Sunday, May 21, 2017

Internet giants shine in data-driven economy; Arab nations struggle to get local talent; For Church of England a 17% ROI

1 Internet giants shine in data-driven economy (Goh Eng Yeow in Straits Times) Like US tech giants Alphabet and Facebook, China’s Tencent has been enjoying a sharp run-up this year. One common trait shared by all these firms is their ability to deploy far fewer assets and human resources than the traditional bricks-and-mortar companies to expand their businesses once they have achieved a certain scale in their operations.

What is interesting to note is that at the recent shareholder meeting of Berkshire Hathaway, its boss Warren Buffett bemoaned the fact that he failed to spot these winners early on and invest in them. Mr Buffett has remained true to his lifelong philosophy of investing only in what he can understand, but admitted that he should have understood Google.

One reason to want to buy these tech firms, based on Mr Buffett's investment philosophy, is the sustainable moat they have created for themselves to enable them to scale up their business without requiring huge amounts of capital. But the more important reason to want to get our hands on them is the fabulous treasure trove of consumer information they have built up on shopping, eating, travelling and wealth.

The Economist magazine recently described data as the most valuable commodity in the economy we live in, giving enormous power to the companies with access to it. By collecting more and more data, a firm has more scope to improve its products and attract more users which, in turn, generates even more data.

The Economist notes that this gives them a ‘God-eye view’ over their markets and beyond. "They can see when a new product or service gains traction, allowing them to copy it or simply buy the upstart before it becomes too great a threat," it said. This helps explain why Facebook was willing to fork out such a big sum - $22 billion - to buy the messaging service WhatsApp in 2014 even though it had no revenue to speak of.

The success of upstarts like Snapchat suggests new entrants can still make waves, despite the dominance of Facebook in social media networking. Even Apple's late boss, Mr Steve Jobs, might not have grasped the enormity of the changes which he had unleashed.

With a market value of over $460 billion, Tencent founded by Pony Ma is now worth almost half as much as all the companies listed on the Singapore Exchange, even though it has been listed for only 13 years.

2 Arabs struggle to get local talent (Francis Matthew in Gulf News) Arab countries all lag behind their peers around the world in getting the talents of their people into the work force. Three major reasons are the dominance of the public sector, the short comings of the private sector and a state-centred paradigm of development that has relied on oil revenue, foreign aid or remittances.

According to the third annual edition of the Mena Talent Competitiveness Index by INSEAD and the Centre for Economic Growth, the UAE was the top Arab state in the Competitiveness Index, and the UAE came 19th in the global survey of 118 states. Qatar was the second Arab state and was 21st in the global survey. These two states were well above the rest of the Arab states, with Saudi Arabia third (42nd in the global survey), Bahrain, Kuwait, Jordan and Oman following in that order.

The UAE scored very well in the ability to enable, attract and retain talent in which measures it was ranked well into the top 20 in the world, but it suffered from much lower rankings in its ability to grow talent, in which it was 40th in the world. An INSEAD commentator said this indicates a deep problem of a structural dependency on imported skills, which is inhibiting the country’s ability to grow its own skills base.

3 For Church of England, a 17% ROI (Simon Goodley in The Guardian) The case for profitable ethical investing has been bolstered by the Church Commissioners for England, as the fund announced divine returns on its financial portfolio for 2016.

The body, which manages investable assets worth £7.9bn in order to “support the Church of England as a Christian presence in every community”, said it had smashed targets by making a 17.1% return on investments during 2016 – figures which will be the envy of many high-profile figures in the fund-management industry.

The church’s fund’s outperformance over the past decade has slightly outpaced even the Yale Endowment fund, which is rated by the Financial Times (paywall) as the most admired in the sector. The Church Commissioners, whose target is making a return of inflation plus five percentage points, said it had been partly aided in 2016 by sterling’s weakness after the Brexit vote, with the fall in the value of the pound accounting for about half the gains made on its equity portfolio.

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