China wants to extend its influence in Central and Eastern Europe. Some on the EU’s eastern wing are calling for resistance to what is being labeled China’s corrosive capital, but others say it’s a storm in a tea cup.
More Hawkish observers argue that China’s foreign investments are — by definition — corrupting, with a corrosive influence on smaller, often only nominally democratic and market-based nations, including those on the eastern periphery of the European Union (EU). Others are less convinced Chinese investment represents a genuine threat. The EU members in Eastern Europe stand at a crossroads in their relations with Beijing and Brussels.
“These investments will have repercussions across the EU,” as Eric Hontz, who leads the Washington-based Center for International Private Enterprise’s (CIPE’s) work on corrosive capital, told DW.
Corrosive capital: Trick or treat?
“Corrosive capital” — a concept pioneered by CIPE — refers to external sources of financing that lack transparency, accountability and market orientation.
“It typically originates from authoritarian regimes like China and Russia and exploits governance gaps to influence policymaking in recipient countries,” Matej Simalcik, director of Bratislava-based think tank Central European Institute of Asian Studies (CEIAS), told DW.
In the cases of Slovakia and Czechia, Beijing has managed to develop significant ties with local oligarchs who have financial interests in China. The two countries are sometimes refered to as “captured.”
“These ties were later instrumentalized to foster policies that are conductive to Chinese interests,” Simalcik said. “By focusing on the oligarchic class, China has actually been able to exert influence over both countries simultaneously,” he added.
As a result, Chinese entities have been able to exert influence in areas like government communication networks.
A recent report by CEIAS shows how the Chinese government has been able to insert itself into Czechia and Slovakia through a banking company known as CEFC China Energy, which has been used to become a minority shareholder in a Czech-Slovak financing group, J&T Finance.
Hungary willing, while Poland muddles on
Hungary has the highest share of Chinese investment after Serbia in Eastern Europe and plans several new projects, including construction of the controversial Fudan University campus in Budapest.
The political elite of the Visegrad member, Poland, meanwhile, is in a unique situation vis-a-vis its relationship to both China and the EU.
“Poland is criticized on the one hand by the EU for democratic backsliding while suspicious of Chinese investments on the other due to a similar historical struggle as the Baltic States,” Hontz said.
Poland’s attitude towards China is shaped by the state of US-China relations, as Warsaw has usually played the role of a loyal and committed partner to Washington. It has already shown its alignment with US policies on 5G.
“However, Poland’s actions may not always be entirely predictable, given the ideological primacy placed on the assertion of national interests and identity that may lead to policies that are counter to its European and American allies,” Rumena Filipova, co-founder of the Institute for Global Analytics in Bulgaria, commented.
Nevertheless, Poland has significant economic relations with China, especially with regards to railway transportation since Poland is a key transit country for railway cargo transports from China.
“It would not be surprising if China managed to gain new inroads and inject more corrosive capital into the country in the coming periods,” Simalcik argued.
Lithuania fights back
Lithuania led a boycott of the 17+1 (Eastern European countries + China) summit in February and said it wants the EU to deal with China only at a 27+1 level.
“Lithuania’s tougher stance on China is viable, given that bilateral Lithuanian-Chinese financial and trade relations are not of a substantial scope,” Filipova said.
“Moreover, Lithuania is shielded in political and security terms through its memberships in the EU and NATO. Nevertheless, Vilnius’s assertive stance is remarkable,” she added.
“Lithuania’s case shows that Chinese influence in CEE is actually fragile as it focuses only on select segments of society and politics,” Simalcik elaborated.
It remains to be seen whether and to what extent the other two Baltic States will emulate Lithuania.
Simalcik says Estonia seems to be more likely to follow the pattern, although probably in a more diplomatic fashion than Lithuania. “As for Latvia, it will probably be the most reluctant of the three to engage in critical China policy, partially due to public demand as Latvians are among the European nations that perceive China more positively,” he says.
Typically ties were developed only with ruling coalitions and not with opposition parties, he went on. As a result, wherever the former coalitions lost general elections and former opposition came to power, as in the case of Lithuania and Slovakia, governments became increasingly critical of Beijing. “Similar trends can be expected in Czechia and even in Hungary if the opposition manages to sway the popular vote,” Simalcik said.
“In a sense Lithuania has lifted the mask for the EU to see China as a more mercantilist power with a zero-sum approach to politics,” Hontz concluded.
Bulgaria and Romania
In 2018, Chinese President Xi Jinping upgraded Chinese-Bulgarian relations to a strategic partnership, akthough later US pressure has seenSofia alter course somewhat.
