LONDON, March 10 (Reuters) – The easy-cash era is over and its impact is only just starting to felt by world markets yet to see the end of the sharpest interest rate hiking cycle in decades.
Risks were brought to a fore this week as U.S. tech specialist Silicon Valley Bank was shut by California banking regulators on Friday, sparking a rout in bank stocks. SVB was seeking funds to offset a hit on a $21 billion bond portfolio, a result of surging rates, as customers withdrew deposits.
Central banks meanwhile are shrinking their balance sheets by offloading bond holdings as part of their fight against hot inflation.
We look at some potential pressure points.
1/ BANKS
Bank have shot up the worry list as the SVB rout hit bank stocks globally on contagion fears. European banks slid on Friday after JPMorgan (JPM.N) and BofA (BAC.N) shares fell over 5% on Thursday.
SVB’s troubles stemmed from deposit outflows as clients in the tech and healthcare sectors struggled to raise cash elsewhere, raising questions over whether other banks would have to cover deposit outflows with loss-making bond sales too.
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In February, U.S. regulators said U.S. banks had unrealised losses of more than $620 billion on securities, underscoring the hit from rising interest rates.
Germany’s Commerzbank issued a rare statement playing down any threat from SVB.
For now, analysts saw SVB’s issues as idiosyncratic and took comfort from safer business models at larger banks. BofA noted European banks’ bond holdings have not grown since 2015.
“Normally speaking, banks would not be taking big duration bets with deposits, but with such rapid rate rises it is clear why investors could be worried and are selling now and asking questions later,” said Gary Kirk, partner at TwentyFour Asset Management.
2/ DARLINGS NO MORE
Even after a first-quarter surge in stock prices, higher rates have dampened the willingness to take punts on early-stage or speculative businesses, especially as established tech firms have issued profit warnings and cut jobs.
Tech firms are reversing pandemic-era exuberance, cutting jobs after years of hiring sprees. Google owner Alphabet plans to axe about 12,000 workers; Microsoft, Amazon and Meta are together firing almost 40,000.
“Despite being a rate sensitive investment, NASDAQ has not responded to the implications of interest rates. If rates continue to rise in 2023, we may see a significant sell-off,” said Bruno Schneller, a managing director at INVICO Asset Management.
3/ DEFAULT RISKS
The risk premium on corporate debt has fallen since the start of the year and signals little risk, but corporate defaults are rising.
S&P Global said Europe had the second-highest default count last year since 2009.
It expects U.S. and European default rates to reach 3.75% and 3.25%, respectively, in September 2023 versus 1.6% and 1.4% a year before, with pessimistic forecasts of 6.0% and 5.5% not “out of the question.”
And with defaults rising, the focus is on the less visible private debt markets, which have ballooned to $1.4 trillion from $250 billion in 2010.
In a low rate world, the largely floating-rate nature of the financing appealed to investors, who can reap returns up to the low double digits, but now that means ballooning interest costs as central banks hike rates.
4/CRYPTO WINTER
Bitcoin staged a recovery at the start of the year but was languishing at two-month lows on Friday .
Caution remains. After all, rising borrowing costs roiled crypto markets in 2022, with Bitcoin prices plunging 64%.
The collapse of various dominant crypto companies, most notably FTX, left investors shouldering large losses and prompted calls for more regulation.
Shares of crypto-related companies fell on March 9, after Silvergate Capital Corp (SI.N), one of the biggest banks in the cryptocurrency industry announced it would wind down operations and sparked a crisis of confidence in the industry.
5/FOR SALE
Real estate markets started cracking last year and house prices will fall further this year.
Fund managers surveyed by BofA see China’s troubled real estate sector as the second most likely source of a credit event.
European real estate reported distress levels not seen since 2012 by November, law firm Weil, Gotshal & Manges found.
How the sector funds itself is key. Officials warn European banks risk significant profit hits from sliding house prices, which is making them less likely to lend to the sector.
Real estate investment management firm AEW estimates the sector in UK, France and Germany could face a 51 billion euro debt funding gap through 2025.
Asset managers Brookfield and Blackstone recently defaulted on some debt tied to real estate as interest rate hikes and falling demand for offices in particular hit property values.
