It has been a good week for markets. The FTSE 100 index and the S&P 500 touched new highs during the week, and there were also gains for Asian and European markets. Japan’s Nikkei 225 climbed above 20,000, a level last previously reached in December 2015.
Make this planet great again?
Donald Trump once again stole the headlines this week with his controversial decision to pull out of the Paris climate accord, brokered in 2015. The repercussions were immediate: serial entrepreneur Elon Musk and Disney boss Robert Iger both resigned from President Trump’s business advisory panel in protest. The United States is responsible for 14% of global carbon emissions. Trump’s actions have thrown the accord’s targeted reductions into doubt, prompting a backlash from senior officials in China and the European Union. Beijing and Brussels have responded swiftly, announcing a ‘green alliance’.
BA: fly to serve/r
British Airways caused travel chaos early in the week as a computer system failure caused 75,000 passengers to be stranded at Heathrow and other airports around the world. Willie Walsh, chief executive officer of BA’s parent company IAG, has come under fire for aggressive cost cutting over recent years, with commentators insinuating that having it as “part of BA’s DNA” clearly isn’t working. A defiant Mr Walsh stressed that the disruption was not caused by a technology problem, stating: “You give me any IT system in the world and I’ll show you how good it is when it doesn’t have any electrical power going to it”. That may well be true, but it’s of scant consolation to the affected passengers. BA has a big PR job ahead.
Venezuela: default position
Venezuela’s troubles continued this week as it appeared to edge ever closer to a default on bond payments. Kevin Daly of our Emerging Market Debt team told the Financial Times: “The backdrop suggests we are moving closer to a credit event. The government is becoming more dysfunctional, the protests are becoming more fevered and it does feel like there could be splits in the government and military”.
According to investment bank Nomura, the cost of servicing Venezuela’s US$10bn debt pile will be roughly equivalent to that of its non-oil imports. Such political uncertainty, coupled with concerns over the country’s ability to service its debts, has failed to dissuade investors. Many are speculating that regime change would lead to a big uplift to the recovery value of Venezuelan government bonds.
Taking stock: public vs. private
Scenic Advisement, a San Francisco-based boutique investment bank, revealed that US and European private company valuations have increased from US$37bn in 2010 to US$490bn. The cult of the public company is clearly under scrutiny. And with unicorns (private companies with a US$1bn valuation tag) on the rise, debate around the virtues and failings of private and public markets is intensifying. Japan’s Softbank $502 million investment into UK technology company Improbable was just the latest in a long string of high-profile venture capital financing deals. Perhaps, as with the case of Snap’s IPO last year, we will continue to see a rise in hybrid approaches – either shares with no voting rights, or partial listings?
We can all relate. Being married to our phone is function of our times. However, most of us have a limit. Not Chris Sevier, who has filed a lawsuit against the state of Utah, believing he should be allowed to marry his laptop computer. There are a number of issues with this, not least that the computer is unable to consent to the union (although perhaps the rise of the robots and artificial intelligence could change this). “In sickness and in health” also seems a little less profound when the ailments of one half of the union can be resolved by simply switching them off and on again. Thankfully, it’s likely to be a very long time before we hear a computer utter the words “01001001 00100000 01100100 01101111” (“I do” in binary).