A Global Prospect in 2016
The global economy is not so devastating as media proclaimed publicly, even the bulk commodities, such as crude oil markets or gold futures performed so miserably in 2015, all prospects were already disclosed in our archived inside perspectives, right? Now, from 2016 to 2017, we can affirmatively prophesy that the bulk commodities and the Baltic Freight InIndex (BFI) will plummet to a historical low, achieving another big economic circular recession. The gold price, unless another extensive world war, otherwise is going to keep its stability. Taking into current situation, there is no possibility to ignite another world war. So, in the future, the demands for crude oils and other metals are expected to climb back to a high level, and we can confidently to say the current value are undervalued.
We can never deny the political conspiracies and related unhealthy market competitions stretched a little bit far interfering the transaction of under-valued oil exchange; at the meantime, the sluggish of metals trades may also turn their heads back on benefited from the supply-side reform from the world’s second largest economy. The days of another market flourishing can be counted on.
Please be cautious: we should be critically analyse all public comments from some global major investing banks, bonds traders, finance big names, even the diplomatic rhetorics from governments, which are all serving their own purposes. We abide by our own beliefs and instincts, aiming at providing our investors the biggest yields.
The earth has already become a small village at an arm’s length because of the technological revolution. As long as you are willing to think, we will not have secrets any more. Well, we have to admit that there are still some unwise people in the world. That’s why and how some “niche” markets for them.
As for the industry development, emerging industries are always grabbing all accelerating momentums, and those emerging industries are our investments’ guidelines.
- The Americas:
The dollar’s effects has been dominated for decades, and the American stocks have also enjoyed the spotlights for decades, both of which are the results of economic and military hegemonies. However, such dominating principle is against the natural law, and we are expecting a fundamental transformation in the near future.
Countries in the South America suffered a significant recession due to the dollar depreciation, and they have been fallen into the “medium income trap” for nearly two decades. Unfortunately, there is no sign of recovery.
Asia is PRINCIPLE’s focus.
China’s economy has been keeping its developing momentum for three decades, and it is no wonder a recognised miracle. What is more surprised is its huge achievements after the opening-up policy, thanks to its gigantic economic potentials. Even the official GDP of 2015 (6.9%) is 0.1% lower than what PRINCIPLE had expected, and is estimated to continue a falling trend, PRINCIPLE still uphold positively toward the China’s economy. PRINCIPLE think that the China’s economy is on its transformation phase and doomed to make a success supported by the huge and diversified monetary supplies. Some technological innovations have showed their profound breakthroughs in some particular industries, such as military industries, high-speed rail and nuclear power technologies for which will contribute a lot to other industry in China, such as the service industry, especially the financial services. For all those achievements, the reformists seem to inherit from their German companions. A obvious sign has already been manifested that Chinese pharmacist Tu You You was awarded “2015 Nobel Prize in Physiology or Medicine” which signifies that Chinese medical research has reached to a high level. What is more, China has abandoned its 30-year-old one-child policy which can stimulate the population growth which can avoid the lesson of Japanese economic recession due to lack of population. In that case, it is a primary choice to invest in China. Of course, we have to get rid of some inactive companies or projects in the traditional industries.
India seems to resemble China’s 30 years experiences. But it is a pity that India haven’t establish a sound political system to support its economic development; merely computer and software industries cannot broaden its investment opportunities.
On the surface, some drawback countries from South Asia participate actively in the local economic landscape due to various historical and social reasons. But their general situations are no different from India. Their mere advantage still lies in cheap labour forces (but simple manufacturers can not develop into a great company), and the critical disadvantages are the unsafe investment environment and small population basis.
They are still poverty-stricken. Without stable and powerful political regimes and a flourishing development designs, PRINCIPLE would give up considering Africa as our potential investment targets.
As a global advanced economy, there is no pervasive investment opportunity. PRINCIPLE plan to keep eyes on some novel entrepreneurial teams and keep refreshing ideas on some innovative technological successes.
