ASTANA Kazakh and foreign companies signed US$1.5 billion in agreements on Oct. 19 at the Kazakhstan Global Investment Roundtable that brought together over 500 participants, including government officials and top international executives, to explore investment prospects together.

Participants of the plenary session. Photo credit: Investment Committee of the Kazakh Foreign Ministry

Agreements covered the fields of metallurgy, petrochemistry and gas processing, transport and logistics, production of building materials, nuclear medicine, agricultural equipment production, infrastructure construction, pharmaceuticals, and power generation.

The one-day event gathered 500 participants, including government representatives and top business executives. Photo credit: Investment Committee of the Kazakh Foreign Ministry

Several panel sessions held during the day focused on the current key trends in the global economy, including adaptation to a different logistical reality in the new economy, investment in the future of the agro-industrial complex to ensure food security, and new sources of growth.

Kazakhstan ranks sixth in the world in terms of agricultural area, where more than 80 percent of the land, 220 million hectares, is used for production, and in this direction our country is very interested in international experience and projects in the field of agro-industrial complex, said Deputy Foreign Minister Almas Aidarov.

In terms of logistics, Aidarov said that Kazakhstan is the largest transit hub in Central Asia with direct market access to over one billion consumers including the countries of the Eurasian Economic Union, Central Asia, and China. Our country has every opportunity to become a gateway to the largest markets offering the possibility of multimodal logistics, he added.

Increasing its investment attractiveness has long been a priority for Kazakhstan, which has attracted nearly US$400 billion of foreign direct investments since 1991. The nation attracts 70 percent of all investments to the Central Asian region.

Kazakhstans strategic location, abundant mineral reserves, qualified labor, and comprehensive state support for years positioned the country higher in the eyes of foreign investors.

The countrys new investment policy concept until 2026 sets an ambitious target of attracting US$25 billion by 2025.

Chair of the Kazakh Agency for Strategic Planning and Reforms Aset Irgaliyev. Photo credit: Investment Committee of the Kazakh Foreign Ministry

The concept covers a set of measures that make it possible to change the structure of investments towards the production of goods with high added value. Based on the importance of ESG (environmental, social, and governance) principles, the focus of the concept is on stimulating investments in sustainable development projects, said Aidarov.

Chair of the Kazakh Agency for Strategic Planning and Reforms Aset Irgaliyev stressed the significant shifts in the global economy that cannot be ignored.

This implies we need to think of new approaches to developing its supply side. At the same time, a key factor in the supply side of the economy is investment, for which in the current conditions, global competition and struggle is only increasing, he said.

He assured investors that the countrys economy has fully recovered from the COVID-19 pandemic. Despite the fact that Kazakhstan is a small open economy, largely affected by external challenges, we have fully recovered from the corona crisis and other shocks, while following the development path, he said.

In the first half of 2022, gross FDI inflow grew by 28 percent compared to 2021, reaching US$14.5 billion.

This year, Kazakhstan opened a new chapter in the development, said Yergaliyev, referring to the reforms spearheaded by the countrys leadership and the upcoming presidential elections. All these reforms, he noted, go hand in hand with economic reforms.

From 2024, we will have new Tax and Budget Codes, new laws on state procurement, private-public partnership, and other significant changes to our legislation that should make Kazakhstan more attractive to local and foreign investors, said Yergaliyev.

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Kazakh and Foreign Companies Sign $1.5 Billion in Deals at Investment Roundtable in Astana - Astana Times

Last year companies went public at a record pace. This year it seems like nobody wants to go public-- not as long as the market looks the way it does.

Investment banks are vital in helping companies go public and have seen a drastic drop in earnings after a record year in 2021. Morgan Stanley (MS -2.27%) is one company feeling the pressure, seeing its top and bottom lines shrink in its recent earnings report.

Investment banks have gotten beaten up this year, but I think they could be excellent stocks to buy in the coming months. Here's what I'm looking for to see if the worst is over for Morgan Stanley.

Morgan Stanley provides financial services across different businesses. It manages clients' wealth and owns the E*Trade trading platform, which brings in commissions and fees.

However, its most significant business segment is institutional securities, where it provides companies with advice about going public and issuing or restructuring debt, earning fees in return. Last year, institutional securities generated 50% of Morgan Stanley's net revenue and 60% of its net income.

Through the first nine months of this year, investment banking activity has come to a screeching halt. According to S&P Global Market Intelligence data, the number of initial public offerings (IPOs) -- companies selling shares to the public for the first time -- was cut nearly in half. Globally, funds raised through IPOs fell by nearly 70%.

If we focus on the U.S., the backdrop looks even worse. Since the start of the year, there have been 126 IPOs, an 81% decline from last year's record level. The total funds raised through U.S. IPOs fell by almost 92%.

According to EY, a top accounting firm and financial services advisor, macroeconomic challenges and falling global equity prices are making many companies reluctant to go public. "Companies and investors continue to wait for a more stable and positive stock market sentiment before any sustained appetite for IPO activity reemerges," said EY Global IPO Leader Paul Go.

IPOs are a significant component of investment banks' business, and when this slows, investors notice. That's because companies will pay a hefty fee to get an investment banker's expertise to help them raise money through equity or debt offerings.

Through the first three quarters of this year, Morgan Stanley's net revenue and net income were down 14% and 22%, respectively. Its investment banking revenue has plummeted, falling 49% from the same period last year. The only reason its earnings weren't worse is because of its diversified revenue streams.

In the third quarter, Morgan Stanley's investment banking revenue fell 54% from last year. Its equity underwriting fees, or fees it earns from helping companies sell shares, fell 78% in the quarter compared to the previous year. Meanwhile, its advisory fees, which it makes for assisting companies with mergers and acquisitions, dropped 46% as fewer of these deals took place.

Image source: Getty Images.

Investment banking is a cyclical business that relies heavily on a stable economy and stock market. Currently, markets don't look great for a company going public or issuing debt.

Companies would rather wait it out for a better stock market than go public at a time when almost all stocks are taking a beating, particularly newly issued ones. Popular IPO stocks from the last couple of years, including Coinbase Global, Marqeta, SoFi, and Rivian Automotive, are down 80% or more from their peak prices last year.

For investment banking to pick up, I'd like to see markets stabilize. Right now, there is a lot of volatility in the stock market because the Federal Reserve is aggressively raising interest rates to fight inflation. Investors are concerned that the Fed could push too far and cause a recession.

The worst may not be over for investment banks, especially if stock market volatility persists. I think the Fed would need to signal a stop to its aggressive rate hiking cycle for market conditions to look better for companies to go public.

Several companies, including Stripe, Klarna, Chime, and Reddit, are waiting for the right moment to do IPOs. For that reason, I think investment banks like Morgan Stanley and Goldman Sachs deserve a spot on your watch list and could become appealing "buys" when conditions improve.

See more here:
Is The Worst Over for This Investment Bank? - The Motley Fool

Highlights

Oil industry being starved of capital with ongoing caution on capex

Sees oil averaging $80/b in 2023 in recession environment but $150/b risk remains

OPEC+ targeting $80/b oil price floor to maintain investment interest

High oil prices have failed to bring about a significant increase in investment, raising the risk of a hugely undersupplied oil market this decade, according to Christyan Malek, JP Morgan's Global Head of Energy Strategy.

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JP Morgan's research shows a $400 billion oil underspend to 2030 and paints a grim picture in which all energy investment -- in both fossil and non-fossil fuels -- needs to grow at a faster rate than the prevailing investment implies.

The threat of a large investment shortfall has loomed large over the industry for some time, but the fact that higher oil prices and growing energy security concerns haven't translated into a strong recovery in spending should cause alarm bells to ring even louder.

"In contrast with renewables, the oil industry is comparatively starved of capital but with an abundance of projects and potential supply to be tapped into," Malek told S&P Global Commodity Insights in an interview.

Malek said at the same time fossil fuels are certain to play a role in the longer-term energy mix, due to the fact that oil is largely non-fungible with other energy sources to 2030, such as in transportation and chemicals.

"So oil is really where we see the greatest need for incremental investment, both in sustaining the existing production base, as well as growing it, as we see 2030 demand 7.1 million b/d above 2019 levels, with current spending levels implying a 700,000 b/d average gap to 2030," he said.

While oil prices have moved structurally higher over the past year, with average Brent prices up more than 40% in 2022, Malek said there has been very little change in upstream growth ambitions, with nearly all companies that provide medium-term spending outlooks sticking closely to the ranges laid out over the past few years.

"Oil capex is up, but not enough," said Malek. So while JP Morgan's commodities team estimates upstream spend growing 13% this year, the highest growth rate in a decade, Malek said this comes from a very low starting point, and investment remains more than 45% below the 2014 peak.

Malek pointed out that the relationship between price and capex has broken down materially.

"Outside of the national oil companies, most other companies would need to raise spending 30%-40% to get back on trend... Instead, within the total spending envelope the commitments to low carbon and renewable energies are growing significantly faster and this is adding further pressure to upstream budgets," Malek said.

Analysis by S&P Global lends some weight to Malek's view that spending has not spiked in line with price as in previous ,years even if there has been some upturn in investment. This year to date, nine non-OPEC major oil projects have been sanctioned and S&P Global expects the annual number to reach 16 projects, which would match last year's total.

Malek said there is now some recognition that investing in fossil fuels is critical for maintaining energy security. However, he added that "while we are seeing recognition of the need for investment into oil and gas, it hasn't translated yet into actual additional spending."

Malek warned that supply looks more challenged than ever, with US shale production growth limited by supply-chain restrictions and OPEC+ capacity constraints and production quota misses.

