Matthew Campbell and Jacqueline Simmons London
THE World Economic Forum has long been something of a coming-out party for emerging economies, with developing countries dispatching politicians and executives to the Swiss resort of Davos to drum up interest. This year, the big magnet for investment looks to be an older player on the global stage: the US.
While Brazil stagnates, Russia enters a recession, and India struggles to implement economic reforms, the US is booming as energy prices plummet and Silicon Valley dominates global tech.
Though Wednesday’s retail sales report damped enthusiasm about the scale of the US rebound, the American economy grew at its fastest pace in over a decade in the third quarter of 2014, reaching an annualised rate of 5 percent.
“The pendulum has shifted,” said Jacob Frankel, chairman of JPMorgan Chase’s international arm, who’s been attending Davos since the mid-1980s. “The US is now regaining its position in the world economy. It is the place where the recovery took hold in the most robust way.”
The Davos agenda continues to focus more on emerging markets than on the US, but the tone at this year’s meeting, which takes place from January 21 to 24, is less upbeat about prospects in the developing world.
Beyond the podium at Davos – in the corridors, cafes, and bars – much of the talk will be about the US’s remarkable resilience, said Martin Reits, who oversees the German business of investment bank Rothschild. Companies “not present in the US or who are sub-scale in the US are thinking about how to address this”.
Stuck in a small ski town surrounded by snow, forests, and mountains for the better part of a week, top chief executives use the conference to catch up with other executives, and the talk often turns to acquisitions. That could lead to more deals like the $259 billion (R2.98 trillion) in foreign takeovers of US companies that took place in 2014, more than double the previous year’s total and the highest since 2007.
Largest-ever
Germany’s Merck made the biggest deal of last year’s bunch, with a proposed $17bn takeover of Sigma-Aldrich, a producer of chemicals used in laboratories.
The interest is global. In May, Japanese distiller Suntory completed a $16bn acquisition of 219-year-old bourbon producer Jim Beam. A few months later, Calgary-based Encana made a $5.9bn bet on the Texas oilpatch with its purchase of Athlon Energy, the largest-ever US oil and gas deal by a Canadian company. And in March, Qatar’s sovereign wealth fund joined a group of investors that agreed to buy half of American Express’s business-travel unit for $900 million.
Despite the shift in sentiment, the Davos crowd is a long way from writing off Asia, Latin America and Africa. Based on purchasing power, China last year overtook the US as the world’s largest economy, according to the International Monetary Fund, and Indian Prime Minister Narendra Modi is seeking broad reforms to increase growth.
Still, the atmosphere in Davos will be markedly different from 2006, when India’s government and companies sponsored parties and dinners with a campaign called “India Everywhere”, or three years later when Vladimir Putin took the stage to promote Russia as an island of economic stability in the global financial crisis.
– Bloomberg