaving a financial system that remains vulnerable: an entrenched battalion shoring up its position, waiting for the same directional waves of attack from a dormant enemy, all the while ignoring the movements on its flanks.

If you look more closely, the regulations that politicians and regulators have been working on since the crash are missing one important lesson that Lehman Brothers’ fall and the financial crisis should have taught us. Coming up with 50,000 new regulations to strengthen the financial services market and make banks safer is great, however, it seems  that policymakers are still too consumed by the previous crash that they’re not doing anything to prepare for softening the blow of a potential new one. They have been spending a lot of time dealing with higher bank capital requirements instead of looking into protecting the financial services sector from the failure of an individual bank. Banks and businesses will always fail – this is how capitalism works and no one knows if there’ll come a time when we’ll manage to resolve this. Thus, we need to ensure that when another bank collapses, we’ll be more prepared for it. As Mark Littlewood, Director General of the Institute of Economic Affairs, suggests: “policymakers need to be putting in place a regulatory environment that means that when these inevitable bank failures occur, they can fail safely”.

In the future, we may witness the bankruptcy of another major financial institution, we may even witness another financial crisis – perhaps in a different form. However, we need to take as much as we can from Lehman Brothers’ collapse and not limit our actions to coming up with tens of thousands of new regulations targeted at the same problem. We shouldn’t allow for a single bank’s failure to lead us into another global crisis ever again.