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Mexico’s investment drought holds back recovery from pandemic – Financial Times

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When Mexican president Andrés Manuel López Obrador swept to a landslide victory in July 2018, his government pledged to push public and private investment to 25 per cent of GDP in a bid to jolt the country’s economy out of a longstanding rut.

Instead, investment has fallen as a series of investor-unfriendly moves deterred inflows. López Obrador’s step last month to push through a law that would drastically change electricity sector rules is just the latest example, investors have warned.

He has also scrapped a partially built airport and brewery, cancelled electricity auctions, rewritten gas pipeline contracts, upset processed food manufacturers with new labelling requirements and pushed plans to ban subcontracting of jobs.

CEESP, a private sector think-tank, said the recent decision to prioritise the state electricity company was the 15th initiative by López Obrador, his Morena party or the government to undermine investor confidence in the past two and a half years.

Mexico is battling to haul itself out of its deepest recession since 1932 with only limited help from its government, which has held back from launching the kind of ambitious fiscal support measures undertaken by other major regional economies such as Brazil.

As a result growth is not expected to recover to pre-pandemic levels for another five years according to the IMF.

“They would have struggled to find a worse time to present this bill,” Carlos Salazar, head of Mexico’s biggest business lobby the CCE, told the Financial Times. “There is no doubt that this will cause more problems. No investors will want to invest.”

López Obrador believes that playing hardball with a private sector he accuses of corruption and unfair competition gets results as part of his self-styled mission to “transform” Mexico by eradicating malpractice.

He frequently brushes off suggestions the economy is in trouble by claiming to have “other data”. He highlights record remittances — $40.6bn last year, some 3.8 per cent of GDP — as a key aid to consumer spending.

López Obrador predicts the Mexican economy will grow by 5 per cent this year — more bullish than all economists’ estimates — but even that would not make up for the 8.5 per cent contraction in 2020.

And sustaining growth will be hard. “If anyone tells you that you can grow 5 per cent without 25 per cent [of GDP] total investment, they’re lying,” Carlos Urzúa, López Obrador’s first finance minister, told the FT in 2018.

With millions of jobs lost and businesses shut in Latin America’s second-biggest economy because of the pandemic, and 44 per cent of workers unable to make ends meet on their salaries, economists say the president needs to boost investment to save millions more people from falling into poverty.

“Recovering lost ground is going to take a long time, the investment climate is very strained. The signals are not good,” said Jessica Roldán, chief economist at brokerage Finamex. “In the medium and long term, it’s impossible to grow without investment.”

Line chart of $bn showing Remittances flows to Mexico continued to grow despite pandemic

Yet investment is falling further and further behind. Gross fixed investment — the sum of public and private spending on plants and machinery — was barely above 19 per cent of GDP in the third quarter of last year. It has not fallen to such levels since 2009, during the global financial crisis.

Foreign direct investment has slumped by more than $10bn during the pandemic and most of that is reinvestment of profits rather than greenfield projects, according to official data.

Private investment now only makes up 16.6 per cent of GDP, down from nearly 20 per cent in 2018, according to the Mexican Institute for Competitiveness (IMCO), a think-tank.

And although López Obrador has touted a handful of major infrastructure projects, including a refinery, an airport and a train line, public investment has fallen to 2.5 per cent of GDP — down from 2.9 per cent when he took office, CEESP said.

“It seems like the current federal government is determined to limit investment, and as a result, economic growth,” CEESP said.

Alonso Cervera, managing director in emerging markets research at Credit Suisse, said: “Mexico doesn’t seem to have a clear model for economic growth. It looks like the model of development is to build a couple of landmark projects like the refinery, the train and the airport and hope people will be happy with cash transfers.”

López Obrador prides himself on social spending, including pensions to the elderly and educational grants.

But economists warn the lack of investment will translate into lower growth prospects in future. Mexico has failed to grow much above an average of 2 per cent per annum for decades. Now, Cervera said potential growth was on course to reach just 1.5 to 2 per cent.

“We’re facing a very clear fall in potential growth,” said Roldán.

The electricity bill, which has been fast-tracked and is widely expected to pass, has only deepened the gloomy outlook.

The US Chamber of Commerce called it “the latest in a pattern of troubling decisions taken by the government of Mexico that have undermined the confidence of foreign investors in the country”.

And because of the pandemic, it said, now is “the precise moment enhanced foreign direct investment in Mexico is needed more than ever”.

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Listings boom, trading frenzy fuel record 2020 for investment banks – The Journal Pioneer

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By Lawrence White

LONDON (Reuters) – A surge in blank-cheque investment vehicle fundraising and frantic pandemic-related trading in 2020 boosted investment banks’ income by a record 28% from the year before, a report showed on Friday.

