Samsung lost billions of dollars over Galaxy 7 - TIME Business

Samsung’s Smartphone Recall Is Costing It Billions of Dollars

Posted: 12 Oct 2016 06:44 AM PDT

(SEOUL) – Samsung Electronics Co slashed its quarterly profit estimate by a third on Wednesday, soaking up a $2.3 billion hit from ditching its flagship smartphone in what could be one of the costliest product safety failures in tech history.
Quantifying the financial pain of Tuesday’s move to scrap the Galaxy Note 7 smartphone after a global recall and weeks of mounting problems, the world’s top smartphone maker said it expects its July-September operating profit was 5.2 trillion won ($4.7 billion), down from the 7.8 trillion won it estimated five days ago.
Samsung said in a statement the 2.6 trillion won ($2.3 billion) guidance cut reflects the sales and earning impact it currently expects from the decision to permanently halt sales of the $882 Note 7 device. Its third-quarter revenue estimate was also cut to 47 trillion won from 49 trillion won previously.

The new earnings guidance is 30 percent below third-quarter 2015’s operating profit, and left investors and analysts pondering the longer impact on Samsung’s brand and earnings. Rival suppliers of smartphones that use the Android operating system, like Samsung’s, stand to benefit if the Note 7 damage drive consumers elsewhere.
“It’s possible there could be additional profit impact in the fourth quarter but it likely won’t be as large as the third quarter,” said Park Jung-hoon, a fund manager at HDC Asset Management, which owns shares in Samsung. “I think it’s possible for fourth-quarter profits to come in as much as the high 7 trillion won range.”
Samsung shares ended down 0.7 percent on Wednesday, with the Seoul market closing before the earnings guidance cut was announced.
HDC’s Park said the initial guidance issued last week likely already factored in a 1 trillion won profit impact, putting the total third-quarter earnings hit at around 3.6 trillion won. While this was a major blow, he said some investors had feared the profit impact could be as large as 5 trillion won this year.
Billion-dollar buyback?
Samsung shares have already fallen 10 percent this week and are on track for their biggest weekly decline since May 2012, having touched a one-month low of 1.494 million won as investors worried the Note 7 crisis could inflict long-term damage on Samsung’s reputation and earnings.
Some investors said Samsung may need to return more cash to shareholders, either through a dividend or additional buybacks, to calm market jitters. HDC’s Park said the cash-rich firm may need to announce a buyback of between 2 trillion won and 3 trillion won in order to mollify shareholders whose nerves have been jangled.
The tech giant announced the recall of 2.5 million Note 7s in early September following reports of the phones catching fire. The firm appeared to have the situation under control as it issued replacement devices with different batteries, until new phones also began to smoke and combust.
Investors and analysts agreed that the damage to Samsung’s brand and future earnings would deepen the longer the market was left in the dark about the origin of the fault. Some have already predicted lost revenue in the region of $17 billion for Samsung.
“There needs to be explanation from Samsung in order for consumers to understand that problems won’t occur in the next models…Samsung needs to clearly explain and admit what went wrong,” said IBK Asset Management fund manager Kim Hyun-su. The asset manager owns shares in Samsung.
Samsung would likely push ahead to get the latest version of its premium S-series smartphones to market as soon as possible, fund managers said. Typically, the South Korean company unveils a new Galaxy S phone on the sidelines of the Mobile World Congress tech trade show in the first quarter as it battles AppleInc to stay at the top of the smartphone market.
‘Damage control’
Experts are baffled by what could be causing the overheating in the replacement phones, if not the batteries, and Samsung has not commented.
An official at the Korean Agency for Technology and Standards, which is investigating the problem alongside Samsung, said the fault in the replacement devices might not be the same as the problem in the original product. The official asked not to be identified as he was not authorised to speak publicly.
Aviation authorities and airlines around the world are telling passengers to switch off their Note 7s and keep them out of checked baggage, amid fears they could bring down a plane.
“Damage control at Samsung will face an uphill battle to redeem the company’s tarnished image owing to the dangerous and dramatic nature of the phone’s failure,” Vijay Michalik, an analyst at research firm Frost & Sullivan, said.
While the damage to Samsung’s brand, if not its earnings, remains hard to quantify, negative publicity from the botched recall could touch off a turf war among Android smartphone manufacturers, analysts said.
Consumers tend to commit to their choice between Apple’s iOS operating system and Google’s Android, leaving Samsung’s fellow Android manufacturers such as LG Electronics Inc and Alphabet Inc’s Google in prime position to strike.
($1 = 1,114.7500 won)
(Reporting by Se Young Lee; Additional reporting by Joyce Lee and Nataly Pak; Writing by Lincoln Feast; Editing by Stephen Coates and Kenneth Maxwell)

