Investors look on as the SCI drops

To add to the woes caused by slumping oil prices, a knife has now been wedged into the sides of investors: A massive Chinese driven investment and securities rout that resurrects fears of global recession.

On June 12, 2015 the SCI (Shanghai Composite Index) reported record high numbers of 5166 points. This was short-lived. The stock market bubble popped and the SCI index value evaporated, with the Index closing at 3507 points on July 8. Nearly 2.7 trillion dollars of securities dissipated into thin air and the Chinese Central Bank moved in with measures to stem the rout.

Foreign investment only accounts for 1.5% of Chinese stock holdings and thus, we won’t be affected, right? However, China is today an economic behemoth and a key market catalyst. China’s steady yoy (year over year) growth has increased global investor confidence. The beacon of hope China shone amidst the Eurozone decline, and rising US debt levels, has dimmed.

Also bigger the economy, greater is the ripple effect. The current Chinese rout and economic slowdown is predicted to cause prices of commodities such as gold and copper to slump. Resource based nations such as Canada (already hit by low oil prices) could be severely affected by China’s chronic condition.

Dropping Copper Prices Increases Fear

Bibliography

AFP. “As China Growth Flags, Analysts Weigh Alternative Indicators – The Economic Times.” The Economic Times. The Economic Times, 04 Oct. 2015. Web. 04 Oct. 2015

Bloomberg News. “Chinese Stocks Resume Rout on Economy, Capital Outflow Concerns.” Bloomberg Business., 19 Aug. 2015. Web. 04 Oct. 2015.

Bradsher, Keith, and Chris Buckley. “China’s Market Rout Is a Double Threat.” The New York Times. The New York Times, 05 July 2015. Web. 04 Oct. 2015.

Gough, Neil. “Slowdown Continues for China in Factories.” The New York Times. The New York Times, 30 Sept. 2015. Web. 04 Oct. 2015.

Riley, Charles, and Sophia Yan. “China’s Stock Market Crash … in 2 Minutes.” CNNMoney. Cable News Network, 27 Aug. 2015. Web. 04 Oct. 2015.

“What’s Ahead for China’s Economy?” Bloomberg.com. Bloomberg, 01 Oct. 2015. Web. 04 Oct. 2015.

Images

Copper Price. Digital image. Info Mine, n.d. Web. 04 Oct. 2015.

Kwn-fleckenstein-762015. Digital image. King World News, n.d. Web. 04 Oct. 2015.

Running Scared. Digital image. Thomson Reuters, n.d. Web. 04 Oct. 2015.

I am sure that by now, many readers are aware of the rock bottom oil prices and concerns of a looming global recession.

Oil producing countries like Russia, Iran, Nigeria and Venezuela with high oil production costs and major economic dependency on oil exports have been badly hit.

In Canada, the effects are job losses and slower economic growth. U.S strength in varied sectors has softened the economic impact of low oil prices.

Oil importers, particularly the emerging economies share the joy of low oil prices with the myriad individual oil consumers and oil-consuming industries. Oxford Economics and IMF estimate that falling oil prices are offset by global growth.

Saudi Arabia is determined to maintain current oil prices by not reducing their oil output, by relying on their large cash reserves. However, since the cash reserves are not the equivalent of the proverbial “Goose that lays Golden Eggs”, sooner or later Saudi Arabia will be forced to cut-down production and supply, and oil prices will go up again. But this time round other oil-producers will likely have learnt a lesson and would better prepared not to let a future repeat performance happen by putting their “innovation shoes on” and have more cost-effective techniques and equipment in place for cheaper oil production.

Saudi Arabia FOREX reserves

Bibliography

Critchlow, Andrew. “Oil Price Slump to Trigger New US Debt Default Crisis as OPEC Waits.” The Telegraph, 14 Nov. 2014. Web. 02 Oct. 2015.

Giles, Chris. “Winners and Losers of the Oil Plunge.” The Big Read (Financial Times). Financial Times, 15 Dec. 2014. Web. 04 Oct. 2015.

Harrison, Virginia. “Canada Slips into Recession as Oil Slump Bites.” CNNMoney. Cable News Network, 01 Sept. 2015. Web. 04 Oct. 2015.

Shenk, Mark. “Oil Bulls Lose Faith in Recovery as Russia Adds to Global Glut.” Bloomberg.com. Bloomberg, 02 Oct. 2015. Web. 04 Oct. 2015.

Solomon, Jesse. “These Countries Are Getting Killed by Cheap Oil Prices.” CNNMoney. Cable News Network, 30 Oct. 2014. Web. 02 Oct. 2015.

“Sheikhs v Shale.” The Economist, 06 Dec. 2014. Web. 04 Oct. 2015.

“The Sticky Superpower.” The Economist. The Economist Newspaper, 03 Oct. 2015. Web. 04 Oct. 2015.

Images

Breakeven Prices. Digital image. The Economist, n.d. Web.

Saudi Arabia Foreign Exchange Reserves. Digital image. Trading Economics, n.d. Web.

Ethics vs Profits?

 I have generally viewed Corporate Social Responsibility as an initiative that mitigates and hedges the social risk that accompanies the aggressive growth of organizations, but also as one that is separate from their regular value-based management strategies. The insightful commentary in the HBR article “The Truth about CSR” however proves otherwise.

The Theater one strategy of pure philanthropy is detached from the business objective of profitability. Theater two and three strategies are in line with Milton Freedman’s idea that the social responsibility of business is to increase its profits and Edward Freeman’s opinion that capitalism’s success is when all stakeholders work together to create something that none of them can singly bring to fruition. In fact, Corporate Social Responsibility very easily complements Value-Based management.  Grupo Bimbo in Mexico and Target in the USA combine their strong brand image and philanthropic reputation to benefit the community and themselves in a Theater two strategy.

Hindustan Unilever’s Theater 3 Approach

Project Shakti, Hindustan Unilever’s attempt at a Theater three or transformed business model demonstrated monumental success in not only creating revenue, but in also widely benefiting the communities it operates in.

The existence of stakeholders other than shareholders is a reality. Acknowledging this reality and being fair and beneficial to all stakeholders makes business and ethical sense.

Stakeholders United!

Sources:

• Rangan, Kasturi, Lisa Chase, and Sohel Karim. “The Truth About CSR.”Harvard Business Review. Harvard Business School, 01 Jan. 2015. Web. 17 Sept. 2015. <https://hbr.org/2015/01/the-truth-about-csr>.
• http://www.hul.co.in/Images/unilever_diagram_v3_502x357_tcm114-414067.gif
• http://network9.biz/wp-content/uploads/2014/04/Branded-content-profit-vs-ethics2.jpg
• https://www.google.ca/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCKu438jC_scCFQKjiAodXmAERw&url=http%3A%2F%2Fservicecommunicationstoday.blogspot.com%2F2010%2F06%2Fservice-communication-plan.html&psig=AFQjCNFiz3av5e-AxVBQpDxTvO6o4nw_cg&ust=1442594735143673

Welcome to UBC Blogs. This is your first post. Edit or delete it, then start blogging!