JP Morgan's commodities research suggests oil could still average around $80/b next year in a recessionary environment, but if OPEC+ falls short, shale growth continues to slow, and demand keeps rising, prices could spike toward $150/b in 2023. Many OPEC+ producers have been struggling to meet their quotas given sanctions and capacity constraints, with only Saudi Arabia and UAE the having an adequate amount of leverage, while US producers continue to spend with caution as US output grows but remains well short of its 13 million b/d peak in 2020.

The International Energy Agency provided a similar warning in its October monthly report. "While previous large spikes in oil prices have spurred a strong investment response leading to greater supply from non-OPEC producers, this time may be different," the Paris-based energy watchdog said.

"US shale producers, traditionally the most responsive to changing market conditions, are struggling with supply chain constraints and cost inflation -- and, so far, they are maintaining capital discipline... This casts doubt on suggestions that higher prices will necessarily balance the market through additional supply," the IEA said.

Malek said the recent decision by OPEC+ to cut a headline 2 million b/d in production is a sign that the group is willing to defend $80/b, underpins a floor on prices and offsets the recent downward momentum, which has seen Dated Brent drop from close to $140/b in March to below $90/b in October.

"This price stability is needed for investment to be realized," Malek said, adding that the role of OPEC "is not just meeting demand today, but incentivizing the market to invest in enough supply to meet demand in the future too." It is a message that OPEC has tried to communicate on a regular basis, but consumer nations having to pay higher prices have not always been in agreement.

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INTERVIEW: High oil prices haven't moved the needle on investment, says JP Morgan's Malek - S&P Global

PrefaceChina Local/Global

China Local/Global

China has become aglobalpower, but there is too little debate abouthowthis has happened and what it means. Many argue thatChina exports its developmental model and imposes it on other countries. But Chinese players alsoextend their influence by working through local actors and institutions while adapting and assimilatinglocaland traditional forms, norms, and practices.

With a generous multiyear grant from the Ford Foundation, Carnegie has launched an innovative body of research on Chinese engagement strategies in seven regions of the worldAfrica, Central Asia, Latin America, the Middle East and North Africa, the Pacific, South Asia, and Southeast Asia. Through a mix of research and strategic convening, this project explores these complex dynamics, including the ways Chinese firms areadapting to locallabor laws in Latin America, Chinese banks and funds are exploring traditional Islamic financial and credit products in Southeast Asia and the Middle East, and Chinese actors are helping local workers upgrade their skills in Central Asia.These adaptive Chinese strategies that accommodate and work withinlocalrealities are mostly ignored by Western policymakers in particular.

Ultimately, the project aims to significantly broaden understanding and debate about Chinas role in the world and to generateinnovative policy ideas. These couldenablelocal players to better channel Chinese energies to support their societies and economies; provide lessons for Western engagement around the world, especially in developing countries;help Chinas own policy community learn from the diversity of Chinese experience; and potentially reduce frictions.

Evan A. Feigenbaum

Vice President for Studies, Carnegie Endowment for International Peace

Since the beginning of the twenty-first century, economic relations between Brazil and China have grown significantly. The main driver of this process has been Chinas enormous demand for agricultural, energy, and mineral commodities. On the one hand, Brazils strong competitiveness in these products has helped the country consolidate its role as an important supplier to China, increasing exports and turning China into the main destination for Brazilian exports since 2009.1 On the other hand, China, by virtue of its status as the factory of the world, has established itself as the main supplier of manufactured products to Brazil.2

Nonetheless, Brazilian scholars, think tanks, and private manufacturing firms have raised concerns. They have done so despite the great boost in bilateral trade flows; the favorable trade balance for Brazil; and the leveraging of businesses in several Brazilian sectors such as soybeans, iron ore, and oil. These concerns are related to the excessive concentration of Brazilian exports in a few products, the environmental impacts of these exporting activities, and the effects of strong Chinese manufacturing competition on Brazils domestic market.

Celio Hiratuka is an associate professor at the State University of Campinas. He holds a bachelors degree in economics from Jlio de Mesquita Filho State University of So Paulo and a masters degree and PhD in economics from the University of Campinas. His research work mainly focuses on international economics, industrial economics, and the relationship between innovation and economic development. He is currently the Brazil China Study Group coordinator at the State University of Campinas

These worries have become more significant when one considers the growing importance of manufacturing changes with the diffusion of Fourth Industrial Revolution technologies and the search for new renewable energy sources and environmental sustainability. For Brazil, this matter reflects a need to advance bilateral relations beyond existing export trade volumes and toward new drivers of more diversified economic growth that will help the country escape a specialization in commodities.

The fortunes of the Chinese company BYD in Brazil are highly relevant to these trends. BYD is a company that has diversified from the production of batteries into different innovative industrial sectors, such as renewable energy and electric vehicles. BYD has also been expanding rapidly in international markets, and in that process it chose Brazil as an important market, where it has built factories to produce electric bus chassis, photovoltaic panels, and batteries for electric buses.

BYDs trajectory in Brazil certainly has not been smooth. On the contrary, the firm has had to adapt to market fluctuations and, above all, to changes in the Brazilian governments economic policies, which have made the companys experience in the country quite turbulent. Despite this, BYD survived its first years in Brazil and more recently has been showing signs of continuing to invest in the Brazilian market.

Analysis of BYDs experience in Brazil shows, on the one hand, that there are important possibilities for new economic relations with China that go beyond trade in commodities, with productive investments that can potentially help Brazil simultaneously incorporate more knowledge-intensive activities and drive positive environmental impacts by generating renewable energy and reducing carbon emissions. On the other hand, the story of BYD also shows that the transformation of these possibilities into effective benefits requires coordinated actions on the part of Brazilian policymakers to offer a long-term horizon for Chinese investments.

In that spirit, Brazil must craft a long-term strategy for its economic relationship with China to increase the odds that bilateral engagement can advance in a new and more sustainable, mutually beneficial direction.

In the first two decades of the twenty-first century, China has grown in importance and influence for Latin American economies. This trend is visible in terms of not only expanding trade flows but also direct investment, infrastructure projects, and financing from Chinese banks.

In Brazil, like in other Latin American economies, trade relations have been the main driver of deepening economic ties with China. While bilateral trade has ensured strong growth in exports of agricultural, energy, and mineral commodities, the entry of Chinese manufactured goods into Brazil has also been noticeable. Given that Brazil has the largest domestic market and one of the most diversified manufacturing sectors in Latin America, this asymmetry in trade flows has fostered an intense debate on the effects of trade integration with China on Brazils sectoral economic specialization and long-term growth.3

The increase in Chinese investment and the growth of Chinese companies in Brazil have also been widely recognized. While several analysts see these developments positively, others have highlighted that the affected investment sectors reinforce patterns of commodity-heavy trade and large infrastructure projects designed to ensure export flows, tendencies that also have high potential environmental and social impacts, since they occur mainly in sensitive ecological regions such as the Brazilian Amazon and the Cerrado.

This debate invokes terms such as Dutch disease, the natural resource curse, and deindustrialization. Effectively managing the effects of deepening economic ties with China is an important challenge for Brazil, particularly as worldwide technological changes associated with the Fourth Industrial Revolution grow and the requirements for social and environmental sustainability evolve. An aggregate analysis that seeks to highlight asymmetrical trade relations or to assess whether China has provoked deindustrialization in Brazil is one piece of the puzzle, but there are other important facets to these issues too. It is also vital to study how to build a kind of relationship with China that more effectively capitalizes on opportunities to promote Brazilian industrial and technological upgrading.

A Shenzhen-based Chinese company called BYD has had manufacturing operations in Brazil since 2015. BYD was founded in 1995 and left an early mark in the production of batteries, especially for the mobile phone industry. From there, the conglomerate diversified rapidly to other parts of the electronics industry, and in the early 2000s it moved into automotive production. More recently, the group has made investments to integrate various energy-related activities, including the production of batteries, solar panels, and electric mobility products, becoming a global leader in the production of electric cars.4

A more granular look at BYDs strategy in Brazil can unlock new insights into dimensions not completely captured by more generalized, macroeconomic analysis. For example, which factors, from the perspective of the Chinese company, were fundamental for the diversification of industrial activities in Brazil? What was the influence of the Brazilians governments public policy agenda? What obstacles did the company face that could have been avoided or mitigated by public policy? How could economic activities carried out locally be upgraded?

BYDs market entry into Brazil took place under favorable conditions amid the diplomatic rapprochement between Brazil and China, good prospects for Brazilian market growth, and a set of Brazilian public policies that aimed to stimulate local production. However, constant changes in Brazils economic policy made it harder for the corporation to run businesses in the country, forcing the company to make important adaptations to survive, limiting or delaying positive effects on industrial upgrading.

While Chinese firms operating in many countries around the world have resorted to importing equipment from trusted Chinese suppliers, BYDs approach in Brazil shows how it is possible to generate employment and added value locally and incorporate some knowledge-intensive activities into local production, including through interactions with nearby universities and research institutes. It also shows that the actions of Chinese companies abroad vary and do not necessarily follow a single global or even regional model.

This paper is organized into three parts. The first section reviews the evolution of economic relations between Brazil and China. It highlights the classic asymmetry of trade flows between Latin American economies and China but then explores a change in Brazil toward a growing concern with the negative impacts on the manufacturing sector, emphasizing the need to foster more sophisticated and higher value-added sectors and economic activities in the countrys relationship with China. This section also notes the debate on the potential social and environmental impacts of Chinese investments amid the growing presence of Chinese companies in Brazil.