“The reality that some of the values out there aren’t right and perhaps need to be marked down is something that everyone’s focused on,” said Brett Lewthwaite, global head of fixed income at Macquarie Asset Management.
($1 = 0.9192 euros)
Reporting by Yoruk Bahceli, Chiara Elisei, Nell Mackenzie, Dhara Ranasinghe, Naomi Rovnick, Elizabeth Howcroft; Graphics by Kripa Jayaram and Vincent Flasseur; Editing by Dhara Ranasinghe and Toby Chopra
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Feb 24 (Reuters) – A California federal judge on Thursday dismissed antitrust claims against commercial real estate information services company CoStar Group Inc (CSGP.O), in a feud with an industry rival platform that alleged it was unlawfully boxed out of competition.
U.S. District Judge Consuelo Marshall in Los Angeles found CoStar’s commercial real estate listing practices and contracting terms were not anticompetitive and that allegations in the case failed to show the company held monopoly power.
The order addressed counterclaims against CoStar in its intellectual property lawsuit against rival Commercial Real Estate Exchange Inc (CREXi).
CREXi had alleged CoStar “spent billions of dollars buying up and elbowing out competitors.” CREXi competes with industry leader CoStar, which saw $2.1 billion in revenue last year, for online commercial real estate data and technology services.
In the counterclaims, CREXi claimed CoStar was abusing its power in an effort to stop brokers from working with it.
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The court’s ruling said CREXi could not refile antitrust claims. Los Angeles-based CREXi still has a pending trademark infringement claim against CoStar.
A representative from CREXi and lawyers for the company at Keker, Van Nest & Peters did not immediately respond on Friday to messages seeking comment.
Washington, D.C.-based CoStar in a statement said CREXi’s “competition claims were long on bombastic hyperbole, but utterly devoid of substance.”
CoStar’s lawsuit alleged CREXi was attempting to use stolen content from CoStar and unauthorized use of its services to build a competing platform.
CoStar said last week in an updated complaint it had “identified more than 50,000 CoStar-copyrighted photographs copied, displayed, or reproduced by CREXi without permission.”
A trial in the underlying copyright case is set for next year.
The case is CoStar Group Inc v Commercial Real Estate Exchange Inc, U.S. District Court, Central District of California, 2:20-cv-08819-CBM-AS.
For plaintiff: Nick Boyle and Jessica Stebbins Bina of Latham & Watkins
For defendant: Elliot Peters and Warren Braunig of Keker, Van Nest & Peters
Reporting by Mike Scarcella; editing by Leigh Jones
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LISBON, Feb 16 (Reuters) – Portugal announced on Thursday a 900-million-euro package of measures to tackle a housing crisis, including the end of its controversial “Golden Visa” scheme and a ban on new licenses for Airbnbs and other short-term holiday rentals.
Portugal is one of the poorest countries in Western Europe. More than 50% of workers earned less than 1,000 euros per month last year while rents and house prices have skyrocketed. In Lisbon alone, rents jumped 37% in 2022.
Low salaries, a red-hot property market, policies encouraging wealthy foreigners to invest and a tourism-dependent economy has for years made it hard for locals to rent or buy, housing groups say. Portugal’s 8.3% inflation rate has exacerbated the problem.
Prime Minister Antonio Costa told a news conference the crisis was now affecting all families, not just the most vulnerable.
It is not clear when the measures, worth at least 900 million euros ($962.19 million), will come into effect. Costa said some would be approved next month and others will be voted on by lawmakers.
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A mechanism would be introduced to regulate rent increases, he added, and the government will offer tax incentives to landlords who convert tourism properties into houses for locals to rent.
New licenses for tourism accommodations, such as Airbnbs, will be prohibited – except in less populated rural areas.
To address the housing shortage, Costa said the state would rent vacant houses direct from landlords for a period of five years and put them on the rental market.
Portugal’s golden visa programme, which offers EU passports to non-EU nationals in return for investments including in real estate and has been criticised for sending house prices and rents up, will end, Costa said.
The scheme attracted 6.8 billion euros in investment since its launch in 2012, with the bulk of the money going into real estate.