Revenues for the 12 largest investment banks tracked in research firm Coalition Greenwich’s index rose to $194 billion, the highest annual total for the industry since the survey began around a decade ago.

The trading bonanza showed how Wall Street and European banks benefited as the COVID-19 pandemic sparked global government and central bank action, upending asset prices and sending investors scrambling for safe havens.

Later in the year banks feasted on the craze for so-called blank-cheque or special purpose acquisition companies (SPACs), which raise money to acquire another company without specifying which one to their investors in advance.

Just one part of a listings boom which also included more traditional initial public offerings (IPOs), SPACs raised a record $82 billion last year and the trend has been gathering steam in 2021, boosting fee income for banks organising the deals.

Fixed income, currency and commodities (FICC) income rose 41% year-on-year, the Coalition report said, with commodities revenues hitting record levels as investors sought safe havens in precious metals and as oil prices surged later in the year.

Central Bank intervention to stimulate flatlining pandemic-hit economies also drove strong trading in credit products, except for more complex structured debt which risk-averse investors largely shunned.

In equities, derivatives volumes hit their highest level in a decade, Coalition said, but again more complex structured products underperformed as companies axing dividends in the first half of the year hit derivatives tied to such payouts.

JOB CUTS

Despite the bumper year, frontline revenue-producing bankers faced job losses, Coalition said, with positions down 1% from a year earlier to 48,700 as banks cut structured equity derivatives jobs in particular on waning demand.

That meant revenue per employee rose across all business lines, with the trend most evident in FICC where the measure rose to some $6 million, up 44% from 2019.

Banks kept bonus increases modest even as income soared, mindful of being seen to splurge too much amid an economic crisis and looking ahead to likely tougher times this year.

Coalition’s index tracks Bank of America , Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Societe Generale and UBS.

(Reporting by Lawrence White; Editing by Kirsten Donovan)

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With Ansys Off 24% From Recent High, Investment Opportunity Awaits – Forbes

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It’s not often that a conversation with a CEO leaves me dazzled. But that’s what happened to me on March 4 after speaking with Ajei Gopal, CEO of Ansys, a Pittsburgh-area engineering software company.

This 50 year old company enjoyed 24% revenue growth in the fourth quarter — reporting some $1.7 billion in 2020 revenue and finishing March 4 trade with a $26.7 billion market cap — and it looks to have a bright future ahead.

The recent swoon in tech stocks and disappointing guidance have taken a big bite out of its shares — since February 12 Ansys has fallen 24% from its peak of $404, according to Morningstar.

For those who believe it’s smart to invest in companies with great long-term growth potential when the stock price is down, . Here are three reasons I think Ansys is worth examining:

  • Large market opportunity
  • Winning competitive strategy
  • Compelling growth trajectory

(I have no financial interest in the securities mentioned in this post).

Ansys Financial Results

Ansys software simulates the physical world so product developers can get products to market faster and at a lower cost without the need to build a physical prototype.

Ansys’s more than 4,000 employees invent and apply its simulation expertise in a range of disciplines — including physical structures, fluids, semiconductors, power, optical, and electromagnetics — to serve over 50,000 customers in industries such as aerospace, defense and automotive.

Its customers include BMW, Porsche, Lucid Motors, Honeywell, Samsung and Axiom Space which plans to launch the first private mission to the International Space Station later in 2021

Ansys reported expectations-beating revenue and earnings per share growth for the final quarter of 2020. According to Zacks Equity Research, its 24% increase in fourth quarter revenues was 11% above the Zacks Consensus Estimate. Its $2.96 EPS for the quarter was 18% higher than Consensus and 32% more than the year before.

Ansys has beaten estimates for several quarters. Zacks noted that the company had exceeded revenue and EPS estimates for four consecutive quarters.

Ansys guided investors to expect slower growth for all of 2021. According to Nicole Anasenes, Ansys CFO, full year 2021 non-GAAP revenue is forecast to be up between “6% and 11% — in the range of $1,790 million to $1,875 million.”

She guided 2021 EPS in the range of $6.44 to $6.92, according to Ansys’ Q4 2020 Earnings Call Transcript — the midpoint of which is up 34% from its fully-diluted 2020 EPS of $4.97.

Large market opportunity

Ansys is aiming at a large, growing market opportunity. As Gopal told me, Ansys’s total addressable market is $8.5 billion and is “growing significantly — we expect it to triple in the next seven to 10 years.”

The pandemic had a mostly positive effect on demand for Ansys’s services. “While liquidity challenges reduced demand for our services among small and medium-sized businesses, the pandemic increased the number of R&D engineers who were working from home.”

Ansys helped its larger customers keep their R&D going. “Our larger customers were initially concerned that R&D — which is the last thing that companies cut in a recession — would fall apart. But we saw that engineers are perfectly capable of working from home without going into the labs. We proved that we could make engineers successful,” said Gopal.

