Canada’s industrial companies – so vital to our economy – are not investing nearly enough in their digital capabilities to remain competitive globally and drive sustainable growth. This is worrisome.
While mining and energy companies already use digital technologies, such as self-driving trucks to haul ore or integrated sensors to monitor pipeline, machinery or equipment integrity, much more could be done.
We recently talked to C-suite leaders at 165 regional and national Canadian industrial companies in the manufacturing, mining, oil and gas, power utilities, construction, transportation and infrastructure sectors.
The KPMG survey found that nearly 75 per cent intend to invest less than 5 per cent of their annual revenue on improving their digital capabilities. That’s not nearly enough to compete with the world’s best.
According to the World Economic Forum, new technology investments were key in driving productivity gains in the decade after the 2008 global economic crisis. But productivity wasn’t uniform across industry players. The gains were actually driven by the top 20 per cent in each industry with the majority seeing their productivity drop.
As a country, we can’t afford to be followers.
At a minimum, Canadian companies need to double, if not triple, their planned digital investments. Why?
If companies are not already investing in and leveraging today’s digital capabilities, how will they be ready to compete in the brave new world of 5G, with its superfast data speed and virtually instantaneous connectivity at every step along the value chain?
The reality is, companies are struggling to drive sustainable growth. While the lower Canadian dollar helps put the exporters on a more competitive footing, industrial companies – regardless of size and sector – really need to use this time now to become digitally ready.
Although, most Canadian firms have made investments, most are too modest and, at times, too linear. As many as 80 per cent appear to be looking for quick wins, expecting a return on investment (ROI) in three years or less. Two in five expect a ROI within two years.
Investments in cloud technology, for example, can deliver noticeable returns quickly because it’s very effective for eliminating friction in business processes; it doesn’t require a lot of IT resources and isn’t complex. But, that’s not enough to move the dial; that’s just the starting point.
Some companies say they are struggling to achieve the integration needed to realize the full potential of data and many seem to have dismissed the opportunities and insights that big data can offer. Our survey revealed that only one in five (21 per cent) are actively leveraging data analytics.
Canadian companies need to do more than make incremental investments to build a modern digital foundation for that great leap forward.
They need to capitalize on the benefits from new exponential technologies, such as robotics, artificial intelligence (AI), machine learning, machine-to-machine (M2M) communication and the Internet of Things (IoT).
Robotics and M2M capabilities can speed up production, while IoT facilitates predictive maintenance, reduces downtime and costs, and provides greater visibility into production and delivery.
Yet only one in four of companies we surveyed use robotics, and just 23 per cent are using IoT technology. In the plus column, nearly half (46 per cent) plan to implement intelligent automation.
Productivity expectations are only going in one direction: up – consumers and investors expect advances almost daily. This means companies should already be investing in IoT-compliant technology, especially to connect their legacy equipment. It’s fast becoming a baseline requirement for companies in these capital-asset-intensive sectors; those that fail to invest in IoT will quickly fall behind.
Here is what you should consider:
- Think strategically about your technology investments. Direct funds where they will make the biggest impact on your long-term competitiveness.
- Begin with the problem. With so many exciting technologies, it can be easy to get carried away. Focus on the problem you are trying to solve.
- Re-evaluate your ROI expectations: You can realize important value from digital technology, but full transformation takes time.
- Increase investments in digital transformation.
- Identify internal skills gaps.
- Create a plan for data collection based on what’s important to your business. Define the problems you’re trying to solve with data, then determine the types of data that needs to be collected and mined for insights.
To truly stand the test of time, companies need to link their front, middle and back offices to become a more powerful, seamless, connected enterprise.
Digital transformation is no longer an option; it is an imperative.
Consumption, not investment, now key to growth – Chinadaily.com.cn – global.chinadaily.com.cn
Scholars and policymakers in China have not yet reached a consensus on whether stimulating consumption is the top priority for the Chinese economy at the moment. Some economists argue more about the need to boost growth by expanding investment, as they believe that stable investment will be the fastest way to encourage economic expansion.