Philippines's President Duterte is planning to break with USA -

Rodrigo Duterte has vowed to expel American troops from the Philippines, accused the C.I.A. of plotting to kill him and insulted President Obama with an obscenity.

But beyond the blasts of hyperbole — he recently compared himself to Hitler — lies a real and potentially historic shift in Philippines foreign policy.

In public statements and interviews during the past week, Mr. Duterte’s top foreign policy advisers said he was seeking to break the Philippines out of the United States’ orbit and signal to China that he is ready to negotiate closer ties after years of wrangling over its military presence in the South China Sea.

The move is a radical departure for a country that has historically been the most dependable American ally in Southeast Asia, and could undermine Mr. Obama’s so-called pivot to Asia, a keystone of his foreign policy. That strategy depends on American allies to counter China’s increasing power in the region.

move has already tilted the balance of power, said Richard Javad Heydarian, a political scientist at De La Salle University in Manila. By declining to press claims against China over disputed territory there, despite a favorable ruling by a United Nations tribunal, Mr. Duterte has made it hard for the United States to galvanize international pressure on China over the issue.

“Almost single-handedly Duterte has reshaped the regional strategic dynamics, with both Beijing and Washington recalibrating their next move in the South China Sea as they try to anticipate the Filipino strongman’s foreign policy trajectory,” Mr. Heydarian said.

Mr. Duterte, who is expected to visit Beijing this month, has made no secret of his worldview.

“I will be reconfiguring my foreign policy,” he said in a speech last week. And at some point, “I will break up with America.”

Often after Mr. Duterte makes an over-the-top pronouncement, an aide emerges to walk it back. But in this case, the retreat was slight.

Mr. Duterte was not seeking a breakup with the United States, the president’s spokesman, Ernesto Abella, explained, so much as “an open relationship.”

On Tuesday, Foreign Secretary Perfecto Yasay Jr. went further, explaining in a statement posted online that the Philippines needed to chart a new, independent foreign policy because “America has failed us.”

independence from the United States, its former colonial master, in 1946, Mr. Yasay wrote, “the United States held on to invisible chains that reined us in towards dependency and submission as little brown brothers not capable of true independence and freedom.”

American officials have sought to deflect and diminish the significance of these statements, and emphasize the benefits to the Philippines of the American presence.

“Our history of cooperation spans 70 years, and our commitment to this country remains unchanged,” the United States ambassador, Philip S. Goldberg, said Wednesday in a speech to the American Chamber of Commerce of the Philippines here. “The Philippines is a key strategic partner of the United States, and our military alliance, development assistance and commercial cooperation continue.”

Although Mr. Duterte declared last month that the annual joint military exercises now underway on the island of Luzon would be the last during his administration, American officials said his government had made no formal requests to halt any programs. Nor has it followed up on Mr. Duterte’s threat to eject American forces from the southern Philippines, where a rotating force of 50 to 100 troops helps combat Abu Sayyaf, an Islamic-themed kidnap-for-ransom gang.

“As it has been for decades, our alliance with the Philippines is ironclad,” the American defense secretary, Ashton B. Carter, said late last month.

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The United States is giving the Philippines over $90 million in military aid this year and has provided more than $1 billion in nonmilitary support over the last five years, much of it for disaster relief, American officials said.

On Friday, Defense Secretary Delfin Lorenzana said that “we can live without” the military aid.

Some of the tension between the allies has come from international outrage over Mr. Duterte’s bloody campaign against drugs, which has led to the killing of about 1,400 suspects by the police and hundreds of other extrajudicial killings. It was his concern that Western powers would lecture him over the policy that prompted Mr. Duterte’s denunciation of Mr. Obama, as well as similar tirades against the United Nations and the European Union.

