Blackrock: Political Polarization Creating Lack of Consumer Confidence

Pretty regularly here at the CC Capital Advisors blog, we ask the question: "Why have the markets failed to rebound as fundamentals improve, equity markets rally and an abundance of capital sits idle in a low income environment?" As we wrote previously, healthcare had a tough time in 2013 due to the Affordable Care Act casting a shadow of uncertainty over the market. Russ Koesterich, Chief Investment Strategist at Blackrock recently released a paper that postulates that political uncertainty extends beyond healthcare to tax code, regulatory issues and more. Russ explains that the budget deal has removed the risk of another government shutdown, but continued uncertainty about the ACA and partisan gridlock are making consumers and businesses alike uneasy. According to the figure below, party polarization is at its worst point in fifty years. This graph measures the difference in voting patterns between the Democrat and Republican members of Congress. As you can see, the gap is widening, not narrowing.   So, what does this mean for the wider deal market? First, the uncertainty of the political situation is most likely impacting more than just the health care industry. When a government is unable to govern properly, there is a resulting lack of confidence in that market. This is generally seen in emerging markets, where a sovereign government may make investment difficult or risky, but can also take place in developed countries. Secondly, it will be interesting to see just how good the fundamentals and market opportunities need to be to overcome this lack of faith in the political system. At some point, one would expect deal makers to take advantage of opportunities even if they lack faith in the broader political situation; this will only happen when the reward outweighs the associated risk. Finally, Russ concludes that if there are any sort of "surprises" of the positive sort from Washington, we could see pent up deal demand released into the market place. Of course, that would require a miracle in the form of Congress getting their act together. Read the entire report from Blackrock here.

Chinese Investment in the U.S. Continues to Grow

July 10, 2013 09:32 by Clayton Reeves in Agriculture, Capital Markets, M&A  //  Tags: , , , , ,   //   Comments (0)
Despite political, regulatory, cultural and geographic obstacles to Chinese firms investing in the U.S., they continue to do so at a growing rate. Chinese figures show that their investment in the U.S. grew to $9.3 billion in 2012 from $1.88 billion in 2007. U.S. figures were even more extreme, concluding that the cumulative investment jumped from $3.4 billion to $22.8 billion in the same period.  The recently proposed acquisition of Smithfield Foods by Shuanghui International for $4.7 billion would represent the largest ever acquisition of a U.S. firm by a Chinese entity. Additionally, this acquisition could represent a threat to the U.S. food supply, which has generally been more protected through regulatory issues due to national interests. With many of the food related issues that Chinese firms have faced, either in the pet or human food arena, there is concern from regulators about the acquisition of Smithfield. Regardless of how the Smithfield acquisition turns out, one fact remains: the Chinese are interested in purchasing U.S. companies moving forward and have the dry powder to do so.  It will be interesting to see how this changes the M&A landscape moving forward. Click here to read the article this post references in the China Daily.

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