The second section turns to BYDs activities in Brazil. As the company has grown its role in diverse but related sectors (including electric buses, solar panels, and batteries), it has had to navigate local regulations and content requirements. The section then emphasizes the relevant factors for the companys decision to produce locally, with an emphasis on the aspects related to government policies directed to support local production. For BYD, this meant that having a local production plant was the key to becoming an equipment supplier to Brazilian renewable energy providers. This fact, combined with other Brazilian incentives for local production, has ensured that BYD would pursue a Brazil-for-Brazil strategy for its market entry and economic engagement in the country. Whereas Chinese firms have been able to lean on Chinese suppliers, Chinese financing, and even Chinese labor in many other countries and contexts, the Brazilian case shows how local content requirements and other forms of local conditionality could reshape the way Chinese firms design and conduct their operations. However, the changes that have taken place over time in some of these policies were factors that made the companys adaptation in Brazil hard work, as it forged a path of change and course corrections.

A concluding section draws some lessons and warnings from BYDs approach in Brazil for other Latin American economies on how to use local regulations and content requirements as a source of leverage to channel and harness Chinese investment to meet their national development goals.

Brazil established diplomatic relations with the Peoples Republic of China in 1974, but economic ties have continued to gain steam in the last few decades. Bilateral relations have grown rapidly, initially driven by strengthened trade relations but later encompassing other dimensions like foreign direct investment (FDI), infrastructure, and project financing.5 In addition to the accelerated growth of the Chinese economy once economic reforms began in the late 1970s, the countrys industrial development, rapid urbanization, and substantial expansion of infrastructure have affected both the sheer amounts of commodities the Chinese economy needs and the prices China pays for those goods in global markets.6

Chinas economic heft has had important effects on commodity markets and prices for countries throughout Latin America.7 Due to Brazils sheer size and the importance of commodity exports for its economy, Chinese demand became an especially significant factor, influencing the agriculture, minerals, and oil sectors through enhanced bilateral trade flows.

Brazilian exports to China grew rapidly from $1.1 billion in 2000 up until 2011.8 After some instability between 2012 and 2016, Brazils exports to China began increasing again in 2017 and reached a remarkable $67.8 billion in 2020. In relative terms, China went from a nearly 2 percent share of Brazilian exports in 2000 to 32.4 percent in 2020. On the import side, there was also significant growth from 2000 until 2014, as China made gains as a new but vital economic partner for Brazil. After that, the economic recession that Brazil weathered in 2015 and 2016, followed by a period of low growth, caused imports from China to stagnate, but they still reached $34.8 billion in 2020, or 21.9 percent of total Brazilian imports that year.

Another way to look at the increasing importance of China in Brazils external trade is to compare growth rates with the total value of Brazils exports to those of its other trading partners. Exports to China grew at an average rate of 23 percent per year between 2000 and 2020, whereas the annual growth rate over this same period was 4.9 percent for all of Brazils other trading partners. For imports, the rates were around 18.2 percent (China) and 4.1 percent (all other trading partners), respectively.

Put simply, trade integration with China has resulted in an enormous jump in the scope and scale of Brazilian exports and a huge boom to Brazils agricultural producers, oil sector, and other extractive industries. Notably, the bilateral trade surplus favored Brazil for most of this period, contributing to an increase in Brazils international reserves and a reduction in the countrys external economic vulnerabilities. In 2020, Brazils trade surplus with China was $33 billion, accounting for roughly two-thirds of Brazils total trade surplus of $51 billion.9

Despite this extraordinary growth in bilateral trade, some observers have nonetheless raised concerns because Brazilian exports have been highly concentrated in primary commodities, while imports from China have included a diversified set of manufactured products.10

The data presented in figure 1 clearly show the contrast in the composition of trade flows between Brazil and China. Brazil boasts a strong overall trade surplus on the strength of its abundant exports of primary commoditiesmainly soybeans, iron ore, and petroleum. In 2020, these goods were responsible for approximately 75 percent of all Brazilian exports to China.11 Despite this overall trade surplus, however, Brazil imports far more from China than it exports in key categories of high-value-added goods, which puts a dent in its overall trade surplus. These goods, concentrated in medium and high technology sectors, include a diverse range of industrial products such as electronics, industrial equipment, automotive components, chemicals, textiles, and apparel.12 For a country like Brazil that has ambitions to unleash an industrial transformation and has no desire to remain a commodities exporter permanently, this is a concerning picture.

The fast growth of manufacturing imports from China has raised local concerns about whether Brazilian manufacturers can compete and survive domestically. In addition, Chinese exports similarly risk saturating the markets of nearby Brazilian trading partners like the three other original Mercosur economies of Argentina, Paraguay, and Uruguay.13 Business associations, such as the So Paulo Federation of Industry, share these concerns and have called on the Brazilian government to restrict Chinese competition with anti-dumping measures and other policy tools.

This evolving debate about the effects of Chinese manufacturing competition on deindustrialization in Brazil is complex and involves not just direct effects but also indirect ones associated with, for instance, how commodity exports to China influence Brazils exchange rate. Terms such as Dutch disease, the national resource curse, deindustrialization, and center-periphery relationships have all been commonly used to highlight these concerns about how trade with China negatively affects Brazils economy.14

A 2021 report published by the United Nations Conference on Trade and Development (UNCTAD) argues that Brazil shares these characteristics of commodity dependence with other developing countries, leading to low growth, macroeconomic instability, and difficulties in raising productivity and diversifying the composition of the countrys economy.15 For the UNCTAD and other actors, the prescription is straightforward: Brazil needs to diversify its economic production by leaning more heavily on the industrial and service sectors, incorporating more knowledge-based and technology-intensive products into the economy to overcome the trap of overreliance on commodity exports.

Concerns about excessive specialization in commodities have been present since at least the early 2000s when the Brazilian government sought to resume more active industrial and technological policies, precisely (and not coincidently) as bilateral trade relations with China were intensifying. Changes in this direction occurred after a wave of more liberal policies that had taken place in the 1990s, which not only bet on trade and financial opening and privatization but also abandoned industrial policies. From 2004 onward, however, the Brazilian government renewed its focus on industrial and innovation policy.

Brazilian industrial policy at this time had different aims, scopes, and instruments, depending on the sector in question. A detailed description of the whole policy is not necessary here, but some important elements will be highlighted in the next section on BYD related to the automotive and solar panels sectors.16 The governments efforts to revitalize industrial policy remained significant, especially after the 20072008 global financial crisis and lasted until former president Dilma Rousseff was impeached in 2016. Since then, however, the Brazilian government under president Michel Temer, and especially under President Jair Bolsonaro and Minister of Economy Paulo Guedes, has oscillated back to a liberal vision of economic policymaking as they have dismantled some of their predecessors polices.

Environmental concerns have added another layer of complexities to these economic debates since commodity extraction and harvesting can have a negative environmental impact. The main worry in Brazil has been deforestation caused by the expansion of soybean and livestock production in important ecosystems such as the Amazon rainforest and the Cerrado.17 According to a study carried out by a nonprofit institution specializing in environmental reporting called CDP and a group called Trase that measures the environmental impact of commodity supply chains, in 2017 soy imports into China were associated with 6.5 million tons of CO2 emissions linked to deforestation for soy expansion in the Amazon and Cerrado. This represents 43 percent of all CO2 emissions risk from soy deforestation in these regions.18

As multiple studies have noted, Brazil has consistently sought to play a strategic role in the global food security agenda. It has also been prominent in global discussions on environmental sustainability and renewable energy.19 However, the election of Bolsonaro negatively influenced the countrys image because of his disastrous environmental policies, which have resulted in the spread of fires and illegal deforestation. These studies and others point to a need for Brazil to rethink bilateral trade relations with external partners by making environmental sustainability a pillar of its national economic and commercial strategies, considering the centrality of environmentalism to global multilateralism. It may be even more important with China, given the role that sustainability increasingly plays in its own long-term development strategy.20

Notably, economic concerns over Brazils industrial and technological development and misgivings about environmental and social sustainability affect not only trade with China but also Chinese investment. In the 2010s, what had been a trade-centric relationship began to shift as the two governments and both Brazilian and Chinese firms started putting greater emphasis on FDI. Beijings support for the internationalization of Chinese companies, reinforced beginning in 2013 with the rollout of the infrastructure investment push known as the Belt and Road Initiative (BRI), became an important driver for Chinese companies to increase their presence in Brazil.21

But the BRI alone does not explain the growing profile of Chinese firms in Brazils domestic market. This trend also has stemmed from other factors like the opportunities afforded by the huge potential size of Brazils market, its comparatively open business environment with few restrictions on foreign companies, and the availability of important Brazilian assets for foreign players to acquire.22

Moreover, before Bolsonaro took office, Brazilian foreign policyespecially under former president Luis Incio Lula da Silva, known colloquially as Lulasought greater alignment with countries in the Global South and especially with China. For its part, too, the Chinese government underscored the importance of Latin America during this period, launching a regional strategy for Latin America for the first time in 2008,23 which it then updated in 2016.24 Although this document covered all of Latin America, it highlighted the importance of Brazil for Chinese policymaking in the region and sought to leverage the two countries joint membership in the BRICS group (along with Russia, India, and South Africa) to improve relations. This diplomatic attention was then supplemented with various strategies and documents released bilaterally, such as the joint Ten-Year Cooperation Plan launched in 2012 and the 20152021 Joint Action Plan that Beijing and Brasilia signed in 2015.25

These heightened strategic and policy aspirations on both sides soon yielded a concomitant emphasis on Chinese investment in Brazil. Official statistics from the Brazilian Central Bank in table 1 show that, in 2005, Chinese investment stock in Brazil was just around $327 million, or a tiny 0.2 percent of the countrys total stock of foreign investment. By 2010, Chinese investment stock had risen to $7.9 billion and had reached 1.3 percent. However, the most robust growth occurred between 2010 and 2019, with the stock of Chinese FDI reaching $28.1 billion, as China climbed the ranks of Brazils leading foreign investors. While long-standing partners including the United States, European countries like Spain and France, and Japan remained dominant, China was one of the fastest-growing foreign investors during this decade.

