Top 5 companies by market capitalization in China

January 30, 2024July 23, 2023 by Nithisha CHALLA

Top 5 companies by market capitalization in China

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 China.

Introduction to market capitalization

Market capitalization, often referred to as “market cap,” is a key metric used in the financial world to assess the size and value of a publicly traded company. Market capitalization provides insights into a company’s position in the market and its relative size compared to other companies. It is a measure of a company’s total market value, calculated by multiplying its current stock price by the total number of outstanding shares. It is an important indicator for investors, analysts, and market participants as it reflects the perceived worth of a company by the investing public. Note that market capitalization assesses the size of the company in the equity market, but the total value of the company measured by its assets or the sum of its liabilities and shareholders’ equity may be larger if the company uses debt (financial leverage).

Top 5 companies by market capitalization in China

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

1) Tencent Holdings Limited
2) Alibaba Group Holding Limited
3) Meituan
4) JD.com, Inc.
5) Ping An Insurance (Group) Company of China, Ltd.

By looking at these top 5 companies in China, we observe that these companies mainly belong to the technology (e-commerce) sector.

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

#1 Tencent Holdings Limited

Logo of Tencent

Source: the company.

Statistics

Market capitalization: $392.350 billion
Listed on stock indexes: HKEX
Listed on exchanges: HKEX
Industry: Technology (Internet Services, Social Media, Gaming)
Headquarters: Shenzhen, Guangdong, China
Year founded: 1998
Number of employees: 112,771

Revenues

Tencent Holdings Limited is a multinational conglomerate renowned for its diverse range of internet services and products. The company operates the popular social media platform WeChat, which offers messaging, payment, and social networking capabilities. Tencent is also a major player in the online gaming industry, with ownership of notable game studios and platforms. Additionally, Tencent provides online advertising services, streaming music, video content, and cloud services. The company has a strong presence in China and has expanded its influence globally.

Stock chart

Stock chart for Tencent Holdings Limited

Source: Yahoo! Finance.

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

#2 Alibaba Group Holding Limited

Logo of Alibaba

Source: the company.

Statistics

Market capitalization: $226.760 billion
Listed on stock indexes: HKD
Listed on exchanges: NYSE, HKEX
Industry: Technology (E-commerce, Cloud Computing)
Headquarters: Hangzhou, Zhejiang, China
Year founded: 1999
Number of employees: 251,462

Revenues

Alibaba Group Holding Limited is a multinational conglomerate specializing in e-commerce, retail, internet, and technology. The company operates various online marketplaces, including Taobao and Tmall, which connect buyers and sellers in both consumer and business-to-business transactions. Additionally, Alibaba provides cloud computing services (Alibaba Cloud), digital payment solutions (Alipay), and logistics services. With a dominant presence in the Chinese market, Alibaba has expanded its operations globally and plays a significant role in shaping the e-commerce industry.

Stock chart

Stock chart for Alibaba Group Holding Limited

Source: Yahoo! Finance.

The historical data for Alibaba Group Holding Limited stock prices can be downloaded from Yahoo! Finance website: Download the data for Alibaba

#3 Meituan

Logo of Meituan.

Source: the company.

Statistics

Market capitalization: $145.310 billion
Listed on stock indexes: HKEX, HKD
Listed on exchanges: HKEX
Industry: Technology (Online Services, Food Delivery)
Headquarters: Beijing, China
Year founded: 2010
Number of employees: 58,390

Revenues

Meituan is a leading Chinese e-commerce platform that specializes in providing various online services, including food delivery, restaurant reviews, hotel bookings, bike-sharing, and ride-hailing. The company’s primary business is its food delivery service, which has gained immense popularity in China. Meituan has expanded its offerings to include a range of lifestyle and travel-related services, catering to the diverse needs of its user base.

Stock chart

Stock chart for Meituan

Source: Yahoo! Finance.

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

#4 JD.com, Inc.

Logo of JD.com, Inc.

Source: the company.

Statistics

Market capitalization: $88.357 billion
Listed on stock indexes: HKEX
Listed on exchanges: NASDAQ, HKEX
Industry: Technology (E-commerce, Retail)
Headquarters: Beijing, China
Year founded: 1998
Number of employees: 314,906

Revenues

JD.com, Inc., also known as Jingdong, is one of China’s largest e-commerce platforms. The company operates an online marketplace that offers a wide range of products, including electronics, apparel, home goods, and more. JD.com follows a direct sales model, owning and operating its inventory, ensuring product authenticity and quality. The company has expanded into logistics and delivery services, enabling fast and reliable shipments across China. JD.com has a strong presence in both business-to-consumer (B2C) and consumer-to-consumer (C2C) markets.

Stock chart

Stock chart for JD.com, Inc.

Source: Yahoo! Finance.

The historical data for JD.com, Inc. stock prices can be downloaded from Yahoo! Finance website: Download the data for JD

#5 Ping An Insurance (Group) Company of China, Ltd

Logo of Ping An Insurance.

Source: the company.

Statistics

Market capitalization: $118.750 billion
Listed on stock indexes: HKEX
Listed on exchanges: SSE
Industry: Financial Services (Insurance, Banking, Asset Management)
Headquarters: Shenzhen, Guangdong, China
Year founded: 1988
Number of employees: 362,000

Revenues

Ping An Insurance is a leading insurance and financial services company in China. It offers a wide range of insurance products, including life insurance, property and casualty insurance, health insurance, and asset management services. Ping An also operates a subsidiary bank, providing banking and financial services to individuals and businesses. The company has embraced technology and innovation, leveraging artificial intelligence, big data, and cloud computing in its operations. Ping An Insurance has a significant presence in the Chinese market and is recognized as one of the largest insurers globally.

Stock chart

Stock chart for Ping An Insurance

Source: Yahoo! Finance.

The historical data for Ping An Insurance prices can be downloaded from Yahoo! Finance website: Download the data for Ping An Insurance

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 Chinese companies by market capitalization

Yahoo! 15 Biggest Chinese State-Owned Companies

About the author

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

Top 5 companies by market capitalization in the US

March 26, 2024June 28, 2023 by Nithisha CHALLA

Top 5 companies by market capitalization in the US

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 the US.

Introduction to market capitalization

Market capitalization is an important indicator for investors, analysts, and market participants as it reflects the perceived worth of a company by the investing public. Note that market capitalization assesses the size of the company in the equity market, but the total value of the company measured by its assets or the sum of its liabilities and shareholders’ equity may larger if the company uses debt (financial leverage).

The top 5 corporations in the US market according to market capitalization by 2023 are as follows:

1) Apple Inc.
2) Microsoft Corporation
3) Amazon.com, Inc.
4) Alphabet Inc. (formerly Google)
5) Meta Platforms Inc. (formerly Facebook Inc.)

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 Apple Inc.

Logo of Apple Inc.

Source: the company.

Statistics (2023)

Market capitalization: $2,514 billion
Inclusion in stock market indexes: NASDAQ-100, S&P 500
Listing on stock exchanges: NASDAQ
Industry: Technology (Consumer Electronics)
Location of headquarters: Cupertino, California, United States
Year founded: 1976
Number of employees: 164,000

Revenues

Apple is a multinational technology company that designs, manufactures, and sells consumer electronics, software, and online services. It is best known for its iconic products such as the iPhone, iPad, Mac, and Apple Watch. The company has a strong ecosystem of hardware, software, and services, including the App Store, Apple Music, iCloud, and Apple Pay. Apple has a reputation for innovation and user-friendly designs, and it has a loyal customer base worldwide.

Stock chart

Stock chart for Apple Inc.

Source: Yahoo! Finance.

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

#2 Microsoft Corporation

Logo of Microsoft Corporation

Source: the company.

Statistics (2023)

Market capitalization: $2,066 billion
Inclusion in stock market indexes: NASDAQ-100, S&P 500
Listing on stock exchanges: NASDAQ
Industry: Technology (Software)
Location of headquarters: Redmond, Washington, United States
Year founded: 1975
Number of employees: 221,000

Revenues

Microsoft is a multinational technology corporation that develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and related services. It is widely known for its flagship products such as the Windows operating system and Microsoft Office suite. The company has expanded into various other technology sectors, including cloud computing (Azure), gaming (Xbox), and enterprise software (Microsoft Dynamics). Microsoft has a strong presence in both consumer and enterprise markets.

Stock chart

Stock chart for Microsoft Corporation.

Source: Yahoo! Finance.

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

#3 Amazon Inc.

Logo of Amazon

Source: the company.

Statistics (2023)

Market Capitalization: $1,011 billion
Inclusion in stock market indexes: NASDAQ-100, S&P 500
Listing on stock exchanges: NASDAQ
Industry: Retail (E-Commerce), Cloud Computing
Location of headquarters: Seattle, Washington, United States
Year founded: 1994
Number of employees: 1,465,000

Revenues

Amazon.com, Inc. is an American multinational conglomerate that focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. It is the world’s largest online marketplace and offers a wide range of products and services through its websites and platforms. Amazon’s services include Amazon Prime, Amazon Web Services (AWS), Kindle e-readers, and Amazon Echo devices. The company has also ventured into other areas, such as entertainment production and grocery retail. Amazon has experienced significant growth and expansion since its inception.

Stock chart

Stock chart for Amazon Inc.

Source: Yahoo! Finance.

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

#4 Alphabet Inc. (formerly Google Inc.)

Logo of Alphabet

Source: the company.

Statistics (2023)

Market Capitalization: $1,356 billion
Inclusion in stock market indexes: NASDAQ-100, S&P 500
Listing on stock exchanges: NASDAQ
Industry: Technology (Internet Services)
Location of headquarters: Mountain View, California, United States
Year founded: 1998
Number of employees: 190,711

Revenues

Alphabet Inc. is a multinational conglomerate that serves as the parent company of Google and several other subsidiaries. Google, as a subsidiary of Alphabet Inc., is a technology company that generates a significant portion of Alphabet’s overall revenues. While specific revenue figures for Google are not provided separately in Alphabet’s financial reports, Google’s advertising business constitutes the majority of Alphabet’s revenue stream. Google primarily generates revenue through its advertising platforms, including Google Search, YouTube, Google Display Network, and Google Ads.

Stock chart

Stock chart for Alphabet Inc.

Source: Yahoo! Finance.

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

#5 Meta Platforms Inc. (formerly Facebook Inc.)

Logo of Meta

Source: the company.

