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COVID-19: Towards the end of everything “made in China” for electronics manufacturers?

This post on Made in China first appeared in https://www.usine-digitale.fr/article/covid-19-vers-la-fin-du-tout-made-in-china-pour-les-fabricants-d-electronique.N950286. The copy posted below is originally in French and was Google-translated to English.

 

It is an old factory with a decrepit facade, on which climb some wild grasses. At the edge of this canal in the south of Taipei, only a watchman watches the ear. The plot has just been bought by the Taiwanese electronics manufacturer Pegatron to increase its production capacity in Taiwan. Reported by the financial media Bloomberg, the initiative is the latest in a series of investment projects outside of China announced by Taiwanese subcontractors.

 

From Apple to Samsung, these shadow firms manufacture, assemble and sometimes design products on behalf of major electronics brands. Most of these companies have their headquarters and a handful of factories in Taiwan. But the final assembly is mainly carried out on the other side of the strait. The Taiwanese giant Foxconn, the main assembler of the iPhone, thus employs more than a million workers in China, distributed in twelve giant factories.

 

“FACTORY CITIES” CHALLENGED BY THE PANDEMIC

 

This model, based on economies of scale, was severely tested by the COVID-19 crisis. Travel bans imposed by Chinese authorities have led to production delays, as evidenced by the shortage of Nintendo Switch, assembled by Foxconn. The firm also anticipates a 15% decrease in revenue for the first quarter of 2020.

 

“The ‘gigantic’ model takes a hell of a slap, straightforward analysis Pascal Viaud, managing director of UBIK, a company specializing in partnerships and industrial cooperation based in Taiwan. The sectors are aware of their dependence on China and the logistical risks that this implies. Some companies, especially the smaller ones, did not necessarily know this because it concerns their second or third level of subcontracting. ”

 

According to recent announcements from Taiwanese subcontractors, the COVID-19 epidemic would push major brands to rethink their production line. Wistron, another supplier to Apple, recently unveiled a budget of $ 1 billion for projects of new factories in India, Vietnam and Mexico. “Many signals from our customers let us think that’s what we need to do “, Wistron chief strategy officer Simon Lin said in a conference call reported by the Singaporean daily Straits Times. According to Bloomberg, Foxconn, for its part, planned an envelope of $ 17 billion for projects in India and Vietnam.

 


Foxconn’s headquarters in Taiwan

 

LOOKING FOR ALTERNATIVES TO CHINA

 

“China is becoming riskier for these companies, which may have felt that authorities withheld information during the epidemic, said Tony Nash, chief executive of Complete Intelligence, a business planning platform. costs and revenues of companies running on artificial intelligence. These companies are increasingly looking for alternatives to China. This is a classic risk reduction strategy already at work, but one that will seriously accelerate the next three years. ”

 

Kuan-lin (the first name has been changed) can testify to this. This salesperson works for a Taiwanese manufacturer whose client is a famous American brand of computers. For the past three weeks, the employee has been under constant pressure from his hierarchy and rarely leaves his office before 10 p.m. “Because of the epidemic, our client is asking us to speed up a project to build a factory in Mexico,” he explains, with dark circles and a pale complexion.

 

 

TRADE WAR WEIGHS ON SUBCONTRACTORS

 

The trend is not new. The trade war between China and the United States had already pushed part of the electronic production out of China. The manufacturers hoped to escape the sanctions of the Trump administration, applied to “Made in China” products. Depending on its Chinese factories, Foxconn had paid the price: according to calculations by the specialized media Bloomberg, the profits of the subcontractor fell by 24% for the period from October to December 2019.

 

“Competitors who did not have production lines in Taiwan have been disadvantaged by the trade war, confirms a manager of a Taiwanese electronics company which has a production tool on site. Thanks to our Taiwanese factory, we were able to reserve our products made in Taiwan for the American market. ”

 

With a skilled workforce and cutting-edge infrastructure, Taiwan is well placed to stand out. The Taiwanese government has elsewhere launched a vast plan to facilitate the return of factories to its soil. But the archipelago lacks space and has a limited comparative advantage. “Taiwan is suitable for high-end products, which can be sold more expensive, points out the same frame. For other products, manufacturing in Taiwan has an impact on profitability.”

