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China Having Big Impact on Western Markets MoneyNews
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Imagine Microsoft or General Electric as a takeover target? Apax Partners, one of the world's largest private equity groups, says that big takeover targets could become commonplace in a financial environment where $100 billion capital funding firms should soon become reality. Speaking to the Times of London in Davos, Switzerland at the World Economic Forum, Apex chief executive Martin Halusa, told the paper that he could imagine the creation of the world's first $100 billion private equity fund within ten years.
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That's ten times the size of the largest private equity funds in 2006. When and if that happens, some of the largest companies in the world could become vulnerable to takeover attempts, thanks to increased financial muscle on the part of more private equity groups. Halusa continued to say that if the $100 billion fund became a reality it would put many of the world's biggest companies within the grasp of private equity groups. In turn that would opening a vast new marketplace for their investment activity. Says Halusa, "The private equity industry is set to grow hugely. It has delivered better returns than many other asset classes and institutions are increasing their asset allocations." The lion's share of that money should come from institutional investors with private equity investment in their gun-sights. The Times says, "Private equity experts believe that the mountain of money from institutional investors seeking to invest in private equity will ensure that the biggest funds grow exponentially. "The increasing size of such deals has forced private equity groups to team up to tackle these huge investment opportunities. They have also taken on huge amounts of debt, which has triggered fears that some deals may be over-leveraged." The paper also says that the move of private equity from a cottage industry to a key part of the mainstream economy was a big cocktail hour topic at the World Economic Forum. Jacob Wallenberg, chairman of Investor AB, told The Times that 15 per cent of his own business was now in private equity and venture capital. Others expressed caution. Joseph Rice, a founder member of Clayton Dubilier & Rice, one of the world's oldest and most established private equity groups, noted that the private equity market was at an "inflection point" with no clear signs down the road. "Mr. Rice said that the rise of the $10 billion private equity fund, where companies have to invest about $2 billion a year over five years, had created some uncertainty," said The Times.
"Of some of the "club" investment deals agreed by rival firms, he argued that unless it was clear who was in charge of an investment, private equity groups who took part in club deals were in danger of leaving themselves open to problems in the future if difficult decisions needed to be made." 2. Davos: China a Big Deal One word superceded most others this week in Davos and that word was "China". Whether it's a symposium on global warming; the one on nuclear non-proliferation; or the one on economic opportunity, the China syndrome seems to be dominating the proceedings at Davos.
While China's economy is only 5% of global GDP in 2005, according to Zhu Min, deputy head of the Bank of China, the nation accounts for as much as 20 percent of the world's GDP growth. Exports and imports account for nearly three-quarters of the economy, and its record trade surplus with the United States means that Beijing's dollar reserves now account for 70 percent of the $819 billion in overall foreign reserves. Says Katrin Bennhold, writing in the International Herald Tribune today, in an article entitled "China is Everywhere", "The Davos microcosm is a measure of how pervasive the influence of China has become in world affairs. "An economy about the size of France's that could not project its military power more than 280 kilometers, or 150 nautical miles, beyond its coastline is now influencing everything from American and European interest rates to international diplomacy, where it is increasingly emerging as a power broker."
What the denizens of Davos wanted to know above all, says Bennhold, is what China plans to do with all this new-found power.
Bennhold opines that China has influence with ripple effects in the West that no other emerging powers have enjoyed.
But some Davos conferences say that China has not been a good role model in areas like human rights, global security, and the environment.
"Another area in which China is not taking into account its effect on the world, economists say, is its currency policy, which has raised protectionist rhetoric among American and European politicians. Many at Davos urged Beijing to consider allowing its currency to appreciate more against the dollar in a gesture to Western demand."
Bad enough that the US economy slid to a 1.1% GDP growth rate in the fourth quarter of 2005 – now comes word that overall productivity is down relative to many Asian and European economies. Says the Conference Board, in a report released this week, the times of extraordinarily high U.S. labor productivity growth rates are over, at least for now. Overall productivity rates slid to 1.8% in 2005 in the United States, down from 3% in 2004. "The U.S. performance is still good compared to Europe," says Bart van Ark, Director of The Conference Board international economic research program "What is striking in these new numbers is the sustained productivity acceleration in the emerging markets of Central and Eastern Europe and Asia. In fact, economies such as China and Poland are accelerating to around 8%." Most countries in the developed world (North America, Europe and developed Asia) experienced a slowdown in productivity growth rates in 2005, with growth rates in the 1.5% to 2% range.
Compared to the U.S., productivity was about the same in Japan (1.9%), but much worse for the average of the EU-15 (0.5%).
4. Kia Motors Goes From Strength to Strength Little over a year ago, legendary billionaire investor Sir John Templeton told Financial Intelligence Report readers that South Korea's Kia Motors was likely to be the next General Motors. This week both companies reported fourth quarter earnings and the results couldn't have contrasted more. G.M. reported its first annual loss since 1992 as its quarterly shortfall came in at $4.78 billion. Meanwhile Kia, an affiliate of South Korea's largest car-maker, Hyundai Motor Co. reported $271 million in profits (up 89% over a year ago) shored up by strong domestic demand, a strong currency and a tax refund. Shares in Kia Motors jumped 7.6% on the news marking their biggest gain in more than two years. The company has outpaced the rise in the local Kospi index by 27%. The Kospi has risen 50% in the last 12 months. The company managed to boost its domestic sales by 17%, which allowed it to turn in a positive profit margin. The company expressed a strategy of expansion in the U.S. via three new models and an increase in the dealer network. Hyundai and Kia aim to become one of the top 6 automakers by 2010 and is building two new plants outside of its home country to achieve this. Last year the two assembly companies produced 3.54 million cars, an increase of 12% over 2004. Kia aims to expand American sales by 32% in 2006 to 398,000 units. For the full year, the company boosted profits by 2.9% on a 4.6% increase in sales. Kia has the capacity to produce 130,000 Optima sedans in its Chinese plant and is on target to open a second plant capable of producing 300,000 vehicles per year by 2007.
Editor's Note:
Editor's Note:
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