An insight into how blockchain is restructuring real estate towards a new age of digitalisation

Christopher Oufi

In 2010, 5,000 bitcoins could buy you a pizza, where 2017 brought about a modern-day phenomenon. That same number of bitcoins is now worth approximately $34 million. Its popularity has grown exponentially, and blockchain technology is here for the long-run despite any concerted attempts to apply intrusive regulation. This decentralised ledger offers the potential to streamline processes, minimise costs and improve efficiency in a number of markets. Among those markets, real estate is most likely to feel the ripple effect of this new age.

To fully comprehend why blockchain is being adopted into real estate, we must understand its benefits towards the sector. A report published by Deloitte on why blockchain should be considered for real estate leasing. Prerequisites for embracing this technology include the need for a common database, catering for the multiple entries that will modify it. Shared databases are integral to leasing real estate which collates a variety of information on properties. Several entities are involved, such as owners, tenants, operators, and service providers.

Blockchain provides the means to reinforce trust amongst these entities who don’t have pre-existing relationships. The opportunity for disintermediation is what excites certain players within the field. Trusted intermediaries can be removed via blockchain as transactions can be independently verified and reconciled automatically. However, many of these transactions, such as leasing and property management, are correlated and intertwined within the same common database. In this context, the value blockchain provides is independence between transactions, establishing transparency, ovo casino as well as simplifying procedures related to these transactions.

Headlines have been made within locations including California, U.S. and Monte Carlo, Monaco, as they become hotspots for residential real estate investment using bitcoin. In January 2018, the most expensive bitcoin-to-bitcoin real estate deal traded in Miami. The Real Deal published that investor Michael Komaransky sold a 9,400-square-foot mansion in Miami for 455 bitcoins. At the time, this equated to roughly $6 million.

The utilisation of payment services to accept proceeds for rent or outright purchases on certain properties via cryptocurrencies has begun. This is facilitated by the U.S. service called BitPay, which has opened a much-needed method to cash out on the notoriously volatile digital asset. However, it hasn’t been all plain sailing for everybody involved in the implementation of blockchain into their real estate activities.

Brokerages in Ontario, Canada, are having a tough time expediting real estate transactions using cryptocurrencies. Ontario’s real estate regulatory body, the Real Estate Council of Ontario (RECO), is raising serious concerns about the matter. Daniel Roukema, senior adviser of external communications at RECO, said that: “RECO is currently reviewing the use of cryptocurrencies, such as bitcoin, in real estate transactions. “RECO does not regulate buyers and sellers, and if a transaction were to occur between two parties without the involvement of a brokerage, it would be outside of RECO’s purview to determine the legality or feasibility of that transaction.” The issue of blockchain that underlies the fundamentals of it becoming a success, is that cryptocurrency can’t be held with trust in the way regular banks operate during real estate transactions. Furthermore, the Real Estate Council of British Columbia has already banned real estate professionals from processing purchases in cryptocurrencies.

Whilst the advantages of blockchain technology are undeniable, one must question, will blockchain become generally accepted by all entities regarding real estate dealings? The revolutionary technology has been praised for its convenience of bypassing banking networks to offer low fees and expedite transactions; its fair share of scepticism has been called into question more recently. With the necessity of a middleman and third parties is being threatened, blockchain continuously questions the systems that govern our daily lives. Whereas the idea of this foreign technology entering such a sector was ludicrous a few years ago, today, it has a tremendous potential to reform the global real estate industry.

Softbank’s Investments: Chaos or Clarity?

Estia Ryan

My first phone in middle school was a pastel blue solar hybrid flip phone made by Softbank. That was in 2009, when the Japanese technology company’s stock price wavered around a mere 2,000 yen.

From 2016, prices have shot upwards, peaking at 10,295 yen in October 2017 and stabilising at 8,485 yen after the recent January market correction. Of course, the entire technology industry has been doing extremely well. The outlook for technology companies published by Deloitte is that the future is in ‘buy build partner’ M&A models, so that companies can catch and cover trends such as ‘cloud, cognitive computing, and data analytics’. This is exactly what Softbank has been doing, well ahead of the curve.