Mr. Duterte, 71, identifies himself as a socialist and views the West through the lens of the Cold War and the Philippines as the victim of historic American imperialism.

But the recalibration also provides an opportunity to improve ties with China, the region’s biggest military power and largest economy. China was the Philippines’ second-largest trading partner last year, with total trade of $17.6 billion. (The United States was third and Japan first.)

China has been making inroads in the region with promises of investment and with its military expansion in the South China Sea, where it has occupied islands claimed by the Philippines, Vietnam and other countries, in some cases building forts.

That dispute led to deteriorating relations under the previous Philippines administration, which filed a claim against China with the United Nations maritime tribunal over the Scarborough Shoal, a reef claimed by both nations and occupied by China.

The tribunal ruled in the Philippines’ favor in July. There is no enforcement mechanism for the ruling, and it has been dismissed by China.

But the victory has given Mr. Duterte a stronger hand in negotiations, where he is expected to use the ruling as leverage in reaching his own deal with China in a way that will allow its leaders to save face.

In August, he sent former President Fidel Ramos, 88, to Hong Kong to meet with officials in what Mr. Ramos described as an effort to build trust and find common interests.

Advisers to the president say one potential deal would be to let China maintain control of Scarborough Shoal if it made concessions such as restoring access to Filipino fishermen and investing in infrastructure development in the Philippines.

“He doesn’t want to provoke China any further,” Jesus G. Dureza, a longtime friend of Mr. Duterte’s who holds the cabinet post of peace adviser, said in an interview. “He feels aligning with our allies against China is not going to benefit the country.”

Mr. Dureza said he and other cabinet members favored opening direct talks with China in part because of fear that, despite a 65-year-old mutual defense treaty, the United States would not be willing to defend the Philippines.

“The idea is that our allies are not going to go to war for us, so why should we align with them?” he said.

Relations with Beijing have already grown warmer, he said, with Chinese officials saying that now “we can talk like Asians across the table with Asians.”

At the same time, despite the sometimes harsh words, Philippine officials have made it clear that the new president does not want to abandon the United States.

“While we would like to foster a closer relationship with China, we will certainly not engage in any alliance with China in a military viewpoint because that has never been the intention of the president,” Mr. Yasay, the foreign secretary, said at a Senate hearing on Thursday. “The president, on many occasions, has said categorically that he will only have one military alliance, and our only ally in that respect is the United States.”

That statement may suggest a future in which the Philippines plays the big powers against each other.

Bankers' love for London makes relocation after Brexit difficult - TIME

Bankers’ Love of London Complicates Brexit Relocation Plans

Posted: 11 Oct 2016 12:26 AM PDT

(LONDON) – As Britain heads for the E.U. exit, financial firms intending to move London-based jobs to continental Europe face a costly choice: offer generous relocation and redundancy packages, or expect a flood of lawsuits from disgruntled staff.
Employment lawyers say some worried City workers have already been in touch to clarify their rights if banks, asset managers and other businesses decide they need new homes in the euro zone for operations hit by Brexit uncertainty.
While the terms of Britain’s exit remain unknown, many firms operating in the City of London are intent on protecting their right to sell financial services throughout the European Union under its “passporting” rules. This is likely to mean setting up shop in a center still in the bloc, such as Paris or Frankfurt.