Statistics (2023)

Market capitalization: $529 billion
Inclusion in stock market indexes: NASDAQ-100, S&P 500
Listing on stock exchanges: NASDAQ
Industry: Technology (Social Media)
Location of headquarters: Menlo Park, California, United States
Year founded: 2004
Number of employees: 86,482

Revenues

Meta Platforms Inc., previously known as Facebook Inc., is a social media and technology company that focuses on connecting people and enabling social interactions. The company operates various social networking platforms, including Facebook, Instagram, WhatsApp, and Messenger. These platforms offer users the ability to share content, communicate with others, and engage in online communities. Meta Platforms Inc. also provides advertising and marketing solutions to businesses, leveraging the vast user base of its platforms. The company has expanded into areas such as virtual reality (Oculus) and artificial intelligence research. It plays a significant role in shaping the digital landscape and has a global user reach.

Stock chart

Stock chart for Meta Platforms

Source: the company.

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

Why should I be interested in this post?

Useful resources

Companies Market Cap Largest American companies by market capitalization

Yahoo! The 30 Largest Companies on the Stock Market

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 Collapse of Silicon Valley Bank (2023)

May 19, 2023 by Mirabelle DING

The Collapse of Silicon Valley Bank (2023)

In this article, Mirabelle DING (Telfer School of Management, Bachelor in Finance, 2015-2019) analyzes the collapse of Silicon Valley Bank (SVB).

On March 10^th 2023, Silicon Valley Bank, the primary financial institution for the US technology sector, was shut down by California and Federal regulators due to illiquidity and insolvency concerns after depositors withdrew $42 billion within a single day, marking the second largest bank failure in the United States history.

Background of SVB

Silicon Valley Bank (SVB) was founded in 1983 in the Bay Area with its mission to provide banking services to venture capital-backed startups that would have been considered high risk by traditional banks. As a result of its pioneering vision, SVB had established a notable reputation among the tech community, and was providing financing services to nearly half of the venture-backed technology and life science companies in the United States. SVB was ranked the 16^th largest bank in the United States with total assets of $209 billion and was recognized as one of America’s Best Banks by Forbes for five consecutive years before its defunction.

Logo of Silicon Valley Bank.

Source: Silicon Valley Bank.

The Solvency-Liquidity Problem

In 2020, the Federal Reserve cut the Federal Funds rate down to a range of 0% to 0.25% and implemented an unlimited quantitative easing policy in response to the impact of the Covid-19 pandemic, which led to a substantial increase in the financial market’s liquidity and the price of financial assets. The deposit base of SVB also experienced a skyrocket from $60 billion to an impressive $190 billion by the end of 2021. With little demand for loans from its clients, SVB allocated almost three quarters of the incremental deposits in long-maturity US Treasury bonds and mortgage-back securities purchases in order to gain capitalize on the interest rate spread. As a result, SVB exposed itself to greater interest rate and market risks.

Starting from March 2022, the Federal Reserve started to raise the Funds rate to counter inflation. The benchmark rate hiked to 4.5%-4.75% within 12 months, causing a plunge in the financial market liquidity and a severe inverted yield curve of long-term bonds and securities.
As interest rates rose, SVB started suffering deep unrealized losses on much of its securities portfolio, amounting to more than $2 billion by the end of 2022.

Furthermore, due to the declining inflow of venture capital funding, many tech start-ups resorted to withdrawing from SVB to support their daily operations. From March to December, the deposits of SVB shrank rapidly from $200 billion to $175 billion. Since SVB did not protect their liabilities with short term investments for quick liquidations, they had to start selling their bonds at a significant loss and relied heavily on short term loans from Federal Home Loan Banks to accommodate these large withdrawals, totaling $15 billion by the end of 2022.

“The Social Media Bank Run”

On March 8^th 2023, SVB announced a $1.8 billion loss on its investment portfolio, alongside a plan to raise $2.25 billion. Consequently, Moody’s downgraded the bank’s credit rating, and the stock price of SVB’s parent company, SVB Financial Group, crashed at the next market opening. Prominent entrepreneurs raised concerns about SVB’s financial situation on social media, which went viral and amplified the panic among the bank’s clients. Depositors rushed to withdraw from their SVB account, culminating a total amount of $42 billion in attempted withdraws within 24 hours. SVB was on the verge of collapse as they could not generate enough cash to meet the escalating need for withdrawals.

On March 10^th 2023, the Federal Deposit Insurance Corporation, which protects the stability of the financial system, took over Silicon Valley Bank in an effort to protect depositors. Unlike personal banking, most clients held more the $250,000 FDIC insured limit in their accounts, putting them at the risk of losing a portion or all of their deposits that exceeded the threshold. To restrain the fear of financial contagion, the Federal Reserve later implemented emergency measures, ensuring that all deposits at SVB will be guaranteed, even for the amount above the $250,000 limit.

Later, the Federal government announced an emergency lending programing to allow distressed banks to borrow from the Federal Reserve as a contingency liquidity plan to cover their withdrawal needs and to restore public confidence in the financial system.

Conclusion

The collapse of SVB reflected an inadequacy in its risk management and strategy, which could have been avoided through regular review and valuation of their investment portfolio, avoidance of concentrating assets in long-term maturities, possession of sufficient liquid assets, and hedging strategies against rising interest rate. This demonstrates the importance for businesses and organizations to properly and promptly manage their financial risk to prevent or mitigate situations that may lead to financial distress.

Useful resources

Apricitas Economics The Death of Silicon Valley Bank

The Federal Reserve Re: Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

About the author

The article was written in May 2023 by Mirabelle DING (Telfer School of Management, Bachelor in Finance, 2015-2019).

Difference between a merger and an acquisition

March 20, 2023 by Prof. François LONGIN

One of my colleagues at ESSEC Business School, Rick MARCHESE, is teaching the Mergers and Acquisitions (M&A) course in the Master in Finance on Singapore campus.

He was asked at the beginning of the course what the difference was between a merger and an acquisition.

His answer was: “If you are the buyer, it’s an acquisition. If you are the target, it’s a merger.”

With the recent events in the financial sector, he recently had a great illustration for his definition from two very credible sources…

Press release by UBS
UBS Press release
Source: UBS.

and

Press release by Credit Suisse
UBS Press release
Source: Credit Suisse.

How to choose an online broker to invest in the stock market

January 5, 2025February 23, 2023 by Prof. François LONGIN

How to choose an online broker to invest in the stock market

In reality, individuals cannot directly access the market to buy or sell financial assets such as stocks or currencies. They must go through intermediaries responsible for transmitting their clients’ orders to the market. It may be a bank, but since the early 2000s, specialized institutions have developed on the internet: online brokers.

What criteria should be used to choose an online broker to invest in the stock market?

Brokerage fees

For any order placed on the stock exchange, a broker charges you fees called brokerage fees. The amount of brokerage fees is deducted at the time of the transaction from your cash account. The amount and structure of brokerage fees vary greatly from one broker to another. Brokers also offer different formulas depending on your trading profile (average amount of orders and number of orders placed per month), which does not really facilitate comparisons between brokers.

The fee structure is often both fixed (for small amounts) and variable (for large amounts). For example, €2 if the amount of the order is less than €1,000, and €5 for any order of an amount between €1,000 and €5,000, and 0.10% for orders of a higher amount at €10,000. Note that the fees on orders placed on foreign markets (from a broker located in France) are often much higher.

Among the different fee formulas offered by brokers, your choice will be guided by your trading profile defined by the estimated number of orders placed per month. An “Active Trader” profile corresponds to more than 10 orders placed per month.

The amount of the fees is not to be neglected because it can significantly impact the performance of your stock market investment. For an inactive trader placing 2 orders per month for around €500 on Euronext, the total amount of fees should remain below €100. For a very active trader placing 20 orders per month for around €1,000 on Euronext and abroad, the total amount of fees could easily exceed €2,000.

You will also be aware of the account transfer or closing costs.

Markets and products available

In France, online brokers all offer access to the Euronext market, which is the main stock exchange in the euro zone (Amsterdam, Brussels, Lisbon and Paris). Depending on your needs, it may be interesting to have access to other markets: London, Milan, Zurich, US markets, Asian markets….

Likewise, online brokers offer all the standard products like stocks, currencies and commodities. Depending on your needs, it may be interesting to have access to other products: UCITS, trackers, options and futures, warrants… Some brokers (but not all) also offer to carry out leveraged transactions – purchases and sales on credit – with the Deferred Settlement Service (Service de Règlement Différé or SRD).

The ease of use of the platform

The trading platform must be easy to use to both place orders on the markets and follow the evolution of your position (the cash in your cash account and the lines of your portfolio in your securities account).

We will also see if the broker offers a mobile phone application in addition to classic internet access.

Technical support

From my experience, I have seen that the operation of an account with an online broker (or a traditional bank) is never perfect. We can cite, for example, the difficulty or impossibility of recovering access codes. It is therefore essential to be able to contact the technical support to solve the problems that will arise. We will pay attention to the time slot of the support, the online waiting time and the quality of the answers.

What to do before opening an account

Before opening an account, I advise you to open a fictitious account to test the trading platform and see if it suits you in terms of use: placing orders, speed of execution of orders, associated services (such as SMS alerts), presentation of orders and transactions, and organization of the account. It is also important to check the availability of accessible products and markets. Testing the technical support – the hotline – is also an eye-opening experience.

Some online brokerage sites

In France: boursorama.com and Boursedirect.com

In Europe: internaxx.com swissquote.com and keytrade.com

In the United States: etrade.com schwab.com tdameritrade.com interactivebrokers.com or even speedtrader.com and suretrader.com.

Thank you and last advice from a friend

Finally, a big thank you to Prof. Jean-Marie Choffray who shared with me his advice on choosing an online broker. It reminds me of reading two books that need to be studied very carefully: Malkiel (A random walk down Wall Street), and, ESPECIALLY, Clews (“Twenty-Eight Years in Wall Street” updated in “Fifty years in Wall Street”) – the “bible” as far as he is concerned! Its summary could whet your appetite Henry Clews: Twenty-Eight Years in Wall Street

Before entering the markets, it is also necessary to train yourself. The SimTrade certificate allows you to discover the markets in an educational and fun way.

May The Market Be With You!

The effect of Elon Musk's Tweets on the Cryptocurrency Market

January 5, 2023 by Ines ILLES MEJIAS

The effect of Elon Musk’s Tweets on the Cryptocurrency Market

In this article, Ines ILLES MEJIAS (ESSEC Business School, Global BBA, 2020-2024) analyzes the effect of Elon Musk’s tweets on the cryptocurrency market and its link with the concept of market efficiency.

Who is Elon Musk?

Founder of SpaceX and Tesla, Elon Musk, is known to be one of the richest and most famous people in the world. He is known to be a “technological visionary”, especially working in companies which focus on innovation and technology. Elon Musk has currently over 120 million followers on Twitter, a social media platform which he is regularly active on to speak about his life, his business or give his opinion on a wide variety of topics, one of them being cryptocurrency. No surprises he likes Twitter so much that he chose to purchase this one for US$ 44 billion not so long time ago in 2022.

