Sustainable Fashion: Trends, Innovations, and Investment Opportunities

April 14, 2025 by Yirun WANG

In this article, Yirun WANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2024-2025) explains about recent developments and opportunities of sustainable fashion.

The Rise of Sustainable Fashion: Innovation Meets Consumer Demand

The fashion industry, historically known for its significant environmental footprint, is undergoing a profound transformation. Brands are increasingly adopting eco-friendly materials and processes to reduce their impact on the planet. From recycled fabrics and biodegradable textiles to innovative solutions like lab-grown leather and waterless dyeing technologies, the industry is embracing groundbreaking advancements that prioritize sustainability.

Leap® by Beyond Leather

Source: the company.

A key driver of this shift is the changing behavior of consumers, particularly among younger generations. Today’s shoppers are more informed and conscientious, demanding greater transparency and accountability from brands. They want to know where their clothes come from, how they are made, and whether the production processes align with ethical and environmental standards. This growing demand for sustainable products is pushing brands to rethink their strategies and integrate sustainability into their core values. Companies that fail to adapt risk losing relevance in an increasingly competitive market, while those that embrace sustainability are gaining a competitive edge and building stronger connections with their customers.

Investment Trends: Capital Flowing into a Greener Future

The sustainable fashion movement is not just reshaping consumer behavior—it’s also attracting significant attention from investors. Venture capital and private equity firms are increasingly directing funds toward startups and established brands that prioritize environmental and social responsibility. One area of particular interest is circular fashion, a model that emphasizes designing products for reuse, recycling, or upcycling. This approach not only reduces waste but also creates new revenue streams and business opportunities.

Industry leaders Brunello Cucinelli and Matteo Marzotto have invested in YHub, a pioneering company at the forefront of traceability and sustainability technologies. YHub’s innovative platform enhances supply chain transparency by enabling businesses to verify the ethical origins and environmental credentials of their products. This strategic move reflects a broader trend of capital shifting toward green innovations, as the fashion and luxury sectors increasingly prioritize sustainable practices in response to growing consumer demand for accountability and ethical production.

Additionally, ESG (Environmental, Social, and Governance) criteria are becoming a critical factor in investment decisions. Investors are looking for brands that demonstrate a clear commitment to reducing waste, improving labor conditions, and minimizing their environmental impact. This trend reflects a broader recognition that sustainability is not just a moral imperative but also a smart business strategy. Brands that align with these values are more likely to secure funding, attract loyal customers, and thrive in a rapidly changing market.

Why should I be interested in this post?

The intersection of sustainability and fashion represents a pivotal moment for the industry. It’s not just about creating eco-friendly products; it’s about reimagining the entire lifecycle of fashion—from design and production to consumption and disposal. This shift is driven by a combination of innovation, consumer demand, and investment, all of which are working together to create a more sustainable future.

This article offers a comprehensive look at the forces driving this transformation and the opportunities it presents. Whether you’re a consumer looking to make more informed choices, an investor seeking promising opportunities, or simply someone interested in the future of fashion, understanding these trends is essential. The move toward sustainability is not just a trend—it’s a fundamental change that will define the fashion industry for decades to come.

Useful resources

Women’s Wear Daily (WWD) (24/06/2024) Brunello Cucinelli, Matteo Marzotto Investing in YHub, a Leader in Technologies for Traceability and Sustainability

Forbes (26/04/2024) The Importance of Sustainability In Fashion

McKinsey (11/11/2024) The State of Fashion 2025: Challenges at every turn

About the author

The article was written in April 2024 by Yirun WANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2024-2025).

Berkshire Hathaway

February 24, 2025 by Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) gives an overview about Berkshire Hathaway, starting from its history to its investment strategies, financial analysis of the company and its future outlook.

Introduction

Berkshire Hathaway is one of the most iconic and highly regarded companies in the world. Led by Warren Buffett, often referred to as the “Oracle of Omaha,” it is synonymous with long-term investment success and financial acumen. This article delves into the origins, business model, and strategic philosophy of Berkshire Hathaway, providing a robust understanding tailored for finance students and professionals.

Logo of Berkshire Hathaway

Source: 1000 logos

History

Berkshire Hathaway traces its roots back to two textile companies, Berkshire Fine Spinning Associates and Hathaway Manufacturing, which merged in 1955. Originally a struggling textile firm, it caught the attention of Warren Buffett in 1962. Buffett initially invested in Berkshire for its undervalued stock price but soon pivoted the company’s focus toward investing in other businesses. Under his leadership, Berkshire Hathaway became a multinational conglomerate, abandoning textiles entirely by the mid-1980s. Charlie Munger is a renowned American investor, businessman, and philanthropist who served as the vice chairman of Berkshire Hathaway for decades. was also a close friend and business partner of Warren Buffett, and together they built Berkshire Hathaway into one of the most successful companies in the world.

Warren Buffet and Charlie Munger

Source: Hindustan Times

Company Overview

Berkshire Hathaway is headquartered in Omaha, Nebraska, and is a holding company with diverse business interests. It owns a mix of wholly owned subsidiaries and significant minority stakes in publicly traded companies. As of recent years, Berkshire is one of the largest companies globally by market capitalization, with Class A shares trading at $745,303 per share, dated 24th February 2025, a testament to its consistent growth and profitability.

Berkshire hathaway class A share price

Source: Yahoo

Business Segments

Berkshire Hathaway operates across a wide range of industries, making it a textbook example of diversification. The major business segments include:

Insurance: The cornerstone of Berkshire’s operations, this segment includes GEICO, Berkshire Hathaway Reinsurance, and General Re. These businesses provide a significant source of “float,” or upfront premium payments, that Berkshire uses for investments.
Utilities and Energy: Berkshire Hathaway Energy manages electricity and natural gas utilities, renewable energy projects, and energy infrastructure across the United States and abroad.
Manufacturing, Service, and Retail: Subsidiaries such as Precision Castparts, Duracell, and Brooks Sports fall under this category, showcasing Berkshire’s hands-on involvement in consumer and industrial goods.
Railroad: BNSF Railway, one of the largest freight rail networks in North America, is a wholly owned subsidiary.
Investments in Public Companies: Berkshire holds substantial equity stakes in companies like Apple, Coca-Cola, American Express, and Bank of America, demonstrating its preference for blue-chip stocks.

Investment Strategy and Philosophy

Berkshire Hathaway’s investment strategy is underpinned by value investing principles championed by Benjamin Graham, Buffett’s mentor. Key aspects include:

Focus on Intrinsic Value: Berkshire seeks companies trading below their intrinsic value, as determined by rigorous analysis of cash flows and assets.
Long-Term Horizon: Unlike traders aiming for short-term gains, Berkshire prioritizes investments that can yield substantial returns over decades.
High-Quality Businesses: Buffett often invests in companies with strong competitive advantages (economic moats), robust management, and predictable cash flows.
Conservative Use of Debt: The company’s cautious approach to leverage ensures financial stability, even during market downturns.

Financial Performance and Analysis

Berkshire Hathaway’s financial performance is closely scrutinized due to its unique structure and Buffett’s reputation. Some critical metrics include:

Book Value Per Share: Historically, this measure has been used to gauge the company’s intrinsic worth.
Operating Earnings: This highlights the profitability of Berkshire’s subsidiaries.
Investment Portfolio Performance: The returns from its equity holdings and fixed-income securities significantly contribute to overall earnings.

Berkshire’s annual shareholder letters, penned by Buffett, are a treasure trove of insights, blending financial results with timeless investing wisdom.

Future Outlook and Challenges

While Berkshire Hathaway remains a formidable entity, it faces challenges:

Succession Planning: As Warren Buffett and Vice Chairman Charlie Munger age, questions about leadership continuity loom large. Buffett has named Greg Abel, a senior executive, as his successor.
Capital Deployment: Berkshire’s massive cash reserves, often exceeding $100 billion, can be both an asset and a liability. Finding suitable investment opportunities at scale remains challenging.
Market Dynamics: As Berkshire grows, maintaining its historical rate of return becomes increasingly difficult due to the sheer size of its asset base.

Conclusion

Berkshire Hathaway stands as a masterclass in disciplined investing and business management. Its journey from a failing textile mill to a global conglomerate is a testament to the power of sound financial principles, patience, and vision.

Why should I be interested in this post?

For finance students and professionals, studying Berkshire Hathaway offers invaluable lessons in diversification, risk management, and the nuances of value investing.

Useful resources

Berkshire Hathaway

Wikipedia Berkshire Hathaway

Yahoo! Finance Berkshire Hathaway Inc. (BRK-A)

About the author

The article was written in February 2025 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

FMCG Sector: M&A Trends And Its Implications

May 13, 2025February 2, 2025 by Anant JAIN

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the M&A trends in the FMCG sector.

Introduction

The Fast-Moving Consumer Goods (FMCG) sector plays an essential part in the global economy due to its high volume of goods and consistent consumer demand. It includes goods from everyday essentials such as food and beverages to personal care products, and this sector thrives on efficiency, scale, and market penetration. In recent years, this sector recorded a spike in mergers and acquisitions (M&A) activities to help companies in the process to be come more globalized companies, increase market penetration, expanding the portfolio of the companies and help becoming more digitalized. This article studies the trends, tactics and effects of M&A in the FMCG sector and supported by data and case studies where applicable.

Figure 1. M&A Transactions & Value Worldwide Across All Sectors.
Title
Source: IMAA

Key Drivers Of M&A In The FMCG Sector

Globalization And Market Expansion

Of the many reasons that drive M&A activity in the FMCG industry, globalization is the most important one. Firms in this industry have ambitions – they want to widen their geographical reach, access new markets and customers, and capitalize on the growth of these establishments in the emerging markets. With the saturation of mature markets such as North America and Western Europe, FMCG companies have been targeting new and emerging economies regions such as Asia, Africa and Latin America where the growth rates are relatively higher.

Global FMCG M&A Activity: According to PwC 2022 reports, the total value of M&A transactions in the consumer goods industry, including FMCG mergers, stood at about $300 billion in the year 2022. Emerging markets accounted for about 25% of this figure, shedding light on the focus of global FMCG strategies.

Case Study – Unilever’s Acquisition of Carver Korea: Unilever acquired Carver Korea for $2.7 billion in 2017. Carver Korea is focused on skincare, a market especially in South Korea that was estimated to grow at a CAGR of 9.2% between 2017 and 2025. Through this acquisition, Unilever enhanced its foothold in the Asian beauty market, where millennial consumers are becoming the target demographic for a leading beauty economy.

Portfolio Diversification

Diversification is a major driver for FMCG companies pursuing M&A. As consumer preferences shift and emerging trends, such as the big trend of health and wellness, companies are extending their products to cater to the changing dynamics. This trend combined has become crucial as FMCG giants are increasing their expansion efforts towards less mature categories, shifting from traditional product categories with slower growth prospects.

Nestlé’s Health and Wellness Strategy: Nestlé has recently been acquiring numerous companies operating within the health and wellness industry. The acquisition of Atrium Innovations for $2.3 billion in 2017 underscored their resolve to broaden their nutritional health services. Specializing in vitamins, minerals, and supplements, Atrium Innovations is positioned in a market projected to reach $349.4 billion dollars in 2026. Nestlé’s diversified strategy fits the emerging trend where consumers are in the market for products which guarantee health, wellness and elongation of lifespan.

Coca-Cola and Costa Coffee: Coca Cola purchased Costa Coffee for $5.1 billion in 2018 as a part of their strategy to enhance diversification by moving beyond non-alcoholic beverages. Investment in Costa Coffee also reflected Coca-Cola’s recognition that coffee is incrementally becoming a category with strong revenue potential especially with the CAGR of 4.3% projected for the coffee market globally.

Innovation And Product Development

Acquisition of small companies that are agile and quick in product development has been the focus of growth for many FMCG companies. As consumers become more selective of what they eat and drink, there is a shift in strategy for many companies that are looking to expand their portfolio through acquisition, targeting high growth areas such as plant-based foods, functional drinks and natural cosmetics.

PepsiCo’s Acquisition of KeVita: PepsiCo’s purchase of the US based company keVita, leading manufacturer of probiotics beverages, for $200 million as a part of the strategy of expanding and capturing a greater share in the functional beverage market. The market worldwide for probiotics is estimated to grow at a compound annual growth rate of 7.2% for the period of 2021 up to 2026. This acquisition reflects the broader trend of FMCG companies acquiring brands in high-growth, health-focused categories.

Sustainability And ESG Pressures

To consumers and businesses alike, sustainability has become a cause that is key to them, and in effect has led to a shift in the landscape of FMCGs. There are high levels of demand and need for sustainable business models among companies that have made M&As focused on acquiring brands that are environmentally friendly.

Unilever and Seventh Generation: Unilever’s acquisition of Seventh Generation, a US based company selling environmentally friendly cleaning products is a response to the change in consumer preferences in regard to their buying behavior. From 2021 to 2028, the market for eco-friendly household items is anticipated to grow at a CAGR of 6.5%. This acquisition made it possible for Unilever to pivot its portfolio to sustainable eco-friendly options which was in line with Unilever’s wider environmental, social and governance strategies goals.

M&A Trends In The FMCG Sector

Rise Of The Health And Wellness Segment

In the FMCG industry, it is relevant to talk about companies’ acquisitions in the health and wellness category as this sector has witnessed one of the fastest growth rates within the FMCG market. As per the market trends, consumers are now more oriented and prone towards healthy lifestyle products, hence the rise in acquisition in this space. According to recent developments, the majority of the FMCG companies are effectively acquiring minor brands from places that specialize in selling plant-based food, vitamins, dietary supplements, and functional beverages.

Global Health and Wellness Industry: As per the Global Wellness Institute, the estimated value of the global health and wellness market is expected to cross $6.9 Trillion by 2025. PepsiCo’s acquisition of KeVita illustrates how FMCGs are buying into companies with health benefits, as KeVita is an innovator in the probiotics market. The move is consistent with PepsiCo’s goal of expanding beyond sodas into healthier options.

Digital And E-Commerce Capabilities

The expansion of e-commerce which has been further fueled by the COVID-19 pandemic, has revolutionized the strategies of FMCG marketing. The recent mergers and acquisitions have gravitated towards the acquisition of companies with ability to perform and distribute goods directly to customers (DTC). Such trends are likely to prevail with e-commerce becoming a very important target to the selling of FMCG products.

Growth of FMCG E-Commerce: According to Kantar, in 2022, the e-commerce market of the Fast Moving Consumer Goods globally increased by 16%. To participate in this growth, FMCG players are expanding through mergers and acquisitions. Unilever’s acquisition of Onnit, a predominantly e-commerce wellness company, is an example of this transition.

Private Label Consolidation

The rise of private label brands has been evident given the demand from customers for quality products but at cheaper prices. This has in turn created a scenario where large FMCG companies have moved to buy private label manufacturing companies.

Private Label Market Share: As per NielsenIQ, private labels in Europe represent about 40% of the market. This trend spurred extensive consolidation in the industry as traditional FMCGs tried to protect market share by expanding their private label businesses against retailers’ brands.

Focus On Regional Players

Acquisition of regional players remains a popular corporate strategy for global multinationals in the FMCG industry. These acquisitions enable the companies to tap into local knowledge, existing distribution channels and local consumer tastes and preferences.

Regional FMCG M&A: Approximately 35% of the FMCG acquisition deals arranged in 2022 were targeted at acquiring regional players. This indicates the shift towards localized customizing of goods and services, especially in developing countries which tend to be very different in terms of their consumer base from western markets.

Implications Of M&A In The FMCG Sector

Increased Competition

The consolidation of FMCG companies through M&A has led to increased competition in the marketplace. This is because larger and more established players are able to leverage economies of scale, enhance their marketing capabilities, and invest in new product development, putting significant pressure on smaller players.

Global FMCG Market Size: According to Allied Market Research, the global FMCG market is on track to reach $15.4 trillion by the year 2025 and is expected to grow at a 4.9% CAGR. It is anticipated that this growth will be led by larger FGMC players hence leaving little room for smaller independent firms unless they figure out a way to innovate or are bought off.

Consumer Choice And Innovation

While M&A can lead to greater innovation as companies acquire new capabilities, it can also result in fewer choices for consumers if large companies consolidate and dominate key segments. Balancing innovation with consumer choice remains a challenge for FMCG giants.

Innovation through Acquisition: The research conducted by Deloitte’s M&A has shown that 75% of FMCG’s CEOs, view merger and acquisitions of smaller agile companies as rational and a desirable form of development. It is important to emphasize the position of M&A in the FMCG sector as a facilitator of innovation but as a means of ensuring diversity in the market.

Supply Chain Efficiencies

One of the main financial benefits of M&A is the realization of supply chain efficiencies. By consolidating supply chains and leveraging economies of scale, companies can reduce costs and improve profitability. However, this often involves the closure of redundant facilities and potential job losses.

Cost Synergies in FMCG M&A: Bain & Company estimates that FMCG companies typically achieve cost synergies of 5-10% following acquisitions, primarily through supply chain optimization and the elimination of overlapping processes. While these efficiencies benefit shareholders, they can also lead to short-term disruptions in the workforce.

Regulatory And Antitrust Scrutiny

As M&A activity in the FMCG sector increases, companies must also contend with regulatory scrutiny. Antitrust regulators, particularly in the U.S. and Europe, have become increasingly concerned with the impact of consolidation on competition.

