Markets

How Global Central Banks are Responding to COVID-19, in One Chart

Published

3 months ago

May 20, 2020

Marcus Lu

Central Bank Policy COVID-19

How Global Central Banks are Responding to COVID-19

When times get tough, central banks typically act as the first line of defense.

However, modern economies are incredibly complex—and calamities like the 2008 financial crisis have already pushed traditional policy tools to their limits. In response, some central banks have turned to newer, more unconventional strategies such as quantitative easing and negative interest rates to do their work.

In response to the COVID-19 pandemic, central banks are once again taking decisive action. To help us understand what’s being done, today’s infographic uses data from the International Monetary Fund (IMF) to compare the policy responses of 29 systemically important economies.

The Central Bank Toolkit

To begin, here are brief descriptions of each policy, which the IMF sorts into four categories:

1. Monetary Policies

Policies designed to control the money supply and promote stable economic growth.

Policy Name	Intended Effect
Policy rate cuts	Stimulates economic activity by decreasing the cost of borrowing
Central bank liquidity support	Provides distressed markets with additional liquidity, often in the form of loans
Central bank swap lines	Agreements between the U.S. Fed and foreign central banks to enhance the provision of U.S. dollar liquidity
Central bank asset purchase schemes	Uses newly-created currency to buy large quantities of financial assets, such as government bonds. This increases the money supply and decreases longer-term rates

2. External Policies

Policies designed to mitigate the effects of external economic shocks.

Policy Name	Intended Effect
Foreign currency intervention	Stabilizes the national currency by intervening in the foreign exchange market
Capital flow measures	Restrictions, such as tariffs and volume limits, on the flow of foreign capital in and out of a country

3. Financial Policies for Banks

Policies designed to support the banking system in times of distress.

Policy Name	Intended Effect
Easing of the countercyclical capital buffer	A reduction in the amount of liquid assets required to protect banks against cyclical risks
Easing of systemic risk or domestic capital buffer	A reduction in the amount of liquid assets required to protect banks against unforeseen risks
Use of capital buffers	Allows banks to use their capital buffers to enhance relief measures
Use of liquidity buffers	Allows banks to use their liquidity buffers to meet unexpected cash flow needs
Adjustments to loan loss provision requirements	The level of provisions required to protect banks against borrower defaults are eased

4. Financial Policies for Borrowers

Policies designed to improve access to capital as well as provide relief for borrowers.

Policy Name	Intended Effect
State loans or credit guarantees	Ensures businesses of all sizes have adequate access to capital
Restructuring of loan terms or moratorium on payments	Provides borrowers with financial assistance by altering terms or deferring payments

Putting Policies Into Practice

Let’s take a closer look at how these policy tools are being applied in the real world, particularly in the context of how central banks are battling the effects of the COVID-19 pandemic.

1. Monetary Policies

So far, many central banks have enacted expansionary monetary policies to boost slowing economies throughout the pandemic.

One widely used tool has been policy rate cuts, or cuts to interest rates. The theory behind rate cuts is relatively straightforward—a central bank places downward pressure on short-term interest rates, decreasing the overall cost of borrowing. This ideally stimulates business investment and consumer spending.

If short-term rates are already near zero, reducing them further may have little to no effect. For this reason, central banks have leaned on asset purchase schemes (quantitative easing) to place downward pressure on longer-term rates. This policy has been a cornerstone of the U.S. Federal Reserve’s (Fed) COVID-19 response, in which newly-created currency is used to buy hundreds of billions of dollars of assets such as government bonds.

When the media says the Fed is “printing money”, this is what they’re actually referring to.

2. External Policies

External policies were less relied upon by the systemically important central banks covered in today’s graphic.

That’s because foreign currency interventions, central bank operations designed to influence exchange rates, are typically used by developing economies only. This is likely due to the higher exchange rate volatility experienced by these types of economies.

For example, as investors flee emerging markets, Brazil has seen its exchange rate (BRL/USD) tumble 30% this year.