But the influx of Chinese capital into Bulgaria and Romania has been lesser in scale than in the case of Central Europe and both have prioritized the EU and NATO.
“I wouldn’t say Bulgaria and Romania are less affected than Czechia and Slovakia by corrosive Chinese capital, but rather affected in different ways,” Hontz said.
“The political elite in those countries are also perhaps a bit more aware of the potential negative influences of these investments on their own ability to influence the political economy of the nation.”
Bucharest has adopted a memorandum that blocks the awarding of public infrastructure contracts to companies from countries that do not have a bilateral trade agreement with the EU. In 2019, Bucharest banned the Chinese telecommunications firm Huawei from its networks. It has also halted cooperation with China on the construction of the Cernavoda nuclear plant.
A recent studyfrom the Central and Eastern European Centre for Asian Studies (CEECAS) suggests that governments in the region tend to offer an inflated view of China’s presence. It notes also that China’s FDI positions in the CEE countries is modest.
According to China Global Investment Tracker data, in the period 2000-2019, of $129 billion (€107 billion) worth of Chinese investments in Europe, only $10 billion went to the countries of CEE.
The value of Chinese direct capital investment in Europe was down in 2020 from $13.4 billion in 2019 to $7.2 billion, according to Baker McKenzie. However, Hungary bucked this trend. Bilateral trade between China and Hungary reached $5.35 billion in the first half of 2020, up 9.8% year-on-year. Total Chinese foreign investment in Hungary stood at $5 billion, with companies such as Huawei, Wanhua and Bank of China leading the way.
By comparison, Bulgarian exports to China in 2020 were $870 million and imports $1.7 billion. China increased its share in total Bulgarian exports from 0.6% to 2.7% between 2006 and 2020. Chinese investment in Bulgaria is under 1% of inward FDI. In 2019, Romanian exports to China were worth $850 million, while imports to Romania were $5 billion. In terms of FDI, China does not figure among Romania’s top investors. The value of Chinese FDI between 2000 and 2019 in Romania was $1.4 billion.
“I was more worried two years ago when Chinese investments tended to be seen as purely commercial,” Mikael Wigell, director of the Global Security research program at the Finnish Institute of International Affairs, told DW.
U.S. equity portfolio manager explains seven-step investment process – Wealth Professional
The third step is identifying growth drivers. Sanders carries with him words from an old mentor – ‘always understand what drives top-line revenue’. For example, when Sanders first invested in Amazon back in 2003, when it was $17 a share, online penetration of retail sales in the U.S. was only 3%, but he believed that number was going to grow substantially over time. He met with Jeff Bezos who explained his competitive advantages – widest selection, lowest prices and convenience – completed his analysis and bought the stock. Sanders said: “That’s an example of a company that had a clear growth driver – penetration of its end market with offline retail going online.”
The fourth step is a financial statement analysis, getting into the nitty gritty of the balance sheets from a cash-flow perspective, while the fifth step is a management team assessment. Sanders is not interested in a company’s latest shiny product but instead wants to understand the key assumptions that go into his team’s investment process. ESG factors are also analysed at this stage, including how the board is made up and the compensation model.
Step six is critical and involves Sanders laying out four scenarios – best case, base case, bear, and worst, which are all five-year minimum discounted cash-flow models. The base case is what he thinks the stock is worth today, an estimate of cents on the dollar or intrinsic value. If Sanders believes a stock is worth $100 and it’s trading at $70, it’s 70 cents. He said: “We have this list of companies we’re following, and it’s ranked by cents on the dollar every morning. When stocks get to 70 cents, we recheck the analysis and we buy, and when stocks get up to 100 cents, we sell. That, in a nutshell, is our process.”
Every quarter these values are updated, in step seven, so it’s a moving target, underpinned by deep fundamental research that involves a 10-person team looking at one stock at a time before presenting it the team for debate.
While many investors focus on what is happening that quarter, Sanders told WP he thinks longer term, an approach illustrated by the crash of March 2020. He saw a health crisis, not an issue with the consumer, who ultimately drives the economy. Now in his third market cycle of managing money, the portfolio manager recognized that many elements were actually in good health, from millennials with no mortgages, a housing market at steady levels in the U.S. as it continued its recovery from the 2008 Global Financial Crisis, and a banking system that was doing well after 10 years of Federal Reserve stress tests.