Why does Elon Musk have an impact on the crypto market?

The effect of Elon Musk on the crypto market seems to be explained by his tweets due to his persona, as he is also known to be a successful investor and one of the wealthiest people in the world in 2022.

His activity on Twitter seems to affect the prices and volumes of cryptocurrencies on the short-term, by looking at the price changes or volatility following his tweets. This is called the “Elon Musk Effect”. The two most known cryptocurrencies having been influenced by Elon Musk are the Bitcoin and the Dogecoin. Likewise, we know thanks to his tweets and affirmation in conferences that he currently owns three cryptocurrencies: Bitcoin, Ethereum, and Dogecoin.

Examples of the positive impact of Elon Musk’s tweets on the crypto market

Elon Musk’s tweets seem to have an influence in the variation of cryptocurrency prices.

December 2021: “Bitcoin is my safe word”

In December 2021, Elon Musk positively tweeted about the Bitcoin saying that it is his “safe word”. This made the value of Bitcoin increase largely as the graph below shows.

Figure 1. Elon Musk’s tweet effect on Bitcoin
Tweet of Elon Musk 2021
Source: Source: Reuters

January 2022: Elon Musk shows he’s a Bitcoin supporter.

In January 2022, Elon Musk changed his Twitter bio by adding “#bitcoin” which caused the Bitcoin to increase its value by 20%.

Figure 2. Elon Musk’s tweet effect on Bitcoin
Tweet of Elon Musk 2021
Source: Source: Blockchain Research Lab

Figure 3. Elon Musk’s tweet effect on Bitcoin

Source: Source: Blockchain Research Lab

Moreover, the price of Dogecoin raised by more than 500% after he tweeted that it was his favorite cryptocurrency. For this he is also known to be the “Dogefather” or “King of Dogecoin”. He also tweeted that SpaceX will accept Dogecoin payments which again, made the value of one of his cryptocurrencies raise largely.

Figure 4. Elon Musk’s tweet effect on Dogecoin

Source: Source: Blockchain Research Lab

Figure 5. Elon Musk’s tweet effect on Dogecoin

Source: Source: Blockchain Research Lab

Examples of the negative impact of Elon Musk’s tweets on the crypto market

Elon Musk can have a positive but also a negative impact on the crypto market by creating its own up and downs. For instance, after his presence on Saturday Night Live in May 2021, the Dogecoin’s value fell 34%. This was shocking considering that it was predicted by many crypto enthusiasts that it would increase the Dogecoin’s value to US$ 1.

Also, after Musk called Dodgecoin to be a “hustle”, its price went down by more than 30%.

A last example I will add is of when Elon Musk tweeted a meme about breaking up with bitcoin on June 3. This caused the price of Bitcoin to decrease by 5%.

Figure 6. Tweet of Elon Musk on June 4, 2021

Source: Twitter.

Impact of Elon Musk’s tweets on the cryptocurrency market

Figure 7. Impact of Elon Musk’s tweets on the cryptocurrency market

Source: Coinjournal.

Why did it interest me?

This topic really caught my attention as I’ve always been very interested in investing, although never had the courage to do so due to the potential loss of real money. So, when I heard about this virtual currency, I became interested in knowing more about it, and after some research I found out about the news regarding Elon Musk and his effect on these. It was surprising and shocking seeing how an individual can have so much power over something, especially the power of social media.

Link with market efficiency

There are three types of market efficiency: weak efficiency related to market data (prices and transaction volumes), semi-strong efficiency related to all public information (company accounts, analyst reports, etc.) and strong efficiency (all public as well as private information).

Given the market reaction after Elon Musk’s tweets, the market is definitely efficient in the semi-strong sense. By observing the market reaction before Elon Musk’s tweets, we may wonder if the market is also efficient in the strong sense…

Useful resources

Academic articles

Gupta, R.R., Arya, R.K., Kumar, J., Gururani, A., Dugh, R., Dugh, A. (2022). The Impact of Elon Musk Tweets on Bitcoin Price. In: Mandal, J.K., Hsiung, PA., Sankar Dhar, R. (eds) Topical Drifts in Intelligent Computing. ICCTA 2021. Lecture Notes in Networks and Systems, vol 426. Springer, Singapore. https://doi.org/10.1007/978-981-19-0745-6_44

Business resources

Twitter Elon Musk

Bitcoin

DodgeCoin

Blockchain Research Lab

Joe Khalique-Brown (15/06/2021) The Elon Musk Bitcoin saga continues: BTC rallies 10% Coin Journal

Noel Randewich (08/02/2021) Musk’s Bitcoin investment follows months of Twitter talk Reuters.

About the author

The article was written in December 2022 by Ines ILLES MEJIAS (ESSEC Business School, Global BBA, 2020-2024).

Netflix’s announcement impacts Disney’s stock price

December 22, 2022 by Ines ILLES MEJIAS

Netflix’s announcement impacts Disney’s stock price

In this article, Ines ILLES MEJIAS (ESSEC Business School, Global BBA, 2020-2024) analyzes how Netflix announcement regarding its decrease in earnings and subscribers also affected Disney’s stock price.

Description of firm

Netflix (1997) and Disney + are both world leading entertainment streaming services. They both offer a wide variety of content ranging from TV shows, Movies, Documentaries and even original series and movies. Both streaming services are available as an app for mobile phones, tablets, etc, as well as streaming to watch online on our computers. This allows users to enjoy from their services anytime and anywhere, and, through the app even download content to watch offline. They both work as subscriptions with different plans which customers can choose to subscribe to depending on their income and needs. However, Netflix, having been launched before, was the market leader in the streaming entertainment industry for a very long time.

Description of event

Netflix reports its first customer decline of 26% in over 10 years, and Disney stocks fell 5.3% also consequently. Netflix reported a loss of 200,000 members in the first quarter and forecasted a loss of 2 million subscribers in the current quarter (April 2022). Investors and analysts are rethinking on new ways of boosting their forecasts for the entire industry, and fear that a reopening economy will cripple entertainment companies.

Figure 1. Impact of Netflix announcement.

Source: Bloomberg.

This article talks about the current decline in Netflix subscribers and how it has affected not only their stocks, but also created a fear among analysts and investors in the entertainment streaming industry, as well as impacted other companies’ stocks such as Disney, Warner Bros, etc.

Reaction of market to event

Disney shares fell by 6% after the news. Disney is a competitor, which means that normally it could have benefitted from a cut in Netflix (its competitor) stocks. But this did not seem to happen. Instead, investors feared that Disney might also suffer from a slower growth in earnings like Netflix, which resultantly affected Disney’s stocks negatively. By the end of April, Disney stocks fell by 19%, and, according to S&P Global Market Intelligence, down roughly 40% from its peak last fall.

It is said that one of the main reasons for Netflix big decline in returns and subscribers was content, especially since other entertainment such as HBO are gaining the exclusivity over shows such as Game of Thrones or Sex in the City. Therefore, Netflix plays on offering new Netflix Original content to more attract customers. However, Disney should do good after this as it has a deep content library of franchises that it can leverage to produce hit shows, so in the long-term its growth and revenues should not seem to be very affected by Netflix.

Figure 2. Impact of Netflix announcement on Walt Disney stock price.

Source: Bloomberg.

Link with market efficiency

The efficient market hypothesis states that the market cannot be beaten because it incorporates all information into current share prices, so stocks trade at the fairest value. There are three types of market efficiency that we must know of. First, weak efficiency, where all information contained in past stock market data (prices and transaction volumes) is already reflected in today’s price. Then, we have semi-strong efficiency which in addition to the information contained in historical stock market data, all public information (company accounts, analyst reports, etc.) is already reflected in today’s price. Finally, strong efficiency where all information, public as well as private, is already reflected in today’s price.

I believe this is an example of a semi-strong efficiency as company accounts and reports as well as historical data are included in the price. Disney’s price was subject and result of Netflix public accounts.

Justification of your choice of the event and the firm

I, myself, am a subscriber for both of these entertainment streaming services, so when I heard the news, I was actually surprised about the power and influence that these have on one another. Especially since I believe that both have completely different content which interest me. From a very young age, I’ve been a fan of Disney and their content, which is what made me subscribe to Disney +, while I became a subscriber for Netflix because it was “a trend” back in time and everyone was speaking about all the content available. After reading this news, I also agreed that Netflix has decreased in terms of content and quality, which is why I use more Disney plus, another reason why I was surprised by the news.

Why should you be interested in this post?

Netflix and Disney are two of the most know streaming companies in the world. It’s important to be aware of the impacts that companies from the same industry have on one another, especially to be able to avoid, fight or tackle if news like these were to happen again.

Useful resources

Netflix

Disney+

Why Disney Stock fell 19& in April

Stocks fall after shocking drop in Netflix subscribers

About the author

The article was written in December 2022 by Ines ILLES MEJIAS (ESSEC Business School, Global BBA, 2020-2024).

Why is Apple’s new iPhone 14 release line failing in the first few months?

December 8, 2022 by Aastha DAS

Why is Apple’s new iPhone 14 release line failing in the first few months?

In this article, Aastha DAS (ESSEC Business School, Bachelor’s in Business Administration, Exchange Student from Northeastern University) discusses events about Apple’s products, their impact on Apple’s share price and the link with market efficiency.

Brief reminder of the facts

On Tuesday October 18th, 2022, Apple stocks saw a downturn after the announcement of the limit of one of its iPhone suppliers for the newly released iPhone 14 Plus due to demand issues.

Figure 1. Event about Apple.

Source: Bloomberg.

With the new release, Apple took a large risk with eliminating certain failing lines like the “mini” model. Within the iPhone 14 range, the largest changes and upgrades were to the “Pro” models in hopes of diversifying its product line while pricing remained consistent in appropriate increases, as done in the past. Unfortunately, this has been highly unsuccessful with many reports revealing how the sales of the “iPhone 14” line have been subpar of expectations.

Impact on company

This is concerning for the company since Apple had increased its sales projections in the few weeks prior to the iPhone 14 family release in September as it does annually and many of its suppliers had already started making preparations for a 7% boost in orders after the release. This incident had direct financial consequences on the company as the stock immediately dropped by $4 from $145. There are mixed reports on consumers’ preferences to buy either the iPhone 14 Plus or iPhone 14 as preferences between the features and affordability of the two vary greatly. It is difficult for the company to gauge the fluctuations in demand, especially as the new iPhone 14 has not been doing as well as anticipated. This can also be attributed to the decrease in global demand because of surging inflation and the impending recession and war in Ukraine. The smartphone market is projected to decrease by 6.5% this year, 2022. Following an official announcement in a press release from Apple, the stock price immediately dropped in regard to the production halt for the iPhone 14 Plus at one of the plants in China. Apple shares fell 3.9% on the New York stock Exchange (NYSE) on Wednesday morning to $145.90. The shares are additionally also down about 18% this year in 2022, compared to a 23% drop in the S&P 500 Index. Still, many professionals state they are not surprised about this due to more preference toward the more premium models of the iPhone 14 family. The share price quickly leveled out but it revealed how volatile the stock is to the market and each decision they make.