Regulatory Actions: The takeover of Pioneer Foods by PepsiCo was ineffective in 2018 because the European Commission disallowed the merger on account of what it perceived as reduced competition in the food and drink market. More regulatory evaluation can be expected especially in situation where big FMCG companies want to acquire key competitors in the industry.

Conclusion

Rapid changes continue to occur in the FMCG industry and these changes are being driven by M&As. Through these strategic alliances, companies optimize growth in new markets, grow their business through other more versatile brands, or target expansion/diversification. However, as the sector consolidates, companies must carefully navigate regulatory challenges, maintain consumer choice, and balance innovation with market competition. The next decade is likely to see continued M&A activity as FMCG companies respond to evolving consumer preferences, digital disruptions, and sustainability pressures.

Useful Resources

PwC Consumer Markets Insights 2022

Statista FMCG Market Data

Grand View Research FMCG and Health & Wellness Market Reports

Deloitte Consumer Products M&A Outlook

Global Wellness Institute Global Wellness Economy Report

Kantar FMCG E-Commerce Growth Report

Bain & Company Synergies in M&A

European Commission Merger Control Decisions

About The Author

The article was written in February 2025 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

The Irish Real Estate Market: Trends, Challenges, and Opportunities

February 3, 2025January 27, 2025 by Daniel MEAGHER

In this article, Daniel MEAGHER (Trinity College Dublin, BESS Final Year, 2021-2025) explains the Irish Real Estate Market with its trends, challenges, and opportunities.

Ireland’s real estate market is at a critical crossroads. With housing shortages, soaring demand, and institutional investment set to surpass €3 billion in 2025, the sector has never been more pivotal. As the country balances rapid urbanisation, sustainability goals, and affordability challenges, its property market continues to shape Ireland’s economic future.

About the Irish Real Estate Market

Ireland’s real estate market remains at the core of its economic growth, driven by a growing population exceeding 5 million, strong foreign direct investment (FDI), and attractive tenant profiles. However, persistent challenges, including housing shortages, price inflation, and planning inefficiencies, continue to hinder progress.

Housing for All Targets vs. Demand

Housing for All Targets vs. Demand.
Logo of ZEBOX
Source: Sherry FitzGerald Research/DHLGP.

A significant factor behind Ireland’s sustained real estate demand is its status as a leading hub for multinational corporations in the European Union. Following Brexit, companies relocating their European headquarters to Dublin have further strained the office market. Tech giants such as Google, Meta, and Amazon occupy prime spaces in Dublin’s docklands, contributing to rising rental yields in the office sector.

Investment Landscape

Despite global macroeconomic uncertainties, Ireland’s real estate sector remains a highly attractive destination for institutional investors. In 2024, CBRE reported a 30% increase in investment transactions year-on-year, totalling €2.4 billion. While this figure remains 40% below the 10-year market average, the trajectory is positive, with investment activity expected to surpass €3 billion in 2025.

Key Highlights

Multifamily Residential: 4.75%
Prime Offices: 5.00%
Industrial/Logistics: 5.00%
Student Accommodation: 5.00%

Source: Savills Ireland Investment Market Report

Deep Dive into Key Asset Classes

Multifamily Residential: Institutional investors continue to focus on forward sales agreements in the multifamily sector, particularly in Dublin. These agreements enable developers to secure funding before construction begins, reducing their financial risk. With sustained demand from young professionals and families seeking long-term rentals, this sector provides stable, contracted yields.

Industrial and Logistics: The industrial and logistics sector has emerged as a standout performer, driven by the growth of e-commerce and the need for modern warehousing. In 2024, rents for prime logistics properties increased by 7%, reflecting both limited supply and strong demand from retailers expanding their distribution networks.

Notable Transactions in 2024

Eagle Street Partners’ Acquisition of The Square Shopping Centre in Tallaght for €130 million.

The Square Shopping Centre, Tallaght.

Source: The Irish Times.

Davy’s Acquisition of the ‘Hexagon Portfolio’ for €74 million.
The Sale of Blanchardstown Shopping Centre for €575 million.

Blanchardstown Shopping Centre.

Source: The Irish Times.

Funding and Lending Dynamics

The exit of KBC Bank and Ulster Bank has reshaped the funding landscape, with non-bank lenders such as Activate Capital and Castlehaven Finance stepping in to provide financing. While these lenders have contributed to addressing some funding needs, the overall resources remain insufficient to meet the scale of demand required to alleviate Ireland’s housing shortage.

Although the ECB reduced its key interest rate to 3.5% in late 2024, mortgage rates in Ireland have remained elevated at 3.95%, posing challenges for developers and buyers alike. Rising borrowing costs have further constrained access to affordable financing for housing projects, exacerbating supply challenges.

To bridge this gap, attracting foreign international capital is essential, particularly for large-scale residential developments. Clearer policies, coupled with targeted incentives such as green financing or support for affordable housing, could encourage sustained foreign investment. Establishing a transparent, investor-friendly framework will be critical to unlocking the capital needed to drive housing supply and address the ongoing crisis.

Sustainability and Innovation

Green Certifications and Standards

Developments in Ireland are aligning with EU environmental targets, particularly those outlined in the European Green Deal and Ireland’s Climate Action Plan 2023. Certifications such as LEED (Leadership in Energy and Environmental Design), BREEAM (Building Research Establishment Environmental Assessment Method), and NZEB (Nearly Zero Energy Building) standards have become benchmarks for new and existing properties. These certifications not only improve the sustainability of properties but also enhance their marketability to tenants and investors who are increasingly seeking environmentally responsible spaces.

Technological Advancements in Real Estate

Smart Building Technology: Modern real estate developments are incorporating smart technologies to optimise energy use and improve efficiency. Smart sensors, for example, monitor energy consumption and adjust heating, cooling, and lighting systems based on real-time needs, reducing operational costs and environmental impact.
Renewable Energy Integration: Solar panels, wind turbines, and geothermal systems are becoming common features in larger developments. These systems not only reduce carbon emissions but also appeal to tenants and buyers looking for lower energy costs and greener living environments.
Retrofitting Older Buildings: Retrofitting has become a significant focus for investors and developers. Many older properties, particularly in Dublin, are being upgraded with better insulation, energy-efficient windows, and renewable energy systems to reduce their carbon footprint and extend their life span.

Long-Term Resilience and Value

Sustainability initiatives not only reduce environmental impact but also future-proof investments against tightening regulations and rising energy costs. Green-certified buildings tend to attract premium tenants, enjoy lower vacancy rates, and command higher rental yields, making them a strategic choice for investors.

Why Should I Be Interested in This Post?

This article provides essential insights for students and professionals seeking to understand Ireland’s dynamic real estate market, offering perspectives on key trends, challenges, and future opportunities.

Resources

CBRE Ireland Real Estate Market Outlook 2025

Sherry FitzGerald Irish Residential Market Review Autumn 2024

EY Ireland Real Estate Funding and Investment Trends

About the Author

This article was written in January 2025 by Daniel MEAGHER (Trinity College Dublin, BESS Final Year, 2021-2025).

Coffee Futures: The Economic and Environmental Drivers Behind Rising Prices

January 27, 2025 by Camille KELLER

In this article, Camille Keller (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) explores the economic and environmental factors influencing rising coffee prices, shedding light on global futures markets and sustainability efforts.

Environmental Factors: Climate Change and Coffee Production

It’s no secret that coffee is deeply tied to the environment. Arabica coffee, cherished for its smooth flavor, accounts for about 60% of global coffee production—but it’s also notoriously sensitive to climate change. Reardon-Smith et al. (2019) highlight how rising temperatures and unpredictable weather patterns are shrinking suitable growing areas and reducing yields. The regions best known for coffee cultivation, including Brazil and Vietnam, are among the hardest hit.

A study by Tavares et al. (2018) paints a stark picture for Southeast Brazil, a vital hub for Arabica production. Projections indicate that suitable cultivation areas could drop by as much as 60% by the end of the century, with yields potentially falling by 25% under high greenhouse gas scenarios. These environmental hurdles are compounded by deforestation and soil degradation, leaving farmers with limited options to sustain production.

Adding to the pressure, Trading Economics (2025) reports that persistent below-normal rainfall in key Brazilian regions has exacerbated supply constraints. Brazil’s 2024 coffee harvest was estimated at 54.2 million 60-kg bags, down 1.6% from the previous year. Such trends not only strain global supply but also drive prices higher as demand outpaces production.

The ICO Composite Indicator Price (I-CIP)

Source: ICO Report 2024.

Economic Factors: Supply Chain Disruptions and Consumer Trends

Beyond environmental woes, economic forces play a crucial role in the coffee market. In recent years, global supply chain disruptions have caused delays and driven up transportation costs, creating additional upward pressure on coffee prices. The COVID-19 pandemic underscored the fragility of global logistics, making it harder to get coffee beans from farms to consumers.

Consumer behavior also holds significant sway. According to Capps et al. (2023), coffee demand in the United States is highly price-sensitive, with a price elasticity of -1.93. This means that as prices rise, many consumers cut back on their purchases. Yet, wealthier households tend to continue buying coffee regardless of price increases, reflecting the complex dynamics of socioeconomic factors in shaping demand.

Meanwhile, the International Coffee Organization (ICO, 2024) notes that global coffee prices rose by 40% in 2024, with the ICO Composite Indicator Price averaging 299.61 US cents/lb in December. This surge has been driven by a combination of tight supply and robust demand, particularly for Arabica coffee. Additionally, logistical challenges, such as container shortages and prolonged shipping times to European markets, have amplified cost pressures throughout the supply chain.

Certified Stocks of Arabica and Robusta Coffee

Source: ICO Report 2024.

EU Regulations and Market Dynamics

Adding to these challenges are new European Union regulations aimed at combating deforestation. Savage (2024) reports that coffee futures hit a 47-year high in November 2024, partly due to fears surrounding these laws. The regulations require companies to ensure their supply chains are free of deforestation, significantly increasing compliance costs for producers. While these measures promote sustainability, they have also added uncertainty and volatility to the market, pushing prices further upward.

Moreover, the ICO (2024) highlights the volatility of coffee prices, with Arabica and Robusta exhibiting sharp fluctuations. Certified stocks of Robusta coffee increased by 13.3% from November to December 2024, while Arabica stocks grew by 7.8%. Despite these increases, the imbalance between supply and demand continues to fuel price volatility, as traders and roasters navigate a challenging market landscape.

Conclusion: Future Outlook of a Volatile Market

The interplay of environmental and economic factors makes it clear: coffee prices are unlikely to stabilize anytime soon. Climate change will continue to constrain supply, while evolving consumer preferences and regulatory changes shape demand. This complex web of factors requires innovative solutions from policymakers, industry leaders, and consumers alike.

For consumers, this may mean accepting higher prices as the new norm. However, increased awareness of the environmental and social costs of coffee production could drive more sustainable consumption patterns. Initiatives such as fair trade certification and carbon-neutral labeling are gaining momentum, offering a pathway to a more equitable and resilient coffee industry.

Why Should I Be Interested in This Post?

This post provides ESSEC students and global business enthusiasts with valuable insights into how environmental changes, economic challenges, and regulatory dynamics are shaping one of the world’s most consumed commodities.

Useful Resources

International Coffee Organization (ICO) Coffee Market Report 2024

Trading Economics Arabica Coffee Futures

Financial Times Coffee Futures Hit 47-Year High

Yen Pham, Kathryn Reardon-Smith, Shahbaz Mushtaq & Geoff Cockfield (2019) The impact of climate change and variability on coffee production: a systematic review Climatic Change Journal, 156, 609-630

About the Author

The article was written in January 2025 by Camille Keller (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

The Impact of Trump’s Presidency on Tesla and Tech Stocks

February 2, 2025January 27, 2025 by Hongting LIU

In this article, Hongting LIU (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) shares her insight regarding the influence of Trump’s wining in the election of the US president in November, 2024 in the technology industries.

Tesla’s Stock Performance is outstanding during 2024 especially after the result of the election was released

Tesla’s stock exhibited significant volatility and momentum during Trump’s presidency:

Evolution of Tesla’s stock price.

Source: Yahoo! Finance.

Election-Driven Surge: Following Trump’s re-election in 2024, Tesla’s stock surged nearly 13% in a single day due to investor optimism about pro-business policies.
Peaks and Corrections: By December 2024, Tesla’s stock reached a historic high of $479.8 per share but later adjusted to $379.28 in January 2025.
Trading Range Formation: The stock fluctuated between $380 and $480, reflecting divided sentiment on its future potential.

Reasons Behind Tesla’s Stock Surge

Trump may use pro-Business Policies like he did from 2017 to 2021

Donald Trump’s return to the presidency allows for an assessment of potential policies based on his previous term from January 2017 to January 2021. During his first administration, policies such as tax reforms, deregulation, and a pro-business stance were introduced. These measures aimed to foster investor confidence and support domestic industries. Corporate tax cuts and relaxed regulatory requirements provided particular advantages to high-growth sectors, including technology and green energy, benefiting companies like Tesla. The administration also emphasized economic nationalism and prioritized local industries. Policies aimed at reducing taxes and loosening employment regulations were designed to enhance the competitiveness of American businesses, particularly those reliant on research and development (R&D) and capital investment. Additionally, diplomatic and trade relationships with Middle Eastern countries were strengthened, resulting in energy agreements that supported collaboration on clean energy initiatives. These agreements promoted the adoption of renewable energy technologies and created opportunities for companies like Tesla to contribute to the modernization of energy infrastructure in the region.

The winning of Trump triggers the positive emotion to Elon’s businesses

Tesla’s CEO, Elon Musk, is considered to be an informal advisory role in Trump’s administration further bolstered Tesla’s growth trajectory. The victory of Trump gives the market the confidence in Elon’s companies. The global push for electric vehicles (EVs) gained momentum during this period, driven by government incentives and growing environmental awareness. As a leader in the EV industry, Tesla became a focal point for investors aligning with long-term global trends.

Future Trends in U.S. Tech Stocks

AI Integration

Advancements in artificial intelligence (AI) are expected to drive significant gains for tech companies. Tesla, leveraging AI in autonomous driving systems, stands to benefit from these developments.

Sustainability Focus

Global trends toward sustainability, including renewable energy and EV adoption, will continue to bolster companies like Tesla aligned with these priorities.

Regulatory Dynamics

Post-Trump regulatory scrutiny may increase, but the tech sector’s central role in innovation ensures resilience in the face of challenges.

Caution: Avoid Blindly Following Market Trends

While Tesla’s stock has delivered exceptional returns, its high volatility underscores the need for caution. Blindly chasing high-performing stocks can lead to financial losses, especially in speculative environments. In fact, from the middle of December 2024 to the January 2025, there is a volatility of the stock performance. The long term performance of Tesla should be estimated based on its annual report regarding its revenues, new AI technology, profits margins, energy & storage business growth, and also the demand and the competition of the global electric automobile market. We should not judge everything based on the emotion of market even though the emotion of the market should never be ignored.

Conclusion

Donald Trump’s presidency marked a transformative period for the U.S. economy, particularly for the technology sector. Tesla’s growth trajectory reflects the broader trends in innovation and sustainability. Moving forward, technological advancements and global shifts toward sustainability will continue to shape the market. Strategic planning and prudent investment remain essential in navigating these complexities.

Useful resources

Barron’s (January 23, 2025) “EV Charging Stocks Are Sliding. How Tesla Stands to Gain,” Barron’s, January 23, 2025

Barron’s (January 23, 2025) Tesla Stock Will Get Help From Trump, Believe Investors. But How?

The Guardian (January 27, 2025) Charles Koch’s network launches $20m campaign backing Trump tax breaks

CNN Business (April 15, 2019) Trump’s tax cuts: 4 ways they changed the American economy

Forbes (March 14, 2018) Why Trump’s Tax Reform Will Spark Continued Small Business Growth

About the author

The article was written in January 2025 by Hongting LIU (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

Research Report on the Price Advantage of American Products in the Chinese Market

January 27, 2025 by Hongting LIU

In this article, Hongting LIU (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) studies the pricing advantages for American products in the Chinese market, focusing on factors like economies of scale, market competition, and supply chain efficiency. The author has worked on the consultancy of Global procurement for two years for IT equipment and here is the analysis of a phenomenon.

About the phenomenon

For at least 5 years, certain American brand products produced in the US (Cisco’s technological hardware, Fortinet, etc.) are cheaper in the Chinese market than in the US. How can a product become cheaper after all the transportation over the Pacific Ocean? This discrepancy can be attributed to economies of scale. Strong demand from China has led to substantial import volumes, reducing unit procurement costs. Many distributors buy a lot in stock then trade them like commodities. These products are treated like commodities in China, with prices dynamically adjusting to supply and demand.

According to China’s 2023 import-export trade statistics, the annual import value of American technological hardware (including communication and network equipment) reached $55 billion, representing a year-on-year increase of 8.3%.