Housing groups said the measures would mean little if the government continued to promote other policies to attract wealthy foreigners to Portugal, such as the “Digital Nomads Visa” introduced in October, which gives foreigners with high monthly income from remote work to live and work from Portugal without paying local taxes.
At a small housing protest in Lisbon, 23-year-old activist Andreia Galvao accused the government of failing to live up to promises it made to address the housing crisis in the past.
“The goal was that by 2024 all Portuguese would have access to quality housing – it doesn’t look like that will happen,” she said. “The situation is dramatic.”
($1 = 0.9354 euros)
Reporting by Patricia Rua, Catarina Demony and Sergio Goncalves; Editing by Aislinn Laing and Sandra Maler
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SEOUL, Jan 12 (Reuters) – South Korean tech conglomerate Kakao Corp (035720.KS) said on Thursday unit Kakao Entertainment secured a 1.2 trillion won ($966.27 million) investment from leading sovereign wealth funds.
The move, which Kakao said was the largest overseas investment in a South Korean content company, signals investors’ bullish outlook for Korean contents’ growth potential and its “recession-proof” tendencies when weak a economic outlook has dried up liquidity in many other sectors, analysts said.
Singapore’s GIC and Saudi Arabia’s Public Investment Fund (PIF) decided to each invest 600 billion won in the entertainment firm, local newspaper Korea Economic Daily reported on Thursday, citing unnamed investment banking sources.
Kakao, however, did not name the sovereign wealth funds in its statement. GIC and PIF did not immediately comment.
Kakao Corp shares rose 1% in early morning trade, outperforming a 0.2% rise in the wider market (.KS11).
“It’s significant that we were able to secure funds of this scale at a time when both the Korean and global markets face a lot of uncertainty and investment sentiment is weak,” Kakao Chief Investment Officer Bae Jae-hyun said.
Unlisted Kakao Entertainment has a business portfolio ranging from K-Pop – including artist management – to shows, movies, and online-targeted, comparatively low-cost content such as comics called webtoons and serial web novels.
“Webtoons and web novels are steadily being turned into successful dramas and other formats, so investors think this is good value and timing to invest in an intellectual property holder,” said Kim Jin-woo, analyst at Daol Investment & Securities.
“Having secured funds, Kakao Entertainment may seek to strengthen its artist lineup that can better target overseas markets via M&A or other ways.”
($1 = 1,241.8900 won)
Reporting by Joyce Lee; Editing by Chris Reese and Sherry Jacob-Phillips
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LONDON, Jan 11 (Reuters) – Self-driving software startup Oxbotica has raised $140 million from investors to speed deployment of autonomous vehicles (AVs) in areas including heavy industry, ports and airports.
The Series C round includes funding from new investors including Japanese insurer Aioi Nissay Dowa Insurance, the venture capital arm of software company Trimble (TRMB.O) and the venture capital arm of Japanese oil refiner Eneos (5020.T).
It also includes fresh funding from existing investors including Tencent (0700.HK) and the venture capital arm of BP (BP.L), as well as Kiko Ventures, the clean tech investment platform of IP Group (IPO.L) and Oxbotica’s first institutional investor.
Oxbotica has now raised about $225 million in total and the company said that additional investors are expected to sign up before the funding round closes in a few months.
The startup is working on specific applications for strategic investors. These include AVs for remote BP locations, a people mover for German auto parts supplier ZF Friedrichshafen and for last-mile delivery by British online supermarket and technology group Ocado (OCDO.L).
The clamour for robotaxi applications, however, appears to have subsided.
Ford Motor Co (F.N) said in October that it was winding down its Argo AI self-driving business, saying robotaxis were still too far off to continue investing.
Oxbotica Chief Executive Gavin Jackson told Reuters that AVs using the startup’s software will enter service in 2023 in the energy and agriculture sectors, plus private truck yards, followed by fixed-route passenger shuttles in 2024.
Once regulations catch up with the industry, the company will start running tests on limited routes for Ocado in 2025, Jackson said.
He said the company has customers in mining, construction, agriculture, airports, ports and the logistics sector, all of which want safe and reliable AVs.