 

 

TOWARDS REGIONALIZATION OF PRODUCTION

 

The most likely scenario seems to be that of a regionalization of production, which would jointly benefit several countries. “This is not going to be a massive departure from China, anticipates Tony Nash. For Asia, there will simply be more additional parts manufactured in Taiwan or Vietnam. For the American market, it could be Mexico.”

 

As a note from Deloitte suggests, this shift could also be accompanied by increased digitization of the production chain. Joined by L’Usine Digitale, Eddie Chang, head of finance at ASE Group, one of the Taiwanese behemoths for the assembly and testing of electronic circuits, confirms this future direction: “We are going to develop technologies enabling virtual teamwork and industrial automation. We also plan to increase the automation of our logistics to reduce human interactions”.

 

 

CHINA HAS NOT SAID ITS LAST WORD

 

However, the recent development of the epidemic calls for caution. In China, the main factories have returned to their pre-crisis operating level. Foxconn was able to restore production of the new iPhone SE with massive hires and inflated work premiums. “During the crisis in China, our factories were at 60% of their capacity, today we are not far from 100%”, confirms a sector executive whose factories are in Shenzhen.

 

At the same time, the countries presented as alternatives to China are in turn impacted by the epidemic. In India, where Apple produces its iPhones for the local market, Foxconn and Wistron have announced that they have suspended production until mid-April. The US state of Wisconsin, where a Foxconn factory is soon to come out of the ground, has seen in recent days a dizzying increase in the number of cases of contamination.

 

“The new turn that the COVID-19 crisis has taken is a game-changer,” says Aymeric Mariette, research officer at the France China Committee. The attitude [of electronics companies located in China] is now much more wait-and-see for relocations “. Apple CEO Tim Cook also defended himself at the end of February from any major movement, preferring to speak of “adjustment adjustments” linked to the crisis.

 

Especially since China will not let these companies slip through its fingers so easily. The strategic challenges are significant: the ecosystem of electronic suppliers has enabled Chinese brands, such as Huawei, to follow in the footsteps of American giants. “The Chinese authorities are carrying out charming offensives towards foreign investors in China, for example with the promise of equal treatment in access to financial aid, facilitation of investments or even the announcement of new reforms, analyzes Aymeric Mariette: China knows that it is now ahead of the other major world economies and intends to profit from it. ”

 

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QuickHit Visual (Videos)

QuickHit: How healthy are banks in this COVID-19 era?

 

This week’s QuickHit episode, Tony Nash talked with Dave Mayo, CEO and Founder of FedFis, and an expert on banking, finance, and Fintech. This episode looks at US financial institutions like banks and how they are faring during the Coronavirus pandemic. Will new financial technologies help streamline the process of providing services like loans to medium and small businesses?

 

Watch the previous QuickHit episode on the Status of Global Supply Chain in Time of Coronavirus with the president of Secure Global Logistics, George Booth.

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

 

TN: Hi, everybody. This is Tony Nash. I’m the founder and CEO of Complete Intelligence. This is our Quick Hit where we talk to industry experts about issues in markets and in industries.

 

Today we’re with Dave Mayo. Dave is the founder and CEO of FedFis based in Texas. Dave, thanks for joining us, I really appreciate it.

 

Can you tell us a little bit about FedFis? And then I’d really love to jump into how you’re helping out the financial services sector.

 

DM: Sure. We’re a unique company. We sit as a layer above banking, we call FI fintech, and then fintech. From the banking side obviously, we are a data company and provider and intelligence. From the FI fintech side, those would be the vendors to the institutions like their core mobile offering. And then FinTech, that’s the new stuff, right? That’s the sexy stuff, like the Chime and the SoFis and those types of companies that used to be alt banking and now they’re joined back to banking again. So we help all of those different layers in one way or another through a data set that we have and intelligence.

 

TN: With everything going on in the wake of Coronavirus, there’s been a lot of talk about fiscal stimulus coming out of D.C. and stimulus through the Fed and other things. What is the health of the banking sector from your perspective? Because back in 2008 the banking sector was the worry, right? Is that the worry now? Is that something we should be worried about?

 

DM: I think our banking industry is based on a level of faith. It always has been, right? Now that said, this is a completely different situation. Banks are very well-capitalized. Banks are not the cause of the problem. We don’t have a systemic banking problem or issue. We’re very, very healthy right now. When you talk about a stimulus being put into the economy, the more money flows in and out, the more people spend and buy and purchase, the better things are. That’s just the way the banking industry is built.

