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Breakingviews - Corona Capital: Singapore, Peugeot, Crisis warning

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MUMBAI/LONDON/HONG KONG (Reuters Breakingviews) - Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

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- Singapore

- Peugeot

- Crisis warning

RAINY-DAY FUNDS. Singapore has dug deep. The government has turned to its sovereign wealth fund GIC’s reserves for an extraordinary $38 billion drawdown. That will help finance more than half of the economic support announced so far this year. This is the fund’s second-ever drawdown in nearly four decades, and is 10 times bigger than the one seen during the global financial crisis. It’s a sharp reminder of the burden the pandemic is placing on economies. Other governments can only borrow.

GIC foresees major changes in the global investment environment as a result of higher debt. Major central banks will now accommodate periods of above-target inflation, even during economic upswings. It also thinks the blurring of lines between monetary and fiscal policies seen during the pandemic may be here to stay, which could lead to capital flight and currency depreciations. If so, lower returns and increased volatility are the future. (By Una Galani)

FULL SPEED AHEAD. Peugeot Chief Executive Carlos Tavares is showing automakers a way out of their post-coronavirus funk. Shares in the $16 billion company rose by 4% on Tuesday after its car business generated 731 million euros operating profit in the first half despite a 35% annual drop in revenue, comfortably beating analysts’ forecasts. Vigorous cost-cutting kept Peugeot’s core operating profit margin positive at 3.7%. The company reckons sales in Europe, its biggest market, will drop by 25% this year compared with 2019. Increased efficiencies should, however, enable Tavares to comfortably beat a minimum 4.5% margin target next year.

Even so, investors remain hard to please. Tavares’s planned union with Italy’s Fiat Chrysler Automobiles targets synergies with a present value of some 25 billion euros, according to a Breakingviews calculation. That’s only slightly lower than the two automakers’ combined market values. Peugeot’s pandemic performance is a start at winning over sceptics. (By Christopher Thompson)

COVID-19’S CASSANDRA. The world’s next global financial crisis may be on the horizon, the former chief of the Hong Kong Monetary Authority has warned. Speaking in a recent interview, Joseph Yam sounded the alarm that the pandemic has brought a sudden stop to the global economy, which will have dire consequences for financial markets.

Too much volatility and money sloshing around – unresolved problems from earlier crashes in 1997 and 2008 – will make this impending financial crisis even harder to manage, Yam reckons. The massive fiscal deficits and money-printing from the U.S. Federal Reserve and other central banks will only add to the distortions. With second and third waves of infections sweeping across Europe and Asia, and more pressure for policymakers to revive economic growth, expect more sombre prophecies to come. (By Jamie Lo)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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