HOLISTIC DEVELOPMENT ENSURES CHENGDU WILL REMAIN THE “LAND OF ABUNDANCE’ Chengdu Xingcheng Investment Group has balanced new construction with rural restoration projects. 1N 2003, CHENGDU XINGCHENG INVESTMENT GROUP CO.,LTD. ([CXIG), a state-owned development corporation, was founded in Chengdu, @ Chinese city known as the “land of abundance” with a rich 3,000-year history. With 2 growing population of more than 16 milion, the city is cammmonly ceferred to as ane the happiest cities in China, Additionally, Chengdu has been selected as one of the international plot cities to create sustainable development In partnership with the United Nations Human Settlements Pragramme (UN-Habitat) By implementing a holistic develonment approach, CXIG has been able to not just develop the cty physically, but to also develop its economy, social institutions, ‘and environment. For example, since 2003, Chengdu leaders have planned to ‘enhanae development ta tha south and east ofthe city. CXIG acted an ths plan, buiding 56 square km of new development in those areas, integrating government services, commerce, finance, trade, and living spaces. These developments have become the new center of te city, attracting more than 300 Fortune Global 500, ‘entorprisas and tens af milians of people to live, wark, and play In adltion to these private enterprises, XG has helped build thousands af hasptals, markets, schools, and other public infrastructure projects, including roads stretching thousands of kilometers. (Current, there are 1.200 expressways, bridges, and tultra-high-rise bulsings under construction. CXIG's projects also generate jobs and stimulate economic ‘growth in the area. Annual construction has reached £80 milion square meters, which can create 200,000 jabs and provie safe and convenient supparting services maintained ving spaces for adversity of plants and animals-—for many people. Much af this new construction is facused on tourism, The Jinsha Site Museum presents 3,000 years of Chengdu history in en engaging way and {a globel destination for toursts, drawing mil- lions of visitars since its opening in 2007. High- tend hatel clusters also service the city: Spain's Gran Mel end the Howard Johnson by Wyndham Conference Resort Chengdu have provided professional services forthe 2019 China— Japan—South Korea Trilateral Summit, APEC Women Leadership Forum, and other international events while also offering a comfortable accom- ‘madatians for quests fram arcund the globe ‘Throughout its many development projects, environmentalism and sustainable practices have ‘always been a priority for CX. Allofits projects ‘are designed to foster harmonious coexistence between humans and nature. To that end, CXIG has constructed a city-wide park spanning 193 square ke, with 615 km of greenways and 120 square km of green space, transforming Chengdu into a “park city” The parkinereased the green space for several ‘lions of residents by 10 square meters per capita ‘Over the years, CXIG has been a key player inenviconmental rehabilita- tion, as wel. thas planted £240,000 trees, covering an ‘area of more than 3 milion ‘square meters, The trees ccan absorb mare than 1,000 tons of carbon dioxide, retain more than 2,000 tons of dust. and generate more then 1,400 tons of oxygen ‘nnually. These green space projects are complemented by the rastaration of 12 square km af aquatic exo- logical environment end the creation of 1,333 hectar of diversified water systems, CxIGés sustainability efforts have paid off. The ‘numberof bird species living inthe area has increased from 384 to $1, and 43 lant pandas now live in the park, as well Millions of residents enjoy the space by ‘camping end having picnics, ‘making it a model for the ‘amicable cohabitation af humans and nature in urban (XG recognizes that healthy and productive rural ‘and agricultural lands support 7 cities and urban areas, sothe ccampany has made ita party twievesti side of major cities. In ardor to ‘empower these communities, XG plans torastore and replant 6 655:7 hectares of U1 high-standard, modern Hi farmland, which wil be able to produce 115,000 tons of grains. tlseed craps vegetables, and fruits annually after restoration. The investment ‘group has made a total investment of RMB 10 bition (15 billon USD] in western China, focusing on the ccnstructio of dS naw rural communities and vileges. The construction area of rural buildings has reached 38 milion square meters providing ving ssaaoes for mare than 100,000 people. To further revitalize rural communities, CXIG invested in and constructed eight large traitionel Chinese medicine industry bases in Henan province ‘and other poverty-stricken aroas, This ivestmant munities ut i ‘maant that tons of thousands ‘of people in rural households ‘ould obtain jobs and increase the average annul income of teach household by more than RMB 30,000 (neerly 85,000, USO). GXIG also successfully ‘completed the largest scale relocation, poverty alleviation, and resettlement prajectin Sichuan province. To date, ¢ total ‘of 18,000 residents of poor, Ic ‘mountainous areas have maved to new, modern residences. The company’s holistic ‘approach has not gone unno~ ticed, twas the fst state-owned enterprise in the central and western regions of China ta take part in the World Economic Forum in DDavas, Switzerland, and continues ta make a df in the cammunitiesin which it invests. XG has been a driving force in Chengdu’, and mace largely China’s, econamie development for many years. By focusing on comprehensive development ‘that balances the needs ofthe people and the environment, CXIG has helped to maintain 2 "land of abundance," where businesses can people can enjoy high quality of ite ina rive, andFeatures August/September 26 Can ThisMan Save Hong Kong? The CEO of Hong Kong Exchanges andClearing strives to preserve the citysroleasa between global inves ‘and Chinese markets, But Beijing's distrust of foreign capital has com. plicated that mission. Cover image by ‘SERGI DELGADO 36 Moving Money in the Shadow of War BY VIVIENNE WALT ‘As supply-chain snags bedevil companies, global traders are book ing record profits by moving goods through the bottlenecks. The widening conflictin Ukraine could push them intorougher waters. wgapore, potenti ‘Asia's next fn 44 The Global 500 Lists FL TheWorld's Largest Corporations FI Notes Index FI3 Ranked by GeographyDepartments Foreword 6 Survivalofthe Fittest: Meet This Year's Global 500 By ALYGOW SHONTELL ‘uaRTERLY INVESTMENT SUIDE ‘The Conversation Fortune's take onhow to best 6 SAMBANKMAN- investin the face of apotential fortune.com/ ing wunderkind fs weighs inon the 03-2022 future of Webs. rERVIEW ay a JEFF ONN ROBERTS SUSTAINABILITY VIRTUAL FORUM = ented, 6 anddection makers gator tanding, oF Pant onsept 290 Plummet? Stategie fora fertune.com/ 22. Recession-Proof conferences Investment for the Rest of Us THe TRUST by SHAWN TULLY Factor Our weekly newsletter provides insight fandadviee from leaders working tobuild tustin their companies, industries, and Putting Nature Fiest Hierarchy fortune com/ hi, Fete A SS 078 $58) publishes binonyly Four Ned P ited rune sa may publ occasion extra eues. oe Cita Sracesndssbctone tn /foo ce plsta os eabat-wats esbanon am aufnesa 7S. Ton toy aoc th Cotowt Svs Cot (02620655 of enalfatunagsubseborow coma wneoforure Meda P A Line nes 6-00 Dao. FLfe Towa oe Seung Wet Road Koos avon ogKong Surber heptd f Rises ee rene tea eee ieee eee eco é int caiaitainledabUnted ovine eatssmarcatrireNed Pumidrepuuredniieds aianercomues —"%S,-— Va == | FrtueddetenmtednSinapoe Singur MCKPIO2/Z02 Nala nN et PSt/OOz0 2002008) geGE Appliances is creating value for its employees and customers by putting people first. FORTUNE rrr ran uy) SINCE 2016, GE APPLIANCES, THEU.S. LEADER nhome appliances manufacturing, has been working to transform the ordinary, transaction- al, and often unidirectional strategy to selling appliances. The Kentucky-based company is bringing consumers and employees together through its human-first approach to business "We want to be known not just for what we do, bout haw we do it.” says president and CEO Kevin Nolan. “That starts with people—from those |deating and building our appliances to those who put their rust in us to buy our products’ According to Nolan, management scientist James F. Moore's "human ecosystems” mind- set inspired this strategy. His ahllosophy views company as an ecosystem, where all parts work together to strengthen and build each ther up to create and deliver value. “With an ecosystem mindset, we're mo: tivated to get outside the building and find ‘communities and partners that can help us learn, react to, and serve every person through ‘co-creation” he says. This madel ultimately will help the company achieve its goal of “zero distance,” which means getting employees as close as possible to product users in order to understand their needs and invent the right, solutions For example, when Nolan received a letter from a consumer frustrated that a GE Appliances’ ‘cooking device was difficult ta navigate for visu: ally impaired users, he invited that customer to FirstBuild, the company's Louisville makerspace ‘and co-creation center, which Nolan cofaunded, to.understand more about this customer's challenges using the product. After hearing this feedback, GE Apaliances partnered with lacel web development company Interapt and the American Printing House for the Blind, a Louisville ‘nonprofit that promotes independent living for people who are blind and visually impaired, to collaborate an several recommmendations to impave the user experience for customers withsimilar needs, Those changes are now being implemented. “Having the ecosystern model means our ‘employees don't have to be experts in every- thing, We can focus on being the appliance experts,” Nolan says FirstBulld engineers recently put this expertise to practice when they partnered with barbeque professionals. After listening to that industry's unmet needs, the en- gineers built an indoor barbeque smoker that’s ‘now headed for production In fact, the company is so committed to the co-creation concept. itis opening a new center dedicated tot. In the fell of 2021, GE Appliances ‘announced it was constructing CaCREATE ‘Stamford: part manufacturing facility, part community makerspace and design complex, ‘and part experience center. The new opera- tion, based in Connecticut, is designed to “blur the lines among innovation, education, and Inspiration.” When the center opens this year, creatives: ofall types will be invited to collaborate with engineers on new ideas. This is e space where ‘custamars who order certain appliances can be present during their assembly, talk with thase Who are building them, and co-create an thelr specific features, ‘These are the kind of initiatives shaping GE Appliances, and they radiate out across the entire GE operation. Company leadership has remaved organizational barriers and bureau- cratic, top-down decision-making by promot: ing internal transparency and encauraging ‘employee autonomy, Meetings that were his~ torically only opan to leadership have become accessible ta each employee, and all warkers are, in effect, their own bosses. “My role as CED is ta help GE Appliances professionals seek out their own answers and 1a provide the tools to enable their grawt says Nolan, If our customers or employees have en idea or passion, our company is platform for them ta bring it ta market” As @ result, curiosity, creative energy, and passion projects at the company thrive. Far instance, a {group of employees who embrace outdoor living recognized a boam in RV sales, They saw an ‘opportunity and established alliances with RV Industry leaders, catapulting GE Appliances into ‘an untapped recreatianal ving portfolio with its ‘newest microenterprise—ak.,,an independent, employee-led business, TTaday, GE Appliances is focused an becoming the number one ecosystem appliance com- pany in the US. by making ife easier and better for people acrass the country. The campany is already proving that this transformation is pos sible: GE Appliances is forging partnerships that bring the community tothe table to co-create product ideas and help give those ideas life and “IF OUR CUSTOMERS OR EMPLOYEES HAVE AN IDEA OR PASSION, OUR COMPANY IS A PLATFORM FOR EMPLOYEES TO BRING IT TO MARKET.” KEVIN NOLAN PRESIDENT AND CEO, GE APPLIANCES is empawering employees to discover thelr pas~ sions and work on projects they genuinely love. Product lines are accelerating and microenter- prises are fast-growing, too, says Nolan ‘When you do what you love, and do so with possion, the extraordinary happens,” Nolan says. “And that passion allows us to blow open the ours to creativity to innovate better, and to foster an overall closer cannection to the people = E APPLIANCES we serve,’ ll ‘a Holes companySurvival of the Fittest IN A VERY STRESSFUL YEAR, the 33rd annual Fortune Global 500 list tells a cheerful story. Our annual ranking of the world’s biggest companies posted powerful numbers: Revenue for the group was up 19% year over year, and profits hit an all-time high of $3.1 trillion. Accessall of Fortune ‘online, Select a monthly plan and enter promo code PRINTS for aciscount Here’s the catch: Those numbers reflect financials from 2021, when the world was starting to bounce back from COVID-19. This vear has brought a new truckload of challenges, and nobody's celebrating. A recent Fortune and De- loitte survey of CEOs found that. 67+ are “pessimistic” or “very pessimistic” about prospects for the global economy ver the next 12 months. That's up from Jjust 12% in January European business leaders have been feeling the pain longer than most. The Russia-Ukraine conflict is raging in their backyard, and they were hurting long before their U.S. and Asian pee Inher feature on page 36, Fortune’ Vivienne Walt outlines the unprec- edented conditions world leaders are navigating, “Soaring post-COVID demand has collided with skyrocket ing fuel prices and transportati to create shortages and bottlenecks everywhere along the chain of global trade,” she writes, “And all of that has been exacerbated by the growing strain of the Ukraine war—Europe’ deadliest conflict sinee World War TI. For businesses of every size, the real test will be who can survive and. thrive in tough conditions like these, especially ifor when—a recession of ‘unknown length and depth settles in. n costs ‘Some, like the enormous commodity traders featured in Walt’s story, or the Chinese energy giants near the top of this year's Global 500, will likely keep finding ways to record profits. Som like the company that runs Hong Kong’s struggling stock exchange, may have to do more scrambling to adapt. (See Clay Chandler’ feature on page 26.) And others will evaporate, as many Web3 startups have done in the “erypto winter Check out our cover story on crypto exchange FTX and its billionaire creator, ‘Sam Bankman-Fried (page 8). Despite the downturn, he hopes to be the indus- try’s white knight. In the spirit of Warren Buffett (who's more than 60 years his senior), he's being greedy when others are fearful. 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Friendly and rumpled, with an unruly halo of curly hair, the 30-year-old widely known as SBF has an affinity for League of Legends, fidget spinners, and other trappings of nerd culture. But underneath the goofy facade is a trading wunderkind whose ambition knows no limits. An MIT physics grad, SBF honed his trading skills at renowned quant shop Jane Street Capital before launching a successful firm of his own, Alameda Research. In 2019 he founded crypto exchange FTX, hailed by some as the best derivatives platform ever built. a Already a multibillionaire entrepreneur (his fortune is valued at $11.5 billion or so), today SBF has a new identity: crypto’s white knight, swooping in to save some of the startups struggling amid the “crypto winter” in which Bitcoin and other assets have crash-landed. We sat down with him ona recent visit to New York to talk about his investments, the future of crypto, and endgame for FTX. INTERVIEW BY JEFF JOHN ROBERTS Sam, lot of people inthe industry predicted the current erypto winter. Did you? Andif s did you think it would be this bad? BANKMAN-FRIED: Yes and no. I would not have guessed this bad. E1 But if you told me that Nasdaq was gonna be down 40% from its peak, then I would have guessed. Probably ‘only a third ofthis [market] move was erypto specific. And the other two-thirds was just macro events. Previous crypto crashes in 2014 and 2018 ‘were followed by the industry bouncing back stronger than ever. Will it be the same this time? I think we've already seen the worst of it; ‘there’ alittle more to come, but it’s not very bad. And I think it’s been a healthy weeding ‘ut. Tes been healthy that people have had to rethink how to value assets and had to be a little more grounded—and to realize that we'll Duild back a stronger industry Now, that is all with the assumption that the overall macro environment doesn’t de- de from here. If the Nasdaq has another 25% left to drop, and if interest rates are actu- ally going up to 7%, and if we're going to be in a recession for two and a half years—in that world, I think Bitcoin might go down to $15K or $10K. Then there may be a new round of ‘earnage that comes from that.Once dubbed “the prince of risk” for his trading exploits, SBF has lived up to the label during the downturn, investing in numerous troubled ventures and exemplifying the Warren Buffett maxim: Be “greedy when others are fearful.” ‘Acting much like a one- man central bank, SBF has backstopped players a including struggling lender BlockFi (with a $400 million credit facility) and crypto set broker Voyager Digital (a loan of around $500 million), which is now in Chapter 11 bankrupts DEO roceedings. Meanwhile, he has also taken about a 7.6% stake in trading app Robinhood, and outright acquired a crypto gaming oy SBF's dominance has sparked comparisons to J.P. Morgan and other plutocrats who scooped up assets during earlier eras of turbulence in American finance. You've weathered this downturn pretty woll EJ and used it to acquire stakes in a number of other companies. What's the strategy here? ‘There are a few things that go into it. First: Is there a way for us to backstop customer as- sets? The second thing is stopping contagion spread. You know, ifa place blows up, ean it ‘cause more places to blow up? Are we gonna see a chain reaction? ‘And then the third thing, subordinate to those two: Is there a good deal for us here? Or to be precise, is there a “not bad” deal for ‘us here? The mandate here was not to try to ‘make amazing acquisitions. The mandate here ‘was to make deals that are kind of reasonable, maybe even a little bad, but not horrific. BETWEEN THELINES, (1) Steady now In January before the ‘worst ofthe crypto winter, FDAraised ‘$400 milionata ‘$32bilion valuation Trading operations appeartobeholding strong: FTX aysto- talvolume was $76. billonin the fist halt .0f2022 compared to$64bilioninthe same periodin 2021 (2) Thar auetion witha T-Cryptocur rencies asa whole havelostabout $2irllonsincethe November 2021 Ret peak Aso fesult numerous startupsinthe space hhave gone under orseentheirvalue plummet. (3) Nowhereto hide: Foreessuch isinginfaion ‘andthe Ukraine wor have battered asset pricesacrossthe board anderyotols noexception. While boostershave long argued that itcoin Wwouldserveass Safehavenintimes fers this has beenbeledby the current downturn. (@) Lending hand: See sidebar ‘onoppositepage formoreon SOF’ lates. A longtime crypto insider told me you're going to come out of this looking like Warren Buffett—owning a lot, and everyone owing you a lot of favors. Do you think that’s over- stating it? Thope it's not overstating it, though it might be. T want to be in a position where when we work with people, we're a little more generous ‘than we have particular reason to be. ‘The bigger piece of this, frankly, is a trust ‘thing where I don't want to have to worry when I'm doing a deal about whether the other side is going to try and fuck me in 20 ways I'm not anticipating. Because if that's true, just doing the deal becomes fucking impossible, right? want to seta standard, like, “Look, we're just not going to try and fuck you, were gonna ‘ry and be reasonable, wee going to try and be generous when we ean. Let just try to work reasonably together and consider things from what is good for the sum-of-us perspective and then we can think about splitting the pie.” Lack of trust is an enormous transaction cost, and I underestimated this when [first got into business. FTXisknown for allowing users to trade derivatives. G But derivatives are a product that few people understand let alone use, even if you splash the FTX brand everywhert The branding things we're doing Hare not for direct customer acquisition. As you said, most people are not trading crypto derivatives, and ‘we don’t even offer them in the United States {t's much more of a corporate branding thing than itis a customer aequisition thing. But I think your core point is right that, ‘eventually, we need to have use cases that make people’ lives directly better. That's something I wish the industry did a lot more. So are you saying this lack of utility for eryptois FTX's problem too? ‘Yes, and frankly we've been trying to find people to [build more practieal erypto ap- plications]. I don’t think running a blockchain social media network is a great fit for FTX, but we'd be super happy to help technologi- cally with that. I want someone to build that out and do a great job of it. ‘We've been very actively seeking out proj- cts with compelling use eases that we can invest in, I would be lying if T said Thaven'thad conversations with our senior developers like, “Here are some things I think itis impor- tant for the industry to build. How long would it take us to build them?” ‘The sort of response I get back i like, “Je~ sus Christ, Sam, we cant also start a whole new company in the next three months.” But at some point, we will pull the trigger on that, ifno one else is doing it. The crypto world loves to embrace larger-than-life heroes like Satoshi, Bitcoin’s pseudonymous founder, and Changpeng Zhao, maverick CEO of giant trading exchange Binance. And while SBF looks to. be joining that pantheon, he stands out, shattering many of the “crypto bro” stereotypes. BETWEEN THELINES (6) Pocket change? ‘ccordingto| ‘theBloomberg Billionaires index, 'SBF'snet worth has ropped by $47bil Nonin 2022, (6) Crystatball bets:Dervatvesare trading instruments thatinvolvepredict Ingthefuture price of assets Theyhave ‘practical use—for Instance, an aitine rmightuse themto hhedgethe future priceofjetfuel—but flsoformthe basi ‘of huge amounts of speculative actvtyineryptoand elsewhere. The son of Stanford Law professors, he was among Joe Biden's largest donors in 2020, and he espouses a philosophy of altruism and moral obligation. SBF says he's a vegan because he’s repulsed by the cruelty of industrial animal farms, and shows little appetite