Softbank’s ‘Vision Fund’ has dedicated $93 billion to investing in external technologies. The Fund aims to raise a further $7 billion to reach a total of $100 billion in raised capital. CEO Masayoshi Son wishes the Fund to ‘take 20-40% stakes in the companies in which we invest’, fostering an ‘organic relationship’ with company founders. These include artificial intelligence, robotics, and driverless cars. But these three target areas are by no means the entirety of Softbank’s recent investments. The graphic below shows how the Fund’s investments so far – and the results are impressive.

Source: https://cdn.vox-cdn.com/thumbor/wzDgs1iDcDWiai5UM8wF1lQQEUc=/800x0/filters:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/10158271/XiWPj__1_.png

Source: https://cdn.vox-cdn.com/thumbor/wzDgs1iDcDWiai5UM8wF1lQQEUc=/800×0/filters:no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/10158271/XiWPj__1_.png

Evidently these acquisitions have benefitted both operating income and net sales, increasing 23% and 3.5% respectively. Softbank explains these jumps in part by Vision Fund, as shown in the 2017 Q3 financials (along with the Delta Fund, though this is significantly smaller with only $6 billion in capital).

These investments aren’t only benefitting Softbank itself. Until now tech companies arguably needed to be part of the ‘unicorn club’ to be considered successful. The unicorn club refers to a billion-dollar valuation stamp mark. The Vision Fund now allows small startups to raise capital faster and more aggressively. Fanatics used the Fund to raise $1 billion and is now valued at $4.5 billion.

Softbank’s global vision is conscious that international investment is key, as it looks towards Europe and Asia to seal more deals. This gives Softbank incredible breadth over the industry, but it also helps cement Softbank within sub industries, notably in the ride hailing business. Grab, an Uber competitor in Southeast Asia, raised $2 billion in 2017 from Softbank. Didi, another competitor in Europe, raised $5 billion. Didi in turn invested in in the Brazilian ‘99’ ridesharing company.

But Softbank’s competitors, and the industry as a whole, are doubting the company’s recent investments. Softbank has been accused of artificially pushing up valuations, causing disturbances within the sector. Competitors note that startups should raise funds themselves in order to be successful instead of relying on giants to prop them up. There are fears around how Softbank vets investment opportunities – with $100 billion, are they recklessly throwing money at small firms?

Softbank’s strategy is clear: invest in companies which have potential but may not have enough capital to pass the ‘unicorn’ threshold. Moving forward, Softbank should insure that the Vision Fund’s capital is being spent wisely and frugally in a market that is more competitive than ever. Only time (and financials) will tell if Masayoshi Son’s innovative idea will pay off – for Softbank, and for the technology sector.

 

Glencore: An outlook for the world’s largest commodity producer

Rajinder Dhesi

This week the commodities giant Glencore announced pre-tax earnings of $14.7 billion for 2017, a 44% rise compared to the previous twelve-month period. Its share price has subsequently risen by up 22% to 399.3 pence (21st February 2018). There are several reasons for this strong performance. First, and perhaps most significantly, the renewable energy metal triad of copper, cobalt and nickel have seen incredible price growth over the last year. The price of cobalt soared by 130% from $32,000 to $75,000 on the London Metal Exchange last year, owing to a rising demand, primarily from electric vehicle (EV) manufacturers (each EV uses approximately 8 kg of cobalt per lithium-ion battery). Around two-thirds of the world’s cobalt production occurs in the Democratic Republic of Congo, a country in which Glencore operate almost as a monopoly; their only rivals being small-scale, independent mines who sell on to larger processors including Glencore. As a result, numerous automobile manufacturers, including Tesla and Volkswagen have been in talks with Glencore to secure supply of cobalt.

Supplementing this is Apple’s announcements last week that they are looking to secure several thousand tonnes of cobalt directly from miners to be used in the supply chain producing Apple products. Glencore are likely to be a large beneficiary of Apple’s investment, given that the technology giant requires both a vast supply of cobalt, as well as an ethical supply chain – the operations of smaller mines would be far harder for Apple to observe and manage.

