8 ★ FINANCIAL TIMES Monday5 August 2019COMPANIES & MARKETS
FT REPORTERSHow worried should we be about
Trump’s latest tariffmove?Global markets ended the weekreeling
from thelatest escalation in trade ten-
sions between the US and China, after
Donald Trump unveiled a 10 per cent
tariff on $300bn worth of Chinese
goods. Equities, US bond yields and oil
pricestumbled, while China’s renminbi
weakened to its lowest level this year.
Few had expected last week’s round of
trade talks, the first since a fragile truce
struck in Osaka between Mr Trump and
Chinese president Xi Jinping, to yield
immediate results. But investors were
caught flat-footed by the suddenness of
the tariffrise, with markets still digest-
ing the US Federal Reserve’s landmark
rate cut in the week.
Investors clearly think the news will
raise growth worries at the Fed — expec-
tations for a rate cut at the bank’s Sep-
tember meeting zoomed fromabout 60
per cent to more than 95 per cent,
according to Bloomberg data.
Analysts at UBS said while most busi-
nesses should be able to survive the
escalation, the uncertainty created
could weigh on investment, business
confidence and hiring. But they added:
“The aggressive change in tone by major
central banks, and the hope of a deal to
forestall implementation before Sep-
tember 1, may help to soothe some of
the sting of this announcement.”
Others speculated that markets might
be in for a long period of trade war-
related uncertainty, at least until theUS
election in late 2020. “We believe
China’s strategy in this trade war escala-
tion will be to slow down the pace of
negotiation and tit-for-tat retaliation.
This could lengthen the process of retal-
iation until the upcoming US presiden-
tial election,” said Iris Pang, economist
at ING.Siddarth ShrikanthWill Boris Johnson’s ‘boosterism’
capsize the gilt market?
With Boris Johnson in Number 10, aus-
terity is well and truly over. The UK
prime minister has promised a spending
spree to helpnavigate Brexit — a strat-
egy he has labelled “boosterism”.
This shift in Conservative priorities
away from fiscal restraint is already
showing up in the market for UK gov-
ernment bonds, known as gilts. In gen-
eral, gilts have rallied as risks of a no-deal Brexit rise. The thinking among
investors is that leaving the EU without
a deal will hurt the economy, forcing the
Bank of England to cut rates — the same
logic that has seen sterling tumble.
But the rally has been uneven, with
longer-dated gilts lagging behind. The
gap in yield between a 10-year bond and
a 30-year bond widened last week to the
most in two years.
The reason is that investors are gear-
ing up for increased gilt issuance as the
government increases borrowing to pay
for Mr Johnson’s pledges of more police
officers, hospitals and railway lines,
according to Peter Schaffrik of RBC Cap-
ital Markets. “The balance of supply and
demand plays a much greater role in
longer-dated gilts, whereas the short
end reacts to interest rate expectations,”
Mr Schaffrik said.
Despite the weakness of 30-year UK
debt, outright borrowing costs have still
fallen. That is likely to continue as long
as Brexit concerns trump the shifting
supply-and-demand dynamics in the
market. In fact, the most bearish sce-
nario for gilts of all stripes would be a
sudden reduction in Brexit tensions. “IfBrexit was somehow cancelled, that
would be a big blow for gilts,” Mr Schaf-
frik said.Tommy StubbingtonWill US services spring back?
Data on US service industries, out today,
will offer investors a glimpse into the
effects of slowing global growth on the
sector, a vital cog of the US economy.
The Institute for Supply Manage-ment’s non-manufacturing purchasing
managers’ index is a proxy for the
health of services businesses — span-
ning agriculture, mining, construction,
transport, communication and retail.
The data relate to July and are antici-
pated to touch 55.6, according to a sur-
vey of economists by Bloomberg, where
a score above 50 indicates growth.