Figure 2. Event about Apple.
Apple share price
Source: Google Finance.

Relations to market efficiency

Market efficiency involves a market where the current price of a stock/security quickly reflects information of that security and/or its respective company in a wholly rational manner.

There are many ways to evaluate a market’s efficiency, even as novice market watchers, starting with reevaluating the lag in the time that information is released regarding a security to when it is reflected in the security’s price. The changes in price are usually a product of announcements that are novel and unexpected which can be compared to the press release by Apple to limit the supply chain of its iPhone 14 production as this is uncommon for the company to do, so soon after the company’s fall release, as it does annually. It also relates to a company’s share price in relation to its earnings per share outcomes and the share price growing following the EPS, in an efficient market, as EPS growth reveals positive growth for long-term investors, and it is still optimistic to observe that Apple has managed to grow EPS by 28%/year over the past three years. This restores faith in the stock as though it has proven to be volatile, it regulates itself and has clearly been on the rise in a long-term perspective, revealing sustainable growth. A real positive is seen with Apple’s similar EBIT margins to 2021 as revenue grew by 12% to $388B USD.

At this point in time, the Apple security can be seen as semi-strong efficiency. This can be attributed to how public Apple is with there being much historical market data and public information like company accounts, hundreds of reports on the renowned company which regularly are reflected in the company’s stock price.

Figure 3. Apple financial statistics.

Source: Forbes Digital Covers.

Why did I choose this event?

I chose this event as a financial event of Apple’s stock taking a downturn dip because it reveals much about the smartphone and personal electronics market despite being a quite small event in the trajectory of its iPhone releases. This shows how smartphones will also suffer from raising inflation and the Ukrainian-Russia war despite popular demand and so-called need for smartphones like the iPhone. I am also an avid consumer of Apple products and find it interesting how emotional many stakeholders are based on how they react to even the smallest aspects of its product line. It reveals how despite the rationality of the market being beneficial, human beings chose to act on fear and precautionary measures to ensure that they will be safer rather than opting in favor of risk, within reason.

Why should you be interested in this topic?

There are many reasons why it is important to stay on top of the regular markets and this article discusses a company which is regularly changing in the markets. As a SimTrade student, or anyone interested in financial markets, market efficiency is a key aspect to refer to when making financial decisions and trading. It is worthwhile to consider companies with strong efficiency and those which do not, allowing a broader outlook into how they might function. It is necessary to see if there is a possibility of beating the market because any information available to a trader is already involved in the market price so it is difficult to beat it for the higher returns.

Useful resources

SimTrade course Market information

Yahoo! Finance (October 25, 2022) Here’s Why We Think Apple (NASDAQ:AAPL) Is Well Worth Watching

Apple Newsroom (November 6, 2022) Update on supply of iPhone 14 Pro and iPhone 14 Pro Max

Bloomberg (September 28, 2022) Apple Ditches iPhone Production Increase After Demand Falters

About the author

The article was written in December 2022 by Aastha DAS (ESSEC Business School, Bachelor’s in Business Administration, Exchange Student from Northeastern University).

Market efficiency: the case study of Yes bank in India

November 26, 2022 by Aamey MEHTA

Market efficiency: the case study of Yes bank in India

In this article, Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023) explains the key financial concept of market efficiency.

What is Market Efficiency?

An informationally efficient market is a market in which the current price of a security fully, rationally, and quickly reflects all information of that security

We can measure the efficiency of a market by observing the lag between the time that information is received to the time that the security’s price reflects this information. If there is a large lag, then traders can make use of this information to generate positive returns. For efficient markets the price of a security should not be affected by information that is already expected. The changes in price should be due to new information, i.e., information that was unexpected. For example: if a company’s earning is expected to be $10M (market consensus) and their earnings are $10M, this should not cause a change in the company’s price. However, if the earnings were $20M or $5M, then the shock news will cause the stock price to move upwards or downwards.

Market efficiency and investment styles

In a perfectly efficient market investors should use a passive investment strategy. This is because in such a market it is not possible to beat the market. In efficient markets investors can expect the market value of an assets to be equal to its intrinsic value. Using an active strategy will result in underperformance compared to the market due to transaction costs. However, if the market is inefficient, then active investment strategies can result in a profit for the investor.

What factors affect market efficiency?

Generally, markets are neither perfectly efficient or inefficient. The degree of efficiency depends on the following factors: the number of market participants, the availability of Information, and impediments to trading.

Number of market participants

The higher the number of market participants the more efficient the market is. Market participants include investors, traders, analysts, and people who follow the market. The number of participants can vary over time and across countries. Some countries prevent foreigners from trading on their markets which reduces market efficiency.

Availability of Information

The more information that is available to the investors, more efficient the market is. The easier and cheaper it is to access the information the more efficient the market will be. The access to information should not favor one group over another and should be equally available to all participants. If participants have access to material nonpublic information about the firm they should not trade on this information as this would constitute insider trading which is illegal. In developed markets there is abundance of information, and the markets are efficient. Example: New York Stock Exchange. In less developed markets the availability of information is lower and hence markets are less efficient. Example: the forwards market.

Impediments to trading

Arbitrage refers to buying an asset in one market and simultaneously selling it in another market at a higher price. This buying and selling will continue till price in both the markets are the same and arbitrage is no longer possible. Impediments to trading such as high transaction costs will restrict arbitrage opportunities and allow for some mispricing of assets.

Short selling prevents assets from being overvalued and hence short selling improves market efficiency. Restrictions on short selling, such as inability to borrow stock cheaply will reduce efficiency.

Transaction and information costs

If the cost of gathering information, analysis and trading is more than the cost of trading misvalued assets markets will be inefficient. If after deducting costs, there is no risk adjusted returns to be made from trading based on publicly available information then the markets are said to be efficient.

Types of market efficiency

Weak form of market efficiency

This form of market efficiency states that current security prices fully reflect all currently available security market data. Thus, past price and volume information will have no predictive power over the future direction of security prices because price changes will be independent from one period to the next.

Semi-strong form of market efficiency

This form holds that security prices rapidly adjust without bias to the arrival of new public information. Current security prices fully reflect all publicly available information. This form says that security prices include all past security market and non-market information available to the public. Examples: Information on the financials reports published by the company, news about the company.

Strong form of market efficiency

This form states that security prices fully reflect all information from both public and private sources. The strong form includes all types of information: past security market information, public and private (insider) information. This means that no group of investors has monopolistic access to information relevant to the formation of prices and no one should be able to generate positive risk adjusted returns.

What do we know about the efficiency of the market?

Fama

Fama, in his paper Efficient Market Hypothesis defined a market to be “informationally efficient” if prices at each moment incorporate all available information about future values.

The efficient market hypothesis states:

Current prices incorporate all available information and expectations.
Current prices are the best approximation of intrinsic value.
Price changes are due to unforeseen events.
“Mispricings” do occur but not in predictable patterns that can lead to consistent outperformance.

The efficient market hypothesis does not state:

All investors are rational.
Prices are always right.
Prices should be stable.
Professional money managers can’t earn higher than market returns.

The Grossman-Stiglitz paradox

This paradox was proposed by Stanford Grossman and Joseph Stiglitz. They argue that perfectly informationally efficient markets are an impossibility since, if prices perfectly reflected available information, there is no profit to gathering information, in which case there would be little reason to trade and markets would eventually collapse.

Investors that purchase index funds or ETFs benefit at the expense of investors who pay for financial services either indirectly or directly via investing in actively managed funds.

Case study: yes bank

Yes Bank is an Indian Bank founded in 2004 by Rana Kapoor and Ashok Kapur, headquartered in Mumbai, India.

Yes bank is a private sector bank. In March 2020, Yes Bank faced a historical crisis. There are various reasons that led Yes bank to this crisis, they are, there were a large number of bad loans given by banks and depositors have withdrawn large numbers of amounts from the bank. There was no balance between the loan sheet and the depositors’ sheet. RBI put a 30 days moratorium on Yes Bank to save it.
A major effect of the yes bank crisis was that there was a big chance that other financial institutions could collapse. But the Reserve Bank of India took initiative and saved Yes Bank from major collapse.

In May 2020 shares of Yes Bank Ltd. fell as much as 84.65 percent intraday to Rs 5.65 apiece—the lowest on record—but pared some of the losses to traded 51.63 percent lower at Rs 17.80. The S&P BSE Sensex fell 1,450 points and NSE Nifty 50 slipped below 10,900. This, after the Reserve Bank of India on Thursday evening superseded the board of the lender and imposed curbs on its operations for a month.

stock chart of yes bank
Logo of Wells Fargo
Source: internet.

Useful resources

Academic resources

Fama E. (1970) Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance, 25,383-417.

Fama E. (1991) Efficient Capital Markets: II Journal of Finance, 46, 1575-617.

Grossman S.J. and J.E. Stiglitz (1980) On the Impossibility of Informationally Efficient Markets The American Economic Review, 70, 393-408.

Business resources

Yes bank

About the author

The article was written in November 2022 by Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023)

Financial markets are not accounting enough for the Ukraine-Russia conflict

November 14, 2022 by Henri VANDECASTEELE

Financial markets are not accounting enough for the Ukraine-Russia conflict

In this article, Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) reflects on the Ukrain-Russia conflict.

Geopolitical events and financial markets

Normally investors do not have to lie awake over political turmoil. On the contrary, if you go through the list of past geopolitical events and their impact on the market, you will see that they were almost always a reason to buy stocks. So, there is no reason to scare investors unnecessarily with geopolitical analysis. You must look at the broader macroeconomic context. It is always more relevant than the event itself.

Some historical perspective: the 1973 Yom Kippur War

In that respect, there is a problem with the Russian-Ukrainian conflict, because it is different from the norm. A rare exception to the rule that geopolitical turmoil is a buying opportunity was the 1973 Yom Kippur War between Israel and some Arab countries. That war took place in the middle of an inflationary context. In the US, the government was driving inflation with 1960s social programs and spending on the Vietnam War. The US central bank was raising interest rates. And then came the Yom Kippur war and the subsequent oil embargo by the Arab countries, which drove up the price of oil, putting a cherry on top of the cake of existing inflation. It was a matter of bad timing.