But lawyers told Reuters this option could expose employers to legal action if workers in love with London life, or who have pressing family reasons to stay in the British capital, don’t want to move or feel under-compensated for their troubles.
“The practical logistics of moving lots of people are complex and the legal side will also be very complex,” said Crowley Woodford, partner at law firm Ashurst. “It will be very hard for banks to avoid constructive dismissal lawsuits. There will be the headache of litigation coming out of this.”
Prime Minister Theresa May said last week she would trigger what is likely to be a two-year process to leave the E.U. by the end of March.
This heightened a sense of urgency among financial services firms to decide which parts of their businesses need to be moved, to where, and when, industry sources said.
Investment banks have already warned they could move thousands of jobs if the City loses access to the E.U.’s single market, while the European Central Bank has signaled it could force euro trading out of London, the world’s largest foreign exchange market.
Many bankers are reluctant to go. One told Reuters that being forced to relocate would make his life very difficult. “I am working for a European bank which might or might not decide to move out. It would be difficult to uproot my family and children to a new country,” he said, speaking on condition of anonymity.
Risky Materials
Bank chiefs acknowledge any shift must be done with great care. Alex Wilmot-Sitwell, who heads the European business of Bank of America Merrill Lynch, likened moving operations – including staff – to handling hazardous materials.
“The materials that are being moved are risky materials, and you don’t move nuclear waste in a race,” he told a parliamentary committee last month. “You do it in a very carefully coordinated and managed process.”
HSBC is already shifting 1,000 jobs from London to a new commercial and retail banking headquarters in the city of Birmingham, about 160 km (100 miles) away. While unrelated to Brexit, this move within the same country and currency zone will take three years to complete.
Before Britons voted on June 23 to leave the E.U., HSBC Chief Executive Stuart Gulliver estimated that around 20 percent of his 5,000 London staff who work in global banking and markets would move to Paris in the event of Brexit, depending on the terms.
The stakes are high. Britain’s financial industry could lose up to 38 billion pounds ($48 billion) in revenue if it ends up with restricted access to the EU single market, according to a report commissioned by an industry group.
Banks have been quick to quash any media reports that they have already decided how many employees to relocate.
But consultancy firm Oliver Wyman estimated that if finance firms lose the right to sell their services freely across Europe, 75,000 jobs in Britain may disappear.
Those jobs wouldn’t necessarily all reappear in other E.U. countries, as banks may decide that the difficulty of relocation makes some parts of their business unviable.
Nevertheless, analysts at JP Morgan have estimated that eight major U.S. and European banks face a combined $7.5 billion bill in the next five years if they need to move capital markets operations out of London.
Under British law, an employer cannot force workers to move abroad without risking a breach of their contracts, giving staff the opportunity to claim constructive or wrongful dismissal.
Even those firms which have negotiated clauses theoretically allowing them to transfer staff to a location of their choice may find it hard to enforce such provisions at tribunals that handle employment disputes.
“Tribunals are very sensitive about whether it is reasonable to enforce these clauses on any employee because of their own circumstances. They may have children in schools, partners who work for other firms who might not be able to relocate,” said Kevin McCavish, who heads the employment team at Shoosmiths law firm.
“Exercising those clauses must be done in a reasonable fashion – giving employees adequate advance notice and consultation, giving relocation packages etc,” McCavish said.
Relocation or redundancy
Many employers must decide whether to move London-based staff or pay them off and hire new workers where any new foreign operation is set up. Neither option will be cheap and both carry significant legal risk.
“For many operations, with the exception of key personnel, (redundancies) might be their preferred choice. It probably would be cheaper and that would give the bank the flexibility to recruit in other jurisdictions,” McCavish said
McCavish has already received inquiries from worried employees. “Their concerns are mainly about the financial packages that the bank is proposing for them. They are concerned the bank isn’t actually considering relocating their jobs – it is more a question of the bank making everyone redundant at their place of work in the U.K.,” he said.
U.K. legislation gives employees the right to keep their jobs if they are willing to follow the business of their team abroad on at least the same terms and conditions as in London.
But Ashurst’s Woodford estimates that nine out of 10 of any potential ‘transfers’ will involve redundancies with packages that are so generous that staff members waive these rights and opt against suing the bank.
For those who do take legal action, compensation for unfair dismissal in Britain is capped at around 79,000 pounds ($101,000), a relatively modest sum when legal costs are factored in.
Some bankers might be persuaded to move but want to keep their big city life, meaning the quieter charms of Germany’s financial capital are less attractive.
“I would consider relocating to Paris but not Frankfurt. Very few people would go to Frankfurt,” said another banker. “Paris is a large metropolitan centre with lots of culture and things to do.”
However, some senior staff might remain based in London and commute to Paris by high-speed train, he said, adding: “If my family weren’t happy, I wouldn’t move.”

Brexit may meet hard landing - Wall Street Journal

Oct. 9, 2016 5:30 p.m. ET

3 COMMENTS

Last week’s sterling flash crash was over in minutes. But the perception of instability that hangs over the U.K. after a week of political drama may be harder to dispel. 