for the arish consumption practiced By other wealthy crypto figures. He is, in other words, very unlike many people in the community of which he is now the de facto leader. You've said you came to crypto because ‘you saw away tomake alot of money— not because you want to change the world or replace the government and all that stuft. kind of refreshing, frankly. But does your out- look cause tension with crypto true believers? SAM’S SHOPPING SPREE While the implosion of the crypto markets has led most survivors to hunker down and conserve cash, SBF has seized the moment as a buying opport ity. As his web of influence grows, will he get too big for an industry that prizes decentral- ization? Or, despite his Bahamian address, might he attract the ire of U: regulators? We'll see. In the meantime, a look at some of his recent deals, which he has conducted both as an individual and through various corporate vehicles he controls. » BlockFi atthe height of the crypto ‘boom, the lending company was offering consumers returns of 9% ormore through simplified access to so-called DeFi mar- kets. Gut like many of its peers, BlockFiran Into liquidity trouble this spring. SBF swooped in with 2$400 million credit, facility, saying the loan would help BlockFi “navigate the market froma position of strength.” Should itfail todo so, the dealaleo gives SSBF an option to.ac- quire BlockFl outright. tabinhood Since its1PO last year, Rob- inhood’s stock has taken a beating, fall Ing over 80% to below $10 this spring. That ed SBF to pounce. In May, he snappedup a 7.6% stakein the trou- bled stock-trading and crypto app. SBF has been cagey about his plans for Robin: hood, but there's been speculation that heccould buy it—and its valuable customer list—outright. > Voyager Digital Like BlockFi, Voyager isa crypto lender that raninto posterash solvency problems. SBF offered aloan will havealarge gam- facility inthe form ing component. 0f $200 milion and 15,000 Bitcoins in > Exchangesin June.The company Japan, Canad: drow on $75 million of that before filing for bankruptey in May. (The bankruptcy documents reveal thatin addition tobe. ing one of Voyager's biggest creditors, FTX is aloo one ofits big: gestdebtors.) Korea FIX acquired ‘a Japanese trading June picked up Bitvo, ‘a Canadian exchange. Theprice of each deal was not disclosed, but ‘each company has previously been val uued above $1 billion. In late July, newsreports ‘sald FTX wasonthe ‘cuspof buying Korean ‘exchange Bithumb, These buysofferaway for FTXto grow its cus tomerbase-butalsoa fast track ointerna- tional expansion since theacquired compa: nies have established Felations with local regulators. > Good LuckGames InMarch, FTX ob- tained Good Luck Games, acrypto- focused company founded by veterans of the card game Magic: The Gather- ing. The deal supporte athesisthat SBF is looking ahead tothe next phase of crypto, which many believeI would like to think that I'l do right by the people who believe in this space the most, but that’s incumbent on me. There's been skepticism of me from people who, correctly, view me as coming at it from a pragmatic rather than ideological perspective. I believe in blockchain because I think it’s useful and ccan make the world better in very specific practical ways. My beliefs thatthe industry is contingent ‘on blockchains ultimately being able to have areal positive impact on the world. Pd like to think I do a good job of representing other people who believe in the industry even if they ‘came at it from a different angle originally, but ee WHAT A DOWNER After hitting a record high last winter, the prices of Bitcoin and Ethereum have collapsed—though both are starting to show signs of life. ETHEREUM PRICE 4000 3000, suuy25,z022 2000 a 1000, wow.2071|san.2022 | apm | sume BITCOIN PRICE sa0p00 0900 49000 su 2s 2022 s21880 0000 20900 wow20n |san.2022 | apm — | une BETWEEN THELINES, (©) Playing bal: During therecent crypto boom, com: paniesengagedina frenzy of market Ing-none more sothan FTX. The ‘company paid an Undisclosed amount toputitslogoon every MLBumpir, spentaroported $135 milion for ‘naming rights to the arene of the NBA's ami Heat, and idoutareported $6.5 millon fora SuperBowl ad feo turing Larry David. (8) Charting ‘rash: Soe graphics atleftforthe price trends inditeoinand Ethereum, (9) Morgeright: [Ethereum thesmart contrat platform thatthe second ‘mostvaluable blockchain after Bitcoin.isplanning amajortechnolog- lupgradeknown fsthe Merge. If successful wil Employment: Nomura’s Dent sees a recession as inevitable, most likely starting by this year’s fourth quarter, with unemployment jumping, from 3.5% in July to 6.0% in 2024. One inlike during the 2020 COVID crisis and the great reces- sion of 2008-09, Congress will be reluctant to extend emergency aid to those who lose a job. “Poli- ceymakers’ hands are tied by persistently high infla- tion,” he explains, Michael Gapen, chief US. econo- mist at Bank of America, is slightly less pessimi but he sees an “inflation tax” sapping consumer spending, with ripple ef- feets cascading across the economy and pushing up the unemployment rate to 44.6% in the next year, » Housing: The days of all-cash bidding wars could be over. There's wide consensus that homes are trending from outrageous- ly expensive to merely pricey. A countervailing force may keep propping, up prices, however: Amer- ica’s now-chronic housing shortage, which continues to price young families out of the market. Adams sees home prices moder to “low-single-digit gains in 2023 and"24,"in line or slightly below wage gains. Dent is more bearish. He thinks the median home price will sink as much as 20% from early 2022 highs as the labor market and the work-from-home trend cool » Stocks and earnings: ‘The S&P 500 is down roughly 17% in 2022, to 3,960 in late-July, as re- cession fears lobber risk appetite. Tech stocks and consumer staples went from erushing it during the lockdown to getting crushed in a high-inflation environment. Adding to those companies’ pain After two summers of being cooped up at home, consumers want experi- ences, not stuf Out are exercise bikes (Peloton stock is down 69% year to date). Tn are Tikes—seenie beach vacations and fancy restaurants, providing snaps you can boast-post to Instagram. The reality, ‘though, is that purchasing RECESSION: IT’S A VIBE Soaring inflation and historic depths—despite the fact that joblessness is also at an all-time low. INDEX OF CONSUMER SENTIMENT 0 100, 80 ey any2002 — 3 0 1980 {1990 +2000 2010 |2020 king stock prices have helped drive consumer sentiment in the U.S. to ‘SEARCH POPULARITY FOR THE TERM “RECESSION” 10 80 ea 0 UNE 2022 *00power has sunk since the summer of 2021 owing to inflation, and rising rates will only extend the trend. these forees add up to recession, Morgan Stanley chief equity strate- gist Mike Wilson sees the S&P 500 falling to 3,000—a tumble of an- other 20%-plus from July levels. Goldman Sachs’ David J. Kostin cites a similar target of 3,100. And ifwe manage a soft landing? “Fair value at 3,400 to 3,500," Wilson says, BofA, t00, is a buzz- Kil. In July, it slashed its year-end S&P forecast to 8,600, from 4,500, citing the likelihood ofa “mild recession” this ye ‘Those forecasts reflect amore than just sentiment: With consumers losing. discretionary spending power, and other volatil- ity in play, says Dent, “eorporate profits will hit headwinds.” He sees CLASHING CURRENTS companies cutting back on capital-expenditure investments in the short run to protect earnings. ‘That in turn eould make it harder for some firms to ‘grow in the years after- ward. For that reason, he predicts a longer-than- usual downturn, Recent US. recessions, defined as declines in real GDP, have lasted an average of three quarters, according to UBS; Dent says this one will last five. It’s notall bad news for companies (and their shareholders). A short- term slowdown should push down commod- ity prices and ease some inflation pressures. Brent crude, for example, has already taken a tumble of 20% from its mid-June highs. On the other hand, if prices for energy spike further—as is the fear in Europe, with its depen- dency on Russian gas sup- plies (see our story in this issue)—it will prolong and exacerbate any downturn, ‘wrt He FED'S war on infla- tion a fait accompli, what can business leaders and consumers do to inerease their own odds of a soft landing? It’s encouraging that even the biggest bears an- ticipate a shallow dip, not 4 Global Financial Crisis redux. If they're right, employers are likely to hold on to staff for longer than they have in previ- ous downturns, knowing. from recent experience how painful itis to find ‘qualified hires. Where Bearish commentators think soaring inflation could make recession inevitable; optimists believe strong post-COVID employment trends will cushion any blow. ‘CONSUMER PRICE INDEX, YEAR OVER YEAR 10% une 2072 8 one 5 Lan, 2020 “aN. 2021 ‘an 2002 CCHANGEIN EMPLOYMENT SINCE JAN.2020 a Sune 2022 “Ors -apRi.2020 “32% 18%, [anne 2020 |iaw.2001 “nw. 2022, “1 CAN'T THINK OF A TIME WHEN THE ECONOMY HAS BEEN LIKE THIS. INTHIS CENTURY ORLAST.” BILL ADAMS, CHIEF ECONOMIST, COMERICA BANK will they find savings? Economists believe M&A activity will suffer, as will capex and R&D spend- ing. Companies may also follow JPMorgan Chase's recent example and use a choppy economy as a rationale for suspending stock buybaeks. That's not great for shareholders, but it ereates flexibility for leaders looking to realign priorities as the outlook gets murky. rly, it’ a split sereen reality for consum- ers, Rising prices and bor- rowing costs will justify delaying or canceling big purchases. That frugal- ity will inflict short-term pain, But it increases the odds that the economy can more quickly put peak inflation in the past, ushering in a period of calm, That in turn eould hold consumer pessi- mism in check, keeping fear of stagflation from becoming a self-fulfilling prophecy. Indeed, a grow- ing number of economists predict the Fed will move from rate hikes to rate cuts by summer 2023. At that point, the great bot- toming of stocks could be behind us. Stil, there will be some anxious waiting and watching over the next 12 months. So buckle up— and pass the Doritos.Content bythe fuze Business CHANGE AGENTS FROM THE STREETS TO THE GALLERY After honing his skills as a graffiti artist in Europe and exploring the work of the abstract expressionists in America, Talal Al Zeid returned to Saudi Arabia, where he has won widespread recognition for his deeply personal artwork that resonates with the restless spirit, of modernity transforming the country. ‘As @ young man growing up in Europe, Talal discovered his passion for expressing himself through graffi, especially on the vibrant back streets of Italian cities such as Rome and Naples. His work caught the eye of en American art teacher who took it upon himself to mentor this new talent. Soon, Talal found himself studying in San Francisco and Arizona tend encountering for the first time the powerful masterpieces of Mark Rothko and lackson Pollock. “Ilearned from my mentor and from these masters how to forget everything and look within myself to communicate,” Talal says. ‘alas work's influenced by the traditions of both graffiti and moder art movements such as abstract expressionism. Since returning to Riyadh, he has Talal Al Zeid is one of the seen increasing interest in his artworks, which ees ‘speak tothe young and inquisitive population of the Saudi capital. After almost a decade of reforms: and liberalization, artists now have extraordinary opportunities to explore new ways of expressing Eh themselves and communicating their ideas. poe foe Talal has won several prestigious public art ee ete commissions and worked with major global brands 8 eager to connect with the Saudi market, and his Bene! high-profile collaborative work for the Saudi pavilion ot NINES Dubai's Expo 2020 was seen by some 3 million people.