My understanding is that competent policymaking departments and economists need to better realize and identify the importance of boosting consumption. Under China’s 20 years of stabilizing investment through infrastructure construction, it is necessary to completely change such concepts and realize the significance of encouraging consumption. There is still a lot of work to be done on this front. If this year’s policy is still the same as last year’s and the year before, it will affect growth stabilization performance in 2023.
What makes stimulating consumption for growth so important? The main reason behind it is that China’s economic structure has changed. In normal situations, consumption contributes about 65 percent of GDP growth in China. Therefore, as the proportion of fiscal funds spent to stabilize growth conforms to the economic structure, roughly 65 percent of fiscal funds are used to stabilize consumption, and the remaining 35 percent are put toward stabilizing investment. Yet, in practice, most of the fiscal funds are used to stabilize investment. This disrupts the overall growth structure.
With China’s economy developing and upgrading rapidly, consumption has now become the core factor in economic growth. The country has moved beyond the stage of 20 years of rapid urbanization and rapid industrialization, and infrastructure investment has been oversaturated. Therefore, if the method of stabilizing investment is once again applied to stabilize growth, it will seriously distort the driving force of China’s economic growth. However, I think such understanding has not yet been widely recognized by economists and policymakers, and therefore, further study on this matter is needed.
China’s previous strategy of stabilizing investment has caused distortions in the overall fiscal expenditure structure. Last year, China’s total GDP reached 114 trillion yuan ($16.2 trillion). The total amount of investment in fixed assets was 55 trillion yuan, while fixed-asset investment accounted for 48 percent of GDP. In comparison, in developed countries such as the United States, Australia, Japan and European nations, the annual total investment in fixed assets accounts for only about 20 percent of the country’s GDP.Long-term distorted structure caused by China’s large proportion of fixed asset investment in GDP is unsustainable.
I would argue that if the current economic structure is corrected and adjusted in the next 10 years, investment in fixed assets will drop from 55 trillion yuan to 30-40 trillion yuan and then decline further. Its high growth will undoubtedly crowd out consumption in the economy, and have a negative impact.
Here are some ways to boost consumption:
First, efforts should be made to promote consumption in terms of raising incomes, instead of working from the production standpoint. Since 2020, in Europe and the United States, the key measure to stabilize consumption has been to issue consumption vouchers to residents, and this has generated a notable effect in boosting the economy. If people’s disposable incomes decline, consumption will definitely drop. Therefore, efforts must be made to find a way to increase disposable income of Chinese consumers. However, if we talk about increasing disposable incomes and only work on stabilizing employment, it would not be sustainable over the long term. It is a long-term policy to stabilize employment as well as improve the social security system, medical system and education system, whatever the circumstances are. The core of stabilizing consumption is to increase household incomes. One way to bring this about is to increase current incomes; that is, issue consumption vouchers or money to residents. It is the correct way to stabilize consumption from the income side. Another way of effecting this is to increase investment income, such as making the stock market more prosperous, so that everyone makes money, thus leading to higher consumption.
Second, efforts should be made to increase the public’s marginal propensity to consume by cutting interest rates. The best way to increase the marginal propensity to consume in the short term is, in fact, by reducing interest rates, which frees up credit. The two methods for stabilizing consumption in Europe and the US in 2020 were distribution of money and lowering of interest rates. By raising incomes through distribution of money and lowering of interest rates, it is possible to increase the general public’s marginal propensity to consume. People’s incomes are divided into two parts. One part is used for saving and the other part is used for consumption. When savings increase, consumption decreases. Savings are closely related and very responsive to interest rate changes. When Europe and the US faced economic downturn pressure in 2020 and wanted to stabilize consumption, they once lowered interest rates to zero or even negative. But China seems to be more conservative with regards to cutting interest rates.
