China 2017: Snapshot

China is facing some structural problems in 2017, Said Medley Global Advisor (MGA), a research institute of Financial Times.

The first one is whether China’s economy can achieve its re-balance of reducing reliance on investment and increasing consumption in 2017. As the average increasing rate of 6.7% in 2016 is exactly the same as its target (at least according to official propaganda), MGA estimated, household consumption accounts for 1 point percentage more than last year, achieving 39% of the domestic nominal GDP. Even though the percentage is far less than advanced economy, it demonstrates China’s stable development since 2008’s financial crisis.

Unfortunately, China is not likely to sustain its increase of household consumption in 2017, as the household income’s increasing rate slows down from 16% in 2011 to 8%, while the dramatically climbing price of house suppresses people’s expenses.

As for the next year, The International Monetary Fund upgraded its growth forecast for China’s economy in 2017 to 6.5 percent, 0.3 percentage points higher than their October forecast, on the back of expectations for continued government stimulus.

Meanwhile, the debt market in china should be highlighted, MGA emphasized, as the ratio of outstanding obligation to GDP is approaching 265%, China’s debt market is always expanding, making the asset riskier, but it’s still quite possible to issue a large scale of debt in 2017. Chinese government set the target to issue from 11 trillion to 12 trillion RMB debt for local government (1.6 trillion to 1.7 trillion dollars)—much higher than 6 trillion in 2016—as to finish the plan of exchange local government’s debt that started in 2014.

In 2017, default of enterprises and bankruptcy are more likely to happen, especially considering Beijing is now leading reform of cutting overcapacity in some industry.

China’s foreign exchange reserves fell from $4tn to $3tn in the past three years despite a persistent trade surplus. The first month of 2017 found China’s foreign exchange reserves fall below $3tn for the first time in the past five years despite Chinese government’s tighter controls on capital outflows. In February, China’s central bank managed to raise the reserves to $3.01tn. This first raise after an 8-month declines in a row indicates Chinese government’s resolution in setting a safety line for its foreign reserves, although there is no consensus on the bottom line number yet among experts familiar with the topic.

Trading Economics forecasts China’s foreign reserves to continue falling below $3tn for the next quarters of 2017. The publication expects the country’s foreign reserves to remain around $2.84tn by 2020. In the meanwhile, the country’s central bank chief said in a press conference that such decline is a normal phenomenon because the nation does not want that much forex reserves. Despite the decline, China still holds the largest forex reserves in the world, much higher than the runner-up, the chief commented.

State Administration of Foreign Exchange(SAFE) said that China’s foreign reserves will gradually stabilize despite the uncertainties in the international financial market. With China’s growing economic momentum, there will eventually be less control on capital outflow.

Authors: Yiping Zhang and Zhengyi Hu

Spain Overview: Economic Analysis and M&A Market Trends

Overview of the Spanish Market
Spain has the fourteenth-largest economy by nominal GDP in the world, and it is also among the largest in the world by purchasing power parity. The Spanish economy is the fourth-largest in the European Union, and the fourth-largest in the Eurozone, based on nominal GDP statistics (GDP 2016: $1252 trillion). Following the financial crisis of 2007–08, the Spanish economy’s plunged into recession, entering a cycle of negative macroeconomic performance. Compared to the EU’s and US. average, the Spanish economy entered recession later (the economy was still growing by 2008), but stayed there for longer. The economic boom of the 2000s was reversed, leaving over a quarter of Spain’s workforce unemployed by 2012. In aggregate terms, the Spanish GDP contracted by almost 9% during the 2009-2013 period. The economic situation started improving by 2013-2014. The country managed to reverse the record trade deficit which had built up during the boom years attaining a trade surplus in 2013 after three decades of running a trade deficit. The surplus kept strengthening during 2014 and 2015. In 2015, the Spanish GDP grew by 3.2% (one of the highest among the EU economies in 2015). In 2014-2015 Spain was able to recover 85% of the GDP that went lost during recession (2009-2013). In all the quarters of 2016 was registered a strong GDP, with the country growing twice as fast as the eurozone average. According to the IMF forecast, Spain will recover in 2017 all the GDP growth lost during the economic crisis, exceeding for the first time in 2017 the output level that had been reached in 2008.

Economic Forecast: Steady GDP growth for the 4 next years.
Fiscal stimulus and the ease of monetary policy from the ECB has contributed significantly to the growth of Spanish economy in 2016. With a growth of 5.5% over 2015 Spain’s GDP is expected to keep growing at a slower but steady pace for the next 4 years with domestic demand leading the recovery.

Labour market: An improving but still challenging environment
The recent reshaping of the labour market through a series of reforms actuated by the new government has contributed to improve Spain labour market conditions and to put it in a strong position to capture future growth. Anyway, with an unemployment rate still at about 19% Spain is the second worst economy of the Eurozone in terms of unemployment, with youth unemployment posing a particularly acute challenge for the future of the economy.

Fiscal policy: “little room for future fiscal stimulus”
With a public debt around 100% of the GDP and a deficit slightly below 5% of the GDP Spanish authorities have little room for fiscal expansion. After two years of significant easing of fiscal policy Spain has to find out a way to stimulate growth by shifting the structure of taxations towards growth enhancing initiatives such as education and R&D that are still below levels of peer countries after having been reduced significantly during the crisis.

Political situation: “achieving stability following 1 year without a real government”
After a year without a government Spain has finally achieved a stable political situation. The measures adopted to tackle budgetary austerity and labour market performance appear to have paid off as the economy is expected to grow by 3%. With a government in place, Spain is well prepared for further growth in a European environment where access to cheap financing is available. Furthermore, M&A activity has increased significantly following legislative changes in 2015, which aimed at facilitating the capitalisation of debt and the acquisition of business units from insolvent companies.