Data have revealed a softening across
the sector. June figures disappointed,
coming in at 55.1 compared with expec-
tations of 56. This marked the lowest
reading since 2017 and indicated a slow-
down in purchasing activity. The poor
showing deepened concerns that the US
is feeling the effects of slowing growth
and the trade stand-off with China.
The data followthe Fed’s rate cut,
which clipped the benchmark lending
level 0.25 percentage points, as the cen-
tral bank looked to boost inflation in the
face of a dimming global outlook. The
Feddecision followed a wave of dovish
moves in Europe and Australia.
“Our economists assign a low proba-
bility to recession in the near future,”
said David Kostin, Goldman Sachs’ chief
US equity strategist.Richard HendersonMarket Questions.Global jitters
Assets shaken by Trump crackdown and Brexit
uncertainty as data point to slowing growth
Investors were
caught
flat-footed by
the suddenness
of Donald
Trump’s tariff
rise, with
markets still
digesting the
Fed’s landmark
rate cut
Drew Angerer/GettyALISTAIR GRAY— NEW YORKUS retailers are warning that President
Donald Trump’s new round of trade
tariffs threatens to accelerate job losses
as figures show it is the only sector of
the economy to have shedworkers in
the past two years.After a wave of bankruptcies and store
closures, data published on Friday
showed the retail trade employed
49,000 fewer people last month than in
July 2017. Department stores, clothing
chains and electronicsbore the brunt of
the retail cuts.The aggregate job losses
in the sector would have been higher
were it not for hiring by grocers — which
have been less hard hit by internet shop-
ping in the US — and car dealerships.
In a sign of how therise of Amazon is
transforming the labour market, retail
has missed out onthe employment
boom in other industries.
Transport and warehousing added
about 370,000 positions over the
two-year period, according to the fig-
ures from the Federal Reserve Bank of
St Louis and the US Bureau of Labor
Statistics.
Retail employees are braced for more
redundanciesahead. President Trump
last week said he planned toimpose tar-
iffs of 10 per centon $300bnof Chinese
imports from next month, just as the
industry prepares for theChristmas
shopping season.
“If you’re bringing in less income andconsumer demand starts to go down,
there’ll be less reason to employ peo-
ple,” said Matt Priest, head of the Foot-
wear Distributors and Retailers of
America, a trade body.
Retail analysts stopped short of warn-
ing that the latest tariffs would neces-
sarily lead directly to widespread
redundancies across the sector.
The 10 per cent tariffs are lower than
the 25 per cent previously threatened.
However, they warned that the addi-
tional costs would prove too much for
weaker outlets already operating on
thin marginsand grappling with other
pressures from changing consumer
tastes.
“For those companies that are a bit
shaky, this is going to push them over
the edge faster,” said Julia Hughes, presi-
dent of the United States Fashion Indus-
try Association.
Job losses in retail have been driven
by bankruptcies of big employers
including Sears as well as cost-cutting
and store closures by others such as
Macy’s. Lowe’s, a DIY chain, last week
put thousands of employees on notice
for possible cuts.
Employment market data published
on Friday showed the retail trade lost
another 3,600 positions at a seasonally
adjusted rate in July.
Every other main sector of the econ-
omy added jobs over the two-year
period apart from utilities, where
employment was unchanged.
Shares in several of the country’s big-
gest retailers including Best Buy, Gap
and Macy’s sold off heavily last week
after President Trump issued his latest
tariff threat.Retail
Stores warn
Washington’s
tariffs threaten
domestic jobs
Long-dated UK gilts have
underperformed
Spread between -year and
-year bond yieldsSource: Bloomberg ‘If you’re bringing in less
income and demand starts
to go down, there’ll be lessreason to employ people’
ERIC PLATT— NEW YORKWarren Buffett’sBerkshire Hathaway
on Saturday posted a jump in second-
quarter net profits and said its cash pile
had swelled to ahigh, as the broader US
stock market lifted the value of its
multibillion-dollar equity portfolio.