 

TN: How do you see banking and FinTech really helping? Obviously we know how they help big companies with big placements and debt and these sorts of things. But how do you see them helping small and mid-sized companies with this economic gulf that we have right now, where the economy’s effectively been turned off for a period of time, which is a bit weird? How do you see, what you’re doing, and banks generally, really helping out there on the smaller and midsize level?

 

DM: I think there’s a big gap in education in our country when it comes to banking. People are like, “I don’t like banks” or “I like banks.” When there are the big banks, the big four: the B of A, Wells Fargo, Chase, Citi. And then we have community banks.

 

Community bankers all across the country, they’re the life of our banking system. They’re the heartbeat. It’s actually a lower touch point for consumers and FinTech with the dramatic decline in a number of community institutions that has really opened up this opportunity for a FinTech. And the reason being is it’s a direct touch point.

 

So if you were to say “I want to use my mobile device” or “I want to use my online to do banking without having to actually drive to an institution and deal with all their policies and all of the things that go with it,” it’s a faster connection point. And I think we’re probably going to see a lot of that in these business loans the PPP loans through the stimulus plan.

 

TN: How do we actually execute that from the Treasury to the small business owner or to the individual that needs help? So, do you think that some of these FinTechs are kind of non-banks? I mean, would you consider them kind of non-banks within this system? Do you think they’ll be able to do this stuff faster? And I don’t mean this as a negative to banks. Banks are highly regulated. Do you think some of these FinTechs will be able to do some of this stuff faster?

 

DM: It depends on which way you look at it. Because here’s the deal: so when we talk about banking and then we talked about FI FinTech and then FinTech. So a bank is a chartered institution and FI FinTech is a technology arm of that like online banking, mobile banking. A FinTech is something that looks like a bank, talks like a bank, but it doesn’t have a charter. It’s not really a bank. So they have to partner with an existing bank to charter. So there’s a bank behind every FinTech company. So when you think of Chime and companies like that, there’s an actual bank behind that company that’s doing the regulatory side of this to protect consumers.

 

TN: You guys track a lot of data around banking and real estate and consumer stuff and industry stuff. Are you seeing any data that’s really talking about or raising your worries about the velocity of money about how quickly people are spending? Are you seeing that data? If it’s worrying you, when does that worry end for you? Do you see us going back in to say a quasi-normal situation within the next two months or something?

 

DM: Predicting the future I’ve never really been a big proponent of. That’s your business. But for us, what we look at are key components.

 

One way to measure things right now is to look at a mortgage note on a 15 or a 30. What is the spread between, what we would call in the old days, prime and what is the asking rate on that loan So you’re generally looking at above 3 percent. And as long as you’re looking at that, that’s a strong indication that there’s a lot of refis going on right now. And so the spread is there. That’s an adequate spread for banks to make money. There’s a huge volume of it going on. And as long as we see that volume and people continue to go to the bank, cash their checks, direct deposit always helps.

 

When we use our debit cards, when we go out and do the things that we do. Changing our mechanism of spending money whether it’s through Amazon as opposed to going through the mall doesn’t change the fact that you’re still spending money. Those are all positive things.

 

But I think the one thing we want to keep an eye on is the volume of lending. Everyone in a situation like this is going to have a tendency to kind of climb up a little bit. And, as long as that continues to flow, and one of the primary things that I’d be looking at is refis and other lending types of loan, etc.

 

TN: Are there any specific indicators you’re looking at on the commercial side to see if people are climbing up?

 

DM: I don’t really see anything from that perspective. I don’t think people are running out there right now at a time like this. It’s fairly obvious. You wouldn’t want to run out and start a new construction project or something like that. Those are gonna have an impact. There’s no way around it, but there again that’s what stimulus is there to offset.

 

Right now, I would say we’ve got a very healthy banking system. We’re coming out of a very healthy economy and so what’s our time frame of a bounce-back is it going to be a v-bottom or is it going to be spread out? I think it’ll be a little more spread out than a V-bottom and I think they’ll probably be multiple cycles of this that go on to some degree.

 

But starting from a really healthy position in our banking system and in our economy, this will pass. And when it does, here’s the thing I think is so interesting, unprecedented levels of stimulus and, the old saying you don’t fight the Fed, right? So does the market go up and we have a stimulated economy? Of course it does. And with this level of pent-up demand and stimulus, will there be a bounce back? Yeah, there’ll be a bounce back. The question is how huge will it be and how fast?