In an attempt to prevent further depreciation, the Central Bank of Brazil has used its foreign currency reserves to increase the supply of USD in the open market. These measures include purchases of $8.8B in USD-denominated Brazilian government bonds.

3. Financial Policies for Banks

Central banks are often tasked with regulating the commercial banking industry, meaning they have the authority to ease restrictions during economic crises.

One option is to ease the countercyclical capital buffer. During periods of economic growth (and increased lending), banks must accumulate reserves as a safety net for when the economy eventually contracts. Easing this restriction can allow them to increase their lending capacity.

Banks need to be in a position to continue financing households and corporates experiencing temporary difficulties.

—Andrea Enria, Chair of the ECB Supervisory Board

The European Central Bank (ECB) is a large proponent of these policies. In March, it also allowed its supervised banks to make use of their liquidity buffers—liquid assets held by a bank to protect against unexpected cash flow needs.

4. Financial Policies for Borrowers

Borrowers have also received significant support. In the U.S., government-sponsored mortgage companies Fannie Mae and Freddie Mac have announced several COVID-19 relief measures:

Deferred payments for 12 months
Late fees waived
Suspended foreclosures and evictions for 60 days

The U.S. Fed has also created a number of facilities to support the flow of credit, including:

Primary Market Corporate Credit Facility: Purchasing bonds directly from highly-rated corporations to help them sustain their operations.
Main Street Lending: Purchasing new or expanded loans from small and mid-sized businesses. Businesses with up to 15,000 employees or up to $5B in annual revenue are eligible.
Municipal Liquidity Facility: Purchasing short-term debt directly from state and municipal governments. Counties with at least 500,000 residents and cities with at least 250,000 residents are eligible.

Longer-term Implications

Central bank responses to COVID-19 have been wide-reaching, to say the least. Yet, some of these policies come at the cost of burgeoning debt-levels, and critics are alarmed.

In Europe, the ECB has come under scrutiny for its asset purchases since 2015. A ruling from Germany’s highest court labeled the program illegal, claiming it disadvantages German taxpayers (Germany makes larger contributions to the ECB than other member states). This ruling is not concerned with pandemic-related asset purchases, but it does present implications for future use.

The U.S. Fed, which runs a similar program, has seen its balance sheet swell to nearly $7 trillion since the outbreak. Implications include a growing reliance on the Fed to fund government programs, and the high difficulty associated with safely reducing these holdings.

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Markets

Ranked: The Best and Worst Pension Plans, by Country

As the global population ages, pension reform is more important than ever. Here’s a breakdown of how key countries rank in terms of pension plans.

Published

3 days ago

August 1, 2020

Carmen Ang

Ranked: Countries with the Best and Worst Pension Plans

The global population is aging—by 2050, one in six people will be over the age of 65.

As our aging population nears retirement and gets closer to cashing in their pensions, countries need to ensure their pension systems can withstand the extra strain.

This graphic uses data from the Melbourne Mercer Global Pension Index (MMGPI) to showcase which countries are best equipped to support their older citizens, and which ones aren’t.

The Breakdown

Each country’s pension system has been shaped by its own economic and historical context. This makes it difficult to draw precise comparisons between countries—yet there are certain universal elements that typically lead to adequate and stable support for older citizens.

MMGPI organized these universal elements into three sub-indexes:

Adequacy: The base-level of income, as well as the design of a region’s private pension system.
Sustainability: The state pension age, the level of advanced funding from government, and the level of government debt.
Integrity: Regulations and governance put in place to protect plan members.

These three measures were used to rank the pension system of 37 different countries, representing over 63% of the world’s population.