Sources: OECD outlook on Spain economy, Grant Thornton European M&A activity report

Deals Volume in 2016
The Spanish economy has continued growing during 2016. In 2016, Spanish M&A transactions totalled a range between €88bn[1] and €111bn[2]. The total deal value in Europe reached an amount of €1.502 bn: the Spanish market represented 5,9% of the total deal value in Europe. The increase shown in 2016 was encouraged by factors like those presented in 2015: continued economic growth; low interest rates and increased market liquidity; negative inflation; foreign trade balance; and stable risk premium for the Spanish sovereign debt. According to the M&A Attractiveness Index drawn up by the M&A Research Centre at Cass Business School, Spain has climbed several positions in the ranking of the most attractive countries for M&A purposes. Spain fell to 26th position in 2012, but is now ranked 16th. If we break in details the total amount of transactions made in 2016 per size and per Inbound and Outbound, we obtain these numbers[3]:

Mid-market transactions showed a 43.5% increase compared to 2015. Large-sized and small-sized transactions showed a slight increase in value of 4.5% and 1.1% respectively. Inbound investments increased in number during 2016. The number of foreign acquirers of Spanish companies increased by a remarkable 9.3% compared to 2015 and outbound investments increased by 25.4%. The most active sector in terms of M&A deals was real estate which increased to 11.6% compared to 2015. In general terms, the real estate market continues growing as big banks keep unloading assets and tax structures such as Spanish Reits (SOCIMIS) and collective investment vehicles remain appealing to domestic and foreign investors.

The main M&A transaction that took place in 2016 in Spain was the merger of the Coca-Cola bottling companies for an amount of €20bn. Coca-Cola Enterprises CCE.N combined with Coca-Cola Iberian Partners (CCIP) and the German bottling business of Coca-Cola to create a new company that is the world’s largest independent bottler of Coke drinks by net revenue. The transaction gave new company, Coca-Cola European Partners (CCEP)[4].

According to the data collected by Thomson Reuters, the top actors per value and numbers are[5]:

The two Spanish banks Santander and BBVA do not owe their position to any concrete operation. On the contrary: their situation has been created thanks to the sum of many transactions of medium size. “This year has been one marked by the lack of big transactions, but characterised by mid-sized deals”, indicates an executive of a financial institution. “Banks which have the capacity to reach this segment have been very active”, he adds[6].

This lack of big transactions is reflected also on the deal volume of big American banks as JP Morgan and Goldman Sachs. In 2015, the last one was first in this ranking made by Reuters and now it is eight losing 6% of market share. Others American banks have kept their position and in particular Citi is gaining position in this ranking.

Outlook – Trends
One of the biggest player KPMG expects the M&A market in Spain to perk up based on the favourable development of the Spanish economy[7]. According to them investors regained their faith in Spain and see it as a reliable market with an abundant amount of liquidity. In particular, the interest of investors is driven by market growth expectations, legal security, the global importance of Spanish companies and the new reforms that make the Spanish economy more competitive[8]. A study conducted by KPMG shows that investors are 7% more confident to realize M&A activity in 2017 compared to year before[9]. Furthermore, the M&A market capacity is expected to be growing by 14% compared to 2016. Concerning the importance of the sectors, KPMG foresees that most M&A activity will be in consumer goods, health and finance. Consequently, they also expect the number of IPOs to increase. A partner of Magnum Capital, a leading private equity enterprise in Spain, the Spanish M&A market didn’t use its full potential due to uncertainty of the effects of the Brexit and the political instability in Spain[10]. Therefore, his forecast for 2017 is very positive mainly based on the fact that many operations were stopped in 2016 and are expected to be closed in 2017. Baker McKenzie, the second biggest law firm worldwide and specialized in commercial law, predicts the M&A activity to grow by 41% until 2018[11]. This is mainly explained by the competitive advantage resulting out of the labour reform in 2016 that is resulting in growing employment[12]. Also, they expect the IPO activity to grow significantly during the next three years based on the difficulties in 2016[13].

Main challenge of 2017:

1. The first is the normalization of the labour market. The unemployment rate is finally below 20%, and the Spanish economy has been outperforming the rest of the eurozone since 2015. But the good labour market performance cannot hide an hysteresis effect that is changing the quality of the labour market. A real long-term unemployment problem is emerging, together with the loss of human capital that this entails. This means that employability is decreasing, and that much higher growth rates in the future may be needed to keep unemployment on a decreasing trend. The problem of long term unemployment is compounded by youth unemployment, that remains extraordinarily high at more than 40%, and NEET young people can be found especially among the low-skilled, with a serious risk of poverty. Dualism of the labour market is a source of fragility and of insufficient investment and innovation.

2. The second challenge is the fiscal stance, and it is of course related to the debate in Europe. The Spanish government has strongly reduced its net lending (including the structural deficit) that nevertheless remains at around 5% of GDP. Yet, the Spanish situation clearly needs a more expansionary environment, that could only come from the rest of the Eurozone. Continued austerity will not help with Spain’s most pressing problem, hysteresis and long term unemployment.

3. The effects of the Brexit referendum remain unpredictable.[14] How it will impact the M&A activity in Spain and Europe depends on how Britain will foster the exit and how the process will develop.

References:

Agencia EFE (2017)

Las fusiones y adquisiciones aumentarán un 41 % en España hasta 2018, http://www.efe.com/efe/
espana/economia/las-fusiones-y-adquisiciones-aumentaran-un-41-en-espana-hasta-2018/10003-3156469.

Argali Abogados (2017)

Spanish M&A surges again despite obstacles, http://www.mandaspain.com/spanish-ma-surges-again
-despite-obstacles/.

Baker McKenzie (2017)

Baker McKenzie prevé para España un aumento del 41 % en M&A hasta 2018, http://www.bakermckenzie.com/es/insight/publications/2017/01/global-transactions-forecast/.

Europa Press (2015)

El mercado de fusiones y adquisiciones resurge en España, según KPMG, http://www.europapress.es/economia/finanzas-00340/noticia-mercado-fusiones-adquisiciones-resurge-espana-kpmg-20150316183707.html

Expansion (2017)

Las fusiones y adquisiciones crecieron un 20% en España en 2016, http://www.expansion.com/
empresas/2017/01/01/58692ab4468aeb670d8b45e1.html

[1] Expansion
[2] Mergers Market
[3] Global Legal Insight
[4] Thomson Reuters
[5] Thomson Reuters
[6] Expansion
[7] This and the following Europa Press
[8] Expansion
[9] This and the following Europa Press
[10] This and the following Argali Abogados
[11] Agencia EFE
[12] Baker McKenzie
[13] Agencia EFE
[14] Here and the following Argali Abogados

Authors:

Virginia Bassano, Luca Pancari, Andrea Terzi, Felix Oliver Napp

Free Trade: New Challenges Ahead

On the 23^rd of June 2016, the British people decided to leave the EU, the only geographical area that almost completely fits the textbook definition of free trade, i.e. “the economic policy of not discriminating against imports from and exports to foreign jurisdictions.”. They made this decision official on the 27^th of March, and lots of interrogations remain about the new agreements between the EU and Great Britain. In fact, a NatCen study shows that 88% of Britons back free trade, but 69% of them also support customs check and a harder immigration policy. This, associated with a lot of privileges like passporting no longer being available to British based companies, would push talents away, and ultimately entail less growth and innovation in Great Britain. But this is only one of the many possible scenarios. As said before, the EU is the only really integrated area. In the rest of the world, there exist many obstacles to free trade such as quotas, restrictions, subsidies or prohibitions. Barriers like the ones named here do not seem to negatively impact economic growth or innovation: China has practiced protectionism since 1978 when it decided to become a market economy, and yet its GDP is still growing at a rate of about 7%!

