BY CHRISTOPHER THOMPSON

Whisper it gently: Deutsche Bank shareholders might finally have something to cheer about. The German lender has in recent years seen seemingly irreversible declines in trading revenue that have outpaced cost-cuts. In 2019 its business mix, and the potential for currency volatility and rising European rates, should make it a relative winner.

Ever since the financial crisis Europe’s investment banks have resembled a car crash in slow motion. The region’s lenders have seen their overall investment banking revenue decline by 27 percent since 2010, according to UBS, compared to an 18 percent decline globally. Deutsche has been even worse — at its bedrock fixed-income trading division, which in 2017 accounted for 17 percent of group net revenue, turnover has dropped by 28 percent over the last two financial years alone. Its shares trade at a pitiful, Greek bank-style valuation of just 0.3 times tangible book. Deutsche Bank executives have had to repeatedly deny reports that a defensive merger with Commerzbank is in the offing.

Fixed-income traders tend to thrive when there is a trend. The last time this occurred in Europe was when European Central Bank President Mario Draghi introduced quantitative easing in 2015 and guided steadily lower interest rates. Consequently, asset managers increased buying and selling and companies purchased more hedging products. As the ECB prepares to scale down its asset purchases, the next trend is rising yields. Given that Deutsche has the biggest market share in European rates apart from JPMorgan , its top line should benefit disproportionately from heightened client demand.

Political volatility could add some additional gloss in currencies. Continued geopolitical uncertainty in Europe — think Brexit and Italy — and elsewhere should lead to wider currency spreads and, all else being equal, greater profits.

Chief Executive Christian Sewing has zero room for complacency. A boost in European trading income will be somewhat offset by falling U.S. revenue due to cutbacks in Deutsche’s U.S. rates and equities business. At the same time, Sewing must find another billion euros in cost savings, and firefight Deutsche getting dragged into questions over money-laundering controls.

Analysts only forecast a 3 percent return on tangible equity for Deutsche in 2019. But the bank’s increasingly diverse shareholder register — which encompasses Qatari, Chinese and U.S. hedge fund investors — doesn’t need rising European rates to lead to a miraculous resurgence. Just a transition from terrible to merely bad.

First published Dec. 27, 2018.

By LISA JUCCA AND KAREN KWOK

Remo Ruffini could be Italy’s answer to Bernard Arnault in 2019. Since rescuing Moncler in 2003, the entrepreneur has rejuvenated the brand into a goose-down success story. There’s a long way to go before he can use the growing strength of 7.5 billion euro Moncler to create anything like Arnault’s LVMH , worth 130 billion euros. But if he fancies building the first Italian luxury aggregator, now is a good time.

Italian luxury is fragmented and valuations are historically cheap — the sector trades on 25 times expected earnings, compared to a five-year average of 28 times, Refinitiv data shows. Sales at upscale shoemaker Tod’s have been falling since 2014. Salvatore Ferragamo also struggles with revenue, and is in flux after matriarch Wanda Ferragamo’s death. Unlisted players like handbag-maker Furla may also come up for sale.

U.S. and Chinese buyers have noticed. Michael Kors paid a hefty $2.1 billion for struggling Versace in September. China’s top textile player Shandong Ruyi and conglomerate Fosun snagged Swiss brand Bally and French couture house Lanvin respectively.

Still, the rise of an EU-sceptic government in Rome embracing shaky budget policies could put a brake on global buyer enthusiasm. That gives Ruffini an opportunity to consider going beyond Moncler. The Italian is doing something right: sales jumped by 15 percent in 2017 and should do so again in 2018. His skills could be deployed to battle the generational shifts and changing consumer habits undermining some storied Italian brands.

Investors who bought Moncler shares when it debuted in 2013 have seen total returns double, beating all listed peers bar Hermes . At 35 percent, Moncler’s EBITDA margins are second only to the famed French handbag maker among luxury players in Europe. And Ruffini is no stranger to M&A: in October his family vehicle Archive bought a 49 percent stake in small Italian fashion brand Attico.

LVMH and peers Kering and Richemont are so shaped because their size brings economies of scale and diversification benefits. Although Moncler’s flagship jackets are in vogue, acquiring leather goods or watches could hedge against fickle tastes. If Ruffini can overcome Italian luxury’s traditional rivalries and get second-generation potential sellers onside, the path to Arnault-style status could be his.

BY ED CROPLEY

Twenty-five years after genocide, German cars are rolling off production lines in Rwanda. To keep motoring the tiny, landlocked East African country needs access to markets. Luckily, one on its doorstep is set to buck the global trend towards balkanisation.

Africa has 1.2 billion people, but they are fenced off in over 50 individual countries. Trade barriers crimp opportunity and investment. Attempted regional trade areas stretch from Cape Town to Cairo, but only the East African Community has made real headway. In 2010 this bloc, which now includes Uganda, Tanzania, Rwanda, Burundi, South Sudan and Kenya, its spearhead, launched a common market for goods, services, labour and capital. It even dreams of monetary union in five years.