‘Content by the Bizz Business ‘The pains of Tala AZ eect henuences ot abstac expressionism and contemporary youth eae D> As Talal creates a name for himself ‘across the region, his optimism about the future of the Saudi art scene is infectious. “As artists, we are very lucky in Saudi Arabia to have so many opportunities to do things at scale. It means that we can move forward, try new media and create even more work. This new spirit is uplifting us all” How is the Saudi art world growing? ‘Ten years ago, there were not many galleries that showcased new artists. Contemporary artwas not well understood. Things are at completely diferent level today. There Is@ lot of focus from the government fon supporting artists, acquiring art, and creating residency programs. Gallery numbers have quadrupled because of the increased interest in art. There is a much greater variety of work on display. Artists are approached all the time for public installations, We can show our art in many different contexts. All of this means that people in Saudi Arabia are engaging with art more. The number of people attending art events has grown and artists are selling ‘much more than they were 10 years ago. What does the growth in public art mean for you as an artist? Public art gives artists an opportunity that they would not have otherwise. It gives them the chance to create large-scale installations end plug them into a public space. We can work on a different scale and € 7 > 068 CULTURE OF CREATIVITY THERE ARE AMAZING OPPORTUNITIES FOR SAUDI ARTISTS 10 GROW AND ENGAGE WITH NEW AUDIENCES. ine different medium, We can take our art outside the studio and engage with anew audience, where you go to them instead of them corning to you. Last year, | worked with the Noor Riyadh festival of light, which celebrated art across the entire city. It introduces art to a new audience. its an invitation to look at and interact with art. What inspires your work? Asa painter, you get inspiration from left and right without knowing or paying attention toll. Lasked myself a few years ago where ‘my inspiration came from, and | kept asking ‘mysolt. Then | realized I do not have an ‘answer. The process and journey is the interesting part. | think that isthe beauty of art; itis not science. Unlike a lot of things in life, artis not all about analysis. For artists, inspiration is something organic and pure and itcomes trom within. That is what matters. I think that is what makes art powerful TALAL AL ZEID For Tl Al Zee, tu inspiration for at comes rom ooking withinInvestors Seek Shelter in the Suburbs Rental-home property is pricey—but it could also be recession-proof. One startup is making it easier and cheaper for small investors to buy in. BY SHAWN TULLY FEWInvestMENTcategories are ‘more prized than what's known as “private real estate.” These funds, typically managed by private equity giants like Starwood Capital, Black- stone, or the Carlyle Group, provide investors with entrée to pools of apartment complexes, single-family nausteation ‘homes, and eommercial space—often taainiea getting them in on the ground floor, so to speak, while proper- ties are under construction or renovation, For real estate, these are the fastest-ramping, highest-retum stages; its not unlike the way venture finds catch shooting stars during their pre-IPO liftoff. Over the past 20 years, PE real estate funds notched annual returns ‘of 9%, according to the National Council of Real ate Investment Fiducia- ries, beating stocks by two percentage points a year, Still, private real estate has long stood behind ‘trimmed hedges, inacces- sible toall but the very well-to-do. That's what ‘makes the investment firm Fundrise stand out. Cofounded by Ben Miller, .4.45-year-old real estate lifer, Fundrise is opening, the gates to this privileged. enclave, with a business model that helps people ‘of more modest means Duy property stakes with investments as low as $10, Fundrise claims to be the first platform to enable people to invest in private real estate via an app, and rogular folks are rushing in. It says it now boasts about 350,000 investors, mostly millennials age 25 to 40. Since the start of 2021, the equity portion of its portfolio—eapital con- tributed by investors—has more than doubled, from $1.5 billion to well over $3 billion. Total dollar holdings, including debt, stand at around $6 billion, Ithas also been deliver ing for investors. Since 2017, Fundrise has scored, average annualized re- ‘turns of 12%, hitting 23% {in 2021. In the first half of ‘this year, Fundrise thrived even as stocks tanked, returning 5.5% while the S&P 500 fell 20%, Of course, it takes nerve to consider getting into real estate right now. Mortgage rates have soared—they averaged 6.28% in mid- June, double the rate in ‘August 2021—putting downward pressure on prices. And nonstop talk ‘of recession only deepens investor worries, Rental real estate, however, has traditionally performed well in times ‘of stress, In fact, rents and home values tend to move in opposite ditee- tions. From 2008 to 2011,as home prices cratered, rents rose by 3.2% a year, according to CoreLogie. ‘And residential PE real estate funds that launched in the depths of the Great Recession notched annual returns in the 15% range in ensuing years, accord- ing to research by a team, including University of Florida professor Thomas R. Amold. “The 2008 and 009 vintage funds pro- Vided some of the best re- tums ofthe last 20 years,” Arnold says, Rental properties thrive in downturns for straight- forward reasons. Families can cut back on vacations and restaurant meals in tough times, but they need place to live—and in Jean times they're more likely to delay plans to buy. These are the trends that Fundrise hopes to capitalize on. It now owns around 17,000 apartment units and 3,500 single family rental homes, with combined equity value of over $2.5 billion. ‘The big question is how PE real estate will perform if heavy inflation leads to recession. But Miller is betting that in a downturn, more people will rent because leasing is lighter on their budgets. “Ifyou buy right, inflation drives returns for you,” says Miller. ‘We'll see less homebuying and more ease’ renewals. So far, those trends look promising in Amer- {eas southern tier, where Washington, D.C.-based Fundrise has concen- trated its investments. The pandemic migration away from coastal cities has already sent rents leaping in Fundrise’s Sunbelt mar- kets. Aecording to Zillow, average monthly rents for ‘the first four months of this year compared with 2019 levels ose 25% in Raleigh, 32% in Atlanta, and 42% in Tampa. Rents are still waxing at 10%+ annual rates in all of those markets, Hence even with the consumer price index ata lofty 9%, rental growth is beating inflation—musie ‘to investors’ ears right now. ‘eapmonatre players cater primarily to pen- sion funds and other institutions, and to “qualified”—that is, very wealthy—individuals, with minimum investments of several hundred thousand dollars or more. By con trast, the average Fundrise member is staking about $10,000. And neweomers can put as little as $10 in Fundrise’ Flagship Real Estate Fund, launched in January 2021, which now holds almost $1 billion and owns 55 properties. Fundrise’s offerings fall into three eategories: fixed-income, growth, and “balanced” funds. For fixed income, the staple invest- ‘ments are short-term loans to developers. The growth funds (Flagship is one) are portfolios of proper- ties that are either fully built and rented, or under construction or renova~ tion. Their main appeal is capturing price apprecia- tion, though they also pay dividends. The balanced portfolios offer a blend of ‘those strategies. SINGLE- FAMILY SQUEEZE The work-from- home boom has sent more young families onthe hunt for bigger houses, but inflation and grates have made it harder for them to buy. One result: spikes in rent, especially in Sunbelt cities. 13% AVERAGE ae 32% 42% AVERAGE INCREASE From 2017 through the first quarter of 2022, Fundrise’s fixed-income funds generated yearly dividends of roughly 8% Until the start of last year, the growth funds were returning roughly 11% a year; in 2021, they hit a moonshot, gaining more than 30% as the pandemic sent home values soaring. While performance is more modest so far this year, its telling that Fundrise'sof- fevings are handily beating stocks—inchiding those of residential real estate investment trusts (REITS), the other relatively afford- able option for investing in rental property. Fundrise is also charging centicingly low fees. Cus- tomers typically buy into PE funds through broker~ dealers that take upfront ‘commissions of as much 85%. Giants such as Blackstone and Starwood collect around 2% a year in annual servicing and management fees. When the funds sell properties, the sponsors get anywhere from 12% to 20% of the capital gains in “carried interest, after meeting a base hurdle rate, All those charges reduce returns to investors, By contrast, Fundrise takes no commissions, ‘charges annual fees of 1%—and exacts zero ear ried interest. Miller notes that last year, Fundrise pocketed $30 million in fees on its roughly 83 billion in assets under ‘management. “But we also made our investors $400 million in capital gains” he says. “If we'dput a 20% toll’ on that, it would have cost our inves- tors another $80 million’ FUNDRISE HASits origins {in Miller’ conviction that there's something bro- ken about the way real estate gets financed. In the 2000s, after busi- ness school and a stint at adoteom, Miller joined Western Development, the DC. construction enter- prise founded and run by his father, Herbert Miller. ‘When the Great Reces- sion struck in 2008 and 2009, the company had '$500 million in mixed- use apartments and stores under construction, chiefly in the inner cities. “Our biggest lender, GMAC, ‘went bankrupt, and BofA and other banks stopped funding construction,” Miller recalls. “The prob- Jem wasnt that demand for the apartments and stores fell, itwas that the financial system shut down." The credit meltdown drove Western projects toa three-year halt, and while the company recovered, the experience inspired Miller to build an investment business that didn't rely on bank funding. Miller subsequently led various real estate crowd- funding ventures, includ- ing one involving a small stake in the new World ‘Trade Center. Gradually, he and his team sharpened their focus around two trends: the affordability of housing in the Sunbelt, and ‘the willingness of young Fundise CEO Ben Miller, with Zappa. at his Washington, D.C. office. families to rent more spacious apartments and homes as they saved up for ‘ownership. Fundrise’s cur- rent model is anchored in those ideas. More recently, Miller decided Fundrise could ‘grow much faster ifit eould acquire large numbers of new homes in big packages. ‘Those abodes would be more appealing to families, roquire less maintenance, and command higher rents. A milestone in the ‘eampaign came in Febru- ary 2021, when Fundrise paid builder D.R. Horton $35 million foran en- tire fully built 120-home ‘community called the ‘Woodlands, near