Investors Find Comfort in Turkish Equities

Battle of Manzikert paved the way for Muslim control of Anatolia

Populism may sustain stock prices on the Istanbul stock exchange, despite the 45% gain in US dollar terms since the beginning of the year. Our logic is tethered to the view that President Erdogan is looking for a decisive victory in the November 2019 election. That vote seems like a distant prospect. The campaign, however, will inform ongoing fiscal stimulus, regardless of any attendant economic imbalances. Skeptics should take a closer look at Erdogan’s speech this week in the eastern Turkish city of Mus, commemorating the anniversary of the Battle of Manzikert. The victory of the Seljuks over the Byzantines in 1071 paved the way for Muslim control over Anatolia. The speech was both populist fodder and a dramatic reminder of Erdogan’s nationalist agenda. Granted, economists may fret over domestic inflation figures, which in turn could lead to tighter monetary policy. But investors are likely to overlook those fundamentals in favor of a measured growth trajectory. One reason for that stance is the lackluster setting on other regional bourses, including the UAE, Egypt, and Saudi Arabia.

Our Vantage Point: We acknowledge that Turkish equities appear to be overbought. But our worst-case scenario calls for consolidation, rather than outright correction.

Learn more at A News.

© 2017 Cranganore Inc. All rights reserved.

Image: Diorama at the Istanbul Military Museum depicts the Manzikert battlefield. Credit: O. Mustafin at Wikimedia Commons.

Cybersecurity is the New Deal Metric

Pacemaker business in the US is regulated by the Food and Drug Administration

The intersection between cybersecurity and medical technology is the pacemaker, at least this week. The Food and Drug Administration has forced NYSE-traded Abbott Laboratories to recall some 465,000 pacemakers due to software vulnerabilities. It seems that the black hat across town could actually change a heartbeat. The news is not a windfall for hospitals; a programming patch can be installed wirelessly at a cardiologist’s office. But the headline emphasizes a new area of technology-based business risks. Abbott just acquired its pacemaker business from St. Jude Medical for some $25 billion. The liability could be extreme in the case of hacked pacemakers, never mind the direct and indirect costs of the outsized, if not embarrassing recall. Board members and shareholders alike may be asking uncomfortable questions about what the firm discovered—or chose to ignore—in conducting due diligence on the transaction. Perhaps Abbott should have paid closer attention to its white-hat allies. The health-care giant responded obliquely this week by asserting, “We are resolving all old St. Jude medical issues.”

Our Vantage Point: Due diligence once centered on governance and profit analysis. Executives ignored cybersecurity, in part because they did not understand it. They now do so at their peril.

Learn more at the Chicago Tribune.

© 2017 Cranganore Inc. All rights reserved.

Image: Three companies—Abbott, Boston Scientific, and Medtronic—control the US market for pacemakers. Credit: Khuruzero at Can Stock Photo Inc.

Robots Streamline Air Travel

Check-in queue frustrate passengers

Airlines are getting serious about robots. Think ticketing kiosks on wheels, turbocharged with Siri. Air New Zealand just finished a test that involved using a robot to check-in passengers. The flag carrier is not the first to use robots to revamp customer service. There have been similar experiments in Seattle and Amsterdam. Eva Air uses them routinely in Taiwan. The idea is to help airlines manage the ebb-and-flow of flight schedules and the chaos of flight disruptions. Robots are programmed to issue boarding passes, answer flight questions, and provide gate directions, among other tasks. The story, however, may be less about tech-based investment and more about airline cost savings. Replacing customer-service agents with robots has allure for airlines, given the replicable and predictable nature of many requirements. But the use of robots may decimate any lingering pretense of brand loyalty among consumers, at least with economy-class passengers. The day is nigh when only premium ticket holders will have ready access to traditional ground staff.

Our Vantage Point: Robots provide a further opportunity for airlines to cut costs, er, manage passenger-related operations. But we are not sure how their widespread adoption will grow corporate revenue.

Learn more at the New Zealand Herald.

© 2017 Cranganore Inc. All rights reserved.

Image: Robots are set to take over many airport check-in formalities. Credit: Casanowe at Can Stock Photo Inc.

