• Matheus Zani

🌎 Chileans take to streets again | US PE investments down | the UK points fingers at Russia

Updated: Aug 12


July 17th, 2020


Happy Friday!


Has working from home become a bore? Only so much banana bread you can eat? Netflix has been completed? Not to worry, The Caribbean island nation or Barbados is on a hunt for remote workers, offering yearly visas to foreign workers in an attempt to boost its economy. Who wouldn’t rather take their lunch breaks on the beach with a piña colada?


Did You Know...


Barbados is currently the 174th most populated country in the world with 287,000 people.


Can you name the 3 countries with the smallest population?

(Answer below)


Follow us on LinkedIn


GBP RUB

Yes 007 all of them...



From finding the COVID-19 vaccine formula to interfering in British democracy, Russian cyber hackers seem to have no limits according to the UK. ¨Footprints¨ of Russian spies were detected in 19 vaccine researches, which are being developed by UK, US and Canadian organizations.


The Russian hacking group called APT29 - or as they are known in some softer circles "Cozy Bear" - not only limits its activity in stealing healthcare intellectual property, but also makes efforts to target government diplomatic, think tank and energy companies. Sounds like they are getting a little too cozy to us.


However, Russia has denied responsibility, obviously. According to a spokesman for President Putin, the Russian government does not have information about who may have hacked into pharmaceutical companies and research centres in the UK, nor in other countries.


To complete the accusations package, the UK foreign secretary has said Russian actors “sought to interfere” in the 2019 UK general election as sensitive government documents relating to the UK-US free trade agreement were illicitly acquired prior to the election and disseminated online via the social media platforms.


Although ministers said that in no way could the disinformation of Russia affect the last election, in 2016 the same British ministers made strong allegations of a certain Russian influence in the referendum that year.


Apparently cyber-attacks will not stop there, it is better for the UK government and companies to update their “antivirus” software more frequently.


|FX

Russia and Opec may slowly lift oil production bans as recovery takes shape. OPEC basket is back above 43 per barrel, any currency gains have been nullified by the negative press Russia has been facing. GBP has slowly been gaining ground against the USD. Buoyed by optimism around a 30bn+ stimulus package targeted at the aiding British restaurants and staving off unemployment.


GBPUSD fairly volatile pair at nearly 9%/annum. Fortunately, hedging costs are negligible, < .25% favoring selling GBP.

USDRUB is very volatile, nearly 14%/annum. Hedging costs are still, about 4%, favoring selling USD.




Feature


Reducing Risk in Cross-Border M&A Transactions



Risk assessment makes up a disproportionately large part of any M&A process. That process gets even more complicated during cross border transactions. We discuss some of the important factors to consider during cross border M&A, such as the FX component, to mitigate risk and improve the chances of a smooth closing.


Read more here.

Visit our Intelligence Center

USD CLP

Riots in Chile hitting stocks



Earlier this week, thousands of Chileans went back to the streets in Santiago to protest against the Government, nothing new there right. However, the protest soon turned to riots amid increasing unrest surrounding President Piñera’s attempt to lower house members and senators from the parties of the ruling coalition to vote against the bill that allows Chileans to withdraw the 10% of their savings that remain controlled by the repudiated Pension Fund Insurers (AFP).


As you can imagine the markets didn’t act too kindly to this news with the country's main stock index falling by more than 3%.

A bit of background - The current pension system started operating on 1 May 1981 amid the Augusto Pinochet dictatorship, since then, are private companies that control pensions in this country. Once this model has already been cited as an example to be implemented in all neighboring countries, in 2016 nationwide protests demanded a major reform to the privatized pension system.


Late last year, Chile watched the most violent riot since the country's return to democracy in 1990, where the pension system was at the centre of mass protests.


Since then, over the last two years, Chilean protests have taken place for different reasons, such as Santiago Metro's subway fare, the increased cost of living, privatisation and inequality.


Although the repeated protests scratch political stability and give strength to social movements, the country's currency remains the strongest among its peers, such as Brazil, Mexico and Colombia.


Thus it is worth noting that the Chilean peso has been supported in recent years largely by the copper international price, which has exhibited a high correlation with the mineral. Copper takes the position of the largest exported material out of Chile. Thus, any variation in copper demand or supply directly affects the value of the Chilean peso against the US dollar.


Copper price vs. Chilean Peso

Source: Bloomberg

|FX

The Chilean peso is quite volatile, 13.4%/annum. Fortunately, Hedging costs are essentially zero (fwd points for one year = 3!)


