Tag: Approved

AMERICA’s companies have been powering ahead for years. Amid growing profits, the recession that began in 2007 seems an increasingly distant memory. Yet the situation has a dark side: companies have binged on debt. For now, as the good times have coincided with a period of record-low interest rates, markets have been untroubled. But a shock could put corporate America into trouble.

No matter how it is measured, the debt load looks worrying. When calculated as a percentage of GDP, the total debt of America’s non-financial corporations reached 73.3% in the second quarter of 2017 (the latest available data). This is a record high. Measured against earnings before interest, tax, depreciation and amortisation (EBITDA), the net debt of non-financial companies in the S&P500 hit a ratio of 1.5 at of the end of 2016, a level not seen since 2003. And it remained nearly as high in 2017 (see chart).

To be sure, things are less worrying than they were before the financial crisis. According to a recent analysis by S&P Global Ratings, a…Continue reading

Ye Jianming in bloom

STAFF had routinely been directed to pore over their chairman’s speeches and learn from them. One which Ye Jianming, the 40-year-old founder of CEFC, delivered last autumn—“Only One Step From Midsummer to Harsh Winter”—was a historical tale meant to motivate the troops. In it he compared his firm’s swift rise to that of Hu Xueyan, a 19th-century merchant banker. Hu amassed a fortune trading in salt, tea, arms and silk through close ties to China’s imperial elites, then fell from grace and went bankrupt.

Mr Ye did not mean the lesson to be pertinent to his own situation. CEFC was then enjoying its own midsummer. As China’s largest private oil group, it had just won a 14.2% stake in Russia’s state-backed oil firm, Rosneft, paying $9.1bn for one of the most significant shares of the world’s largest listed oil firm by production. Industry analysts outside China had been scrambling to study CEFC since early 2017 when it joined national…Continue reading

THE past decade has been tough for conventional “active” fund managers, who try to pick stocks that beat the market. They have been losing business to “passive” funds—those that try to replicate a benchmark, like the S&P500 index. Passive funds have much lower fees.

Figures from Inalytics, a company that analyses fund managers’ portfolios, suggest that active managers are changing strategy in response. The average number of stocks in global equity portfolios has halved, from 121 to 61 (see chart). In a sense, active managers have become more active, making bigger bets on individual stocks. This makes their portfolios less like the index, meaning they can beat the market by a larger margin. But they can also do a lot worse. The portfolios examined by Inalytics have outperformed, but in the long term the average manager is unlikely to do so, since the index reflects average performance.

Moreover, managers incur costs and the index does not. The result of more active management…Continue reading

MOST banks gush about digital technology, fearing all the while that some born-digital usurper, large or small, will do to them what Amazon has done to retailers, Uber to taxi-drivers and Airbnb to hoteliers. Some have reorganised themselves to become nimbler, copying startups by forming small teams to generate, test, reject and improve ideas at speed. Apps are improving, new products are appearing and online marketplaces are being built. Only a few are turning enthusiasm into money. One of those is DBS.

Singapore’s (and South-East Asia’s) biggest bank is a stockmarket darling. Its share price has roughly doubled in the past two years, outstripping the gains of Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB), its main local rivals (see chart). The price exceeds DBS’s net book value per share by 50%. That owes something to the city-state’s buoyant economy—GDP rose by 3.6% last year, the most since 2014—and recovering housing market, and to the doubling of the dividend when DBS reported fourth-quarter results…Continue reading

SEVENTY years ago America passed the Economic Co-operation Act, better known as the Marshall Plan. Drawing inspiration from a speech at Harvard University by George Marshall, America’s secretary of state, it aimed to revive Europe’s war-ravaged economies. Almost five years ago, at a more obscure institution of higher learning, Nazarbayev University in Kazakhstan, China’s president, Xi Jinping, outlined his own vision of economic beneficence. The Belt and Road Initiative (BRI), as it has become known, aims to sprinkle infrastructure, trade and fellow-feeling on more than 70 countries, from the Baltic to the Pacific.

Mr Xi’s initiative, which also has geopolitical goals (see Banyan), has invited comparison with America’s mid-century development endeavour. Some even suggest it will be far bigger. But is that credible? The Marshall Plan,…Continue reading

SOME things about Warren Buffett never change, including his non-stop jokes, famous annual letter and his reputation as the world’s best investor. What is less understood is that over the past decade Mr Buffett’s company, Berkshire Hathaway, has sharply altered its strategy. For its first 40 years Berkshire mainly invested in shares and ran insurance businesses, but since 2007 it has shifted to acquiring a succession of large industrial companies.