Prime Minister Theresa May was successful in her first two months in office in restoring calm following the chaotic aftermath of the June Brexit referendum. By refusing to be rushed into quick decisions on Britain’s future relationship with the European Union, she raised hopes of a relatively smooth Brexit, which was reflected in the swift recovery in the economy and the markets from the initial referendum shock. But her speeches, and those of some of her colleagues, at last week’s Conservative Party conference have fueled anxieties among investors and companies over the direction in which the U.K. is now heading.

Those anxieties only partly relate to Brexit itself. Mrs. May has signaled what was already widely assumed: that the U.K. is heading for a hard form of Brexit in which it likely quits the EU customs union and single market. That is the implication of her pledge to reclaim full control of immigration to Britain and to remove the U.K. from the jurisdiction of the European Court of Justice.

Officially, the U.K. hasn’t made any decisions on what future relationship it wants to pursue with the EU, and there are still some in the government pushing for a softer form of Brexit, if only to avoid any fiscal damage should the U.K.’s financial-services industry lose unfettered access to the EU market. But a “soft Brexit” has never looked like a politically viable option, not least because the U.K. is unlikely to consent to abide by rules over which it has no control.

SEE MORE FROM SIMON NIXON

• Risk of Deglobalization Hangs Over World Economy Oct. 5, 2016 
• Crisis of Globalization Lies Behind Deutsche’s Woes Oct. 3, 2016 
• No Quick Fix to City of London’s Brexit Conundrum Sept. 28, 2016 
• EU Pushes Back Against Protectionist Forces Sept. 25, 2016 
• Free-Movement Question Isn’t U.K’s Only Hurdle to Accessing EU MarketSept. 21, 2016 
• Brexit Revives Debate Over Irish Reunification Sept. 18, 2016 
• Britain’s Post-Brexit Trade Ambitions Run Up Against Protectionist ForcesSept. 14, 2016 
• French Centrist Plots Rebel Run for Presidency Sept. 11, 2016 

Mrs. May’s other Brexit-related announcement also points to a hard deal for the U.K. By committing to invoke Article 50 of the Lisbon Treaty—thereby setting the clock ticking on a two-year exit negotiation with the EU—by the end of March 2017, the U.K. has given up one of its few points of leverage over the Brexit process. That may have been politically unavoidable, given demands from factions of her party and from business not to prolong the uncertainty. But it does mean the U.K. will now go into the negotiations without any commitment from the EU to transitional arrangements or to extend the negotiating period beyond two years that some in the U.K. had wanted.

It also means the EU will now enter the negotiation holding the better cards. The U.K. has the most to lose if the two sides fail to reach a full agreement by the end of the two-year negotiating period and are obliged to trade on World Trade Organization terms. French finance minister Michel Sapin made clear the EU will press this advantage, telling The Wall Street Journal that France will insist on all aspects of the divorce and future trading relationship being agreed in two years.

What appeared to also rattle the markets last week was the vision that Mrs. May and other ministers set out for a post-Brexit Britain. Part of this vision seemed to hinge on reducing the number of foreigners: in schools, in the health system, and in British-based companies. Mrs. May also appeared to take aim at the international business and financial elite who have made their home in the U.K., telling them that “if you are a citizen of the world, you are a citizen of nowhere.”

Mrs. May also set out an economic vision designed to address working-class concerns over perceived failures of globalization that appeared to have been lifted from the opposition Labour Party. This includes a new industrial strategy that would identify and support “strategic industries,” a policy to add workers to corporate boards and controls on energy prices. She also appeared to take aim at the independence of the Bank of England with criticism of its quantitative-easing program. 

At last week’s annual meetings of the International Monetary Fund in Washington DC, there was widespread shock at the direction in which Mrs. May appears to be taking the U.K. To many observers, this apparent policy pivot has raised fears that post-Brexit Britain will turn inward, rather than taking the opportunity to embrace a future as an open, business-friendly economy.

The danger for Mrs. May if this perception takes hold is that she risks alienating three groups vital to her own success.

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The first is international businesses, whose investment is crucial to the long-term economic fortunes of a country that currently runs a near 6% current-account deficit. Many of these companies use the U.K. as a hub to serve European markets and rely on the EU’s current freedom-of-movement rules to ensure they can recruit the necessary foreign talent. 

