Who packs the biggest power to surprise in 2014? 31 Dec 2013 Difficult jobs abound in the global economy, but so do low expectations. Getting it right could mint the legacies of downtrodden politicos like Dilma Rousseff and John Boehner. Equally, a few CEOs may defy the odds, such as the bosses at Deutsche or Microsoft. Herewith our list.
Markets face a year as tough as 1994 31 Dec 2013 The year ahead is likely to be a difficult one for global investors. Though the yields have risen, safe-haven bonds are overpriced. So are equities, which ran up this year in anticipation that 2014 would bring better economic data. Emerging markets are also likely to struggle.
Local audit highlights China’s debt dilemma 31 Dec 2013 Provinces and towns owed almost $3 trillion at the end of June, according to a long-awaited report. The state will now have to decide which borrowers to bail out, and which to cut loose. The broader conundrum is how vital increased lending is to China’s continued economic growth.
Scotland will reject independence 31 Dec 2013 The north British state will decide in September whether to secede from the United Kingdom. A thriving, home-ruled Scotland sounds great, but the economics look ropey. Moreover, secessionists have already surrendered monetary tools that could have made independence compelling.
Tokyo can shrug off censure for slumping yen 31 Dec 2013 South Korea and China are again complaining about Japan’s weak currency. But it’s hard to blame Tokyo. The Bank of Japan’s monetary policy has been unchanged since April. And while Japanese trade is almost balanced, Korea’s current account surplus remains embarrassingly large.
China index: Slowdown looks home-grown 31 Dec 2013 China’s economy decelerated further in November, according to Breakingviews’ alternative index. Lower truck sales, steel output and rail freight volumes suggest sluggish demand. House prices and pollution were up, but their contribution is a sign that growth is far from healthy.
Merck woes show animal drugs are no panacea 30 Dec 2013 Animal medicine, whether for livestock or pets, is booming. Pfizer’s spinoff, Zoetis, trades at a fat valuation premium. But controversy over Zilmax, Merck’s muscle-building feed additive, suggests that an increasingly complicated food chain comes with its own investment risks.
Time for Larry and Sergey to invest in journalism? 30 Dec 2013 Amazon billionaire Jeff Bezos is buying the Washington Post and eBay founder Pierre Omidyar is funding a new reporting venture. But take a look at the numbers, and few have made their money at the expense of the fourth estate quite as obviously as the Google guys.
Delaware and NY more different than meets M&A eye 30 Dec 2013 Most big deals are governed by one or other U.S. state’s laws. But as the likes of Tyson Foods have learned, it matters which. They differ on enforcing contracts, collecting damages and altering deadlines. A hasty assumption that they’re similar could bring trouble in court.
Foundation puts MPS in scorched hot spot 30 Dec 2013 The Sienese charity that owns one-third of Italy’s oldest bank has bought itself some time. By delaying a much-needed rights issue, it may salvage more value from its shareholding. But it is playing with fire. The foundation, and Banca Monte dei Paschi, could be badly burned.
Dollar to give other currencies beating many want 30 Dec 2013 Currency market volatility will be pronounced in 2014. As the U.S. Fed cuts its asset purchases, the dollar looks set to climb from its current debased depths. The yen and the euro are keen to be beaten, emerging markets aren’t. The pound’s rise will rival the dollar’s.
Beijing will block a big overseas deal in 2014 30 Dec 2013 China’s antitrust regulator is increasingly scrutinising tie-ups even when both companies are foreign. The body’s remit to promote competition and protect domestic industry gives it broad clout. The desire to show its economic might could see China deny a big merger outright.
Oil’s new age of plenty challenges old assumptions 27 Dec 2013 Cheap shale, cheaper renewables, and increasing efficiency are creating a glut of non-OPEC crude, and bringing forward the peak of fossil fuel demand. Even if energy prices don’t fall sharply, there will be more volatility in oil prices, energy investments and geopolitics.
Brinksmanship to worsen with U.S. midterm election 27 Dec 2013 Congressional contests will make extremism more appealing to lawmakers than compromise. That means more gridlock, in which President Obama’s healthcare reform gets more attention than economic policy. Worse, the GOP minority’s only real leverage is the threat of default.
Europe will court shutdown with new parliament 27 Dec 2013 Eurosceptics and fringe parties will make big gains in next year’s European Parliament elections. A U.S.-style deadlock is unlikely, but mainstream parties will have to compromise more, and passing laws will be harder. It will look more like the old-style Italian model.
