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World is moving into a new super cycle, says Goldman analyst – Industry roundup: 9 January

World moving into a new super cycle, says Goldman Sachs analyst

The world economy is moving into a new “super cycle,” in which artificial intelligence (AI) and decarbonisation are among the main driving factors and likely to have a positive impact, according to Peter Oppenheimer, head of macro research in Europe at Goldman Sachs.

Super cycles are commonly defined as prolonged periods of economic expansion, often accompanied by growing GDP, strong demand for goods leading to higher prices, and high levels of employment.

In an interview with CNBC, Oppenheimer identified the most recent significant super cycle experienced by the world economy as beginning in the early 1980s. It was characterised by interest rates and inflation peaking, before a decades-long period of falling capital costs, inflation and rates, as well as economic policies such as deregulation and privatisation, he explained. Meanwhile, geopolitical risks eased, and globalisation grew stronger.

But Oppenheimer noted that not all of these factors are likely to continue as before. “We’re not likely to see interest rates trending down as aggressively over the next decade or so, we’re seeing some pushback to globalisation and, of course, we’re seeing increased geopolitical tensions as well,” he said.

The Russia-Ukraine war, trade-centred tensions between the US and China, and the Israel-Hamas conflict with its risk of extending across the Middle East are just some geopolitical themes that have upset markets in recent times.

While current economic developments should theoretically lead to the pace of financial returns slowing, there are also forces that could have a positive impact — namely AI and decarbonisation, Oppenheimer said. AI is still in its early stages, although as it is used increasingly as the basis for new products and services, it could lead to a “positive effect” for stocks, he suggested.

The hot topic of AI and productivity, which has often gone hand-in-hand with debates and concerns around human jobs being replaced or changed, will likely impact the economy.

“The second thing is [that] we haven't yet seen, and I think we're relatively positive that we will see, [is] an improvement in productivity on the back of the applications of AI which could be positive for growth and of course for margins,” Oppenheimer said.

Although AI and decarbonisation are both relatively new concepts, there are historical parallels, he suggested. One such period was the early 1970s and early 1980s, which were “not so dissimilar” to current developments. While elevated inflation and interest rates were perhaps more structural issues than now, factors such as growing geopolitical tensions, rising taxes and enhanced regulation appear similar.

In other ways, current shifts can be seen as reflective of changes even further back in history, Oppenheimer believes. “Because of this tremendous twin shock that we're likely to see, positive shock of technological innovation at a very rapid pace together with restructuring of economies to move towards decarbonisation, I think that's a period that's more akin really to what we saw in the late 19th century,” he said.

Modernisation and industrialisation fuelled by infrastructure and technological developments alongside significant increases of productivity mark this historical period. Crucially, these historical parallels can provide lessons for the future, Oppenheimer pointed out.

“Looking back in time, cycles and structural breaks do repeat themselves but never in exactly the same way. And I think we need to sort of learn from history what are the inferences that we can look at in order to position best for the sort of environment we’re moving into,” he concluded.


Deloitte rolls out AI chatbot to staff

Deloitte is providing thousands of its employees with a generative artificial intelligence (AI)-powered chatbot to help them carry out basic tasks more quickly.

The Deloitte chatbot, named PairD, will be rolled out to 75,000 of the company’s staff in Europe and the Middle East. The ‘Big Four’ accountancy firm employs more than 450,000 people worldwide and reported revenue of US$65 billion for the financial year ended June 2023.

Staff given access to the Deloitte PairD AI chatbot can use it to create presentations in PowerPoint, as well as write emails and code. Deloitte is reported to have developed the tool in-house in its AI Academy, an AI training programme it runs for clients, rather than relying on technology from a third-party vendor such as OpenAI.

However, there may have been some teething trouble since the launch. The Financial Times reports that staff have been told that the new tool “may produce inaccurate information about people, places and facts” and they should manually perform due diligence and quality assurance “to validate the ‘accuracy and completeness’ of the chatbot’s output before using it for work”.

Deloitte said that PairD is also able to "create project plans, give project management best practice advise and suggest task prioritisation".

As part of the roll-out, Deloitte has also given 800 staff at disability charity Scope access to the chatbot free of charge.

Richard Houston, CEO of Deloitte UK and Deloitte NSE, said: “Generative AI should be available and accessible to everyone and businesses like ours must ensure that the adoption of AI promotes social equality rather than exacerbating existing disparities.

“But it’s not only about access to technology – it’s access to the skills to use it that will really create opportunity to help close the digital divide. We want to increase the accessibility of our AI platform and help Scope make full use of PairD to benefit the charity and the people they support.”


Banco de España selects partners for CBDC testing

Spain’s central bank, Banco de España, has chosen its collaborators for testing a central bank digital currency a year after publishing an open call for partners to participate in CBDC tests.

Earlier this month, the Bank published a resolution announcing its partnership with Cecabank, Abanca, and Adhara Blockchain.