In 2019, 100 million Ethiopians could give the EAC real impetus. After a year of dramatic political reforms, the regional giant synonymous with 1980s famine could be ready to join the local trade bloc. That would create a common market of 250 million people.

The combination of Rwandan leader Paul Kagame, standard-bearer for African free trade, and an Ethiopia stirring from decades of socialist slumber could be transformational. On a GDP-weighted basis, Rwanda easily attracts the most foreign direct investment in Africa, according to consultancy firm EY. Kenya and Ethiopia also fare well. Most investments are in manufacturing, supporting the view that as Chinese wages rise factories in East Africa, where labour is cheap, can become viable alternatives. Being part of a large regional market only boosts the logic for companies making everything from boots to bicycles.

Other bits of the jigsaw are also falling into place. The first leg of a Chinese-funded rail network from the Kenyan coast to Kigali was completed in late 2016. In June, Ethiopia and Eritrea ended 20 years of hostilities and opened their border. And the region’s economies are buzzing. The IMF predicts growth of 8.5 percent for Ethiopia in the year ahead, alongside 7.2 percent for Rwanda and 6 percent for Kenya. Of course, there are risks. Sovereign debt levels are creeping up, and toxic ethnic politics could yet poison the well. But in one corner of Africa at least, barriers are heading down, not up.

First published Dec. 20, 2018.

By CLARA FERREIRA-MARQUES

Rio Tinto will be first on the spending trail. The Anglo-Australian giant and peers like BHP have been steadily churning out cash, but investors have understandably fretted this will be wasted on overpriced deals — as happened during the last boom. Expect that to change in 2019.

Rio boss Jean-Sébastien Jacques has multiple reasons to concentrate on copper. Long-term, the price outlook is more appealing than its current main focus, iron ore. With big new deposits rare, slow and expensive, supply of the red metal will eventually lag demand as the world further electrifies. In the short-term, though more a gauge of sentiment, copper for three-month delivery was trading around $6,100 in December, below the level required to encourage miners to dig for more.

What Jacques needs is a target. The most likely candidate is $15 billion Freeport-McMoRan. The world’s largest listed copper producer faces a debate over who will lead it when current boss Richard Adkerson, 71, retires. It also operates largely in the right places — Chile and Peru, plus the United States, which will put off rival Chinese suitors.

For Western names, Freeport’s exotic mines have been poison pills. But it sold Congo’s Tenke Fungurume in 2016, and has unpicked a knot in Indonesia too. Grasberg is one of the world’s richest mines but challenging, and Rio agreed to sell its own interest in 2018. Having agreed to cede its majority stake to a local group, though, Freeport has also paved the way for an eventual full exit.

There are complications. One is price: Freeport’s shares are worth roughly a fifth what they were in 2011, but copper deals are so scarce that Rio may have to pay a premium of at least 30 percent. That would mean an equity value of over $19 billion, representing a punchy 17 times expected 2019 earnings. Still, back-of-the-envelope calculations imply a return on investment roughly in line with a 10 percent cost of capital, even without cost savings.

Rio would certainly have to woo investors. But its debt burden is light. Plus, it could spin off some of the U.S. mines. It could also accelerate efforts to list a majority stake in Iron Ore Company of Canada.

Jacques has other options, like First Quantum or even the Latin American copper assets of Anglo American, if a long-awaited carve-up happens. But Freeport is his most obvious quarry.

First published Dec. 20, 2018.

BY CLARA FERREIRA-MARQUES

Riyadh can fast-track Beijing’s currency ambitions in 2019. A new Shanghai crude contract has nibbled at dollar benchmarks over the past 12 months: a win for China, which wants more clout. Saudi Arabia can help it go further by agreeing to price and sell some of its $30 billion in annual oil exports to the People’s Republic in yuan. Russia is already edging this way, and there are benefits to diversity.

Yuan internationalisation has not gone smoothly. Enthusiasm for foreign exchange reform in Beijing has waxed and waned: the currency still accounts for barely 1 percent of global payments. The success of the Shanghai futures contract, launched in March, is hence all the more notable. It is becoming a credible benchmark, with volumes rivalling the Dubai Mercantile Exchange contract.

China’s status as the world’s largest consumer of commodities is its trump card in motivating foreigners to use renminbi — the currency’s official name — for trade and investment. Overseas investors can trade oil and iron ore on the mainland already; more metals, or even soybeans, could be next. Crude, however, remains overwhelmingly traded in dollars. Encouraging more Shanghai trading with market makers and better trading hours will help, but the real catalyst is for suppliers to invoice more in yuan.

Saudi is key. Other than Russia, the kingdom is already the largest oil exporter to the People’s Republic. President Trump may have exonerated Crown Prince Mohammed bin Salman after Saudi agents killed journalist Jamal Khashoggi, but Riyadh must prepare itself for flashpoints. One might come in the year ahead, when U.S. sanctions intended to target Iran’s 3 million barrels per day of output are due to kick in properly. If prices spike up again, Trump might blame Saudi and other oil producers for a Dec. 7 decision to cut 1.2 million bpd from the market.