Strikingly, between 2005 and 2010, the sectoral breakdown in the growth of Chinese investment was quite concentrated in extractive sectors. Over this period, Chinese oil and mineral companies were responsible for the largest investments in the Brazilian economy. Between 2010 and 2019, despite some sectoral diversification, Chinese investment was still fairly concentrated in extractive industries, though the electricity-generation sector made significant gains too. Chinese FDI stock in infrastructure went from just 0.6 percent of total Chinese investment in 2010 to more than half of the total in 2019, with the electricity and water sectors alone representing 50.4 percent. Some scholars have highlighted how, in a short period of time, Chinese companies have become, through large acquisitions, important actors in the generation, transmission, and distribution of electricity in Brazil.26

During this period, the predominance of mergers and acquisitions was evident not only in the electricity sector. Most Chinese investment at this time involved such deals, not greenfield investments. According to an estimate in the authors previous work, deals involving mergers and acquisitions accounted for 85 percent of Chinese investment between 2010 and 2013, a figure that grew to a staggering 95 percent between 2014 and 2017.27

Another paper reached a different set of numerical conclusions based on another methodology, but it also showed a similar story: the total volume of Chinese investments in Brazil announced and confirmed between 2007 and 2020 was $66.1 billion, with 48 percent directed to electricity generation, followed by oil and gas operations (28 percent) and metal and mineral extraction (7 percent).28 The manufacturing industry had only a 6 percent share.

Despite the overall growth of Chinese investment in Brazil, the concentration of this investment in extractive sectors reinforced a trend toward higher exports of commodities, whereas financial backing for manufacturing and knowledge-intensive economic activities was not very significant during this period. This trend did not meet Brazilians hopes to grow the countrys manufacturing sector and manufacturing-related local employment. Such investment contributed little to the diversification of Brazils economy and growth in more technology-based and skill-intensive sectors.

Resolving this problem is not an easy task for a country like Brazil. Indeed, some analysts have highlighted the challenges associated with fostering such structural changes to boost industrialization and speed up technological change.29 Finding new growth pathways has been especially difficult in the wake of the global financial crisis, not least because key technologies are changing far faster than developing countries can assimilate and adopt them. These technologies include cloud computing, big data, artificial intelligence and related applications, 5G telecommunications networks, and additive and intelligent manufacturing. Even green technologies, which would be crucial to helping Brazil build a sustainable economy, are changing rapidly.30 To tap into these technologies, Brazilian manufacturers would need to incorporate and master dynamic effects of scale, ensure productive and technological spillovers, and raise productivity and wages by upskilling workers.

The growing integration of industrial activities with sophisticated software as well as with information and telecommunication services is also important for an economy that aims to undertake such an economic transition.31 This task requires public and private efforts aimed at accelerating the necessary economic adaptations without sacrificing workers in the process. Innovation and technology adoption are economically essential, but so is social and environmental sustainability.

As table 2 shows, Brazil has endured a continuous process of deindustrialization, measured by losses in the share of value-added manufacturing in terms of the countrys gross domestic product (GDP). Brazils indicator dropped from 14.7 percent in 1990 to 9.9 percent in 2020. Brazil, which was once one of the main manufacturing hubs among developing countries, has been systematically slipping in status, surpassed by others. Thus, when measured against other emerging economies (excluding China), Brazils share of value-added manufacturing slipped from 14 percent in 1990 to 7.4 percent in 2020 and from 2.5 percent to 1.3 percent measured against the world as a whole. This drop in Brazils comparative standing has been especially pronounced in the last decade, a period of turmoil in the world economy as a result of the global financial crisis and the growing adoption of emerging technologies associated with the Fourth Industrial Revolution.

To be sure, the China factor is not the only thing responsible for Brazils deindustrialization and decline in manufacturing competitiveness. These setbacks stem mostly from domestic drivers and causes. However, competition with China has made these Brazilian problems more pronounced while making the task of raising productivity and income levels more urgent.

For Brazil to reach a new stage in bilateral relations with China, it is important that Brazilian policymakers and business leaders consider ways of engagement beyond those that have already been consolidated. In just twenty years, China has become Brazils main trading partner, and Chinese companies have become ever more visible through their direct operations in the country. Discussions about the effects of this engagement with China on Brazils economic, social, and environmental development must account for qualitative aspects of Brazils export patterns, pay attention to how readily Chinese investment helps Brazils economy diversify (especially in knowledge-intensive sectors), and more effectively incorporate environmental considerations. In other words, Brazil must rethink its relationship with China strategically in ways that boost the momentum of the Brazilian economy amid a challenging global environment.

Chinese companies like BYD will be important fixtures in the story of how well Brazil rebalances its economy and sheds its reliance on commodity exports for more specialized manufacturing. BYD is one of Chinas largest companies and has a prominent role in the electric vehicle sector, where it has been vying for a leading market position with companies such as Tesla and Volkswagen.32 In addition to the automotive sector, the company has a considerable presence in several industrial segments and has sought to position itself as a company committed to environmentally sustainable solutions.

By 2021, BYD amassed total annual revenues of 216.1 billion renminbi ($34 billion), with a total workforce of more than 280,000 employees.33 The firm still generates a great deal of its revenue in China, but the group is rapidly striving to internationalize its reach.34 The conglomerate has operations in Asia, Europe, the United States, and South America. In South America, its main base of operations is Brazil, where BYD has made investments to produce electric bus chassis, solar panels, and batteries.

BYDs expansion in Brazil is well worth examining for several reasons. The companys specialization in the manufacturing of technologically advanced sustainable products stands out given Brazils need to expand manufacturing in an environmentally conscious way. And while there have been many studies of Chinese firms operating in Brazils energy sector,35 there have been far fewer on industrial companies like BYD.36 The firms operations in Brazil also show there is potential for Chinese investment in the country and for bilateral relations to move beyond commodities into more knowledge-intensive and sustainable economic activities.

On the other hand, BYDs expansion also reveals the negative effects of the difficulties Brazil has faced in seeking to establish a long-term strategy for the countrys economic and technological development. BYDs entry into the Brazilian market was marked by significant efforts to adapt to the pendulum swings of the countrys economic policymaking. The changes observed in that policy between when the firm decided to enter the market and its current operations ended up requiring a redoubled struggle to survive and grow in the Brazilian economy.

A detailed look at the companys adaptation to local conditions in Brazil and especially its relationship with Brazils public policy agenda can provide important clues for the necessary changes future Brazilian policymakers must embrace. Such insights could even offer food for thought for other countries that may have similar concerns.

Before addressing the opening of BYDs factories in Brazil, it is important to understand the factors behind the Chinese companys decision to set up business operations in the country. Two academic studies highlight that BYD used its expertise in energy storage to master a set of technologies involving batteries, electric motors, electronic controls, charging infrastructure, and other aspects of automotive production.37 These capabilities, combined with incentives from the Chinese government, prompted BYD to expand internationally. The case of BYDs internationalization fits well with the findings of Ravi Ramamurti and Jenny Hilleman.38 They point out that Chinese multinationals launched themselves into international markets faster than companies from developed countries did, due to both strong state support and Chinese firms ability to supplant rivals and gain an edge in traditional labor-intensive sectors and some more technology-intensive emerging sectors.

Another study highlighted the importance of the BRI for accelerating BYDs international expansion, as this initiative sought to foster investments in connectivity and infrastructure abroad. It also emphasized that developing countries were relevant targets for the company, given some conditions similar to those observed in China, such as densely populated urban centers and chronic problems of traffic congestion and pollutant emissions, especially in large cities. These conditions made cities in countries such as Indonesia, India, Mexico, and Brazil suitable for the solutions offered by BYD, such as electric buses and monorails, which would be faster and cheaper to deploy than more traditional solutions like subways.39

Other additional factors help explain the conglomerates decision to invest in Brazil. First, it is worth remembering that the Brazilian economy went through a period of faster GDP growth, especially from the early 2000s to 2013, with an important expansion in Brazilians income and employment prospects, which prompted strong growth in Brazils domestic market in several sectors.40 This intense growth, which continued even through the turmoil of the global financial crisis, created the expectation that the Brazilian economy would continue to expand, at least until that cycle of expansion began to reverse in 2014. Consider the automotive sector, for example. The total production of automobiles, trucks, and buses in Brazil increased from around 1.7 million vehicles in 2003 to 3.7 million in 2013.41 Such growth fostered an expectation of new business opportunities in several other areas, like the infrastructure sector, where there was a need to increase investment in telecommunications, transportation, and energy to support the countrys economic expansion.

A second factor was the diplomatic rapprochement between Brazil and China. This factor reached its highest point in 2014 when Chinese President Xi Jinping visited Brazil, followed by a 2015 visit by Prime Minister Li Keqiang. During Xis visit, BYD announced a project to build a chassis factory for electric buses in Brazil, and during the Lis visit the construction of the solar panels plant was unveiled.42

While these first two general factors affected all Chinese companies, the third one is more related to the economic sectors where BYD has invested. Starting in 2004, the Brazilian government resumed industrial and technological policies for a time. As the initiative unfolded, Brazilian officials unveiled various measures designed to promote industrial activities including in the automotive and solar panels sectors.