Away from the renewable energy boom, there are other reasons for Glencore’s bullish forecast. Glencore have stuck with their coal portfolio – an industry which major competitors such as Rio Tinto have divested from. Thus, in the short term, Glencore have benefited from a 30% rise in the price of coal over 2017. The other arm of Glencore’s operations, trading, has also experienced remarkable growth, with pre-tax earnings up to $3 billion, the largest sum since before the financial crisis.

Hints at Glencore’s future plans also evoke optimism. Large earnings have produced the company’s highest ever free cash flow of $2.3 billion. Simultaneously, this has allowed a repayment of the company’s debts, higher dividend payments to shareholders and a number of possible acquisition opportunities for Glencore. Most notably, Glencore are looking to expand their operations into agriculture through the acquisition of Bunge Ltd., a grain merchant trading on the NYSE.

However, analysts still warn of uncertainties for Glencore. Proposed new laws will have the potential to reduce Glencore’s earnings through taxes, though the extent to which this will have an impact is unknown. Adding to this, current research into lithium-ion batteries has the possibility of wiping out the need for any cobalt. This is certainly being incentivised by the recent drastic cobalt price increases.

Despite some levels of uncertainty, Glencore have a strong foundation based on renewed future growth given the surge of interest in EVs, as well as the company’s own strategy of reducing debt and diversifying through acquisition. This makes Glencore a good company to buy shares in for investors.

Social Media Junkies

Estia Ryan

Social media – we all take part in it, some way or another. Whether it’s the recurring ‘ping’ from Messenger, Snapchat, or Instagram, the social-validation feedback loop is ruining productivity and attention spans. 50% of parents and 70% of teenagers feel urged to respond to these notifications immediately.

Social media executives themselves are secretive about their own use. The Twitter CFO sends under two tweets a month. Mark Zuckerberg, Facebook CEO, is not as frugal with his own social media use, but has 12 moderators on his personal page and a ‘handful’ of staff carefully crafting pictures, comments, posts.

Sean Parker, co-founder of Facebook, believes that social media ‘exploits human vulnerability’. The same company’s former VP for user growth, Chamath Palihapitiya, criticised his own company for creating ‘tools that are ripping apart the social fabric of how society works’.

Social media companies have responded to these ‘addiction’ claims by encouraging users to use more, like more, share more. The cure to online loneliness is being online longer.

This instant gratification is affecting our attention span. Microsoft Canada conducted an experiment in early 2000 to see how long the average person could pay attention. Back then attention spans were just over 12 seconds long. Fast forward to 2013 and this number has almost dropped by half, to 8 seconds.

This social-validation feedback loop is fundamental to Facebook’s success, which prides itself on keeping users engaged on the platform longer than other social media websites. Whereas Whatsapp and Twitter make ‘read receipts’ optional (confirmation that you have read someone’s message), Messenger offers no such luxury. The result is that people feel forced to reply instantly, with The Guardian calling it ‘emotionally manipulative’.

Salesforce CEO Marc Benioff has gone as far as saying that Facebook should be ‘regulated like the cigarette industry’ – a strong claim from a powerful influencer.

Facebook wrote a short statement in December 2017 on their Newsroom Blog, explaining their take on healthy social media engagement. The key takeaways were that ‘passively consuming information’ is harmful, while ‘actively interacting with people’ is beneficial. The post concludes that Facebook will change ‘news feed’ structures (reducing low-quality content), introducing ‘snooze’ (hiding pages or persons for 30 days), and developing suicide prevention tools to help users in distress.

But to what extent can Facebook afford to uproot its business model? Keeping users strapped into the site means substantial advertising revenue and effective self-promotion. The company would have to radically change tack if it is serious about addressing problematic use.