Surge Closes Investment into Contractor Connect – Business Wire
DALLAS–(BUSINESS WIRE)–Surge Private Equity LLC (“Surge”) announces investment into its 10th platform, Contractor Connect LLC (“CC” or “Company”), a B2B networking lead-generation platform within the home improvement and remodeling space. The transaction closed with debt financing provided by Modern Bank and Assurance Mezzanine Fund with BakerHostetler acting as lead counsel.
Since its founding in 2014, CC has connected hundreds of thousands of homeowners to local contractors through its proprietary lead aggregator, screening, and live-transfer platform. The Company primarily specializes in various home remodeling verticals including bathrooms, windows, roofs, gutters, and sidings. Its recognized brand is highly regarded across the 25+ states it currently serves. Founder Joseph Powless will remain on as both an owner and partner of the Company.
“COVID has accelerated work from home hybrid and full-time trends. People are now spending more time at home, increasing the demand for home improvement,” said Surge Founding Partner Thomas Beauchamp. “This sustained macro demand for the industry paired with our plan to launch into new verticals such as HVAC and solar give us a clear pathway to sustaining the historical 25% annual growth rate.”
About Surge Private Equity
Surge Private Equity is a Dallas-based private equity firm that seeks majority investments in growing businesses with $2-7.5MM of EBITDA. Together with its lending partners, Surge provides entrepreneurs with liquidity and investors with higher yields and greater accessibility through lower investment minimums. Surge primarily invests in companies where the seller will remain in an ongoing capacity.
About Modern Bank
Modern Bank, N.A. is a privately owned, entrepreneurial bank that provides flexible, competitive, and reliable senior debt financing solutions to commercial companies. Its experienced bankers specialize in working with lower middle-market companies and owners to provide low-cost cash flow-based financing solutions.
About Assurance Mezzanine Fund
Assurance Mezzanine Fund is a private investment firm providing $3 to $20 million customized growth capital solutions to profitable, lower-middle-market companies nationwide. We look to invest our funds in established companies operated by experienced and proven management teams with a history of building enterprise value.
Have a large amount of cash to invest? Here's how deploying it all at once compares with doing so over time – CNBC
If you have a big wad of cash to invest, you may wonder whether you should put all of it to work immediately or spread out over time.
Regardless of what the markets are doing, you’re more likely to end up with a higher balance down the road by making a lump-sum investment instead of deploying the money at set intervals (known as dollar-cost averaging), a study from Northwestern Mutual Wealth Management shows.
That outperformance holds true regardless of the mix of stocks and bonds you invest in.
“If you look at the probability that you’ll end up with a higher cumulative value, the study shows it’s overwhelmingly when you use a lump-sum investment [approach] versus dollar-cost averaging,” said Matt Stucky, senior portfolio manager of equities at Northwestern Mutual Wealth Management.
The study looked at rolling 10-year returns on $1 million starting in 1950, comparing results between an immediate lump-sum investment and dollar-cost averaging (which, in the study, assumes that $1 million is invested evenly over 12 months and then held for the remaining nine years).
Assuming a 100% stock portfolio, the return on lump-sum investing outperformed dollar-cost averaging 75% of the time, the study shows. For a portfolio composed of 60% stocks and 40% bonds, the outperformance rate was 80%. And a 100% fixed income portfolio outperformed dollar-cost averaging 90% of the time.
The average outperformance of lump-sum investing for the all-equity portfolio was 15.23%. For a 60-40 allocation, it was 10.68%, and for 100% fixed income, 4.3%.
Even when markets are hitting new highs, the data suggests that a better outcome down the road still means putting your money to work all at once, Stucky said. And, compared with investing the lump sum, choosing dollar-cost averaging instead can resemble market timing no matter how the markets are performing.
“There are a lot of other periods in history when the market has felt high,” Stucky said. “But market-timing is a very challenging strategy to implement successfully, whether by retail investors or professional investors.”
However, he said, dollar-cost averaging is not a bad strategy — generally speaking, 401(k) plan account holders are doing just that through their paycheck contributions throughout the year.
Additionally, before putting all your money in, say, stocks, all at once, you may want to be familiar with your risk tolerance. That’s basically a combination of how well you can sleep at night during periods of market volatility and how long until you need the money. Your portfolio construction — i.e., its mix of stocks and bonds — should reflect that risk tolerance, regardless of when you put your money to work.
“From our perspective, we’re looking at 10-year time horizons in the study … and market volatility during that time is going to be a constant, especially with a 100% equity portfolio,” Stucky said. “It’s better if we have expectations going into a strategy than afterwards discover our risk tolerance is very different.”
U.S. equity portfolio manager explains seven-step investment process – Wealth Professional
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