In the 1990s, Italy initiated the largest privatisation programme in continental Europe, dismantling much of its industrial backbone instead of fostering innovation. For example, while the telecommunications conglomerate STET allocated 2 per cent of its revenues to research and development (R&D) between 1994 and 1996, our calculations show that its privatised successor, Telecom Italia, spent roughly 0.4 per cent on R&D between 2000 and 2002.
2. Interesting stats on the US equity market exceptionalism
The question may provoke laughter, given that since 2011 US stocks (the S&P 500) have outperformed EM stocks (the MSCI EM index) by more than 400 percentage points. But it was not always so: between 1999 and 2007, emerging markets outperformed the US by almost 200 percentage points.
3. Startling graphic of caste-based wealth concentration in India.
More than 85 per cent of total billionaire wealth in the country belongs to those of upper caste communities. People of the scheduled castes (SC) comprised 2.6 per cent of such wealth in 2022 compared to 88.4 per cent by the upper castes, according to additional data shared with Business Standard by researchers of the World Inequality Lab following the publication of their May 2024 study, ‘Towards Tax Justice and Wealth Redistribution in India: Proposals based on latest inequality estimates’, by authors Nitin Kumar Bharti of New York University; Lucas Chancel of Harvard Kennedy School; and Thomas Piketty and Anmol Somanchi of the Paris School of Economics. The other backward class (OBC) share was 9 per cent and there were no billionaires of the scheduled tribes (ST). The researchers used publicly available billionaire lists and applied manual coding and an algorithm ‘Outkast’ to determine caste.
4. The accounting industry is already struggling with conflicts of interest and poor quality of accounting. In this context comes a story in FT of a creeping takeover of accounting firms by PE firms.
Ten of the 30 largest US accounting firms could soon be in private equity hands, according to people familiar with negotiations, as at least four groups hold deal talks following this year’s sales of Grant Thornton and Baker Tilly. The acquisitions by financial buyers of those two top-10 firms by revenue opened the floodgates to other deals, the people said, positioning private equity to increase its influence over the US accounting profession dramatically. One top-30 firm, Atlanta-based Aprio, was planning a deal to sell a majority stake to the private equity firm Charlesbank Capital, according to people familiar with the situation. Two more — New York’s PKF O’Connor Davies and Carr, Riggs & Ingram of Alabama — had engaged bankers to run sale processes, they said. California-based Armanino, the country’s 19th largest accounting firm, according to Accounting Today, was in talks with a private capital provider about selling a minority stake, the people said. Armanino hit the headlines as the auditor of the US operations of crypto exchange FTX, which collapsed in 2022. The deal wave sweeping the profession means that one in three of the top 30 firms has taken, or is close to taking, private equity investment.
It's hard to think how beneficial this trend could be on the accounting industry.
5. The EU has announced tariffs of upto 50% on Chinese car imports.
Brussels will impose tariffs of up to almost 50 per cent on Chinese electric vehicles... The European Commission notified carmakers on Wednesday that it would provisionally apply additional duties of between 17 and 38 per cent on imported Chinese EVs from next month. The duties will be applied on top of existing 10 per cent tariffs on all Chinese EVs, depending on the extent to which they complied with an EU anti-subsidy investigation into electric carmakers that was announced last September. Major exporters including BYD, the world’s largest electric-vehicle manufacturer, and Geely will be hit with additional individual tariffs of between 17 and 20 per cent. European brands such as Mercedes and Renault exporting EVs made in China will pay 21 per cent while Tesla “may receive an individually calculated duty rate”, the commission said. Companies considered not to have co-operated with the probe, including Shanghai’s state-owned group SAIC, will be subject to the 38 per cent rate. SAIC has dominated the lower end of the European EV market through its MG brand.
The Kiel Institute, an economic think-tank, has estimated an extra 20 per cent tariff on Chinese electric cars would reduce imports by a quarter. It calculated that this corresponded to an estimated 125,000 units worth almost $4bn... the market share of EVs imported from China increased from 4 per cent in 2020 to 25 per cent in September 2023.
The tariff measures are championed by France, but opposed by Germany, Hungary and Sweden who fear retaliation by the Chinese.
More details of the tariffs here.
6. From the RBI's 2017-18 annual report, the findings of a model that evaluated the impact of MSP on prices.
They show that MSP has a positive and statistically significant effect on retail prices of all crops, although it varies significantly across crops. In general, it has a stronger effect for those crops where procurement is substantial, such as paddy and wheat.
There's a very strong correlation (see table 2). A 1% increase in MSP of wheat is associated with a 0.91% increase in retail price; a 1% increase in MSP of rice is associated with a 1.27% increase in retail price of rice. The correlation is far lower for other crops. Further, other variables like international prices, production etc have negligible impacts.
