Opinion

The Great Debate

from The Great Debate UK:

Apple attempts to become fashionable

The UK lost one of only three female CEOs on the FTSE 100 on Tuesday, as Burberry CEO Angela Ahrendts quit. My concerns about females at the top aside, the interesting thing about Apple’s new hire is the link between Apple and fashion and what it tells us about the evolution of the tech industry.

Ahrendts is a smart choice to become the head of retail and online stores for Apple. Firstly, her marketing skills are second to none. During her tenure at Burberry she has completely transformed the consumer experience at the iconic British brand. The stores are beautiful. The central London branches are styled just as well as the brand's catwalk stars; they look more like a high-end boutique hotel in Paris or Milan than a high street shop.

The last time I was in the flagship London store there was a life-size virtual catwalk show going on and what looked like a sculpture wall was actually a collection of accessories, all for sale. The music was pumping, the shop assistants were friendly, helpful and of course draped in the brand and, crucially, the place oozed cool. Ahrendts managed to take a British brand that was once considered the staple of the “chav” and make it covetable once again.

She targeted the aspirational middle class, which could be a reflection of her own upbringing – she is from humble roots in Indiana. Burberry’s success in emerging markets is largely down to Ahrendts and her grasp of what the middle classes in fast growing emerging markets actually want.  This is what Apple desperately needs. It has seen Google’s Android take a substantial bite out of Apple’s market share in recent years, giving it a serious challenger in the race to be the smart phone of choice in emerging markets.

The market is rightly concerned Apple's limited selection of affordable, low-end products that most analysts think will be attractive to the vast bulk of middle class consumers, especially those outside of China. Although Apple has the iPhone 5c, it is still considered expensive relative to the average income in the emerging world. So where does Ahrendts come in? She can’t be expected to lift wages in the emerging world to try and boost demand for Apple goodies.

from The Great Debate UK:

Swift action needed to curb tapering impact on emerging markets

--Shaukat Aziz is the former prime minister of Pakistan. The opinions expressed are his own.--

Emerging markets have seen increasing economic uncertainty in recent months, due to a slowing down in quantitative easing (QE) and a reduction in economic activity. Several countries have experienced rising current account deficits, reducing capital flows, declining foreign reserves and depreciating currency values. Brazil, India, Indonesia, South Africa and Turkey have all seen their currencies drop by more than 10% this year.

These factors serve to lower consumer and investor confidence and delay new investments – in effect, creating a ‘wait and see’ attitude with the result that discretionary expenditure is deferred.

The short and long of emerging markets

Fickle investors have spurned emerging markets in recent weeks, but this rout has obscured a more alluring vista out on the horizon.

Developing economies now account for 50 percent of global output and 80 percent of economic expansion and are projected to continue growing far faster than developed nations. They are expected to possess an even larger share of global growth, wealth and investment opportunities in years to come. So much so that the labels investors use to classify some of these nations will change as the developing develop and the emerging emerge into more potent economic powers

But this long-term view has been lost on many of those who look to emerging market assets for a higher yield in the short term. Their ardor cooled when the Federal Reserve signaled it may soon ease the stimulus that has kept credit cheap, signaling higher interest rates ahead. That was coupled with signs of slower growth in key emerging markets like China and Brazil.

How smart businesses are winning in emerging markets

As companies in mature markets compensate for modest growth at home by trying to boost their presence in emerging economies, they are encountering intense competition from increasingly confident local players. Aggressive and nimble enterprises in China, India and elsewhere may pose some threat, but the real challenge in these high-growth markets is more complex. And it is affecting companies from all markets, not just those in North America, Europe and other developed economies.

The important transformation in the global landscape is not so much the shift to emerging economies but the extraordinary growth in business activity among emerging market countries. When American companies target Brazil or India, for example, they should know that China has displaced the United States as the largest trading partner of both. We at Accenture predict that trade between emerging economies is about to overtake that between developed economies.

Thus, companies need to tackle the diversity of growth opportunities and the pace of change if they are to succeed. Clearly, emerging market companies have some advantages at home. They have established relationships and the ability to leverage scale advantages with low costs and, in some cases, government support. They have faced similar challenges in their home countries, such as dealing with infrastructure deficits and scarce or unreliable data. They are increasingly doing business with one another, growing across one another’s borders and gaining insights and experience on how to best serve one another’s markets. This gives them an inherent advantage over competitors from mature economies unfamiliar with operating in such conditions.

from MacroScope:

Emerging markets: Soft patch or recession?