In some ways it is hard to criticise Berkshire. Its shares have kept up with the stockmarket and its standing is exalted. It is the world’s seventh-most-valuable publicly traded firm (the other six are tech concerns). But Mr Buffett’s behemoth is a puzzle. Its recent deals have had drab results, suggesting a pivot to mediocrity.

It has been quite a spree. Since 2007 Berkshire has spent $106bn on 158 firms. The share of its capital sunk into industry has risen from a third to over half. The largest deals include BNSF, a North American…Continue reading

EVER since Julian Assange, founder of WikiLeaks, referred to Sweden as a “hornets’ nest of revolutionary feminism” and as a “Saudi Arabia of feminism”, Swedes have worn this as a badge of honour. Now its foreign ministry has an ambitious plan to increase gender equality on the internet.

Its precise target is Wikipedia, a user-generated online encyclopedia on which some 90% of the content is created by men. Of its biographies, 80% are about males. On International Women’s Day on March 8th (as The Economist went to press) the Swedes were hosting “WikiGap” edit-a-thons and seminars in 54 of its embassies, from Abuja to Vilnius, in partnership with Wikimedia, the foundation behind the platform. The hope was that participants would write more entries about notable women.

“Knowledge is power,” explains Margot Wallström, the foreign minister, and because these days knowledge and information come from the “clearly unbalanced” internet, this is a…Continue reading

WHEN President Donald Trump tweeted “We want free, fair and SMART TRADE,” on March 1st, trade-watchers groaned. Later that day, after months of back-and-forth between the protectionists and the globalists in the White House, he appeared to deliver the tariffs he has long been promising. He announced tariffs of 25% on imports of steel and 10% on those of aluminium. He promised protection “for a long time”, adding “you’ll have to grow your industries, that’s all I’m asking.” According to the New York Times, he told the assembled executives from steel and aluminium firms whom he met before the announcement that he did not intend to exclude any country from the tariffs.

Mr Trump’s bid to nurse America’s steel and aluminium industries to health could benefit some workers. There is a global glut of both metals, largely driven by an enormous expansion of China’s production capacity since the early 2000s. That created trade flows to America that over 420 separate anti-dumping and countervailing duties could not fully stem.

The avowed aim of the tariffs, though, is national security. Dennis Harbath, who manages the only smelter in America that produces the high-purity aluminium used in some fighter jets, is gratefully preparing to restart some idled production lines as soon as the tariffs are brought in.

Seen more broadly, the proposals…Continue reading

HAVING failed to get Rupert Murdoch’s attention before, Brian Roberts, chief executive of Comcast, certainly has it now. On February 27th the American pay-television giant said it would make a £22.1bn ($30.7bn) offer for Sky, the European satellite broadcaster, potentially disrupting Disney’s agreed $66bn purchase of much of 21st Century Fox.

The surprise announcement comes as Fox, which owns 39% of Sky, is trying to get regulatory approval in Britain for its own purchase of the remaining 61% of the satellite broadcaster, which it would then hand over to Disney after shareholders and regulators approve that deal (perhaps by the end of this year). By putting himself in the middle of that complex transaction, with an all-cash offer 16% richer than that of Fox, Mr Roberts is causing people to wonder what his goal is. He had tried to outbid Disney for Fox’s assets in the autumn, but gave up due to a lack of engagement from Mr Murdoch. He may now only be after Sky, or he may intend to make a still bigger hostile bid to top…Continue reading

Harder to expense

THE private-jet industry advertises itself as the height of luxury for the rich. But travelling through the ramshackle, ugly buildings it used to use as terminals was rather like going commercial. No longer. At one of Dubai’s newest facilities for private jets—built by Jetex, a fast-growing chain—passengers strum guitars on hammock-shaped sofas around a coffee table dressed up as a campfire, before being whisked away to their planes in limousines. Others amuse themselves playing table football or having elaborate spa treatments.

It is unsurprising that such a facility has emerged in Dubai. But the boom in luxurious terminals that look more like playpens for adults than somewhere to fly from is spreading. Jetex has opened 39 of them in more than 20 countries since 2005. Adel Mardini, the firm’s boss, is clear about how he wants to disrupt the industry. He says he wants airport facilities to feel “like a five-star hotel”.

Often…Continue reading