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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    2017 at the Three Quarter Pole

    Thanks to a subscriber for securing an invitation for me to attend Jeff Gundlach’s presentation yesterday which as always was an educative experience. 

    Philippine Central Bank Chief Brushes Off Credit Growth Concerns

    This article by Karl Lester M. Yap for Bloomberg may be of interest to subscribers. Here it is in full:

    Philippine central bank Governor Nestor Espenilla downplayed risks of surging credit growth, saying the trend is consistent with the fast pace of economic expansion.

    “From a micro level, loans are being very carefully managed from a risk perspective,” Espenilla said in an interview with Bloomberg TV’s David Ingles and Haidi Lun on Friday. “At the macro level, the 20 percent growth is relatively consistent with the rapid growth of the economy.”

    An economic boom accompanied by surging credit growth has fueled speculation that Bangko Sentral ng Pilipinas may raise interest rates as early as the fourth quarter. That would be a divergence from other central banks in Southeast Asia, like Indonesia and Vietnam, that have eased policy this year. The Philippines kept its benchmark interest rate unchanged at a record low of 3 percent on Thursday.

    Commercial bank loans have risen quickly this year, with mortgages surging more than 20 percent in June. Bangko Sentral has adopted measures in the past to cool the property sector, including capping the value of real estate that can be used as loan collateral.

    Domestic credit to the private sector in the Philippines stood at 45 percent of gross domestic product in 2016, according to data from the World Bank. The ratio exceeded 100 percent in Malaysia, Thailand, and China.

    “The Philippines is basically in catch up mode right now,” Espenilla said, referring to the credit expansion.

    The Philippine economy is headed for a sixth year of growth exceeding 6 percent, among the world’s fastest. That hasn’t yet translated into an inflation problem, with the central bank maintaining its forecast for this year and next year at 3.2 percent. The bank’s goal is to keep inflation within a range of 2 percent to 4 percent until 2020.

    “We are on track with meeting our inflation target which is the main driver for our policy decision,” Espenilla said. “Our assessment is inflation remains firmly under control.”

     

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    Campbell Drops After Bleak Outlook Follows Blow From Buffet

    This article by Craig Giammona for Bloomberg may be of interest to subscribers. Here is a section: 

    Over the past three years, the 10 largest packaged-food companies have seen about $16 billion in revenue evaporate as consumers change how they eat and shop. Shoppers are seeking out more natural and organic food, shifting away from the staples that have dominated supermarket shelves for decades.

    Whole Foods Deal
    Amazon.com Inc.’s deal to buy Whole Foods also has fueled pessimism about packaged-food giants, with analysts predicting that the e-commerce titan will favor private-label products and squeeze the profit margins of its suppliers. In June, when that deal was announced, the 10 largest U.S. food companies lost almost $8 billion in market value combined.

    In a bid to add more natural products, Campbell agreed to buy Pacific Foods of Oregon, a maker of organic soup and broth, for $700 million in June. Campbell also acquired Bolthouse -- a producer of carrots, juices and salad dressings -- for $1.55 billion in 2012. That business, now part of the Campbell Fresh unit, has struggled with poor harvests and a drink recall.

     

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    Kenya presidential election cancelled by Supreme Court

    This article from the BBC may be of interest to subscribers. Here is a section: 

    Justice Maraga said the election commission had failed "to conduct the presidential election in a manner consistent with the dictates of the constitution".

    He said the commission had committed irregularities "in the transmission of results", adding that the court would provide details in a full judgment within 21 days.

    Dissenting judges said that the Nasa opposition alliance - which had petitioned the Supreme Court - failed to prove claims that the polls had been rigged.

    The election sparked days of sporadic protests, in which at least 28 people were killed. The vote had raised fears of major political violence - as was the case after a disputed poll in 2007.

     

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    Gordhan Expects Charges as South African Succession Battle Rages

    This article by Boris Groendahl for Bloomberg may be of interest to subscribers. Here is a section: 

    The National Prosecuting Authority has been probing the unit in an investigation that Gordhan, opposion parties and civil-society groups say is politically motivated. The former finance minister described the latest moves as an attempt to discredit politicians who oppose Zuma and are fighting against the plunder of state resources in Africa’s most-industrialized economy.

    Scandals have shadowed Zuma, 75, during his eight-year presidency, including a finding by the nation’s top court that he broke his oath of office by refusing to repay taxpayer funds spent on his private home.

    ‘State Capture’

    The nation’s graft ombudsman accused him of allowing members of the Gupta family, who are in business with his son, to influence cabinet appointments and the award of state contracts, referred to as “state capture.” Zuma and the Guptas deny wrongdoing.

    On Aug. 8 more than two dozen of the ruling African National Congress’s lawmakers backed an opposition motion of no confidence in Zuma in a secret ballot in parliament. While he survived, the party fired Makhosi Khoza as chairwoman of a portfolio committee and wrote to Derek Hanekom, the head of its disciplinary committee, rebuking him for his Twitter postings calling for the president’s removal.

    Zuma is due to step down as the ANC’s leader in December, with his ex-wife, Nkosazana Dlamini-Zuma, and Deputy President Cyril Ramaphosa seen as the leading contenders to replace him.