Houston. Since then, Fundrise has ‘bought five more single- family rental projects from D.R. Horton, encom- passing 600 homes, at a total equity investment of almost $140 million ‘To avoid overpaying, Miller has developed a sec ‘ond blueprint: partnering with developers to finance ‘some new homes—and buying them before they go ‘to auction. That formula lowers the builders’ risk, ‘while enabling Fundrise tobuyata discount of 6% to 10% to the price all ‘comers pay once the fiers start flapping at the grand ‘opening. And that discount ‘means more upside for Fundrise’s young inves- tors—sgiving them another ‘edge ata stressful time in ‘the markets,The corporations that makeup ourannual rankingof the world'slargest companies reaped record-busting profits in 2021. But this year’s turmoil has confronted the leaders of the Fortune Global 500 with a new set of crises—many of them political as well as economic. FTO oloN yg sccm TS OOS ON Tes eA ey Ceara CTU (pace 26)as Asia's financial capital, and looicat the other cities vying to take its, Premera Nee etre ne en Tae Et ria) ride outthe supply-chain storm created by Russia's invasion of Ukraine. And we offer the authoritative scorecard on the winners and losers in global business inCAN THIS MAN HONG KONG?SAVE+ 800 | WORLD'S LARGEST COMPANIES INLATE2020. JPMorgan Asia. | TRADING DEBUTS Pacific CEO Nicolas Aguzin, like ‘many other high-powered finance Hong Kong inthe first half of 2022 hit their For eight years the busting finan. !9west level since the Global cial hub had been an ideal base for ‘meeting people, managing eapital, and getting things done, enabling Aguzin to lead a major regional expansion for the US. bank. That sue-ss08LoN cess had landed Aguzin a new role, as head of JPMorgan’s international pri- vate bank. Suddenly, being stationed. in Hong Kong was a disadvantage. ‘There were the endless late-night calls to colleagues and clients in the US. and Europe. Worse, Hong Kong’s strict COVID-zero” approach. combating the pandemic, requiring {inbound travelers to endure weeks of hotel quarantine, had made getting in and out of the ity almost impossible, “It was hard to do it from [Hong Kong] Aguzin recalls. “At that point, with COVID and everything, 1 thought T would stay a litle bit longer, Dut Iwas in the process of going to eeu 20228 2020 202 Fortune intervened, Ashe readied silane for relocation, a headhunter called with an unexpected offer: Would Aguzin consider leaving JPMorgan to and HKEX, the corporate entity that HONG KONG LISTED IPOs AGGREGATED DEAL VALUES, YEARLY take over as CEO of Hong Kong Ex- manages the exchange, the world's changes and Clearing (HKEX), opera- most valuable bourse operator. But tor of the Hong Kong stock exchange? HKEX owed its suceess to close Aguzin was intrigued—but also collaboration with Beijing and had bewildered—by the proposal. The never been led by someone who Hong Kong exchange was then the _ wasn’t ethnically Chinese. world’ fifth-largest stock market, Aguzin recalls his initial astonish- eo | think we all can agree that the last two or three years had elements that were significant headwinds. Even one of them [would be enough] to throw off a city.” Nicolas Aguzin, HKEX CEO at the headhunter’ offer ‘Look, I don't speak Chinese.” ‘The recruiter was unfazed: "That's not a requirement, We are looking for the best person for the role” ‘The Hong Kong financial estab- ment was no less surprised when, in February 2021, HKEX named Aguzin—an Argentinean who holds Croatian passport, speaks Spanish, English, and Portuguese but neither ‘Mandarin nor Cantonese~as the exchange operator's new CEO. Bank- , brokers, and investors cheered TIKEX’s appointment of an outsider with strong tiesto the international finance community asa sign of the exchange’ determination to remain ‘global and independent institution amid heightened eoncerns about Bei- jing’ tightening grip over Hong Kong. HIKEX has prospered by fane- tioning as the bridge between global capitalism and what the Bejing government for decades has called “socialism with Chinese characteris- tics’ allowing companies from China’s ‘mainland to sell shares in a Chinese city with a British-style commercial code to global investors in a currency that is fully convertible and pegged to the US. dollar. At Hong Kong's Asia Society in July 2021, Aguzin spoke passionately about the exchange’s ‘opportunity to widen that bridge to make way for what he called “the Big Bang of Finance’—the emergence of Chinese capital market that he believes will expand fourfold to atleast $100 tilion over the next decade. “Ths s the biggest movement of money humanity has ever seen," he said. “And it won't be repeated again.” But 14 months into his tenure, Aguzin, 53, is finding that bridge building can be a tricky business, es- pecially when the places you're trying to connect seem hell-bent on put- ting up roadblocks and pulling away from each other. Beijing’ insistence that Hong Kong stick with one-week ‘mandatory hotel quarantine for inbound travelers has transformed the city into a no-fly zone. The quarantine rules, plus the unexpectedly harshimplementation of the sweeping new National Security Law Beijing imposed on Hong Kong in 2020, have Hong Kongers and expatriates alike running for the exits ‘The larger threat to the Hong Kong cexchange—and the city’s status as global financial hub—is Beijing's ongoing regulatory blitz. The assault focused on internet companies, many of which were launched with US. venture financing and sealed up for listing on exchanges in New York and Hong Kong, signals Chinese Presi- dent Xi Jinping’s growing distaste for foreign capital. As overseas Chinese listings have dried up, HKEX has fallen out of the world’s top thre exchanges by funds raised for the first time in at least 10 years. “Aguzin says he’s confident Hong Kong's best years are still to come, but he seems to acknowledge that he may be fighting a losing battle, “We are at a time where communication and connectivity is harder and harder to achieve,” he notes, “Wh optimistic to say Tam may be gto help improve that, hopefully Thelp the deterioration to become a lot slower! AGUZIN, KNOWN to friends and colleagues as “Gucho,” grew up in Argentina, After graduating from the Wharton School, he joined JPMorgan in Buenos Aires as a financial analyst. For 30 years, he rose swiflly through senior posts in Argentina, Brazil, and t before CEO Jamie Dimon dispatched him to Hong Kong in 2012. As Asia Pacifie CEO, Aguzin led JPMorgan’s drive to expand the bank's operations on China's mainland, which now include a fully owned commercial bank, a ‘majority-owned securities company, an asset management company, and a futures and options business. Col- leagues deseribe him as a savvy mat ager, polished and unflappable. He’ also a successful tech investor who holds a major stake in MereadoLibre, the Latin American equivalent of Amazon and Alibaba. In recent years he has sold about half his stock in the company for more than $7 mil- Gra Cee perrrerouy er errors per Pits an lion. In introducing Aguzin at the Asia Society dinner, Ronnie Chan, a prominent business tycoon, warned the audience: "Don’t let his friendly demeanor cheat you. Hes a lot smarter than most of us,” But even the smartest guy in the room would be confounded by the challenges facing Hong Kong: the quarantine rules, Beijing's loom- ing influence, investors’ wariness. “I think we all can agree that the last ‘wo or three years had elements that were significant headwinds,” he says. “Even one of them [would be enough to] throw off a city” ‘But he also describes Hong Kong asacity with “grit” one that has a long history of defying predictions of its doom, Fortune was among the many news outlets to write the city offas Britain prepared to hand Hong Kong back over to Beijing. A 1995 cover story, “The Death of Hong Kong,” declared that “as Hong Kong becomes a captive colony of Beijing... it soems destined to becomea global backwater”1.800 | WORLD'S LARGEST COMPANIES ‘That obituary proved premature. ‘The city shook off the Asian Financial Crisis in 1997, the SARS outbreak cof 2003, and the Global Financial Crisis to cement its status, alongside ‘New York and London, as one of the ‘world’ three great financial centers, the glittering Eastern extremis of the ‘lobal capitalist trinity Time interna- tional editor Michael Elliott dubbed "Nylonkong.” By 2019, before the pandemic and the national security crackdown, Hong Kongis financial services sector had swollen to 20% of the city’s economy and employed nearly 300,000 people. The citys China connection, far from hasten- ing ts demise, was the secret ofits No institution leveraged that eon- nection more adroitly than Hong Kong Exchanges and Clearing, the entity created in 1999 by merging HONG KONG'S MASS EXODUS Expats and native Hong Kor alike have fled the city’s strict CUMULATIVE NET PASSENGER ‘TRAFFIC SINCE JULY 2021 DIFFERENCE BEIWEEN PASSENGER ARRIVALS AND DEPARTURES o sur 2021 suvr 20,2022 | the Hong Kong stock exchange and ‘the Hong Kong Futures Exchange. Aguzin’s predecessor, Bejing-born Charles Li, wooed mainland enter- prises with vigor and pioneered a program known as Stock Connect, allowing limited equity trading be- ‘tween the Hong Kong stock exchange and counterparts in Shanghai and Shenzhen. By the end of Lis 10-year temure, mainland companies made ‘up more than half of HKEX’s 2,500 listed companies, accounted for 80% ofits market capitalization, and drove {90% of share turnover. The Stock Connect program, which generated about 13% of HKEX revenue last ‘year, has been expanded to include similar platforms for trading bonds and for wealth management products, and to engage in curreney swaps. When Aguzin took over in May 2021, HIKEX was firing on all eylin- ders. In that year, Hong Kong hosted 95 new listings, raising a total of $42.6 billion, trailing only Nasdaq and the New York Stock Exchange as the world’s top IPO market, and re~ ported a record profit of $1.6 billion, ‘up 9% from the previous year. The ‘market cap of the companies listed on the exchange totaled $6.7 trillion. @ fe oust ooMED. The ‘National Security Law didn't pose a direct threat to Hong Kong’ financial community, but it unnerved ‘many that local authorities enforced the new measure so aggressively. ‘The government curtailed assembly and free speech and used the law to purge pro-democracy politicians and arrest dozens of pro-democracy activists. In June 2021, hundreds of, police stormed the offices of Apple Daily, Hong Kong's most boisterous pro-demoeracy newspaper. They shut down the newspaper and jailed its publisher, Jimmy Lai, who has been convicted of one incitement charge and faces multiple other charges of sedition that could lead to him spending the rest of his life in prison. The rollout of highly effective COVID vaccines emboldened coun- tries worldwide to ease their travel restrictions in 2021, but Hong Kong kept its 21-day hotel quarantine requirement for nearly all inbound travelers. This spring, Hong Kong. reduced hotel quarantine to seven. days, but arrivals to the airport re- ‘main just above all-time lows. Most passenger air trafic is outbound After growing steadily for 60 years, the city’s population shrank by 0.4% and 0.9% in 2020 and 2021, respec- tively, according to Hong Kong’s census bureau. In the first three ‘months of 2022, more than 140,000 people departed Hong Kong, Recruiters report an acute dearth of junior and senior talent in Hong Kong’ finance sector. It will be hard to stop the bleeding so long. as