Even developed economies have used protectionism and strong barriers to free trade to develop: during the 18^th and 19^th centuries (and even until WWII for the US), protectionism was seen as the only way to increase wealth and protect your interests against the ones of other countries. International trade was not seen as a win-win game but more as a zero-sum game, where for someone to win, someone must lose.

Anyway, already in the 19^th century economists such as David Ricardo or Adam Smith declared and proved that free trade is the best possible solution for economies to thrive and grow. In response to their research, and because economies started to open up as a result of industrialisation and the facilitation of commerce and transportation, free trade became the norm and regulation became lighter and lighter. For instance, tariffs shifted from an average of 50% of the total imports in the US in 1830 (sometimes even more depending of the product) to an average of 3.8% in developed countries. After the Uruguay round of 1995, the proportion of imports into developed countries from all sources facing tariffs rates of more than 15% declined from 7% to 5% and the WTO set up piles of regulation on tariffs. (The WTO tariff agreement report is 22,500 pages long!)

The creation of the WTO in 1995 combined with globalisation really helped reduce the obstacles to free trade, but some still exist. In this article, we will therefore analyse the still existing obstacles to free trade and more importantly their impact on the global economy. Free trade is first and foremost a political choice, and consequently the largest part of the obstacles to free trade are political too and can take the form of quotas, tariffs, or other restrictions.

According to Robert Feenstra in Advanced International Trade, they are three main reasons why a country would impose tariffs: to protect fledging domestic industries from foreign competition, to protect aging and inefficient domestic industries or to protect domestic producers from dumping by foreign companies or governments. These three justifications of some level of protectionism can seem inoffensive, but as reported by the World Bank, if all barriers to trade were eliminated, the global economy would expand by about 830 billion dollars.

When looking at such number, it seems evident that it comes from the extra costs induced by the countries which are imposed with tariffs, but countries imposing tariffs also generate extra costs that usually outweigh the benefits. Indeed, when imposing a tariff, countries usually expect a rise in production and prices (due to lower competition), and this should induce producers to hire more workers which will automatically cause consumer spending to rise. But in the vast majority of cases, the rise in price will mean a decrease in purchasing power for the consumer. As a response, he will either buy less of the good which price has increased or less of another good. In any case, the increase in price will affect negatively global demand, and logically, it will also impact growth. Let’s think of the UK for instance: Brexit has become official of the 27^th of March, but it should not be completed before 2019, and yet prices already started to rise[1], and growth expectations are rather negative[2].

Furthermore, tariffs and other restrictions can be used as a very powerful weapon in an economic battle. Such battle started for instance between the EU and the US in 1989, when the EU decided for sanitary reasons to impose heavy restrictions on American beef grown with hormones. In the first year after the tariff was instituted, about $140 million worth of American beef was blocked. In 2008, the WTO decided that the EU had no legitimate reasons to impose and maintain such restrictions, and therefore the US were allowed to impose retaliatory import duties on EU products if the ban was not lifted. The EU decided not to lift the ban, and the US imposed supplementary restrictions to European products such as canned tomatoes, French cheese or ham. All products banned had a market value of $38 million but under the WTO ruling, the US could raise the tariff barriers to a value of $116.8 million, that is an additional $79million. These numbers show immediately what countries can lose due to tariffs and other restrictions, but the real victims of such games are consumers. As said before, because of tariffs which induce lower competition, price increases, but in addition to higher prices they are also confronted with less choices: in the USSR for instance, which is an extreme example of what barriers to free trade can do to an economy, people had very few choice for basic products such as dairy products or linen etc. even if due to communism they did not face higher prices. This lack of choice, associated to an increasing attraction towards western products, was one of the reasons for social unrest in the USSR and eventually for its collapse.

However, even if on the long run tariffs and barriers to free trade are harmful for the global economy, they do not only have a negative impact; they have always been used (and still are) by developing countries to increase government revenue and boost investment and growth. The strategy China used for its development nicely clarifies this statement.

It started developing in 1978, when it initiated market reforms and shifted from a centrally-planned economy to being market-based. GDP growth has averaged nearly 10 percent a year and has lifted more than 800 million people out of poverty. To achieve that, China has used a classical technique that we could describe as the “infant industry” argument. As said before, tariffs can be used to protect a domestic industry against foreign competition. When countries start to develop, it is common knowledge that they should protect domestic industries until they become profitable: at the beginning of its development, China imposed heavy restrictions and tariffs, with absolutely no subtlety. Some western products were simply banned with no further explanation. When it joined the WTO in 2001, it had to change its policy and adapt to the standards of the organisation, but restrictions are objectively still very heavy. The Custom General Administration (CGA) assesses and collects tariffs, which are divided in two categories: the general tariff, and a minimum one for “most-favoured” nations such as the US, who have a commercial agreement with China. On top of paying tariffs, imports are also subject to a VAT of 17% or a business tax.

Quotas also still limit over 40 categories of products such as watches, automobiles, or and in 1996, China introduces tariff rate quotas (TRQ) on imports of wheat, corn, rice, soybeans, and vegetable oils and out-of-quota rates can still be as high 121% of the market value of the product. Certain commodities still have an automatic registration process, the inspection standards (especially for commodities) are very high while the legal framework is much more general than in most OECD countries, which allows the Chinese government to use it in a very flexible way. This may result in inconsistency and companies have real trouble understanding whether they are breaking rules. Certain sectors such as textiles also have to pay extra import taxes. Services remain even more regulated, since it is a sector that China wants to develop and protect from foreign competition. As a matter of fact, foreign services providers are largely restricted to operations under the terms of selective “experimental” licenses, and have to face strict restrictions on entry and on the geographical scope of the activity. This severely limits the profitability and growth of such activities.

