China's Exports Stall, The World Bank Predicts a Lost Decade and Money Market Funds Gain Popularity in this Week's Edition...
Take a Lap Around the Industry
ExxonMobil Quits Brazil Oil Exploration Project After Disappointing Results (WSJ)
Walmart Prioritizes Better Supply-Chain Strategy Over Expansion (WSJ)
Mastercard to Mandate Use of Recycled Materials in Payment Card Production (Bloomberg)
Top Credit Suisse Executives see Bonuses Slashed or Cancelled (Bloomberg)
China's Export Growth Hits a Wall as Global Demand Slows
Despite reopening last December, China's economy has been hit by sluggish global demand for its exports. Monthly exports have been falling on a year-over-year basis for five months, according to China Customs statistics. Although export growth was strong a year prior amid the pandemic-driven consumption boom, the trend's future will depend on the next recession's depth and trade tensions between China and the United States. One theory for the country's struggles is the conscious effort by companies to pursue “re-shoring,” “near-shoring” and “friend-shoring” strategies that shift production out of China. China was expected to bounce back faster from the pandemic compared to other major economies, but growth began to slow in the fourth quarter of 2021. The central bank has been trying to boost the economy by lowering banks' reserve requirement ratios and loosening rules on property financing and foreign-exchange transactions. The Communist Party is set to discuss its next five-year economic plan at a meeting later this year.
"This drop can be pinned on weakening global demand for Chinese goods, as well as some disruption to logistics networks and goods supply due to labor shortages amid the reopening wave of infections...The rapid fading of virus disruptions as China adapts to living with Covid-19, along with broader policy support, will drive a sharp recovery in domestic demand that will lift imports."
Capital Economics Analysts
Private Funding Pulse Check
Morgan Creek Capital Management has recently participated in a Series C funding round worth $108M for Ledger, a global platform for digital asset security and utility
Zealy, an education management platform that delivers portfolio-centered learning and hiring workshops, has secured a $3.5M Pre-Seed funding round investment from Bernard Arnault's family office, Aglaé Ventures
Mojo Vision, a company developing "Invisible Computing" that builds on advanced micro-LED technology, has raised a $22.4M Series A investment from Dolby Family Ventures
Cercano Management took part in a $1M Seed deal with Prep.vn, an educational technology startup developing an online interactive learning platform for students
World Bank Sees a "Lost Decade" in Store for the Global Economy
The World Bank has warned of a "lost decade" for global growth, due to existing structural challenges compounded by the Covid-19 pandemic, high inflation and the war in Ukraine. The lender says it will require a "herculean collective policy effort" to restore growth to the average of the previous decade. Three main drivers behind the reversal in economic progress include an aging workforce, weakening investment and slowing productivity. Potential growth was 3.5% from 2000 to 2010 but dropped to 2.6% on average from 2011 to 2021, and is expected to fall further to 2.2% from 2022 to 2030. The World Bank has warned of further weakness in growth if major economies experience financial crises, triggering a global recession. The warning comes ahead of the spring meetings of the International Monetary Fund and World Bank, where topics to be discussed include inflation, global trade fragmentation and human capital.
"The World Bank is right to draw concern to the possibility of a lost decade in sub-Saharan Africa, in Central America, in South Asia—an awful lot of human beings are at risk or are facing very grim situations."
Adam Posen, Peterson Institute for International Economics
Fed's Money-Market Fund Program in Focus as Deposit Outflows Continue
The Federal Reserve's reverse repo facility, which allows financial firms to earn interest on large cash balances, has accumulated more than $2.2T as of Wednesday. While the program is designed to lift interest rates and has been meeting its core objective of “providing highly effective control of overnight interest rates,” some analysts suggest it is also draining funds from the banking system. Bank deposits have fallen by $363B to $17.3T since the beginning of March, while assets in money-market funds have risen $304B to a record $5.2T. More than 40% of money-market fund assets are invested in the reverse repo facility, created nearly 10 years ago to provide short-term returns on cash for both institutions and investors. Central bankers have a few options to reduce the amount of cash sitting at the Fed each night, one of which includes lowering the interest rate paid to money market funds. However, some industry experts argue decreasing the interest rate on the reverse repo facility may not be the best solution for the Fed to alleviate pressure on banks that have been sluggish in raising deposit rates.
"What’s different this time is the money-market funds aren’t really as good at recycling money back into the banking system..."
William Dudley, Former Fed Reserve Bank President
Brazilian Billionaire Family Sets Sights on U.S. Real Estate Opportunities in Post-Pandemic Era
Votorantim SA, a Brazilian conglomerate and family holding company owned by one of the country's wealthiest families, is looking to invest in U.S. real estate for the first time. Votorantim is interested in multifamily housing properties and commercial buildings in several markets, including New York and the West Coast. According to CEO Joao Schmidt and CFO Sergio Malacrida, Votorantim's interest in U.S. real estate stems from the current market conditions that have created a "dislocation" of prices in the post-pandemic era. The now sixth-generation family enterprise, which has historically operated across the cement, infrastructure, orange juice, banking, aluminum and power sectors, is poised to enter a new frontier that is shaping up to reward buyers who can withstand short-term price volatility. The firm put similar deals on hold last year in an effort to time the market, opening an office in New York at the end of 2021 in anticipation of future investments. Votorantim, which is not publicly traded, posted $1.1B of profit in 2022, down from a record the year before, and expects to invest nearly another $1.1B this year. Any plans for an initial public offering of its banking unit or other businesses have remained off the table due to volatile market conditions.
"These opportunities are materializing in front of us as we speak...In a market like New York, you have some assets with maximum occupancy and no drop in value and just three blocks away another block that’s completely empty."
EP Wealth Advisors, a US-based registered investment advisor, has acquired California-based Lehman Derafelo Financial Resources (LDFR), which manages around $250M in assets (CityBiz)
Mercer Advisors, a Denver, CO-based wealth management firm, has announced the acquisition of Andesa Financial Management, a Pennsylvania-based provider of comprehensive policy administration, plan administration, and support solutions for life insurance and annuity carriers (Cision)
T. Rowe Price is set to acquire Retiree Inc., a fintech company that provides retirement income planning solutions to financial advisors and their clients (PlanAdvisor)
Written by:
Andrew Popp | Sr. Research Associate
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