hotel quarantine rules remain in place. Hong Kong’ new chief executive, John Lee, formerly the city’s top se- curity secretary, has hinted at looser policies. But he, echoing Xi, rejects the ‘living with the virus” philosophy. Aguzin is looking beyond the quarantine rules. “We are seeing some light at the end of the tunnel,” he says, “But how long is the tunnel? ‘That’ the big question” ‘An even bigger question is whether ‘Xi has fundamentally lst faith in the open, market-oriented devel- ‘opment model that allowed Hong Kong to prosper as middleman. Beijing’s commitment to COVID zero forced weeks-long. lockdowns in cities, disrupted global supply chains, depressed consumer spending, and rendered the government’ 5.5% economic growth target for 2022 a fantasy. A central government cam- paign to curb overindebtedness in the residential property market has also undermined demand ‘Adding to the pain: rolling regulatory crackdowns on the na~ tion's internet giants. Days after billionaire Alibaba Group founder ‘Jack Ma gave a speech belittling the nation’s financial regulators for ‘thinking lke “pawnbrokers” and stifling innovation, Xi personally ordered a halt to a $38 billion Hong.WHICH jerry WILL BE THE NEXT HONG KONG? nt decades as Asia's de facto financial capital, thanks Pee nierea eth tears Ue tee, cane seoetie sae ‘out at just 17%, a robust stock exchange, and proximity to mainland China, the world’s second-largest economy. Now strict COVID rules, ‘closed borders, and Beijing's growing influence in the cit threatening its status. Here are the main contenders to take its place. Singapore Tokyo Shanghai Pros pros Pros Easing COVIDtravel __Japanistheworld's _—_—Itsstockexchange, restrictions third-largest econ- —_withtotal market cap ee _omyandhometo47 —_ofabout $ erilion is Firetratoinfrastruc-FortunaGlobalS00 the word's third. ture including the compan largest and features world's top-ranked 85 010ba1500 port High-caliberinfra- companies structure, with the ‘Thenewhubof choice world'smost punctual Agovernment pledge for eventslike the Retworkoftrainsand _tomaketheclty one Formula GrandPrix subways of the world’s leading Se _tinanctat tubs ‘Anetficientlaunching _Once-sky-high rents Padfordoingbusiness andproperty values CON InSoutheast hhavedectined and, by “7™* Hong Kongstandards, _Chineseexchanges, Notaxoncapitalgains seemalmostafford- dominated by retail able fnvestore who trade English widely —— spoken ‘Awoak curroncy that hhas plunged 20% cons ‘against the dollar this Far from China; the nearest Chinese city Infivehours away cons. by plane ae ———_____Smallexpat popula __Strict capital controls; Atinystockexchange, tion; few Japanese profits earned in China Wwithfewerthan700. —speakenglish have tostay there listodcompaniosand | ‘amarketcapitaliza- Itslarge stock ex: Personalincome tax ‘on of loss than ‘change—with2200 rates of upto 45% $700 billion ‘companies andamare | ——————— ~————_____eeteapofmorethan The Great Firowall, Animmigrationsystom $5 rilion—foaturos_—_whichrostrietsintor- inwhichemployment _fewnon-apanese netaccess to websites Visasforforeignstaff compan outside China frehardto.come by Kong listing planned for Ant Group, Alibaba’s mobile payments affiliate ‘The cancellation of that deal marked the beginning of a two-year regulatory blitzkrieg that has targeted compa- nies in a host of sectors, ineluding e-commerce, online gaming, online ‘education, and ride hailing. The government has faulted companies for collusive business practices, fo- ‘menting online addiction, and failure to protect consumer privacy and national security. ‘That crackdown triggered a $2 trillion selloff in shares of Chinese ‘companies—and prompted many large global investors to label China stocks “uninvestable” Analysts think Xi, who has railed against “disorderly ‘capital,’ blames foreign investors for fueling the excesses of Chinese start- ups. The Chinese leader, some say, hhas embraced social and economic policies aimed at bolstering stability, control, and ideological rectitude, at the expense of innovation and growth. Beijing may see that as an easy trade-off since the government ean re- place overseas financing with its own capital to serve its own ends. Beijing, thas poured money into strategic sec- tors—semiconduetors, biotechnology, {quantum computing, renewable en- ergy, and artificial intelligence—that the government considers necessary to protect China from US. sanctions. Aguzin touts China’s booming capital market as proof of Hong. Kong’s enduring role as a gateway to the world’s second-largest economy. ‘To Beijing, though, the very expansion of that capital pool may indicate that China is wealthy enough to go it alone. THERE WAS A BURST of ap- plause and camera flashes on June 24-as 36-year-old Hong Kong entrepreneur Steven Lam, a blue blazer pulled over his T-shirt, stepped nervously up to a golden gong—Hong Kong's answer to the New York Stock Exchange’ opening bell—and, using ared mallet, gave ita firm whack. For the exchange, the occasion was & milestone: the first in-person listing9800 | WORLD'S LARGEST COMPANIES ‘on the exchange’ old trad- ing floor in over two years, reflecting an easing of Hong Kong’ COVID restrictions. GogoX, the Hong Kong, logistics startup Lam cofounded in 2013, raised $83 million in the debut, and while shares promptly sank below their listing price, the sale valued GogoX at $1.3 billion, certifying the venture as Hong Kong's first bona fide tech unicorn, But the truly remarkable thing bout GogoX’s listing is that it took place at all. Hong Kongis in the throes of an excruciating IPO bust. In the first half of 2022, HKEX brought only 27 new companies to market, 16 $2.7 billion, a 91% decline from the same period the previous ‘year—and the exchange’ lowest total since the global financial crisis, according to Dealogie. Listings have slumped on other exchanges too; funds raised from IPOs on Nasdaq, and NYSE in the first half were down, about 95%. But its unclear how quickly Hong Kong, dependent on listing mainland enterprises because ithas so few homegrown startups, ean bounce back. By Aguzin’s count, 189 companies have received a green light for listing on the exchange’ main board, which ‘may make for a better second half. ine pipeline is very good,” he says. In late July, Alibaba sai it wants to join that pipeline, and will apply before the end of the year to upgrade o its listing status on the Hong Kong exchange to primary from secondary. ‘The move could pave the way for other Chinese tech giants with seeondary status in Hong Kong—among them JD.com, Baidu and NetKase—to do likewise. But winning permission to list and doing it are different things. As Agurin acknowledges, the long queue reflects companies’ reluctance to sell {nto a bear market. In June, account ing firm PwC slashed its estimate for funds raised by new lis Hong Kong this year to $23 billion, roughly half the firm’ January estimate and the exchange's 2021 total ‘As Hong Kong's IPO machine sput- ters, sales of new shares on China's ‘mainland bourses are going gang- busters. Shanghai, Shenzhen, and the recently created Beijing Stock Ex- change hosted 174 new listings in the first half of this year, raking in a record ‘$46 billion, making China the world’s richest IPO market and accounting for about half of global new share sales. ‘And applications for new listings on China's exchanges spiked to a record high in June, with investors eyeing the prospect of several blockbuster deals, including the possible debut of Swiss agrochemicals group Syngenta, a divi- sion of ChemChina that is expected to list on Shanghai’ STAR market, rais- ing an estimated $10 billion. In April, state-owned China National Offshore Oil Corporation (CNOOC) staged one of China’ largest IPOs of The fundamental dilemma of [HKEX] is that it isn’t in charge of its own future. So much turns on the politics in Beijing and Washington, and how the leaders of those two countries interact.” Fraser Howie, i \dependent financial analyst and author 2022, raising $4.4 billion in Shanghai after being booted from the NYSE by a Trump-era investment ban. That CNOOC tumed to Shanghai, not Hong Kong, for fanding highlights both the promise and peril ofthe former British colony’ bridging role CNOOC was already listed in Hong Kong, but shares in Shanghai have been trading at a premium to those in Hong Kong. Two other state-owned behemoths, China Telecom and China Mobile, chose Shanghai over Hong Kong after they were delisted by the NYSE, Combined they raised about $15 billion, ‘Washington has threatened to delist ‘as many as 261 more Chinese firms from US. exchanges by 2024 unless they comply with US. auditing and disclosure requirements. The com- ppanies, which have a current market capitalization of $1.3 trillion, eould ea bonanza for HKEX if the Hong Kong bourse can edge out mainland rivals for these so-called homecoming listings. Financial Seeretary Paul Chan estimates Hong Kong could capture as much as 90% of the market capitaliza- tion of Chinese companies forced off ‘Wall Street. But Hong Kong has yet to benefit from the tussle, and Jefferies securities analyst Shujin Chen warns that even ifthe largest firms choose Hong Kong over mainland exchanges, there is no guarantee their debuts will ‘command the same valuations. “You can't just assume, ‘Oh, all these Chinese companies listed on ‘Wall Street will come back to Hong, Kong,” says Chen. “It's not so simple” Hong Kong could seore Ant’ long-awaited IPO, but atleast one kkey investor has lowered the fintech firm’ valuation to $68 billion, less than a third of what it was before the crackdown. Hong Kong might also win another prime homecoming, candidate: ride-hailing giant Didi Global, which delisted from the NYSE this year to repair its relations with Chinese regulators. But what got Didi in trouble with those regulators in the first place was concerns that, in meet- ing disclosure rules of an overseasboard of directors. Europe’ suspicion of China has only increased since, which Aguzin seems to acknowledge. “Thave done M&A fora long time. Especially in this environment, in the current geopolities, it would make it even more dificult” he says. Fraser Howie, an independent financial analyst and coauthor of Red Capitalism: The Fragile Financial Foundations of China's Extraor- ‘Washington has throated to boot 261 Chinese firms from US. exchanges Gta Riss, Nereos: Af you are a 'by 2024 for violating audit and disclosure rules. The mass delisting could JPMorgan head, you come with a provide a windfall to HKEX ifthe expelled firms choose the exchange for huge Rolodex of influential contacts, Belt homeooming -tetnge: and you know how to do deals. This isa guy who could certainly do a deal. The problem is there is no obvi- ‘ous deal to be done” ‘And therein lies Aguzin’s real exchange, the company would divulge | enterprises and while, for now, those | challenge, For all the targeted initia- data compromising national security. firms are all Chinese, he sees the tives heS rolling out, HKEX remains ‘Those fears may also bedevil a Didi potential for Hong Kong to attract largely atthe mercy of the superpower attempt to list in Hong Kong, non-Chinese biotech firms seekingto shoving match, in which the exchange ‘be “compared to their peers.” He talks and Hong Kong have very little say. THAT LEAVES AOUZIN pursuing of creating asimilar industry cluster “The fundamental dilemma of the astrategy that HKEX investors forthe makersand suppliers of lec- | exchange is that it isn't in charge of have long called for: reducing