‘The Truth about Tech’ campaign was launched by old Facebook and Google employees, who are worried about the mental health impacts of excessive technology. Common Sense and the Center for Human Technology have pumped $7 million into the campaign which aims to educate students and children in 55,000 public schools about responsible use of social media.

For now these negative effects haven’t affected stock prices and wide public perception. But a drastic social media rethink is long overdue. We need to change the way we use platforms, engage with more meaningful content and ditching passive surfing. But of course this can’t be done solely from the consumer side. Silicon Valley executives must make practical and tangible changes, for the sake of our mental health.

The UK construction sector showing signs of stagnation coming into 2018?

Christopher Oufi

Entering 2018, the UK construction scene hasn’t looked too promising as of late.  February 2nd saw the release of the much anticipated IHS Markit/CIPS UK Construction PMI index. This seasonally adjusted index provides an indication of the current state of the sector. A posting of 50.2 for January was below the 52.2 from the previous month. A figure of 50.0 signifies a no-change mark, indicating fractional growth. The current outlook isn’t promising by any means, with headline news causing decline in activity levels and denting confidence in the industry.

The dramatic collapse of Carillion rattled the construction industry, which has been building momentum towards sustained growth following the EU referendum. The British multinational buckled under pressures of repaying their £1.5 billion debt pile. Carillion’s presence within the sector was huge, employing 200,000 people in the UK alone. They had a huge holding on some of the most notable construction projects across Britain, including multiple government contracts and supplying services to the public sector. Noble Francis, Economics Director at the Construction Products Association, said that: “What we don’t know as [of] yet is the impact of the liquidation of Carillion, the UK’s second-largest contractor, and the estimated 25,000 to 30,000 sub-contractors it worked with.”

The flirtatious relationship with risky contracts that proved to be profitless, was an evident sign of Carillion overreaching its abilities. On top of this, their entertainment of late payments from Middle Eastern sub-contractors lead to their pleading with the government and banks for extra leverage. Max Jones of Lloyds Banking Group, who offer emergency support to building firms, said: “The impact of Carillion’s liquidation has rippled down the supply chain and shaken confidence across the industry.” Their evaporation from the scene has meant that a host of mega projects are being left delayed or discontinued. This involves 450 government contracts with five projects approximately worth £3 billion, including the Aberdeen bypass, Royal Liverpool and Midland Metropolitan Hospital, Rotherham to Sheffield tram-train and HS2 joint venture. The contagion effect across the whole industry is frightening with tens of thousands of sub-contractors being dragged to their knees due to the resulting lack of work.

The Office for National Statistics published recent estimates highlighting that the construction sector contracted by 1% in Q4 of 2017. This was after a 0.5% fall in Q3 and a 0.3% decline in the previous three months. As of 2018, the government has made the sector’s main driver of growth the focal point to stimulate the resurgence. Theresa May set out a preliminary objective of constructing 300,000 new homes a year across the UK. The National House Building Council registered plans to start 160,606 new homes, up 6% from 2016. Completed constructions rose 4% to 147,278, the most since 2008. However, an audit of surveyors discovered that their confidence in the government’s target is low, with only 12% believing it is likely that the target will be reached. Many across the UK are worried about the prospect of a construction skills shortage due to the end of free movement of labour from the EU.

With the UK’s construction industry being left to teeter on the edge after the demise of prominent figures in the sector, the government has had to intervene. With optimistic goals being set; millions hope that housebuilding will get back on course. The future looks uncertain with this uncertainty becoming the biggest nemesis towards the construction sector, due to Brexit looming ever closer. It seems the fat cats in positions of authority continue to line their pockets and ring-fence personal interests. Will the detachment from Europe provide new avenues for the industry to develop and forge new partnerships, or send it onto a crash course towards catastrophe?

The transforming business of estate agents

Frances Senn

It is widely accepted that most things are easier done online. Physically entering estate agents is becoming a thing of the past. Nowadays potential buyers often have completed a preliminary property search online prior to their visit. Online property search companies offer clever capabilities; filters, price ranges and property comparisons, with the aim of saving the consumer money. Websites and smartphone apps make searching for a property far more time efficient. Long gone are the days spent waiting for an estate agent to inform you a property has been listed, you can now be proactive each evening and find out for yourself.