The pilot of the wholesale CBDC will take place in H1 2024 and will feature the simulation of the processing and settlement of interbank payments with a single tokenised wholesale CBDC and by exchanging several wholesale CBDCs issued by different central banks.

In another part of the experiment conducted with the help of the Cecabank-Abanca consortium, the wholesale CBDC will be used to settle a simulated tokenised bond.

Three companies were selected from the 24 applications the central bank has received over the past year. While both Cecabank and Abanca are Spanish, the headquarters of Adhara Blockchain is in the UK.

The Spanish CBDC programme is described as unique, as it was publicly stated to be independent of the digital euro project that would cover all economies in the eurozone if implemented. Meanwhile, the Spanish Ministry of Economic Affairs and Digital Transformation announced that it would implement the European Union’s Markets in Crypto-Assets (MICA) regulation six months before the deadline.

In October, Banco de España published a text explaining the nature and uses of the digital euro.

Spaniards themselves have yet to express much interest in a digital euro. In a survey conducted the same month, 65% of respondents said that they would not use the pan-European CBDC to complement their regular payment methods.


South Africa’s power crisis deepening

South Africa’s troubled power utility Eskom warned that its system status outlook for 2024 shows that there will be a significant electricity shortfall for every week of the year and both businesses and consumers should expect extensive power cuts, aka load-shedding.

The report’s 52-week outlook forecasts that electricity demand will be much higher than available generating capacity every week of the year ahead.

Eskom uses colour codes ranging from green (no shortage) to red (worst case), indicating the absence or presence of a capacity constraint, as follows:

  • Green — Adequate generation to meet demand and reserves.
  • Yellow — Smaller than 1,000 megawatts (MW), possibly short to meet reserves.
  • Orange — 1,001 MW to 2,000 MW, definitely short to meet reserves and possibly demand.
  • Red — Over 2,001 MW short to meet demand and reserves.

The outlook between 1 January 2024 and 30 December 2024 shows that the likely risk scenario is red for all 52 weeks. This points to a shortfall of over 2,001 MW every week, meaning severe electricity generation shortages throughout the year and South Africans should expect severe load-shedding — at least stage 2, at regular intervals.

The bleak outlook contrasts with the same report for 2023, which showed that Eskom’s planned risk levels were red for only two weeks. However, the utility’s unplanned outage assumptions, breakdown risk scenarios, and planned maintenance forecasts are substantially higher than last year.

For its 2024 outlook, Eskom is working with an unplanned outage assumption of 16,000MW. Last year it started off with a 13,000MW assumption.

Eskom’s two risk scenarios have also been updated. The first — “Planned Risk Level” — went from -15,200MW to -18,200MW. The second — “Likely Risk Scenario” — worsened from -16,700MW to -20,200MW.

2023 was the worst year for load-shedding that South Africa has experienced since the power crisis dveloped more than 15 years ago, with regular stage 6 power cuts over the 12 months.


Citi “plans end-2024 launch for China investment bank”

Citigroup plans to launch its wholly owned China investment banking unit as early as the end of this year and hire about 30 people for the business, according to reports citing a person with direct knowledge of the matter.

The US bank could triple staffing in the unit, which will focus on the domestic capital market, to nearly 100 in the coming years by making local hires and transfers from Hong Kong and other markets, the person said.

Citi, which offers corporate, institutional and other banking services in China, applied for a wholly owned mainland Chinese brokerage business licence in late 2021 as part of its push to ramp up its presence in the market.

The Chinese securities regulator permitted the US bank to proceed and set up the unit last month, said the person, who asked to remain anonymous.

The China Securities Regulatory Commission (CSRC) official record shows that on 28 December the regulator “made a decision” on accepting or rejecting Citi’s application for setting up a local investment banking unit, but it did not elaborate further.

The launch of the China venture will see Citi join its Wall Street rivals Goldman Sachs, JPMorgan and Morgan Stanley, which have boosted their equity holdings of local brokerage businesses in recent years.


US and UK fintech funding declined sharply in 2023

Fintech startups in both the United States and the United Kingdom saw funding decline significantly in 2023 compared to the previous year, according to the latest report by technology platform Tracxn.

Total funding into US fintech startups fell 36% to US$18.2 billion in 2023 from US$28.5 billion the previous year, while the UK market suffered a steeper decline; local companies raised US$4.2 billion, representing a fall of 63% from the US$11.2 billion secured in 2022.

While the US fintech industry remained the most funded globally, the investment downturn was reflected by a strong decrease in the number of large funding rounds, with only 19 rounds exceeding US$100 million, compared to 70 in 2022.

“With inflation, increased interest rates, geopolitical issues, and other macroeconomic conditions, activity across industries has been slow, making it challenging for the investment market,” the Tracxn report noted.

Despite the challenges, the US market still saw the emergence of four new unicorns and a total of 172 acquisitions, albeit a decrease from previous years. San Francisco remained the epicentre of fintech funding. The payments, investment technology, and finance/accounting technology segments emerged as the top performers despite the overall funding slump.

