Italy’s Harlequin Performance

The laughable situation in Italy in which the traditional political parties struggle for majority votes at the behest of the populist movement “5 Star” (MS5) is somewhat remnant of the Renaissance theatre style commedia dell’arte. MS5, the ambiguous and enigmatic harlequin-esque populist movement, has danced its way into mainstream politics taking a large slice of votes from the Right-Wing parties, who are now screaming “encore” as they attempt to scramble enough power to encourage a second election. But why have these events had a tumultuous effect on the rest of the world?

carnival-275517__340

The political drama began when the MS5 seized power through their refusal to bow down to political elites. This is not the typical Left vs. Right epidemic we see in most Western countries, but more of a working class vs. elite struggle like the Catalonians against Franco or British Labour reforms in the 60s. At this stage, MS5’s aim seems drastic – this is not just about a reform, this is about a revolution with a focus on domestic empowerment, immigration issues and the European Union alongside a strong hatred of the mafia. But nothing is set in stone, and due to this, Italy are currently proving real tricksters to label which is a massive turn-off for international investors.

italy-1633682__340

Geo-political issues and rapid social change tend to not bolster share prices, and since the beginning of this new chapter, Italy’s stocks have gone on sale. Rocky prices like we have seen it Italy do however tend to draw in the braver investors who hedge their bets on the dangerous side. Unfortunately, the sale prices don’t match the level of volatility in political stability, and therefore don’t seem to be a great bargain. This of course puts off even the high-risk investors. JP Morgan strategist Mislav Matejka noted recently that there is a poor risk-reward going forward giving the strong run and the political overhang.” It seems that nearby German equities have been the preferred route for most investors after taking profits on Italian stocks.

This mass sell-off of Italian stocks was originally triggered by fears of a second election and investors fear of Italy ditching the Euro, which currently seems highly likely. Investors have decided to keep their money in their pockets for now until the situation cools down with SocGen trio warning that buying could remain weak for several months.

Italy’s performance hasn’t just affected Europe, it managed to dance its way across to the Atlantic and cause the Dow Jones Industrial Average to drop 391 points. Although the Dow Jones made a huge recovery, making back most of the May dip, it is still undeniable that Italy’s Euroscepticism and quick social change managed to scare even the Americans.

No one can predict the ending of this drama, and although for now it seems that Italy have put forward a government, we don’t know if we are at the beginning or end of this unbridled saga which will likely continue to tighten the strings on investors’ wallets.

 

Oil Prices – Who Wins and Who Loses?

Due to Trump’s recently announced Iran trade sanctions and OPEC led geopolitical shifts, oil prices have soared to a three and a half year high since March 2018. Saudi Arabia are set to benefit greatly from this if they look to use the opportunity to diversify their economy, but consumers will be left footing the bill all around the world as companies pass on their new oil expenses.

Donald Trump is reinstating sanctions on Iran, one of the world’s major oil suppliers, claiming the deal was a “horrible agreement” and “an embarrassment” during his speech on Tuesday, May 8th. In restricting trade with Iran, he inadvertently increases the price of oil by reducing supply to the market. This has happened at a point in which crude oil prices were already estimated to breach the $80 mark due to other geopolitical factors.

Aside from Trump’s involvement, OPEC has rallied its efforts to reduce exports, curtailing the quantity supply to the demand, therefore erasing a global surplus. Consequentially, we could soon see a global shortage of crude oils – theoretically increasing the value of crude oil for years to come. Other factors include a 0.6 million barrel per day reduction in supply from Venezuela due to domestic issues, aging wells naturally depleting all over the world, and exhausted supplies from China and Angola.

Saudi Arabia, who can use the money from oil to diversify its economy from this single commodity propping up its market, are set to benefit from this opportunity greatly. These circumstances fuel its long-term “2030 vision” which seeks to lessen domestic reliance on oil. Unsurprisingly, this OPEC member has led the way in curbing supplies by 0.7 million barrels a day since 2016.

saudi-2224135_1280

Although OPEC countries will thrive in this economy, airlines may experience some turbulence as they pass on surmounting costs to the consumer. They will inevitably have to dump the pain of expensive fuel unevenly to jetsetters meaning flights prices might increase above inflation. Airline analyst Savanthi Syth claims this will mainly affect leisure travel lines – whose consumers are highly price sensitive – and are more loyal to price than to brand. This is opposed to business travel airlines, who will not suffer much grief in passing the costs along.