Evolution of oil prices and Fed funds rate (1970-2022).

Source: Bloomberg.

What about today (update November 2022)

Today we have a similar situation due to the global inflationary environment. If Russia effectively invades hard, the market impact would be serious, with a solid correction for stock markets and higher oil prices. Financial markets are not taking this into account enough. 10-year U.S. government paper is considered the ultimate haven, but the yield on that paper does not show that investors are very concerned. If a Russian invasion does occur, gold and wheat are an interesting hedge. Both did well in the 2014 Russian invasion of Crimea.

Evolution of the US 10-year interest rate.

Source: investing.com.

Link with market efficiency

This situation links to market efficiency in a semi-strong form (public news). Even with the information publicly available, the markets are not pricing in or correcting in the risk or consequences of a hard invasion of Russia into the Crimea. A hard invasion could potentially induce a lot of uncertainty and volatility into the market, with Russia’s strong foothold in the international energy market. Potential embargos and supply shortages could have a major impact on the prices and induce a hefty inflation increase. This is currently not priced in the markets and thus shows that the market was not efficient in the semi-strong form.

Useful resources

Bllomberg

About the author

The article was written in November 2022 by Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

The abandonment of the TF1-M6 merger: what happened?

November 1, 2022 by Louis DETALLE

The abandonment of the TF1-M6 merger: what happened?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how the fusion of the 2 biggest French TV companies has failed…

What was planned & why?

It was in May 2021 that the project to bring together the two French television channels was announced. On the one hand, TF1, whose 2020 turnover exceeds 2 billion euros; on the other hand, M6 with a turnover of 1.2 billion euros.

In the context of the loss of speed of French television channels in the face of fierce competition from the multiplying streaming platforms such as Netflix, Disney+ and Prime Video, the two television groups had deemed it strategic to come together in a giant merger.

Indeed, if we look at TF1’s revenues in 2020, they may reach more than €2 billion, but this means a notable drop of €256 million compared to 2020, i.e., a drop of 11% in its turnover.

It is therefore in a context of loss of market share that the two French television giants announced their desire to merge. A merger would have enabled these two players to combine a total of 40% of the television audience and 70% of the television advertising market.

This risk of an ultra-dominant position in France was also the source of complications for the two groups, which estimated that they could achieve economies of scale of nearly €300 million.

What happened after the announcement?

Well, after the announcement, the French Competition Authority (l’Autorité de la concurrence in French) announced that it had started a report on the consequences of a potential merger between the two groups.

The result of this report was made known on July 27, 2022: the TV channel groups were asked to divest themselves of some of their larger channels to satisfy the market monopoly issues.

According to this report, it was suggested that the M6 group should, for example, have divested itself of the M6 channel as well as TFX, 6Ter and Paris Première, which was not possible. The Directorate-General for Competition, Consumer Affairs and Fraud Control suggested to the competition authority that the new entity should sell W9 or TMC.

Why haven’t M6 & TF1 accepted to sell some TV channels?

First of all, at the beginning of the announcement of the merger project, the management of the two groups argued that their so-called hegemony on the television advertising market was non-existent.

One of their strong arguments was to point out that the market to be considered was not only that of television advertising, but rather the market for advertising on broadcasting platforms. This market would then effectively include television but also advertising on streaming sites or on-demand content platforms.

This argument was rejected by the competition authority, which considered that the market to be considered remained that of French television advertising and that an entity with 75% of the market share was therefore unthinkable, which is why TV channels had to be sold.

Useful resources

Autorité de la concurrence

Group M6’s website

Group TF1’s website

About the author

The article was written in October 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Why Berlin could be the new Silicon Valley for startups?

October 11, 2022 by Jessica BAOUNON

Why Berlin could be the new Silicon Valley for startups?

In this article, Jessica BAOUNON (ESSEC Business School, Executive Master in Direction Financière et Contrôle de Gestion, 2020-2022) explores the latest trends which is transforming the the startups world and the venture capital in Berlin, the capital of Germany.

These last decades, with the rise of internet and new technologies, startups rapidly boomed. Some of them became very famous. You may be familiar with AirBnb, Instagram or Uber; they all started from scratch in a grungy basement before flourishing at a global scale. BytheDance, with 2 billion users in 150 countries recorded 58 billion of dollars in revenues for 2021, an example of success story that creates a high interest of curiosity for tech-investors everywhere in the world. However, only a few cities are among the most attractive for entrepreneurs. Berlin is on the path to become the most popular city for startups. But first of all, let’s go back to the basics by defining what a startup is.

What is a startup ?

Startups are companies that are in the first stages of its business operations. They are often founded by young people. They work in a collaborative way to scale up quickly their innovative products or services. They are looking for disruption opportunities to change the world and industries. They want to bring new ideas. As a result, the startup ecosystem is known to be a very fast-paced environment but also valuable for investors that expect a high return on their investment. On the other side, corporate operate with a different approach. They are most of the time, well-established. They work with a pyramidal organization and focus on the productivity rather than taking risks to grow fast.

Startups costs are usually very high with a low revenue at the start. They need funds to finance innovation and their entry in the markets. This is the reason why they turn to venture capitalist, but it can also come from various sources. The venture capitalist is a private investor. He provides capital in exchange for equity stake when they don’t have access to equity markets. Startup can then graduate by going public with an initial public offering (IPO), making them purchasable on the stock exchange.

How is the Berlin Startup Ecosystem?

Berlin counts 4 500 startups among well-known organizations such as SoundCloud, Tier Mobility or Babbel and employ over 80 000 people. Software as a Service (Saas), FinTechs and healthcare startups represent most of the business models. For the next coming years, the forecast expects a shift towards the green industry with the new climate neutrality challenges.

Figure 1. Number of Berlin startups by “industries”.
Number of Berlin startups by industries
Source: Dealroom.co

With over 10 billion euros invested in total in startups in 2021, the city is also among the top 10 locations for startup investment worldwide (1). Berlin is leading the investments in Germany “Three out of five euros invested in start-ups in Germany (60%) were invested in Berlin startups in 2021” (2) and Berlin records the most financing rounds” (3) in 2021 and 2022. The funding is diverse coming from public, private and institutional actors. Startups are the engine of Berlin’s economy. The new government state has detailed the plan for the next four years. They want to pursue the development of Berlin’s startup ecosystem into one of the first technology location.

Figure 2. Berlin: leader for startups in Germany.
Berlin startups
Source: Ernst & Young Startup Barometer (2022)

Why Berlin is attractive for startups

Berlin offers a lot of favorable conditions. The startup ecosystem benefits from an important aspect of the capital: the diversity. The city offers a wide network of high-quality professional talents coming from all over the world. 44% of entrepreneurs are not German (4). Indeed, Berlin has a strong historical with several countries such as France, Great Britain, The United States. The geographical location, almost in the middle of the European Union, facilitates the connections between the north, south, east, and west side but also for people outside of the region.

Indeed, the diverse sources of financing from private to public actors enable a positive investment climate for entrepreneurs. They are business incubators, universities, technology centers, regular meetups, and the greatest number of coworking spaces in Germany to ensure an outstanding infrastructure. Most of the entrepreneurs don’t want to follow the classic corporate path. Berlin as a creative and dynamic city offers the opportunity to express their ideas and freedom. The city is constantly in transformation in all areas: technology, art, music, architecture which attract people who aspire to change and innovation. Although rental prices rise in Berlin, it keeps one of the most affordable in term of living cost. Berlin’s startups and the venture capital scene promises to grow at a high dynamic for the next coming years.

Why should I be interested in this post

If you are considering working abroad and interested to work for a startup or a capital venture, this article is for you. This article presents the Berlin startup scene and explains why Berlin is considered as one of the most attractive cities for entrepreneurs and venture capital.

Ressources utiles

Startup Map Berlin

Startup Capital Berlin

Startup Barometer Germany E&Y

Startup Ecosystem

About the author

The article was written in October 2022 by Jessica BAOUNON (ESSEC Business School, Executive Master in Direction Financière et Contrôle de Gestion 2020-2022).

The impact of the Russian invasion of Ukraine on Shell

August 10, 2022 by Talia HAMMOUD

The impact of the Russian invasion of Ukraine on Shell

In this article, Talia HAMMOUD (The George Washington University, BBA, 2019-2023) discusses the impact of the Russian invasion on Shell, a large multinational oil company.

What is Shell?

Shell PLC is a British publicly traded multinational oil and gas company headquartered at in London, United Kingdom. It is one of the largest energy and petrochemical companies in the world, supplying all over the world.

What happened?

The relationship between Ukraine and Russia was tense since Ukraine gained its independence from the USSR in 1991. Since then, Russia annexed Crimea claiming it belonged to them as well as massing soldiers on the Ukraine-Russia border in 2021. On the 24th of February 2022, Russia invaded Ukraine, starting a full-blown war in Eastern Europe. In an effort to condemn Russia, many multinational companies announced they would withdraw or completely halt operations in the country.

Shell announced plans to withdraw from Russian oil just as people close to the matter say a plan is in the works by the Biden administration to ban Russian oil imports into the U.S. Due to this withdrawal, Shell announced that it anticipates account charges from $4 billion to $5 billion in its first quarter of 2022. This move caused American depositary shares of Shell to rise by 2.7% Tuesday, 8th March.

Stock market reaction

When it was first revealed that Shell was still buying discounted Russian oil after other oil companies announced their withdrawal on March 4th, Shell’s market shares plummeted by 5.73%. This shows that the market is efficient and was informed of Shell’s decision as many condemned them for still supporting Russia. There was increased market pressure for Shell to cut ties with all Russian oil suppliers. On March 8th, Shell apologized and announce its withdrawal from Russia as well as stopping all oil purchases from there. Thus, the market increased by 1.05% on March 8th.

Evolution of Shell stock market share price

Source: CNBC

Why this is important?

Firstly, it shows how volatile the oil market is as short-term demand for energy responds much faster to changes in growth than to price changes, especially due to the current Russian invasion of Ukraine, and how an act of war can impact millions around the world due to price increases of oil. This inherently impacts a big oil company such as Shell. However, I think that the market stocks rose in support of Shell withdrawing from Russian contracts and territories even though it is very costly as shown by the almost $5 billion in accounting costs for the first quarter. I think that this is an efficient market as stocks began to rise right before the announcement of this withdrawal was revealed showing that people were expecting Shell and other big oil companies to withdraw from Russia due to immense public pressure to condemn the Russian invasion of Ukraine.

Market efficiency

The market is quite efficient as the stock chart reflects all relevant information about Shell and its actions. For example, the announcement of Shells withdrawal in Russia is reflected in the market price of the day it was announced.