 

TN: That’s great Dave. It’s a huge source of optimism. Thank you so much for that and I really appreciate that you’ve taken the time to join us today. So really appreciate your time and and thanks very much for, for all that you’ve shared with us today. I really appreciate it.

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Visual (Videos)

COVID-19 effects on the US Economy

As the COVID-19 effects hit in the US, more than 3 million Americans lost their jobs last week. Reports also show a sluggish growth on personal consumption. The Fed Chairman says the US may already be in recession. We are joined by Tony Nash, CEO and Founder of Complete Intelligence, from Houston, Texas.

 

CNA: We’ve got this incredible amount of stimulus in the system, and the market seems loving it. The fundamentals of COVID-19 are getting worse, but the markets seem to be moving another direction. Is there a disconnect?

 

TN: I don’t think there is. I think there are two things. First, people want better information. With the testing and other things. Not all tests are created equally. We are not told the denominator of the tests. I’m not an expert, but there are some issues around that not all countries’ numbers are created equally. But the 2 trillion dollar stimulus, it’s not possible that that’s the extent of the stimulus that the US government is going to issue.

 

This is a government-induced recession, globally. A recession is typically an economic failure, a financial failure. What has happened is that governments have effectively turned down the economy like putting their economies in a coma. So there’s nothing that companies can do to avoid this. This is the responsibility of every government that puts strict measures in place and it’s their responsibility to make sure that their economies are back up.

 

CNA: Are you concerned about the cost to cushion the fall of COVID-19 effects? Remember the 2008 financial crises and how much money it took back then—hundreds and billions? We are now talking about trillions here. When will we able to see the kind of recovery that we saw in the past 10 years once we’re over COVID-19?

 

TN: I do believe we’ll see that recovery. I believe this is sufficiently different. It was not the market’s fault. This was the investor market, investor banks back in 2008, 2009. This is the government today. So it’s the government’s responsibility to fix what they did. I understand they’re responding to COVID-19 and its effects, but they’re the ones to put the measures in place. They’re the ones to handcuff managers, CEOs, and executive teams. So it’s the government’s responsibility to help companies start back up.

 

CNA: On that note, Donald Trump wants the American workforce to get back to their jobs as everybody wants to work. I don’t doubt that. Do you agree with that? Is that the solution, the elixir to the problem here?

 

TN: I do believe that. I’m actually more worried about the social issues associated with jobless dislocation than really the COVID-19 effects. Not that I don’t care. I want everyone to take measures. But the social dislocation of people in their prime working age. Being laid off. We have 3 million of them as reported today. These are people in their prime. They’re earning and they’re losing their jobs. We’re gonna see a lot of problems. And so, depression, suicide, all sorts of things.

 

My fear is that those things start to manifest in the next few weeks. So the US has to get back to work. Americans have to get back to work. Otherwise, people will be short on their bills and they’ll feel incredibly stressed.

 

CNA: How bad do you think the economic data is going to get? Now that we got the 3.3 million jobless claims out of the United States? Is this just going to continue to get worse and worse down the pipeline here?

 

TN: Oh yeah. I think it will get worse until probably the third week of April or maybe the 4th week of April. We’ll continue to see this over the next month until the hump. Once we get over the hump, we’ll see, once the fiscal stimulus starts to take place, which is the big difference this time.

 

We’re seeing a lot of fiscal stimulus. That’s the difference. It’s not just the Fed printing dollars, of course, that’s happening. But we’re seeing fiscal stimulus going straight to end consumers. That’s very important.

 

CNA: What can we learn from China’s response in this situation? It seems things are returning back to normal in China with Hubei province opening up, Wuhan in 2 weeks, traffic jams in Beijing. Can the US look forward to that extrapolation? What’s happening in China, coz I mean the capital markets in China have made a decent recovery as well.

 

TN: I think the US is going to come back pretty aggressively in say the last week of April or early May. I don’t see that the way the US is handling it is similar to China, given the civil liberties that Americans have, there’s absolutely no way that that would work in America.

 

We have a thing called the 4th Amendment in the US that allows people to assemble and leave their houses. So welding people in their apartments wouldn’t work here, and so the US had to take other measures. And I actually think it’s being fairly effective. The case count in the US looks like it’s high, but I’m not convinced that we’re seeing full reporting from any other countries.

