18th November 2019
Swilling cash eases the market mood music
As the electoral machine whirrs on here, global capital markets have had a comparatively quiet week. The resurgent optimism of the last few weeks has waned somewhat, without turning around. But the US’s S&P 500 is still sitting at an all-time high, which may well be due to private equity funds: they are awash with cash and have had difficulty finding unlisted targets that are profitable enough.
The move by KKR (formerly Kohlberg Kravis Roberts & Co, one of the private equity giants) for Walgreens Boots suggests that they are having to turn to the less preferred route of taking large listed companies private. That’s risky in execution terms, but at least utilises larger blocks of that cash (even though a large proportion of the buyout funds will be borrowed). They also tend not to be so dependent on the near-term underlying economic background (because they take so long to organise and execute), perhaps underpinning markets against soggy economic data.
UK elections: Fiscal easing more certain than end to Brexit impasse
With election hostilities and flooding gloom filling our newsfeeds, there was at least one (apparent) ray of good news this week: The UK is not currently in a recession. That the bar for “good news” is set so low speaks volumes perhaps, but it is a positive nonetheless. In the second quarter of this year, GDP growth turned negative, with Britain’s economy contracting -0.2%. There was a real possibility that we would befall the same fate in Q3 – which would mark the onset of a technical recession, defined as two consecutive quarters of GDP contraction – but as it turned out, the UK economy grew 0.3% last quarter. What was all that Brexit worry again?
Hong Kong uprising getting in the way of US-China trade deal?
Back in August, one Chinese official declared that the Hong Kong protests represented the city’s worst crisis since the handover from British rule in 1997. In the months since – despite the official retraction of the extradition bill that incited the demonstrations – things have only got worse. Reports this week are that the city’s universities have become battlegrounds, with international students being urged to return home. Police have accused the Chinese University of Hong Kong of being a “manufacturing base for petrol bombs and a refuge for rioters and criminals”. On Tuesday, they raided the university – only to be met with barricades, road blocks and even makeshift brick walls from students. With public transport suspended and all universities closed, the city has become paralysed.