“These are the applications that matter,” Jackson said. “The proceeds (of this funding round) will really accelerate deployment for our commercial customers.”
Reporting by Nick Carey
Editing by David Goodman
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SHANGHAI/HONG KONG, Dec 12 (Reuters) – For more than a decade, Chinese developers’ debt-fuelled construction boom enriched the country’s shadow banks, who were eager to capitalise on the needs of an industry desperate for credit and too risky for traditional lenders.
Now, in the wake of a government clampdown on real estate firms’ debt binge, that credit demand has collapsed – and so too has the single biggest revenue stream for shadow banks, also known as trust firms.
China’s shadow banking industry – worth about $3 trillion, roughly the size of Britain’s economy – is scrambling for new business, including direct investment in companies, family offices and asset management.
It is also shrinking, with once-well-paid employees leaving for other jobs after scavenging for new deals. The industry’s plight is a sharp contrast to China’s main street financial firms, which the crisis has not yet seriously affected.
“Everyone was eating a mouthful of rice, surviving another day,” said Jason Hao, who left his job this year at a Shanghai trust firm after his pay plunged from as much as 4 million yuan ($570,000) a year to about 240,000 yuan ($34,000).
He is now working at an asset management company.
Data from industry-tracking website Yanglee.com shows 1,483 real estate-related trust products were sold in 2022 through the end of September, down 69.7% from 4,891 during the same period last year.
The value of the 2022 deals was 117.2 billion yuan, down 77.9% from 531.3 billion yuan. Real estate products accounted for 8.7% of all trust products in September, compared with about 30% in the same month the last two years.
The National Audit Office and China’s banking regulator have both been reviewing trust firm accounts and deals this year for risk, said three people with knowledge of the matter.
The National Audit Office and the CBIRC did not respond to requests for comment.
In an internal meeting in October, an executive at Shanghai Trust, a state-owned firm that once focussed on property, said revenue was down by almost half this year compared with the year before, according to two people with direct knowledge of the meeting.
The firm plans to focus on asset management and family offices to shore up its finances while pivoting away from lending to developers, once its core business, one of the people said.
Shanghai Trust did not respond to requests for comment.
The top priority for all trust companies now is “how to transition, what will let you survive,” said another trust firm employee, who like the other current employees interviewed for this article declined to be named because of the sensitivity of the matter.
CONTAGION RISK
Trust firms were dubbed “shadow banks” because of how they operated outside many of the rules that govern commercial banks. Banks in China sell wealth management products, the proceeds of which are channelled by trust firms to property developers and other sectors that are unable to tap bank funding directly.
Because of the risk, shadow banks could charge interest rates of up to 18%, far higher than the typical 2% to 6% seen at banks at the height of the boom.
Concerns about outsized exposure to property developers have grown this year as the embattled sector in the world’s second-largest economy has slowed rapidly.
Beijing has stepped up support in recent weeks to undo a liquidity squeeze that has stifled the real estate market, which makes up a quarter of the Chinese economy and has been a key driver of growth.
OUT OF OPTIONS
At the trust unit of state-owned China Construction Bank (CCB) and Zhongrong International Trust, previously one of China’s largest shadow bankers, investing like private equity and venture capital funds has become more common, two people with direct knowledge of the companies said.
CCB Trust wants to invest in leading companies in niche fields; it recently invested in Beijing Tianyishangjia New Material Corp, which manufacturers materials used in train brakes, said one person who works at the company.
Zhongrong International Trust has been working with local governments, including Qingdao provincial authorities, to source early stage deals in intelligent manufacturing, an executive there said.
Jiangxi-based Avic Trust has been investing in waste-processing firms, including funding photovoltaic power stations that it then rents out, said a person with direct knowledge.
CCB Trust, Zhongrong International Trust and Avic Trust
did not respond to requests for comment.
In some cases, trust firms are buying projects from struggling developers and hiring new managers to recoup their losses, according to corporate records and three people in trust firms who are aware of such acquisitions.
Ping An Trust, Zhongrong International Trust, Everbright Xinglong Trust and Minmetals International Trust have all bought project companies from struggling developers in the last few months, corporate records and company announcements showed.
