1. Nigeria oil production fact of the day.
Authorities estimate that Nigeria still loses as much as 300,000 barrels of crude per day to theft, pipeline sabotage and other criminal activities, despite a recent improvement in the security outlook. For comparison, Nigeria produced 1.3mn barrels per day of crude in September, according to Opec data.
Is Shell Foundation the best illustration of green-washing? Wonder why nobody asks Shell Foundation to focus all its doing-good energies to clean up the mess left behind by it in Nigeria?
2. Europe's diversification away from Russian gas should count as a remarkable success of western solidarity in the aftermath of the invasion of Ukraine. It's a truly impressive achievement.
3. London bus service facts of the day
The most recent data show that 86 people died or were badly injured in bus collisions in London between 10 December 2023 and 31 March 2024... Compared with other world cities like New York and Paris the capital’s buses rank in the top quartile for financial efficiency but the bottom quartile for collisions per kilometre... Could this have anything to do with the way that bus contracts prioritise speed... Drivers described the pressure of long shifts, few breaks and having to drive in sometimes blistering heat, all while being shouted at over a monitor by controllers who want them to make up the time to the next stop, and keep the right amount of distance between their bus and next. It’s not surprising that a third of bus drivers, before the pandemic, reported having had a “close call” from fatigue... Michael Liebreich, a former McKinsey consultant who sat on the TfL board for six years, believes that TfL’s contracting out model is “institutionally unsafe”. Bus drivers are under such pressure, he thinks, that some may break the speed limit and overtake cyclists dangerously.
4. A measure of the Trump tariffs risk exposure of various countries.
5. FT long read writes that Germany is experiencing a serious downturn.
Over the past three years, Europe’s largest economy has slowly but steadily sunk into crisis. The country has seen no meaningful quarterly real GDP growth since late 2021, and annual GDP is poised to shrink for the second year in a row. Industrial production, excluding construction, peaked in 2017 and is down 16 per cent since then. According to the latest available data, corporate investment declined in 12 of the past 20 quarters and is now at a level last seen during the early shock of the pandemic. Foreign direct investment is also down sharply... In its latest forecast, the IMF says that German GDP will expand by just 0.8 per cent next year. Of the world’s largest and richest economies, only Italy is expected to grow as slowly. In manufacturing, where Germany is Europe’s traditional powerhouse, things look especially bleak. Volkswagen has warned of plant closures on home turf for the first time in its history. The 212-year-old Thyssenkrupp, once a symbol of German industrial might, is bogged down in a boardroom battle over the future of its steel unit, with thousands of jobs at risk. The tyremaker Continental is seeking to spin off its struggling €20bn automotive business. In September, the 225-year-old family-owned shipyard Meyer Werft narrowly avoided bankruptcy with a €400mn government bailout...
Economists and business leaders blame Germany’s economic woes on high energy costs, high corporate taxes and high labour costs, as well as what they describe as excessive bureaucracy. These issues have been compounded by a shortage of skilled workers and the dire state of the country’s infrastructure after decades of under-investment. Meanwhile, according to the country’s statistical agency, nervous German consumers are now saving 11.1 per cent of their income, twice as much as their US peers — thus slowing down the economy even further... According to the VDA, Germany’s automotive industry association, vehicle production in Germany peaked in 2016 at 5.7mn cars; last year the number was 4.1mn, down by more than a quarter. Since 2018, 64,000 jobs have been lost in the industry — nearly 8 per cent of the country’s automotive workforce — and tens of thousands more are at risk.
Industrial production has been on a downward trend since 2017.
6. Hungary has absorbed more than a quarter of Chinese investments into Europe. This includes massive inflows into the EV industry, making Hungary the staging post for Chinese manufacturers push into the European EV market. This would avoid the 45% tariffs imposed on EV imported directly from China.
BYD chose Szeged in South Hungary and CATL is building a €7.3bn plant in the east of the country. But as President Trump assumes office, Viktor Orban is faced with the challenge of balancing his two friends - Xi Jinping and Donald Trump.
7. Tesla is not the only Trump trade!
Private prison stocks are breaking out. Shares in Geo Group and CoreCivic, two of the largest for-profit operators of prisons and immigrant detention centres in the US, have shot up 74 per cent and 55 per cent since Donald Trump’s election victory this month. History suggests Make America Great Again trades do not always do so great. In theory, the two companies stand to benefit greatly if Trump delivers on his promise to crack down on border security and illegal immigration. For his second term, the president-elect pledges to oversee the largest deportation operation in American history.
8. Important point about Trump's legacy
Trump is the most important person of the century so far precisely because his dissent from the trade consensus, so shocking at the time, has spread.
9. The importance of Nvidia
When regular companies report quarterly earnings, investors peruse them, and the shares move up, down or sideways. When those earnings come from Nvidia, however, the financial world tilts on its axis... At $3.6tn, the company is the world’s biggest by market capitalisation, and makes up 7 per cent of the S&P 500 index. Back in 2000 when Cisco briefly became the planet’s most valuable company, its weighting was less than 4 per cent of the S&P. As of Wednesday, Nvidia’s stock accounts for 24 per cent of the index’s gains this year... Bank of America analysts had calculated this week that investors were expecting a 1 per cent index move in response to Nvidia’s earnings — greater than the shift they expect from US inflation data later this month. The interconnectedness is real: as Huang quipped on Wednesday, “almost every company in the world seems to be involved in our supply chain”... its valuation is far behind the 130 times earnings Cisco enjoyed in 2000... Cisco’s earnings were 20 per cent of its sales before the dotcom crash; Nvidia’s are nearly 60 per cent.