Despite this, budget airlines could use these incidents to push their brand as being the cheapest – taking a short term hit to profit and hoping for long term loyalty after the oil hype dies down – if it ever does.

 

What South Korea Learnt from Sochi’s Winter Games

Hosting the Olympic Games brings with it a recipe for prosperity – and opportunities for disaster.   past, trends have dictated that countries overspend and rarely see returns in the long term. South Korea has decided to take an innovative approach. They cut heavily on spending and infrastructure that usually lies derelict for years after the Games. Maybe they learnt something from recent events in Russia?

 

sochi-266806__340

 

The Sochi Olympic Games in 2014 cost Russia a staggering $51bn. During the run-up to the Games, it was made clear that Sochi was to be the most extravagant Olympics ever. The 40’000-mile torch run from Kaliningrad to Chukotka which passed through all 83 regions of the country set the tone for a month of excessive and unnecessary folly. $30bn of the money went into embezzlements to Putin’s close associates while the rest was pumped into ensuring that Russia was portrayed affluently on the world stage. The absence of fair competition in building, strict censorship and clan politics led to sharp increases in prices and low quality of work. Only weeks after the event, Sochi began to fall apart with deserted buildings, empty streets and inhabited almost exclusively by stray dogs. Russia’s taxpayers are footing the bill and seeing very little return.

 

South Korea has learnt from these mistakes. Pyeongchang cut costs by saying no to unnecessary infrastructure and have to build low-cost temporary stadiums in lieu of behemoths that would later sit unused and decay. The stadium cost just over $109m and is set to be used 4 times before demolition. Currently, their frugality is bringing Pyeongchang bad press as blankets were handed out during the opening ceremony as opposed to intense heating. However, this decision is symbolic of their plan to cut costs. Although (like all Olympic Games) South Korea will break their budget of $12.9bn it is still a fraction of what was spent in Russia.

 

sculpture-3167712__340

 

DISCLAIMER: This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities. Past investment performance may not be indicative of future investment performance. 

 

What are South Korea Gaining from the Winter Olympics?

The world’s eye is on Pyeongchang this February as they set the stage for the Winter Olympics. After winning the bid for the Games, South Korea is set to splash out large sums of money to attract positive attention to their country. There have already been huge political breakthroughs throughout the peninsula.

 

blue-81847

 

Bidding for the Olympic Games is not an open auction – getting through the application process is not a “survival of the richest”. There is a myriad of factors that are considered when the panel votes for the next host – including infrastructure, financial support, and even human rights records. Amongst all the applicants, three stood out: South Korea, Germany, and France. France was deemed unsuitable almost unanimously receiving only six votes, Germany took in 25 votes and was the closest, but nowhere near close to the winners: South Korea who took home the gold with 63 votes.

 

Hosting the Games is a financial burden. What is South Korea looking to gain out of this? Firstly, we don’t yet know how much the Games will cost, but generally, countries will be expected to dish out no less than $5.2bn. Their profits are most likely going to be indirectly obtained through tourism and stock market attention in subsequent years. Although financial profits are likely – there are more important political and cultural changes that have already occurred.

 

bobsled-643397

 

The Korean Peninsula has been divided since the 1950-1953 war. There was no post-war peace treaty signed, and South Korea boycotted the North in 1988. The Games have seen a diplomatic breakthrough with Kim-Yo-Jong visiting alongside her “army of beauties” – a group of women hand-picked for their good looks, talent, and loyalty to the regime. This is after Kim-Jung-un himself raised the prospect of North Korea’s attendance in his New Year’s speech.

 

It also gives South Korea a platform to show off their world-leading technology. Samsung, South Korea’s biggest company, will use this opportunity to expand their market share which will have positive ramifications for their domestic market.

 

DISCLAIMER: This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities. Past investment performance may not be indicative of future investment performance.