Ping An Trust, Zhongrong International Trust, Everbright Xinglong Trust
and Minmetals International Trust did not respond to requests for comment.
For Hao and other former trust employees, the companies’ search for stability feels familiar.
“My situation now is better than it was when I left the trust, but will never be as good as it was at the height of the boom when I was there,” Hao said.
($1 = 6.9905 Chinese yuan renminbi)
Reporting Engen Tham in Shanghai, Clare Jim and Julie Zhu in Hong Kong; Editing by Sumeet Chatterjee and Gerry Doyle
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WASHINGTON, Dec 6 (Reuters) – Many automakers and the South Korean government are urging the Biden administration to tap a commercial electric vehicle tax credit to boost consumer EV access, a plan that could help ease concerns over a climate bill approved in Congress.
The $430 billion U.S. Inflation Reduction Act (IRA) passed in August ended $7,500 consumer tax credits for electric vehicles assembled outside North America, sparking anger from South Korea, the European Union, Japan and others.
Some automakers say a lesser noticed IRA provision for “commercial clean vehicles” could be used to boost EV manufacturers and address foreign concerns.
Rivian Automotive (RIVN.O), Hyundai Motor (005380.KS) and Kia Corp (000270.KS) among others want the administration to let consumer vehicle leasing qualify for the commercial EV tax credit that could reduce monthly lease payments.
The South Korean government in comments made public Tuesday urged Treasury “interpret ‘commercial clean vehicles’ broadly” to include rental cars, leased vehicles and vehicles purchased for use in Uber (UBER.N) or Lyft (LYFT.O) rideshare fleets.
South Korea also asked Treasury not to impose any budget restrictions on commercial vehicle tax credits through 2025.
Hyundai and Kia want Treasury to allow people leasing EVs to be able to qualify for up to a $4,000 tax credit for used EVs if they buy vehicles when leases expire.
The IRA consumer EV tax credit imposes significant battery minerals and component sourcing restrictions, sets income and price caps for qualifying vehicles and seeks to phaseout Chinese battery minerals or components.
The commercial credit does not have the same sourcing or pricing restrictions but has an “incremental cost” eligibility test that might prove complex. Some automakers want Treasury to make it easier to ensure most commercial light-duty vehicles qualify for $7,500 tax credits.
President Joe Biden said last week “there are tweaks that we can make that can fundamentally make it easier for European countries to participate.”
Some automakers oppose using the commercial credit for consumer sales.
Toyota Motor Corp (7203.T) said “the lack of criteria to qualify for (commercial credits) could undermine the IRA’s goals to expand domestic production of EV batteries and maintain America’s energy independence.”
Tesla (TSLA.O)said commercial credits “should apply exclusively for commercial end-users” and the consumer tax credit “should apply exclusively for individual end-users.”
General Motors (GM.N) Chief Executive Mary Barra told Reuters on the sidelines of an event Monday that addressing foreign concerns about the credit is “more complicated than just one thing to solve it” and added “sticking to the intent of the bill” drafted by Congress “is important.”
Reporting by David Shepardson; Editing by Lincoln Feast.
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Nov 22 (Reuters) – Japan’s Mazda Motor Corp (7261.T) will invest about 1.5 trillion yen ($10.58 billion)to electrify its vehicles, including boosting production of battery EVs, and aims to increase their share in the company’s overall global car sales by 2030.
Mazda’s senior managing executive officer Akira Koga said the investment would be made along with its “partners”, without elaborating, and will be used for research and development. The news was first reported by the Nikkei business daily.
The ratio of electric vehicles (EVs) in global sales is expected to rise to between 25 percent and 40 percent as of 2030, from 25% previously, the company said in a statement.
Mazda CEO Akira Marumoto also told a news conference that the company had reached an agreement with Envision AESC, the battery business of Chinese renewable energy group Envision, to procure batteries for EVs produced in Japan.
The automaker also said it had agreed to work with seven companies, including electric component manufacturer Rohm Co (6963.T), to jointly develop and produce electric drive units.
Automakers worldwide are spending billions of dollars to ramp up battery and EV production in the face of tougher environmental regulations.
