Tag: FINANCE

BUYING and selling shares in India is not for the faint of heart. Its own central-bank governor reckons equity capital is taxed up to five times. Never fear. There is a well-established alternative. Investors can just as easily buy financial instruments that track share prices but are not themselves shares. Such “derivatives” are used across the world to mirror markets in everything from platinum to pork bellies. But they also raise awkward questions: can the exchange that generates prices by matching buyers and sellers stop a rival using the data to create its own derivatives?

A quarrel between the Singapore Exchange (SGX) and the National Stock Exchange (NSE) in Mumbai touches that very issue. Since 2000 global investors wanting exposure to Indian shares but not Indian red tape and tax have gone via SGX. Under a licence from NSE, punters could trade a derivative linked to the Nifty 50, an index which is to India what the FTSE 100 is to Britain or the S&P 500 is to…Continue reading

THE race to bring driverless cars to market is fierce and crowded. All the leading carmakers are in the field: on May 31st SoftBank’s Vision Fund said that it would invest $2.25bn in the autonomous vehicle (AV) arm of General Motors. So are tech upstarts, from Uber to Tesla to Waymo, Alphabet’s self-drive division and the leader in driverless technology, which recently announced plans to add 62,000 minivans to the fleet of cars that will make up its autonomous ride-hailing service. Intense competition has both benefits and costs, but will probably prove short-lived. Thanks to powerful economies of scale, the roads may soon be ruled by no more than a handful of firms.

The advantages of scale begin with data. Like humans, the computers which power driverless cars improve with experience. The computers sitting in AVs are essentially in the business of learning and improving on what a good human driver would do, write Ajay Agrawal, Joshua Gans and Avi Goldfarb in their new book, “Prediction…Continue reading

Riding for a fall

“LOOK at all these bikers…we love the bikers!” declared the pre-presidential Donald Trump, surveying a crowd of motorcycle-owners gathered by the Lincoln Memorial in Washington, DC, in 2016. Riders of Harley-Davidsons, in particular, have been among Mr Trump’s noisiest supporters since the early days of his campaign. Riders of “hogs” often see themselves as rowdy rebels. Perhaps this is why many have identified with Mr Trump’s disdain for conventional politics.

Alas, the love affair may be heading for trouble. Mr Trump’s trade policies have put Harley-Davidson in a double bind. The company uses a lot of steel and aluminium to make its bikes. Although much of that is domestically sourced, Mr Trump’s tariffs on imports have led to higher prices for locally made metals, too, thus raising costs. And the European Union is poised to impose retaliatory tariffs on a variety of American exports, including motorcycles and whiskey. Harley-Davidson…Continue reading

“HOW am I going to compete?” asks Sohel Sareshwala. He runs Accu-Swiss, a Californian company making customised components for the manufacture of semiconductors and cars. President Donald Trump’s tariffs on steel and aluminium, both of which he uses as inputs, are eating into his profit margins and delaying his orders. Meanwhile, Mr Sareshwala’s competitors abroad, free of such concerns, can undercut him.

Mr Sareshwala is not alone in his frustration. On June 1st Mr Trump extended tariffs to countries that supplied 81% of America’s steel imports and 96% of aluminium imports in 2017, arguing that this was necessary to protect national security. Tight quotas apply to most of the rest. Only Australia was let off, perhaps because of a friendship between the president and Greg Norman, an Australian golfer, who lobbied on his government’s behalf. Mr Trump’s tariffs and quotas have drawn a chorus of disapproval from American buyers of metal, the governments of Mexico, Canada and the European…Continue reading

IF YOU are selling shares, they are worth not what you paid for them, but what someone else will offer. For the Royal Bank of Scotland (RBS), the sum that counts is £2.71 ($3.62). On June 5th UK Government Investments, which manages the state’s stakes in companies, said it had placed 7.7% of RBS at that price—10p below the previous day’s market close—with institutional buyers, reducing its holding to 62.4%. The government paid £5.02 per share to rescue the bank in 2008. So on those 925m shares, taxpayers have lost £2.1bn.