As we can observe from this graph, this strategy of the “infant industry” was very efficient for China and allowed it to experience the fastest sustained expansion by a major economy in history. But as research as shown, protectionism can only be a temporary policy; in order to have a sustainable growth, a country has to open up and reduce barriers to free trade as much as possible. And de facto that is exactly what China is trying to do. At the end of January 2017, China’s State Council announced it would further open some sectors such as mining or services to foreign investments. Besides, China is expected to import $8trillion worth of goods and services within the next five years, and Chinese outbound investment should reach $750 billion over the same period.

Ultimately, free trade seems to be the path that all nations should follow to maintain sustainable and strong growth as China demonstrates. Even though physical obstacles to free trade still exist under the form of restrictions, quotas, etc. China is willing to reduce them and to open its doors to foreign companies and investments. As President Xi Jinping said in Davos: “China will keep its doors wide open. We hope that other countries will also keep their doors open to Chinese investors and maintain a level playing field for us.”. This last sentence was a direct attack to President Donald Trump, who some days earlier declared a trade war against China which he accuses of toying with its currency.

The election of Donald Trump, whose campaign slogan was “Make America great again”, and who intends to fulfil this by instating a much more protectionist policy, as well as Brexit are two symptoms of a greater illness. In fact, if free trade has not won over the entire world yet, it is mainly because people are afraid of foreign competition. They have the feeling foreigners will try to take their place and replace them, leaving them with no jobs and no opportunities. Especially in countries such as the UK or the US, where income inequalities are important and have increased since the financial crisis of 2008[4], people tend to show more protectionist tendencies. Populists such as Donald Trump or even Marine Le Pen in France have understood this phenomenon and use it in their campaigns to win over voters. But as Xi Jinping said during the World Economic Forum in Davos this year, “many of the problems troubling the world are not caused by economic globalisation. During the same event, his compatriot Jack Ma, founder of Alibaba and richest man in Asia agreed, saying that globalisation is good. But he also said globalisation should be improved, it should become inclusive in order to guarantee that everyone can benefit from it. Especially in a context of slowing growth, the voices against globalisation are easier to hear, because the benefits are harder to distribute, but we should not forget that globalisation has powered global growth, and facilitated advances in sciences, technology and civilisation. Xi Jinping concluded this way, and so will we: “Pursuing protectionism is just like locking oneself in a dark room; while wind and rain may be kept outside so are light and air. No one will emerge as a winner in a trade war.”

Author: Elsa Leger

[1] Oil prices have gone up since the officialization of Brexit on 27^th of March, growing from around £48 a barrel to £53 on 10^th of April.

[2] Fitch Ratings still grades the UK AA but decided to put a negative outlook after the 27th of March.

[3] It is probably no coincidence that this new policy was decided when China’s growth started to slow down due to a decrease in domestic demand.

[4] According to the Gini Index, which ranks countries in accordance with the level of inequalities, The UK and US have a coefficient of 0.34 and 0.37 respectively. The European average is about 0.3, and Turkey has a coefficient of 0.40.

India: A brief analysis of the world’s fastest-growing economy

We are living really hard times. The fear caused by the growing terrorist activities, the distrust of the stranger induced by rising nationalisms and by a propaganda good at riding the wave of growing frustration, the uncertainty caused by the dissolution of our certainties. Many are the reason that keep investors awake and contribute to the current atmosphere of anxiety and restlessness.

Nevertheless, there is a safe-haven which seems to be insulated by all these factors and that is living the most prosperous period of its history. A tireless nation that continues its seemingly unstoppable growth process. A bright spot of positive two-digit returns in a world of incredibly low yields. We are talking of course about India, the fastest-growing large economy in today’s world, whose economy grew at an incredible rate of 7.5% in 2015 – faster than the 6.9% growth observed in China, the former leading emergent economy and currently the third largest economy after the US and EU – and is still expected to grow at 6% in 2020.

Since the Republic constitution in 1950, Indian economy was characterized by heavy state regulation and intervention and by protectionist policies that kept it off from the outside world. In 1991, an acute balance of payments crisis – due particularly to the currency devaluation and the high budget deficit – forced the government, led by Narasimha Rao[1], to liberalize the economy moving toward a free-market and capitalist system.

The large population, the bustling manufacturing sector, the high saving rate and the emphasis on foreign trade and direct investment inflows, contributed to a rapid progress, with an incredible average rate of about 5% GDP growth since then. We can easily see how an investment in the Indian stock market made ten years ago, would have more than doubled our investment. Actually, the chart below compares different stock market indices. We can notice at a glance how both the Sensex and the Nifty (indices of the two Indian stock markets), with an average growth rate of 90%, have considerably outperformed the average of emerging markets (given by the MSCI Emerging Markets Index). Only the S&P500, with a return of 67%, has almost kept up with such huge returns.

Since the election of Narendra Modi as prime minister in May 2014 – after a controversial campaign in which the leader of the Bharatiya Janata Party focused on fighting corruption and sustaining economic development – we assisted to a progressive liberalization of the economy, mainly aimed at increasing the attractiveness for foreign businesses. The labor market was deregulated (to make it easier for the employers to hire and fire workers and harder for them to form union), corporate taxes and customs duties were lowered, the wealth tax was abolished, digital infrastructure were built – through to the “Digital India” campaign – and more Foreign Direct Investments (FDI) were allowed in areas like Construction Projects, Cable Networks, Agriculture and Plantation and Air Transportation. The shadow economy has been harshly limited by the demonetization of all ₹500 and ₹1,000 banknotes, in order to crack down the financing of terrorist and illegal activities. A new “Insolvency and Bankruptcy Code” has been issued on May 2016. At last, the huge problem of different taxation between different regions – past cause of confusion and uncertainty – is being solved as today is under review the single biggest tax reform under the ‘Goods and Services Tax’ or GST bill, whose aim is to create a consistent tax structure across the entire country and one single marketplace.

Moreover, the following initiatives were launched: “Make in India”, to encourage foreign companies to manufacture products in India; “Standup India”, to support entrepreneurship among women and SC and ST communities (Scheduled Castes and Scheduled Tribes); “Startup India”, aimed at promoting bank financing for start-up ventures to encourage entrepreneurship and jobs creation. Large investments have been made in Africa in sector as energy, mining and infrastructure, with the main purpose to reduce the dependence on imported goods such as oil, coal and gold (almost 50% of Indian overall imports).