Winning competitive strategy

Large companies have accelerated their product development roadmaps during the pandemic. “This has created more demand for our products. There has also been strong demand from designers of eco-friendly electronic vehicles and in commercial aerospace,” he explained.

To win new customers, Ansys must persuade engineers and “higher ups.” As Gopal said, “The engineers — who are the end-users of our product — have a strong vote. And when we talk with division presidents, they look for personalized return on investment analysis. I met with such an individual who had a reputation as very tough. He told me that 25 years before, he had been an engineer and Ansys’s product had fixed a problem that enabled him to meet his deadline. He has become our biggest champion.”

Ansys persuades such engineers to use its products thanks to the accuracy of its simulations and the ability of its products to integrate different scientific disciplines. “We polled customer CEOs for four years and they love the accuracy of our products. We are represented across all scientific disciplines. For example, in crash testing we can integrate disciplines — such as fluid flow, electronics, and structural — to simulate airbags,” he said.

Ansys builds very close technical relationships with its customers. As Gopal explained, “We have ACE [Ansys Customer Excellence] engineers — including 760 PhDs. They are skilled to know what customers are looking for and help them solve problems — for example, when they are struggling to get their models working.”

Ansys takes affirmative steps to keep the company from losing its ability to sense and adapt to changing threats and opportunities. “There are 4,800 people in the company and it feels like we are a startup — we’ve more than doubled the number of people since I joined in 2016,” he said.

Ansys uses many organizational methods to keep the startup feel. “Our ACE engineers help with the sprint of agile development — they can figure out how to prioritize our R&D portfolio in part based on how customer needs are changing. We are not monolithic — we encourage business units to be responsible for physics. There is interaction across the company. We have 1,000 companies in our startup program that are pre-revenue — founders and a dream. We give them heavily discounted software and we learn from them. And we partner with 3,000 universities who use Ansys for R&D and we help them in curricular development,” said Gopal.

Compelling growth trajectory

Ansys has a compelling longer-term growth trajectory. “We have five tailwinds: electrification — electric vehicles and submersibles; autonomy — self-driving care and automatic robots; 5G telecommunications — which has finicky signals; industrial Internet of Things; and Ecoactivity.”

Analysts were somewhat disappointed with Ansys’s 2021 guidance. As Morningstar

MORN
Equity Analyst Julie Bhusal Sharma wrote, “[Ansys’s] guidance was a step down from what we were projecting in 2021 on both the top and bottom lines. We continue to view shares as overvalued and recommend waiting for a greater pullback before investing.”

It is possible that its share could fall further — presenting an even better entry point for those looking to Ansys as a long-term investment in a good company.

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Listings boom, trading frenzy fuel record 2020 for investment banks – Cape Breton Post

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By Lawrence White

LONDON (Reuters) – A surge in blank-cheque investment vehicle fundraising and frantic pandemic-related trading in 2020 boosted investment banks’ income by a record 28% from the year before, a report showed on Friday.

Revenues for the 12 largest investment banks tracked in research firm Coalition Greenwich’s index rose to $194 billion, the highest annual total for the industry since the survey began around a decade ago.

The trading bonanza showed how Wall Street and European banks benefited as the COVID-19 pandemic sparked global government and central bank action, upending asset prices and sending investors scrambling for safe havens.

Later in the year banks feasted on the craze for so-called blank-cheque or special purpose acquisition companies (SPACs), which raise money to acquire another company without specifying which one to their investors in advance.

Just one part of a listings boom which also included more traditional initial public offerings (IPOs), SPACs raised a record $82 billion last year and the trend has been gathering steam in 2021, boosting fee income for banks organising the deals.

Fixed income, currency and commodities (FICC) income rose 41% year-on-year, the Coalition report said, with commodities revenues hitting record levels as investors sought safe havens in precious metals and as oil prices surged later in the year.

Central Bank intervention to stimulate flatlining pandemic-hit economies also drove strong trading in credit products, except for more complex structured debt which risk-averse investors largely shunned.

In equities, derivatives volumes hit their highest level in a decade, Coalition said, but again more complex structured products underperformed as companies axing dividends in the first half of the year hit derivatives tied to such payouts.

JOB CUTS

Despite the bumper year, frontline revenue-producing bankers faced job losses, Coalition said, with positions down 1% from a year earlier to 48,700 as banks cut structured equity derivatives jobs in particular on waning demand.

That meant revenue per employee rose across all business lines, with the trend most evident in FICC where the measure rose to some $6 million, up 44% from 2019.

Banks kept bonus increases modest even as income soared, mindful of being seen to splurge too much amid an economic crisis and looking ahead to likely tougher times this year.

Coalition’s index tracks Bank of America , Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Societe Generale and UBS.

(Reporting by Lawrence White; Editing by Kirsten Donovan)

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