Bullet-Proof Balance Sheets

Prepare for Turbulence in Emerging Markets

(Bloomberg Opinion) -- Encouraging trends in emerging markets belie their volatility since the taper tantrum of 2013, when the Federal Reserve signaled it was pulling back on quantitative easing. Further turbulence is likely, despite the improving outlook for advanced economies, easing trade tensions and accommodative monetary policy.The International Monetary Fund estimates that growth in developing countries fell to 3.7% last year, the slowest pace since 2009 and well below the IMF’s July 2019 forecast of 4.1%. An expected rebound to 4.4% this year assumes highly uncertain recoveries in stressed economies such as Argentina, Iran and Turkey, as well as in countries where growth has slowed significantly — China, Brazil, India, Russia and South Africa among them.Rising friction in the Middle East, if sustained, could result in higher energy prices and supply disruptions for developing countries. India, which recently downgraded growth for the 2020-21 fiscal year to 5%, the slowest pace in a decade, imports more than 70% of its oil needs. A price rise of $10 per barrel widens the current account deficit by 0.4 % of gross domestic product. Every increase of 10% adds 0.2% to the rate of inflation, which is already above the Reserve Bank of India’s 4% target.Higher borrowing costs and a stronger U.S. currency due to haven demand would hurt developing countries. Between 2010 and 2018, low exchange-rate volatility and high interest-rate differentials caused non-bank financial institutions in emerging markets to double their U.S. dollar-denominated debt to $3.7 trillion. Much of this is unhedged.Further geopolitical risks include North Korea’s missile-rattling, challenges in Hong Kong and Taiwan to Beijing’s assertions of authority, and China’s territorial maritime disputes with its neighbors. Japan and South Korea are contesting matters arising from World War II. India’s proposed changes to citizenship laws and the status of Kashmir is fomenting domestic unrest and tensions with predominantly Muslim Pakistan and Bangladesh.Meanwhile, the spread of a new virus that originated in China threatens to depress retail sales and tourism in Asia, helping to bring a global stock rally to a halt last week.These stresses exacerbate long-term structural problems. The early 2000s and the period immediately following the global financial crisis saw a synchronized acceleration of growth across the world. But advanced economies have slowed and their long-term potential rate of expansion has fallen.The latest IMF estimates released last week have growth in advanced economies stabilizing at 1.6% in 2020-21, compared with 2.3% in 2018 and 0.1 percentage point lower than in its October forecast. Underlying this stagnation is the flagging potency of debt-fueled growth, flat productivity, limited policy options, and unfavorable demographics. Emerging economies cannot rely on historic demand for exports to drive future expansion.Despite the U.S.-China phase one trade agreement, conflicts won’t abate. Sino-American trade tensions alone will cumulatively reduce the level of global GDP by 0.8% by 2020. The Trump administration also has trade disputes with the European Union, Australia, India and Vietnam, among others. France and the U.S. are trying to de-escalate threatened tariffs on champagne and cheese in retaliation for a digital tax affecting Alphabet Inc.’s Google and Amazon.com Inc.Trade volume growth fell to about 1% in 2019, the weakest level since 2012. The retreat from a rules-based trade system and the weaponizing of trade interdependence will damage everyone.In the past 20 years, China, a crucial driver of emerging markets, went from a 10th to two-thirds the size of the U.S. economy, assisted by trade within the WTO framework. Today, China’s blacklisted Huawei Technologies Co. relies on chips designed in America while advanced economies benefit from its cheaper and often cutting-edge 5G technology. Three-quarters of the world’s smartphones, mostly made in emerging markets, use Google’s Android mobile operating system. American restrictions hurt developing nations as well as consumers in advanced economies.In a world of limited demand, irrespective of leadership or ideology, governments everywhere face a mounting anti-globalization backlash. Nationalist agendas and a shift to autarky – closed economies – will persist. A return to strong growth in trade and cross-border capital flows seems unlikely.This affects developing-world economic models. Lower-income nations focused on export-oriented industries, such as textiles and manufacturing, exploiting cheap costs. Now, weak demand and trade disputes limit this option. Higher-income developing countries face technology transfer restrictions that affect improvements in productivity. Meanwhile, automation decreases the advantages of low-skilled, cheap labor and offshoring. Bringing manufacturing home to advanced economies decreases companies’ exposure to disruption, currency fluctuation and political interference. The failure of Prime Minister Narendra Modi’s “Make in India” strategy reflects these shifts. India has failed to produce the 1 million new jobs per month needed to absorb new entrants into the workforce. Indian Railways recently received 23 million applications for 90,000 vacancies.Slower growth creates a dangerous feedback loop. Dissatisfaction with improving ordinary lives can prompt civil unrest. Countries rich in scarce resources, or having large internal markets such as China, India, and Indonesia, may muddle through.Others will struggle. Rising nationalism and protectionism are likely outcomes, and will only deepen the wedge between advanced and emerging economies. It will make an interesting if rough ride ahead for investors. To contact the author of this story: Satyajit Das at sdassydney@gmail.comTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Satyajit Das is a former banker and the author, most recently, of "A Banquet of Consequences."For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