The second is European governments, whose goodwill is vital to securing a good Brexit deal. Many EU governments, including France and Germany, have already reacted to signs of anti-foreigner sentiment in the U.K. by hardening their own rhetoric toward the British government. 

The third group is Mrs. May’s own parliamentary colleagues, who won a general election only 18 months ago. Many on both sides of the Brexit divide may wonder why they are now being asked to back policies that appear to have been borrowed from their defeated Labour and UK Independence Party opponents. 

With a parliamentary majority of only 17, Mrs. May’s reputation as a stabilizing force may fall victim to her ambitions.

Write to Simon Nixon at simon.nixon@wsj.com

Fallen Pound Sterling helps to cushion Brexit shock - Wall Street Journal

m. ET

5 COMMENTS

When the U.K. voted to leave the European Union in June, the pound took its worst beating in half a century. Many economists saw that as a good thing.

Despite the shock of Brexit, more than three months later there are few tangible signs of economic distress in Britain: Employment is steady. The stock market has held up. Government bonds are strong. Houses are still being bought and sold. Consumers are still consuming.

Credit, say economists, goes in large part to the decline of the British pound, which has acted as a giant shock absorber against Brexit. It fell 11% against the dollar in two trading days after the vote, and after another sudden slump last week is now down 16%.

Seen from abroad, British people are one-sixth poorer and their economy is one-sixth smaller. In the past week, figures from the International Monetary Fund suggest, Britain has slid from the world’s fifth-largest economy to sixth, behind its millennium-old rival France.

But suffering Brexit’s pain through the currency may be more comfortable than through higher unemployment or other ills—a luxury that wasn’t available to eurozone countries during the currency bloc’s debt crisis. Over the longer term, economic wisdom holds that a weaker currency will boost a nation’s sales abroad, so what the economy loses in the form of lower consumption—because consumers are poorer—will be recovered through higher exports.

“It is important that you have a live release valve like this,” said Tim Haywood, an investment director at GAM Holding.

Brexit is a significant test of that valve’s strength and reliability. In the short term, too chaotic and deep a plunge in a currency can trigger financial panic. 

On Friday, sterling plunged to its lowest level in 31 years against the dollar after briefly tumbling over 6% in Asian trade. It capped a rough week for the currency after U.K Prime Minister Theresa Mayset a date for Britain’s exit from the EU.

The largest recent hit to the pound happened the day after the Brexit vote on June 23, when it lost as much as 8%, the steepest single-day drop against the dollar since Nov. 18, 1967, according to FactSet.

Back in 1967, U.K. officials grappled to keep sterling pegged to the dollar amid a weakening economy and as foreign investors pulled out of the country. Finally, British Prime Minister Harold Wilson was forced to devalue the currency from $2.80 to $2.40, a 14% drop.

Britain was lucky not to be pegging the currency when Brexit happened, analysts say.

“If they had had a fixed exchange rate it would have blown up,” said Kenneth Rogoff, economics professor at Harvard University.

Flexible exchange rates allow economies to absorb shocks in two main ways: They let the currency bear the brunt of capital outflows, rather than stocks and bonds, while boosting the competitiveness of local businesses on the global stage.

A floating currency allows a nation to set interest rates, steering the price of financial assets. By contrast, under a pegged-currency regime, in times of turmoil, bonds and equities are left to crash. Banks are left scrambling for liquidity.

Take the FTSE 250 stock-market index, which lists medium-size companies doing a lot of business in the U.K. For dollar-based investors, it has plunged 13% since the Brexit vote, but for locals measuring it in pounds, it has risen almost 4%.

Furthermore, the U.K.’s largest companies, such as British American Tobacco PLC, GlaxoSmithKline PLC and AstraZeneca PLC, make most of their income abroad. Their shares have surged because with a weaker pound, their revenues look much beefier. The FTSE 100 index, which comprises mostly such multinationals, is up 11% since the vote—although that rise is less than the pound’s fall against the dollar.

By possessing its own currency, the U.K. is able to deploy monetary and fiscal stimulus at will. U.K. Treasury chief Philip Hammondrecently signaled that the government would ramp up spending in infrastructure to offset the possible impact of Brexit on consumer and business confidence.