In August, Toyota Motor Corp (7203.T) said it would invest up to 730 billion yen in Japan and the United States to make batteries for fully electric vehicles as opposed to hybrid gasoline-electric cars like the Prius.
Its rival Honda Motor Co (7267.T) also said in the same month it would build a new $4.4 billion lithium-ion battery plant for EVs in the United States with Korean battery supplier LG Energy Solution Ltd (373220.KS).
Mazda is aiming for about 4.5 trillion yen in net sales for the business year ending March 2026, a jump of about 45% from the financial year ending March 2022, the company said.
Shoichi Matsumoto, Envision AESC chief executive, told Reuters last month it was in talks with automakers in Japan, Europe, the United States and China for new supply deals.
Envision AESC, based in Japan, was originally established as a joint venture between Nissan Motor Co (7201.T), NEC Corp (6701.T) and its subsidiary NEC TOKIN Corporation.
($1 = 141.7400 yen)
($1 = 141.7500 yen)
Reporting by Tokyo Newsroom; Editing by Christopher Cushing, Kenneth Maxwell and Ana Nicolaci da Costa
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DUBLIN, Nov 7 (Reuters) – Ireland has a strong pipeline of investments from foreign-owned multinationals and expects many positive announcements in the coming months, Deputy Prime Minister Leo Varadkar said on Monday, looking to ease fears around tech-sector jobs cuts.
Ireland is hugely reliant on multinationals that employ over 275,000 people, or one in nine workers, and pay a large chunk of the country’s income and corporate taxes. Jobs growth in the sector soared to record levels in the first half of 2022.
However, digital payments firm Stripe and Twitter, both of whom employ around 500 in Ireland, announced layoffs last week and the Wall Street Journal reported on Sunday that Facebook parent Meta Platforms Inc (META.O) plans to begin large-scale layoffs this week.
Meta’s international headquarters are in Ireland, where it is one of the largest multinationals, directly employing around 3,000 staff with another 6,000 supporting its operations across the country.
It is also set to move into a large new campus in Dublin shortly.
Varadkar was briefed on Monday by the state’s inwards investment agency, IDA Ireland, on the current situation in the global tech sector. Tech multinationals employ over 37,000 people in Ireland, according to the IDA.
“There is a strong pipeline of new investments from overseas and within Ireland in a range of sectors including tech and in other sectors and we expect many positive announcements in the coming months,” Varadkar, who is also the country’s enterprise minister, said in a statement.
“As a country we are close to full employment, with high demand for tech, marketing and other skills across all sectors.”
Multinational job announcements have continued in the second half of the year with cloud data service provider NetApp Inc (NTAP.O) saying on Friday that it would create 500 jobs by 2025 at its new international headquarters in the city of Cork.
Multinational firms have been responsible for an enormous boom in corporate tax receipts in recent years, and also now account for around 33% of all income tax paid in the country due to their highly paid roles.
Reporting by Padraic Halpin in Dublin
Editing by Matthew Lewis
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Oct 18 (Reuters) – Amazon Web Services (AWS),the cloud computing division of Amazon.com Inc (AMZN.O), said on Monday it plans to invest $5 billion in Thailand over the next 15 years to strengthen its infrastructure in the country.
The investment would include construction of data centers and purchase of goods and services from regional businesses, AWS said in a statement.
It also plans to set up an infrastructure hub in Thailand’s Bangkok to help customers in the region securely store data, and serve end users better.
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“AWS’ plan to build data centers in Thailand is a significant milestone that will bring advanced cloud computing services to more organizations and help us deliver our Thailand 4.0 ambition to create a digitized, value-based economy,” Thailand’s Deputy Prime Minister Supattanapong Punmeechaow said.
AWS’ cloud platform offers more than 200 services, including storage, robotics and artificial intelligence.
AWS last month opened its first cloud data center in UAE and announced plans to setup a local hub in Mexico to boost bandwidth for clients.
Since 2020, AWS has launched 10 Amazon cloudfront edge locations in Bangkok. The edge locations help to deliver data, videos and applications at higher speeds to end users.
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Reporting by Kanjyik Ghosh and Ann Maria Shibu in Bengaluru; Editing by Dhanya Ann Thoppil
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