There are many reasons for China to be shy about cutting interest rates. These include the need to prevent real estate bubbles, avoid a stock market sell-off, safeguard against rampant inflation, and stabilize the RMB exchange rate. The goal of monetary policy is complicated and has many facets. It needs to work not only to maintain economic growth, but also to stabilize prices, support the capital market, undergird the housing market and stabilize the exchange rate. Currently, in terms of the stock market, the Chinese bourse has a flat performance during the past 10 years, and share prices of many listed companies have fallen to historic lows. A rise in the stock market can increase investment income and benefit consumption. In terms of prices, China’s producer price index has entered negative growth since October. Currently, we do not have serious inflation, so from the perspective of prices, cutting interest rates will also work. In terms of the RMB exchange rate, now that the appreciation of the US dollar has ended and interest rate hikes outside China have slowed, the pressure of RMB appreciation is gradually picking up. Therefore, to increase the public’s marginal propensity to consume and to stabilize consumption, we should cut interest rates.
In addition, it is also very important to boost consumption by creating consumption scenarios with engaging consumption activities, where consumers can truly interact with shops and products. If consumers cannot have such interactions, contact consumption in many scenarios will not be realized. This involves the impact of COVID-19 and how to contain the pandemic in a science-based, accurate way, instead of a one-size-fits-all approach.
To sum up, only by realizing the importance of consumption and work on the income front, cutting interest rates and creating more engaging scenarios for consumption can the Chinese economy likely see a rebound in the first quarter of next year.
The views don’t necessarily reflect those of China Daily.
The author is the director of the Wanbo New Economic Research Institute.
Better Buy: AGNC Investment or Annaly Capital?
Welcome news regarding elevated inflation is prompting signals that there may be a slowdown in the Federal Reserve’s pace on interest rate hikes. With longer-term interest rates beginning to fall, mortgage real estate investment trusts (REITs) are once again getting attention from the investment community. Mortgage REITs struggled over the past year as rising rates caused the value of their investment portfolios to decline, which translated into big declines in book value per share.
Surprisingly, these REITs still managed to maintain their dividends, and the yields have become quite attractive (provided they can be maintained). The biggest names in the mortgage REIT space are Annaly Capital (NLY -0.41%) and AGNC Investment (AGNC -0.60%).
Given all the news recently, which one is the better buy right now?
Mortgage REITs are a different animal than the typical REIT
REITs traditionally focus on developing real estate properties such as apartment buildings, office buildings, or shopping malls. They then rent out the units to tenants. Their earnings generally come from the spread between the rents they collect and the interest they pay on the debt that financed the buildings.
Mortgage REITs don’t buy properties; they buy real estate debt (i.e. mortgages). They typically use borrowed money to build their portfolios, and their earnings are the difference between the interest they earn on the mortgage-backed securities and the interest they pay on their debt. In many ways, mortgage REITs’ operations are closer to a banking model than the landlord/tenant model that characterizes the typical REIT.
AGNC invests in mortgages guaranteed by the U.S. government
AGNC Investment invests primarily in mortgage-backed securities which are guaranteed by the U.S. government. For the most part, this means AGNC invests in mortgages guaranteed by Fannie Mae and Freddie Mac. Since the principal and interest payments are backed by the U.S. government, AGNC Investment takes very little credit risk, and the interest it earns on these securities tends to be lower. That lower risk also means lower returns. AGNC then uses a lot of borrowed money (think of it like margin on your stock account) to generate a double-digit dividend yield.
Annaly has a more diversified portfolio of assets
Annaly invests in agency mortgage-backed securities, but it also buys loans that are not guaranteed by the government. These loans pay higher rates of return, but they also tend to have a higher potential for downside. Annaly is a big investor in loans that are ineligible for a government guarantee. These loans are often referred to as non-QM and are often made to professional real estate investors and the self-employed borrower.
These non-QM loans are nothing like the bad old subprime loans of yesteryear. They require sizable down payments and proof that the investor will be able to pay the loans with rental income. So the risk is somewhat mitigated.
Ultimately, the decision on Annaly versus AGNC depends on the economic forecast. AGNC Investment will probably outperform Annaly if we head into a recession, since it won’t have to worry about credit losses from the resulting rise in loan defaults. AGNC will also be better protected if housing prices begin to fall. That said, Annaly has a much more diversified portfolio of assets, which helps it outperform in most interest rate environments.