Two cheers for Israel’s tri-state water deal 27 Dec 2013 Tel Aviv will share more with Jordan and Palestine. Such regional agreements are crucial where water is scarce. Properly irrigated farmland could boost Palestine’s economy by a fifth. Israel, though, is only giving up a token amount and remains in control. At least it’s a start.
China’s banks are coming – this time for real 27 Dec 2013 Overseas assets are growing as lenders chase the country’s corporate diaspora. Takeovers are a likely next step. Japan’s “follow-the-client” banking strategy in the 1980s ended badly, but red tape and lack of foreign funding should make China’s rise slower and more sustainable.
U.S. employers will bring more jobs back home 26 Dec 2013 The nation’s energy costs and wage growth are lower than in many other countries. Productivity’s higher, too. Not only does it make outsourcing to the likes of China less appealing. It may also herald a renaissance for American manufacturing.
American universities need lesson in capitalism 26 Dec 2013 Spiraling degree costs are an economic drag, with $1.2 trln of student debt and parents’ savings hit. Yet graduate income is falling. President Obama is pushing for better value for money. A few colleges are already showing how education can pay off for students and country.
Wall Street’s pitchfork mob needs new villain 24 Dec 2013 Bernie Madoff is doing time and Goldman Sachs has executed a successful charm offensive. The case against Jamie Dimon has struggled to take hold. Steve Cohen, the hedge fund Wizard of Oz, is nursing legal wounds. The culture of greed in finance won’t disappoint for long, though.
U.S. housing recovery could run out of steam 24 Dec 2013 Banks are likely to tighten lending standards once new rules come into place in 2014. Rising interest rates may drive down home loan volume, too. Cash purchases by investors could set a floor for house prices, but they may not be enough to prevent a major slowdown.
Buzzword visionaries will rightsize the lexicon 24 Dec 2013 Is a laser-like focus on jargon mission critical? Can only visionary C-suiters move the needle at the investor day or on the Davos panel? Some expressions are relentlessly taking share. Others, net-net, are past an inflection point. Breakingviews takes a deep dive.
China’s hard-pressed central bankers get a B+ 24 Dec 2013 A funding squeeze in the interbank market has been treated with an injection of cash. The real economy is unlikely to notice any difference. The central bank is still passing its basic test of keeping China’s monetary system stable, but no longer with flying colours.
Europe holds a key to Turkey’s crisis 24 Dec 2013 Prime Minister Erdogan has upped the conspiracy rhetoric to criticise a corruption probe engulfing government officials. Investors are edgy. The intra-government issues are domestic, but without a clear prospect of joining the EU, Turkey has less incentive to liberalise.
Western debt magic is poison for Africa 24 Dec 2013 A poor continent with limited savings is hugely vulnerable to a credit crunch. Africa desperately needs capital, but only the sort that can’t easily leave. Speculative investors and yield-hunters will eventually do more harm than good. There’s a caution here for Bob Diamond.
Beware old tech seeking fountain of youth 23 Dec 2013 Hardware makers like Cisco, IBM and HP are falling prey to natural selection in Silicon Valley. They’re devouring smaller firms to keep pace, but weaknesses are getting harder to hide. That could lead to desperate deals for richly valued business software and cloud companies.
Brazil infrastructure drive risks running aground 23 Dec 2013 President Dilma Rousseff’s $100 bln plan to spruce up rickety roads and ports only partly makes up for years of neglect. And a looming credit downgrade makes this the priciest time to splurge. Without a shift in Brazil’s savings rate, any investment boom will be short lived.
Governance will matter south of the U.S. border 23 Dec 2013 A 10-year boom in natural resources and easy money allowed bad Latin governments to do as well as good ones. Now with commodities flat and rates rising, regimes that respect investor and property rights, while spending money and allocating capital wisely, should shine.
Tokyo looks most credible new Asia casino capital 23 Dec 2013 Asian countries from Malaysia to Sri Lanka are lining up to steal gaming business from heavyweight Macau. Regional resorts could catch a spillover of high rollers, though taxes and geography matter. Japan may have the best chance of turning gambling into big business.
Carney will struggle to sustain BoE governorship 23 Dec 2013 The UK’s central bank chief is a vulnerable hostage to fortune. The Canadian thinks the British economy will enjoy economic recovery with low inflation and no housing market mess. If he’s right, he’ll be fine. If he’s wrong, Carney will find himself friendless.