 

CNA: Thanks so much, great to chat with you. Stay safe there in Houston, Texas.

 

 

Watch the interview on Channel News Asia’s Asia First. 

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QuickHit Visual (Videos)

QuickHit: Status of Global Supply Chain in Time of Coronavirus

In this week’s QuickHit episode, Tony Nash speaks with George Booth, the President of Secure Global Logistics. SGL is a complete logistics company with global and domestic services. We dig deeper into the status of global supply chains within this era of Coronavirus or COVID-19 and learn how companies move things across the globe, and what that is looking like right now.

 

Last week’s Quick Hit episode was about how SMEs are affected by the global pandemic and pieces of advice from an expert on the best course of action. Watch it here.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes:

 

TN: Hi, this is Tony Nash with Complete Intelligence. This is our weekly Quick Hit that we publish each week. We’ve got George Booth, President of Secure Global Logistics in Houston, Texas.

 

We’re really interested to understand George’s view on the impact of Coronavirus on global logistics, supply chains, and trade. And what the impact is on the volume, timing and magnitude of trade. George, first could you tell us just a real quick overview of SGL? Then let’s get into some of the topics.

 

GB: Yes, good morning, Tony. Good to be here. The SGL is a complete logistics company. We do a full suite of global and domestic logistics, including import, customs brokerage, exports by air and sea and domestic by air and road. We also do 3PL logistics, so full warehousing, packing and getting ready for export.

 

TN: Perfect. That’s great George. Thanks very much. And I really appreciate you taking the time to talk. I know there’s a lot going on as shippers and the other folks try to figure out how to get goods to destination with the disruption of the supply chain. Can you help us understand, what are you seeing in terms of volumes for your clients?

 

GB: Yeah. Well, interestingly, the volumes haven’t dropped off yet. We would expect that to happen almost immediately. Shut down hasn’t started to happen here. It hasn’t happened yet. I think we’ve been slightly helped with a buffer by China coming back online.

 

In January and February, we took a real hit from our customers that import from China. That’s when they just shut down and factories were closed. We saw nothing coming in, but that’s now picking back up.

 

For example, we have a customer who does a monthly freight out of China. That hadn’t happened in like two months, and this week we’re moving 21 ton of freight out of China. And he said, “Get it here fast.” They want to get the product on the market and sell it.

 

We haven’t seen a drop off yet. We’re also seeing a big spike in freight this past week, and even yesterday, as a lot of clients are preparing for a shutdown. So they’re trying to get that product moving and maybe converting from sea freight, ocean freight to air freight to get it moving and to get to the destination before the shutdown happens.

 

TN: OK. So volume has been pretty consistent. What about, you know, as we’ve seen, say, the crude price, because I understand some of your clients are big gas firms.  With the crude price declining as it happens, what impact has that had on shipping rates? And what is the typical relationship of crude price and shipping rates?

 

GB: Well, this is really interesting. I’ve been in the shipping industry for all of my career of about 25 years. And this is the first time we’re not seeing a direct correlation between lower oil price and low freight rates.

 

That’s been really challenging, our clients are suffering from a lower price, but we have had to present them with much higher rates from the carriers and particularly air freight.

 

The air freight in the past, when the oil price was down, the freight rates go down with it. And then when they go up, you see a big spike included fuel surcharges. But because of capacity issues, air freight has now become almost the highest bidder scenario.

 

Some airlines are selling to the highest bidder. We are seeing freight rates in some cases 10 times what they normally ask. Something would have paid a dollar fifty per kilo in the past, we’re now seeing going for up fifteen dollars.

 

I’ve seen a lot of lack of flexibility from the air freight carriers, as well. While in the past you might have booked it, and the factory wasn’t quite ready or it wasn’t ready to export. You’d still book it into the next day with no charge for lost slots.

 

If you don’t show up with your freight, they’ve been really clear, which, again, from a supply chain, you can understand, they’re not getting the same return. So they’re making it inflate.

 

I once had an airline say that the best deal for them is that the cabin, first-class cabin is full, economy empty, and the belly full of freight. Now, they don’t do first class. So they’re making all their money on the various freights.

 

TN: Are you seeing sea freight come down or stay the same or what’s happening with sea freights?