Furthermore, Modi achieved a drastic reduction of the budgetary deficit – from more than 4% to 3% – at the expense of the funds invested in environmental and social programs as poverty reduction, family, healthcare and education (reduced by almost 15%). As a result, we assisted to an enlargement of inequalities in income distribution[2], mainly because rising inequalities between urban and rural areas.

The economy was spurred even more by the consecutive rate cuts pursued by the Reserve Bank of India, as a response to the preoccupant level of inflation observed at the end of 2013, which reached the peak of 11.5%. The repo rate was lowered from 8% to 6.25% in less than two years.

The measures achieved soon the expected results, boosting the economy (GDP grew at the incredible rate of 7,5% after Modi’s first year as prime minister) and increasing much the attractiveness for foreign companies. The amount of Foreign Direct Investments jumped from $34 billion in 2014 to $44 billion in 2015[3], the unemployment rate dropped to 6.3% in 2016, the time required to start a new business dropped from 33 days to the current 26. Therefore, the IPO activity is expected to rise by more than 40%, while M&A activity should more than double in 2019, above all in sectors as financials, consumer and healthcare. Among the countries with the largest share of FDI inflows to India we can find in first position Singapore, followed by Mauritius Islands and United States. Among the European countries, Netherlands is first in rank, followed by Germany (whose car manufacturers are outsourcing part of the production), UK and France. The main reason behind the huge amount of FDI from Mauritius Islands and Cyprus is the low taxation of these two countries – considered tax heaven – which induced many Europe and US based companies to route their investments into India through these countries, deriving double tax avoidance and tax evasion. By the way, with the renegotiation of the double taxation avoidance agreement (DTAA) with India, this phenomenon is likely to decrease soon.

There are other positive factors behind the Indian growth that justify good expectations. Differently from China, Indian growth has been sustained above all by its internal consumption and a fast-growing middle class[4]. Moreover, we can consider such growth as approximately unleveraged[5]. Therefore, the country can easily increase its debt issuance in the near future, especially considering the high rating of BBB- confirmed by Fitch last summer. Third, the expansion has been demographically propelled. Today, India has still a population growth rate of 1,26%[6], thus by 2050 India’s workforce (people between 15 and 59 years old) is expected to have grown from the current 674 million to a staggering 940 million. On the contrary, China is likely to be facing a shrinking workforce, which will potentially drive up labor costs, undermining its competitiveness against other cheap-labor countries. As a matter of fact, India is already much cheaper with an average hourly rate of only 0,48$ per hour[7], largely due to the very low level of gross domestic product per capita[8]. We have to consider also its people’s ability to speak English and its large pool of computer engineering graduates, which make India a popular destination for outsourcing activities.

As we could see, with the advent of N. Modi as prime minister, many are the initiatives carried forward to increase the attractiveness of India. The results so far are extraordinary and India can really overtake the US as the world’s second largest economy by 2050 according to a recent report published by PricewaterhouseCoopers (PWC).

Nevertheless, many challenges are still ahead. The education sector needs to dramatically improve its quality. Considering the future increase in population, the push to allow more private universities and to allow foreign universities to operate in India will strengthen.

Another crucial point is the delay in the spread of Internet and the smartphones. From this point of view, China has a great advantage against its rival. Since 2013, the Chinese have consistently reported rates of internet and smartphone use that are at least triple that of Indians (71% of Chinese adults report using internet occasionally, against the 21% Indians). The gap is similarly large when it comes to social media use[9].

Much will depend also on the foreign policy that could be pursued under Trump’s presidency, as the US, second largest trading partner of India, count for more than the 15% of Indian exports[10].

Last but not least, the conditions of women are still far by those of civilized countries. Although the Supreme Court of India said that ‘equal pay for equal’ work is an unambiguous constitutional right, the implementation is resulting very difficult[11].

The world is changing fast. Everything seems to be uncertain and unpredictable. One thing is certain, India will not stand by but it will play a leading role.

AUTHOR: Niccolò Ricci

[1] Narasimha Rao was an Indian lawyer and politician who served as the 9th Prime Minister of India, from 1991–1996.

[2] The income inequality reached the worrying level of more than 50% according to the Gini Index. Only China had greater inequality at that time.

[3] An impressive increase of almost 30%! India is currently the first country for FDI after China and US. World Bank Data.

[4] India is ranked 128th according to the Index of Economic Freedom , meaning that the country is less dependent on the external demand and thus more insulated by global evolutions.

[5] Indeed, in 2015 domestic credit to the private sector (percentage of GDP) stood at 52.6 per cent for India, compared to 153.3 per cent for China. Also the government debt is very moderate, with a ratio of roughly 70%.

[6] Well above the rate of China (0,52%) and aligned to those of most African countries, despite the higher degree of development.

[7] “Countries with the cheapest labor”, The Richest. The cheapest country in the world is Madagascar (0.18$ per hour), followed by Bangladesh, Pakistan, Ghana and Vietnam.

[8] India is ranked only 122nd globally (about 6.000$ per person, against an average of 15.000$), World Bank Data.

[9] According to the Spring 2016 Global Attitude Survey, by PEW Research (www.pewresearch.org).

[10] China is the largest trading partner of India, followed by USA, United Arab Emirates, Saudi Arabia and Switzerland. Department of Commerce of India.

On the other hand, India is the main counterparty of Buthan, Guinea-Bissau, Nepal and Afghanistan. CIA World Factbook, 2015.

[11] According to the Gender Gap Index 2015, set by the World Economic Forum, India is ranked only 108th. Iceland leads this special rank.

Johnson & Johnson to Acquire Actelion for $30 Billion With Spin-Out of New R&D Company

Johnson & Johnson (NYSE:JNJ), the world’s largest healthcare holding company, with total registered worldwide sales of $71.89bn in 2016, has unveiled its intention to acquire the Swiss drug-maker Actelion Ltd (SIX:ATLN) with a move that will cost $30bn to the US company.