Key concepts

American depositary shares (ADS)

American depositary shares (ADS) are shares in foreign companies that are held in American depositary banks and can be traded in the U.S and on major exchanges. Shell Plc has an ADS facility managed by JPMorgan Chase Bank. Each American depositary share is equal to two Shell ordinary shares.

Market efficiency

Market efficiency refers to the degree how which many market prices reflect all relevant information available. If a market is efficient, it means all traders are well-informed and all the information available is reflected in the price of shares.

Volatility

Volatility represents the rate at which the price of a stock increases or decreases over a particular period. Higher stock price volatility often means higher risk and helps an investor to estimate the fluctuations that may happen in the future.

Useful resources

CNBC Shell PLC share price

Wall Street Journal Shell, BP to Withdraw From Russian Oil, Gas

Shell (March 8th, 2022) Shell announces intent to withdraw from Russian oil and gas

About the author

The article was written in August 2022 by Talia HAMMOUD (The George Washington University, BBA, 2019-2023).

Reuters

May 30, 2022 by Louis DETALLE

Reuters

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains everything there is to know about Reuters, the international giant in the data-providing market…

Quick presentation of the company

Thomson Reuters is a leading provider of business information services. As one of the main competitors of Bloomberg, their products include highly specialized information-enabled software and tools for legal, tax, accounting and compliance professionals combined with the world’s most global news service – Reuters.

Reuters is organized in 5 different business units:

Legal Professionals: This business unit serves law firms and governments with research products, focusing on intuitive legal research powered by emerging technologies and integrated legal workflow solutions that combine content, tools and analytics.

Corporates: Designed for corporate customers from small businesses to multinational organizations, this business unit provides its clients with a full suite of content-enabled technology solutions for in-house legal, tax, regulatory, compliance and IT professionals.

Tax & Accounting Professionals: This business provides its customers with research that focuses on intuitive tax offerings and automating tax workflows.

Reuters News: Supplies business, financial and global news to the world’s media organizations, professionals and news consumers through their many platforms.

Global Print: Provides legal and tax information primarily in print format to customers around the world.

Type of people working at Bloomberg (types of jobs)

Nearly 2/3 of Reuters’ employees work in the US, the remaining third working in Asia and in Europe. The careers available at Reuters are therefore numerous and very diverse.

Indeed, the profiles needed by Reuters consists in legal professionals, corporate professionals, tax & accounting professionals and journalists. Thomson Reuters also employs many software designers to help design the Reuters’ terminals, as well as sectorial legal and corporate specialists in order to provide precise and adequate analysis.

Main competitors

As Thomson Reuters’ activities are very diverse, we will classify the main competitors of the firm in respect to the activities.

For Thomson Reuters’ business that consists of software-design, Bloomberg LLP is the most natural competitor in this space with its very famous Bloomber Terminal. The terminal business is built on a fantastic technology platform that provides comprehensive financial information. There are other competitors, such as Dow Jones Industrial Average FX Trader, which have specialized in one type of industry whereas Reuters and Bloomberg remain generalists.

Reuters’ editorial branch’s main competitors would be Bloomberg News, the Financial Times (FT), the Wall Street Journal, and other traditional financial news companies. The same goes for their TV/radio operation (their competitor would be CNBC).

Use of data in financial markets

The explosion of financial data, enabled by the Internet tremendous potential, caused an explosion of demand for financial data. As evidenced in 2006 by the British mathematician and Tesco marketing mastermind Clive Humby’s quote, “Data is the new oil”, the data market seems to be limitless.

In addition, as Bloomberg acquires many of his competitors, such as BNA and BusinessWeek, this contributes to curbing the number of data providers and improving the monopoly of Bloomberg on the data-providing market. Reuters struggles to keep up the pace of its competitor which is very well established in this market.

Useful resources

Bloomberg

Reuters

About the author

The article was written in March 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

The World 10 Most Sustainable Companies in 2021

August 26, 2024May 16, 2022 by Anant JAIN

The World 10 Most Sustainable Companies in 2021

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the World 10 Most Sustainable Companies in 2021.

Introduction

The Corporate Knights’ yearly list is a ranking of the 100 most sustainable companies. It is based on the analysis of companies with revenues over $1 billion (8,080 companies in 2021). This year marks the 17th year of the list.

This list is usually revealed during the World Economic Forum in Davos. The Davos Agenda is a ground-breaking gathering of world leaders to shape the values, policies, and alliances required in this difficult new environment. The World Economic Forum has been a trusted venue for leaders from business, government, international organizations, civil society, and academia to assemble at the start of each year to discuss crucial issues.

In 2021, the breakdown of the most sustainable firms by geographical areas is as follows:

46 in Europe
33 in North America
18 in Asia
2 in South America
1 in Africa

The top 10 most sustainable corporations of 2021 are as follows:

1. Schneider Electric SE, France
2. Orsted A/S, Denmark
3. Banco do Brazil SA, Brazil
4. Neste Oyj, Finland
5. Stantec Inc, Canada
6. McCormick & Company Inc, United States
7. Kering SA, France
8. Metso Outotec, Finland
9. American Water Works Company Inc, United States
10. Canadian National Railway Co, Canada

We detail below the characteristic of each company in the dimension of sustainability.

1. Schneider Electric SE

Industry: Electrical Equipment
Location: France
Year Founded: 1836

Schneider Electric has been named the world’s most environmentally friendly firm. This European energy and automation multinational corporation was praised for its quick and consistent response to ESG – environmental, social, and governance – issues, moving up from 29th place in 2020.

Schneider Electric is helping to reduce CO2 emissions and the rise of the Earth’s temperature by focusing on innovative and renewable alternatives. Its efforts are assisting in the prevention of global warming and the production of ecologically friendly goods that improve energy access.

The core of Schneider Electric’s strategy, according to Chair and CEO Jean-Pascal Tricoire, is to build a sustainable business and organization. Schneider has long been committed to environmental issues, and it continues to raise the bar for itself, its customers, and its partners.

2. Ørsted A/S

Industry: Electricity Generation
Location: Denmark
Year Founded: 2006

After vowing to combat climate change with renewable energy, Ørsted was voted the world’s second most sustainable company. Despite dropping to second position in 2020, the Danish power company is still the world’s most sustainable energy provider, a title it has held for three years.

The corporation, which is also renowned as one of the top renewable energy generators, has switched its operations from fossil fuels to renewable energy and has set a goal of becoming carbon neutral by 2025.

Ørsted CEO Mads Nipper said the company’s strong placement in the Global 100 report underlines both its commitment to driving a successful and sustainable business and its resolve to become a catalyst for green energy change. He also stated that in order to be effective in the fight against climate change – and to stay in business – all businesses must adopt a sustainable business model.

3. Banco do Brazil SA

Industry: Financial Services
Location: Brazil
Year Founded: 1808

Banco do Brazil, Brazil’s, and Latin America’s largest bank by assets, is also one of the most sustainable companies. The 212-year-old bank aspires to be inclusive and contribute to digitally improving society by providing internet access and supporting education by fostering innovation and motivating entrepreneurs.

In 2020, the government-owned corporation was ranked ninth, but it has quickly risen through the ranks this year.

4. Neste Oyj

Industry: Oil and Gas Industry
Location: Finland
Year Founded: 1948

Neste is a global pioneer in sustainability, with products such as renewable diesel, sustainable aviation fuel, chemical recycling to reduce plastic waste, and raw material refining innovation. The Finnish company dropped from third to fourth place in a year, but it has been on the Corporate Knights Global 100 Index for the 15th year in a row, far longer than any other global energy company.

The company’s mission of making the world a better place for our children, according to Peter Vanacker, President and CEO of Neste, drives them to strive for greater heights every day. Many companies are constantly improving their sustainability programs, making it more difficult to make the list each year. More businesses are actively implementing sustainability into their operations, which is encouraging.

5. Stantec Inc.

Industry: Engineering, Architectural Design
Location: Canada
Year Founded: 1954

Stantec is not only one of the most ecologically responsible companies in the world, but it is also a leader in North America. Clean earnings and clean investment, which are goods and services with a demonstrated environmental and social impact, accounted for half of the company’s overall score.

Gord Johnston, President and CEO of Stantec, remarked that its remarkable track record on sustainability is the result of its people’s deep commitment and good leadership throughout the company’s global operations. Its teams are striving to improve sustainability in its own operations and aiding clients in developing and achieving sustainability goals.

6. McCormick & Company Inc.

Industry: Processed & Packaged goods
Location: U.S.A.
Year Founded: 1889

McCormick & Company is not just the world’s sixth most sustainable company, but it is also the leader in the food market. Since the index’s debut five years ago, the packaged and processed foods industry in the United States has advanced 16 points to its highest position.

According to Lawrence E Kurzius, Chairman, President of McCormick & Company, it has never been more important to work together for the future of flavor and to limit its impact on the environment. The company is dedicated to producing clean revenue, providing renewable energy projects, and making the transition to 100% circular packaging.

7. Kering SA

Industry: Luxury
Location: France
Year Founded: 1963

Gucci, Saint Laurent, Bottega Veneta, Ulysse Nardin, and Pomellato’s parent business are the only luxury brands to make the top 10 sustainable companies list.

When measured against 24 quantitative key performance indicators (KPIs), including resource management, people management, financial management, clean revenue and investment, and supplier performance, Kering maintained its strong position. In order to build the future of luxury, sustainability is promoted at every level of governance, from the Board of Directors to the operational managers.

Kering’s vow to protect the environment on which it relies, according to the CEO Dr. M Sanjayan, is a big step forward for the fashion business, and it offers a massive doorway for the luxury sector to influence the people and help rethink fashion and luxury goods.

8. Metso Outotec

Industry: Industrial Machinery
Location: Finland
Year Founded: 2020

Metso Outotec is ranked 8th on the Global 100 Index, a global leader in sustainable technology and services for the recycling, aggregates, and mineral processing industries. In order to have a good impact on the globe as a sustainable leader, the Finland-based firm has set a number of lofty goals, including reducing global warming to 1.5 degrees Celsius.

Piia Karhu, Senior Vice President Business Development at Metso Outotec, remarked that their customers in the aggregates and metals and minerals industries are focused on producing sustainable goods and services. They collaborate with their customers, partners, and communities to advance sustainable innovation.

9. American Water Works Company

Industry: Utilities, Water and Wastewater
Location: U.S.A.
Year Founded: 1886

Because of its leadership and transparency, American Water is one of the top ten sustainable firms. The largest publicly listed water and wastewater utility firm in the world, founded in 1886 and employing over 6,800 people, is based in the United States.