The investment conglomerate said
profits in the second quarter climbed
17 per cent from a year earlier to
$14.1bn, or $8,608 per class A share.The company attributed just under
$8bn of its profits in the period to swings
in financial markets and the saleof
some of its securities, which offset lower
insurance underwriting profits in the
three months to June.
Berkshire’s cash pile continued its
ascent, reaching a record $122bn in the
period, while the value of its stock port-
folio rose above the $200bn mark.
Mr Buffett has struggled to clinch a
significant takeover in recent years. In a
letter to shareholders in February he
warned that prices for businesses were
“sky-high” and the group was likely to
invest in stocks as it hoped for an “ele-
phant-sized acquisition”.Instead the group spent roughly
$442m in the quarter buying back its
stock, lifting repurchases in the first half
of class A and B common stock to
$2.1bn.
The share buybacksareclosely
watched by investors and analysts, with
some hoping Berkshire will accelerate
its repurchases.
James Shanahan, an analyst withEdward Jones, said investors had been
disappointed by the “lack of activity” at
Berkshire recently; it last clinched a big
takeover more than three years ago.
Even after its $10bn investment in
Occidental Petroleum to fund the oil
group’s purchase of rival Anadarko is
completed later this year, Berkshire’s
cash pile could still be higher than year-
ago levels come December, Mr Shana-
han said.
“The inability to identify attractive
operating companies to acquire— that is
a problem that has persisted for a long
time,” he said. “This cash balance grow-
ing out to a new record level is frustrat-
ing to a lot of investors, but they havebeen taught over decades to appreciate
that the management team will be cau-
tious and wait for opportunities.”
The headline figures accompanied
operating results from Berkshire’s doz-
ens of businesses that point to US eco-
nomic weakness. Operating earnings at
Berkshire fell 11 per cent to $6.14bn in
the three months to the end of June,
partly weighed down by higher
expenses at insurance unit Geico and
falling agriculture and consumer prod-
ucts shipments on its BNSF railway.
Rail operators across the US have sig-
nalledthat the long-running US expan-
sion is cooling and that the trade war is
taking a bite out of their results.Financials
Buffett group’s cash pile hits $122bn record
Berkshire Hathaway
conglomerate bolsters
second-quarter profitFastFT
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ft.com/fastftBENJAMIN PARKIN— BANGALOREIndia’s booming digital payments sec-
tor has become a battleground
between Chinese and American inves-
tors but the market is likely to consoli-
date as a few winners emerge, accord-
ing to Nandan Nilekani, co-founder of
Infosys and head of a government drive
toincrease online transactions.Investors from China and the US have
poured money into thenascent industry
with Paytm, which is backed by Alibaba,
going up against Walmart-owned
PhonePe, and Google, Amazon and
WhatsApp all in various stages of rolling
out their own platforms. Other start-ups
including Truecaller, Razorpay and
BharatPe are also competing for a slice.
US and Chinese investors have
strengthened focus on India’s fast-grow-
ing technology sector after being largely
unable to enter each other’s markets, a
stalemate that has intensified due to the
Washington and Beijing trade war.
Analysts and executives expect a
clear set of winners to emerge as the dig-
ital payments market matures, follow-
ing a pattern set in ecommerce, ride-sharing and food delivery where a few
companies drove out the rest.
“India is actually the ground zero of
competition,” Mr Nilekani said. “In the
long term, when you get to a stable state,
you will have three or four players.”
India beat China as the top market in
Asia for venture capital-backed fintech
funding in the first quarter of 2019,
according to CB Insights, a market
research group. Chinese investors put
$3.5bn into Indian tech in 2018, accord-
ing to Tracxn, a data provider, and par-
ticipated in almost double the number
of funding rounds from a year earlier.
The stakes for investors are high: with
approximately 450mmobile internet
users, India already has twice as many
as the US and PwC expects this number
to grow to 667m by 2022.