 

GB: Well, sea freights have been very interesting as well, because the distribution of liner and equipment, shipping containers, there’s a backlog in China because China hasn’t been moving.

 

A lot of equipment is stuck in China. The past few weeks, we’ve started to see competitive, very competitive sea freight rates coming out of China as China tries to boost the economy, get freight moving. And also as liners are trying to get the equipment back in the right places.

 

Conversely, trying to export from Europe or from the US. We’re seeing much higher rates because there’s a lack of capacity and a real demand for liner and equipment. So that’s proven a challenge. So it depends where your ship has been from and to, based on the allocation and relocation of liner and equipment.

 

TN: Okay. It is interesting from your perspective to see China’s actually back online.  We’re actually seeing the physical goods coming and you’re seeing the volumes come in. I think that’s very interesting.

 

So what is the biggest kind of concern that your clients have right now in terms of logistics and some supply chains? What do you hear from them as their biggest concern?

 

GB: Yeah. I mean, a lot of our clients are tied to oil and gas. They operate as a squeeze-in. And as it squeezes, it comes all the way down. And I always say the fate of logistics is at the end of the food chain.

 

We get the squeeze all the way down. Some of our clients are being asked to take 40 percent reductions in the rates. And now squeezing that back down to all that supply.

 

At times in, well, of course, we want to work with you. But we’re also presented with air freight that is 10 times what used to be. It’s proven very challenging commercially for our customers, and for us to keep those relationships. They want to continue to be a partner at a time when they want us to share the bin with the promise of sharing the prize when it comes back.

 

But the oil and gas industry, as you know, has been depleted since 2015. So we’ve all been sharing the bin for a long time. So there’s not much left in the market for starters being distribution goes.

 

TN: OK. And George, I don’t know if you can answer this question, but how long do you expect this to last? What do you expect, what do your clients expect? Are they expecting this next month or two months or six months or a couple of weeks? How long do you think this will last in the US?

 

GB: Yeah, I think China’s a good indicator of the length of time they needed to end it and start to come out of it. So we have been planning for the same length, 120 days.

 

I mean, based on the president’s comments yesterday, it seems like there’s a real bullish approach to not going into this too long. I don’t know if that’s keeping with health advisory or not. But it seems that America wants to get back to business sooner rather than later.

 

I think we’ll see that big spike as we have this past week and this week as people try and get product moving before very they put it in shutdown. And then we’ll see the wall. And then there’ll be a backlog and people will start and try and get goods moving again.

 

So we were making our plans 90 to 120 days. And we’re hopeful, obviously, that it comes back.

 

But, our industry has also led the charge in health and safety, so we’ve been talking about our safety language for many years, even decades. And this is a time to prove that we care for our people, care for our supply chains and for our communities.

 

And we’re thinking very much the safety of our employees at our every week touch points, literally and figuratively speaking. Even four weeks ago, we had a memo out to our staff saying to be ready to work from home. And that this is coming. And we saw it coming because we were in daily contact with our partners in China and Italy and in Europe. So we could see what was happening there.

 

So, and we’ve been preparing for this. We operate from the cloud. So a lot of our people are operating from home. I’ve got so much scale and staff, and we rehearsed it.

 

TN: Fantastic. George, thanks very much. Thanks for your time. I really appreciate it.

 

If any of the viewers have questions, leave me comments or send us an email at Complete Intelligence. Thanks very much.

Categories
Podcasts

Could COVID-19 Finally Kill the EU?

The fallout from COVID-19 might result in the disintegration of the European Union while the flight to safe havens like the USD is yet another headache for the financial markets to stomach, according to Tony Nash, CEO of Complete Intelligence.

Produced by: Michael Gong

Presented by: Roshan Kanesan, Noelle Lim, Khoo Hsu Chuang

 

Listen to the podcast in BFM: The Business Station

 

Show Notes:

 

BFM: So for more on global markets right now, we speak to Tony Nash, CEO of Complete Intelligence. Welcome to the show, Tony. Now U.S. markets closed down sharply again last night, erasing all gains from the time President Trump was elected. So what’s your outlook for markets? Is it still too early to buy?

 

TN: Gosh I don’t know. Actually, we don’t really know if it’s a really good time to buy. At this point, it’s really hard to catch that kind of falling knife. But what we don’t see is a V-shaped recovery. We think we’re in the zone where the fall may start slowing down. But we believe the equity markets will trade in a pretty low range for the next couple of months. And that’s because we’re not really sure of the economic impact of the slowdown in the West.