Could the dreaded R word come back to haunt the developing world? A study by Goldman Sachs shows how differently financial markets and surveys are assessing the possibility of a recession in emerging markets.
One part of the Goldman study comprising survey-based leading indicators saw the probability of recession as very low across central and eastern Europe, Middle East and Africa. These give a picture of where each economy currently stands in the cycle. This model found risks to be highest in Turkey and South Africa, with a 38-40 percent possibility of recession in these countries.
On the other hand, financial markets, which have sold off sharply over the past month, signalled a more pessimistic outcome. Goldman says these indicators forecast a 67 percent probability of recession in the Czech Republic and 58 percent in Israel, followed by Poland and Turkey. Unlike the survey, financial data were more positive on South Africa than the others, seeing a relatively low 32 percent recession risk.
Goldman analysts say the recession probabilities signalled by the survey-based indicator jell with its own forecasts of a soft patch followed by a broad sustained recovery for CEEMEA economies.
"The slowdown signalled by the financial indicators appears to go beyond the ‘soft patch’ that we are currently forecasting," Goldman says, adding: "The key question now is whether or not the market has gone too far in pricing in a more serious economic downturn."

The great global rebalancing and its implications

Manoj Pradhan

Alan M. TaylorManoj Pradhan, left, a global EM economist, is an executive director at Morgan Stanley. Alan M. Taylor, right, a senior advisor at Morgan Stanley, is a professor of economics at the University of California, Davis. The opinions expressed are their own.

Policymakers have fretted about global imbalances for nearly a decade, but little consensus or clarity has emerged. Some saw problems created by surplus countries, others deficit countries. Many feared a fiscal-cum-balance of payments crisis in the U.S., but the crisis we got reflected private/financial failures. G20 proposals for collective action remain a work in progress. Uncoordinated policy actions triggered talk of currency wars.

As these debates drone on, there may be less cause for concern about global imbalances. Emerging market-developed market (EM-DM) relationships may revert to a more typical historical pattern. We highlight key areas of global adjustment in this scenario: shifts in capital flows, exchange rates and real interest rates.

Will oil prices stabilize around $80?

Most commentators and oil analysts are convinced a further rise in prices is inevitable in the next few years as emerging market consumption grows and supplies increasingly come from more costly and technically challenging sources such as ultra-deepwater.

While there are disagreements about the extent and the timing of price changes, there is a remarkable degree of consensus about the direction: up. But the roller-coaster experience of the last five years should have taught forecasters to be much more cautious about extrapolating trends and assuming the future direction is obvious.

Price forecasts are notoriously unreliable. There are simply too many variables and too much uncertainty about the current state of the market let alone how supply and demand will evolve in future. The crucial role of expectations in price formation adds an element to “reflexivity” which is hard for forecasters to anticipate or model accurately.

from MacroScope:

What emerging animal are you?

Ever since Goldman Sach's Jim O'Neill came up with the idea of BRICs as an investment universe, competitors have been indulging in a global game of acronyms. Why not add Korea to Brazil, Russia, India and China and get a proper BRICK? Or include South Africa, as it wants, to properly upper case the "s" - BRICS or BRICKS?

Completely new lists have also been compiled -- HSBC chief Michael Geoghegan has championed CIVETS to describe Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa (ignoring the fact, as Reuters' Sebastian Tong points out here, that a civet is a skunk-like animal blamed for the spread of the deadly SARS outbreak in Asia).

Fun though some of this is -- and no one can argue that BRICs has not had an impact -- there is a danger that the acronym could become more relevant  than the actual countries involved. For example, imagine Mexico, Uruguay, Panama, Philippines, Egypt, Turkey and Sierre Leone being lumped together because they spell MUPPETS.

Emerging markets in an era of debt

-  Robert O. Abad is a senior research analyst and Matt Graves is an analyst for Western Asset.  The views expressed are their own. -

The landscape of global debt markets has changed drastically since the problems in Greece first arose earlier this year. Markets have been incredibly resilient in the face of sovereign-related problems, but the change in collective market psychology—in which a transition was made from an obsessive focus on the growth drivers of a global economic recovery to a careful consideration of the risks posed by the mounting stock of developed world public debt—has been the single most important driver of volatility this year.

From the vantage point of emerging markets, the pattern of events in the years leading up to the 2008 financial crisis offer a clear and disturbing parallel to the lesser developed countries’ (LDC) debt crisis of the early 1980s.  Global liquidity conditions fueled a debt-driven growth story in Latin America that ended with the region crumbling under the weight of massive debt and the US financial system facing potential insolvency.

Stop worrying and love emerging markets

Better growth, less debt and what is shaping up to be a very nice little supply and demand mismatch make emerging markets very attractive relative to the developed world.

Sure, China could go ‘pffft’ every now and then, and yes, there is potential for getting caught at some point on the wrong side of a deflating bubble, but boom and bust is the world in which we live. Stay in the developed world and you could get run over by the proverbial Greek bus on its way out of the euro or see your portfolio shot out from under you by the bond market vigilantes.

And, as the International Monetary Fund pointed out last week, emerging market returns have been better on a volatility adjusted basis, both during the downturn and the market recovery. Think about that: historically the trade-off in emerging markets has been that you try to capture a share of superior economic growth but bear the risks of higher volatility and a bigger chance of being abused as an investor by entrenched local interests.

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