There is no doubt that New Zealand has gained an favourable geographic vintage point. It has stepped into the advanced team due to the historical interdependence with the Great Britain. By comparison, Australia is shaded in its development. At the same time, we are going to consider the consistency of results after the technological innovations in some specific industries in these two countries. Some structural opportunities for those two countries are reserved.
Backstage Story after HSBC’s fourth-quarter loss
On February 22, HSBC Holdings announced in the 2015 annual report that: up to the end of the financial year, the before-tax profits increased only by 1% to US$ 89 billion, and the net profit decreased by 1.2% to US$ 13.52 billion. This is mainly due to the loss of US$858 million in its fourth quarter, which is the first loss since 2011, out of the expectation from the markets.
HSBC’s Hang Seng Bank Ltd. delivered its 2015 annual report synchronously yesterday. It showed that the net profit increased by 82% and up to HK$ 27.494 billion. However, such increase was benefited from their investments and shares in the Industrial Bank, which enhanced their capitals. According to its public data, Hand Seng Bank Ltd reduced their shares by 9.99% last year and gained net earnings of HK$ 10.636 billion. If subtracted all earnings from the share reduction, the Heng Sang Bank Ltd investors’ profit rate only increased by 4%.
As a negative reaction, the HSBC’s stock prices plummeted on Monday (February 22). The closing price of HSBC stock is HK$49.15 per share, decreasing by 2.19%, accumulating to a 20% decrease this year. In the passing two years, the HSBC’s stock price has decreased by 12.06% and 16.35%. In fact, the whole bank industries in Europe were experiencing a cold recession. French Industrial Bank fourth-quarter net profit is 656 million euros, far less than the expected 944 million euros, and Deutsche Bank lost 2.1 billion euros in the fourth quarter.
In response to its decreasing profit and fourth-quarter loss, HSBC explained that it was because of the increasing costs and credit reserve. For one thing, the loss in fourth quarter was due to the decreasing income to US$ 8.1 billion; for another, the losses from bad debts and junk bonds sharply increased by 32% to US$ 1.64 billion, which amounted to a US$3.7 billion total loss. Is it true?
Firstly, except that Federal Reserve raised the interest rates, the global is moving to a interest rate decreasing circle. In that case, those transnational banks, such as HSBC, would definitely narrow their margins and keep at a low level. Moreover, since the global mortgage crisis, countries have already enhance their supervision over the banking industries, any abnormalities would be punished by high penalties, that’s why the jurisdiction costs are pretty high.
Secondly, China is slowing its development speed, which may weigh down HSBC Holdings’ growth. Although HSBC announced that it would downsize its workforce by about 50,000 and cut off nearly 12% branches, its headcount in China Pearl River Delta was expected to increase by 4,000. It is obvious that HSBC valued China’s financial markets and is confident of China’s economic future.
HSBC not only broaden its China networks, but also extensively pours into China’s market. Synchronous with its slowing-down domestic market, HSBC is also influenced by the China’s depressed economy and began to decrease. The biggest challenge encountering China is the rapid increase in non-performing assets; well, for HSBC, the challenge is narrowing margin. In that case, there must be implementing a fundamental structural transformation.
Lastly, HSBC’s fourth-quarter loss is also related to the recession in oil and gas industry. It is reported from the annual report that the direct risk-exposure of gas and oil industries was US$ 29 billion last year, decrease by 15% annually to US$5 billion. The comprehensive manufacturer exposure reached to US$ 14 billion, and the exposures of service companies, manufacturers, infrastructure companies were US$8 billion, US$5 billion, and US$2 billion, respectively.
Obviously, HSBC’s non-performing assets from the oil and gas industries has sharply increased, which devoured its profit increases. In all, it is the result of the shrinking prices of bulk commodities.
In fact, not only HKBC experienced a devastating recess, even loss in the fourth quarter, the whole bank industries in Europe all faced dilemma. The main reasons of HKBC’s plummeting are narrowing margin, slowing Chinese economy, undervalued global gas and oil prices, and the emergence of non-performing assets. In order to solve the crisis, beside asking the British government for a concession in the supervision and taxation, HKBC also has to transform its own businesses, only by such twin-track solution can it resumes its momentum again.
It is not hard to see the crisis of European banking industries just begin.