Scene set at Davos for wideranging biz deals
China and India have top billing at this year's gathering of the world's powerbrokers in industry, finance and politics.india Updated: Jan 23, 2006 18:02 IST
Corporate leaders head to the Swiss resort of Davos this week enjoying record profits and a benign global economy, putting them in top shape for the kind of deal making that has made the World Economic Forum famous.
None of last year's gloomy scenarios of looming trade wars, an inflationary upsurge from low central bank rates or that runaway US budget deficits would cause a dollar crash and world recession, have come to pass.
Instead the global economy is humming.
"There are a lot of pretty good things going on this year," said Jim O'Neill, Goldman Sachs strategist, in briefings last week before leaving for Davos where he hosts a session on the power of emerging nations to reshape the world economy.
China and India have top billing at this year's gathering of the world's powerbrokers in industry, finance and politics.
The usual Davos sessions on risks to the global economy and corporate challenges ahead are still there. But the two Asian dynamos, which could become the second and third global economies after the United States in the next 30 years if their rapid growth continues, get prominent play for the first time.
"Everyone is interested in China, no doubt about that," said Mark Adams, head of public relations for the World Economic Forum, which has hosted the Davos summit since 1971. This year's four-day session starts on Wednesday.
Big names include Shanghai Automotive Industry Corp. President Hu Maoyuan, China's largest carmaker; Central Bank Governor Zhou Xiaochuan and Chinese Vice Premier Zeng Peiyan.
The gossip in the corridors in 2005 was when would China revalue its yuan currency? With that hurdle achieved, the China sessions this year focus on issues such as, can its GDP growth of 10 percent per year continue, and can it manage the social and political upheaval of providing jobs for the 20 million peasants who flock to the cities for work each year?
China has 12 officials on the roster this year, double last year's number and up from one in 2002, a mark of how quickly its status has changed amongst the global movers and shakers.
India meanwhile has taken a showman's approach. It is hosting a whirlwind of parties, including the gala ball. It has fewer seminars but 42 company bosses and a clutch of politicians are registered. Big names on the prowl for business include the heads of Infosys Technologies and ICIC Bank.
Surprisingly, the 43 percent climb in crude oil prices over the past year has not sparked an inflationary surge or dampened world growth much. The International Monetary Fund expects to revise upward its 2006 growth forecasts, now at 4.3 percent.
The Davos agenda is full of sessions on energy, plus Russia and Iran. But just like terrorism, energy concerns have failed to upset the generally rosy economic outlook.
"We are seeing a broad-based recovery. The world economy will have very strong growth momentum in the first six months of 2006," said Gerhard Grebe, chief investment Strategist at Bank Julius Baer in Frankfurt.
Economists are particularly encouraged that a broadening of recovery leaves the world less reliant on the United States. Some analysts predict the U.S. could falter later this year, and indeed disappointing corporate results from bellwethers Intel Corp and General Electric Co last week fed that concern. U.S. stocks saw their biggest losses in three years.
But Japan, the world's second largest economy, is heading for 2 percent GDP growth ending a decade-long stagnation and Europe is recovering is at a similar pace.
"There has been a shift in the economic framework," said said Kathleen Stephenson, global economist for Credit Suisse.
"We are seeing a little bit of rebalancing of growth away from the US to Europe, Japan and Asia, without orchestrating a massive slowdown in the United States."
This provides a sweet backdrop for corporate leaders. A broader pickup in global demand should underpin earnings growth in 2006 for US companies of at least 10 per cent a year and about 7 per cent in Europe, equity strategists estimate.
Additionally corporate leaders are sitting on huge cash piles now balance sheets are in shape after the 2000-2002 high technology crash.
European and Asian companies slashed their debt-to-equity ratio from 50 percent in 2001 to less than 25 per cent this year, Julius Baer estimate. In the United States, Goldman Sachs estimates that cash balances in S&P 500 companies stand at about $2.1 trillion, up from $1.6 trillion in 2002.
This leaves them ready to make deals, invest and expand. Corporate mergers and acquisitions worldwide boomed in the final quarter of 2005 to reach $2.9 trillion, up from $2.1 trillion the prior year, according to Dealogic. In Europe alone activity was up 49 per cent.
"We believe M&A activity is becoming an increasingly important catalyst in driving equity returns and we expect activity to remain strong over the next 12 months," ABN Amro said in a research report.
Davos has over 2,300 delegates, mostly corporate executives, bankers and fund managers attending, making for the perfect cocktail for big business dealings.