BYDs investment decisions and the subsequent difficulties the firm faced and adaptations it made must be interpreted in this context of changes in the Brazilian economy and political scene, with strong deviations between when the firm chose to enter the Brazilian market and began operations. A closer look at BYDs two main business operations in Brazilchassis for electric buses and solar panelsis instructive.43

BYD started its operations in Brazil with a manufacturing plant designed to make chassis for electric buses, a facility that opened in 2015 in Campinas (in the state of So Paulo), the year after it was announced. The firm assumed that Brazils automotive market would keep expanding at a healthy rate and that demand for electric buses in large Brazilian urban centers would grow. The plants initial installed capacity was 500 units per year, with the expectation of progressively increasing the share of inputs and components sourced from Brazilian suppliers.44

However, when the factory was completed in 2015, the countrys automotive sector was experiencing a severe slowdown compared to the production levels seen in 2013. From a total production volume of 3.7 million vehicles in 2013, it dropped to 2.4 million in 2015. Since then, the sector has continued to have ups and downs, and in 2020, Brazils total automotive production was around 2 million units (1.7 million fewer than in 2013).45

Even so, BYD expected that the market for electric buses would grow quickly as electric buses replaced ones with combustion engines at least in large cities, particularly since this market is less dependent on growth in personal incomes and more linked with purchases controlled by local governments. While the Brazilian government rolled out a new automotive policy in 2018 (Rota 2030) that incentivized advances in energy efficiency and vehicle safety, it contained no specific incentives for the electric vehicle market.46 As a result, the expansion of the electric bus market came to depend heavily on city-level incentives and regulations.

The city of So Paulo, for example, approved a 2009 law that incorporated environmental and sustainability criteria and sought to reduce carbon dioxide emissions and toxic pollutants emitted by public transit vehicles by gradually shifting to cleaner fuels and technologies. The goal was for all the citys bus lines to use alternatives to fossil fuels by 2018.47 Yet these ambitious goals were not achieved because city policymakers did not consider institutional, financial, technological, and regulatory complicating factors, including the difficulty of applying the law to existing concession contracts. The provision of urban public transport in Brazil is the responsibility of municipal governments, which generally choose to enter into concession contracts for the private sector to operate the transport system through public tenders. The contractual conditions cannot be changed unless the concession period ends and new bids are held. There was an expectation that a large round of new bids would be held in So Paulo in 2013. However, a set of social demonstrations against the increase in bus fares ended up postponing the renewal of contracts.48

When the law produced few results, a new law started to be discussed and was launched in early 2018. This new law established a more realistic goal of reducing emissions levels by 50 percent by 2027 and by 100 percent by 2037 (based on the public transport fleets total emissions levels in 2016).49 Gradually, So Paulos electric bus fleet has been growing; in early 2022, the city had 219 electric buses, though that figure still amounts to only 1.5 percent of the citys total buses.50

Like So Paulo, other major Brazilian cities, including Braslia, Curitiba, Campinas, and So Jos dos Campos, are making regulatory changes aimed at reducing emissions. So Jos dos Campos, for instance, implemented electric bus lines in the hopes of creating well-functioning transport corridors between the citys most populated areas. BYD won the tender for the purchase of the buses, a decision that was reached in 2020.51 As a result, the factory in Campinas began to produce electric chassis for urban buses measuring 22 meters in length, which were designed to carry 168 passengers.52

While these initiatives to reduce emissions in urban areas by encouraging the use of electric buses have been largely left to municipal governments without federal planning or coordination, an important instrument to favor national production is the financing offered by the Brazilian Development Bank through a special credit line called the Financing Fund for the Acquisition of Industrial Machinery and Equipment (FINAME). FINAME has existed since 1966 and is the main instrument for financing equipment and capital goods in Brazil. The Brazilian Development Bank is the main provider of long-term credit in the country, so having a capital good accredited with FINAME is essential to guaranteeing that the purchaser has long-term funding. Between 2002 and 2018, it accounted annually for between 20 and 40 percent of all Brazilian Development Bank loans.53

Linking this funding to local content requirements gives financial competitiveness to the manufacturer while encouraging the development and maintenance of a national supply chain.54 Companies that manufacture machinery and equipment and want their customers to get financing from the Brazilian Development Bank through FINAME need to go through an accreditation process, which involves verifying that the company is complying with local content requirements.

Historically, the local content rule was measured by two indexes.55 The first one was calculated by the ratio between the value of imported components and the selling price of the finished product. The second one involved the ratio between the weight of imported inputs and the total weight of the product. To be accredited, a product had to be simultaneously below 50 percent on the value index and below 40 percent on the weight index. In the last review (carried out in 2017), the measure of local content changed to an index composed of a quantitative indicator and a qualitative one. The quantitative indicator is measured in terms of the ratio between the costs of inputs, services, and labor sourced nationally and the total costs of inputs, services, and labor. The minimum national content level in the quantitative index is 30 percent. As for the qualitative index, aspects such as investment in innovation, export insertion, and the use of technical labor and high technological components are evaluated and converted into a kind of bonus, which must correspond to at least a 20 percent nationalization index, so that the total index reaches a minimum of 50 percent.

The 2017 change in the methodology for measuring local content made it easier for BYD to meet the requirements of the nationalization index to have its products financed via FINAME and to operate on more equal footing with the makers of traditional combustion engine buses, companies that have long been able to get financing from FINAME.

But to ensure full compliance with local content requirements, BYD decided to open a third factory in Brazil to produce batteries, which were previously being imported, for the electric buses assembled in Campinas. The factory for producing lithium iron phosphate batteries is located in the Industrial Pole of Manaus in the state of Amazonas.56 The Industrial Pole of Manaus was created in 1967 as an economic zone that grants tax incentives to encourage the decentralization of Brazilian industrial production and to foster the development of the Amazon region. Currently, the main federal tax incentives are a reduction of up to 88 percent of the import tax on inputs and an exemption from the tax on industrialized products. Those incentives made it more favorable for the company to build the factory in Manaus.57

With a production capacity of 1,000 units per year, the factory started operations in 2020. That same year, the chassis for electric buses were accredited by FINAME, unlocking favorable financing terms for potential buyers.58 According to an interview with a BYD manager, the accreditation is key to increasing the competitiveness of electric buses since they have higher acquisition costs, though they also have lower operating and maintenance costs compared to combustion engine buses.59 The possibility for buyers to have long-term financing is a crucial element in purchasing decisions. According to the same interviewee, the company could potentially seek to supply batteries in the future for other electric bus or truck manufacturers that will operate in Brazil.

Although the adoption of electric buses in Brazil has been slow, there have been signs of growth, especially since 2019. Despite the effects of the coronavirus pandemic, which reduced the use of public transportation and affected the revenue streams of transportation companies, the expectation is that the search for sustainability will accelerate this markets future growth. For instance, a 2021 report projected that,60 under current taxation conditions, the accumulated production total of electric buses would reach around 4,100 units by 2025, a figure that would correspond to 5.3 percent of the market; this amount was projected to reach about 13,900 vehicles by 2030 (17.7 percent of the market). Under a more optimistic scenario in which companies would be offered tax incentives, the report stated that the accumulated production of electric buses would be about 17,000 (21.6 percent) by 2025 and 35,100 (45.8 percent) by 2030.

That would signify considerable progress given the limited number of electric buses in Brazil currently. According to the E-bus radar platform,61 in 2022 Brazil had only 371 electric buses, a figure that would represent just under 2 percent of the total fleet in cities where electric buses are used;62 this is a paltry number compared to the estimated 125,000 urban buses throughout the country in 2020.63

For comparisons sake, the Brazilian electric bus fleet (according to the E-bus radar platform) is much smaller than those of Chile (849 vehicles and 8.9 percent of the total buses) and Colombia (1,589 buses and 11.4 percent of the total buses), two countries where the diffusion of electric buses has been more rapid, particularly in the cities of Santiago and Bogot, respectively. In 2018, the Chilean government formulated a national electric vehicle strategy, which established a goal of having 100 percent of urban public transport be electric by 2050.64 In addition, Chile has been experimenting with new models of bidding and other relevant processes. In Santiago, electrical companies (such as Enel Chile and ENGIE) forged a partnership with transport operators (like Transantiago), turning Santiago into one of the leading cities in the world (after Shenzhen) notable for its fleet of electric buses.65

Since arriving in Brazil to manufacture electric bus chassis, BYD has maintained the expectation that the Brazilian market will exhibit more significant growth. The production verticalization with the manufacturing of batteries is a sign of this bet. The evolution of the companys strategy, however, has been marked by the need to adapt to Brazils unstable market conditions and to navigate a complex set of rules and incentives.

Regarding demand-side incentives, due to the lack of a national plan or strategy in Brazil like the one Chile has crafted to guide the actions of city governments, the initiatives of local administrations in Brazil have been heterogeneous, with policies aimed at reducing the emissions of urban bus fleets concentrated in a few large cities. Even large Brazilian cities have faced difficulties in dealing with issues related to financing, regulatory changes, and fostering new business models. From BYDs point of view, this has necessitated ongoing efforts to monitor new opportunities in different cities and publicize the ecological advantages of the companys products.