Key reasons behind the phenomenon

Main reason: China has the Economies of Scale and Bargaining Power

Cisco’s 2023 annual report reveals that the Asia-Pacific region (mainly China) accounts for 30% of its international sales, with average bulk purchase discounts ranging from 15% to 20%. At the same time, such a big market is dominated by several huge distributors. In 2023, a major distributor captured 50% of the market share through cross-border sales across mainland China and Hong Kong, driving down overall product prices. We do not know exactly who is the distributor as the information of it is disclose. However, given the fact that there is such major distributors can dominate in such a big market, the scale they trade can be huge and their bargaining power will be high. A distributor with a dominant market share often has better economies of scale, allowing them to negotiate lower purchase prices from manufacturers

China has low cost in the warehouse solution and the labor compared to the US. Chinese international trade market, especially IT products, is concentrate in Guangdong area which is the nation’s top trading province for the 39th consecutive year. In 2024, Guangdong’s total foreign trade—encompassing both imports and exports—reached 9.11 trillion yuan, accounting for 20.8% of China’s overall foreign trade. At the same time, a significant portion of this trade comprises electromechanical products, which include a wide range of IT-related goods. In 2024, Guangdong exported electromechanical products worth 3.87 trillion yuan, accounting for 65.6% of its total exports. With the economies of scale, the overall cost of logistics solutions in the Guangdong area remains higher cost-efficient than in Southeast Asia, even though labor costs are higher. The region benefits from advanced automated warehouses, well-developed logistics processes, and multiple international ports. Additionally, its proximity to Hong Kong further strengthens its position as a hub for international business. Therefore, the logistic cost in China for IT products can keep low.

The price is more transparent and dynamic due to the high amount of real-time trading and global supply-demand dynamics

It is easy to access to suppliers and ask prices so the price is rather transparent. It can be hard to profit from the information gap. Data from Alibaba International Station shows that in October 2024, the wholesale price of Cisco network switches in China was approximately $650/unit, while the U.S. domestic price was $720/unit.

Also, The rapid growth in demand and the agility of the Asia-Pacific market significantly enhanced China’s bargaining power for these products during the global supply chain recovery after the pandemic, allowing for more dynamic supply-demand adjustments.

The Impact of USD Dominance on Trade

USD Exchange Rate Mechanisms

The dominance of the U.S. dollar as the primary currency for international trade directly influences import and export costs. When the dollar appreciates, the cost of imports priced in dollars rises, making it more expensive for countries to purchase goods and reducing export competitiveness. Conversely, when the dollar depreciates, import costs decrease, and export competitiveness improves, benefiting economies that rely on international trade.

Supporting Data

According to the IMF’s 2023 report, approximately 80% of global trade transactions are settled in U.S. dollars, highlighting the currency’s central role in international trade. Price-sensitive products, such as technological hardware, represented 40% of China’s total imports from the U.S. in 2023, demonstrating the impact of exchange rate fluctuations on critical industries. During the same period, the USD to CNY exchange rate rose from 6.45 to 7.31, leading to an estimated increase in import costs of 13.4%, further emphasizing the financial implications of currency movements.

Policy Implications and Strategies

Managing Exchange Rate Risks

To mitigate the risks associated with currency fluctuations, businesses can utilize forward exchange contracts, allowing them to lock in USD to CNY exchange rates and stabilize costs over time. Additionally, adopting multi-currency settlement can serve as a viable strategy, enabling companies to negotiate transactions in RMB or other relatively stable currencies, such as the euro, to diversify risk and reduce dependency on the U.S. dollar.

Optimizing Procurement Strategies

Proactively managing procurement strategies is essential in navigating USD fluctuations. Companies can monitor market prices in real-time, leveraging various platforms to access larger distributors with stronger negotiation power, ensuring more competitive pricing. Moreover, expanding supplier networks by balancing sourcing between American and international suppliers helps mitigate reliance on a single market, offering greater flexibility and resilience in global supply chains.

Leveraging Market Arbitrage Opportunities

Businesses can capitalize on market arbitrage opportunities by engaging in cross-border resale, where American products are distributed through third-country markets for profit. This strategy is particularly advantageous for regions with restricted access to U.S. goods. While this practice can be legally executed through proper procedures, it is crucial to remain compliant with both international and domestic regulations to avoid potential legal and policy violations.

Strengthening Supply Chain Collaboration

Enhancing supply chain collaboration plays a fundamental role in cost optimization and efficiency. Close cooperation with logistics providers allows companies to streamline transportation and warehousing, ultimately reducing procurement costs. Establishing long-term agreements with suppliers further ensures price stability and a consistent supply of goods, fostering a more secure and predictable trade environment.

Conclusion

The lower pricing of American products in the Chinese market results from economies of scale, market competition, supply chain efficiency, and dollar exchange rate fluctuations. People work in global procurement can take advantage of this phenomenon to optimize the procurement strategy.

Useful resources

Cisco 2023 Annual Report

Alibaba International Station

2023 China Import-Export Trade Report

About the author

The article was written in January 2025 by Hongting LIU (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

Top 5 companies in the technology sector

December 25, 2024December 13, 2024 by Nithisha CHALLA

Top 5 companies in the technology sector

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) delves into the top five companies in the technology sector by market capitalization. For each tech company, I provide information into their origins, latest announcements, and notable developments to provide financial professionals and students with actionable insights.

Introduction

The top tech companies are not only industry innovators but also major drivers of global financial markets. Their influence extends from stock market trends to shaping global investment strategies. Their products and services help other companies to improve their productivity. These companies, Apple, Nvidia, Microsoft, Amazon, and Alphabet, dominate global market capitalizations through their relentless focus on advanced technologies like artificial intelligence (AI), cloud computing, and digital services. We examine below the top five tech firms by market capitalization, delving deeper into their financial performance, innovation strategies, and implications for finance professionals.

The picture below shows the world’s 50 valuable companies by market capitalization (Companies Market Cap, August 2024). We can observe that the top 5 companies are related to the technology industry.

World’s top 50 valuable companies by market capitalization

Source: Companies Market Cap.

The market capitalization, commonly called a “market cap”, is the total market value of a publicly traded company’s outstanding shares and is widely used to measure how much a company is worth. In most cases, it can be easily calculated by multiplying the share price with the amount of outstanding shares.

Apple

Apple Inc was founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne in Cupertino, California. Known for its consumer electronics like the iPhone, Mac, and Apple Watch, Apple also thrives in services such as the App Store and Apple Music, contributing to over 20% of its revenue. Apple consistently generates substantial revenue from its ecosystem of devices and services. In fiscal 2024, its services division alone brought in over $70 billion, reflecting a 25.17% change in the market capitalization growth from the previous year.

Logo of Apple Inc.
Logo of Apple Inc tech company
Source: the company.

As of December 2024 Apple has a market cap of $3.748 Trillion USD. This makes Apple the world’s most valuable tech company by market cap according to “companies market cap” company data.

The picture below shows the market capitalization history of Apple from 1996 to 2024.

Market cap history of Apple from 1996 to 2024

Source: Companies Market Cap.

The picture below shows the stock price history of Apple from 1980 to 2024.

Stock price history of Apple from 1980 to 2024

Source: Companies Market Cap.

The company’s stock remains a popular choice for institutional investors due to its consistent performance and market leadership. Apple has steadily increased its dividend and share buybacks, returning over $100 billion to shareholders annually in recent years. Despite declining iPhone sales, Apple’s diversification into wearables and services helped sustain strong financials. It also topped the list of the world’s most valuable global brands in 2023 with a brand value of $880 billion (Business 2 community, 2024).

Initially focused on personal computers, Apple has evolved into a consumer electronics powerhouse. In recent years, its technological innovations, including the Vision Pro mixed-reality headset announced in 2023, underscore its push into augmented and virtual reality spaces. Its expansion into India has been a game-changer, with manufacturing operations set to reduce costs and increase market penetration in one of the fastest-growing smartphone markets.

Nvidia

Founded in 1993, Nvidia Corporation is a leader in Graphics Processing Unit (GPU) development, powering the AI revolution. Its AI hardware is critical for training large language models (LLMs), cementing its role in both consumer gaming and enterprise-level AI solutions. In fiscal 2024, its services division alone brought in over $1.8 trillion, reflecting a 178.92% change in the market capitalization growth from the previous year.

Logo of Nvidia
Logo of Nvidia tech company
Source: the company.

As of December 2024, Nvidia has a market cap of $3.411 Trillion USD. This makes Nvidia the world’s 2nd most valuable tech company by market cap according to “companies market cap” company data. The market capitalization, commonly called market cap, is the total market value of a publicly traded company’s outstanding shares and is widely used to measure how much a company is worth.

The picture below shows the market capitalization history of Nvidia from 1999 to 2024.

Market cap history of Nvidia from 1999 to 2024

Source: Companies Market Cap.

The picture below shows the Stock price history of Nvidia from 1999 to 2024.

Stock price history of Nvidia from 1999 to 2024

Source: Companies Market Cap.

Nvidia dominates the GPU market, controlling over 85% of the discrete GPU space globally. It boasts a gross margin of approximately 65%, one of the highest in the semiconductor industry. According to the Business 2 community, Nvidia’s revenue surged, particularly in its data center segment, which accounted for $15 billion in 2023. Its AI chipsets have become a cornerstone for AI development across industries, leading to increased investor confidence.

Nvidia is integral to AI, as its GPUs are critical for training large language models (LLMs) and generative AI tools. This has led to surging demand for its A100 and H100 chips. Nvidia announced collaborations with Tesla and other automakers for AI-driven autonomous driving technologies.

The company continues to expand its AI reach through strategic investments in startups and partnerships with cloud providers like Amazon Web Services (AWS). Its Omniverse platform is being adopted for digital twins, a technology with applications in industrial design and smart cities.

Microsoft

Established in 1975 by Bill Gates and Paul Allen, Microsoft Corporation has been at the forefront of software development. Its strategic investment in OpenAI and integration of generative AI into its Office suite and Azure cloud services have significantly bolstered its growth. Investors and students can learn from Microsoft’s ability to adapt its business model over decades, sustaining growth in both legacy and emerging markets. In fiscal 2024, its services division alone brought in over $70 billion, reflecting a 19.59% change in the market capitalization growth from the previous year.

Logo of Microsoft Corporation

Source: the company.

As of December 2024 Microsoft has a market cap of $3.342 Trillion USD. This makes Microsoft the world’s 3rd most valuable tech company by market cap according to “companies market cap” company data. The market capitalization, commonly called market cap, is the total market value of a publicly traded company’s outstanding shares and is widely used to measure how much a company is worth.

The picture below shows the market capitalization history of Microsoft from 1996 to 2024.

Market cap history of Microsoft from 1996 to 2024

Source: Companies Market Cap.

The picture below shows the stock price history of Microsoft from 1986 to 2024.

Stock price history of Microsoft from 1986 to 2024

Source: Companies Market Cap.

Microsoft has surpassed a $3 trillion market cap for the first time in January 2024. It has made a significant investment in quantum computing with the development of its Azure Quantum platform.

Microsoft’s Copilot AI has been integrated across its Office Suite, including Word, Excel, and PowerPoint, revolutionizing productivity software. Recent news in June 2024 states that it has strengthened its partnership with OpenAI to bring advanced AI tools to Azure, making enterprise AI more accessible globally.

Amazon

Amazon Inc, founded in 1994 by Jeff Bezos, revolutionized e-commerce before expanding into cloud computing and entertainment. Amazon Web Services (AWS) remains a dominant player in the cloud sector, while its AI capabilities support logistics, retail, and media content. In fiscal 2024, its services division alone brought in over $85 billion, reflecting a 54.2% change in the market capitalization growth from the previous year.

Logo of Amazon
Logo of Amazon tech company
Source: the company.

As of December 2024 Amazon has a market cap of $2.421 Trillion USD. This makes Amazon the world’s 4th most valuable tech company by market cap according to “companies market cap” company data.

The picture below shows the market capitalization history of Amazon from 1997 to 2024.

Market cap history of Amazon from 1997 to 2024

Source: Companies Market Cap.

The picture below shows the Stock price history of Amazon from 1997 to 2024.

Stock price history of Amazon from 1997 to 2024

Source: Companies Market Cap.

Amazon’s Bedrock AI service has enabled enterprises to deploy customized AI models, further enhancing its AWS offerings. According to CRN, AWS held a 31% market share in the third quarter of 2024 and generated $27.5 billion in total sales during this period.

And according to CRN, Microsoft’s Intelligent Cloud business generated $24.1 billion in sales during the third quarter of 2024, up 20 percent year over year. It has also ramped up investments in drone technology, with Prime Air expanding to multiple cities for rapid deliveries. Its expansion into healthcare, with telemedicine services and pharmacy offerings, demonstrates diversification into high-growth industries.

Amazon’s continued investment in AI, including generative AI tools for its AWS customers, has strengthened its competitive edge in cloud services. Its e-commerce business has also seen growth, particularly in emerging markets contributing significantly, with innovations in logistics and Prime memberships driving customer retention.

Alphabet (Google)

Alphabet was founded in 1998 as Google by Larry Page and Sergey Brin in Menlo Park, California (later restructured as Alphabet Inc. in 2015). Google’s dominance in search and online advertising is complemented by its ventures in AI, particularly through its DeepMind subsidiary. It leverages its dominance in digital advertising while investing heavily in AI, autonomous driving (Waymo), and cloud services. Some of the companies under Alphabet are Calico, GV, Capital G, Verily, Waymo, X and Google Fiber. In fiscal 2024, its services division alone brought in over $65 billion, reflecting a 36.57% change in the market capitalization growth from the previous year.

Logo of Alphabet
Logo of Alphabet tech company
Source: the company.

As of December 2024 Alphabet (Google) has a market cap of $2.399 Trillion USD. This makes Alphabet (Google) the world’s 5th most valuable tech company by market cap according to “companies market cap” company data.

The picture below shows the market capitalization history of Alphabet from 2014 to 2024.

Market cap history of Alphabet from 2014 to 2024

Source: Companies Market Cap.

The picture below shows the stock price history of Alphabet from 2004 to 2024.

Stock price history of Alphabet from 2004 to 2024

Source: Companies Market Cap.

Nearly eight years into their journey as an AI-first company, Alphabet launched Gemini AI, a generative AI model to compete with OpenAI’s GPT, integrated into Google Workspace and search functions. Alphabet’s significant developments in Waymo, an autonomous vehicle subsidiary has an expansion of robotaxi services in major U.S. cities.

Recently Alphabet announced an ambitious plan to power all operations with 100% renewable energy by 2030. Its advertising revenues saw a resurgence in 2024 after a decline due to privacy changes in prior years.

Conclusion

The dominance of the top five technology firms Apple, Microsoft, Nvidia, Amazon, and Alphabet, is a testament to their ability to innovate, adapt, and lead in a rapidly evolving market landscape. Their influence extends beyond their respective industries, shaping global economic trends, investment strategies, and technological advancements. Their products and services help other companies to improve their productivity. Their market cap rankings serve as a barometer for the health of the tech sector and the global economy, making them essential for any professional seeking to navigate today’s financial landscape effectively.

Why should I be interested in this post?

For finance professionals, the performance and strategic moves of these tech giants offer valuable lessons in market resilience, innovation-driven growth, and capital allocation. Understanding the trajectories and current strategies of these firms helps in identifying investment opportunities and evaluating risks in the tech sector.

Useful resources

Companies market cap Largest tech companies by market cap

Invest News Network (INN) Technology Stocks: 10 Biggest Companies in 2024

Business 2 Community Top 10 Tech Companies in the World by Market Capitalization in 2024

Computer Reseller News (CRN) Cloud Market Share For $84B Q3 2024: AWS, Microsoft, Google Cloud Lead

Visual Capitalist Ranked: The 50 Most Valuable Companies in the World in 2024

About the author

The article was written in December 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Trump Trade

December 7, 2024 by Marine SELLI

Trump Trade

In this article, Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024) examines the phenomenon of “Trump Trades” and their enduring impact on financial markets.

What Is the Trump Trade?

Have you ever wondered how politics shapes financial markets?

The “Trump Trade” highlights this intersection as it captures how market movements are influenced by the policies of Donald Trump. This phenomenon was first observed after his surprise 2016 election victory, and then resurfaced in 2024 with Trump’s re-election.

The Trump Trade is the financial strategies and market movements based on expectations of Trump’s economic policies enactments. It is about how markets understand and view them. Investors react to these policies such as anticipated tax cuts, deregulation, trade measures, and infrastructure projects which leads to significant market shifts.

In 2016 when Trump’s election came out of the blue and the market rallied, all major U.S. indices, including the S&P 500, Dow Jones Industrial Average and Russell 2000, hit record highs. Then, fast forward to 2024 and the story repeated itself. In the month of the election, November 2024, the Dow Jones shot to an all-time high of 44,910.65 and the S&P 500 broke 6,000 points for the first time.

In this phenomenon, it is observed how investor behavior follows the perception of Trump’s policy as pro-business.

What is it about Trump’s presidency that drives these significant market reactions?

Trump has a real estate magnate background therefore he positions himself as a supporter of loose monetary policy: as a developer, he used to rely mainly on cheap credit to finance his projects, benefit from asset appreciation and leverage investments.

His economic philosophy was shaped by his background and that is still reflected in his policies and statements. If implemented, Trump’s policies would prioritize growth, borrowing, and investment, the core of the Trump Trade phenomenon. In fact, Trump’s policies are largely articulated in terms of tax cuts, deregulation, tariffs and infrastructure spending, which are for investors, opportunities of growth.