U.S. Treasury Secretary says optimistic about U.S.-UK trade deal

YouTube Gets Streaming Rights to Major Esports Leagues

(Bloomberg) -- YouTube secured the exclusive rights to broadcast some of the biggest esports leagues, giving Google a boost in its efforts to push into the lucrative world of video games.The deal, signed between Alphabet Inc.’s Google and video game publisher Activision Blizzard Inc., gives YouTube the rights to broadcast the new Call of Duty League and the already-popular Overwatch League, which was broadcast on Amazon.com Inc.’s Twitch for the past two years at a reported cost of $90 million. As part of the agreement, Google will provide cloud infrastructure for Activision’s online games. Financial terms of the multiyear deal were not disclosed.Gaming is a significant new frontier for Google. Last year, it released a game-streaming service called Stadia, which lets people play games through the internet without having to buy a console or high-powered computer. YouTube has always been a major destination for watching people play video games, but the company is trying to take even more territory by poaching well-known game players from Twitch.‘All-Out Talent War’ in Video Gaming Sparked by Ninja Defection“In 2020 Google is going all out to claim a piece of the $120 billion games market,” said Joost van Dreunen, managing director of Nielsen’s video-game research arm. “Google is off to a great start to building strong relationships with content creators which it will need to differentiate as it tries to penetrate the industry via different avenues.”The news isn’t good for Amazon, which hasn’t announced a competitor to Stadia and still faces uncertainty about its in-house gaming studio, van Dreunen said. “The longer Amazon remains on the sidelines of technological shifts in the games business, the harder it will be to capture share down the line,” he said.The deal offers a strong boost to the central thesis of Activision’s esports efforts. The publisher pitched investors on the Overwatch League and the Call of Duty League, which launches later this month, as esports equivalents to traditional sports leagues like the National Basketball Association or National Football League. Selling media rights to companies like YouTube is a central piece of how these leagues make money.Providing hosting services to Activision is also a win for Google’s cloud division, which is trailing Amazon and Microsoft Corp. in that market.(Updates with comment from analyst in the fourth paragraph.)\--With assistance from Eben Novy-Williams.To contact the reporter on this story: Gerrit De Vynck in New York at gdevynck@bloomberg.netTo contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew PollackFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Google’s ‘Wi-Spy’ Accord Gives Consumers Nothing, States Say

(Bloomberg) -- Attorneys general from nine states urged a federal judge to toss out Google’s $13 million settlement of a class-action lawsuit blaming its Street View mapping technology for a massive violation of consumer privacy.The proposed accord in a debacle that became known as “Wi-Spy” doesn’t offer compensation for millions of people whose confidential data was captured off their Wi-Fi networks by Street View vehicles. Instead, the deal divvies up funds among a handful of privacy rights organizations, a small number of individual consumers who led the case and their lawyers, the state officials said in a court filing.The lawsuit, filed a decade ago, was once called the biggest U.S. wiretap case ever and threatened the internet giant with billions of dollars in damages. The settlement was reached in July and won preliminary approval in October from U.S. District Judge Charles Breyer in San Francisco, who found it to be “likely fair, reasonable, and adequate.”“Without receiving any of the $13 million cash fund or any meaningful injunctive relief, class members receive no direct benefit from the settlement,” the attorneys general said.An attorney for the consumers and Google’s press office didn’t immediately respond to messages seeking comment.Read More: Why a Dead Kennedys Punk Isn’t Buying Google’s Privacy DealsArizona State Attorney General Mark Brnovich submitted the filing, joined by Alabama, Alaska, Missouri, Ohio, Arkansas, Idaho, Indiana and Louisiana. The states plan to urge Breyer to reject the deal at a Feb. 28 final approval hearing in San Francisco.Google agreed in the settlement to delete all collected data and educate people on how to set up encrypted wireless networks. But the company had already made those promises in a 2013 agreement with 39 attorneys general, according to Mark Brnovich’s filing.Any “injunctive relief is illusory,” the attorneys general said.The Street View suit is a rare instance in privacy litigation where consumers gained the upper hand, notably when the U.S. Court of Appeals in San Francisco in 2013 rejected Google’s argument that it was legal to intercept open Wi-Fi networks because they were akin to AM/FM radio transmissions. The court’s conclusion that the federal Wiretap Act applied meant that if Google went to trial to fight the allegations and lost, it could be hit with $10,000 in damages for every violation.But in July, the plaintiffs’ lawyers said the settlement was justified, in part, because there was a risk that they could still lose the case -- and end up with nothing. They also argued that the accord would deter privacy violations and that the funds designated for privacy-oriented groups will help teach future information technology workers to “to become safeguards of internet privacy rather than exploiters of personal information communicated over the internet.”The case is In re: Google Inc. Street View Electronic Communications, 3:10-md-02184, U.S. District Court, Northern District of California (San Francisco).To contact the reporter on this story: Malathi Nayak in San Francisco at mnayak21@bloomberg.netTo contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Blumberg, Joe SchneiderFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

AppleTV+ Pips Disney to Third Place in Q4 as Streaming Wars Intensify

By Yasin Ebrahim