• Market Crumbs

BoA Puts Cost Of Re-shoring At $1 Trillion

Image via Kyle Ryan on Unsplash

Manufacturing has been moving to China from the U.S. and Europe for decades. As a result of the coronavirus pandemic, many companies are now looking for ways to bring manufacturing back home.

Research from Bank of America estimates that it could cost U.S. and European companies $1 trillion over five years to move manufacturing out of China. Bank of America argues that the cost of doing so would likely be beneficial to companies over the long term.

Bank of America's survey of global analysts from before the pandemic began found that companies were already starting to shift supply chains locally. The research cites trade disputes, national security concerns, climate change and the rise of automation as reasons companies had started to move away from globalization.

The coronavirus caused 80% of global sectors to have supply chain issues, according to the report. 67% of respondents from Bank of America's Global Fund Manager survey believe localizing or re-shoring supply chains is the most dominant structural shift going forward.

"While Covid has acted as a catalyst to accelerate this change, the underlying reasons are grounded in a shift to 'stakeholder capitalism,' concluding relocation favors a broader community of shareholders, consumers, employees and the state," Bank of America Head of Global Research Candace Browning said.

The team behind the report believes policymakers and corporations will aggressively pursue re-shoring plans to offset higher operating costs.

"We don’t expect a silver bullet, but we were struck by the universal declaration (in our survey) of intent to automate in future locations," the report said. "Policymakers are also expected to help through tax breaks, low cost loans and other subsidies with recent announcements to that effect from the U.S., Japan, the EU, India and Taiwan (amongst others)."

Bank of America believes the best way to invest in the unraveling of globalization is through stocks in engineering, machinery, automation and robotics, electronic equipment manufacturing and application software. They also see banks in North America, Europe and South Asia benefitting as a result of increased economic activity in these regions.

This trend could easily accelerate in the years to come as companies may end up looking back on the coronavirus as a wake up call to have their supply chains insulated from the worst.

Leftover Crumbs

  • Epic Games challenges Apple. In a filing, Epic Games has asked a judge to block Apple's decision to remove Fortnite from its app store and prevent retaliatory action against its other games. Epic said Apple will be cutting it off from its development tools and terminating its developer account on August 28. "Apple's actions will 'break' Fortnite for millions of existing players," Epic CEO Tim Sweeney wrote. "Because iOS users can no longer update the game, they will be unable to play Fortnite with most other players, who will have the then-current version available on other platforms."

  • Oracle also eyes TikTok. Oracle has reportedly held discussions with TikTok's parent company, ByteDance, about purchasing the company's operations in the U.S., Canada, Australia and New Zealand. Oracle has reportedly been working with U.S.-based ByteDance investors General Atlantic and Sequoia Capital on a deal. Oracle joins Microsoft in the race to acquire TikTok as ByteDance was given 90 days to sell or spin off its U.S. TikTok business in an executive order signed by U.S. President Donald Trump last week.

  • Walmart has consumer insight. Walmart said during its earnings report yesterday that consumers rushed to spend their stimulus checks but consumer spending started to slow in July as stimulus money dried up. "Stimulus was definitely impactful to the consumer in the second quarter, and we're watching what's going on in Washington, and how we're going to progress with a new stimulus package," Walmart CFO Brett Biggs said. "I think certainly it would be helpful for consumers." Walmart also said e-commerce sales in the U.S. surged by 97% in the second quarter.

  • Housing starts spike. U.S. housing starts jumped by 22.6% to a seasonally adjusted annual rate of 1.496 million units in July, marking the largest gain since October 2016, according to the U.S. Department of Commerce. July's total is now the highest since February and less than 5% from February's 1.567 million units. Multi-family units saw a 57% surge in starts last month while single-family home starts jumped by 8.2%. The northeast and south saw the largest increases in starts last month, jumping by 35% and 33%, respectively, from June.

  • Norway's pension fund posts loss. Norway's Government Pension Fund Global, the largest sovereign wealth fund in the world, reported a return of -3.4%, or a loss of $21.3 billion, for the first half of the year. The fund, which is nearly 70% invested in equities, had a total market value of 10.4 trillion kroner, or about $1.18 trillion, at the end of June. "There were major fluctuations in the equity market in this period. The year started with optimism, but the outlook of the equity market quickly turned when the Corona virus started to spread globally," the Deputy CEO of Norges Bank Investment Management Trond Grande said. "However, the sharp stock market decline of the first quarter was limited by a massive monetary and financial policy response."