Two Elections: 2016 vs. 2024

When comparing the Trump Trade in 2016 and 2024. What remained the same and what changed? Trump’s surprise win in 2016 sent shockwaves through the financial world. He was able to get investors to change their portfolios based on his policies. Small cap stocks led the way, outperforming large caps by nearly 8 percent, as they are more reliant on domestic growth, and equity markets surged. The yield on the 10-year Treasury also shot up by almost 100 basis points. It was a steepening yield curve, reflecting optimism over growth but concern about higher borrowing costs and inflation.

Trump’s reelection by 2024 was less surprising, but markets still reacted heavily. Shortly after his victory, the Dow Jones climbed 200 points and small cap stocks again outperformed as investors favored companies less exposed to global trade risks. Additionally, the bond market behaved in line with 2016 trends by long term yields rising faster than short term yields, a sign of inflation expectations.

Financial Market Movements during Trump Re-election

Source: Bloomberg, Les Echos

Trump viewed as an inflationist?

Why do markets think Trump equals inflation? The answer to his policies and economic philosophy. Of course, Trump’s way of doing fiscal expansion through unfunded tax cuts and big spending naturally triggers inflation expectations. Higher disposable income from lower taxes creates demand and raises prices. At the same time, businesses that import goods are burdened by higher costs, which are often passed on to consumers due to protectionist measures that Trump wants to accentuate.

These dynamics are reflected in bond markets. Inflation eats away at the purchasing power of fixed payments, so investors require higher yields on long term bonds. The dynamic steepens the yield curve, whereby long-term rates rise faster than short term rates. In 2016 and then again in 2024, this pattern characterized the Trump Trade and proved that markets still see Trump as an inflationist.

In addition, as I mentioned earlier, Trump’s economic strategy is influenced by his background in real estate. He has always been someone that has leveraged debt to grow and has always pushed for lower interest rates and expansive fiscal policies.

The Forces Driving the Trump Trade

Trump’s policies and economic agenda have included his tax reforms. The 2017 Tax Cuts and Jobs Act cut the corporate tax rate from 35% down to 21%, which had a massive impact on corporate earnings and stock valuations. The same optimism is building in technology and consumer sectors that would be the biggest beneficiaries of these measures for 2024, when there is a possibility of further tax incentives.

Another key driver is deregulation, as during Trump’s first term rollbacks on things like environmental protections, financial regulations and healthcare compliance lowered costs for businesses and raised profitability in sectors like energy and banking. While these expectations have reappeared yet again in 2024, the increased focus on ESG investing has made things more difficult, with some investors eschewing industries deemed environmentally unfriendly.

Furthermore, a boost to infrastructure spending also fuels optimism, as Trump’s pledge of massive energy infrastructure investments such as in energy pipelines for example, has raised market hopes for the industrial sectors. In the weeks following Trump’s 2016 victory, the energy sector outperformed the broader market by over 10%, and similar gains were seen in 2024 as infrastructure-related stocks went up on hopes of renewed public investment.

In conclusion, the Trump Trade exemplifies how market perceptions, often driven by political rhetoric rather than enacted policies, can shape financial dynamics. While Trump’s agenda captures market optimism, much of it may rest on speculative assumptions and short-term gains, masking the underlying risks and long-term challenges. The sustainability of this optimism is contingent on consistent execution, realistic fiscal discipline, and the ability to address structural issues beyond mere rhetoric. Without these, the Trump Trade could unravel as a fleeting market illusion.

Why should I be interested in this post?

Understanding the Trump Trade demonstrates how political decisions, and macroeconomic policies can move financial markets. The analysis links the theoretical principles you study such as market behavior, and corporate strategy to their real-world application. The Trump Trade is a practical example of how politics, economics, and finance play off each other, no matter whether your aspiration is to work in investment banking, asset management, or corporate strategy. It goes beyond academic learning as a basis to think critically about future political and economic shifts that might influence global markets.

Useful resources

JPMorgan Private Bank Is the Trump Trade a Good Deal?

Goldman Sachs on Trump’s Economic Policies

LSE Economic Impacts of the Trump Tariff Proposals on Europe

Financial Times Trump’s Tariff Policies Analysis

Financial Times Market Reactions to Trump’s Economic Decisions

Financial Times Global Trade in the Trump Era

Deutsche Bank Flow: Trump Trade – Back to the Future

Synapses (YouTube channel) Business Insights

About the author

The article was written in December 2024 by Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024).

Political Risk: An Example in France in 2024

December 24, 2024December 7, 2024 by Marine SELLI

Political Risk: An Example in France in 2024

In this article, Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024) explores the intricate relationship between political risk and financial markets, focusing on France’s landscape in 2024.

The context

Financial market stability is critically dependent on political risk, which determines how investors behave, borrowing costs and how strong a nation’s currency is. Consequently, market fears of political instability under Michel Barnier’s government have been heightened in France. Indeed, the instability has manifested itself in rising bond spreads, pressure on the euro and rising costs of debt issuance. Therefore, France’s financial landscape is being impacted by political uncertainty.

Spread Since the Dissolution of the National Assembly.
Spread Between French and German Bonds Political risk in France
Source: Bloomberg, Les Echos

The Cost of French Debt Rises

One of the most widely followed indicators of France’s economic health is its government bonds (obligations assimilables du Trésor or OATs): the yield reflects market confidence in France’s creditworthiness and economic conditions, with rising yields often signaling increased risk perceived by investors. Additionally, the spread between OAT yields and German Bunds serves as a benchmark for comparing investor sentiment toward France versus Europe’s strongest economy. In the past few months, the French bond market has spiked to political uncertainty. As a result, the spread between French and German 10-year bond (which represents a key risk gauge) spiked to 89 basis points in late November 2024. It is the highest since eurozone crisis days in 2012, and up from the 55 basis points in May 2024 before parliamentary dissolution.

Spread Between French and Greek Bonds.

Source: Bloomberg, Les Echos.

The spread reflects the additional yield investors demand to hold French debt over German bonds, which are the eurozone’s safest. Therefore, it represents a quantifiable expression of the risk that markets see associated with France’s political and fiscal situation. This comes as France’s 10-year bond yield has risen sharply from 2.9% at the start of 2024 to 3.2% in November 2024. However, German yields have remained steady at 2.1%, reflecting a difference in confidence among investors in the two economies.

Therefore, the implications for France’s borrowing costs are profound. In 2025, the government will issue €300 billion in bonds, a record amount, as debt refinancing needs and budgetary deficits are pushing up borrowing. A 30 basis point rise in yields could add £900m a year to the interest bill, further stretching a budget that is already under severe strain. Hence, the urgent need to restore market confidence is underlined by the cumulative cost of higher borrowing rates.

The Cost of French Debt Rises

France’s political challenges have also put pressure on the euro, often considered a barometer of European unity. The euro is currently trading at $1.05 and risks further depreciation to parity with the US dollar if the Barnier government collapses. Historically, currency markets have been sensitive to French political developments, and we can point to recent examples.

For instance, speculation of a severe euro devaluation swirled around a ‘Frexit’ in 2017 after fears of such an outcome during the presidential campaign of Marine Le Pen. Analysts had forecast up to 5% fall in the euro, but Emmanuel Macron’s eventual victory eased those fears, pushing the euro 10% higher in four months. However, in 2024, the situation is less clear. The euro’s path remains fragile as investor sentiment is weighed down by political uncertainty and fiscal deficits near 6% of GDP. Further decline would aggravate inflationary pressures by increasing the cost of imports, especially energy, and would provide only modest export benefits in a weak global economy.

Meanwhile, the widening of the French-German spread in recent weeks has been a clear signal that skepticism about France’s political and fiscal outlook has been growing.

France, a semi core of the eurozone, now has borrowing costs approaching those of southern European countries such as Spain and Portugal, which have been viewed as riskier. For example, Spanish 10-year bond yields have fallen below those of France due to the improved fiscal discipline in and economic performance by Spain. In the meantime, France’s credit default swaps are trading at 0.4%, implying a default probability of 2.6%. This is still below Greece’s 5%, but it reflects a loss of confidence in French fiscal management.

Additionally, liquidity concerns are also at play. France’s ability to get enough private investors to put money into its debt is becoming more reliant on these private investors as the European Central Bank reduces its purchases of bonds. The shift in market dynamics only underscores the need for political stability.

France Fiscal Outlook

France’s fiscal outlook is a daunting challenge for financial markets. This comes as the government embarks on its record €300 billion debt issuance program for 2025, at a time when interest costs are rising and the budget remains in deficit. As a result, the sheer volume of outstanding debt, coupled with higher yields, will push debt servicing expenses to €55 billion in 2025, from €50 billion in 2024.

Moreover, France’s debt-to-GDP ratio is already 111% in 2024, one of the highest in the eurozone. That ratio has been a source of concern about the sustainability of France’s fiscal policies, given that it comes amid a slow economic growth. That’s why analysts warn that without meaningful reforms to deal with structural deficits, the debt trajectory could become unsustainable, which will then trigger further downgrades from credit rating agencies and higher borrowing costs.

Outstanding French Debt Overview.

Source: Agence du Trésor.

In conclusion, France is at a crossroads, and its financial markets are reflecting deep seated worries about political instability and fiscal sustainability. Widening bond spreads, growing debt servicing costs and pressure on the euro underscore the need for action. Furthermore, this case serves as a textbook example of how political risk can deeply impact financial markets. The interplay between France’s domestic political turmoil, bond spreads, currency volatility, and investor sentiment demonstrates how closely markets monitor political developments.

Why should I be interested in this post?

This post provides an analysis of how political risk impacts financial markets, focusing on the French bond market, currency fluctuations, and fiscal sustainability. It gives you an outlook on the real-world consequences of political instability, offering a detailed understanding of how investor sentiment shifts in response to political uncertainties.

Useful resources

European Central Bank (ECB)

Agence France Trésor (AFT)

Bloomberg

Les Echos (Financial Market Section)

Standard & Poor’s (S&P) Global Ratings

About the author

The article was written in December 2024 by Marine SELLI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2020-2024).

The Future Of CleanTech: Innovations Driving A Sustainable World And Their Financial Implications

December 30, 2024October 19, 2024 by Anant JAIN

The Future Of CleanTech: Innovations Driving A Sustainable World And Their Financial Implications

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about CleanTech.

Introduction

CleanTech, or clean technology, represents a burgeoning field dedicated to creating innovative solutions that minimize environmental impact, enhance energy efficiency, and support sustainable practices. This article examines the current worldwide landscape of CleanTech, highlights key innovations, and explores the potential for shaping a sustainable future.

Understanding CleanTech

CleanTech involves technologies that deliver superior performance while lowering costs compared to traditional methods, all while reducing environmental harm. CleanTech spans various sectors, including energy, water management, transportation, and agriculture, reflecting its extensive potential to address environmental concerns.

Key Innovations In CleanTech

Renewable Energy

Renewable energy sources such as solar, wind, and hydropower are pivotal to CleanTech advancements.

Example: Tesla has made significant strides with its solar roof and solar panels, which have become more efficient and affordable.

Title

Energy Storage

Effective and efficient energy storage is crucial for balancing the variable output of renewable energy sources.

Example: QuantumScape focuses on developing solid-state batteries, which offer higher energy density and improved safety compared to conventional lithium-ion batteries. These advancements are crucial for electric vehicles and large-scale energy storage.

Title

Electric Vehicles (EVs)

The shift from thermal engine vehicle towards electric vehicles is transforming traditional medium for transportation and daily travel.

Example: Rivian produces EVs like the R1T pickup truck and R1S SUV offering longer driving capabilities and advanced features showcasing the advancements and diversity in EV sector.

Title

Smart Grids & Energy Management

Smart grids use digital technology to increase efficient distribution of electricity.

Example: Siemens has developed smart grid solutions that incorporate sensors and data analytics to optimize energy distribution and minimize outages, aiding in the integration of renewable energy sources.

Title

Water Purification and Conservation

Capable innovations in water management are essential and critical for addressing freshwater scarcity issues across the globe.

Example: Xylem provides advanced water purification technologies and smart irrigation systems, such as the Smart Irrigation Controller, which optimizes water use in agriculture based on real-time data.

Title

Waste Management and Recycling

New technologies are completely changing the waste management and recycling sector.

Example: TerraCycle specializes in recycling hard-to-process waste, offering innovative methods for recycling and upcycling materials that are typically not handled by conventional waste systems.

Title

Challenges Ahead

Despite its promise, the CleanTech sector faces several challenges that must be addressed for its full potential to be realized:

High Upfront Costs

Many CleanTech innovations need prominent startup investment. Although these investments often lead to long-term savings and environmental benefits, it can be a barrier to widespread development.

Regulatory Hurdles

The regulatory environment can be complex and vary across regions, impacting the deployment of CleanTech technologies. Different countries may have distinct requirements and approval processes that affect market entry.

Technological Uncertainty

CleanTech encompasses a range of emerging technologies that are still evolving. Long-term performance, reliability, and cost-effectiveness of these technologies are not yet fully established.

Infrastructure Needs

Implementing CleanTech solutions often requires upgrading or developing new infrastructure. For instance, expanding the network of electric vehicle charging stations necessitates significant investment and coordination.

Market Competition

The CleanTech sector is competitive, with numerous companies vying for market share. Ongoing innovation & advancements in the technology are critical for companies to have a competitive edge.

Public Awareness And Acceptance

Overcoming resistance to new technologies and educating the public about their benefits can be challenging. Public awareness campaigns are essential for encouraging adoption and building trust in CleanTech solutions.

Implications For The Stock Market

The CleanTech sector has significant implications for the stock market:

Investment Opportunities

The CleanTech industry attracts investor due to its growth potential and impact. Companies involved in this area are often viewed as high-growth investments. The sector’s expansion is supported by regulatory incentives, technological advancements, and a global focus on sustainability.

Government Policies & Incentives

The government play a critical role in shaping the CleanTech market through their policies and incentives. Supportive regulations, subsidies, and tax credits can enhance the attractiveness of CleanTech investments. Investors should be aware of policy developments that may influence the market.

Market Volatility

CleanTech investments can experience market volatility due to regulatory changes, competition, and shifting consumer preferences. Investors should be ready & prepared for such fluctuations and should conduct in depth research before making investment decisions.

Sustainable Investing

The rise of Environmental, Social, and Governance (ESG) criteria has led to a focus on sustainable investing. CleanTech companies often align with ESG goals, attracting socially conscious investors. Investment funds and indices focused on sustainability offer exposure to the CleanTech sector.

Personal Investing In CleanTech

For individual investors interested in CleanTech, several strategies can be considered:

Direct Investment

Investing directly in CleanTech companies can provide exposure to innovative technologies and growth potential. Stocks of companies involved in solar energy, electric vehicles, or energy storage are popular options.

Exchange-Traded Funds (ETFs) And Mutual Funds

For a diversified investment approach, investors can choose CleanTech-focused ETFs and mutual funds. These funds pool investments in a variety of CleanTech companies, reducing individual risk and providing broad exposure to the sector.

Green Bonds

Investing in green bonds allows individuals to support CleanTech initiatives while earning fixed-income returns since they focus on financing environment friendly projects.

Research And Due Diligence

Conducting thorough research and due diligence is essential for any investment. It is important to evaluate a company’s financial health, technological innovations and roadmap, market potential, and management style to help make informed investment decisions. Staying updated on industry trends and technological advancements is also beneficial.

The Path Forward

The future of CleanTech holds great promise, driven by ongoing research and investment. Collaboration among governments, businesses, and research institutions is key to advancing CleanTech solutions. Supportive policies, financial incentives, and public awareness are crucial for fostering innovation and adoption.

As we confront environmental challenges, CleanTech represents a vital part of the solution. Utilising CleanTech technology and innovation can help us move towards a more sustainable and bright future. For investors, CleanTech offers opportunities to align financial goals with environmental impact, potentially achieving both financial returns and contributing to a greener planet.

In summary, CleanTech is essential to the global effort to create a sustainable world. Through continued innovation and collaborative efforts, we can realize the full potential of these technologies and build a cleaner, greener future. Understanding the financial implications and opportunities within the CleanTech sector can lead to rewarding and impactful investment decisions.

Useful Resources

Useful Articles

International Energy Agency (IEA) – CleanTech

International Energy Agency (IEA) – Cleantech

Business Examples

Tesla – Solar Roof and Solar Panels

QuantumScape – Solid-State Batteries

Rivian – Electric Vehicles

Siemens – Smart Grids

Xylem – Water Purification and Smart Irrigation

TerraCycle – Waste Management and Recycling

About The Author

The article was written in October 2024 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

FactSet

May 20, 2024May 3, 2024 by Nithisha CHALLA

FactSet

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents FactSet, which provides financial data, news and analytics for the financial community.

Introduction

FactSet also known as FactSet Research Systems Inc. is a leading provider of financial data and analytics solutions, catering to professionals in the investment industry. Whether you are a financial analyst, portfolio manager, or student of finance, FactSet offers powerful tools and resources to analyze markets, evaluate companies, and make informed investment decisions.

Logo of Factset

Source: Factset

History

Founded in 1978 by Howard Wille and Charles Snyder, FactSet began as a startup aiming to revolutionize financial data analysis. The company initially focused on providing financial analysis software for investment professionals, aiming to streamline data processing and analysis in the rapidly evolving financial industry.

Throughout the 1980s and 1990s, FactSet expanded its product offerings and market presence, catering to a growing demand for sophisticated financial data and analytics solutions. In its journey of growth and expansion, FactSet has made several strategic acquisitions to enhance its product portfolio and expand its market reach.

