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Jittery investors drive market volatility – safe havens no more

Jittery investors drive market volatility – safe havens no more

By Benjamin J. Cohen, Professor of International Political Economy at the University of California, Santa Barbara, and the author of Currency Power: Understanding Monetary Rivalry.

SANTA BARBARA – With equities slumping, exchange-rate volatility increasing, and political risks intensifying, financial markets around the world have hit a rough patch. During times like these, international investors generally grow cautious and prioritize safety over returns, so money flees to “safe havens” that can provide secure, liquid investment-grade assets on a sufficiently large scale. But there are no obvious safe havens today. For the first time in living memory, investors lack a quiet port where they can find shelter from the storm.

Historically, the safe haven par excellence was the United States, in the form of Treasury bonds backed by the “full faith and credit” of the US government. As one investment strategist put it back in 2012, “When people are worried, all road lead to Treasuries.”

The bursting of the US real-estate bubble in 2007 offers a case in point. No one doubted that the US was the epicenter of the global financial crisis. But rather than flee the US, capital actually flooded into it. In the last three months of 2008, net purchases of US assets reached a half-trillion dollars – three times more than that of the preceding nine months combined.

To be sure, some of these dollar claims were due to the fact that foreign banks and institutional investors needed greenbacks to cover their funding needs after interbank and other wholesale short-term markets seized up. But that was hardly the only reason why portfolio managers piled into the US. Much of the increased demand was due to sheer fear. At a time when nobody knew how bad things might get, the US was widely seen as the safest bet.

But this was before the arrival US President Donald Trump, who has managed to undermine confidence in the dollar to an unprecedented degree. In addition to abandoning any notion of fiscal responsibility, Trump has spent his first two years in office attacking international institutions and picking fights with US allies.

To be sure, even before Trump, confidence in the dollar suffered a blow in 2011, when Standard & Poor’s downgraded Treasury securities by one notch in response to a near-shutdown of the US government. That episode was triggered by a standoff between then-President Barack Obama and congressional Republicans over a routine proposal to raise the federal debt ceiling.

Today, however, investors have even more reason to worry about the US government’s credit rating. In 2018 alone, the US government was shut down three times, and it remains in a partial shutdown to this day, owing to Trump’s demand for funds to build a “big, beautiful” wall on the border with Mexico.

Where can investors go if not the US? The eurozone might seem like a logical alternative. After the dollar, the euro is the world’s most widely used currency. And, taken together, the capital markets of the eurozone’s 19 member states are close in size to the US market. But Europe has troubles of its own. Economic growth is slowing, not least in Germany, and the risk of a banking crisis in Italy – the eurozone’s fourth-largest economy – looms on the horizon.

Worse still is the uncertainty over Brexit, which could prove highly disruptive if the United Kingdom crashes out of the European Union without a divorce agreement. Needless to say, Britain, too, can be ruled out as a safe haven, at least until the Brexit fiasco is resolved.

What about the Swiss franc? Though its attractions are obvious, Switzerland’s financial markets are simply too small to serve as an adequate substitute for the US.

That leaves Japan. With its abundant supply of government bonds, it is the biggest single market for public debt outside the US. The question for portfolio managers, though, is whether it is really safe to invest in a country where government debt exceeds 230% of GDP.

For comparison, the public debt-to-GDP ratio in the US is around 88%; and even in troubled Italy, it is no more than 130%. Admittedly, the market for Japanese government debt is more stable than most, owing to the fact that much of it is held by domestic savers (which is to say, it is safely tucked under the mattress). But Japan is an aging country with an economy that has remained almost stagnant for a quarter-century. Investors would be right to wonder where it will find the resources to continue servicing its massive debt overhang.

And then there is China, with the world’s third-largest national market for public debt. Certainly, the supply of assets in China is ample. But the Chinese market is so tightly controlled that it is essentially the opposite of a safe haven. It will be a long time before global investors even consider putting much faith in Chinese securities.

With secure ports becoming scarce, investors will become increasingly jittery. They will be inclined to move funds at the slightest sign of danger, which will add substantially to market volatility. Today’s rough patch is probably here to stay.


Copyright: Project Syndicate, 2019.
www.project-syndicate.org


 

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Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.