its trie vehiles. But analysts say the gains itsown future” Howie says. “So much dependence on mainland companies. from that flurry of focused initiatives | turns on the politis in Beiing and ‘The exchange hosts just 156 are unlikely to keep the Hong Kong Washington, and how the leaders of| companies headquartered outside exchange competitive with rivalsin those two counties interact” sreater China—among them Prada New York and London. One saving grace is that no other and L:Occitane—which represent One item not on Aguzin’ diversi-. | Asian city—not Singapore, Tokyo, or 5% of the bourse’ traded market fication agenda isa major overseas | Shanghai—can match Hong Kong’ cap. At the World Economic Forum acquisition. Li, for all his China sue- | appeal asa global financial hub or in Davos in May; Aguzin announced | eesses, failed in his 2019 bid to pur- | gateway to China. “You can still trans- that HKEX will establish offices in chase the London Stock Exchange. | fer money in and out freely. You can New York and in Europe to promote Many analysts speculate HKEX. ‘access information on the internet the Hong Kong exchange not only as hired Aguzin to make a similar move, | from anywhere in the world Aguzin venue for global investors to invest __Aguzin downplays the possibility says. Another big enticement: Hong. in Chinese companies, but asa place He says he's“open to opportunities _|_Kong’s top income tax rate is 17%, and where non-Chinese companies, too, that expand our breadth” and “help | the city exacts no tax on capital gains. can raise capital and their profile. us achieve our core objectives” but ‘Aguzin takes the long view: “Iam But its hard to hype Hong Kong ‘won't buy another exchange “just to | not saying that nothing has changed asan IPO destination when thecity gain size or critical mass.” over the past three years. But what I is still closed off. Aguzin quarantined “Lam not going to just do a market | would says that from a commercial for seven days when he returned from in Europe to say, Hey, Thave Europe | point of view, from a financial point of Switzerland. Anyone putting on a now?” he says. “It has to make sense.” | view; this ity continues to be a thriv- Hong Kong road show would have to LSE board vetoed the 2019 bid | ing financial center.” He says he has do the same. over concerns that it would give ‘no doubt that in 10 years, Hong Kong Aguzin is pushing to diversify the | China too much influence over the | will still bea vital giobal hub. And in exchange’ business model in other UK. financial system. The Hong. the meantime? He shrugs. “Mar- vwaysas well. He’ heartened by Hong Kong government owns a 6% share | kets go up, markets go down.” Not Kong’s success in attracting biotech in the exchange, and Hong Kong's ceven the CEO of one of the world’s firms; the exchange is second only financial seeretary has the right to most important stock exchanges ean to Nasdaq in raising money forsuch appoint six of HKEX’s 13-member change that.BYD CREATES Sear ‘round the world, and solutions like electric vehicles (EV) and efficient rail transit, which can help alleviate these problems, are desperately ‘needed. EVs can help decrease carbon emis SUSTAINABILITY ee eee YD, a Chinese automobile manufacturer, has been providing new energy solutions since 2008, when it built ts first renewable energy storage stations and debuted the world's first mass- ppraduced plug-in hybrid EV. “BYD has always focused an solving problems through innovation {and fulfiling its mission of creating technolagi- The global automobile Manutacturer Chuents chit ad president 80 Co is building groundbreaking technology Ld. With 27 years of experience, Chuanfu has to address climate challenges. mij inaustes eta evra a transit, new energy, and electronics, ‘To better deliver sustainable solutions, BYD ‘announced in April 2022 that it would focus its production solely on battery electric vehicles (BEV) and plug-in hybrid electric vehicles [PHEV], The company's commitment to sustainabledesign goes beyond its products: In August 2021, YD plediged ta develop a “zero-carbon industrial ‘campus in the Pingshan district, the frst truly eco-friendly automobile brand headquarters InChina, Additionally, during the 2021 United Nations Climate Change Conference, 8YD signed ‘global mamorandum af understanding that will aceelerate the transition to and adoption of zero- ‘emission vehicles Maintaining its postion as an industry leader in sustainable innovation is no small feat, but the ccampany eedits this success to its ever-growing workforce, BYD has seen significant growth since its founding in. 1985, While it began with just 20, ‘employees, the company now boasts more than 290,000 workers as of 2021. Tisimpressive {growth reflects the public's interest in a compre hensive approach to sltemative and more sustain- able solutions. ‘Athough founded in China, BYD's reach now extends ta worldwide markets, I's global new ‘energy vehicle (NEV) footprint currenty extends to ‘more than 400 cies and aorass 70 cauntries and regions, and in 2021 alone, BYD sold nearly 600,000 ew energy passenger vehicles. The company Is ‘also one ofthe lgest manufacturers of electric tity vehicles with commercial sles totaling £85,000 units worldwide, including electric buses, coaches, trucks, and forklifts £8Y0's continuous technological innovation is ‘one reason it remains a leader in the EV sector. ‘As Wang says, "BYD awns key technologies for batteries, electric motors, electronic control systems, and automotive-grade chips across the NEVindustry chain. By covering both the BEV ‘and PHEV markets, we usher in the explasive growth of technology, products, and markets.” For example, 8Y0's DM-i hybrid technology ‘nabs ultralow fuel consumption, with up to 43.04% thermal efficiency, which can help 3c calerate the replacement af gasoline-powered vehicles, Another milestone, its Blade battery, Is the anly power battery that has safely passed the industry's most demanding nail penetration test and has notable advantages in high safety and lang range, Stil, despite BYD's major successes in recent years, the company faces the same challenges ‘that plague the auto industry at large: sup- ply chain difficulties and rising prices. These tificuties, however, have pushed the company to innovate and drive efficiencies, "With the explosive growth in the new energy vehicle market, the industry is facing severe challenges. Itis more important than ever to have the technological capabilities that can help lessen the impact of thase hindrances and to run our business mare efficiently” Wang says, ‘Wang's leadership and vision has helped BYD meet these challenges head on with innovation >>> “BYD HAS ALWAYS FOCUSED ON SOLVING PROBLEMS THROUGH INNOVATION AND FULFILLING ITS MISSION OF CREATING TECHNOLOGICAL INNOVATIONS FOR A BETTER LIFE.” WANG CHUANFU, CHAIRMAN AND PRESIDENT, BYD Cl uo. ‘and technological know-how, Going forward, 8YD is confident that i will ramain competitive, “BYD ‘adheres to openness and innovation, establishes friendly cooperetion with industry partners, ‘and faces the market with a more apen mind” ‘Wang says. “We will work together with partners ‘round the world to embrace the ence-in-a~ century change in the new energy industry and create an internationally competitive new energy brand.” aMOVING MONEY IN THE SHADOW OF WAR oer |Fur ‘liquefied natural ‘gas terminal at the Port of Rotterdam, Europe remains reliant ‘on Russian oll and ‘rude deliveries wll ‘be banned from Europes seaports,+ 00 | WORLD'S LARGEST COMPANIES ‘ON A SUMMERY JULY DAY, the Port of Rotterdam in the southern Netherlands feels almost pastoral. Cylists sit pienicking among squawking seagulls, while family walks along the harbors edge con ascenie stroll. Orchids grow wild near the shipping terminals, and even the port's massive infrastructure seems placid and sleepy: Perched on the water’ edge, three enormous ceonerete storage tanks look like hip- pos basking in the sun, But fora its surface serei Rotterdam is one ofthe world most hectic trading hubs—and is the site ofa high-stakes seramble, Here among the refineries and warehouses, the intertwined economic crises of the moment—the ongoing pandemic, accelerating inflation, supply-chain ‘mayhem, and the fallout of Russia's Ukraine invasion—are playing out in real time, as manufacturers and sup- pliers race to secure the raw material, especially oil and gas, that industries, governments, and consumers need “Thats no easy matter ata time ‘when commodities are increasingly expensive, and when sourcing and supplying them is maddeningly complicated. Soaring post-COVID demand has collided with skyrocket- ing fuel prices and transportation casts to create shortages and bottle- necks everywhere along the chain of slobal trade. And all ofthat has been exacerbated by the growing strain of the Ukraine war—Europes deadliest conflict sinee World War Il. Indeed, one sign ofthat strain o is visible in plain sight on the day that Fortune visits. Parked along side those peaceful storage tanks is a blue-and-white Russian vessel, which has sailed here from the Yamal peninsula, carrying a cargo of lique- fied natural gas (LNG)—a reminder of Europe's uneasy dependence on Russia’ hydrocarbon wealth. For thousands of companies, ‘mega-ports like Rotterdam provide a lifeline during epic instability. When supply chains operate smoothly ‘enough to ease the expenses and delays that have been hammering, their profit margins and share prices, ‘multinational companies have ports like these to thank. But there’ another group of eom- panies doing business here that have thrived through more than two years of whiplash disruption: the worlds biggest commodity traders. They aren't waiting for relief in fact, they're booking profits like never before. In global commerce, these trading firms are the truly big hippos on the water's edge. Though most consum- ers are unaware of the existence of behemoths like Trafigura (No. 19 on this year’s Fortune Global 500), Gleneore (No. 23), Cargill, and Vito their yearly sales reach hundreds of billions of dollars, eclipsing household names like Mierosoft or Procter & Gamble. These trading groups touch almost every aspect Of our lives, from the metals in our computers and smartphones, to the fuel in our gas tanks, the batteries in our EVs, the sugar in our coffee, and the coffee grounds themselves. Without the traders, companies like ‘Microsoft and P&G would falter, at least would need to make profit- sapping investments to source these raw materials on their own, Instead, the traders keep the worlds essential ‘goods flowing—and they're being richly rewarded for doing so. A decade after launching the London Stock Ex- change’ biggest-ever IPO, Gleneore, headquartered in the small Swiss town of Baar, reaped revenues of nearly $204 billion in fiscal 2021—a 43% in- crease from the year before. Trafigura’s 2021 revenues tipped $231 billion, up 57.4% from the year before. And both, have tallied record earnings in the first six months ofthis year. (Traders Vitol, Mereuria, and Cargill have also reportedly seen record profits in 2022; they aren't ranked on the Global 500, because they don't publicly report certain data that Fortune requives,) ‘When you drive around the Port of Rotterdam, the names of those firms are not emblazoned on buildings or tankers. But their activities span the complex. Trafigura is part-owner of a major marine-fuel operation that serviees ships across Rotterdam, ‘Spravling refinery operations for crude oil and palm cil reflect the