Due to this ease of use, big UK estate agents, such as Foxtons and Countrywide, are losing market shares as a direct result of online competitors. This is further problematized by the lack of activity in the UK housing market at the moment. Any increases or decreases remain marginal. Investors are running out of patience and their shares have reduced by about a quarter in the last year.

Traditional brokers are under pressure from the success of online agents who have obtained 5-7 % of the UK home-sales market over the past three years. This is because buyers are likely to save money by consulting online sources when looking for a property.

It is evident that in order to save the estate agents, something needs to be done. Brokers will need to look for ways to cut costs and the easiest way to do this is by mergers and acquisitions (M&A). In a merger, two companies will combine and seek shareholders‘ approval, causing the acquired company to become part of the merging company and cease to exist entirely. In an acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or legal structure. This could save the traditional estate agents money and increase shares.

Although M&As may not be a completely desirable course of action, figures from Moore Stephens show that 19% of estate agents are currently under threat of insolvency. Given that the popularity of online estate agents does not seem like it will diminish in the foreseeable future, it is a course of action well worth considering.

Despite shares underperforming, there is evidence to suggest that Foxtons and Countrywide could boost shares if the housing market picks up. However, the predictions for 2018, taking into consideration tax changes and the reduced number of properties being sold, it is likely that the market will remain stagnant.

Measures have been taken by the estate agents, for example Foxtons has decided to branch away from its London-based market focus and Countrywide’s chief executive resigned and has been replaced by someone with experience in online business adoption in order to tackle this online battle. However, this caused shares to plummet by almost 20%, leaving investors uncertain over the capability of the firm.

It seems as though the estate agents need to prove their worth within the UK housing market. Online competition is fierce, but the estate agents need to instil some trust in their investors by taking actions to move them forward in our internet focussed world. Until then, their instability will prevent investors from buying into them.

Financial volatility poses problems for Chinese markets

Oliver Dyson

Since the 2008 crisis, sovereign debt from the Emerging Markets has been on a steady rise. From the 146% to 217% increase in public debt across the IIF 21 countries (compared to aggregated GDP), it is clear that developing nations are more indebted today than at any point since the crisis. The same can be said for China. In an article published in November, I talked about the current issue of China’s rising credit binge. Keeping this in mind I thought it would be interesting and worthwhile to keep up with the developments in financial markets since then. This is especially pertinent given the importance of strong Chinese financial markets to the health of the global economy.

If we are just considering the debt pile, the picture still looks bleak for the nation. With an estimated $36trn of debt looming at the end of 2017, policymakers have the task of balancing strong GDP growth with deleveraging, to avoid excessive bubbles and issues for the future. As mentioned in my previous article on the subject, an interest rate hike was to be expected to combat the borrowing expansion, which indeed occurred in mid-December as the People’s Bank of China (PBOC) raised its 7-day and 28-day reverse repurchase agreements rates by 5 basis points. The other main development in the past few months is that the composition of the credit expansion can be pinpointed to a specific sector: shadow banking.

Playing a crucial role in the US 2008 Financial Crisis, the shadow banking system refers to the financial intermediaries who are not subject to regulatory oversight as well as the unregulated activities that are performed. Examples of these institutions credit hedge funds, money market mutual funds and securities lenders. As was the case for the US 10 years ago, economic growth is underpinned by borrowing in this sector, despite the financial risks that are mounting. To put the size of this system in perspective, the outstanding assets owned by Chinese shadow banks at the end of last year stood at $4.3trn, or 4 times the size of the Mexican economy. This came after a growth in their assets by $555bn in 2017, resulting from private companies resorting to other forms of financing following a general crackdown on credit. The issue for policymakers is that if a hard regulatory approach is taken to curb financial risk, a contraction could have serious implications for GDP. Indeed, the PBOC has been quoted as wanting to double GDP per capita by 2020, as well as clean up financial sector risks in the next three years. Can strong growth occur at the same time as reducing financial sector risk?