Johnson & Johnson

Johnson & Johnson is an American multinational medical devices, pharmaceutical and consumer packaged goods manufacturer founded in 1886. It has more than 250 companies located in 60 countries around the world while their products are sold in over 175 countries. Their companies are broken down into several business segments: consumer healthcare, medical devices and pharmaceuticals. Johnson & Johnson’s consumer healthcare segment produces a variety of consumer care products in the areas of baby care, skin and hair care, wound care, oral health, OTC medicines and nutritionals.
Johnson & Johnson’s brands include numerous household names of medications and first aid supplies.
Among its well-known consumer products are the Band-Aid Brand line of bandages, Tylenol medications, Johnson’s baby products, Neutrogena skin and beauty products, Clean & Clear facial wash and Acuvue contact lenses. Its common stock is a component of the Dow Jones Industrial Average and the company is listed among the Fortune 500. Johnson & Johnson had worldwide sales of $71.8 billion during calendar year 2016.

Schermata 2017-03-23 alle 11.56.23 — Source: Bloomberg

It’s easy to say that J&J is particularly active in the mergers sector: In July 2016, J&J announced its intention to acquire the privately held company, Vogue International LLC, boosting Johnson & Johnson Consumer Inc. In September of the same year, J&J announced it would acquire Abbott Medical Optics from Abbott Laboratories for $4.325 billion, adding the new division into Johnson & Johnson Vision Care, Inc.

In January 2017, J&J subsidiary Ethicon announced it would acquire Megadyne Medical Products, Inc., a medical device company that develops, manufactures and markets electrosurgical tools.

Actelion

Actelion Ltd. is a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs for diseases with significant unmet medical needs. The company has its corporate headquarters in Allschwil/ Basel, Switzerland where it was founded in 1997. Its shares have been listed on the SIX Swiss Exchange (ticker symbol ALTN) since 2000. In September 2008, Actelion shares began trading as part of the blue-chip SMI® (Swiss Market Index). Since its founding more than fifteen years ago, Actelion has become a new kind of biopharmaceutical company: one that blends biotech‘s innovation, speed and flexibility with big pharma’s operating discipline and excellence in execution. With the intrinsic belief that innovation in all domains is the key to growth, Actelion has built a promising pipeline, seven approved products, and commercial operations in over 30 countries while employing more than 2,600 employees.

Schermata 2017-03-23 alle 13.50.20 — Source: Bloomberg

Healthcare Sector – Overview

The value of M&A deals in the healthcare sector reached $546 billion in 2015, seeing a 2.5 times increase over the previous decade’s average annual value. During the year, 5 deals were announced over $20 billion, excluding the Pfizer-Allergan deal which was called off in April 2016. The value of this single deal would have been $160 billion and the merger was terminated after the U.S. government proposed regulations to crack down on corporate tax inversions.

Since in 2015 the global M&A deal value was nearly $5 trillion, it is possible to say that the healthcare sector accounted approximately for 10% of the total value. From 2012 to 2015, overall M&A grew at a CAGR of 24% while healthcare M&A grew more than twice as fast, at a 50% CAGR. By most measures, deal activity in the US health services industry declined in Q3 when compared quarter-over-quarter and year-over-year. The total number of deals decreased to 214, versus 252 in Q2 2016 and 262 in Q3 2015. Total deal value was recorded at $20.0 billion, increasing 23.8% when compared quarter-over-quarter. Although value decreased by 82.0% year-over-year, Q3 2015 is considered to be an exception compared to other quarters in terms of total deal value.

Schermata 2017-03-23 alle 11.59.45 — Mergers by value and count in the Healthcare sector – Source: Bain Report

The factors that drove this sector to keep growing could be explained through:

Economic strength: the combination of a low interest rate world with the continuing strength of the economic led to an outstanding scenario of M&A deals.
Obamacare: this project along with the Affordable Care Act has deeply changed the health care insurance landscape. There was not only an improvement in affordability and availability of insurance coverage but also a reduction of uninsured people. These innovations might have influenced M&A activities both on a quantitative way, by increasing the number of deals, as well as on a qualitative way, by increasing complexity of deals in aspects related to the due diligence process.
Health Insurance Mergers: there was a significant boost in this sub-sector. Despite the big growth rate, the governments are trying to stop the biggest mergers in the insurance sector. Two examples are provided: The justice department and several states sued Aetna and Humana in July to block their $37 billion merger deal, alleging that the acquisition would limit insurance choices for seniors in many parts of the USA and significantly boost prices. Moreover, the Anthem Inc. and Cigna Corp a Justice Department lawyer said at the beginning of November that the biggest merger in the history of the American health-insurance industry should be blocked because it will increase the companies’ dominance and cut consumer choice. An attorney for Anthem responded that the combined company will be able to lower rates paid to health-care providers and that those savings will be passed on to employers.
Drug company consolidation and acquisitions: it is estimated that there were $221 billion in deals in the pharmaceutical sector during the first half of 2015. This is three times the amount than in the first part of 2014. In one of the largest deals of the year, Actavis bought Allergan in a stock and equity transaction valued at around $70.5 billion. In another deal, generic drug maker Teva Pharmaceuticals said it will buy the generics business in a spin-off from Allergan in a deal valued at $40.5 billion.

Schermata 2017-03-23 alle 12.00.12 — CAGR of the mergers in the overall market and in the healthcare sector- Source: Bain Report

Deal structure

J&J will launch an all-cash tender offer in Switzerland to acquire all of the outstanding shares of Actelion for $280 per share, representing the biggest European drugs takeover in 13 years. French drug-maker Sanofi (SNYNF), had also been interested but was sidelined after J&J returned, and began exclusive negotiations in December. J&J said it expected the transaction to be immediately accretive to its adjusted earnings per share and accelerate its revenue and earnings growth rates. It will fund the transaction with cash held outside the United States. Now, following the merger J&J-Actelion, Actelion will spin out its research and development unit into a standalone company based and listed in Switzerland, under the name of R&D NewCo and led by Actelion founder and current CEO Jean-Paul Clozel. The shares of R&D NewCo will be distributed to Actelion’s shareholders as a stock dividend upon closing of the tender. The arrangements will result in R&D NewCo launching with cash of CHF 1 billion to be made available at the closing of the transactions. J&J will also receive an option on ACT-132577, a product within R&D NewCo being developed for resistant hypertension currently in phase 2 clinical development. Together, these arrangements with R&D NewCo will provide Johnson & Johnson with additional sources of innovation and value. R&D NewCo will inherit Actelion’s fully established and validated drug discovery engine based in Allschwil, Switzerland and its proven and experienced discovery and development team. It will be well positioned to continue Actelion’s strong legacy of innovation to discover and develop new and differentiated products in multiple therapeutic areas.