Here’s how each country ranked:

Country	Overall Value	Adequacy	Sustainability	Integrity
Argentina	39.5	43.1	31.9	44.4
Australia	75.3	70.3	73.5	85.7
Austria	53.9	68.2	22.9	74.4
Brazil	55.9	71.8	27.7	69.8
Canada	69.2	70	61.8	78.2
Chile	68.7	59.4	71.7	79.2
China	48.7	60.5	36.7	46.5
Colombia	58.4	61.4	46	70.8
Denmark	80.3	77.5	82	82.2
Finland	73.6	73.2	60.7	92.3
France	60.2	79.1	41	56.8
Germany	66.1	78.3	44.9	76.4
Hong Kong	61.9	54.5	54.5	86.9
India	45.8	39.9	44.9	56.3
Indonesia	52.2	46.7	47.6	67.5
Ireland	67.3	81.5	44.6	76.3
Italy	52.2	67.4	19	74.5
Japan	48.3	54.6	32.2	60.8
Korea	49.8	47.5	52.6	49.6
Malaysia	60.6	50.5	60.5	76.9
Mexico	45.3	37.5	57.1	41.3
Netherlands	81	78.5	78.3	88.9
New Zealand	70.1	70.9	61.5	80.7
Norway	71.2	71.6	56.8	90.6
Peru	58.5	60	52.4	64.7
Philippines	43.7	39	55.5	34.7
Poland	57.4	62.5	45.3	66
Saudi Arabia	57.1	59.6	50.5	62.2
Singapore	70.8	73.8	59.7	81.4
South Africa	52.6	42.3	46	78.4
Spain	54.7	70	26.9	69.1
Sweden	72.3	67.5	72	80.2
Switzerland	66.7	57.6	65.4	83
Thailand	39.4	35.8	38.8	46.1
Turkey	42.2	42.6	27.1	62.8
UK	64.4	60	55.3	84
U.S.	60.6	58.8	62.9	60.4

The Importance of Sustainability

While all three sub-indexes are important to consider when ranking a country’s pension system, sustainability is particularly significant in the modern context. This is because our global population is increasingly skewing older, meaning an influx of people will soon be cashing in their retirement funds. As a consequence, countries need to ensure their pension systems are sustainable over the long-term.

There are several factors that affect a pension system’s sustainability, including a region’s private pension system, the state pension age, and the balance between workers and retirees.

The country with the most sustainable pension system is Denmark. Not only does the country have a strong basic pension plan—it also has a mandatory occupational scheme, which means employers are obligated by law to provide pension plans for their employees.

Adequacy versus Sustainability

Several countries scored high on adequacy but ranked low when it came to sustainability. Here’s a comparison of both measures, and how each country scored:

Ireland took first place for adequacy, but scored relatively low on the sustainability front at 27th place. This can be partly explained by Ireland’s low level of occupational coverage. The country also has a rapidly aging population, which skews the ratio of workers to retirees. By 2050, Ireland’s worker to retiree ratio is estimated to go from 5:1 to 2:1.

Similar to Ireland, Spain ranks high in adequacy but places extremely low in sustainability.

There are several possible explanations for this—while occupational pension schemes exist, they are optional and participation is low. Spain also has a low fertility rate, which means their worker-to-retiree ratio is expected to decrease.

Steps Towards a Better System

All countries have room for improvement—even the highest-ranking ones. Some general recommendations from MMGPI on how to build a better pension system include:

Increasing the age of retirement: Helps maintain a more balanced worker-to-retiree ratio.
Enforcing mandatory occupational schemes: Makes employers obligated to provide pension plans for their employees.
Limiting access to benefits: Prevents people from dipping into their savings preemptively, thus preserving funds until retirement.
Establishing strong pension assets to fund future liabilities: Ideally, these assets are more than 100% of a country’s GDP.

Pension systems across the globe are under an increasing amount of pressure. It’s time for countries to take a hard look at their pension systems to make sure they’re ready to support their aging population.

Business

Football Fever: Investing in the Beautiful Game

Football’s global appeal has boosted the game into a billion-dollar industry. How can fans and investors cash in on their favorite clubs?

Published

4 days ago

August 1, 2020

Iman Ghosh

Football Fever: Investing in the Beautiful Game

The very mention of football conjures up images of cheering fans from all corners of the world.

The global appeal of the game is undeniable, and it’s the strong support of fans that has propelled its growth into a multi-billion dollar industry.

Today’s infographic from Swissquote tracks how the sport has reached far and wide—even onto the stock exchange.