7. Fascinating story of how the Chinese fell in love with the Durian fruit and have created a large and rapidly growing export market from out of nothing for East Asian countries!
The fruit, durian, has long been a cherished part of local cultures in Southeast Asia, where it is grown in abundance. A single durian is typically the size of a rugby ball and can emit an odor so powerful that it is banned from most hotels. When Mr. Chan began his start-up in his native Malaysia, durians were cheap and often sold from the back of trucks. Then, China acquired a taste for durian in a very big way. Last year, the value of durian exports from Southeast Asia to China was $6.7 billion, a twelvefold increase from $550 million in 2017. China buys virtually all of the world’s exported durians, according to United Nations data. The biggest exporting country by far is Thailand; Malaysia and Vietnam are the other top sellers. Today, businesses are expanding rapidly — one Thai company is planning an initial public offering this year — and some durian farmers have become millionaires...Farmers in Southeast Asian durian orchards say they can’t recall anything like the China craze. The surge in durian exports is a measure of the power of Chinese consumers in the global economy, even though, by other measures, the mainland economy is struggling. When an increasingly wealthy country of 1.4 billion people gets a taste for something, entire regions of Asia are reshaped to meet the demand. In Vietnam, state news media reported last month that farmers were cutting down coffee plants to make room for durian. The acreage of durian orchards in Thailand has doubled over the past decade. In Malaysia, jungles in the hills outside Raub are being razed and terraced to make way for plantations that will cater to China’s lust for the fruit... China is not only a buyer. Chinese investment has flowed into Thailand’s durian packing and logistics business. Already, Chinese interests control around 70 percent of the durian wholesale and logistics business...Durian is to fruit what truffles are to mushrooms: Pound for pound, the fruit has become one of the most expensive on the planet. Depending on the variety, a single durian can sell for anywhere between $10 to hundreds of dollars. But Chinese demand, which has pushed up prices fifteenfold over the past decade, has frustrated Southeast Asian consumers, who see durians morphing from a plentiful fruit growing in the wild and in village orchards to a luxury commodity earmarked for export. Countries are exporting a fruit that is an integral part of their identities and cultures, especially in Malaysia, where it is a unifying national icon among its many ethnic groups.
8. India is emerging as a top destination for data centre construction by the US Big Tech firms.
Wonder how much of this is being driven by India's mandatory policy on data localisation by technology firms? If that's the case, it's one more win for industrial policy.
9. Interesting line of reasoning about inflation in India
Despite weak rural demand, inflation in villages is 5.3%, whereas in cities it’s close to the central bank’s 4% target. Even inflation expectations are higher in villages. The puzzle may be partly explained by the missing train journeys — 100 million fewer every month than before the pandemic. Something is broken with the regular rural-to-urban migration pattern.
Its share of the global contract chip manufacturing market surpassed 60 per cent in the first quarter... advanced chips that use 7 nanometre and below technology accounting for two-thirds of TSMC’s total sales. Its high-performance computing business in particular, which includes chips for AI applications, makes up nearly half its total... Despite building out more plants overseas, 80-90 per cent of TSMC’s production capacity remains concentrated in Taiwan... Gross margins have long surpassed 50 per cent. Free cash flow more than quadrupled in the past year to $7.9bn, which means ample cash to invest in building capacity for the next generation 2nm chips which would widen the gap with rivals yet further.
11. It's surprising that many western media and commentators wail that being large net importers, they have little leverage over China. Consider this.
China has hit the EU’s soft underbelly in its fight over electric vehicle imports: pork. Poultry and beef could be next — especially chicken feet and other bits that Europeans do not tend to eat, but depend on selling... Food and drink are these days among the few products that China buys more of than it sells to the bloc, and they have been the first in the line of fire as Beijing retaliates over antisubsidy tariffs of up to 38 per cent on electric cars... Its trade surplus with Europe has ballooned in advanced equipment such as batteries, solar panels and cell phones. The EU, meanwhile, still sells lots of cars and aircraft. But increasingly its strength is serving China’s 1.4bn consumers with more traditional consumer fare: cheese, wine and handbags...“When a European leader goes to Beijing to get the market reopened for steak they have to give a gift in return,” Clarke said. “We sell them the port of Piraeus [in Greece], they buy feta cheese and yoghurt.” The problem for Brussels is that there is not much the EU could block in return. It is almost totally reliant on Chinese solar panels and does not want to increase the cost of going green. It also needs Chinese-made batteries for its own electric vehicles. Under US pressure, the Netherlands has ended exports of advanced chipmaking machines, but cutting supplies of Hermès scarves is unlikely to bring the Chinese economy to its knees.