In 2007, FactSet acquired Market Metrics, a provider of market research and consulting services for asset managers. In 2015, FactSet acquired Portware LLC, a leading provider of multi-asset trade automation solutions for asset managers and institutional traders. In 2020, FactSet acquired Truvalue Labs, a pioneer in AI-driven environmental, social, and governance (ESG) data and analytics.

From its humble beginnings in the late 1970s to its current status as a global leader in financial data and analytics, FactSet has continually evolved to meet the evolving needs of the investment community.

Key Components of FactSet Research Systems

Earnings Estimates

Earnings estimates refer to predictions made by financial analysts and experts regarding how much profit a company is expected to generate in the future.FactSet gathers and provides these estimates, which are crucial for investors and analysts to assess a company’s potential performance.

According to Factset, 2024, the company’s consensus estimates are aggregated from a wide base of contributors and cover 19,000+ active companies across 90+ countries.

Revenue Projections

Revenue projections indicate how much revenue a company is expected to generate over a specific period. FactSet’s revenue projections are based on industry trends, market conditions, and company-specific factors, providing users with valuable insights into sales performance and revenue drivers.

For example, in June 2024, Factset released an expected revenue projection for S&P 500 companies stating “The blended (companies that reported and the estimation of the companies yet to report)earnings growth rate for the S&P 500 for Q4 2023 is 3.2%. It should be noted that analysts are currently projecting (year-over-year) revenue growth for all four quarters of 2024. For Q1 2024 through Q4 2024, the current estimates for revenue growth are 3.5%, 4.6%, 5.0%, and 5.7%, respectively.”. This helps stakeholders of the respective industry to analyze, project, and invest accordingly.

Forecasts for Key Financial Metrics

In addition to earnings estimates, FactSet offers forecasts for key financial metrics such as revenue growth rates, cash flow projections, and profit margins. These forecasts provide insights into overall financial health and performance metrics, helping users assess business strategies, identify growth opportunities, and make informed investment decisions. By analyzing financial forecasts, users can anticipate market trends and evaluate the potential impact on investment portfolios.

Coverage

FactSet covers a wide range of companies across different industries, from large corporations to smaller businesses. This extensive coverage ensures that users have access to comprehensive financial data and insights.

FactSet provides access to 200+ data items, including 100+ metrics across 18 industries encompassing airlines, banking, insurance, oil/gas, and retail. It leverages estimates that are collected directly from the research reports and flat file feeds of 800+ contributors across 55 countries.

Period

Factset has evolved since its introduction in 1978 and in 2023, Factset has expanded its client base to over 7,900 and increased its user base by 6%, surpassing 189,000 users. Factset with over 45 years of history, facilitates top-down analysis to better assess potential growth and risk as well as future value across industry, sector, index, country, and region.

Frequency

The period and frequency of forecasts on Factset vary based on user needs and market dynamics. FactSet incorporates quarterly and annual financial reports from companies, including earnings releases, revenue figures, balance sheets, and cash flow statements. Users can access real-time updates and forecasts based on two categories that are data frequency and update frequency, where they provide quarterly data frequency and an intraday update frequency.

FactSet also includes on a timely basis event-driven updates such as corporate actions (e.g., mergers, acquisitions, dividends) and regulatory filings (e.g., SEC filings), providing comprehensive coverage of market events impacting investment decisions.

Firms and Financial analysts

According to James Chen (2023à, FactSet is broken down into three business units: one in the United States, one in Europe, and one in Asia-Pacific. The business unit located in the United States provides financial solutions to financial professionals as well as domestic financial institutions. The European and Asia-Pacific business units only service financial professionals in the regions in which each unit operates.

As of 2023, FactSet services over 200,000 users in more than 8,000 companies and organizations. FactSet has 37 offices in 20 countries. The company reports it has had a client retention rate of 95% with 43 years of revenue growth.

Pricing

FactSet’s pricing model varies based on subscription plans and user requirements. Students can explore different pricing tiers to access specific data sets, analytical tools, and premium features tailored to their academic or research needs. Understanding FactSet’s pricing structure is essential for management students evaluating the cost-benefit of utilizing its services for financial analysis and research purposes.

FactSet provides its services for a lower price than some of its competitors because the company uses multiple sources to provide its data, which creates pricing competition between suppliers.

Use of FactSet by the Financial Community

Benchmark for Analysis

FactSet serves as a benchmark for financial analysis, offering a comprehensive suite of tools for analyzing companies, industries, and markets. Management students can use FactSet to perform detailed financial modeling, comparative analysis, and valuation assessments, gaining practical experience in fundamental analysis techniques.

Market Expectations

FactSet provides access to economic data and forecasts that shape market expectations. Users can track indicators such as GDP growth, inflation rates, unemployment figures, and interest rate projections to anticipate broader economic trends.

Earnings Season Preparation

During earnings seasons, by leveraging FactSet’s capabilities, users can navigate earnings announcements with confidence, interpret financial results effectively, and make well-informed investment decisions based on fundamental analysis and market intelligence.

FactSet and Tests of Market Efficiency

Academic works

Academic researchers use FactSet’s extensive database and analytical tools to conduct empirical studies on various topics in finance, economics, and investment management. FactSet’s rich dataset allows researchers to analyze market behavior, asset pricing models, and the impact of economic indicators on financial markets. Researchers use FactSet to assess whether asset prices reflect all available information, conducting event studies and anomaly detection to identify market inefficiencies.

Information Dissemination

Information dissemination refers to the process of distributing financial data, market insights, and analytical reports to users within the investment community using FactSet’s platform. FactSet provides real-time market data on stock prices, indices, commodities, currencies, and other financial instruments. Users can access live updates and monitor market movements as they occur, enabling timely decision-making and risk management.

FactSet disseminates earnings releases, corporate news, and press releases from companies within its coverage universe. Users receive alerts and notifications about important announcements, enabling them to stay informed about company developments and assess potential market impacts.

Pros and Cons

Given its history and operations in so many industries and markets, we certainly need to know the pros and cons of the FactSet.

FactSet provides researchers with access to extensive financial data and analytics, and comprehensive financial data coverage across global markets. FactSet provides a user-friendly interface and intuitive features. It has very well-known powerful tools for financial analysis and investment research.

On the other side, FactSet subscription costs may limit access to users with limited budgets or in academic institutions with constrained resources. The complexity of mastering advanced functionalities may also present a learning curve for users new to the platform.

Conclusion

FactSet impact extends across the financial community, serving as a trusted resource for investors, traders, analysts, and corporate professionals worldwide.

Why should I be interested in this post?

As a management master’s student focusing on finance or strategic analysis, understanding and utilizing financial data platforms like FactSet can greatly enhance your skills and career prospects.

Useful resources

FactSet

Truvalue Labs

Wikipedia FactSet

FactSet FactSet Estimates – Consensus

FactSet FactSet Annual Report 2023

FactSet Earnings Insight

About the author

The article was written in May 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Institutional Brokers’ Estimate System (IBES)

April 9, 2024 by Nithisha CHALLA

Institutional Brokers’ Estimate System (IBES)

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents Institutional Brokers’ Estimate System (IBES), which provides market consensus for the financial community.

Introduction

In the fast-paced world of finance, the Institutional Brokers’ Estimate System, commonly known as IBES (often written as “I/B/E/S.”), stands as a linchpin in providing investors, analysts, and financial professionals with reliable forecasts and estimates.

IBES, with its roots in comprehensive data aggregation, takes center stage in providing a panoramic view of financial analysts’ estimates and forecasts. IBES acts as a centralized repository of earnings estimates, revenue projections, and other key financial metrics, serving as a vital resource for investors seeking actionable insights.

History

IBES was created in 1976 by the investment research firm, Lynch, Jones & Ryan (LJR). It was developed to address the need for a centralized system to collect and distribute earnings estimates from brokerage analysts. The database offers historical data from its inception and extends internationally from 1987. Over the years, IBES went through several ownership changes. In 1988, LJR was acquired by Primark Corporation. Primark Corporation later merged with Thomson Financial Services in 1990, and IBES became part of Thomson Financial. Thomson Financial subsequently merged with Reuters Group in 2008 to form Thomson Reuters. Thus, IBES became a part of Thomson Reuters. Then Thomson Reuters was acquired by private equity firm Blackstone Group and rebranded as Refinitiv in 2018. Refinitiv was later acquired by the London Stock Exchange Group (LSEG) in 2020. Therefore, IBES is currently owned by the London Stock Exchange Group (LSEG) through its subsidiary, Refinitiv.

Key Components of IBES

Earnings Estimates

IBES compiles earnings estimates from a multitude of financial analysts, providing a consensus view on the expected earnings of a company. As of the latest data, it aggregates forecasts from over 16,000 analysts worldwide, providing a robust consensus on expected earnings for companies across the globe.

Revenue Projections

Beyond earnings, IBES includes revenue projections, offering a comprehensive view of a company’s expected top-line growth. Analysts’ forecasts are aggregated to provide a consensus estimate, aiding investors in gauging revenue expectations.

Forecasts for Key Financial Metrics

IBES extends beyond earnings and revenue, encompassing a spectrum of financial metrics. This includes estimates for operating margins, cash flows, and other key indicators, providing a holistic view of analysts’ expectations. The sheer volume of data—covering over 18,000 companies—ensures a comprehensive snapshot of financial expectations.

Coverage

There are certain types of coverage when we are talking about data coverage such as the Number of Companies Covered, geographic Coverage, Market Capitalization Coverage, Industry Coverage, Depth of Coverage, and Historical Coverage.

According to LSEG data analytics, I/B/E/S Estimates data is displayed at the company level, screened with rigorous quality control methods across more than 23,400 active companies in more than 90 countries, and sourced from over 19,000 analysts.

Estimates Data from over 950 firms contribute data to I/B/E/S, from the largest global houses to regional and local brokers, with U.S. data back to 1976 and international data back to 1987.

Period

IBES has evolved since its introduction in 1976 and includes international data from 1987. I/B/E/S Global Aggregates, with over 30 years of history, facilitates top-down analysis to better assess potential growth and risk as well as future value across industry, sector, index, country, and region.

Frequency

Initially focusing on annual earnings estimates, the database subsequently broadened to encompass quarterly earnings forecasts.

Firms and Financial analysts

IBES covers a wide range of firms across different industries, sectors, and regions. This includes companies listed on major stock exchanges in numerous countries and markets around the world. 950+ contributors, across 90+ in developed and emerging markets, totaling over 19,000 individual analysts – the most in the industry. Unmatchable history across more than 60,000 companies back to 1976 for North America, 1987 for other markets.

Pricing

The specific pricing for accessing I/B/E/S data is not explicitly mentioned on the IBES website and you have to make a request through the LSEG website which manages IBES. The cost likely varies based on the package and offerings selected, which can include different data sets, access methods, and service frequencies. For detailed pricing information, it’s recommended to directly contact LSEG or the respective service providers you’re interested in, as they can provide more precise details based on your specific requirements and the scale of your intended use.

For academic and non-commercial research purposes, access might be available through institutional subscriptions with specific terms of use, as seen with Aalto University’s subscription financed by the Aalto University Data Hub for its users. This indicates that the availability and cost of I/B/E/S data may vary significantly based on the type of use and the access platform. For precise pricing and package options, directly contacting the service providers is the best approach.

Use of IBES by the Financial Community

Benchmark for Analysis

IBES serves as a benchmark for investors and analysts, quantifying market reactions, it dives into the numbers behind market reactions. According to Faster Capital, studies reveal that stocks experiencing positive earnings surprises, surpassing IBES estimates, tend to outperform the market. These numerical insights underscore the practical implications of aligning investment decisions with IBES consensus.

Market Expectations

Analysts and fund managers utilize IBES to gauge market expectations for specific companies. Understanding consensus estimates aids in forming investment strategies aligned with prevailing market sentiments.

Earnings Season Preparation

During earnings seasons, IBES becomes a critical tool for investors preparing for companies’ financial releases. It provides a consolidated view of analysts’ forecasts, helping investors assess potential surprises or disappointments.

IBES and Tests of Market Efficiency

Academic works

The data was subsequently used as the basis for articles in academic finance journals attempting to demonstrate that changes in consensus earnings estimates could identify opportunities to capture excess returns in subsequent periods.

Information Dissemination

IBES plays a pivotal role in disseminating timely information. As estimates are constantly updated based on new information, IBES ensures that market participants have access to the latest insights, contributing to market efficiency.

Pros and Cons

Given its history and operations in huge industries and markets, we certainly need to know the pros and cons of the IBES estimates. In terms of accuracy metrics, IBES relies on the accuracy of analysts’ forecasts. Statistical metrics, such as the mean absolute error (MAE), offer a quantitative evaluation of the system’s precision.

Conclusion

IBES, when viewed through a data-driven lens, transforms into more than a system and becomes a useful tool for decision-makers navigating the intricacies of financial markets.

Why should I be interested in this post?

In essence, this article discovers how the global data powerhouse, backed by impactful statistics, empowers investors, providing a data-driven lens into market expectations and offering actionable insights for informed decision-making in the dynamic world of finance.

Useful resources

London Stock Exchange Group (LSEG) I/B/E/S Estimates

Wikipedia Institutional Brokers’ Estimate System

Market consensus What is market consensus?

Faster Capital Navigating Markets: The Power of Market Analysis and Consensus Estimates

About the author

The article was written in March 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

USD Coin: Deep Dive into the Role of Stablecoins in Modern Finance

January 15, 2025April 2, 2024 by Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains the stable coin USD Coin.

Historical context and background

USD Coin (USDC) is a type of cryptocurrency known as a stablecoin, designed to maintain a stable value relative to the US dollar (USD). It was launched in September 2018 by Centre Consortium, a collaboration between cryptocurrency exchange Coinbase and blockchain technology company Circle. The primary goal of USDC is to provide a digital asset that can be easily transferred between users and used for transactions, while minimizing the volatility typically associated with other cryptocurrencies like Bitcoin or Ethereum.

The need for stablecoins like USDC arose due to the inherent volatility of many cryptocurrencies. While Bitcoin and other digital assets have gained significant attention and adoption, their prices can fluctuate dramatically over short periods, which can make them less practical for everyday transactions and financial contracts. Stablecoins like USDC offer a solution to this problem by pegging their value to a stable asset, such as the US dollar, thereby providing stability and predictability for users.

USDC operates on the Ethereum blockchain as an ERC-20 token, making it compatible with a wide range of decentralized applications (dApps) and enabling seamless integration with the broader cryptocurrency ecosystem. This infrastructure allows users to easily send and receive USDC tokens across various platforms and services, including exchanges, wallets, and payment processors.

Since its launch, USDC has seen significant growth in adoption and usage. It has become one of the most widely used stablecoins in the cryptocurrency market, with billions of dollars worth of USDC tokens in circulation. Its stability and liquidity have made it a popular choice for traders, investors, and businesses looking to transact in digital assets without exposure to the volatility of other cryptocurrencies.

USD Coin Logo

Source: Yahoo! Finance.

Figure 1. Key Dates in USDC History

Source: Yahoo! Finance.

Key features

Stability

USD Coin is a stablecoin, meaning it is pegged to the value of the US dollar on a 1:1 basis. This stability is maintained through regular audits and backing by reserves of US dollars held in custody by regulated financial institutions.

Transparency

USDC operates on blockchain technology, providing transparency and immutability of transactions. Every USDC token is backed by an equivalent number of US dollars held in reserve, which is regularly audited and transparently reported to ensure trust among users.

Speed and Efficiency

Transactions involving USDC can be executed quickly and efficiently on blockchain networks, enabling near-instantaneous settlement compared to traditional banking systems, which may take days for cross-border transactions.

Global Accessibility

USDC enables borderless transactions, allowing users to send and receive payments globally without the need for intermediaries such as banks. This accessibility empowers individuals and businesses, particularly in regions with limited access to traditional financial services.

Interoperability

USDC is compatible with various blockchain platforms and protocols, including Ethereum, Algorand, and Solana, among others. This interoperability facilitates its integration into a wide range of decentralized applications (DApps) and decentralized finance (DeFi) ecosystems.

Use cases

Remittances and Cross-Border Payments:

USDC provides a cost-effective and efficient solution for remittance payments and cross-border transactions, enabling individuals and businesses to transfer value across borders quickly and securely without the need for traditional banking intermediaries.

Stable Value Storage

Due to its stable value pegged to the US dollar, USDC serves as a reliable store of value and a hedge against volatility in the cryptocurrency market. Users can hold USDC as a stable asset to preserve purchasing power and mitigate the risks associated with price fluctuations in other cryptocurrencies.

Decentralized Finance (DeFi) Applications

USDC is widely used as a liquidity provider and collateral asset in various DeFi protocols and applications such as decentralized exchanges (DEXs), lending platforms, yield farming, and liquidity pools. Users can leverage USDC to earn interest, borrow assets, or participate in yield farming strategies within the DeFi ecosystem.

Commerce and Payments

Merchants and businesses can accept USDC as a form of payment for goods and services, leveraging its fast transaction settlement times and low transaction fees compared to traditional payment methods. Integrating USDC payments can streamline cross-border commerce and reduce friction associated with fiat currency conversions.