However, Annaly will be more exposed to potential credit losses if the economy enters a recession. If housing prices fall, it will negatively affect the value of its non-QM loans if delinquencies begin to increase. Annaly also holds a large mortgage servicing portfolio, which is a stable source of additional income and acts as a hedge if interest rates rise.
Watch the book value per share
At current levels, AGNC Investment is trading right around book value per share of $10.04 and has a dividend yield of 14.4%. A bet on Annaly is a bet on a drop in interest rate volatility, which will probably happen once the Fed ends its tightening cycle.
Annaly is trading at a premium to its book value per share of $19.94; however, it has a better dividend yield of 16.6%. As a general rule, mortgage REITs trade right around book, so it usually pays to buy them at a discount to book, not a premium.
Despite Annaly’s higher yield, I like AGNC better, as home prices are beginning to decline, which will weigh on Annaly’s credit-sensitive book. I also don’t like buying mortgage REITs above book value. All this means I think AGNC Investment is the better buy at the moment.
Core Asset Wealth Management Launches Socially Responsible Investment Strategies
Core Asset Wealth Management is a financial management company. Recently, the company has incorporated SRI and Gene Therapies into its services.
Seoul, South Korea–(Newsfile Corp. – December 3, 2022) – Core Asset Wealth Management approaches socially responsible investing (SRI) in the latest development and seeks to maximize investment returns while avoiding companies that harm the environment or society.
As socially responsible investing has evolved into Environmental, Social, and Governance support, Core Asset Wealth Management is facilitating its clients with sustainable investment strategies. As the name implies, it is an investment process that considers environmental, social, ethical, and governance issues before allocating funds. All investors want to see their portfolios grow, but not at the expense of ethical practices, society, or the environment. Popular sustainable industries have recently included solar, wind, waste management, and water filtration.
Core Asset Wealth Management investment planning is not just about finding ethical and socially responsible companies to invest in but also about taking an activist role by using their voting rights to affect change.
The company is focusing on Gene Therapy. It delivers an innovative yet controversial area enticing to invest in due to the possibility of curing previously incurable diseases. However, many ethical issues arise from the processes used, such as animal testing and the resulting changes that can occur in our DNA.
Core Asset Wealth Management uses many different socially responsible investment vehicles that can be used with Wealth Management. Stocks and bonds are always readily available, but applying the various SRI filters can be overwhelming and time-consuming. Socially responsible mutual funds and exchange-traded funds are more accessible ways to participate in SRI investment. For accredited investors, more customized SRI investments are available such as hedge funds, venture capital, and private equity funds.
Furthermore, Core Asset Wealth Management focuses on Ethical investing and shunning companies that test their products on animals, provide harmful effects, or regularly engage in fraudulent or deceptive practices.
By avoiding investments in these companies, Core Asset Wealth Management sends a message that they disagree with their unethical operations and support businesses that improve their lives and community. Ethical Investments provide the opportunity to apply their moral beliefs to the company’s Retirement Planning and other accounts. Core Asset Wealth Management Ethical Investments meet environmental, social, and ethical criteria to be included in various socially responsible investment (SRI) vehicles. These investments are divided into multiple categories based on their grade of green qualifications to help potential investors evaluate their options.
With new developments, Core Asset Wealth Management has come up with the following additional services:
Green Investments – Light
Light green investments are the lowest part of the ethical investment scale. This responsible investing filter avoids gambling, military, defense, nuclear energy, “sin” related companies, and weapons manufacturers.
Green Investments – Medium
Medium green investments are in the middle and apply a more rigorous filter that avoids oil and gas companies and alcohol and tobacco.
Green Investments – Dark
Dark green investments apply the strictest filters for investment ethics. They screen out companies that are active polluters, ignore social issues and focus on renewable energies like solar, recycling companies, and water purification investments.
About the Company – Core Asset Wealth Management
Core-Asset Wealth Management provides financial analysis and consulting to a broad range of retail clients and businesses. It also facilitates its client with Account Management, Market and Media Analysis.
Potential clients should visit the official https://acg-wealth.com/ for further updates.
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/146692
Consumption, not investment, now key to growth – Chinadaily.com.cn – global.chinadaily.com.cn
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