Benefits of the deal

This deal will give J&J access to the Swiss group’s range of high-price, high-margin medicines for rare diseases, helping it diversify its drug portfolio as its biggest product, Remicade for arthritis, faces cheaper competition.
The transaction structure will provide flexibility for J&J to accelerate investment in its industry-leading, innovative pipeline to drive additional growth.
J&J expects to retain Actelion’s presence in Switzerland and also leverages its complementary capabilities in shaping medical paradigms.
The transaction will deliver a significant and immediate premium to Actelion shareholders, with greater value certainty as compared to Actelion’s standalone prospects. Actelion shareholders are also expected to realize substantial additional value from their ownership interest in R&D NewCo.
The transaction is expected to be immediately accretive to J&J earnings per share and accelerate J&J’s revenue and earnings growth rates, while enhancing long-term growth and value creation of the Janssen Pharmaceuticals business. Post-transaction close, J&J expects the transaction to increase its long-term revenue growth rate by at least 1.0% and its long-term earnings growth rate by 1.5% – 2.0% above current analyst consensus while J&J estimates EPS accretion in the first full year of $0.35 to $0.40. J&J shareholders are also expected to realize additional value from the J&J convertible ownership interest in R&D NewCo.
Extends Actelion products’ geographic and commercial reach: The J&J global presence and commercial capabilities will help open new markets and opportunities for Actelion’s in-market products and provide additional support for the successful launches of its promising late-stage therapies in highly competitive therapeutic areas.

Roadmap to Completion

The transaction is expected to close by the end of the second quarter of 2017. Moreover, Actelion will convene an Extraordinary General Meeting for shareholders to approve the distribution of shares of R&D NewCo by way of a dividend in kind to Actelion’s shareholders upon closing of the tender offer. The Extraordinary General Meeting is expected to be held in the second quarter of 2017.

The transaction is conditioned upon:

At least 67% of all Actelion shares that are issued and outstanding at the end of the offer period, which may be extended, tendering into the offer

The approval of the Actelion shareholders of the distribution of the shares of R&D NewCo at the EGM called for this purpose

Further customary offer conditions described in the offer prospectus, including regulatory approvals

Tax clearances in relation to the spin-off of R&D NewCo have been received from both the Swiss Federal and the Basel-Landschaft cantonal tax authorities. Jean-Paul Clozel has committed to tender all Actelion shares he owns into the offer and vote his shares in favor of the transaction at the EGM. Actelion’s Board of Directors unanimously recommends that Actelion shareholders tender their shares into the offer and vote in favor of the distribution of shares at the EGM.

Johnson & Johnson is prepared to pay the price per tendered share to the retail shareholders in CHF and therefore provide a wholesale exchange facility. The exchange facility shall be provided only to persons who hold their Actelion shares in a bank deposit in Switzerland, and who hold no more than 1,000 shares each.

Advisors

Lazard and Citibank are acting as lead financial advisor to Johnson & Johnson. Cravath, Swaine & Moore LLP, Homburger AG and SextonRiley LLP are serving as legal advisors to Johnson & Johnson. Bank of America Merrill Lynch and Credit Suisse are serving as Actelion’s lead financial advisors. Niederer Kraft & Frey, Wachtell, Lipton, Rosen & Katz and Slaughter & May are serving as legal advisors to Actelion.

Comment

While some Analysts argue that the transaction is overpriced with respect to comparable transactions, the premium can be explained as a way to defeat competitive bidders. Moreover, the transaction price payment allows an efficient use of the significant amount of cash that Johnson & Johnson holds offshore so that no US tax for this invested money will be due compared to transferring it to the US.

Authors
Marcel Kwiatkowski
Virginia Bassano
Niccolò Di Lilla

A ghost in the Street?

Today, is Tech day. Snapchat’s parent company will be trading today in the New York Stock Exchange with a price tag of $17.0 per share for a total valuation of $24 billion. It is the most awaited and the largest IPO since Alibaba started trading in 2014 with a valuation of $168bn. American capital markets have not seen many tech companies going public despite the growing number of unicorns in the tech sector. Investor will look at this IPO also to evaluate the health of the Tech IPO market. Many start-ups prefer to stay private where they can benefit astronomic valuation as emerged in the latest financing rounds of Uber or Airbnb. Investors are thirsty of new tech stocks and Snapchat valuation seems to support the view. Some concerns remain, such as the profitability profile of the company and growth prospects or the scalability of Snapchat customer base.

Snapchat is the first of the 154 unicorns. Will it be a success story like Facebook or will it fade waway as fast as its instant messages? This is a million-dollar question that nobody can answer as of now. The only thing an investor can do is to look at the numbers. Compared to its peers Facebook and Twitter, at the moment of the IPO, the perception is that Snapchat lags the competition.

In terms of profits, Snapchat reported a net loss of $515m in the last reporting year before the IPO, compared to the $1.0bn generated by Facebook. In terms of Revenue Facebook was already generating more than $3.5bn justifying the higher price tag, and even if Snapchat is better positioned than Twitter at the moment of its offering is still not clear how Evan Spiegel, Snapchat co-founder intends to scale and increase its customer base which is the diriment factor in the Tech landscape.

Twitter stock has been hammered recently for discouraging data in terms of active user growth, despite improving financial performances, while Facebook has been the trendsetter both in terms of user growth and financial metrics. As of now, Snapchat is above Twitter but behind Facebook in terms of user base.

In terms of valuation, Facebook topped $100bn. The company was founded 8 years before, and it managed to scale the customer base very quickly, transitioning from a tiny social network reserved to Ivy League students, to the widest social media company in terms of active users. Its valuation reflected the higher premium paid for its wider base of users. Investors were willing to pay more to have their hands on this omnicomprehensive social network that from its IPO almost tripled the number of users. Snapchat is more like Twitter, in term of multiple EV/users. The type of service provided is more niche than Facebook, therefore its potential scalablity is less visible as of now.

Since the IPO, Facebook and Twitter had opposite faiths. Facebook investors at the beginning were reluctant. Upset by the lack of visibility of Zuckerberg strategy and the high valuation, they dumped the shares until August 2013. After losing more than 50% of its initial value, Facebook founder was able to restore confidence in the market improving user and revenue growth, diversifying its business model through key acquisition such as WhatsApp for the huge sum of $19bn and Instagram. On the other hand, Twitter reported strong performances in the very next days and weeks after its IPO, but then started to plummet on concerns regarding Monthly Active Users numbers. Since the IPO, Twitter share lost almost 70% of the initial value raising rumours of possible take-over by larger players.