Financial Inclusion

USDC plays a crucial role in expanding financial inclusion by providing access to digital financial services for individuals and communities underserved by traditional banking infrastructure. By utilizing blockchain technology and stablecoins like USDC, individuals without access to traditional banking services can participate in the global economy and access a wide range of financial products and services.

Technology and underlying blockchain

USD Coin (USDC) operates on a blockchain-based infrastructure, primarily leveraging the Ethereum blockchain as its foundation. Utilizing Ethereum’s smart contract functionality, USDC tokens are issued, transferred, and redeemed in a transparent and trustless manner. The ERC-20 standard, a set of rules and protocols defining interactions between tokens on the Ethereum network, governs the behavior of USDC tokens, ensuring compatibility with a wide range of wallets, exchanges, and decentralized applications (DApps). Moreover, USDC employs a consortium model for governance and operation, with regulated financial institutions serving as members responsible for the issuance, custody, and redemption of USDC tokens. These institutions adhere to strict regulatory compliance measures and conduct regular audits to verify that each USDC token is fully backed by an equivalent reserve of US dollars held in custody. This combination of blockchain technology, smart contracts, and regulatory oversight ensures the integrity, transparency, and stability of USD Coin, making it a trusted and widely adopted stablecoin within the cryptocurrency ecosystem.

ERC-20 Standard of Ethereum for USD Coin

The ERC-20 standard, short for Ethereum Request for Comment 20, is a widely adopted technical specification governing the creation and implementation of fungible tokens on the Ethereum blockchain. Introduced by Fabian Vogelsteller and Vitalik Buterin in 2015, ERC-20 defines a set of rules and functions that enable seamless interoperability between different tokens, ensuring compatibility with various decentralized applications (DApps) and wallets. Tokens adhering to the ERC-20 standard are characterized by a consistent set of methods, including transfer, balance inquiry, and approval mechanisms, facilitating easy integration and widespread adoption across the Ethereum ecosystem. This standardization has played a pivotal role in the proliferation of tokenization, empowering developers to create diverse tokenized assets, conduct crowdfunding campaigns through Initial Coin Offerings (ICOs), and establish decentralized exchanges (DEXs) where ERC-20 tokens are traded autonomously. Additionally, ERC-20 compliance enhances security and interoperability, fostering trust and usability within the Ethereum network.

Supply of coins

The supply dynamics of USD Coin (USDC) are governed by its underlying smart contract protocol and the management of its issuer, Centre Consortium, a collaboration between Circle and Coinbase. USDC operates on a principle of full backing, where each USDC token issued is backed by an equivalent number of US dollars held in reserve. This backing ensures a 1:1 peg to the US dollar, maintaining its stability. The issuance and redemption of USDC are facilitated through regulated financial institutions that hold the corresponding fiat reserves. Moreover, USDC’s supply is transparently audited on a regular basis, with attestations provided by reputable auditing firms to verify the adequacy of reserves. Through these mechanisms, the supply of USDC remains elastic, expanding or contracting based on market demand while preserving its stability and trustworthiness as a stablecoin in the digital asset ecosystem.

Historical data for USDC

How to get the data?

The USDC is popular cryptocurrency on the market, and historical data for the USDC such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for USDC on Yahoo! Finance (the Yahoo! code for USD Coin is USDC-USD).

Figure 2. USD Coin data

Source: Yahoo! Finance.

Historical data for the USD Coin market prices

The historical market price of USD Coin (USDC) has remained relatively stable, as its primary function is to maintain a value pegged to the US dollar at a 1:1 ratio. Since its inception, USDC has consistently traded around the $1 mark, with minor fluctuations typically attributed to market dynamics and liquidity conditions. Investors and traders often utilize USDC as a safe haven asset or a means of temporarily exiting volatile cryptocurrency markets, contributing to its stability. This stability has made USDC a preferred choice for individuals and institutions seeking to hedge against cryptocurrency volatility or facilitate seamless transitions between digital and fiat currencies. Additionally, the transparent backing of USDC by reserves of US dollars held in custody by regulated financial institutions further enhances market confidence and contributes to its stable market price over time.The historical market price of USD Coin (USDC) has remained relatively stable, as its primary function is to maintain a value pegged to the US dollar at a 1:1 ratio. Since its inception, USDC has consistently traded around the $1 mark, with minor fluctuations typically attributed to market dynamics and liquidity conditions. Investors and traders often utilize USDC as a safe haven asset or a means of temporarily exiting volatile cryptocurrency markets, contributing to its stability. This stability has made USDC a preferred choice for individuals and institutions seeking to hedge against cryptocurrency volatility or facilitate seamless transitions between digital and fiat currencies. Additionally, the transparent backing of USDC by reserves of US dollars held in custody by regulated financial institutions further enhances market confidence and contributes to its stable market price over time.

Figure 3 below represents the evolution of the price of USD Coin in US dollar over the period Oct 2018 – Dec 2022. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 3. Evolution of the USD Coin price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the USD Coin.

Data file

The R program that you can download above allows you to download the data for the USD Coin from the Yahoo! Finance website. The database starts on Oct, 2018. Table 1 below represents the top of the data file for the USD Coin downloaded from the Yahoo! Finance website with the R program.

Table 1. Top of the data file for the USD Coin

Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Python script to download USD Coin historical data and save it to an Excel sheet::

import yfinance as yf

import pandas as pd

# Define the ticker symbol for USD Coin

usdc_ticker = “USDC-USD”

# Define the date range for historical data

start_date = “2020-01-01”

end_date = “2022-01-01”

# Download historical data using yfinance

usdc_data = yf.download(usdc_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

usdc_df = pd.DataFrame(usdc_data)

# Define the Excel file path

excel_file_path = “USDC_historical_data.xlsx”

# Save the data to an Excel sheet

usdc_df.to_excel(excel_file_path, sheet_name=”USDC Historical Data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the USD Coin

Figure 4 below gives the evolution of the USDC on a daily basis.

Figure 4. Evolution of the USD Coin.

Source: computation by the author (data: Yahoo! Finance website).

Figure 5 below gives the evolution of the USD Coin returns from Oct, 2018 to December 31, 2022 on a daily basis.

Figure 5. Evolution of the USD Coin returns

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the USD Coin

The R program that you can download above also allows you to compute summary statistics about the returns of the USD Coin. Table 2 below presents the following summary statistics estimated for the USD Coin:

The mean

The standard deviation (the squared root of the variance)

The skewness

The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 2. Summary statistics for USDC.

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the USD Coin returns

Historical distribution

Figure 6 represents the historical distribution of the USD Coin daily returns for the period from Oct, 2018 to December 31, 2022.

Figure 6. Historical USDC distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from October, 2018 to December 31, 2022.

Figure 7 below represents the Gaussian distribution of the USD Coin daily returns with parameters estimated over the period from October, 2018 to December, 2022.

Figure 7. Gaussian distribution of the USDC returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the USD Coin returns

The R program that you can download above also allows you to compute risk measures about the returns of the USD Coin.

Table 3 below presents the following risk measures estimated for the USD Coin:

The long-term volatility (the unconditional standard deviation estimated over the entire period)

The short-term volatility (the standard deviation estimated over the last three months)

The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)

The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)

The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)

The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)

The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)

The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 3. Risk measures for the USDC.

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the XRP while the study of the right tail is relevant for an investor holding a short position in the XRP.

Why should I be interested in this post?

The post offers an opportunity for both newcomers and seasoned cryptocurrency enthusiasts to delve into the concept of stablecoins, gaining insights into how digital assets maintain stability amidst market volatility. Furthermore, the post highlights USDC’s role in fostering financial inclusion by enabling borderless transactions, appealing to readers passionate about democratizing finance. Additionally, exploring USDC’s significance in the burgeoning realm of decentralized finance (DeFi) could intrigue those interested in innovative financial technologies and investment opportunities. Examining USDC’s historical performance and market dynamics can offer valuable insights for investors and traders, while shedding light on its compliance measures and regulatory landscape can address concerns regarding legal risks, contributing to readers’ understanding and confidence in this digital asset.

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for USDC

CoinMarketCap Historical data for USDC

About the author

The article was written in March 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

Mille quatre cent milliards de dollars

April 9, 2024March 28, 2024 by Jean-Marie CHOFFRAY

Mille quatre cent milliards de dollars

Dans cet article, Jean-Marie CHOFFRAY (Professeur Ordinaire Honoraire d’Informatique Décisionnelle à l’Université de Liège, PhD-77, Management Science, Massachusetts Institute of Technology) introduit son recent article “Mille quatre cent milliards de dollars”.

L’événement fondateur du XXe siècle est la première guerre mondiale, conséquence de rivalités politiques et économiques entre les puissances de l’Alliance et celles de l’Entente. Dix millions de civils et de militaires meurent. Vingt millions sont blessés. Mais, pour la première fois, une institution internationale est créée dans le but de régler les différends internationaux : la Société des Nations (SDN).

L’événement fondateur du XXIe siècle pourrait être la production en 2009 du premier bloc de transactions du réseau Bitcoin et, accessoirement, l’échange du premier bitcoin. Aucun mort. Aucun blessé. Mais, pour la première fois, un réseau informatique décentralisé permet d’enregistrer irréversiblement et de certifier irrévocablement tous types de transactions entre des intervenants souhaitant garder l’anonymat. En termes simples, un bitcoin est une copie numérique exploitable – i.e. conservable et échangeable – d’une série (chaîne) complète et indestructible de transactions sécurisées. Leur nombre est exponentiellement limité dans le temps (le dernier exemplaire sera produit vers 2140) et dans l’espace (vingt et un millions au total). Le réseau Bitcoin est en quelque sorte la « Banque Centrale » d’un écosystème numérique multipolaire dont seuls les utilisateurs contrôlent le devenir. Personne ne peut prévoir la diversité des applications que cette technologie autorise, ni les transformations qu’entrainera sa diffusion dans les secteurs où la fiabilité et la validité de l’information et des connaissances sont essentielles. Sa capitalisation boursière le rendrait-elle indestructible ? Pour un investisseur averti : ignorer Bitcoin, c’est se tirer une balle dans le pied… Et, tout miser sur Bitcoin, c’est se tirer une balle dans la tête !

▶ Lire l’article Mille quatre cent milliards de dollars

Autres articles sur le blog

▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

A propos de l’auteur

L’article a été rédigé en mars 2024 par Jean-Marie CHOFFRAY (Professeur Ordinaire Honoraire d’Informatique Décisionnelle à l’Université de Liège, PhD-77, Management Science, Massachusetts Institute of Technology).

Top 5 Private Equity firms

March 27, 2024 by Alessandro MARRAS

Top 5 Private Equity firms

In this article, Alessandro MARRAS (ESSEC Business School, Global Bachelor in Business Administration (GBBA), Exchange Semester, September 2023-December 2023) presents the top 5 Private Equity firms globally.

Introduction

In the dynamic landscape of finance, private equity firms wield significant influence driving innovation, growth, and value creation. These firms are renowned for their strategic investments and operational expertise, generating substantial returns for investors. In this post, we embark on a journey to uncover the top 5 Private Equity firms globally guided by specific metrics that underscore their reputation and success.

Methodology

To define the top 5 global Private Equity firms, we developed a methodology rooted in a detailed selection process and comprehensive data analysis. Given the vast landscape of private equity firms, our first step was to narrow down our focus by seeking rankings from reputable independent research institutes, such as Private Equity International and Forbes. These rankings served as a benchmark, helping us identify firms that consistently garnered recognition for their excellence within the industry.

From these rankings, we selected firms that appeared most frequently in the top 5, ensuring that our pool consisted of widely acknowledged and respected entities. This approach enabled us to narrow down our analysis to a manageable number of firms, facilitating a more in-depth assessment of their performance and standing.

With our selection criteria in place, we turned to publicly listed firms, as their annual reports provide accessible data crucial for our analysis. It is important to understand that being publicly listed means that the private equity firm is listed on stock exchanges, and anyone can buy shares in the company. However, this is a big difference from investing in private equity funds, where the capital raised is used to buy portfolio companies.

From this we obtained the 5 firms to rank:

Blackstone Inc.
KKR & Co Inc.
The Carlyle Group Inc.
Apollo Global Management, Inc.
TPG Inc.

To rank these firms, we will be guided by essential measurement metrics that illuminate their standing and impact within the industry. Our evaluation method hinges on key indicators, including Assets Under Management (AUM), fundraising totals, and performance metrics such as gross returns. From an investor’s perspective, this comprehensive approach ensures a deep understanding of each firm’s financial health, strategic positioning, and potential for generating future returns, allowing for informed decision-making in investment opportunities.

Let’s have a more in depth look at the metrics (criterion) used:

Fundraising Totals Over the Last 5 Years. This metric provides insight into each firm’s ability to attract capital from investors over an extended period, reflecting investor confidence and the firm’s fundraising track record.

Total Private Equity AUM (in 2023). Total AUM for the private equity segment in 2023 serves as a measure of the firm’s scale and market presence within the private equity industry.

Private Equity Portfolio Returns (gross returns 2023). This metric represents the firm’s performance in generating returns from its investments in corporate private equity, providing a measure of investment effectiveness and value creation.

For each criterion, we will assign ranks to each firm based on their performance relative to others, with 1 being the highest rank and 5 being the lowest. We will then calculate the average score for each company and rank them accordingly. Each criterion weights the same.

Blackstone

Logo of Blackstone.

Source: the company.

Fundraising Totals: 126bn$

AUM: 304bn$

Gross returns: 12.1%

KKR

Logo of KKR.

Source: the company.

Fundraising Totals: 104bn$

AUM: 176bn$

Gross returns: 16%

The Carlyle Group (CG)

Logo of the Carlyle.
Logo of Carlyle
Source: the company.

Fundraising Totals: 70bn$

AUM: 161bn$

Gross returns: 5%

Apollo Global Management.

Logo of Apollo Global Management.

Source: the company.

Fundraising Totals: 23bn$

AUM: 75.9bn$

Gross returns: 10.2%

TPG

Logo of TPG.

Source: the company.

Fundraising Totals: 55bn$

AUM: 97.8bn$

Gross returns: 14.1%

Conclusion

Once we consider all these elements, here are the ranks we obtain for each criterion and their average for each firm:

Therefore, our final ranking for the top 5 Private Equity firms globally in 2023 is:

Blackstone
KKR
TPG
The Carlyle Group
Apollo Global Management

Note: Blackstone is ranked first in more criteria/metrics compared to KKR, demonstrating superior performance across multiple dimensions, and affirming its position as the top-performing firm in the final ranking.

Why should I be interested in this post?

As an ESSEC student enrolled in the SimTrade course, delving into the realm of Private Equity could be of great interest to you. This post serves as an insightful exploration into the industry’s key players, offering valuable insights into their distinctive characteristics. It presents an opportunity to deepen your understanding of the sector and potentially discover your future employer among these influential firms.

Useful resources

Private Equity International

Forbes Top 10 U.S. Private Equity Firms Of March 2024

TPG Inc.

The Carlyle Group Inc.

KKR & Co Inc.

Apollo Global Management, Inc.

Blackstone Inc.

About the author

The article was written in March 2024 by Alessandro MARRAS (ESSEC Business School, Global Bachelor in Business Administration (GBBA), Exchange Semester, September 2023-December 2023).

Explanations for the recent changes in the Mexican economic landscape

March 5, 2024 by Jorge KARAM DIB

Explanations for the recent changes in the Mexican economic landscape

In this article, Jorge KARAM DIB (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2024-2025) shares his thoughts about the different financial instruments recently available in Mexico that have been changing the economic landscape for the country and their residents in the recent years. He especially explains the role of high interest rates, new digital banks, and nonbanking financial instruments in Mexico’s recent booming economy, sharp Mexican peso appreciation, and strong increase in its GDP.

Interest rates in Mexico

For the last couple of years, the world has lived an era of high interest rates, mainly derived from the high inflation we got out of the pandemic and the war in Ukraine. Since then, the priority of most of the central banks of the world has been to cool down the economy and bring down inflation. Mexico has not been the exception. Mexico’s interest rates have been between 10% and 11% in the past three years. Some economists may consider this level -dangerously- high, but the country has seen mostly benefits like increasing peso’s appreciation, and a strong growth in the national GDP, from this level of interest rates than negative outcomes, and most important, Mexico’s government has been able to maintain the interest rates under a “controlled” level.

Evolution of Mexico’s interest rates.
Interest Rates Mexico
Source: Trading Economics.

The strategy of Mexico’s Central Bank has been very clear: to stay above the interest rates of the U.S.A. The benefits of staying above the interest of the USA’s is to target the remittances (money, mainly US Dollars, sent to Mexico, by migrant workers to their families), an objective that due the geographical conditions become very relevant. According to Statista, remittances represent a 4% of their GDP, either if it’s from migrant workers sending money to their families, or foreign investors trying to take advantage of the high interest rates in the country. “CETES” (Certificados de la Tesorerís de la Federación) is one of the most attractive instruments for foreign investments, because of the security CETES represent by being an instrument issued by the Mexican government, in the form of bonds mainly, with a return rate oscillating between 10%-12%.

CETES.
CETES
Source: S&P Dow Jones indices.

Digital Banks

There’s a recent uptrend in Latin America, but specially in Mexico of digital banks. In the last couple of years, we’ve seen multiple companies trying to gain market share, derived from the massive success of the Brazilian “unicorn” start-up Nu bank. In Mexico, the number of digital banks is starting to get closer to the traditional banks. Just in the last years, digital banks like Klar, Ualá, Hey Banco, RappiPay, among many others have entered the Mexican market with the objective to compete for market share with Nu bank.