Earlier this month, regulators released policies that suggest that it can. Some economists argue that through a soft regulatory approach of tightened bond supervision and insurance, financial risks can be brought down to Earth. The three main policies are as follows. First, entrusted loans will face further scrutiny, with banks being ordered to limit their exposure to these products. Entrusted loans are made from one corporation to another with a trustee or agent acting as an intermediary, and they make up the fastest growing sector of shadow banking, according to BMI Research. Second, rules have been imposed aimed at preventing insurance firms from extending loans in the guise of equity investments using buyback agreements, a key component of rising local government debt. Finally, bond trading will face further supervision, with traders having to meet more stringent liquidity requirements. It is worth considering the effect on banks and firms going forward, given that cheap forms of financing are drying up or being cracked down on; it is likely that private investment could slowdown in the coming years. The aforementioned policies have worked in curbing shadow bank activity, however, with lending in the sector down by 90% in January.

In answer to my previous question, President Xi Jinping publicly stated at the end of last year that credit growth must be reigned in by focussing on financial risks, not deleveraging, to prevent any asymmetric shocks to the economy. Indeed, it is important not to end up in a Japanese-style ‘Lost Decade’ resulting from an aggressive policy decision.

Yet another issue facing the Chinese economy that is worth mentioning is the ongoing trade dispute with the USA. President Trump’s ‘America First’ trade policy will ‘hurt the world economy’ and ‘damage the recovering momentum’ of global growth, Beijing stated on Wednesday. This comes as a response to two US Commerce Department reports suggesting tariffs of up to 24% on Chinese products on Tuesday, which will be considered by Trump for a new round of sanctions. New sanctions of this magnitude would result in slower growth for China, while asset prices would likely drop at the news.

Developments in the USA tend to feed through to Chinese markets. This has certainly been the case with last week’s stock market rout, which saw falling equity prices at the news of Fed interest rate hikes after many years of stability. There are many fears that an era of cheap credit and stability are about to close, and this uncertainty is showing in Chinese markets, which have been some of the worst hit globally. The Shanghai stock Index lost 11% of its value over two weeks, while the blue-chip CSI300 index fell by 10%. This has been exacerbated by margin calls, and the ongoing campaign to reduce financial sector risks mentioned previously. Volatility has also risen; the iVx, a widely-used measure of fear in Chinese equities, surged to 33.06 last Friday, the highest in a year, while CSI200 futures saw their volume increase by 50%. This is significant given that these futures are used to short the blue-chip index, indicating a loss in confidence across the board. Many Exchange-Traded Funds have faced trouble as well. Credit Suisse, Nomura, Deutsche Bank and other big names have all closed Volatility-based ETFs after facing up to 80% losses in value last week. This is especially a problem given that ETFs are readily available to retail investors, who have seen a large loss in their portfolios on aggregate, to the tune of $USD 4bn. The full effect of the rout will only be see after the effects ripple through the OTC derivatives market, which will be a further test of the post-crisis regulation structure.

With what some describe as an end to the era of low volatility, the PBOC’s goal of reducing financial risks going forward is looking more difficult to achieve. As I posited in my previous article 3 months ago, the Chinese economy could grow sustainably only if these systemic risks could be curbed. Given the recent developments in global markets, the regulatory system will need to work extra hard so as not to spook the shadow banking sector.

Indonesia – a worthy investment?

Danielle Cuaycong

Indonesia, Southeast Asia’s largest economy, has experienced an increase in its sovereign credit rating. Indonesia’s upgrade to an investment-grade level Standard & Poor in May 2017 has indicated for the first time since the 1997 Asian Financial Crisis that Indonesia has an investment-grade rating by all of the ‘Big 3’ ratings agencies. Due to Indonesia’s increasing resilience to external shocks, the rating on the long-term, foreign currency-denominated debt was increased by one level to BBB with a stable outlook, leaving it on the same level as Portugal and the Philippines. Alongside this, the combination of the persistent and strong economic growth (5.19% in the fourth quarter of 2017) and increasing foreign exchange reserves were major components for the upgrade. Outlook for Indonesia is positive with expectations of GDP growth of 5.4% in 2018 and 5.5% in 2019.