influence of other traders, including the trading arms of BP and Shell. Indeed many of the nearly 30,000 ships a year that ply the port's waterways are leased by commodity traders, or are carrying cargo they've sourced—including all ofthe erude that passes through Rotterdam. The traders “have oil and gas, pipelines, storage tanks, tankers, agreements to sell intelligence about forward demand. You put that together, itis a remarkable formula for success in a volatile market.” Oswald Clint, senior research analyst, AB Bernsteii“For usit is about, how do we get oil, gas, metals, from where they are produced, to where they need to be, and when they need to be, and in what form they need to be, says Sa Rahim, chief economist for Trafigura, speaking from the company’s trading base in Geneva (its headquarters are spore). “There are only a few ‘who ean really do this at terdam, This is the world’s biggest port outside As ile nearly twice the length of Manhattan, from end to end. It took us almost an hour to drive across the array of. pipelines, jetties, container terminals, ‘warehouses, and refineries, Last year alone, Rotterdam handled nearly 4463 million tons of eargo (61 mi lion tons of it from Russia)—loading, processing it. That haul in oil, natural gas, and coal— accounting for about 13% of Europe's energy needs—along with food, cloth- ing, electronics, metals, and the gazil- lion other items that keep modern life ticking in dozens of countries ‘The port was already feeling the rains of the post-pandemie com back when its CEO, Allard Castelein, awoke at dawn on Feb. 24 to find that ‘Vladimir Putin had sent troops into Ulraine. Castolein raced through hi mental checklist of potential disas ters: dire shortages, piled-up contain crs, blocked ships. “Thad an awar ness that this might go pear shaped; ays Castelein, sitting in his office ‘with a sweeping view over the port. ‘The CEO quickly summoned the team he had set up in 2020 to tackle ACAPTAIN ON DECK Allard Castelein, CEO of the Port of Rotterdam. The volatility that has puthis team in crisis mode has been ‘Good for traders, he says: "There sno ‘money to be made ina stable market.” the pandemic lockdowns and be aming out wartime scenarios. The group now meets online every few days. Urgent topies have included the impact of European Union sanc~ tions on vessels wanting to sail to Rotterdam; the 27-country bloc has imposed six rounds of punitive mea- sures on Russia since the invasion, ‘but quantities of Russian ofl, LNG, and coal, as well as steel, copper, aluminum, and nickel, still eome through the port, all of it legal for7.800 | WORLD'S LARGEST COMPANIES have certainly beefed up the level of awareness” Castelein says. Castelein’s meetings convene rep- resentatives of shipping companies, and barge and terminal operators. But there one group that hasn't been {joining in; the big traders. Castelein says those companies keep him apprised of their concerns. But as a former trader himself—he moved oil for Shell in the 1980s—he also knows that the tumult that keeps him awake at night can work to the financial advantage ofthe trading companies. “There is no money to be made in a stable market.” he says. “Volatility is Tike air fora trader” FOR ALL ROTTERDAM’S impor tance, it is just one dot on the ‘map for the biggest traders. Glencore operates in more than 35 countries; ‘Trafigura operates in 48. In recent ‘years, the trading giants have ex- panded ever farther beyond deliver- ing raw ingredients, amassing large stakes in mines, oilfields, and refiner- ies—in the process becoming even ‘more erucial to the global economy, and helping them profit as com- ‘modity producers. Since taking over Anglo-Swiss mining company Xstrata in 2013, for example, Glencore now ears about 80% of profits from min- ing, even though mining accounts for only about one-third of its revenues. Its their trading, however, that has been crucial to keeping goods flowing throughout the pandemie and the war; It takes rarefied skills to retrieve ‘vast quantities of the earth's natural resources, sometimes from remote and dangerons places, and deliver ‘them to customers far away. ‘The actual price on world markets for grain, gas, copper, oil, or any other commodity, is just one of many fac~ tors these traders are considering at any given moment. They make slim ‘margins per unit, but trade mammoth volumes—many millions of tons of ‘wheat, nickel, or zine, for example, or millions of barrels of oil—often for equally mammoth profits or losses. ‘They capitalize on price differentials O% COMBINED REVENUE GROWTH FOR GLENCORE AND TRAFIGURA. from fiscal 2020 to 2021, to a total of $435 billion. A global economic rebound vastly increased the: amount of cor ‘also enabling them to profit from fast ymmodities they traded, while ing prices. between different geographic areas, or between purchase times, aiming to arbitrage long-term and short-term shifts in the prices of their holdings. “The traders’ deeper value lies in the risky, labyrinthine logistis that the job entails. Commodity trading, the FedEx of raw materials, requires a web of relationships across the world, cultivated over decades, enabling resources to move from point A to point B, no matter how. Its not for the faint of heart. In 2016, I traveled to the Democratic Republic ofthe Congo, a corrupt, confliet-ridden, and deeply impoverished country, to see how Glencore extracts and ships strategic metals like cobalt and cop- pet. To make EV batteries, Tesla buys large amounts of that Congo cobalt. For Elon Musk, his relationship with the trader is essential to maintaining aa steady supply for his gigafactories. On its own, Tesla would have no way to mine the cobalt it needs, then truck and ship it aeross the worid—short of ‘Musk buying Gleneore outright. “The traders’ assets proved espe- cially important when COVID-19 hit. In April 2020, with panes andl cars srounded by lockdowns, demand for oil plummeted to its lowest levels in history, with prices for crude frtures at ‘one point slipping below zero, asthe ‘world ran out of places to store unused barrels. Among the few companies capable of resolving the crisis were Glencore and Trafigura, both of which offered to store the cil, including on ‘their leased ships; Trafigura boasts of having one of the biggest oil fleets in the world. “We said, ‘Look, we have the infrastructure and the ability to store those volumes,” says Rahim, the ‘Trafigura economist. “When the world needs that oi, we will have it ready.” Rahim has witnessed the company’s growing importance: When he joined ‘Trafigura in 2015, it traded 2.5 mil- lion barrels of oil a day; now it trades 73 million a day. “The Ukraine conflict has made diversified traders even more pivotal. ‘When a German utility company de- cided to stop buying Russian eoal, for example, Glencore was able to quickly supply it with coal from elsewhere, since the company owns mines in Co- ombia, South Africa, and Australia. ‘Not surprisingly, the major traders have ballooned in size and scope ata time when political and health crises ‘make other companies increasingly concerned about their supply chains. For the six-month period ending ‘on March 31—a span that included Russia's brutal advance on Kyiv— ‘Trafigura’s net profits shot up 27%, to 2.7 billion. CEO Jeremy Weir said that although geopolitical turmoil was a challenge, the market insights and. logistics skills of Trafiguras traders‘made them exceedingly valuable to clients in “periods of seismic change” Similarly, Glencore said in June that it expeets record profits from trading for the first half of 2022, ‘more than all of 2021—in part be- cause of high commodity prices, but also because of volatility, with the war in Ukraine causing wild swings in the prices of stocks and goods. “The big shifts up and down, the higher frequency moves, are great for business,’ says Oswald Clint, senior research analyst in London for AB Bernstein. The traders “have oil and ss, pipelines, storage tanks, tankers, agreements to sell, intelligence about. forward demand,” he says. “You put that together, itis a remarkable for- ‘mula for success in a volatile market” Critics say itis also a formula for wrongdoing. This spring, Glencore reached a series of plea arrangements and settlements in the US, the UK, and Brazil involving bribery and ‘market-manipulation dating to the 20108; in July, it set aside $1.5 billion to pay related fines. Watchdogs also take the traders to task for financial ‘opaqueness. Glencore is unusual among the big names in being pub- licly traded, and most operate from ow-regulation, low-tax Switzerland. (fn the latest ranking of Switzerland’ biggest companies by revenue from Dun & Bradstreet, the top four are traders led by Glencore and Vitol) Switzerland, of couse, has banks aplenty to fund expensive shipments, often through complicated credit fa- cites that give the traders broad lee- ‘way: (Thafigura has about $16 billion in credit lines. Public Eye, a watch- dog NGO in Geneva that monitors Switzerland’ traders and is strongly critical of them, calls the industry credit arrangements “a veritable black hole” And some ofthe traders’ most controversial relationships are now under an unusual degree of scrutiny, thanks to one history-making event: the Ukraine conflict ROTTERDAM HAS BEEN a promi- nent trading center ever since the days of Holland's 17th-century tulip mania, Four eenturies on, Rus- sia and erude oil have helped tur into the gargantuan port itis today. During the 1970s, Rotterdam again played a role in the evolution of commodity trading. Mare Rich, ruthless, swashbuckling Belgian- American trader, essentially invented spot trading of crude oil, with much, of his activity centered on crude shipped through that port. Rich ‘was indicted in the US. in 1983 for racketeering, tax evasion, and trading with Iran, but by then he had fled to Switzerland. There, management bought out his business in 1993—and renamed it Glencore. (Rich was later pardoned by President Clinton.) As Russias economy opened to the West, ‘meanwhile, Rotterdam's location—on the North Sea, near the mouths of the Maas and Rhine rivers—made ita natural entry and transshipment point through which Russia’s crude, natural gas, and metals could reach the facto- Fies of Western Europe. “Today, about 13% of Rotterdam’s incoming cargo is Russian, That includes about 30% of the erude oil that passes through the port, and ‘one-quarter of the LNG and coal— tens of millions of tons of fuel in any given year. Plus, Russia exports vital metals like copper, steel, aluminum, and nickel through Rotterdam. Until Putin’ forces invaded Ukraine in February, the trading ti- tans retained their ties with Russi for good reason, given the country! ‘enormous natural resources. “Most of them were extremely well connected with the Kremlin, says Adria Budry Carbé, commodities researcher for Public Eye. One very publie sign of those bonds came in 2017, when Putin awarded a medal to Gleneore's then-CEO Ivan Glasenberg at the Kremlin for “strengthening coop- eration with Russia” after Glencore bought a stake in the Russian oil company Rosneft. (Glasenberg led Gleneore from 2002 until is retire ‘ment last year; Gary Nagle, a South African and a veteran of Glencore’s coal operations, is now CEO) Butthe Ukraine war has forced AFRIENDSHIP UNDER SCRUTINY Viadimie Putin (left) groets Glencore’s then-CEO Ivan Glasonberg atthe Kremlin, Jin2019, Glencore and Trafigura built close ties with Russian recent years but have distanced themselves since the Uiraine invasion,