Apart from the many benefits and functionalities that digital banks provide, better than the traditional banks, they’ve tried to attract more customers by trying to take advantage by offering the customers the possibility of investing their money inside their organization by adding a tool to their services called a “SOFIPO”, which will be explained further in the article. The return offered by each SOFIPO will depend on each institution issuing the instrument, but it will be mainly linked to the interest rate in the country. As we mentioned before, we are in a high interest rate season, which has turned into a “bidding war” for digital banks to offer better returns. As of February 2024, Nu bank offers one of the highest with 15%, Klar 14%, Hey Banco 11%, Ualá 15%.

The Mexican peso appreciated against the dollar in 2023 by 14%, reaching an eight-year low. Important to note that all these attractive financial instruments joined with a strong benefit from the world’s leading trends like nearshoring, have made Mexico become one of the best performing countries in terms of economy in the past few years and also one of the most attractive to invest in.

Mexican peso.
MXN
Source: Yahoo finance.

¿What is a SOFIPO?

Acronym for “Sociedad Financiera Popular” (Popular Financial Society), are defined as financial institutions -nonbanking- regulated by the CNBV (Comisión Nacional Bancaria y de Valores en México). They offer a wide variety of financial instruments such as personal loans, credits, financing for small companies, and more. The intention of why this instruments (SOFIPO’s) were created is mainly to open the financial services to a broader public and/or have more inclusion when it comes about investing, credits, and more.

Conclusions

There is no doubt that Mexico has a good advantage when it comes to macroeconomic trends, mainly due its geographical position. But recently, they have been able to complement the attractiveness with financial instruments and rates extremely attractive to the foreign audience and the local one. The challenge lies in keeping under control the high interest rates, even though inflation is not in double digits anymore, the benefits that the actual rates have brought to the country have been substantial, besides as the original plan is to follow with a margin the decisions of the U.S.A., there is no decision yet to bring down the rates. Not everything is positive with this financial conditions, the cost of debt in the country is very high at the moment, which will slow down the sales of houses and cars.

Why should I be interested in this post?

This post is with the intention to shine a light on potential advantages and trends that are happening in one of the most attractive countries, financially and economically speaking in the world. In any way this article pretends to be an investment advice and/or suggestion. Any decision should be taken under personal responsibility and with their respective due diligence previous to the decision.

Useful resources

Trading Economics Mexico interest rate

Mexico Business News Nonbanking financial institutions face historic opportunity

Statista Remesas en Mexico

S&P Dow Jones IndicesS&P BMV Government CETES Bond Index

El Economista Nu Mexico busca combatir el ahorro pasivo lanza oficialmente cuenta de ahorro

El Universal Guerra de tasas, Nu ofrece rendimientos de 15 en cuenta de ahorro

Mexico Business News Mexican peso appreciation 2023 affects public revenues

About the author

The article was written in March 2024 by Jorge KARAM DIB (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2024-2025).

The Magnificent Seven

January 30, 2025February 21, 2024 by Isaac ALLIALI

The Magnificent Seven

In this article, Isaac ALLIALI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2019-2023) presents the “magnificent seven”, the Nasdaq’s top seven performing companies and most important market capitalization.

The SEVEN

“These Seven Tech Stocks Are Driving the Market” is the headline of a New York Times issue on the 22nd of January 2024. The article spotlights the lasting growth of the “Magnificent Seven”, an expression coined by Bank of America analyst Michael Hartnett in 2023, directly referring to a group of very well-performing American companies such as Tesla, Nvidia, Apple, Microsoft, Alphabet, Meta and Amazon. These companies have seen exponential growth since economists first witnessed their joint boom last year, and as of January 19th 2024, the magnificent seven represent 29% of the S&P 500’s market value. The objective of this post is to introduce these companies, diving into their organization and structure as well as comparing their performances to conjecture on what the future may hold.

Market Value of S&P 500 companies. The Magnificent 7
Source: The New York Times

Origin of the expression

The expression “The Seven Magnificent” in financial markets is inspired by the classic Western film The Magnificent Seven (1960), itself a remake of Akira Kurosawa’s Seven Samurai (1954). In the original Japanese film, a village under threat from bandits hires seven samurai to protect them, symbolizing strength, strategy, and resilience in the face of adversity. This cinematic legacy has been adapted to financial markets to refer to a group of dominant stocks—typically the largest and most influential technology companies—that drive market performance. These firms, often characterized by their innovation, market capitalization, and economic influence, act as the “protectors” of market indices, much like the samurai or gunfighters in their respective films. The term reflects both admiration for their strength and an acknowledgment of their outsized impact on global finance.

The Nasdaq’s top 7 performing Companies

The “Magnificent Seven” have captivated investors with their meteoric rise, consistently eclipsing the broader market. But to decipher their future trajectory, we must delve deeper into their individual narratives:

Apple

This Cupertino-based company has mastered the art of premium hardware integration. Its sleek iPhones, Macs and wearables seamlessly interact with its robust software ecosystem (iOS, macOS), fostering a loyal customer base and enviable profit margins. Q4 2023 witnessed remarkable financial performance, with strong revenue and profit growth solidifying its leadership position. However, intensifying competition from Android players and regulatory scrutiny regarding App Store practices and data privacy threaten its dominance. While its valuation remains high, Apple’s brand strength, innovation pipeline, and loyal customer base suggest continued prosperity, provided it navigates these challenges deftly.

Logo of Apple Inc.

Source: the company.

Microsoft

This software giant has transformed itself from a desktop pioneer into a cloud computing powerhouse. Its Azure platform has become a formidable competitor against Amazon Web Services, while its productivity suite (Office 365) remains a staple for businesses. Q3 2023 further emphasized its strong momentum with robust financial performance. While Google Cloud Platform and Amazon Web Services pose significant competition, Microsoft’s established enterprise partnerships and focus on digital transformation grant it a strategic advantage. Its valuation, though high, reflects its consistent growth trajectory and potential for further expansion in the cloud and enterprise spheres. However, regulatory scrutiny regarding anti-competitive practices remains a key risk factor.

Logo of Microsoft Corporation

Source: the company.

Alphabet (Google)

The ubiquitous search engine and advertising giant monetizes vast user data through its search engine, YouTube platform, and Android operating system. Q3 2023 showcased impressive profits, fueled by continued dominance in online advertising. However, its data collection practices, and potential antitrust concerns create a cloud of uncertainty. While competition from Apple and Amazon in advertising and e-commerce intensifies, Google’s advancements in artificial intelligence and its foray into cloud computing offer promising prospects for the company’s future growth and innovation. Its valuation reflects its growth potential, but regulatory headwinds demand careful consideration before investing.

Logo of Alphabet

Source: the company.

Meta (Facebook)

This social media titan connects billions of users through its Facebook, Instagram, and WhatsApp platforms. Recent financial performance showcases modest growth, with investments in the metaverse impacting its bottom line. While the potential of the metaverse remains captivating, its success is far from guaranteed. Additionally, competition from TikTok and regulatory pressure regarding data privacy and anti-competitive practices pose significant challenges. Indeed, the Senate Judiciary Committee held a hearing this past Wednesday 31st of January 2024, where, after being pressured by Senator Josh Hawley, Republican of Missouri, Mark Zuckerberg, the CEO of Meta, apologized for the harm caused by his group. Mr. Zuckerberg stood from his chair, turned around and addressed families of victims in the audience who had suffered abuse on Meta’s apps. Meta’s high valuation reflects the risk-reward equation associated with its ambitious metaverse gamble. Investors should carefully weigh the potential rewards against the inherent uncertainties before making any investment decisions.

Logo of Meta

Source: the company.

Amazon

The undisputed king of e-commerce, Amazon, has expanded its empire to encompass cloud computing (AWS), logistics, and even healthcare. Q3 2023 demonstrated continued strong growth despite economic headwinds, highlighting its diversified revenue streams. However, competition from Walmart in e-commerce and antitrust scrutiny regarding its market dominance are critical factors to consider. Amazon’s focus on logistics innovation and potential expansion into the healthcare sector offers exciting future avenues. Its high valuation reflects its leadership position in its core segments, but investors should be wary of potential macroeconomic challenges and regulatory interventions.

Logo of Amazon

Source: the company.

Nvidia

This chipmaker has carved a niche in graphics processing units (GPUs) powering the gaming, AI, and data center industries. Q3 2023 saw explosive growth, fueled by surging chip demand and the adoption of AI in various sectors. However, competition from AMD and Intel in the semiconductor space is fierce. While Nvidia’s technological edge in AI-specific GPUs provides a temporary advantage, the cyclical nature of the semiconductor industry necessitates caution. Its high valuation reflects its growth potential, but investors should be mindful of potential downturns in the chip market. While Nvidia now holds a market share of approximately 83%, compared to AMD’s (17%), it faces strong competition.

First, there is Apple (AAPL), which has quickly developed its own laptop CPUs with graphics capabilities that it claims can compete with Nvidia’s top products. Intel (INTC) is also preparing to unveil its own line of graphics chips, which could pose a significant challenge to Nvidia. Moreover, US restrictions on Nvidia’s sales of advanced AI chips in China create a strategic opportunity for competitors such as Huawei, potentially leading to Nvidia losing market share in this important region. Huawei’s entry into the AI chip market with its Ascend AI chip series, particularly the 910B, directly competes with Nvidia’s A100 processor, and the company recently received a big order from Baidu, a major leader in Chinese technology.

Logo of Nvidia

Source: the company.

Tesla

This electric vehicle (EV) pioneer has disrupted the auto industry with its innovative EVs and clean energy solutions. Q3 2023 delivered impressive revenue and profit growth, showcasing the increasing public adoption of EVs. However, Tesla has seen its US market dominance shrink from 62% to just over 50% of the market in 2023. The company faces intensifying competition from traditional automakers and new EV startups like Rivian and Lucid as well as competitors from China like BYD who became the dominant automaker in China in 2021. And over the next few years, the growing global heft of Chinese manufacturers looks hard to beat. Chinese EV players such as BYD, Nio, Wuling, and Xpeng produced almost 60% of the world’s EVs in 2022 – and they have been doing so in a very affordable manner. In the first half of 2023, the average cost of an EV in China was US$33,000 (£26,040), more than half the US$70,700 (£55,800) people pay for EVs in Europe and the US$72,000 paid in the US. Additionally, challenges in scaling production and maintaining quality control raise concerns. Tesla’s high valuation reflects its future growth expectations, but potential macroeconomic headwinds and uncertainties surrounding battery technology advancements introduce significant risks.

Logo of Tesla

Source: the company.

Performance Comparison with indices and Competitive advantages of the “Magnificent Seven”

Magnificent Seven Performance Comparison.
Source: Yahoo Finance

The “Magnificent Seven” companies are leaders in dynamic industries like cloud computing (Microsoft), e-commerce (Amazon), and AI (Meta), driving revenue and stock price growth. Being a leader in a dynamic industry offers several key benefits, as exemplified by these tech giants. At their core, these companies boast robust financials: high-profit margins, consistent cash flow, and efficient operations which translate to investor confidence. Indeed, according to the Capital Group, the Bloomberg “Magnificent 7” Total Return Index advanced 107% in 2023 versus the overall S&P 500 Index at 24%.

There are numerous other factors driving their financial outperformance. Apple, for example, revolutionized smartphones with the iPhone, granting them a loyal user base and brand identity. Similarly, Tesla’s dominance in electric vehicles gives them valuable data and expertise, making it harder for competitors to catch up. Dynamic industries are characterized by rapid expansion and constant innovation. Leaders are poised to capture a larger share of this growth, like Microsoft’s cloud computing dominance or Alphabet’s early investment in AI research. They can also diversify into related fields, as Meta is attempting with the metaverse. Moreover, top talent seeks employers at the forefront of their field. Being a leader attracts skilled employees, fostering a culture of innovation and further solidifying the company’s position. Nvidia’s reputation for cutting-edge graphics processing units attracts top engineers, fueling their continued success.

Investors often reward market leaders with higher valuations due to their perceived stability and future growth potential. This allows companies like Apple to raise capital for further expansion and acquisitions, creating a virtuous cycle. Additionally, the current market environment plays a part. Amidst volatility, investors seek stability and potential upside, making these large, established companies with proven track records attractive safe-havens. The fact that tech stocks are generally less sensitive to rising interest rates compared to other sectors further fuels their appeal in a tightening monetary environment.

As stated above, the “Magnificent Seven” have strong fundamentals, and their financial strength, profitability, as well as growth potential underpin their success. Each of the seven stocks has easily outperformed the S&P 500’s 163% return over the last ten years, and their involvement in high-growth technologies such as high-end software and hardware, cloud computing, and artificial intelligence positions them well to continue leading their respective markets in the future.

Among the “Magnificent Seven” companies, observe strong profitability: The “Seven” boast a significantly higher average net margin (25%) compared to the S&P 500 (12%). (Source: BlackRock) This translates to substantial cash flow generation, crucial for reinvestment and future growth. For example, Tesla’s Q3 2023 net margin surpassed 17%, fueling its rapid expansion. We must also acknowledge that their average annual revenue growth (22%) outpaces the S&P 500 (10%). (Source: Motley Fool) This translates to faster stock price appreciation. Nvidia’s 80% year-to-date stock surge, driven by booming chip demand for AI applications, exemplifies this.

Additionally, we recognize in the “Seven” some form of “Market Magic”; during the last market correction (January 2023), their average decline (10%) was smaller than the S&P 500’s (15%). (Source: Qontigo) This “safety premium” attracts risk-averse investors, thus boosting their performance. Moreover, their lower average Beta (0.85) indicates that they are 15% less volatile than the rest of the market. (Source: Qontigo) This makes them more appealing in fluctuating interest rate environments. Finally, the individualities shine brighter than the rest because of the sectors they are invested in, like Nvidia benefitting from the chip surge or Meta’s ambitious metaverse projects that attract investor interest, potentially impacting future performance.

Yet, investing in them still carries risks, as these factors have already been priced in. There are also the usual risks of market volatility, regulatory changes, technological disruptions, and global economic conditions that can influence their performance. Also, previous performance does not guarantee future returns, and some of the “Magnificent Seven” stocks are overvalued based on certain basic criteria like forecast earnings multiples and price-to-sales ratios.

Stock market performance of the Magnificent Seven in 2023
Source: Bloomberg

What are the risks ahead of the “Magnificent Seven” progression?

Because of their size and reach, these companies all face regulatory risks. Regulation changes, especially in data privacy, antitrust laws, and international trade, can significantly influence their operations. Furthermore, most tech companies have faced attention for antitrust, data privacy, and tax issues. Many of them have been investigated for monopolistic tactics, and if they want to enhance their already large market shares, they will face even more scrutiny.

More broadly, widespread economic changes affect them due to their broad reach, including interest rates, inflation, economic growth, consumer confidence, and investor sentiment. Moreover, global enterprises are vulnerable to currency swings, which can impact earnings and stock values. Companies operating internationally face geopolitical risks such as trade wars, tariffs, and shifting international relations, which can impact supply chains and market access.

The Magnificent Seven are also vulnerable to cyberattacks due to their technology-based nature, a large breach could result in huge financial losses and reputational damage. Moreover, companies facing market saturation and rivalry may struggle to discover new markets and maintain growth rates. Indeed, increased competition between established firms and new startups may potentially endanger their market share. In short, by dominating their marketplaces, they become targets for any competitors wanting to build a name for themselves in their respective sectors. Companies must innovate to keep up with rapid technological progress as failure to adapt to new technology or trends may result in a loss of market relevance. Additionally, the resignation or loss of a founder or CEO may negatively impact investor sentiment and the company’s future.

Therefore, while these stocks present exciting possibilities, they also require a nuanced understanding of the technology sector’s options and a strategic investment approach.

Conclusion

The Magnificent Seven stocks represent a cohort of high-performing companies that have garnered significant attention in the investment world for their market dominance, technological advances, and growth potential. These stocks, which include Microsoft, Tesla, and NVIDIA, along with some FAANG members, are known for their influence across various sectors, such as software, hardware, electric vehicles, and artificial intelligence. They have been pivotal in driving technological trends and shaping consumer behavior, making them attractive to investors seeking growth and market leadership. However, investors need to know the risks and challenges associated with these stocks. The dynamic nature of the technology sector, regulatory scrutiny, market saturation, and global economic factors like inflation and geopolitical tensions can affect their performance. Additionally, high market valuations bring lofty expectations, and any failure to meet these can lead to significant stock price corrections.

Thus, while the Magnificent Seven offer potential for substantial growth, they also require careful analysis and a balanced approach considering their strengths and the various external factors that could influence their future trajectory.

Useful resources

Movies

Akira Kurosawa (1954) Seven Samurai.

John Sturges (1960) The Magnificent Seven.

Press articles

Le Monde (26/05/2023) Nvidia entre dans le club très sélect des champions du monde de la cote

BlackRock (01/09/2023) Factors & the Magnificent Seven

Bloomberg (06/07/2023) Tesla and Chinese Rivals Signal Truce in Brutal EV Price War

Capital Group (09/01/2024) Magnificent Seven: What do you need to believe?