As for government support and stimulus for production and sales, BYD has sought to improve the conditions for its competition with the makers of traditional combustion engine buses, as shown by how it strived to comply with the nationalization indexes of FINAME. However, both FINAME and the existing incentives in the Industrial Pole of Manaus, where the company located the battery production plant, are traditional instruments to support industrial production in Brazil. They are not part of a policy aimed at promoting the production of industrial goods associated with environmental sustainability, such as the one existing in China.66 As highlighted earlier, the Brazilian automotive policy does not have incentives focused on the production of electric vehicles in the country.

Perhaps a more assertive strategy combining stimulus, federal goals designed to guide state and municipal actions meant to increase the use of transport options that do not use fossil fuels, and the incorporation of support in the Brazilian automotive policy for the manufacturing of products for collective electric mobility could increase the scale of production in Brazil more quickly. Doing so would help open the way for BYD to keep contributing to efforts to reduce the level of carbon dioxide emissions from urban transport in Brazil and sell these goods to other Latin American countries, thus helping diversify Brazils exports.

BYDs production of solar panels in Brazil has been subject to even greater turbulence than its manufacturing of chassis for electric buses. The company unveiled a production plant for solar panels in Campinas in 2017 at the same site where the bus production line is located, with investments of 150 million Brazilian reals (around $47.7 million) and a production capacity of 200 megawatts.67 At that time, the solar panel plant was one of the most modern in the world, employing double-glass technology, which offers increased energy efficiency, durability, and resistance compared to traditional methods.

According to BYDs marketing manager in Brazil, the companys investment decision was strongly linked to three fundamental pillars of the Brazilian governments renewable energy and industrial policies.68 In the context of its resumed industrial and technology policies, the Brazilian government sought to coordinate the actions of several ministries to promote new sources of energy and at the same time stimulate the countrys productive capacity. These policies fostered expectations of boosted demand for solar panels, friendly industrial and tax policies to spur localized manufacturing, and government financing to help promote local production. The reversal of these policies soon after the company opened its solar panel factory in 2017 resulted in many difficulties, which jeopardized this sites business operations in Brazil.

The first pillar was the prospect of strong growth in demand for solar panels resulting from the push to look for new sources of renewable energy. Key actors in this area are Brazils Ministry of Mines and Energy and the National Electric Energy Agency (ANEEL), the leading regulator of the countrys electricity sector and the agency responsible for organizing auctions for energy generation in Brazil.

Expectations of a strong increase in demand for solar panels stemmed from signaling by Brazilian officials and regulators that there would be incentives for new sources of renewable energy. For example, the governments 2017 energy expansion plan indicated that the countrys centralized capacity for generating solar energy would rise from nearly zero that year to represent 2.7 percent of Brazils total electric energy-generating capacity in 2021 and about 4.7 percent in 2026. In absolute terms, this projection would represent an expansion of around 9.7 gigawatts over this period.69

Unfortunately, unforeseen circumstances undercut these expectations. The auctions that ANEEL held in 2014 and 2015 resulted in a strong expansion in the supply of photovoltaic energy to be delivered between 2017 and 2018. In 2016, however, a planned auction for solar energy was canceled,70 and solar energy was excluded from a subsequent 2017 auction.71 These setbacks wreaked havoc on expectations of heightened demand, as Brazil went nearly two years without major centralized solar generation projects, just when BYD (and another Chinese-controlled company called Canadian Solar) opened local production capacity.

Despite the projections in the governments official reports, since 2016, Brazils Ministry of Mines and Energy has seemed to become less concerned with encouraging renewable energy use. For example, amid Brazils water shortage crisis in 2021, the ministry was forced to hold an emergency auction to guarantee the security of Brazils energy supply, which is strongly dependent on hydroelectric power. In the auction, most of the contracting (fourteen of seventeen projects) was for gas-fired thermal plants, along with two solar projects and one involving biomass. The average cost per megawatt hour for the thermal projects was 1,599 Brazilian reals, while that of the solar and biomass projects was 343 reals.72 At the end of 2021, another auction was held, and 4.6 gigawatts worth of projects were contracted at a cost of 824 reals per megawatt hour, including fifteen gas, fuel oil, and diesel projectswhile there was only one biomass thermal project and no solar or wind ones.73

The second pillar involved government efforts to stimulate local production of photovoltaic modules through industrial policy and tax incentives. These efforts were linked to the Support Program for the Development of the Semiconductor Industry (PADIS), overseen by the Ministry of Science, Technology, and Innovations. Created in 2007, this program was originally designed to strengthen local manufacturers active in the semiconductor and electronic displays supply chain. The federal governments objectives were to promote local production and investment and to increase the competitiveness of the incentivized products. While this policy lowered taxes on industrial products and imports of inputs, it requires the companies that benefit to invest in R&D in microelectronics, optoelectronics, and computer support tools (such as software) for designing and manufacturing relevant components.74

In 2014, photovoltaic modules were incorporated into the PADIS framework,75 as the Brazilian government continued seeking to boost the countrys manufacturing capacity. However, according to BYDs marketing director,76 an important aspect of the incentives depended on the government updating the annexes that list the inputs that could qualify for the suspension of federal taxes, an update that never occurred, making the policy ineffective.77

The Brazilian government eventually began enacting a more liberal economic policy, a change that was initiated under former president Michel Temer and was radicalized under Bolsonaros government. A step in this direction was expanded use of an instrument called an ex-tariff. With this instrument, the foreign trade chamber from Brazils Ministry of Economy can temporarily grant reduced import tariff rates on capital goods, IT equipment, and telecommunication goods for which there are no suitable nationally produced equivalents.

Ex-tariffs were granted to several solar panel products in 2020.7879 As these import tax reductions in theory could only be granted to products without domestic production, a dispute arose between importers and domestic producers, including BYD, over the legality of the action and the criteria used to grant the tax reduction.80 According to BYD, the criteria used by the foreign trade chamber from Brazils Ministry of Economy to consider products with no national production and which, therefore, could be imported without a tax, were excessively broad and ended up reaching the products manufactured by the company in Brazil, since foreign competitors could then import solar panels produced abroad more cheaply under ex-tariffs. In addition, as BYD had to pay an import tax on its imported components to manufacture in Brazil, industrial production in the country ended up being disadvantaged.

The strong devaluation of the Brazilian real against the dollar throughout 2020, however, ended up eliminating part of the advantage for importers coming from the reduction of the import tax.81 Even so, the episode highlighted the change in the direction of economic policy driven by the Ministry of Economy under the Bolsonaro government in relation to the period during which BYD had decided to build the factory in Brazil. It is interesting to note that a report from the Ministry of Science, Technology, and Innovation seemed to acknowledge the lack of coherence between the actions of different parts of the government. In 2021, a PADIS evaluation report stated that the governments inability to update the PADIS programs input list, the use of ex-tariffs, and other measures made imports more competitive. Photovoltaic cells and panels became economically unfeasible and uncompetitive in the country.82

Finally, the third pillar of the governments push to foster greater local manufacturing involved government financing support that involved seeking to add solar panels to the Brazilian Development Banks FINAME list.83 As previously mentioned, accreditation on the FINAME supplier list is essential for promoting local manufacturing production in Brazil.

Although BYD has its solar panels accredited with FINAME, this advantage was threatened by changes in the policies of Brazils Banco do Nordeste (or Northeast Bank), a federal public bank that is responsible for transferring resources from the Northeast Financing Constitutional Fund.84 In 2015, the Ministry of National Integration, which is responsible for regulating the use of the Northeast Financing Constitutional Fund, issued an ordinance that opened the possibility of funding electric energy generation projects.

Initially, the rules were aligned with the Brazilian Development Banks FINAME rules, since there was a requirement that the equipment financed in these projects had 60 percent nationalization rates.85 However, in 2016, another ordinance was issued allowing the financing of imported products in the case of photovoltaic projects.86 That was significant because northeastern Brazil has the highest amount of solar radiation and, therefore, is where the photovoltaic projects were most concentrated.87 In this way, at least for projects carried out in northeastern Brazil, the financial advantages of complying with the nationalization indexes to help purchasers gain access to long-term financing from FINAME were nullified, since they could resort to Northeast Bank and its financing for imported photovoltaic modules.88

The changes to the Brazilian governments plans to support the local production of photovoltaic modules in Brazil and private sector dissatisfaction with the growing inconsistency in these government actions led the Ministry of Industry and Foreign Trade to create, at the end of 2017, a working group with the participation of the private sector and different parts of the government. The working groups objective was to diagnose the main problems and put forward possible solutions.89 One of the main problems pointed out in the working groups final report was precisely the need to rediscuss the financing rules between public banks to make their actions complementary and not contradictory.

Despite this diagnosis and these recommendations, no effective government response materialized, not least because, in 2019, when Bolsonaro assumed the presidency, he transformed the Ministry of Industry and Foreign Trade, which had led the working group, into a secretariat of the Ministry of Economy.90 On the contrary, as highlighted earlier, the entanglement around ex-tariffs made the situation even more difficult. Some photovoltaic modules producers, like Canadian Solar, which had started solar panel production in 2017, ended domestic production in 2021.91

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Why Brazil Sought Chinese Investments to Diversify Its Manufacturing Economy - Carnegie Endowment for International Peace

Oct 18 (Reuters) - Amazon Web Services (AWS),the cloud computing division of Amazon.com Inc (AMZN.O), said on Monday it plans to invest $5 billion in Thailand over the next 15 years to strengthen its infrastructure in the country.

The investment would include construction of data centers and purchase of goods and services from regional businesses, AWS said in a statement.

It also plans to set up an infrastructure hub in Thailand's Bangkok to help customers in the region securely store data, and serve end users better.