Converting even a small fraction of Saudi exports to China from greenbacks to yuan would be a big step, and could bring Chinese investment into oil giant Aramco. Capital controls make the yuan riskier to hold than dollars, but payments to Chinese contractors on ambitious infrastructure projects can absorb at least part.

Russia, under pressure from U.S. sanctions, has said it will price some gas in the currency, and could do more in oil too. Iran and Angola may follow. If Saudi starts moving in the same direction, the cogs could really start turning.

BY JENNIFER SABA AND ROBERT CYRAN

Two behemoth retailers are beginning to morph. Amazon founder Jeff Bezos is changing the e-commerce company by selling shelf space, opening stores and launching catalogs. Old-school rival Walmart, meanwhile, has refreshed Sam Walton’s model with recent online acquisitions like Jet.com. The market is bound to pick up on the similarities.

Amazon’s growth, while enviable, is slowing. Wall Street expects revenue to increase about 20 percent in 2019, down from over 30 percent the previous two years, according to Refinitiv data. That’s because there are fewer new markets to create or consumers to win over. The threat of looming regulation of tech giants and greater scrutiny of their dominance by trustbusters pose growing risks to M&A. That’s why Bezos is increasingly imitating what others have been doing.

Consider Amazon’s advertising effort. Lumped with some other services, this business should more than double in 2018 and looks set to continue its rapid ascent. A product on the second page of a customer’s search results might as well not exist. But is this any different than companies paying for eye-level shelf placement at Walmart? Likewise, Amazon continues to push its own-label goods, just as grocers have done for decades.

Plans for a toy catalog in time for the holidays echo newspaper circulars. And the rapid growth of Prime has parallels to membership fees at retailers like Costco.

Online retailers find that having stores near shoppers increases digital sales. That’s one reason Amazon bought Whole Foods Market. Yet this dynamic also helps Walmart’s push into online shopping.

The Bentonville, Arkansas outfit has juiced its digital strategy by spending nearly $20 billion on Jet.com and a controlling stake in India’s Flipkart. The former helped Walmart boost U.S. e-commerce revenue by 40 percent year-over-year in the third quarter and take market share. Its huge physical footprint provides leverage for continued growth. So far, it has rolled out more than 2,000 pickup points for digital shoppers at its stores in the United States.

Sooner or later, shareholders will reflect the growing likeness between the two companies — bringing Amazon’s valuation down to earth. It was valued at nearly 65 times the next 12 months’ earnings at the end of November, compared with just over 20 times for Walmart, according to Refinitiv. In five years, analysts expect those valuations to converge, putting Amazon at a PE multiple of 20 and Walmart at 18. Granted, Amazon’s earnings are expected to grow much faster than Walmart’s thanks to its booming cloud-computing division. But retail disruption is becoming a two-way street.

First published Dec. 21, 2018.

BY JEFFREY GOLDFARB

An active acquirer lurks in South Korea. Over the last couple of years, companies from Japan and China have led Asia in overseas deals. Seoul-based conglomerate SK Group could be up next. Bankers should make sure they have boss Chey Tae-won on speed dial.

The sprawling group, with a collection of listed shares worth $110 billion, has been expanding since it bought chipmaker Hynix in 2012. It was one of the first chaebol to start cleaning up its controversial structure, even if it occurred while Chey was in prison for misappropriating company funds. With a left-leaning government turning the screws on big businesses, it makes sense for SK to seek bigger acquisitions abroad. And hailing from South Korea should make it more welcome than Chinese buyers in many places.

There are many areas for SK Group to spend its cash, much of it generated from semiconductors. Nearly 100 affiliates operate in industries ranging from pharmaceuticals and chemicals to telecoms and logistics. They recently bought a Dow Chemical division and drug ingredient maker AMPAC Fine Chemicals, and backed the $18 billion acquisition of Toshiba’s memory-chip unit. Although it is hard to discern any overarching strategy, its Super-Excellent Council, or Supex, sits atop the organisation, ostensibly guiding expansion and seeking synergies.

A private equity-style investment arm inside parent SK Holdings has had some acquisition success, too. For example, it took control of Siltron in 2017 for about $530 million. In the third quarter, the silicon-wafer manufacturer’s operating profit margin improved 11 percentage points from a year earlier to 29 percent. That sort of achievement may help energise SK to pursue bolder deals.

There are clues about possible targets beyond biotech and microchips. SK Holdings, 30 percent owned by Chey and his family, recently injected funds into Grab, the Singapore-based ride-hailing outfit, and U.S. car-sharing startup Turo. Chey also turned up at a gala event in Washington in late November to promote his company’s stateside investments, including an electric-car battery plant. Masayoshi Son’s SoftBank has been among the most aggressive dealmakers in the automotive technology arena. SK Group could give it a run for its money.