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Atradius Insolvency Report Wets Its Finger, Placing It In The Air

Posted on Sep 02, 2020. by NTI

Some of the numbers we have been fed from around the world have been simply jaw-dropping, so much so that the phrase 'give or take a billion' is predicted to replace 'I won £10 on a scratch card' at schools all over the UK today as kids are finally taken off their parents' hands to ask already weary teachers: "Miss, what's a pandemic?".

Warren Buffet who once famously said: “Be fearful when others are greedy and be greedy when others are fearful” has a quite literally well-earned reputation for profiting when others are losing their shirts. He has a motto (well, more of a killer instinct, actually); it talks about one of the most reliable economic indicators being market cap to GDP ratio. This has taken him into Japanese markets in the past week, investing $6 billion in Japan’s five biggest trading houses, giant conglomerates involved in everything from importing food and textiles to the technology and manufacturing industries, as he looks to diversify beyond the US.

“Their cheap valuation may have been an attraction,” said Norihiro Fujito, the chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “But it is un-Buffett-like to buy into all five companies rather than selecting a few.” It would be a brave person to bet against our Warren (a great friend of the NTI newsroom) as at the beginning of this year his cash balance rose to $137 billion at the end of Q1, from $128 billion at the end of 2019.

Would Mr Buffet invest in India at the moment? It has just reported a 23.9 per cent decline in gross domestic product in the June quarter, the contraction setting back economic progress by several years and putting Prime Minister Narendra Modi’s ambitious targets of doubling the economy’s size to $5 trillion almost out of reach. It has prompted banks such as Nomura Holdings to downgrade their full-year forecasts for the country to -10.8%.

Back in the UK the recently published Atradius Insolvency Report (the trade credit insurer) forecasts a 27 per cent climb in UK business failures, slightly higher than the global average rise of 26%. We in the NTI newsroom can't help but think there are a few wet fingers in the air over at Atridius, but the global comparison makes interesting reading.

It appears to be a fairly reliable prediction that every major economy, except for China, is expected to enter recession in 2020 with global GDP forecast to contract by 4.5 per cent, making this recession more acute in magnitude than the 'Great Recession of 2009' (one we are still particularly proud of). In response to global economic decline, every market is expected to experience a rise in insolvencies in 2020, led by Turkey with a 41 per cent forecast increase, followed by the United States and Hong Kong with a forecast rise of 39 per cent. Portugal, Russia, the Netherlands and Spain are the next worse affected regions with insolvencies up between 30 per cent and 36 per cent (so, the UK just sneaks in below those numbers). Many of the countries of southern Europe are experiencing a harder fall, as they typically rely upon tourism to boost their economies and the Germans, Dutch and us Brits cannot get on a Tui flight at the moment.

We know that insolvencies have actually reported a downward trend in the UK in the past two quarters, but we know equally well that these are just temporary and almost fictional falls, as they include temporary suspensions of insolvency applications, preventing creditors from starting insolvency procedures and staying rights of action. In addition (and you may have read about this ...), Governments and central banks have taken measures to counteract the economic impact on businesses such as SME lending programmes, subsidies - including furlough payments - and tax suspensions ... blah, blah, blah. 

A Chinese proverb says, 'Where there is a gap in knowledge, place fiction" and the truth is we have absolutely no idea what the eventual numbers will be. But Mr Buffet has his money on them being 'large', and we will go with that.

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