USD EUR

The US is no longer the center of the PE universe



Hear ye, hear ye… the US is no longer the only place for investors. Showing an interesting shift in investor activity, firms outside the US announced $143B in deals, on track for the highest full-year proportion in 20 years. But what does that really mean...


The value of all US M&A fell 50% in H1 from a year ago; while Europe saw an increase from 68 in H1 2019 vs 80 in H1 2020.


The proportion of investments outside the US was 60% in H1 2020, with the majority in the EU, followed by APAC.


The long-term trend is for larger deals outside the US, says Scott Moeller, M&A Research at the University of London.


According to Preqin, private equity firms started 2020 with the highest level of cash on hand; dry powder was nearly $1.5Trillion at the end of June.


To understand why the private equity opportunity in Europe has grown substantially and has become a significant source of finance we need to step back and look at the first building block, which is the single currency.


The euro created a more competitive environment, which also helped to foster cross-border transitions. After that, the abundant and cheap capital available in the market has allowed institutional investors to leverage their positions and seek more attractive investments above-market average returns.


A single currency and access to cheap capital have been strong enough to catalyze substantial new investments in private equity, even with such a low sentiment towards the general economic situation (Covid-19 pandemic, Brexit, geopolitical uncertainty between the US and China, Turkish economic crisis and so on).


According to a recent study from CaixaBank and IESE Business Business School, both Spanish organizations, 3 out 5 start-ups located in the Iberian Peninsula, have grown 196% between 2018-2019. Much of this figure is the result of the greater participation of private equity and venture capital funds in both countries, where such firms are fundraising from investors in Asia-Pacific and North America.


Emerging markets have managed to join the party as well, as private equity firms are largely putting risk back on the table, taking advantage of low priced assets and strong legal regulatory frameworks.


Although many countries such as Brazil and Mexico are somewhat lost in controlling the coronavirus expansion, as well as in political governance. Nevertheless, some long-term institutional investors are sticking with emerging markets, and even committing more capital meaning emerging markets remain very attractive.


One point to keep in mind is that Trump recently pushed through legislation to speed up the process for more US infrastructure projects by weakening the 50-year-old National Environmental Policy Act reducing the “mountains and mountains of red tape”.


|FX


EURUSD reached a one year high recently, perhaps reflecting its effective control of COVID and resulting in minimal lasting effects on its economy. EUR is not terribly volatile, only 7%/annum. Hedging costs are relatively high at about 1%/yr.




In Other News


Currency Heat Map

This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.




We are a cross-border advisory firm that provides the next generation of innovative FX execution and risk management solutions for institutional investors, investment managers, and multinational corporates.


We educate and empower CFOs and Investors to take control of their FX risk and manage their cross-border transactions more effectively. Contact Us for  or to explore Our Solutions.


Quiz of the week


Answers


  1. Pitcairn Islands (UK): 50

  2. Cocos Keeling Islands (Australia): 555

  3. Vatican City: 825


43 views
Deaglo white logo.png
  • LinkedIn - White Circle

All statements of opinion and/or belief contained in this website and all views expressed represent Deaglo Partners LLC's “Deaglo” own assessment and interpretation of information available to it at the date of this website. The information contained in this website is based on publicly available information only, from third-party sources. Deaglo does not represent that it is accurate, timely, comprehensive or complete and it should not be relied upon as such, nor has it been independently verified. No reliance may be placed for any purposes whatsoever on the information contained in this website. Under no circumstances should the information provided in this website be considered as investment or trading advice, or as a sufficient basis on which to make any investment or trading decisions and is provided to you for information purposes only. Whilst this website has been prepared in good faith, Deaglo and its group undertakings, members and employees from time to time (“Affiliates”) do not make and are not authorized to make any representation, warranty, or undertaking, express or implied, with respect to the information or opinions contained in it and no responsibility or liability is accepted by any of them as to the accuracy, completeness or reasonableness of such information or opinions or any other written or oral information made available to you. Without prejudice to the foregoing and to the fullest extent permitted by law, Deaglo and its Affiliates do not accept any liability whatsoever for any loss however arising, directly or indirectly, from use of this website or otherwise arising in connection therewith. Nothing herein shall not exclude any liability for, or remedy in respect of, fraud or fraudulent misrepresentation. Our professionals may provide oral or written market commentary or trading strategies to our clients. Deaglo will not treat recipients as clients by virtue of their receiving this report. Data may be subject to updates and corrections without notice. No part of this material may be (i) copied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Deaglo.