Chinese FDI into Europe has doubled since 2013

Chinese foreign direct investment into Europe hit US$18bn in 2014, almost double 2013’s level. Over the past four years, the average spend in the region by Chinese investors has been US$12bn a year, suggesting a slowdown in Chinese growth has not dented that country’s appetite for international exposure.

Given the recent down-to-the-wire nature of negotiations between Greece and its eurozone creditors, it is not surprising that China has been cited as a possible financier-of-last-resort for Europe’s peripheries in the event of a euro breakup. In one such scenario, China could provide financial assistance in return for ownership in vital infrastructure such as ports and/or use Greece for geopolitical advantage. If that happens, Portugal and Spain might consider going down the same route, as the fear of being able to fund themselves dissipates.

As things stand, we believe by far the most likely outcome is for Greece to achieve an element of debt forgiveness without the need for a euro exit. Nonetheless, the potential China angle may serve to focus minds around the negotiating table in the coming weeks and months.

Nick Clay, Newton

Chinese foreign direct investment into Europe hit US$18bn in 2014, almost double 2013’s level. Over the past four years, the average spend in the region by Chinese investors has been US$12bn a year, suggesting a slowdown in Chinese growth has not dented that country’s appetite for international exposure. Given the recent down-to-the-wire nature of negotiations between Greece and its eurozone … read more

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Uncovering alpha in unexpected areas

Gross domestic spending on R&D as a total of GDP

For a country of eight million people, Israel has long been punching above its weight in the technology sector. Israel’s expertise is certainly recognised by the global giants of technology, with Intel, Microsoft, Google and many others operating significant R&D centres there.

In the third quarter of 2014 alone, 170 Israeli high-tech companies attracted US$701m of capital, with 81% of that money coming from overseas investors.What’s more, other than the US, only China has more companies listed on the tech-heavy NASDAQ exchange than Israel’s 90, worth a total of US$40bn, as at end of June 2014.2

Fortunately there are also companies of such providence listed in the UK, which means investors can access great tech firms safe in the knowledge of a high level of corporate governance and regulatory scrutiny. The fact they are Israeli and perceived as ‘higher risk’ means they are trading at lower valuations than their fundamentals may warrant. Hopefully, over time this discount will close as their business models and resilience is further appreciated by the wider market, but in the meantime the cash generative nature of these companies contributes significant dividend income.

Paul Stephany, Newton

Sources:
1 IVC_HPMG, High-tech capital raising survey, Q3 2014
2 Forbes, 29 June

For a country of eight million people, Israel has long been punching above its weight in the technology sector. Israel’s expertise is certainly recognised by the global giants of technology, with Intel, Microsoft, Google and many others operating significant R&D centres there. In the third quarter of 2014 alone, 170 Israeli high-tech companies attracted US$701m of capital, with 81% of … read more

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Global M&A hit a post-crisis high in 2014

Regional M&A comparison in US$

We aren’t surprised to see M&A activity climbing, and, as we discussed in an earlier post (see M&A activity takes off, 3 June 2014), that may continue over the next couple of years for several reasons.

  • Corporate liquidity is still high
  • Although softening, financing terms are still attractive, as debt markets remain mostly open and supportive.
  • Political and regulatory uncertainty is slowly subsiding, enabling executives to think strategically and look further out into the future.
  • Acquirers’ stocks are rising when investors reward smart, calculated moves. This encourages other corporate management teams to be proactive.
  • Activist shareholder activity is clearly on the rise.  This has been and will continue to be a driver as activists have put up sterling performance numbers and are attracting large net flows of assets to manage.
  • The rout in oil and commodities will create M&A activity as sellers eventually realize the reduced longer-term outlook for their business.

The dramatic shift in the US dollar may slow activity as participants have to reassess the value of their operations in a different currency setting.

James M. Boyd, The Boston Company Asset Management

We aren’t surprised to see M&A activity climbing, and, as we discussed in an earlier post (see M&A activity takes off, 3 June 2014), that may continue over the next couple of years for several reasons. Corporate liquidity is still high Although softening, financing terms are still attractive, as debt markets remain mostly open and supportive. Political and regulatory uncertainty … read more

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Europe’s year of reckoning: will extremists triumph?

% of votes for non-mainstream parties in national polls

Following the victory of the populist left-wing Syriza party in Greece, the old order of European politics seems to be under threat. Across the continent new political parties of the left and right are on the rise. Even in countries that have seen a return to growth, falling unemployment and improving consumer confidence, support for non-traditional parties continues to accelerate. Peripheral countries are splintering from the rest of Europe as they are generally seeing more protest votes go toward broadly left-wing soft eurosceptic parties, while the electorate in other countries are largely catching protest votes for right-wing, harder eurosceptic parties.

So far, recent developments in Greece have largely only unsettled the domestic stock and bond markets. But with parliamentary elections in Denmark, Estonia, Finland, Poland, Portugal, Spain and the UK slated for 2015, it may pay investors to read political commentary as closely as the data on Bloomberg screens in the months ahead.

Gareth Colesmith, Insight Investment

Following the victory of the populist left-wing Syriza party in Greece, the old order of European politics seems to be under threat. Across the continent new political parties of the left and right are on the rise. Even in countries that have seen a return to growth, falling unemployment and improving consumer confidence, support for non-traditional parties continues to accelerate. Peripheral … read more

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