Fitch Ratings noted that monetary policy has been “sufficiently disciplined to limit bouts of volatile capital outflows during challenging periods.” Thus, this is an indication that the demand for Indonesian debt has increased, with 25.5 trillion rupiahs being sold this month, beneficial for President Joko Widodo who had plans to raise 194.5 trillion rupiahs in the first quarter of 2018. With a higher rating, Indonesia will expect to see an influx of investors. As the confidence of investors significantly increases, borrowing costs for Indonesia will decrease, raising the level of foreign direct investment (FDI), which reached peak levels at 109.9 trillion rupiah in the second quarter of 2017. The upgrade will result in keeping yields low and will help control the increase in Indonesia’s risk premium. Therefore, Indonesia has strengthened its position in Asian bonds, with local notes increasing 17% over the past year compared to 12% for emerging Asian bonds.

The ultimate question lies – should investors be moving towards to the Indonesian bond market? There are significant issues with this. Firstly, Indonesia’s economy is incredibly reliant on commodities.  With an HSBC trade report predicting that Indonesia’s exports will be mainly composed of agricultural produce until 2020, there is a significant need for Indonesia to diversify more to increase the number of investors. Additionally, with expectations for the US to pursue three interest rate rises in 2018, this may cause capital to flow out to Indonesia. However, it is important to note that it is likely a recovery will occur once the increases in rates have been announced. Alongside this, the upcoming elections (2018 local elections and 2019 presidential election) may pose a hindrance to Indonesia’s strong economic performance.

In December 2017, the rupiah-denominated bond ‘Komodo’ hit the London Stock Exchange. Presently, 16 active Indonesian rupiah (IDR) are on the London Stock Exchange, enticing organisations including Barclays, Inter-American Development Bank and the European Bank of Reconstruction to be repeat issuers of IDR bonds. A further indication of the potential positive economic prospects for Indonesia is its decreasing reliance on price-volatile commodity-based growth, with a change in direction towards more industry-based growth. The ultimate benefit of this is the removal of foreign exchange currency risk.

Indonesia’s growth prospects seem to be positive, with GDP growth set to exceed 5%, which means Indonesia will maintain its position as one of the fastest growing countries in the G20. There are expectations that investment will rise with increased spending on infrastructure, reduced borrowing costs and more structural reform. However, it is important to note that Indonesia still has a low level of government revenue, with only four other Fitch-rated sovereigns having lower government revenue as a percentage of GDP.

The digital Gold Standard?

Richard Holland

Amongst the backdrop of Bitcoin and cryptocurrencies, a London-based FinTech company has teamed up with Lloyds Banking Group and MasterCard to bring the world’s oldest currency back into the digital age: gold.

In November 2017, Glint launched its multi-currency account, app and card that allows customers to use gold to buy goods and services, settle debts and send money to their friends and family.

The way the app works is as follows: once you have successfully created an account, you will then be able to top up your account with Pound Sterling. You can then either chose to leave your money in Sterling, or convert it into gold at 0.5% above the spot price and have it stored in allocated accounts within secure vaults in Zurich (for which you are charged a flat fee for this privilege). When it comes to using your card to pay for items, it works in the same way as any other MasterCard would, but you can choose which ‘wallet’, either the currency or gold, you would like to spend from. Glint automatically converts the gold into the desired currency in real time to provide a frictionless method of using gold to purchase items.

The company was co-founded by Jason Cozens and Ben Davies who have become increasingly disenchanted with our current monetary system. Since the Pound was untethered from the Gold Standard in 1931, the value of a £10 note now solely relies upon its widespread acceptance in society as a medium of exchange. Yet if a shopkeeper one day refused to accept your £10 note, your money would become worthless as you would not be able to trade it for anything. When the UK was part of the Gold Standard, you could have exchanged your £10 at the bank for its equivalent in gold, a physical asset with which to trade. Nowadays, money has no inherent value and it is in fact a social construct that humanity, either sub-consciously or consciously, has chosen to live by.