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"AWS' plan to build data centers in Thailand is a significant milestone that will bring advanced cloud computing services to more organizations and help us deliver our Thailand 4.0 ambition to create a digitized, value-based economy," Thailand's Deputy Prime Minister Supattanapong Punmeechaow said.

AWS' cloud platform offers more than 200 services, including storage, robotics and artificial intelligence.

AWS last month opened its first cloud data center in UAE and announced plans to setup a local hub in Mexico to boost bandwidth for clients.

Since 2020, AWS has launched 10 Amazon cloudfront edge locations in Bangkok. The edge locations help to deliver data, videos and applications at higher speeds to end users.

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Reporting by Kanjyik Ghosh and Ann Maria Shibu in Bengaluru; Editing by Dhanya Ann Thoppil

Our Standards: The Thomson Reuters Trust Principles.

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Amazon to boost Thailand cloud infrastructure with $5 bln investment - Reuters

Capital investment planning was the focus during Evaluating Your Buying Power in Todays Economic Environment, led by Craig Colling, VP of sales for Ascentium Capital. His presentation, held in the Future State Theater (Booth C11330) yesterday, outlined the financial options available in todays marketplace as well as whats going on and what to expect.

Colling pointed out that every business is in a different place. Add a recessionary period and inflationary environment to the mix, and the path to purchase just got more complicated. There are options, though each brings its own set of pros and cons.

As youre negotiating, unless youre a CPA by trade or a lawyer by trade, whatever terms sheet or contract you receive, have your tax adviser look at it, Colling stressed. Make sure its aligned with what you think you agreed to. Its worth an extra day of your life to make sure you understand what youre getting into.

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What to Know About Capital Investment Planning - Printing Impressions

Finding an online broker that genuinely makes a difference is the first step to a long and exciting trading journey. Target Trading is that broker for a lot of people, but what makes it a good choice?

The following review looks for the answers by exploring the key features and functions that make it what it is and putting the platform to the test to see how well it really works.

Before getting into the ins and outs of how things work, here are the must-know details that every potential new user should have.

There are plenty of things to like about Target Trading, but the thing that stands out above the rest is the excellent CFD trading platform. CFD stands for Contracts for Difference and is an alternative to traditional stock trading.

Trading CFDs is a way to (hopefully) benefit from changing share values without actually owning any assets. Target Trading makes the whole thing seem a little more approachable and does a great job of helping people make the most of the opportunities.

It shares helpful tools and techniques backed by strategic support and detailed report tools. Users can streamline their searches by adjusting their parameters based on budget, timeframe, and even risk levels.

Overall, the platform works very well. It is reliable and consistent across various trading portals, and the tools live up to expectations. Occasionally, some of the more substantial reports can be a bit slow to load, but that is the only thing that stands out.

Target Trading goes for an inviting but sophisticated vibe through the design, and it nails it. The only imperfections are extremely minor and are still developing. In general, it looks pretty great and is fairly easy to follow.

Mobile access is always handy to have- especially as a busy trader who is often on the move. Target Trading has a decent mobile app for smartphones and tablets, which does most of the same things as the primary platform. A few things have some ongoing developments, but nothing that stands in the way of making it a useful tool.

It can be downloaded in the relevant app stores for Android and Apple devices. There is no charge, and users should input the same credentials they use to log in on the desktop. Just bear in mind that each account can only log in to one device simultaneously.

Yes, it is. The security protocols live up to industry standards and are taken seriously across the platform. All data is protected by encrypted software- as are all the transactions managed through the platform.

Target Trading is a subscription-based platform. It involves a monthly payment (several options available) and some other costs depending on the account type. Withdrawal fees and commissions are applicable in most cases, but the exact costs vary.

They can- whenever they want to. There is a small fee, which is fairly standard for the industry. Digital wallets and bank transfers are the two possible options- both of which only take minutes to arrange.

It can take up to 24 hours for funds to transfer, although crypto withdrawals are usually faster.

The summary is this: Target Trading is a well-rounded and impressive platform that offers a great range of services and investment opportunities. It is simple enough for beginners to use comfortably- and advanced enough to keep up with the more experienced users.

Disclaimer: This is a sponsored marketing content.

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Target Trading Review - Unlocking Universal Investment Options - Startup.info

High River, Alberta--(Newsfile Corp. - October 19, 2022) - Further to its previous announcement, The Western Investment Company of Canada Limited (TSXV: WI) ("WICC" or "Western") announced today that its investee, Fortress Insurance Company ("Fortress"), has closed a $5.3 million equity financing. The value has increased from that previously expected due to greater demand from our distribution partners and the execution of a significant new partnership agreement.

-Fortress has entered into a strategic partnership with U.S. based Indemnity National Insurance Company ("INIC"). The partnership includes an equity investment of approximately $1.7 million in Fortress by INIC, and a plan to provide Fortress with the resources and expertise to offer specialty surety products in Canadian commercial insurance markets through a comprehensive underwriting and re-insurance agreement. The partnership agreement has received all governance and regulatory approvals and is now operational.

-Fortress closed its $5.3 million equity issuance which includes the INIC investment, with the balance coming from a small group of value-added distribution and business partners who will contribute to the continuing growth and development of Fortress. The subscription price of $1.72 for each share in Fortress represents an approximate 215% premium to Fortress' June 30, 2022 "book value", and a substantial increase from Western's original $0.85 per share investment in 2019.

Upon completion of the financing, WICC and its original investment partners retain a combined majority controlling interest in Fortress.

WICC CEO Scott Tannas provided the following commentary:

"We congratulate Fortress management on the completion of this important transaction. The partnership with INIC will propel Fortress into the specialty surety market in the mining, energy, and natural resource sectors with a financially strong, expert partner. The $5.3 million aggregate investment from INIC and other value-added partners will provide Fortress with capital, capacity, and growth opportunities for years to come."

Story continues

About The Western Investment Company of Canada Limited

WICC is a unique publicly traded, private equity company founded by a group of successful Western Canadian business people, and dedicated to building and maintaining ownership in successful Western Canadian companies, and helping them to grow. Western's shares are traded on the TSX Venture Exchange under the symbol WI.

About Fortress Insurance Company

Fortress is a fast-growing property and casualty insurer licenced and operating in Canada's western provinces and Ontario. In addition to being a niche capacity provider in the commercial and residential property insurance market, Fortress is focused on the development and provision of specialty insurance products.

About Indemnity National Insurance Company

AM Best A- ("Excellent") rated, U.S. Treasury listed and licensed across a majority of the United States, INIC's team of professionals focuses on supporting some of the country's most critical industries, with a focus on mining, energy and other specialty areas. Its customers range from large publicly traded Fortune 500 companies to private entrepreneurs, and INIC is committed to providing individualized excellence to every one of them.

For more information on Western, please visit its website at http://www.winv.ca

CONTACT INFORMATION:

The Western Investment Company of Canada Limited Scott Tannas President and Chief Executive Officer (403) 652-2663 stannas@winv.ca

Advisory

This news release may contain certain forward-looking information and statements, including without limitation, statements pertaining to the value of Western's investment in Fortress, and the future plans, and growth of returns from Fortress' insurance business. Statements containing the words: 'believes', 'intends', 'expects', 'plans', 'seeks' and 'anticipates' and any other words of similar meaning are forward-looking. All statements included herein involve various risks and uncertainties because they relate to future events and circumstances beyond Western's control. There can be no assurance that such information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such information. A description of assumptions used to develop such forward-looking information and a description of risk factors that may cause actual results to differ materially from forward-looking information can be found in Western's disclosure documents on the SEDAR website at http://www.sedar.com. Any forward looking statements are made as of the date of this news release and Western does not undertake to update any forward-looking information except in accordance with applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/141175

Read more from the original source:
Western Investment Company Affiliate, Fortress Insurance, Closes $5.3 Million Upsized Equity Offering and Signs Strategic Agreement with U.S. Based...

NEW YORK, Oct. 19, 2022 (GLOBE NEWSWIRE) -- Pzena Investment Management, Inc. (NYSE: PZN) reported the following U.S. Generally Accepted Accounting Principles (GAAP) basic and diluted net income and earnings per share for the three and nine months ended September30, 2022 and 2021 (in thousands, except per-share amounts):

GAAP diluted net income and GAAP diluted earnings per share were $12.8 million and $0.15, respectively, for the three months ended September30, 2022, and $22.7 million and $0.27, respectively, for the three months ended September30, 2021. GAAP diluted net income and GAAP diluted earnings per share were $39.0 million and $0.45, respectively, for the nine months ended September30, 2022, and $63.6 million and $0.76, respectively, for the nine months ended September30, 2021.

1 Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

Financial Discussion

Revenue was approximately $45.2 million for the third quarter of 2022, a decrease of 7.1% from $48.7 million for the second quarter of 2022 and a decrease of 12.4% from $51.6 million for the third quarter of 2021.

There were $0.6 million of performance fees recognized during the third quarter of 2022, compared to $0.7 million of performance fees recognized during the second quarter of 2022 and less than $0.1 million of performance fees recognized during the third quarter of 2021.

Average assets under management for the third quarter of 2022 were $45.4 billion, decreasing 8.3% from $49.5 billion for the second quarter of 2022, and decreasing 13.4% from $52.4 billion for the third quarter of 2021. The decrease from the second quarter of 2022 and the third quarter of 2021 reflects market depreciation.

The weighted average fee rate was 0.398% for the third quarter of 2022, increasing from 0.393% for the second quarter of 2022, and from 0.394% for the third quarter of 2021.

