Trade War. China. Stock sell-off! It’s the can’t miss headline this week coming out of Washington. Who will survive? Who will be impacted? What are the safe investments, right now? And, how will China retaliate? All fair questions, and earlier this week, Jim Cramer provided a unique analysis of what this could mean for markets with the suggestion, “Your better strap yourself in.” As we consider what a trade war could mean for the US economy, it’s useful to identify any potential opportunities available to investors.
On this harvest moon
As the trade war drum beats on, let’s review the number of foreign investors since 2016, as this is the year leading up to President Trump assuming office. Overall, the number of deals closing from 2016 to 2018 has increased nearly 10%, and the number of foreign investors in the US has increased 2% from 2016 to 2018. This is solid growth and indicates that foreign investors are increasing their vote of confidence in the US as a profitable and safe environment to invest in local businesses. Looking at more recent history, the first quarter of 2019 was on par with its 302 active foreign investors, compared with 300 in Q1 2018. However, the number of overall deals closing in Q1 2019 declined by 12%, when compared to Q1 2018.
When reviewing the number of unique foreign investors by country, it’s not surprising that Canadian firms are consistently the most active foreign investors in the US, with a steady climb from 2016 to 2017 of 10%, this is followed by the UK with a 5% increase in the number of firms investing in the US for the same three-year period. However, there has been some shifting in third place.
China had the third greatest number of unique firms investing in the US in 2016 with its 79 investors. Yet, starting in 2017, China dipped to fourth place, with 75 unique firms, behind Japan which grew its number of investors from 2016 to 2017 by 9%. China has then declined even more to 8th place in 2018 with an astounding 25 unique investors in the US – that’s a 68% change! Moreover, the decline continues for China in the first quarter of 2019. The number of Chinese investors dropped to 9th place for Q1 2019 with 6 confirmed unique investors participating in US transactions. While this is a pure assumption, as escalations and threat of tariffs on Chinese goods continues, Chinese investors may not feel as welcomed in the US, or more pointedly, it may not be the safe place to invest their currency for the future.
Make American the hotbed for foreign investors, again
Well, that won’t fit on a ball-cap. Overall, the number of foreign investors has increased during the Trump presidency and for good reason. Leaving politics aside, the US is experiencing a resurgence in growth coupled with both low interest rates and a low unemployment rate. Compound these with other market indicators, and you can see why foreign investors and sovereign wealth funds are ready and willing to invest in the US. “Building a Wall” may just be a rallying cry or smokescreen to shout to partial ears, while on the other side of the curtain, it’s all about making America ripe for investment from our foreign friends. Of course, let’s see what tomorrow’s tweet may bring.
Last week’s deals today
May 6 – 10, 2019
Deal of the week
Equity investor, Bay Grove Capital completed its acquisition of the New Jersey based Preferred Freezer Services, an operator of a network of temperature-controlled warehouses. UBS acted as the sell-side advisor and Ropes and Gray acted as the sell-side legal advisor for this transaction. Terms were not disclosed.
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