Despite serving 15 million people in 46 states, the company saves 12.5 billion liters of water each year through efficiency measures. It has also promised to reducing greenhouse gas emissions by 40% by 2025.

10. Canadian National Railway Company

Industry: Rail Transport
Location: Canada
Year Founded: 1919

The lone railway company on the list for 2021 was the Canadian National Railway. The railway conglomerate adheres to a global standard for sustainability activities, adhering to the UN Global Compact principles and the Sustainable Development Goals of the United Nations (SDGs).

Useful resources

General resources

Corporate Knights’ Global Ranking List

The Davos Agenda

Top 10 sustainable companies

#1 Schneider Electric SE, France

#2 Orsted A/S, Denmark

#3 Banco do Brazil SA, Brazil

#4 Neste Oyj, Finland

#5 Stantec Inc, Canada

#6 McCormick & Company Inc, USA

#7 Kering SA, France

#8 Metso Outotec, Finland

#9 American Water Works Company, USA

#10 Canadian National Railway, Canada

About the author

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

Bloomberg

April 11, 2022 by Louis DETALLE

Bloomberg

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains everything there is to know about Bloomberg LP, the international leader in the data-providing market…

Quick presentation of the company

Bloomberg LP is an American financial group specialized in services to financial market professionals and in economic and financial information. Bloomberg operates as a news agency and via numerous media such as TV, radio, press, internet, and books. The company was founded in 1981 by Michael Bloomberg, former mayor of New York City.

In its early days, Bloomberg LP’s activities were only based on the exploitation of a historical database of US Treasury yield curves, bought by the founder to its former employer, the investment bank Salomon Brothers. After that, the company added on its terminals a messaging system, retransmissions of financial assets’ prices and developed financial news flows long before the watershed of Internet.
In 1990, Michael Bloomberg installed his 1,000th terminal.

Type of people working at Bloomberg (types of jobs)

The careers available at Bloomberg LP are numerous and very diverse. The Board’s needs in terms of employees mainly consist of software designers to help design the Bloomberg’s terminals, sectorial financial specialists in order to provide precise and adequate analysis.
Finally, the last kind of profiles that Bloomberg needs are journalists and more broadly, people with great writing abilities since Bloomberg LP produces a huge flow of written articles every day. Bloomberg News for instance (one of many Bloomberg LP’s subsidiaries) has over 10 000 employees which gives an idea of the written flow emitted by the company.

Main competitors

As Bloomberg’s activities are very diverse, we will classify the main competitors of the American firm in respect to the activities.
For Bloomberg’s core business, which is the terminals, Thomson Reuters is the most natural competitor in this space (with products like Kobra, Eikon, D3000). The terminal business is built on a fantastic technology platform that provides comprehensive financial information. There are other competitors, such as Dow Jones Industrial Average FX Trader, which have specialized in one type of industry whereas Bloomberg remains a generalist.

Bloomberg’s editorial branch’s main competitors would be Reuters, the FT, the Wall Street Journal, and other traditional financial news companies. The same goes for their TV/radio operation (their competitor would be CNBC).

Use of data in financial markets

Useful resources

Bloomberg

Thomson Reuters

About the author

The article was written in March 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

The importance of data in finance

March 24, 2022 by Louis DETALLE

The importance of data in finance

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains the importance of data-management for corporations and how they are used to improve profitability.

According to a study published by CapGemini untitled: The data-powered enterprise: Why organizations must strengthen their data mastery, it is estimated that the gain from efficient data-management would represent 22% in terms of firm profitability.

Why is data used?

The use of data in finance can also be very useful in finance for various reasons.

Indeed, the multitude of data available allows for a deeper understanding of the market in terms of risks and opportunities. This knowledge is accompanied by an important consideration of political, social and economic factors.

As early as 2006, British mathematician and Tesco marketing mastermind Clive Humby stated “Data is the new oil.” The companies with the largest market capitalizations also bear witness to this importance of data. The ranking shows of tradingstat shows a podium of Apple, Microsoft and Google: the predominance of data-driven companies is clearly observable here.

In which finance-related fields is data used?

In finance, it is especially in the trading rooms that data has become an absolutely indispensable tool. Indeed, it is thanks to Big Data – i.e. increasingly exhaustive data, at an ever faster pace – that high frequency trading has been developed. In short, high-frequency trading makes it possible to place several thousand buy and/or sell orders in a few seconds, or even milliseconds, while optimizing risk management in order to adapt the strategy to market responses. This trading strategy allows for buying and selling in a sufficiently short period of time to avoid a potentially negative market movement during the operation.

On the other hand, retail banks (i.e. banks for individuals) are also confronted with the challenges of data-management. The development of online services offers them a better knowledge of their customers, which leads to a change in the bank’s relationship with its customers. In doing so, banks improve their ability to adapt their offer to the customer profile. Big Data also enables banks to fight fraud. Banks are now able to monitor all bank card transactions and be alerted when a user makes a payment (particularly in terms of amount, time or geographical area). For investment banks, whether it is the implementation of a more reliable scoring of credit files, the pooling of data between banks, analysis of the “sentiment” of investors for traders or the compliance of data and its processing, the indispensable character of data is no longer to be proven.

The importance of data regulation though

The use of data in finance is very useful but can be problematic when the data concerns the personal data of users or customers. In this context, financial actors are subject to ever increasing regulation and the adoption of the EU’s GDPR, in 2016, seems to be a step in this direction.

Useful resources

BlackRock L’utilisation du Big Data dans un processus d’investissement

About the author

The article was written in March 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Wirecard: At the heart of the biggest German financial scandal of the 21st century

March 7, 2022 by Louis DETALLE

Wirecard: At the heart of the biggest German financial scandal of the 21st century

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what happened with Wirecard, the German company that caused a major scandal in the German financial place.

Quick review of the Wirecard company

The Wirecard case takes its name from a German start-up specializing in online payment solutions. Listed on the Frankfurt stock exchange in 2018, this company has experienced a meteoric growth with more than 300,000 corporate customers at its peak in June 2020.

Wirecard’s logo

However, as early as 2015, doubts were raised about the effectiveness of the Wirecard model and suspicions of irregularities arose. It was not until June 2020 that the management admitted that €1.9 billion of its consolidated balance sheet did not exist.

Several actors bore the brunt of the scandal

The consequences of this announcement were terrible for several actors:

Firstly, for the company, whose share price lost 90% of its value in a few days (see chart below). Rating agencies such as Moody’s are removing Wirecard’s rating due to the falsification of the information on which the rating was based. At management level, the former CEO of Wirecard, Markus Braun, resigned and was arrested by the German justice system. He ended up in prison along with two other executives of the German company. Jan Marsalek, another Wirecard executive, has been wanted since June 2020 by Interpol to be brought before the Munich court.

Evolution of Wirecard’s stock’s value.

For EY, Wirecard’s auditor, this case is reverberating through the financial ecosystem. Indeed, the auditor EY is also in great difficulty since the teams of the big firm of the Big 4 have been certifying the accounts of the company for several years and missed important frauds. The Financial Times, for example, accused the firm of failing to check for accounting irregularities in the balance sheet, which should have been done. There are numerous legal actions against the auditor for malpractice, such as the complaint by the German law firm Schirp & Partner. The German authorities have also launched a preliminary investigation against EY, whose head of the German branch has announced his resignation following the scandal.

Finally, the Federal Financial Supervisory Authority, the regulatory and supervisory body for the financial sector in Germany, is also affected by the affair. The German Minister of Finance therefore announced a plan to reform the BaFin, which also saw its director step down.

Conclusion

In conclusion, the Wirecard affair is considered to be one of the most important scandals of the 21st century as it has called into question the structures and statutes of a company, a Big 4 firm as well as German regulatory bodies.

Useful resources

La Tribune (21/04/2021) Scandale Wirecard : Merkel et son ministre des Finances contraints de se justifier (in French).

About the author

The article was written in March 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Quick review on the most famous trading frauds ever…

February 20, 2022 by Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) reviews on the most famous trading frauds ever…

Jerôme Kerviel and Société Générale

In 2008, the French bank Société Générale announced having been defrauded by one of its traders, Jérôme Kerviel whom you might have heard about. This fraud cost Société Générale € 4,9 billion and Jérôme Kerviel was accused by the bank of having held positions up to € 50 billion on financial markets without permission. Jérôme Kerviel, on the other hand, accused the bank of having known about his practices since the beginning and of confronting him about them only because he had lost a lot of money. As a consequence, Société Générale’s share lost nearly half his value when the issue was brought to light and the trial is still ongoing…

JP Morgan and Bruno Iksil: The whale

Bruno Iksil joined JP Morgan Chase in 2005 after a short time at Natixis. This French trader got his nickname because of his risky multi-million-dollar bets on credit default swaps (CDS), insurance contracts designed to protect against a country or company default.

In April 2012, the Wall Street Journal and Bloomberg were alerted by brokers on “huge” and “very risky” positions taken in the credit market. A trader had bet on the good health of American companies and sold, in very large quantities (several tens of billions of dollars), insurance contracts to cover themselves against their bankruptcy.

His bets were all the riskier since the US economy was showing major signs of slowdown. Other investors and banks, attracted by this opportunity, did not hesitate to take Iksil on, which quickly created an untenable situation for JP Morgan. The losses generated by the “whale” positions amounted to 6.2 billion dollars for JP Morgan.

As a result, the bank’s quarterly results were down by 660 million dollars, while its share price fell by 20% on the New York Stock Exchange.

Nick Leeson & the Barings Bank

Nick Leeson was a 28-year-old trader who had made a name for himself at Barings, England’s oldest investment bank. He became the head of the bank’s Singapore subsidiary by making high-risk, speculative bets. Nick Leeson took advantage of a loophole in the bank’s trading system to conceal his financial activities.

Unfortunately, Nick Leeson’s luck ran out and he suffered huge losses. Nick Leeson took advantage of a loophole in the bank’s trading records to hide his losses. With each trade, Nick Leeson hoped to mop up the previous losses to the point of no return. One evening, Leeson placed a trade betting that the Nikkei exchange rate would remain stable overnight. This seemingly low-risk trade turned out to be a disaster as an earthquake in Kobe caused the Nikkei and all Asian markets to collapse.

As a result of the massive losses, management realized that Leeson had been hiding a lot of money, and Barings, which had lost more than a billion dollars, more than twice its capital, went bankrupt.

About the author

The article was written in February 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

The financial rivalry between Abu Dhabi and Dubai

February 2, 2022 by Mayriem MEDDAH

The financial rivalry between Abu Dhabi and Dubai

In this article Mayriem MEDDAH (ESSEC Business School, Master in Strategy and Management of International Business, 2021-2022) analyzed the financial rivalry between Abu Dhabi and Dubai through their respective sovereign wealth fund.