10. SEBI cracks down on abuse of the SME trading platform by increasing the rigour of listing requirements.
Among those, the regulator has suggested increasing the application size from Rs 1 lakh to Rs 2 lakh. The shift is expected to bring relatively informed investors. It has also suggested increasing the minimum number of allottees to 200 from 50. This will help increase liquidity and also spread the risk. The issue size is proposed to be increased to Rs 10 crore. Further, the proportion of offers for sale is proposed to be restricted to 20 per cent of the issue size. Besides, it has been proposed that the utilisation of proceeds should be monitored for fresh issues above Rs 20 crore. Further, the regulator has suggested extending the disclosure requirements for related-party transactions under the Listing Obligations and Disclosure Requirements for companies above a certain threshold. An analysis by the regulator showed that 50 per cent of the top 50 listed SMEs have undertaken related-party transactions of over Rs 10 crore. Therefore, there is a greater need for scrutinising such transactions, which can be used to divert and misuse funds.
11. Demonetisation status update
The cash-to-GDP ratio fell from 11.9 per cent in FY16 to 8.5 per cent the following year, then rose to 14.2 per cent in FY 21 before falling to nearly 12 per cent in FY24... Digital payments have grown lightning fast, reaching Rs 36.59 trillion in FY24 from Rs 19.62 trillion in FY18, achieving a compound annual growth rate (CAGR) of about 44 per cent.
... cumulative debt of Rs 6.84 trillion and accumulated losses of Rs 6.46 trillion. These staggering numbers partly reflected the combined impact of a record demand in 2023-24, and a rising cost of expensive imported coal. The upshot was that 16 states —including large ones like Uttar Pradesh, Telangana, Maharashtra, and Punjab — saw financial losses jumping significantly.
13. Tatas inorganic growth into electronics contract manufacturing for Apple
Tata Electronics has agreed to buy a majority stake in Taiwanese contract manufacturer Pegatron's only iPhone plant in India... Tata will hold 60 per cent and run daily operations under the joint venture, while Pegatron will hold the rest and provide technical support... Tata already operates an iPhone assembly plant in the southern state of Karnataka, which it took over from Taiwan's Wistron last year. It is also building another in Hosur in Tamil Nadu, where it also has an iPhone component plant... The Tata-Pegatron plant, which has around 10,000 employees and makes 5 million iPhones annually, will be Tata's third iPhone factory in India.
14. Important insights about trends on private non-financial investments from Kavitha Rao of NIPFP by analysing the composition of income from income tax returns data of 408 non-financial corporates who make up the BSE 500 and form 94-95% of the net fixed assets of the index companies. She points to a reduced focus on capital formation in these companies.
The share of fixed assets has declined from 66 per cent to 59 per cent in the same period... the ratio of net fixed assets to financial assets... declined from 1.95 to 1.45 during the same period... the share of capital works in progress and intangibles as a percentage of net fixed assets has declined from 24 per cent to 14 per cent... Of the 408, considering 384 companies for which data is available for the entire period, 248 companies have reported an increase in the share of financial assets in total assets. These companies account for 62 per cent of the net fixed assets as of March 2024.
She proposes an explanation in terms of an emerging preference for long-term investments (or financial investments)
For non-financial companies, the share of long-term investments has increased from 61 per cent to 78 per cent, reflecting a reduced interest in long-term loans and advances. Apart from possible incentives provided by sharp increases in stock prices in the capital markets —an average growth of over 14 per cent in the index over the last 10 years and in more recent times, a growth of over 25 per cent — the above trends raise questions about the opportunities for gainful investment within the economy. A moderation in private investment in 2019, preceding Covid, suggests a medium-term moderation in demand in the economy — a simultaneous surge in stock markets would provide an attractive venue for investment of surpluses generated by profitable companies.
15. Nitin Desai writes that the most important economic liberalisation reform in India was the changes to the institutional arrangements in the financial markets that improved financial intermediation and boosted private investments.
A set of substantive changes were made that has transformed the financial market. The most impactful change was the opening of the banking and mutual funds sectors to private enterprises that has led to a substantial improvement in the quality of banking and investment services available to savers and investors. The simplification of share trading through dematerialisation greatly facilitated the widening of savers’ interest in shares. The shift of regulatory authority from the Controller of Capital Issues in the finance ministry to the Securities and Exchange Board of India (Sebi) is another important change. These, along with other changes in the government’s financial policies, have been major factors behind the average 6 per cent growth India has experienced over the past four decades. Private corporate growth was boosted by the liberalisation of the financial market, leading to a significant increase in new capital issues by private companies and a rise in the volume of assets in mutual funds. This opening of the finance market has continued with the emergence of non-banking finance companies that are more effective at reaching out to smaller borrowers, and lately, the emergence of fintech companies. The rapid expansion of digital infrastructure has also been critical to the broader liberalisation of the financial system.All this has led to a radical increase in private corporate investment relative to public sector investment, with the ratio between the two rising more than four-fold from 0.37 in 1990-91 to 1.63 in 2022-23. As for investment in manufacturing, in 2022-23, the private sector accounted for 71 per cent, small enterprises within the household sector for 22 per cent, and the public sector for only 7 per cent. One measure of the transformation because of the reform of the financial system is the sharp rise in the market valuation of shares as a percentage of gross domestic product (GDP), from an average of 37 per cent between 1991-92 and 2004-05 to an average of 85 per cent between 2005-06 and 2023-24.
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