The report overlooks that an importer too can have leverage on the exporter.
12. FT has an article on Chinese millionaires fleeing their country in record numbers. It highlights the "mirror transfer" system through which they take out their wealth
So many would-be migrants are left with little choice but to turn to “underground banks” to help spirit their wealth abroad. These shadowy institutions deploy numerous sleights of hand to transfer money across borders without law enforcement agencies noticing. One method is known as the “mirror transfer”, under which a sum of money is deposited in one underground bank in China. The same amount is then withdrawn from a reciprocal underground bank in another country. The money never actually moves, leaving little trail for detectives to follow.
13. The number of industrial policy interventions worldwide have ballooned from 228 in 2027 to 1568 in 2022, with most concentrated in the developed countries.
14. Some questions on Nvidia's stratospheric rise, evoking comparisons with Cisco (instead of Microsoft and Apple), from a very good article on the company.
The Nvidia economy looks very different to the one surrounding Apple. In many ways, the popularity of a single app — ChatGPT — is responsible for much of the investment that has driven Nvidia’s stock price upwards in the past few months. The chipmaker says it has 40,000 companies in its software ecosystem and 3,700 “GPU-accelerated applications”. Instead of selling hundreds of millions of affordable electronic devices to the masses every year, Nvidia has become the world’s most valuable company by selling a relatively small number of expensive AI chips for data centres, primarily to just a handful of companies. Large cloud computing providers such as Microsoft, Amazon and Google accounted for almost half of Nvidia’s data centre revenues, the company said last month. According to chip analyst group TechInsights, Nvidia sold 3.76mn of its graphics processing unit chips for data centres last year. That was still enough to give it a 72 per cent share of that specialist market, leaving rivals such as Intel and AMD far behind...Demand for Nvidia’s products has been fuelled by tech companies that are seeking to overcome questions about AI’s capabilities by throwing chips at the problem. In pursuit of the next leap forward in machine intelligence, companies such as OpenAI, Microsoft, Meta and Elon Musk’s new start-up xAI are racing to construct data centres connecting as many as 100,000 AI chips together into supercomputers — three times as large as today’s biggest clusters. Each of these server farms costs $4bn in hardware alone, according to chip consultancy SemiAnalysis.
The biggest risk for Nvidia lies on factors beyond its control - whether the AI investments made by Big Tech will translate into proportionate benefits.
That scale of investment will only continue if Nvidia’s customers figure out how to make money from AI themselves. And at just the moment the company reached the top of the stock market, more people in Silicon Valley are starting to question whether AI can live up to the hype... Big Tech companies will collectively need to generate hundreds of billions of dollars more a year in new revenues to recoup their investment in AI infrastructure at its current accelerating pace. For the likes of Microsoft, Amazon Web Services and OpenAI, incremental sales from generative AI are generally projected to run in the single-digit billions this year... The period when tech executives could make grand promises about AI’s capabilities is “coming to an end”, says Euro Beinat, global head of AI and data science at Prosus Group, one of the world’s largest tech investors.
But Nvidia is not staying still.
Analysts say if it is to continue to thrive it must emulate the iPhone maker and build out a software platform that will bind its corporate customers to its hardware... It provides all the ingredients to build “an entire supercomputer”, Jenson Huang has said. That includes chips, networking equipment and its Cuda software, which lets AI applications “talk” to its chips and is seen by many as Nvidia’s secret weapon. In March, Huang unveiled Nvidia Inference Microservices, or NIM: a set of ready-made software tools for businesses to more easily apply AI to specific industries or domains. Huang said these tools could be understood as the “operating system” for running large language models like the ones that underpin ChatGPT... The problem for Nvidia is that many of its biggest customers also want to “own” that relationship with developers and build their own AI platform... Nvidia is cultivating potential future rivals to its Big Tech customers, in a bid to diversify its ecosystem. It has funnelled its chips to the likes of Lambda Labs and CoreWeave, cloud computing start-ups that are focused on AI services and rent out access to Nvidia GPUs, as well as directing its chips to local players such as France-based Scaleway, over the multinational giants. Those moves form part of a broader acceleration of Nvidia’s investment activities across the booming AI tech ecosystem. In the past two months alone it has participated in funding rounds for Scale AI, a data labelling company that raised $1bn, and Mistral, a Paris-based OpenAI rival that raised €600mn. PitchBook data shows Nvidia has struck 116 such deals over the past five years. As well as potential financial returns, taking stakes in start-ups gives Nvidia an early look at what the next generation of AI might look like, helping to inform its own product road map.
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