 

This COVID-19 is a government-driven recession that countries have lawfully gone into. So a lot of the recovery has been how quickly the fiscal stimulus is put into the hands of consumers and companies, and how quickly those individuals will get back to work.

 

 

BFM: Well, oil continues to fall last night to record lows with the Brent at $26 per barrel. What’s your view on oil? I know you are seeing the stock market. We do not know where the bottom is. But for oil, are we hitting the bottom yet?

 

TN: We may not be, but we’re pretty close. Our view is that crude will bounce once the Saudi-Russia price standoff is resolved. So we actually see crude moving back into the 40s in April.

 

But after that, we expect a gradual fall back into the low 40s to the high 30s in May. So, you know, we’ll see the next several months’ prices will be depressed. And we think it’s going to be quite a while before we see oil at 50 bucks again.

 

 

BFM: Yeah, Tony, you would have seen the stock futures point in green, obviously quite buoyed by the ECB’s whatever-it-takes policy. In Asia this week, four central banks are meeting. I’d like to go off a piece of possible talk about Australia, Thailand, Philippines, Indonesia. Our central banks are expected to meet this week. What do you expect them to do in terms of responding to the market turmoil?

 

TN: So it can’t just be central banks. I think central banks will do whatever it takes. But you really have to get finance ministries involved because, again, this is a government-induced recession.

 

Governments have demanded that people stay at home due to COVID-19. They’ve demanded that places of business close. And so until finance ministries and treasury departments get involved to get money in the hands of consumers and companies, we’re in a pretty rough place and there’s a lot of uncertainty.

 

So I think the central bank activity is fine. But I think getting a fiscal stimulus out there right now and not waiting is what they need to do. The US is talking about doing something in mid-April, that is just not good enough.

 

We have to get fiscal stimulus out right now because the governments have brought this on. The markets did not bring this on. The governments brought this recession on.

 

 

BFM: Yeah, Tony, obviously the helicopter money is going beyond the conceptual stage right now. But from a fiscal standpoint, how many central banks in Asia can afford, you know, the financial headroom to pay these helicopter money solutions?

 

TN: Well, whether they can afford it and whether they need to afford it are two different questions. And so I think we have real issues with a very expensive U.S. dollar right now.

 

Dollar strength continues to pound emerging market currencies. And emerging markets and middle-income markets may have to print money in order to get funds in the hands of consumers and companies.

 

So I think you have a dollar where appreciation continues to force the dollar strength. And you also have middle income and emerging market countries who may have to turn on printing presses to get money into the hands of consumers. So I think for middle income and emerging markets, it’s a really tough situation right now. The dollar, I think, is both a blessing and a curse for the U.S. But the U.S. Treasury and the Fed have to work very hard to produce the strength of the dollar.

 

There is a global shortage of dollars, partly because it’s a safety currency, partly because of the debt that’s been accumulated in U.S. dollars outside of the U.S.. And if those two things could be alleviated, it would weaken the dollar a bit. But the Treasury and the Fed are going to have to take some drastic measures to weaken the dollar.

 

 

BFM: Well, how much higher do you think the green buck can go?

 

TN: It can be pretty high. I mean, look, it depends on how panicked people get. And it depends on how drastic, I’d say, money supply creation is in other markets.

 

I think there are real questions in my mind about an environment like this and around the viability of the euro. The EU is in a very difficult place. I’m not convinced that they can control the outbreak. I think they have a very difficult demographic position. And I don’t think Europe within the EU, have the fiscal ability to stimulate like it is needed. The ECB cannot with monetary policy, wave a magic wand and stimulate Europe.

 

There has to be fiscal policy, and the individual finance ministries in every single EU country cannot coordinate to the point needed to get money into the hands of companies and individuals. So I think Europe and Japan, actually, have the most difficult times, but Europe has, the toughest hole to get out of economically.

 

 

BFM: It really sounds like Europe has its work cut out for it at this point. What do you think? What could we see coming out of Europe in terms of any fiscal policy? Or will this pressure the EU, put more pressure on the EU?

 

TN: ECB doesn’t really have the mandate for fiscal policy, so they would have to be granted special powers to develop fiscal policy solutions. It has to be national finance ministries in Europe that develops that.