Beijing Closes Cash Spigot

Gambling is the primary industry in Macau

China is now a less hospitable destination, at least for certain dealmakers. Ernst & Young estimates that Chinese outbound investment is set to reach $100 billion in 2017, representing a sharp decline from the $183 billion seen last year. Beijing blames this decline in part on growing hostility toward Chinese firms in the US and Europe. There is some truth to that point. The bigger issue is that officials are resolved to mitigate the volume of leveraged deals and address attendant imbalances in the domestic economy. Earlier this month, regulators outlined new rules on outbound investment. They specifically targeted excesses in property, film, entertainment, and sports, while advocated investment in infrastructure, oil and mining, agriculture, and technology. This policy clarification streamlines the deal-making process in favor of traditional industries, if not lower risk alternatives. But the macroeconomic context suggests that Chinese investors are likely to move forward at a far more measured pace than in the past.

Our Vantage Point: China remains a dominant player in cross-border investments worldwide. But the integrity of the domestic finance sector is a primary concern, given the muted outlook for economic growth.

Learn more at the Nikkei Asian Review.

© 2017 Cranganore Inc. All rights reserved.

Image: Investment in Macau-based companies has raised the ire of Chinese officials. Credit: Vichie81 at Can Stock Photo Inc.

Bikinis Deflected From Indonesian Airspace

Indonesia is the largest economy in Southeast Asia

Vietnam-based Vietjet is no ordinary airline. It has carved out consumer awareness of its brand by featuring bikini-clad flight attendants. The gimmick has worked for its female founder; Nguyen Thi Phuong Thao became a billionaire after the airline’s initial public offering in February. But minimalist uniforms are not export-friendly, at least to the Islamic world. In tandem with growing Vietnamese-Indonesian ties, Jakarta airport authorities looked for assurances that bikini-clad flight attendants will stay grounded on Vietjet’s soon-to-launch Ho Chi Minh City-Jakarta route. Vietjet obliged—and announced it will include halal meals in the service mix. While the lesson may be deference to cultural values, it is also one in business strategy. Vietnam is chasing Indonesia to propel its torrid growth rate of 6%-to-7%. Tourism is a key component in the mix. According to Mastercard, outbound Indonesian travel is one of the fastest growing hospitality segments in Asia, with outbound trips set to grow by almost 9% a year over each of the next few years.

Our Vantage Point: Wealth generation trends in the Islamic world offer enormous profit potential to multinationals. But the character of that business needs to side with conservative halal lifestyles.

Learn more at The Jakarta Post.

© 2017 Cranganore Inc. All rights reserved.

Image: Stable rupiah is one outgrowth of Indonesian economic wherewithal. Credit: Caputrelight at Can Stock Photo Inc.

Tech Metals Ignite Mining Industry

Salar de Uyuni is the largest salt flat in the world

There may not be enough tech metals worldwide to meet soaring demand. In most cases, mobile phones and solar panels are produced with lithium or indium. Other essential metals for tech-related industries include cobalt and lanthanum; the list is perplexing. The problem is that most of these resources do not trade freely in liquid markets. Rather, they are controlled narrowly by government or commercial interests. Even China—a dominant player in this corner of the commodities business—has resorted to deep-sea mining to meet demand. Does that mean investors should jump at the next neodymium deal? There is merit to diversification. Tech-metal opportunities are red-hot at this time, but tech manufacturers are looking hard at production alternatives. And supply metrics can change abruptly. Consider that aluminum was more valuable than gold throughout the 1800s. Then prices collapsed, as supply soared, when aluminum foil came into common use.

Our Vantage Point: Tech-metal deals should be viewed as high-risk opportunities. Apparently-generous returns could evaporate quickly, as advances in manufacturing up-end demand.

Learn more at the Financial Times.

Note: We use the term “tech metals” generally. It includes so-called rare-earth metals, such as neodymium, as well as those metals that are by-products of base-metal production, such as cobalt.

© 2017 Cranganore Inc. All rights reserved.

Image: Lithium does not occur freely in nature, but is commonly extracted from brine. Shown here is Salar de Uyuni in Bolivia. Credit: Cristiborda at Can Stock Photo Inc.