The benefit of Glint, as Jason Cozens the CEO reasons, is “gold can’t be wiped out, devalued or corrupted” which is in contrast to our current monetary system. They believe that central banks have been able to print money at will to fund overspending that has led to the global economy staggering from an ever-bigger boom to an ever-bigger bust and Davies, the COO and co-founder, believes that people are starting to realise that something is fundamentally wrong with our monetary system.

The focal point of Glint’s advantage over cryptocurrencies is that it has a tangible backing in the form of gold which bitcoin does not. Davies also believes that bitcoin is of little use as a currency – with extremely high volatility, lengthy transaction times and steep fees, it is nearly impossible to use as a means of exchange. Yet gold is renowned as being a hedge against stock market volatility and with access to the spot price of gold being readily available, the transaction times with Glint should be momentary at worst.

Glint will certainly have its critics, but to date the FinTech company has raised £6.1 million with significant backing from Bray Capital and other high profile individual investors. In 2018, they plan to launch the app for Android users as it is currently only available on the iOS platform, as well as adding a wider range of currencies to the ‘wallet’ too. Glint may still be in its infancy, but it is certainly a company worth watching.

China’s green energy revolution?

Rajinder Dhesi

China, the world’s largest energy consumer, has recently announced a new strategy to wean itself off its dependence on fossil fuels, which for the last two decades have powered the state’s unparalleled economic growth. Like other infrastructure projects, the scale of China’s foray into renewables is enormous; $136 billion was spent on renewable infrastructure projects in 2017, more than the total of the EU and US combined.

Few in China dispute the need to move away from fossil fuels. Despite being the world’s largest coal producer and holding the third largest reserves, since 2008 China has had to import coal to keep up with demand. Coupled with this, China in 2017 overtook the USA as the largest oil importer (importing an average of 8.4 million barrels per day). The reliance on overseas imports leaves China’s future economic growth vulnerable to future commodity price fluctuations, particularly as the price of oil increased steadily during 2017 due to OPEC supply cuts. Moreover, there is a growing political consensus in Beijing to reduce fossil fuel usage. The expanding and urbanised middle class do not want to see their cities polluted. Nor do rural citizens, who have violently protested the construction of new coal fired power stations that are viewed as the cause of much illness and damage to the ecosystem. There is also a limit to the efficiency of coal; currently on average 38.6% of the heat generated from coal is transformed into electricity and with large scale investment the most efficient coal power generators are only 44% efficient. Consequently, China’s National Energy Administration (NEA) cancelled the construction of 103 new coal power plants in January 2017.

China’s conversion towards renewable energy began with enormous hydroelectric dam projects, such as the Three Gorges Dam on the Yangtze River; in 2015, hydroelectric contributed 20% of the nation’s energy demand (second to coal). However, though hydroelectricity has significantly contributed to a decrease in fossil fuel usage, there are a finite number of potential future sites for damming and each construction project is accompanied with huge costs and negative environmental outcomes.

Instead, solar technology is the largest growing renewable sector in China. Installations of photovoltaic cells totalled 126 GW in 2017, up 66% from the previous year. China, through its multitude of state owned enterprises (SOEs) and government coordinated private companies, have began to export solar cells abroad, giving Beijing another boost in its aim to become the world’s largest superpower. However, the governments of two of the largest potential markets (India and the USA) have responded by setting tariffs of 30% and 70% respectively. On a long-term basis, China has announced aims to ban fossil fuel powered automobiles and replace these with electric vehicles.

Overall, there is still uncertainty and doubt lurking in this pro-renewable, anti-fossil fuel narrative in China. Despite a decrease in the percentage that fossil fuels contribute to the energy mix, the absolute usage of fossil fuels has and will increase (coal consumption is predicted to rise 140GW or 15% from 2016-2020), as China’s economy grows further.