This post is organized as followed: in a first part, the geographical and political context of Abu Dhabi and Dubai among the United Arab Emirates (UAE) will be described. This will enable the reader to understand the economic development of the two emirates. Then, we will go through the economic strategy of Abu Dhabi and Dubai. For that matter, the topic of sovereign wealth fund will be analyzed, discussed, and compared between Abu Dhabi and Dubai.

Geographical and political overview of the United Arab Emirates

Abu Dhabi and Dubai are the most famous and biggest emirates among the United Arab Emirates (UAE). The UAE gathers seven emirates: Abu Dhabi, Ajman, Dubai, Fujaïrah, Ras al-Khaïmah, Sharjah et Oumm al-Qaïwaïn. Each of these emirates is managed by an emir who possesses his own administration. Sultan bin Zayed Al Nahyan, Emir of Abu Dhabi, has been elected as President of the UAE whereas, Mohammed ben Rachid Al Maktoum, Emir of Dubai has been named as Vice President and Prime Minister. Abu Dhabi is the biggest oil producer among all emirates, that enables the UAE to be ranked as the world’s seventh biggest oil producer.

Figure 1. Map of the United Arab Emirates.

Map of the United Arab Emirates (UAE)

Source: World Atlas.

Economic development

The economic rivalry between the two brothers is and has always been an ongoing process. After the independence has been proclaimed in December 1971, Cheikh Zayed bin Sultan Al Nahyan, leader and founder of Abu Dhabi had the ambition of building a financial and political platform between the western world and the eastern world. From the very beginning, he knew how crucial the movement of material and immaterial goods was, in the sake of the prosperity of Abu Dhabi. Thanks to their black gold reserves, the two emirates had the financial resources to diversify their economy.

Economic strategy: the sovereign wealth fund

Sovereign wealth fund: definition and objectives

Since their formal entrance on the investment scene in the 2000s, sovereign wealth funds (SWF) have appeared to be major investors in corporate and real resources across the globe. SWFs aim at deploying dedicated stated owned pools of capital across global markets and assets classed in furtherance of a country’s strategic, economic, or social priorities. It is the opportunity for nations with high variance in public revenues to ensure a steady level of cash flows and provide resources for long-term investment. SWFs invest both in real and financial assets, ranging from stocks, bonds, real estate, precious metals, and hard infrastructure to alternative investments such as private equity, hedge funds, and venture funds.

Santiago Principles

The Santiago Principles consists of twenty-four generally accepted principles and practices voluntarily endorsed by IFSWF members. The objectives of the Santiago Principles are to help maintain a stable global financial system and free flow of capital and investment. Another goal of Santiago Principles is to comply with all applicable regulatory and disclosure requirements in the countries in which SWFs invest. It ensures that SWFs investment are based on economic considerations (expected returns and risks) and ensures that SWFs have in place a transparent and sound governance structure that provides adequate operational controls, risk management, and accountability.

The SWF in the world

There are between 40 and 70 different sovereign wealth funds run by political entities. Table 1 below gives the list of the 20 largest SWFs and estimates of their holdings. We can notice how heterogeneous the source of wealth is between countries. In many of the middle eastern countries, such as Abu Dhabi, Qatar or Kuwait, petroleum has been the main source of wealth.

Table 1. Leading Sovereign Wealth Funds in the world.

Leading Sovereign Wealth Funds in the world

Source: MIT.

The SWF in Abu Dhabi

Established in 1976, the Abu Dhabi Investment Authority (ADIA) is a globally diversified investment institution that prudently invests funds on behalf of the Government of Abu Dhabi through a strategy focused on long‑term value creation. The ADIA was ranked as the fourth-largest sovereign wealth fund in the world in 2021, with $650 billion in assets.

Governance

The governance of the allocation and transfer of funds remains quite obscure, which also explains why the ADIA fund is the least transparent SWF in the world. The governance has not disclosed rules or procedures for such distributions and decision among the allocation of assets. The ADIA fund is wholly owned by the Abu Dhabi Government. There is a separation of roles and responsibilities among the owner, the governing entity, and the management. According to the ADIA policy, the investments activities are conducted without reference to the Government of Abu Dhabi and has no visibility on the spending requirement. The only requirement made from the government is to generate sustainable long-term returns and to return funds to the government as needed. With lack of transparency, no official information regarding the external mangers is available.

Figure 2. The internal institutional reporting structure for ADIA.

The internal institutional reporting structure for ADIA

Source: ADIA.

Long-term policy portfolio by region

Abu Dhabi with far more oil reserves, following the ambition of the Cheikh Zayed Bin Sultan Al Nahyan, decided to invest in long lasting projects that include, education, science, art, finance with a sustainability dimension. Abu Dhabi financial resources have been placed and organized within different wealth funds owned by the Emirate. The most famous and powerful one is by far, the Abu Dhabi Investment and Authority (ADIA). This fund has been created by the founder of Abu Dhabi with the goal to invest its reserves in anything other than gold or short-term credit. With a highly diversified and long-term strategy portfolio, Abu Dhabi has been able to have a footprint in the world’s major markets.

Figure 3. ADIA long-term policy portfolio by region.

ADIA long-term policy portfolio by region

Source: IFSWF.

Long-term policy portfolio by asset class

With a flexible investment approach, the ADIA fund, made investments in various assets, from equities, real estate, to infrastructure.

Figure 4. ADIA long-term policy portfolio by asset class.

ADIA long-term policy portfolio by asset class

Source: Gulf News.

The SWF in Dubai

Established in 2006, the Investment Corporation of Dubai (ICD) is the Sovereign Wealth Fund (SWF) of the Government of Dubai. It has been established to manage the Dubai’s portfolio of commercial companies and investments. This fund is aiming to further Dubai’s presence globally and enhance Dubai’s economic power. ICD reported assets worth US$305 billion.

Governance

The governance of the ICD is made through the delegation of certain authorities including carious active committees that report and operate under the oversight of the Board of directors. There are five main committees. The investment committee comprises three Board members and is responsible, the audit committee, the remuneration committee, the management committee, and the risk management committee, which comprised of all department heads is responsible for recommending and overseeing the implementation of a sound risk management framework. The ICD parent is self-funding and does not typically receive funding or seek support from the Government of Dubai. ICD parent occasionally receives non-monetary contributions from the Government of Dubai such as ownership interests in companies.

Long-term policy portfolio by assets

ICD’s portfolio companies are selected from a variety of sectors to afford diversification and risk minimization. In its entirety, the portfolio is reflective of Dubai’s growth plan and strategic focus areas.

Figure 5. ICD long-term policy portfolio by asset class.

ICD policy portfolio by assert class

Source: ICD.

The financial competition

Table 2. ADIA and ICD comparison.

ADIA and ICD comparison

The financial competition between the two emirates, is largely won by Abu Dhabi. Indeed, the ADIA sovereign wealth fund is ranked number four among the SWFs in the world. Also, the Mubadala Investment company, another SWF owed by Abu Dhabi, manages around 230 billion USD of assets, and is ranked just behind Dubai. Those astronomic numbers, place Abu Dhabi as a key player on the financial scene not only in the Middle East but also across the world. Dubai’s struggle is still going even after the 2008 economic crisis. Indeed, with those outrageous real estate and infrastructure projects, Dubai had enrolled itself into a debt whole and could hardly get out of it. For that reason, Dubai asked the big brother, Abu Dhabi, for help. That is why, Abu Dhabi levered 5 billion USD to save Dubai. Why not letting the Dubai drown? Abu Dhabi always knew it is a small emirate with very few people, with yet a very strategic spot but surrounded by much bigger and reckless players like Kuwait, which is the third biggest SWF in the world with total assets worth of $737 billion or Qatar with total asset worth of $367 billion. What better ally than a brother? That is why, even though Abu Dhabi won the financial battle among the United Arab Emirates, unification, loyalty, and mutual support is a matter of survival for Abu Dhabi.

Why should I be interested in this post?

In a context of financial crisis due to the pandemic, nation’s role is undeniably crucial in maintaining world’s economic stability. For that matter, the sovereign wealth fund is an interesting tool that can enable countries into overcoming today’s challenges.

Useful resources

Abu Dhabi Investment Authority (ADIA)

Investment Corporation of Dubai (ICD)

Sovereign Wealth Fund Institute (SWFI)

International Forum of Sovereign Wealth Funds (IFSWF)

Gulf News (September 8, 2021) Abu Dhabi wealth fund’s returns surged in 2020 despite COVID

About the author

The article was written in February 2022 by , Mayriem MEDDAH (ESSEC Business School, Master in Strategy and Management of International Business, 2021-2022).

Top 5 companies by market capitalization in China

Introduction to market capitalization

Top 5 companies by market capitalization in China

#1 Tencent Holdings Limited

Statistics

Revenues

Stock chart

#2 Alibaba Group Holding Limited

Statistics

Revenues

Stock chart

#3 Meituan

Statistics

Revenues

Stock chart

#4 JD.com, Inc.

Statistics

Revenues

Stock chart

#5 Ping An Insurance (Group) Company of China, Ltd

Statistics

Revenues

Stock chart

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Top 5 companies by market capitalization in the US

Introduction to market capitalization

#1 Apple Inc.

Statistics (2023)

Revenues

Stock chart

#2 Microsoft Corporation

Statistics (2023)

Revenues

Stock chart

#3 Amazon Inc.

Statistics (2023)

Revenues

Stock chart

#4 Alphabet Inc. (formerly Google Inc.)

Statistics (2023)

Revenues

Stock chart

#5 Meta Platforms Inc. (formerly Facebook Inc.)

Statistics (2023)

Revenues

Stock chart

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

The Collapse of Silicon Valley Bank (2023)

Background of SVB

The Solvency-Liquidity Problem

“The Social Media Bank Run”

Conclusion

Related posts on the SimTrade blog

Useful resources

About the author

How to choose an online broker to invest in the stock market

Brokerage fees

Markets and products available

The ease of use of the platform

Technical support

What to do before opening an account

Some online brokerage sites

Thank you and last advice from a friend

The effect of Elon Musk’s Tweets on the Cryptocurrency Market

Who is Elon Musk?

Why does Elon Musk have an impact on the crypto market?

Examples of the positive impact of Elon Musk’s tweets on the crypto market

December 2021: “Bitcoin is my safe word”

January 2022: Elon Musk shows he’s a Bitcoin supporter.

Examples of the negative impact of Elon Musk’s tweets on the crypto market

Impact of Elon Musk’s tweets on the cryptocurrency market

Why did it interest me?

Link with market efficiency

Useful resources