“India is the only large country where
you have American companies... and
you have the Chinese companies,” Mr
Nilekani said. “That’s why you’re seeing
so much activity.”
Mr Nilekani chairsacentral bank
committee that in May set an ambitious
target of increasing digital payments per
head from 22 a year now to 220 by 2022and tripling the number of users, break-
ing the country’s dependence on cash.
To help meet its target, India’s central
bank has scrapped transaction fees on
certain payments and requires public-
sector banks to invest more to promote
digital transactions.
While cash levels in India remain
stubbornly high, the prospect of mil-
lions of new smartphone usersswitch-
ing to digital transactions has enticed
foreign investors.
Alibaba has established itself as a key
force in Indian digital payments, snap-
ping up almost half of Paytm in a series
of investments since 2015. Walmart
acquired PhonePe last year when it paid
$16bn for parent company Flipkart.
For Chinese investors, India presents
an opportunity to escape their own
comparatively saturated tech scene,
said Neha Singh, the co-founder of
Tracxn. For US companies shut out of
China, India’s size and relative openness
makes it the next logical choice.
“Everyone is coming to that market,
and trying to see if they can become
big,” she said. “That is a very interesting
sort of fight.”Technology
US and China vie for India’s digital payments
ANDREW JACK AND JONATHAN MOULESOne of France’s leading business
schools has sold stakes to two external
investors in the first sign of a significant
shake-up in control of the country’s
elite business education system.EMLyon Business School, Lyon’s main
MBA provider, has sold an initial 14 per
cent to each of the state-linked Qualium
Investissement and Bpifrance Inves-
tissement for a total of €40m, diluting
the control of the region’s chamber of
commerce. It plans to offer further
stakes to both investors as well as staff
and alumni in future to raise €100m,
reducing the chamber’s stake over five
years to 48 per cent.
Tawhid Chtioui, the dean, said the
decision would help support its reloca-
tion to a new city centre campus and
plans to acquire an engineering and a
design school to create a more interdis-
ciplinary approach to teaching business.
“Our ambition is to be one of the top
10 European business schools,” he said,
stressing that its values would be safe-
guarded by golden shares to ensure con-
tinued oversight by the chamber ofcommerce. Many of the country’s lead-
ing “écoles de commerce” are considering
approaches such as selling shares,as
they seek fresh money in the face of
intensifying competition and the ero-
sion of their state-backed support.
HEC, Essec and ESCP Europe in Paris,
and Grenoble Ecole de Management,
Toulouse Business School and Neoma
Business School, are also exploring waysto raise funds while retaining academic
quality and respecting the wish of their
regional chambers of commerce to
retain oversight.
The changes reflect the budget cuts
from France’s local chambers of com-
merce, which have the authority to levy
taxes on business and have traditionally
created, funded and overseen “grandes
écoles” to train future managers.
The schools have served an elite ofFrench students who typically enter via
a highly competitive entrance exam
after studying in specialist preparatory
schools. However, applications to these
“prepa” classes have stagnated, while
government reforms have squeezed
taxes going to the chambers, leaving
business schools struggling to find other
income.
French business schools will either
have to find new funding sources or sig-
nificantly raise their tuition fees,
according to Jean-Pierre Choulet, the
director of development and alumni at
Henley Business School, who spent 20
years in senior roles atEssec. “Business
education in France needs a new [busi-
ness] model,” he said.
Frank Bournois, the head of ESCP
Europe,said: “Never in the history of
French business schools has there been
so much happening in so little time with
so many challenges of governance, digi-
talisation and the internationalisation
of students and faculty.” Hesaid it was
important to seek investors such as cor-
porate philanthropic foundations who
“have ethics and are not greedy” in
order to maintain quality.Support services
Investors bet on elite French business school
17 %
Profit increase
in the second
quarter from
a year earlier$200bn
Value of the
investment
company’s stock
portfolioEMLyon has sold 14%
to both Qualium and
Bpifrance Investissementfor a total of €40m
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