Britain also has the advantage of a strong local financial system, meaning both the government and private companies can easily borrow in pounds. In contrast, in many developing economies borrowing happens in foreign currencies. When the local currency depreciates, foreign-currency debts balloon and often become unsustainable, which happened in the Asian financial crisis of 1997.

In 1970, almost every country in the world had a pegged exchange rate. Despite a certain rebound since the mid-1990s, now about 47% do, according to IMF data. The world’s leading advanced economies have all embraced floating rates.

What is more, financial panics in emerging-market economies, including Russia, Brazil and South Africa, have been mellowed over the past few years by the exchange-rate flexibility governments have mustered.

The eurozone, whose countries share a currency, offers an example of the danger a fixed currency can pose. In 2011 and 2012, stock markets in Spain and Italy plummeted more than 40% and investors dumped those countries’ sovereign bonds.

Being part of the eurozone also meant Southern Europe couldn’t control monetary and fiscal policy. Public spending was cut, taxes went up and unemployment soared. Unlike Britain, the troubled eurozone countries, which incurred a lot of debt during the crisis years, now face the hardship of paying back that debt in a currency that they can’t print.

The alternative was growth through higher exports. But for poorer nations to make their products more competitive is hard when sharing a currency with richer nations like Germany and the Netherlands. In Greece, the hardest-hit country, a faction of the now-governing Syriza party pressed the virtues of a flexible currency during the apex of the nation’s crisis. Syriza, and Greece, ultimately stuck with the euro.

“It’s the lack of currency flexibility that has been one of the fundamental problems that Europe has,” said Derek Halpenny,economist at Bank of Tokyo-Mitsubishi UFJ Ltd. “The flexibility of exchange rates is the big positive that the U.K. has going forward.”

According to most economic textbooks, a cheaper currency makes local companies more internationally competitive, while curbing imports in favor of local production. Some see tentative signs this is already happening in the U.K., crediting the weaker pound for a small summer rebound in manufacturing.

Manufacturers like Nissan Motor Co., which owns the U.K.’s largest car factory, in Sunderland, England, may be the main beneficiaries of a weaker currency—assuming they can handle whatever new tariff barriers they face in the EU once the U.K. leaves.

For the tourism industry, a weaker pound makes U.K. hotels cheaper for foreigners. InterContinental Hotels Group PLC, which has long been optimistic about the effects of Brexit, said it got a boost in the first half of the year because a weaker sterling slashed its costs.

But debate remains over how much a weaker sterling can offset the longer-term effects of Brexit, since exports don’t move on currencies alone. Also, it is possible that economic malaise from Britain’s leaving the world’s largest free-trade bloc will set in later, when Brexit actually occurs. Many economists are skeptical the pound can ever offset the trade impact of withdrawing from the EU. Tariffs with the EU would hurt exporters, and the British government’s attempts to curb migration, economists say, will dent the U.K.’s long-term productive capabilities.

“The currency offers some cushion in the near term,” said Allan Monks, U.K. economist at J.P. Morgan Chase & Co. “But the weaker currency doesn’t necessarily give such a strong boost to manufacturers’ exports and output.”

Indeed, the pound fell sharply after the 2008 global financial crisis, but British exports didn’t bounce back meaningfully. In Japan, ultraloose monetary policy has driven the yen down 25% against the dollar in the past five years, but exports have remained much lower than before.

Because supply chains are global, manufacturers increasingly use components from abroad to make products, so higher import prices matter to exports, too. IMF and World Bank research found that for countries that integrated themselves in global supply chains between 1997 and 2012, the currency lost 22% of its impact on exports.

That means currencies have to fall further to help buffer the economy, said David Bloom, global head of foreign exchange research at HSBC Holdings PLC, who forecasts the pound will sink to $1.10 against the dollar and to parity with the euro by the end of next year.

The outlook for U.K. exporters, however, remains strongly dependent on whether its trading partners—chiefly the eurozone—start growing at a faster pace. So far, their performance has been disappointing.

“No matter how much the currency goes down, people still don’t want to buy things,” said Mr. Bloom.