The competition is getting stronger and tougher for Snapchat. One of the key elements of its success story were the possibility to create the so-called Stories, within the instant messaging tools provided by Snap. Those stories were videos 10s long with a 24h lifecycle. Recently, Instagram replicated the format. The number of users that uploaded their stories through Instagram rose 150M per day, approximately the amount of Snapchat total users. In 2017, Facebook and WhatsApp did the same, in the effort of riding this new trend in mobile messaging.

Will Snapchat be able to cope with the increased competition in the social media landscape largely dominated by Facebook and its group of companies? Everything will depend on the strategy Evan Spiegel intends to implement in order to make the company profitable and increase the customer base on a long-term basis.

Tancredi Viale

Bond activity after the American election

Trump’s victory in November led up to sudden changes in financial markets. Firstly, the fiscal spending he promised has led to higher commodities price as the US government will ask for more commodities to build more facilities. The future tax reduction under Trump’s administration results in repatriation of dollars that strengthens the US currency. The trade tariffs that Trump wants to implement with US commercial partners will have a negative impact on exports of some emerging countries including China and Mexico. Above all, this fiscal stimulus will create inflation that the FED is trying to control by hiking its targeted interest rate from 0.5% to 0.75% knowing that higher interest rates causes lower bond prices. Since the US election in November roughly $3trn have moved from bond markets to stock markets^[1].

Two of the most important factors hurting bond prices right now are then the fact that inflation is picking up in most places and thus major central banks have stopped trying to lower interest rates.

To have a deep understanding of bond activity after American election, one should analyze accurately the FED policy since the election. Indeed, the FED has the power to change interest rates that are largely determining bond prices. Since the election, we have noted that expected inflation is going to be higher than its current level for several reasons. First, Trump’s fiscal and budgetary policies are simulative policies that aims to revitalize the US economy. Moreover, wages are going up in America^{^[2]} and that means that people getting jobs in December are more likely to spend money in the following months. This expected high inflation leads the FED to hike its targeted rate in December in order to maintain inflation at the target level of 2%. In a nutshell, the expected high inflation in the following months gave rise to the decision of the FED to hike interest rates. This increase of interest rates led the American bond market to collapse after American election.

Trump has reached the goal of FED: steepen the yield curve which makes banks more willing to lend money, injecting directly real economy. Regarding figure, it should be noted that on the 10-year Treasury bond jumped from 1.73% to 2.36% and reached a peak of 2.60%; the yield on the 2-year bond rose from 0.78% to 1.12% and the 30-year yield curve accounted the steeper curve and the largest changes from 2.56% to a peak of 3.19% in December.

schermata-2017-02-09-alle-11-40-46 — Source: CNBC – Real Time Quote | Exchange

The 3 most common drivers of decreasing bond prices and increasing yields are faster growth, higher inflation and rising short-term rates because government bonds embed the risk premium of the issuer and expected inflation. Firstly, the rationale behind the shift is the belief that fiscal stimulus will boost economy through tax cuts and infrastructure spending. Consequently, not only the Federal Reserve will be allowed to return monetary policy to more normal levels by pushing up rates by a quarter point on December 14th, but also inflation is expected to raise in the medium term.

“It is something fundamental that has changed”, says Richard Turnill, Global Chief Investment Strategist at BlackRock, “important shifts around real growth, around inflation, around policy all suggest that the move in bond yields we are seeing now can be sustained. I believe we have seen the lower point for yields.” Nevertheless, there is uncertainty on how much of Trump’s program will be implemented, on whether economy will grow due to the president’s aim of pursuing a protectionist agenda and on inflation rebound.

In previous rising rate periods, corporate bonds have tended to outperform government bonds because it has been a combination of a positive return for equities as well since the spread compression and additional interest received from owning corporates can help to provide a return buffer in a portfolio. Under Trump’s presidency, US corporate credit sector should benefit from growth opportunity in a more business-friendly environment and a positive supply-demand dynamic.

The Trump’s tax reform and the interest rate rise in December by the Federal Reserve have positively affected investors’ expectations on faster economic growth and on implementation of a deregulatory regime. According to a report from Financial Times (FT), 11 companies and banks sold a record amount of $19.9 billion in debt in the US on the first trading day of 2017.

“Expectations around fiscal spending and loan demand, lower taxes, and lighter touch regulation have coupled with actual fundamental improvement to drive the space,” said John Moran, banking analyst at Macquarie. Nevertheless, the uncertainty and concern over Trump’s program has led many companies to postpone their bond issuance in the second quarter if they use their financial statement or delay until the second semester of 2017. Nevertheless, blue-chip high-grade Microsoft, AT&T and Apple raised a total $ 37bn in the first week on February.

Corporate tax reform could play a crucial role, not only in the form of lower rates, but also to the effect on technology and pharmaceutical companies holding sizeable cash balances offshore. This accumulation of cash outside of the US has coincided with high debt issuance from both sectors. Apple has over $ 200bn of cash, yet borrowed around $ 20bn in 2016 and $ 10bn in 2017 to buy back stock and pay higher dividends, if they pay a one-time tax of 8% to 15% then they can bring this money back to the US.

According to Matt Brill, portfolio manager at Invesco Core Plus Bond Fund, technology giants like Cisco (CSCO) , Oracle (ORCL) , as well several big pharma companies, will borrow less in 2017 compared to 2016, if Trump’s tax reforms are enacted. Moreover, he estimates investment-grade bond supply could be reduced from $1.3tn in 2016 to between $1.1tn and $1.2tn in 2017.

Furthermore, 2016 has been the year which has highlighted the political risk also for bond investors in developed countries. After a long period of predictable policies, the rise of Western extremist politicians brings the risk of extreme outcomes with uncertainty of consequences. On one hand, the Brexit vote caused yields decrease, on the other hand, Trump’s election caused was followed by an increase. Consequently, government bond investors may be more aware that most long-dated bonds annual returns are no more secure as they used to be.

Authors:

Ghali Bensouda | Co-Head of Financial Markets Department
Giulia Maccelli | Associate of Financial Markets Department

[1] Blooomberg Finance LP, DB Global Markets Research

[2] https://www.bloomberg.com/news/articles/2016-12-02/america-s-labor-market-gets-tighter-with-wage-drop-seen-as-blip

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