The UK fintech sector again ranked second globally in fintech funding for 2023, despite the investment slump. The reduction reflects broader macroeconomic challenges impacting investor confidence, such as rising interest rates and inflation.

The declines in the two largest economies for fintech startups continue the unfavourable trend observed a year ago. At the start of 2023, it was reported that global fintech funding had shrunk 30% in 2022 toUS $95 billion. Fintech companies fared significantly worse during this period than financial or technology firms.

“The drop in funding is primarily due to a downward move in late-stage and early-stage funding. The sector attracted late-stage investments worth US$2.7 billion in 2023, 60% lower than the US$6.8 billion raised in 2022,” the report added.


US broadcasting giant Audacy files for bankruptcy

Audacy, the struggling US multi-platform audio content company, announced that it has begun prepackaged Chapter 11 bankruptcy proceedings in US Bankruptcy Court for the Southern District of Texas.

The internet radio conglomerate, which is among the biggest radio companies in the country has accumulated substantial debt while facing flat advertising revenue. Audacy said it is entering into a restructuring agreement to reduce its debt from about US$1.9 billion to US$350 million.

“While our transformation has enhanced our competitive position, the perfect storm of sustained macroeconomic challenges over the past four years facing the traditional advertising market has led to a sharp reduction of several billion dollars in cumulative radio ad spending,” said David Field, chairman, president and CEO of Audacy, in a statement.

“With our scaled leadership position, our uniquely differentiated premium audio content and a robust capital structure, we believe Audacy will emerge well positioned to continue its innovation and growth in the dynamic audio business,” he said.

Founded in 1968, Philadelphia-based Audacy operates in hundreds of US radio markets. The company, which was delisted from the New York Stock Exchange in November 2023, said it does not expect the restructuring to have an impact on advertisers, partners and employees.

Field said in the company’s 2023 third-quarter earnings release that Audacy was in “constructive conversations” with its lenders to stay afloat.

In a Securities and Exchange Commission (SEC) filing last May, Audacy also pointed to “current macroeconomic conditions” hurting their forecasted revenue, such as high inflation and increased competition for advertisers. It warned that its revenue forecast over the next year would not be enough to meet its debt obligations.

The company had a grace period for interest payments due in October. At the time, Audacy said it was going to use the extension to develop a plan with lenders for its business operations.


Two of China’s bubble tea giants prepare for IPOs

Two of China’s most popular bubble tea brands are preparing to go public.

Mixue Group and Guming Holdings, which have both created a market for their unique beverages, such as passionfruit pulp or grape and cheese-flavoured teas — have applied for initial public offerings (IPOs) in Hong Kong, according to stock exchange filings.

The size of the offerings was redacted in each company’s filing, although a Reuters report stated that Mixue, which bills itself as China’s largest bubble tea chain, aims to raise US$500 million to US$1 billion, while Guming is aiming to raise US$300 million to US$500 million, citing an unidentified source.

Although China has recently faced post-pandemic economic uncertainty and low consumer confidence, affordable treats, such as going to the movies or cheap food and beverages, are still much in demand.

The country’s bubble tea market is sizable. In 2023, the industry was estimated to be worth yuan (CNY) 145 billion (US$20.4 billion), according to a report by the China Chain Store & Franchise Association, an industry group.


Hitachi Payment Services acquires Writer Corporation’s cash management business

India’s Hitachi Payment Services said that it has completed its acquisition of Writer Corporation’s cash management business and renamed it Hitachi Cash Management Services.

The acquired business, which is in line with Hitachi’s single brand identity, will be a wholly owned subsidiary of Hitachi Payment Services, the Mumbai-based company confirmed. Writer is also a Mumbai company.

Hitachi Cash Management Services will “offer ATM Cash Replenishment services for Financial Institutions and Retail Cash Management Services (RCM) for retail outlets. With a network of close to 40,000 touchpoints, including ATMs and Retail spanning 25 states across 1,500 locations, Hitachi Cash Management Services’ end-to-end offerings help financial institutions and retailers manage their day-to-day cash related requirements in a seamless and efficient manner.”


Andaria partners with Mastercard to build embedded finance offering

Malta-based fintech and embedded finance pioneer Andaria is  a pioneering fintech company, collaborating with Mastercard to empower its offering.

The company, which in November launched its tech “to make digital financial services accessible, simple and transparent” said that its alliance with Mastercard “signifies a major milestone and a pivotal role in Andaria’s mission to enhance the quality of its card and payment solutions under the Principal membership agreement.

“This compliments Andaria’s existing dedicated international bank account numbers (IBANs), business accounts and suite of services which form its overall Embedded Finance offering, providing unparalleled financial products and solutions to its valued customers.”

Nirav Patel, CEO of Andaria, commented: “I am proud to be announcing yet another strategic milestone for Andaria. This collaboration with Mastercard is in line with our intentions to redefine the financial landscape. It solidifies our position as a key player in the Embedded Finance ecosystem and underscores our commitment to delivering innovative, cutting-edge solutions.”

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