 

So the ECB can backup as many dump trucks as it wants, but it just doesn’t have the power for fiscal policy. So, again, our view is that there is a possibility that the Euro and the EU actually break up in the wake of COVID-19.

 

This is not getting enough attention. But the institutional weakness in Europe and the weakness of the banking sector in Europe is a massive problem and nobody is really paying attention to it.

 

 

BFM: Do you think this has been a long time coming?

 

TN: Oh, yeah. I mean, look, we’re paying for the sins of the last 20 years right now. And for Asia, you know, Asian countries and Asian consumers and companies have taken on a huge amount of debt over the past 20 years to fund the quote unquote, “Asian Century.” And I think a lot of Asian governments and countries will be paying the price over the next six months. The same is true in Europe. But the institutions there are very, very weak.

 

The U.S., of course, has similar problems, not because the U.S. dollar is so dominant, the U.S. can paper over some of those sins, although those problems are coming from the U.S. as well.

 

So, again, what we need to think about is this: The people who are the most affected by COVID-19 are older people. Those people are no longer in the workforce generally, and they’re no longer large consumers, generally.

 

OK. So all of the workforce is being sidelined or has been sidelined in Asia, is being sidelined in the West now, and consumption is being delayed for a portion of the population that is no longer consuming and is no longer working.

 

And so getting the fiscal stimulus out is important because those people who are contributing to the economy can’t do anything, right?

 

So and this isn’t to say we’re not caring about the older populations. Of course, we all are. But it’s a little bit awkward that the beneficiaries of this economic displacement are largely people who are not contributing to economies anymore.

 

 

BFM: All right. Tony, thank you so much for joining us on the line this morning. That was Tony Nash, CEO of Complete Intelligence.

 

Listen to the podcast on COVID-19 in BFM: The Business Station

 

Categories
Podcasts

Policy Action Kicks In As Bull Market Officially Ends

Various central banks are implementing emergency rate cuts to respond to the coronavirus and as the bull market ends. Meanwhile, it remains to be seen whether peak infections in China and South Korea are a light at the end of the tunnel.

 

Presented by: Wong Shou Ning, Lyn Mak, Julian Ng

 

 

The UK has launched a stimulus plan. Do you think the ECB will be pressured to do the same?

 

I’m sure they will. I don’t think they have that much power into interest rate cutting area – the rates are already right around zero. What they’ll most likely do: buy more government bonds, ease up on the reserve ratio, loan incentives, etc.

 

Europe is in a pretty bad position partly because COVID really attacks older people more aggressively than younger people, and the demographic profile of Europe is pretty terrible. So the ECB has to do something to help the economy. What they’re trying to do is to make sure the consumers don’t totally close their wallets and the banks don’t totally close lending. They’re really trying to stimulate banks to keep money moving.

 

 

In China and South Korea, there are indications that the infections have peaked. Pres. Xi visited Wuhan. Is this the light at the end of the tunnel?

 

I think it’s a natural progression and it’s quite possible that things are dissipating in China and things are improving. We see road traffic congestion gradually building back. That’s good for everybody. 2/3 recovered. We’re getting there. There may still be quite a lot of bounce back in March. Hopefully, in Q2, we’re back to an almost normal level.

 

 

Japan’s economy seems to be bordering on the recession. Do you think even the Bank of Japan has assisted on the current downward cycle? Have they got any more policy options left?

 

Central banks can do for the ending bull market. The BOJ really has been focused since 2012 on Abenomics to try to raise the inflation rate to 2%. They never achieved that. But they have helped some other things to stimulate the economy.

 

Japan’s in a very tough place because it’s tied to the Northeast Asian supply chain and it has the same demographic problem that Europe has. They really need to start circulating money. They can use these tools on reserve rates and loans, but how much further can they push it?

 

 

The fall in crude prices has also negatively affected shale oil producers. What’s your near and long-term outlook for the industry?

 

Shale for the US is energy security. Americans are tired of the political issues that they face in the Middle East to secure their energy supply chain. The current administration help the shale producers to survive including backing up their loans, working with banks to extend the payback period, etc. Shale is seen as a national asset by the current administration as they work very hard to make sure that those companies continue to be competitive and have the resources.

 

 

Listen to this podcast on the bull market at BFM: The Business Station.