The state has long looked unlikely to recoup its fivers, let alone the £6.25 per share that the National Audit Office, a public-finance watchdog, reckoned last year was a fair benchmark after adding the cost of financing the bail-out. (In 2015 it sold 630m shares, or 5.4% of RBS, for £3.30 a pop.) Even if the stockmarket valued RBS as highly as the book value of its assets—which is true of few big European banks—the price would still be only £4, a level…Continue reading

AT THE annual World Series of Poker, which begins this week in Las Vegas, the main event is the no-limit Texas hold ’em tournament. In the course of two weeks of gruelling knock-out play, several thousand players are whittled down to just two, playing “heads-up” for one of the WSOP’s coveted bracelets.

In last year’s final hand, both players had pushed all their chips in, with five shared cards yet to be dealt. Scott Blumstein, who held Ace-Deuce, was a big underdog against Daniel Ott, who held Ace-Eight. With one card to come, Mr Blumstein’s hand had not improved. His chances had narrowed to 7%. Of the remaining 44 cards, only one of the other three deuces could give him victory.

The cards—and thus the odds of winning or losing—were known to both players, because they had already committed all their chips. Poker is not usually like this. Winning depends not only on your cards but on the unseen cards held by other players, on your ability to deceive them by…Continue reading

THE single-storey main branch of the Texas Hill Country Bank, in Kerrville, sits at the back of a tired shopping centre, in the shade of a six-storey Wells Fargo building. When Roy Thompson, the chief executive, was hired (from Wells) in 2012, three years after it opened, he ran a radio ad campaign to alert locals to its existence. It asked listeners to help a mother (his) to find her child (Roy himself), who had gone missing after joining a community bank.

If Mr Thompson had shared the fate of many small-town bankers, he would have remained missing. Since 2012 more than 2,000 American banks have closed (see chart). Almost all were small, operating in the shadows of big banks with big budgets for marketing, technology and regulatory compliance. For the same reasons, almost no new banks have opened. Before the crisis the Federal Deposit Insurance Corporation (FDIC) approved hundreds of bank charters each year. Since 2009 there have been only a dozen in total.

So sudden has been the stop that the FDIC is seeking to…Continue reading

THE baroque era in Turkish architecture lasted deep into the 19th century, leaving behind lavish buildings, such as the Lily Mosque in Istanbul and waterside pavilions that seem to float on the Bosphorus. The baroque period in Turkish monetary policy will last until June 1st, when the central bank will simplify its equally ornate monetary-policy framework. It will henceforth rely on a single interest rate (the one-week repo rate), which it will raise to 16.5%. This will supersede a jumble of interest rates (see chart) that has left the Turkish currency perilously close to submersion.

Turkish baroque mingled Western and Ottoman…Continue reading

DIVINING meaning in the Trump administration’s trade announcements is a thankless task. No sooner does a policy seem settled than it is thrown up in the air once more. On May 23rd, days before a scheduled meeting with the European Union and Japan on a joint trade strategy and in the middle of talks to revamp the North American Free-Trade Agreement (NAFTA), it began an investigation into whether car imports are a threat to America’s national security. On May 29th, days after tariffs on imports from China were supposedly put on hold, official word came that tariffs on $50bn of Chinese imports would be imposed “shortly” after June 15th. Barring a last-minute change of heart—which would not be the first—as The Economist went to press the administration was expected to announce tariffs on steel and aluminium imports from the EU from June 1st. Whether America’s partners in NAFTA, Canada and Mexico, would also be hit was unclear.

The chaos is partly the…Continue reading

Glad rags to sad rags

IN A market in Kigali, Rwanda’s capital, a cacophonous auction is under way. Sellers hold crumpled T-shirts and faded jeans aloft; traders shout and jostle for the best picks. Everything is second-hand. A Tommy Hilfiger shirt goes for 5,000 Rwandan francs ($5.82); a plain one for a tenth of that. Afterwards, a trader sorts through the purchases he will resell in his home village. The logos hint at their previous lives: Kent State University, a rotary club in Pennsylvania, Number One Dad.

These auctions were once twice as busy, says Félicité Mukarurangwa, a trader. But in 2016 Rwanda’s government hiked import duties on a kilo of used clothes from $0.20 to $2.50. Now she struggles to break even. The traders are not the only ones who are unhappy. Exporters in America claim the tariffs are costing jobs there. In March President Donald Trump warned that he would suspend Rwanda’s duty-free access to American markets for its apparel after 60 days if…Continue reading