The Timeline of the Manchester United IPO

Manchester United is the largest publicly-traded football club in the world. The journey of its initial public offering (IPO) can be traced back almost 30 years.

1991: Man United floats on the London Stock Exchange (LSE)
It aims to raise £10 million, but falls short and finally raises £6.7 million.
2003-2005: Malcolm Glazer acquires ownership of Man United
This raises the club’s market capitalization to £790 million, and it delists from the LSE.
2012: Man United lists on the New York Stock Exchange
It aims to raise £62.8 million in this IPO, but surpasses this with a final raised value of £146.3 million. Interestingly, George Soros was the biggest investor in this deal, buying a nearly 2% stake in the club.

What makes a football team like Manchester United so attractive in the eyes of investors?

Over decades, a flourishing fan base from viewers to consumers has been the force behind the football industry’s success as a whole.

The Big Business of Football

FIFA, the international governing body of football, organizes and promotes all major tournaments. Its total revenue between 2015-2018 can be broken down into a few main components:

Revenue Source	Amount	% of total
Broadcasting rights	€2,800 million	48%
Marketing rights	€1,500 million	27%
Accommodation and ticket sales	€600 million	11%
Licensing rights	€500 million	9%
Other revenue	€300 million	5%
Total: €5,800 million

In fact, 83% of this total revenue came from the 2018 Russia World Cup alone. This was viewed by approximately 3.6 billion people—nearly half the world’s population.

The World Cup’s revenue even rivals the combined strength of the top five European clubs. How do the five major clubs make their money?

Club	Matchday	Broadcast	Commercial/ Sponsorships	2019 Revenue
FC Barcelona	€159M	€298M	€384M	€841M
Real Madrid	€145M	€258M	€355M	€757M
Man Utd	€121M	€274M	€317M	€712M
Bayern Munich	€92M	€211M	€357M	€660M
Paris Saint-German	€116M	€157M	€363M	€636M
Total	€633M	€1.2B	€1.8B	€3.6B

As viewership climbs, broadcasting rights furiously grow too—presenting numerous investment opportunities in sponsorship on the pitch and on the screen.

Cashing in on Clubs

Manchester United (NYSE:MANU) set a new precedent for publicly-traded football clubs—with a market cap worth near €1.8 billion today.

Following Man United’s example, other major clubs have since gone public across Europe. As well, Asia presents an emerging opportunity as the sport’s regional popularity expands.

Club	Stock Ticker	Mkt Cap (Jul 31, 2020)
🇮🇹 Juventus FC S.p.A	JUVE:IM	€1.19B
🇩🇪 Borussia Dortmund	BVB:GR	€511M
🇮🇹 AS Roma	ASR:IM	€320M
🇬🇧 Celtic F.C.	CCP:LN	€108M (£97M)
🇨🇳 Guangzhou Evergrande Taobao	NEEQ:834338	N/A
🇮🇩 Bali United	IDX:BOLA	€57M (Rp894B)

China’s most valuable football club—backed in part by e-commerce giant Alibaba—closely matches the valuation of Manchester United.

In Southeast Asia, Bali United was the first team to go public in June 2019. Shares jumped 69% higher than the initial listing price upon its IPO. This move is already propelling more planned IPOs for more football teams in the region, such as Persija Jakarta—the 2018 Liga 1 champion—and Thailand’s Buriram United.

The Future of Football

Football has the power to stir passions and unite people—and it’s reinventing itself constantly.

The 2019 Women’s World Cup was the most watched in tournament history, with over 1.12 billion tuning in. FIFA plans to invest almost €454 million more into the women’s game between 2019-2022, and grow the number of female players to 600 million by 2026.

Additionally, the annual esports tournament eWorld Cup is taking place in Thailand in 2020—tapping into the esports boom in Asia, which hosts 57% of esports enthusiasts.

Any football fan will tell you that the beautiful game is more than just a sport. And for investors, there are a variety of ways to gain exposure to this market—meaning fans can be both personally and financially invested as it continues to grow.