“I don’t think there’s any amount of sterling depreciation that can shock-absorb for the loss of economic potential,” said George Magnus, senior economic adviser at the Swiss bank UBS Group AG.

Write to Jon Sindreu at jon.sindreu@wsj.com and Christopher Whittall at christopher.whittall@wsj.com

How will Latin American countries react to Trump's protectionism ? - Economist

future bully

Anti-yanqui feeling is in remission in Latin America. Could Donald Trump revive it?

Oct 8th 2016 

“YOU are the United States, you are the future invader of the guileless America of Indian blood, which still prays to Jesus Christ and still speaks Spanish.” So goes the ode “To Roosevelt” of 1904 by Rubén Darío, a Nicaraguan writer. His poem was occasioned by the seizure of Cuba and Puerto Rico by the United States in the Spanish-American war of 1898, in which Theodore Roosevelt played a minor role that helped him win the presidency, and by his subsequent grabbing of Panama, a province of Colombia.

Darío was prescient: in the next three decades there would be more than 30 military interventions by the United States in the Caribbean basin, in the name of what Roosevelt called “the exercise of an international police power”. These events, and the asymmetry of power and wealth that underlay them, gave rise to an enduring tradition of anti-Americanism (or “anti-yanquismo”, since “América” to Spanish-speakers means the entire land mass). In recent times this has been identified with the left—with Fidel Castro of Cuba, the late Hugo Chávez of Venezuela and Evo Morales of Bolivia. But there is a conservative, Hispanicist strain of anti-Americanism, too, expressed by Darío and others, which claims a superiority of culture and values for Latin America in the face of the bullying and vulgar materialism of the United States.

America has been to dispel anti-Americanism. From the outset of his presidency he said he wanted “an equal partnership” in the Americas. His boldest stroke was the diplomatic opening to Cuba, which was applauded by both left and right across Latin America. And on issues such as Venezuela’s crushing of democracy, the United States has sought to work through partners in the region, though without conspicuous success.

Mr Obama has had an impact in regional opinion. When he was elected in 2008 only 58% of respondents to Latinobarómetro, a region-wide poll, had a positive view of the United States. This year that figure was 74%. Governments’ attitudes have changed, too. Chávez and Argentina’s Cristina Fernández de Kirchner have departed. Brazil’s new government does not place the hopes that its predecessor did in “south-south” ties. Across Latin America, many governments are now seeking to draw closer to the United States.

That means Latin Americans are especially alarmed by the prospect of Donald Trump occupying the White House. Along with Canada, as neighbours of the United States they have more to lose than anyone else from Mr Trump’s protectionist nationalism. Many Latin Americans see him as a racist who derides “the guileless America of Indian blood”, in Darío’s words. Latin American commentators see in Mr Trump a likeness to the region’s own populist leaders, such as Chávez. Some fear that his advent would prompt a revival of anti-Americanism in the region just when it was going into remission.

In fact, responses are likely to be more considered. Take Mexico. Polls suggest that some 85% of Mexicans abhor Mr Trump. But they also suggest that Andrés Manuel López Obrador, a populist leftist hopeful for the 2018 election, who is in some ways a mirror image of Mr Trump, is not profiting from this anger. A poll by Reforma, a newspaper, found support for Mr López Obrador stable at around 28% in August. It is Margarita Zavala, a pro-American conservative, who has received a bounce. “If you have the biggest bully in the world across the border perhaps you don’t want your own bully” but rather a “softer style of leadership”, says Juan Pardinas of the Mexican Institute for Competitiveness, a think-tank.

Mr Trump’s effect on Cuba, if he carries out his threat to annul Mr Obama’s diplomatic opening, might be different. That could remove any hope that the transition to a post-Castro leadership, which is due to start in 2018, will involve a loosening of political control. And it is hard to know what will guide Mr Trump’s approach to Latin America. His name is on businesses in Brazil, Panama and Uruguay, and has been linked to other ventures in the region.

Although a President Trump’s blustering and protectionism would prompt anger and disappointment, they are more likely to be met in today’s Latin America with calm rationality than to be copied. Both Mexico and Brazil have experience of responding successfully to American violations of trade rules, for example on cotton, with sanctions targeted for maximum political effect in the United States. Latin American governments are anti-Trump, but that won’t necessarily make them anti-American.