    “It’s a massive tussle -- it’s about the future of the ANC as we’ve known it,” Gordhan said. “Either you follow the capture of the ANC,” or change the party’s character and “recapture the state, which has now gotten into the wrong hands. People like ourselves are backing Mr. Ramaphosa, because we believe he has the integrity, to put it bluntly. And secondly, he has the modernity to innovate, to allow new ideas to emerge, understands the economy. ”

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    Amazon to Cut Prices at Whole Foods as Acquisition Closes

    This article by Mark Gurman and Matt Townsend for Bloomberg highlights the continued polarisation in the retail sector between those with a technological/low cost advantage and conventional stores. Here is a section:

    The company said it will begin slashing prices on a broad cross section of Whole Foods groceries Monday -- the same day the $13.7 billion deal is set to close. That will start with items such as chicken, eggs, some vegetables, and some types of organic fish. Amazon reeled off a long list of other plans to combine its leading e-commerce and delivery assets with the physical locations of Whole Foods stores.

    "This is a pretty impressive array of bold moves on the first day of an acquisition -- unprecedented, we would say," said Carol Levenson, an analyst at Gimme Credit.

    The moves by Amazon inflame an already raging price war in U.S. groceries -- a sector known for razor-thin profit margins.

    German discount grocers like Lidl and Aldi are expanding in the U.S. and Wal-Mart Stores Inc. has been investing in more discounts too. Low prices are familiar terrain for Amazon, which has operated with little profitability for more than a decade. Shares of grocery-store chains fell on the announcements.

    Kroger Co. declined as much as 2.4 percent while Sprouts Farmers Market Inc. sank 2.5 percent. Wal-Mart Stores Inc., which sells the most groceries in the U.S., also dropped 0.8 percent.

    Amazon will also begin selling Whole Foods branded products, including those that are part of the 365 brand, via its website, and through fast delivery services like AmazonFresh, PrimeNow, and Prime Pantry, the company said.

    Beyond price cuts and increased distribution, Amazon Prime will become Whole Foods’ customer rewards program, allowing shoppers to rack up Amazon rewards when they purchase pasture-raised eggs, organic milk and kombucha.

     

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    China's Robot Revolution May Affect the Global Economy

    This article from Bloomberg caught my attention. Here is a section:

    “By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.
    Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI. 

    “Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

     

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    Japan: Ignore Autos and Electronics to Profit

    Thanks to a subscriber for this article by Emma Wall for Morningstar may be of interest to subscribers. Here is a section:

    With a shrinking working population, Japan has record low levels of unemployment and the economy is poised to receive a boost once this lack of supply filters down to wage growth. But there are equities which can profit from the tight labour market according to Weindling; he invests in recruitment firms that provide permanent and temporary workers.

    Suppliers Immune from Domestic Threats
    While the population is ageing, Weindling points out that a Japanese company does not need a Japanese customer base to thrive.

    “There is no reason why Japan should not continue to make things. Factory automation and robotics are not a threat to Japanese industrials in the way that they are to US companies – they are the solution to a dwindling workforce,” he says. “More automation is a good thing, and the larger industrials will continue to take market share. It is a multi-year, structural shift.”

    That does not mean he backs the exporters of old, however. The international names which have long been synonymous with Japan are electronics firms and auto-makers; Toyota, Canon, Mitsubishi and even Sony are no-go areas for Weindling.

    “No one buys cameras anymore, so why would I buy Canon,” he says. “We don’t own any of those household names. Their prospects are considerably lessened. Japan’s export market is no longer about cars and electronics, it is about condoms, baby milk, skin cream, medicine. Japan is known across Asia for high-quality products, reliability and high safety standards. These are the companies you want to be invested in.”

     

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    Chinese automakers covet FCA

    This article by Larry Vellquette for Automotive News may be of interest to subscribers. Here is a section:

    Why, after two years on the block, is FCA apparently drawing interest from at least one potential Chinese buyer now?
    The answer: FCA's global network and product — specifically Jeep and Ram — fit the requirements the Chinese government has set for attractive acquisitions.

    Quality gap
    Chinese automakers have openly dreamed of cracking lucrative North America for a decade, spending millions to display their vehicles at high-profile U.S. auto shows. Early efforts showed that Chinese automakers had a long way to go before they were ready to compete here.

    But in more recent years — through knowledge and expertise gained via joint ventures with the world's largest and most successful automakers — Chinese companies have closed the quality gap.

    And the automakers feel like they finally have closed that gap enough to start selling their products in the U.S., said Michael Dunne, president of Dunne Automotive, a Hong Kong investment advisory company and an expert on the Chinese auto industry.

    They also are under pressure from the government to expand beyond China, Dunne said. A government directive dubbed China Outbound pushes Chinese businesses to acquire international assets from their industries and operate them "to make their mark," much as Geely has done since acquiring Volvo in 2010. Bloomberg reported last week that Chinese companies plan to spend $1.5 trillion acquiring overseas companies over the next decade — a 70 percent increase from current levels.

     

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    Ten-years from global financial crisis: a decade in charts

    This article by Ritvik Carvalho for Reuters may be of interest to subscribers. Here is a section:

    Ten years ago on Wednesday marked the start for many observers of the global financial crisis - a series of rolling credit shocks and bank crashes that led to the deepest world recession for a generation and a decade of slow growth and painful repair.

    On Aug. 9, 2007, the European Central Bank flooded its money markets with billions of euros of emergency cash to prevent a seizure in the European banking system after France's BNP Paribas became the latest to shut down investment funds hobbled by a collapse of U.S. mortgage and asset-backed bond markets.

    Serial bank collapses in Britain, the United States, Germany and elsewhere were to follow over the following 18 months. These culminated in U.S. investment bank Lehman Brothers being allowed to go bankrupt in September 2008, triggering a world financial panic, deep recession and eventual rescue package by the U.S. government, Federal Reserve and the rest of the G20 economic powers.

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