Caribbean Passport Programs Hit Speed Bump

Marigot Bay is popular destination in St. Lucia

Many nations have citizenship-by-investment policies to entice deep pockets, but Caribbean nations have been under fire for their relatively low hurdles. The tiny island of Dominica, for example, offers its passport to globetrotters for $100,000. While these policies have been a cash drop for smaller economies, Western governments have been less enamored by their propensity, at least in theory, to attract tax cheats and terrorists. Canada just made headlines by terminating visa-free travel from Antigua and Barbuda, requiring nationals to apply for their visas through a regional embassy in Trinidad. The lawyer-dominated citizenship-by-investment industry is likely to dismiss the Canadian decision as caprice, but high-net-worth investors should be less cavalier. Shifting geopolitical sentiment suggests that a so-called “golden passport” may be a less prominent reason to allocate funds to the Caribbean. The good news is that the return-on-investment on many projects in the region justifies the allocation risk, regardless of citizenship dividends.

Our Vantage Point: Investors based in the developing world should focus their Caribbean deal activity on project due diligence, rather than potentially-mutable passport benefits.

Learn more at Antillean Media Group.

© 2017 Cranganore Inc. All rights reserved.

Image: St. Lucia is among those Caribbean nations which attracts foreign investment. Credit: Dbvirago at Can Stock Photo Inc.

Pakistan Lures Bargain Hunters

Agriculture is about 20% of Pakistani GDP

Currency-depreciation rumors are playing out in Pakistan, with the rupee tumbling over 3.0% in mid-week trading. The realignment is provoked, at least fundamentally, by a deteriorating external account. But it is exacerbated by faltering confidence in the government. Prime Minister Sharif is under investigation for money-laundering allegations. There is good news behind the veil of volatility. Prior to this week, the IMF targeted economic growth at 5.0% in 2017 and 5.2% in 2018. A weaker rupee could bolster that momentum, given a lively export sector, although the impact of higher local interest rates is unclear. We suggest that cross-border investors actually sharpen their focus on Pakistan. Foreign-exchange shocks often depress private- and public-sector valuations; they can lead to outsized discounts. We acknowledge that a perpetual obstacle to deal-making here is ad hoc headline analysis. A cover story from The Atlantic in December 2011 lingers vividly: “The Ally From Hell: What to Do About Pakistan.” There are other examples. In this market, the risk tolerant are best served by maneuvering to the front of the economic cycle, rather than centering attention on international affairs.

Our Vantage Point: In Pakistan, like other emerging markets, asset volatility can be unnerving. But that skittishness may cultivate widespread opportunity.

Learn more at Bloomberg.

© 2017 Cranganore Inc. All rights reserved.

Image: Pakistan is a major player in agricultural exports, ranking eighth globally in farm output.. Credit: Paop at Can Stock Photo Inc.

Can a Major Firm Be a Venture Capitalist?

The maneki neko is a cultural icon in Japan

Tokyo-based Trend Micro—a force in the cybersecurity industry—announced last week that it is rolling out a $100 million venture capital effort, apparently to fund startups in the internet-of-things space. The idea, in its own words, is “to dive into new areas without disrupting core business resources.” However exciting for the publicly-listed firm, the focus is likely to have a greater impact on its balance sheet than its business operations, at least for the foreseeable future. Corporate venture capital units often invest alongside top-tier funds until they can sort out their own priorities and strategies. The theoretical danger in that scenario is that underlying valuations of target companies get pushed higher and higher, leading to awkward re-pricing on an eventual exit. Trend Micro might serve its commercial interests better by creating a smaller funding pool that centers on still-fledgling opportunities. Of course the hazard there is that a $1-to-$5 million investment can easily get lost in the c-suite. We offer Trend Micro the benefit of doubt, but sustaining an effective corporate venture capital unit demands more than a pool of cash.

Our Vantage Point: Silicon Valley may laud corporate venture capital for adding depth to the startup scene. But the actual dividend to investors and entrepreneurs is unclear.

Learn more at DealStreetAsia.

© 2017 Cranganore Inc. All rights reserved.

Image: In Japanese tradition, the maneki neko is a good luck talisman. Credit: Icenando at Can Stock Photo Inc.