The New York Times Six takeaways from a contentious online child safety hearing

The New York Times (22/01/2024) The New York Times

Qontigo (03/10/2023) Ten charts that show how the ‘Magnificent Seven’ have held sway in the US market

Wall Street Journal (12/02/2024) Think the S&P 500 Looks Pricey? Check Out the Magnificent Seven

Motley Fool Nasdaq

Seeking Alpha (22/11/2023) Nvidia: Competition On The Horizon

About the author

The article was written in February 2024 by Isaac ALLIALI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2019-2023).

Wirecard: the biggest financial scandal in Germany

February 18, 2024 by Matthieu MENAGER

Wirecard: the biggest financial scandal in Germany

In this article, Matthieu MENAGER (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2017-2021) looks back at the Wirecard case, one of the biggest financial scandal in Germany.

Wirecard: what exactly is it?

The Wirecard affair is one of the biggest financial scandals in Germany. Wirecard is a financial start-up founded in 1999 by Markus Braun (an Austrian with a background in computer engineering). This fintech is a German payment and financial services platform. Its first customers were pornography and online betting sites. But little by little, and thanks to the expansion of online sales in the 2000s, Wirecard established itself with airlines, travel agencies, online pharmacies, etc. It was in 2008, unlike traditional banks (2007-2008: the sub-prime crisis) that the company experienced a major boom. In 2010, Jan Marsalek (a very important member of Wirecard) officially became Wirecard’s Chief Operating Officer (COO). His arrival will have a significant impact on the scandal (L’Express, 2022).

The decline

In 2018, Wirecard joined the DAX 30 index (the German equivalent of the CAC 40 index), knocking Commerzbank off the ranking (the second-largest bank in Germany). Between 2016 and 2018, Wirecard’s turnover doubled from €1 billion to €2 billion. At the beginning of 2019, the company had a market capitalisation of €17 billion, comparable to that of Deutsche Bank (Germany’s leading bank), but with fifteen times fewer employees and less turnover. Markus Braun, who held 7% of the shares, was a billionaire at the time. In January 2019, an investigation by the Financial Times (the British financial daily) revealed a number of abuses by Wirecard. According to the newspaper, its managers in Asia had written false contracts and worked on financial manipulations. In November 2019, Ernst & Young (one of the world’s top 4 audit firms) refused to certify the 2017 accounts. In the meantime, it had seen nothing but fire. This crisis has even reached the supervisory authority, which lacks the resources and has not done its job. As a result, supervision has been withdrawn from it in favour of another organisation, the BaFin (the Federal Financial Supervisory Authority, better known by its abbreviation BaFin, is Germany’s financial regulatory authority). In June 2020 everything accelerates:

Mid-June: Wirecard repeatedly postpones the publication of its annual results (an investigation has been launched into suspicions of stock price manipulation)
19 June: Markus Braun resigns
21 June: the company confirms that the €1.9 billion mentioned in its balance sheet (i.e. a quarter of the size of the balance sheet) “most probably does not exist”.
23 June: Markus Braun is arrested by the authorities, then released on €5 million bail.
25 June: The company lost 98% of its value on the stock market, declared itself bankrupt and filed for bankruptcy (Its bank creditors expect to lose 80% of the money lent to Wirecard, according to an estimate by the Wall Street Journal).

Figure 1. The Wirecard’s Share Price.
Wirecard share price
Source: Boursorama

Figure 1 shows Wirecard’s share price with its entry on the DAX 30 in September 2018. In June 2020, we see the complete decline and the loss of around 98% of its value.

The investigation eventually revealed that Wirecard’s accounts for the years 2015 to 2018 had embellished the situation, in order to make the company attractive to investors. Some of the commissions based on payments did not come from Wirecard but from so-called third parties in Asia and the Gulf region who had a licence to operate. However, “there were in reality no resellers connected by these partners” and therefore no tangible turnover, according to the indictment. The business lawyer Mark Tolentino, presented by the German press as the person who operated as a fiduciary agent on behalf of Wirecard, is a key figure in the case. He claimed to be the victim of identity theft (the sums deposited in the accounts he opened were “just enough to buy an iPhone”).

January 2024, the trial is still ongoing and continues to raise questions about the truth (Euromaidan, 2023). It will probably take a few more months to reach a definitive conclusion. Markus Braun is still in prison and awaiting the end of his trial. Jan Marsalek is still missing. The day after the revelations, he left on a private jet from a small Austrian airport for Belarus. He faces a much longer sentence than the others. The investigators discovered that Jan Marsalek was part crook, part spy for Russia. He was apparently very close to the Kremlin (which also helped him to escape). He had a number of interactions with important figures, including Nicolas Sarkozy (they had lunch together). Neither the German authorities nor Interpol have managed to arrest him. He is now believed to be in Moscow under a false identity, protected by the Federal Security Service of the Russian Federation (FSB). He remains Europe’s most wanted man.

The impact of the scandal on Germany

Wirecard had taken on considerable importance in the lives of German citizens. Its companies manage payments via mobile applications or marketplaces, speed up the granting of credit, facilitate the sending of currency between countries and help companies manage their spending. It is a veritable economic infrastructure, in the same way as energy, water or transport networks. It involves the most delicate thing of all: money. All stakeholders must draw conclusions from the Wirecard scandal, including companies, shareholders, regulators and even customers:

Start-ups now have two options for operating their services: obtain a payment institution licence, which is time-consuming and costly, or go through intermediaries who offer turnkey payment services.
Shareholders and financial regulators will be stepping up their supervision.
Customers will pay more attention to the products they use.

The government also has its share of responsibility in the affair. The German financial market supervisor (BaFin) is under the authority of the Ministry of Finance (formerly headed by Olaf Scholz, who is currently Germany’s Chancellor). Since the affair, Olaf Scholz has announced a reform of the BaFin to give it more power. However, the minister himself was implicated in the scandal: a document from his own ministry states that Olaf Scholz knew that “BaFin was investigating in all directions” Wirecard as early as February 2019. The radical left-wing party Die Linke was outraged: “Negligence in the control of companies worth billions is totally unimaginable”. Chancellor Angela Merkel herself promoted the company during a trip to China in 2019, even though her services (but not herself, according to her circle) were already aware of the existence of an investigation, reports (Le Monde, 2020).

Why should I be interested in this post?

This case is very interesting in terms of the impact it has had on the development of the various authorities in Germany, Europe and the world. Just like the subprime crisis in 2008, the Kerviel affair in 2008, the carbon tax scam between 2008 and 2009, or the CumEx files in 2018, the Wirecard scandal has seen its share of fraud and manipulation. These various scandals show that today’s financial system is still not perfect, and that it must constantly be improved and made more secure to avoid a crash in the national or even global economy. These frauds are also causing a huge chasm in the national economy, which cumulatively is proving to be very significant. Although we cannot yet quantify precisely the impact of the Wirecard scandal on German GDP, we can see that the crises mentioned above (among others) are more than alarming: The CO2 emission allowance scam deprived the French tax authorities of a total of €1.6 billion in revenue, according to the Cour des Comptes. Losses estimated at €5 billion, according to Europol. The fraud perpetrated by the former Société Générale dealing room trader Jérome Kerviel resulted in a loss of €4.9 billion between 2005 and early 2008. The level of losses following the subprime crisis is close to $400 billion or even $500 billion. So, it’s important to be aware of the various mistakes we may have made and to avoid repeating them. I’d also like to take this opportunity to make a transition to the next case I’m going to look at: CumEx files.

N.B.: To find out more about the Wirecard case, you can watch the documentary “Skandal!” or the scripted series “King of Stonks” on Netflix.

Useful resources

Wirecard

France 24 (08/12/2022) Wirecard : le scandale financier qui a secoué l’Allemagne arrive devant la justice

Forbes (17/07/2020) Le Scandale Wirecard Ou La Fintech Au Révélateur

RTL (30/06/2020) Wirecard : tout comprendre au scandale financier qui ébranle l’Allemagne

La Tribune (25/07/2020) Scandale Wirecard : la gigantesque fraude de la fintech expliquée en 5 points

Le Monde (31/08/2022) Comprendre l’affaire Wirecard, le scandale financier qui secoue l’Allemagne depuis juin

20 Minutes (19/06/2020) Allemagne : Le scandale Wirecard coûte sa place au patron fondateur Markus Braun

Euromaidan (16/12/2023) WSJ : Wirecard fraudster CEO was Russian agent for nearly a decade

L’Express (08/12/2022) Fraude Wirecard : comment le sulfureux Jan Marsalek est devenu l’homme le plus recherché d’Europe

About the author

The article was written in February 2024 by Matthieu MENAGER (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2017-2021)

Top 5 companies by market capitalization in India

January 29, 2024July 23, 2023 by Nithisha CHALLA

Top 5 companies by market capitalization in India

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the top 5 companies by market capitalization in India.

Introduction to market capitalization

Market capitalization is a crucial factor in investment analysis. Learning about the market capitalization of companies helps you evaluate their size, growth potential, and overall value in the market. This knowledge can assist you in making informed investment decisions and assessing the financial health of companies.

Top 5 companies by market capitalization in India

The top 5 companies in India according to market capitalization by 2023 are as follows:

1) Reliance Industries Limited
2) Tata Consultancy Services Limited
3) HDFC Bank Limited
4) Infosys Limited
5) Hindustan Unilever Limited

By looking at these top 5 companies, we observe that these companies mainly belong to the technology sector.

We detail below the characteristics of each company: statistics, analysis of revenues, and stock market data.

#1 Reliance Industries Limited

Logo of Reliance Industries Limited

Source: the company.

Statistics

Market capitalization: $189 billion
Listed on exchanges: BSE, NSE
Listed on Stock Indexes: Nifty 50 Index.
Industry: Conglomerate (Energy, Petrochemicals, Telecommunications, Retail)
Location of headquarters: Mumbai, Maharashtra, India
Year founded: 1966
Number of employees: 342,982

Revenues

Reliance Industries Limited is a diversified conglomerate with interests in various sectors, including energy, petrochemicals, telecommunications, and retail. The company operates the largest oil refinery complex in the world and has a significant presence in the exploration and production of oil and gas. Reliance also operates India’s largest organized retail chain and is a major player in the telecommunications sector through its subsidiary, Reliance Jio. With its diverse business portfolio, Reliance Industries has been a key player in India’s economic growth.

Stock chart

Stock chart for Reliance Industries

Source: Yahoo! Finance.

The historical data for Reliance Industries stock prices can be downloaded from Yahoo! Finance website: Download the data for Reliance Industries

#2 Tata Consultancy Services Limited (TCS)

Logo of Tata Consultancy Services Limited.

Source: the company.

Statistics

Market capitalization: $153 billion
Listed on exchanges: BSE, NSE, NYSE
Listed on Stock Indexes: Nifty 50 Index and the BSE Sensex
Industry: Information Technology (IT Services, Consulting)
Location of headquarters: Mumbai, Maharashtra, India
Year founded: 1968
Number of employees: 528,748

Revenues

Tata Consultancy Services Limited (TCS) is a global leader in IT services, consulting, and business solutions. The company offers a wide range of services, including software development, infrastructure management, cloud services, and digital transformation solutions. TCS serves clients in various industries, including banking, finance, healthcare, retail, and manufacturing. With a strong focus on innovation and technology, TCS has established a strong reputation in the global IT industry and has been a significant contributor to India’s IT exports.

Stock chart

Stock chart for Tata Consultancy Services

Source: Yahoo! Finance.

The historical data for Tata Consultancy Services stock prices can be downloaded from Yahoo! Finance website: Download the data for Tata Consultancy Services

#3 HDFC Bank Limited

Logo of HDFC Bank

Source: the company.

Statistics

Market capitalization: $111 billion
Listed on exchanges: BSE, NSE, NYSE
Listed on Stock Indexes: Nifty 50 Index and the BSE Sensex
Industry: Banking and Financial Services
Location of headquarters: Mumbai, Maharashtra, India
Year founded: 1994
Number of employees: 166,890

Revenues

HDFC Bank Limited is one of India’s largest private sector banks, providing a wide range of banking and financial services to individuals and businesses. The bank offers services such as savings and current accounts, loans, credit cards, insurance, and investment products. HDFC Bank has a widespread branch and ATM network across India and has embraced digital banking technologies to provide convenient and efficient banking solutions. With its strong customer base and robust financial performance, HDFC Bank has been a key player in India’s banking sector.

Stock chart

Stock chart for HDFC Bank

Source: Yahoo! Finance.

The historical data for HDFC Bank stock prices can be downloaded from Yahoo! Finance website: Download the data for HDFC Bank

#4 Infosys Limited

Logo of Infosys

Source: the company.

Statistics

Market capitalization: $80 billion
Listed on exchanges: BSE, NSE, NYSE
Listed on Stock Indexes: Nifty 50 Index and the BSE Sensex
Industry: Information Technology (IT Services, Consulting)
Location of headquarters: Bangalore, Karnataka, India
Year founded: 1981
Number of employees: 335,186

Revenues

Infosys Limited is a global leader in IT consulting and services, offering a range of solutions such as application development, system integration, cloud services, and digital transformation. The company serves clients across various industries, including banking, finance, healthcare, and retail. Infosys has been at the forefront of innovation and technology.

Stock chart

Stock chart for Infosys

Source: Yahoo! Finance.

The historical data for Infosys stock prices can be downloaded from Yahoo! Finance website: Download the data for Infosys

#5 Hindustan Unilever Limited

Logo of Hindustan Unilever Limited

Source: the company.

Statistics

Market capitalization: $75 billion
Listed on exchanges: BSE, NSE
Listed on Stock Indexes: Nifty 50 Index and the BSE Sensex
Industry: Consumer Goods (FMCG)
Location of headquarters: Mumbai, Maharashtra, India
Year founded: 1933
Number of employees: 149,000

Revenues

Hindustan Unilever Limited is one of India’s leading fast-moving consumer goods (FMCG) companies. It offers a wide range of products, including personal care, home care, and food and beverages. HUL’s popular brands include Lux, Lifebuoy, Dove, Surf Excel, Rin, Knorr, and Lipton, among others. The company has a strong distribution network that reaches millions of households across India. HUL has been a key player in the Indian consumer goods market, catering to the diverse needs of consumers and maintaining a strong market presence.

Stock chart

Stock chart for Hindustan Unilever

Source: Yahoo! Finance.

The historical data for Hindustan Unileverstock prices can be downloaded from Yahoo! Finance website: Download the data for Hindustan Unilever

Why should I be interested in this post?

As a management student, understanding the top companies in different markets and their market capitalization holds significant value. It provides you with industry insights, allowing you to comprehend the competitive landscape and trends within specific sectors.

Analyzing market capitalization aids in investment analysis, enabling you to assess the size, growth potential, and financial health of companies. Moreover, studying successful companies (success being measured by their market capitalization) provides valuable lessons in competitive strategy, organizational management, and leadership practices.

Useful resources

Companies Market Cap Largest Indian companies by market capitalization

Yahoo! 15 Biggest Indian State-Owned Companies

Wikipedia List of largest companies in India

About the author

The article was written in June 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

The Rise of Sustainable Fashion: Innovation Meets Consumer Demand

Investment Trends: Capital Flowing into a Greener Future

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Introduction

History

Company Overview

Business Segments

Investment Strategy and Philosophy

Financial Performance and Analysis

Future Outlook and Challenges

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Introduction

Key Drivers Of M&A In The FMCG Sector

Globalization And Market Expansion

Portfolio Diversification

Innovation And Product Development

Sustainability And ESG Pressures

M&A Trends In The FMCG Sector

Rise Of The Health And Wellness Segment

Digital And E-Commerce Capabilities

Private Label Consolidation

Focus On Regional Players

Implications Of M&A In The FMCG Sector

Increased Competition

Consumer Choice And Innovation

Supply Chain Efficiencies

Regulatory And Antitrust Scrutiny

Conclusion

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Useful Resources

About The Author

About the Irish Real Estate Market

Housing for All Targets vs. Demand

Investment Landscape

Key Highlights

Deep Dive into Key Asset Classes

Notable Transactions in 2024

Funding and Lending Dynamics

Sustainability and Innovation

Green Certifications and Standards

Technological Advancements in Real Estate

Long-Term Resilience and Value

Why Should I Be Interested in This Post?

Related Posts on the SimTrade Blog

Resources

About the Author

Environmental Factors: Climate Change and Coffee Production

Economic Factors: Supply Chain Disruptions and Consumer Trends

EU Regulations and Market Dynamics

Conclusion: Future Outlook of a Volatile Market

Why Should I Be Interested in This Post?

Related Posts on the SimTrade Blog

Useful Resources

About the Author

Tesla’s Stock Performance is outstanding during 2024 especially after the result of the election was released

Reasons Behind Tesla’s Stock Surge

Trump may use pro-Business Policies like he did from 2017 to 2021

The winning of Trump triggers the positive emotion to Elon’s businesses

Future Trends in U.S. Tech Stocks

AI Integration

Sustainability Focus

Regulatory Dynamics

Caution: Avoid Blindly Following Market Trends

Conclusion

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Useful resources

About the author

About the phenomenon

Key reasons behind the phenomenon

Main reason: China has the Economies of Scale and Bargaining Power

The price is more transparent and dynamic due to the high amount of real-time trading and global supply-demand dynamics

The Impact of USD Dominance on Trade

USD Exchange Rate Mechanisms