The weighted average fee rate for separately managed accounts was 0.537% for the third quarter of 2022, increasing from 0.523% for the second quarter of 2022 and remaining relatively flat from 0.534% for the third quarter of 2021. The increase from the second quarter of 2022 primarily reflects a shift in asset mix towards accounts that typically carry higher fee rates.

The weighted average fee rate for sub-advised accounts was 0.293% for the third quarter of 2022, increasing from 0.286% for the second quarter of 2022, and from 0.276% for the third quarter of 2021. The increase from the second of 2022 primarily reflects an increase in assets to certain strategies that typically carry higher fee rates. The increase from the third quarter of 2021 reflects an increase in performance fees recognized during the third quarter of 2022. Certain accounts related to one retail client relationship have fulcrum fee arrangements. These fee arrangements require a reduction in the base fee or allow for a performance fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period, which extends to three years. During the third quarter of 2022 and the second quarter of 2022, the Company recognized $0.6 million and $0.7 million of performance fees, respectively, related to this client relationship. During the third quarter of 2021, the Company recognized a $1.0 million reduction in base fees related to this client relationship. To the extent the three-year performance record of this account fluctuates relative to its relevant benchmark, the amount of base fees recognized may vary.

The weighted average fee rate for Pzena funds was 0.679% for the third quarter of 2022, increasing from 0.672% for the second quarter of 2022, and decreasing from 0.690% for the third quarter of 2021. The increase from the second quarter of 2022 primarily reflects an increase in assets to certain strategies that typically carry higher fee rates. The decrease from the third quarter of 2021 primarily reflects an increase in expense reimbursements.

Total operating expenses were $27.6 million for the third quarter of 2022, increasing from $24.1 million for the second quarter of 2022, and increasing from $23.2 million for the third quarter of 2021. The increase from the second quarter of 2022 and third quarter of 2021 primarily reflects increases in professional fees associated with the ongoing take private transaction and occupancy costs.

As of September30, 2022, employee headcount was 146, increasing from 142 at June 30, 2022, and from 133 at September30, 2021.

The operating margin was 39.0% for the third quarter of 2022, compared to 50.4% for the second quarter of 2022, and 55.0% for the third quarter of 2021.

Other income/ (expense) was expense of approximately $4.5 million for the third quarter of 2022, expense of $7.6 million for the second quarter of 2022, and income of $0.4 million for the third quarter of 2021.

Other income/ (expense) primarily reflects the fluctuations in the gains/ (losses) and other investment income recognized by the Company on its direct equity investments, the majority of which are held to satisfy obligations under its deferred compensation plan. Other income/ (expense) also includes a portion of gains/ (losses) and other investment income recognized by external investors on their investments in investment partnerships that the Company consolidates, which are offset in net income attributable to non-controlling interests.

1 Represents the non-controlling interest allocation of the (income)/ loss of the Company's consolidated investment partnerships to its external investors.

The Company recognized an income tax benefit of $2.7 million for the third quarter of 2022, compared to income tax expense of $2.5 million for the second quarter of 2022, and $0.1 million for the third quarter of 2021. The third quarter of 2022 income tax benefit reflects a $4.5 million benefit associated with the reversal of uncertain tax position liabilities and interest related to unincorporated and other business tax expenses due to the expiration of the statute of limitations. The third quarter of 2021 income tax benefit reflects $2.5 million of such benefit.

Details of the income tax expense are shown below:

Details of the net income attributable to non-controlling interests of the Company's operating company and consolidated subsidiaries are shown below:

1 Represents the non-controlling interest allocation of the income/ (loss) of the Company's consolidated investment partnerships to its external investors.

Take Private Transaction

On July 26, 2022, Pzena Investment Management announced it entered into a transaction agreement to become a private company. The transaction is expected to close in the fourth quarter of 2022, subject to the receipt of requisite approval by PZN stockholders and satisfaction of other customary closing conditions. A special meeting of stockholders to vote on the transaction will be held virtually on October 27, 2022, at 10:00 am ET.

Due to the pending transaction, Pzena will not be hosting a conference call in connection with its third quarter financial results.

Forward-looking Statements

This press release may contain, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide the Companys current views, expectations, or forecasts of future events and performance, and include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as anticipate, believe, continue, ongoing, estimate, expect, intend, may, plan, potential, predict, project or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the markets in which the Company operates; new federal or state governmental regulations; the Company's ability to effectively operate, integrate and leverage any past or future strategic initiatives; statements regarding the previously-announced Agreement and Plan of Merger, dated as of July 26, 2022, by and among the Company, Pzena Investment Management, LLC, and Panda Merger Sub, LLC (the "merger") and related matters; the ability to meet expectations regarding the timing and completion of the merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the failure to obtain Company stockholder approval of the transaction or the failure to satisfy any of the other conditions to the completion of the transaction; risks relating to the financing required to complete the transaction; the effect of the announcement of the transaction on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, vendors and others with whom it does business, or on its operating results and businesses generally; risks associated with the disruption of management's attention from ongoing business operations due to the transaction; significant transaction costs, fees, expenses and charges; the risk of litigation and/or regulatory actions related to the transaction; and other factors detailed in the Company's Annual Report on Form 10-K, as filed with the SEC on March 9, 2022 and in the Company's Quarterly Reports on Form 10-Q as filed with the SEC. In light of these risks, uncertainties, assumptions, and factors, actual results could differ materially from those expressed or implied in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this release.

The Company is not under any obligation and does not intend to make publicly available any update or other revisions to any forward-looking statements to reflect circumstances existing after the date of this release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

PZENA INVESTMENT MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(in thousands)

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per-share amounts)

PDF available:http://ml.globenewswire.com/Resource/Download/5455a7a3-e8b0-4544-95ab-5added0ff127

Read more:
Pzena Investment Management, Inc. Reports Results for the Third Quarter of 2022 - GlobeNewswire

Among chipmaker stocks, two of the most popular are Advanced Micro Devices (AMD -1.19%) and Nvidia (NVDA 0.70%). Over the past few years, these stocks have been excellent investments, with each significantly outpacing the broader market.

Unfortunately, the strong performance seen in these two stocks has fallen off a cliff in 2022. Both are trading down 60% for the year. Some investors wonder if they should sell. Other investors might wonder if now is the time to establish a position in these stocks.

Let's dive into what made these two stocks drop, and see if either is worthy of buying and which might be the better buy if both qualify.

AMD and Nvidia are often seen as competitors because their businesses tend to overlap. But each has a few business segments where they don't compete head-to-head.

Nvidia's biggest segment is its GPUs (graphics processing units), although it has some CPUs (central processing units) and software products as well. AMD is a bit more balanced between its GPU and CPU lines, but it also has an embedded-semiconductor segment, thanks to its Xilinx acquisition earlier this year.

Both companies see massive opportunities in the growing use of data centers, and as long as this economic tailwind is blowing, each should benefit. In the second quarter (Nvidia's Q2 ended July 31 and AMD's ended June 30), Nvidia and AMD experienced data center growth of 61% and 83%, respectively.

GPUs are also used to mine cryptocurrencies, and with the crashes of several major currencies, mining these tokens has become unprofitable. That caused the demand for GPUs to plunge, and Nvidia cut the cost of several of its units to ensure inventory didn't pile up as it did during the 2018 cryptocurrency crash.

Both businesses are also involved with the highly cyclical gaming industry, which got Nvidia in trouble in the second quarter. Nvidia posted a 33% drop in gaming sales over last year's total, whereas AMD's gaming sales rose 32% year over year. When I first saw this discrepancy, I thought, "How long can AMD outlast Nvidia in terms of growing its gaming segment?" As it turns out, at least another quarter.

On Oct. 6, AMD previewed its third-quarter earnings to get ahead of what it knew would be a considerable revenue miss. Nvidia did the same thing when it experienced a massive revenue miss in the second quarter; however, the reasons for its miss are different.

AMD expects 45% and 14% growth in data center and gaming, respectively. So AMD doesn't see the same gaming weakness as Nvidia. But where it is seeing pressure is in its client segment. AMD's client products consist of consumer PC processors and GPUs that you'd find at the store, and CEO Lisa Su said in the press release with the announcement, "The PC market weakened significantly in the quarter."

The client segment will post a 40% year-over-year revenue decline in the third quarter, which will significantly affect overall revenue, since the segment accounts for about 18% of AMD's total sales. But overall sales are still expected to rise 29% year over year, despite a $1.1 billion miss. So while AMD had a big miss, it is still solidly growing.

Nvidia is still in its third quarter, so investors must stay on the lookout for a similar preview. But if management makes such an announcement, it likely isn't because it had a blowout quarter. Management expects about $5.9 billion in revenue in the third quarter, which is down 17% year over year. However, analysts believe it will come in lower than this, with the average projection at $5.82 billion in sales.

If you were presented with two companies, one growing at a 30% rate and the other shrinking at a projected 17% rate, which would you choose? I'd expect many investors to choose AMD on this point alone. AMD is also a cheaper stock than Nvidia by a significant margin when it comes to price-to-earnings and price-to-sales ratios.

AMD P/S ratio. Data by YCharts.

While a direct comparison has some caveats (Nvidia's gross margins are 10% to 15% higher than AMD's on average), Nvidia doesn't seem like it should trade at more than double the valuation of AMD (on a price-to-sales ratio).

While I'm usually an Nvidia bull, the stock doesn't reflect enough of the potential bad news, whereas AMD is pretty cheap.

I think AMD is a great buyand has a significant long-term opportunity. I also believe in Nvidia's opportunity, but the stock doesn't have enough pessimism baked in yet.

The rest is here:
Is AMD a Better Investment Than Nvidia Right Now? - The Motley Fool