Aurelia Butler

HONG KONG (Reuters) – China’s securities regulator met with representatives from top Western asset managers on Friday to reassure them about the country’s economic prospects, as its post-COVID recovery falters, two people with knowledge of the matter told Reuters. The China Securities and Regulatory Commission (CSRC) held the virtual meeting with at least half a dozen global financial institutions on Friday, said the people, who declined to be identified as they were not authorised to speak to the media.Fang Xinghai, a vice chairman of the CSRC hosted the meeting from Beijing, the sources said. An executive from Fidelity International was among those from the large funds attending, according to one of the sources.The CSRC did not immediately responded to Reuters’ request for comment. Fidelity declined to comment.Bloomberg first reported the CSRC meeting on Friday. The meeting comes as Beijing scrambles to shore up investor confidence in the market, which has been hobbled by a deepening property sector crisis and weakening growth in the world’s second-largest economy.China’s benchmark CSI300 has fallen more than 11% since its high for the year in February. The economy grew at a sluggish pace in the second quarter amid weak demand at home and abroad, prompting analysts to downgrade their growth forecasts for the year.Beijing has taken a series of measures to bolster markets. However, the modest stimulus has so far failed to satisfy investors, who want a stronger policy response, including massive government spending.Chinese authorities are planning to cut the stamp duty on stock trading by as much as 50%, Reuters reported on Friday, citing sources, in a further attempt to revitalise the struggling stock market.After a meeting with pension funds, big banks and major insurers, the CSRC said on Thursday that it was encouraging medium and long-term investors, such as state pension funds and wealth management funds, to increase their equity investments.The confidence-boosting meetings come as global funds are seen accelerating their exit from Chinese assets. More

German companies have become increasingly gloomy on the economic outlook, according to a closely watched business confidence index that adds to signs that Europe’s largest economy is heading for another downturn.“The German economy is not out of the woods yet,” said Clemens Fuest, president of the Munich-based Ifo Institute, after its monthly survey found confidence falling in all four main sectors: manufacturing, services, retail and construction.Its overall business confidence index fell 1.7 points to a 10-month low of 85.7, as companies become more pessimistic both about current conditions and the next six months. Economists polled by Reuters had expected a smaller drop to 86.7.The downbeat findings mirror those earlier this week in a survey of purchasing managers, which found German companies suffered the steepest decline in activity for more than three years, amid falling new orders, output and inventories. The grim economic outlook has prompted investors to cut their bets on the European Central Bank raising interest rates for the tenth consecutive time at its meeting on September 14. “The broad-based decline in leading indicators points to a renewed contraction of the German economy in the second half of the year,” said Christoph Weil, an economist at German lender Commerzbank. “This strengthens the position of the many doves on the ECB governing council, which is unlikely to raise its key rates again at the next meeting.”However, one member of the ECB rate-setting governing council — Germany’s central bank boss Joachim Nagel — said it was “much too early to think about a pause” in raising borrowing costs before he has seen more data — including next week’s inflation figures for August.Eurozone inflation has halved since reaching a record high of 10.6 per cent in October and economists polled by Reuters expect it to slow further to 5 per cent this month. But Nagel told Bloomberg at the US Federal Reserve’s Jackson Hole conference there was still “some way to go” to reach the ECB’s 2 per cent target and warned core inflation — excluding energy and food — remains “sticky”.The German economy has been slower to recover from the coronavirus pandemic than the US or the rest of the eurozone. A sharp downturn in manufacturing has hit Germany’s vast industrial base particularly hard, meaning the country has not enjoyed positive growth for three quarters.Another sign of weakness came on Friday, with official figures showing new orders in the German construction sector fell 2.7 per cent in June from the same month a year ago, underlining how rising interest rates have hit activity in the country’s housing market.

Nagel said his country was “going through some, let me say, complicated months” but he predicted it would recover next year. The Bundesbank forecasts German gross domestic product will shrink 0.3 per cent this year before growing 1.2 per cent in 2024.Revised German GDP data, also published on Friday, confirmed last month’s estimate that output stagnated in the three months to June, compared to the previous quarter. Weaker exports offset a positive contribution from investment, inventories and public spending.“High interest rates, persistently high prices and a lack of impetus from foreign trade, which is so important for Germany, will continue to weigh on the economy in the second half of the year,” said Claus Niegsch, industry analyst at German lender DZ Bank, predicting the country would “slip into another recession in the last two quarters of this year before a recovery can start next year”. More

LONDON (Reuters) – In an investment world trumpeting new-found ethical and sustainability guidelines, the seeming indifference of markets to democratic credentials still remains stark. As the BRICS grouping of developing economies this week planned expansion, a perennial question about whether democracy really matters in the choice of portfolio investment destination returns to the dashboard of global asset managers.Although three of the current five BRICS – Brazil, Russia, India, China and South Africa – are functioning democracies, China dominates the coagulating bloc and the list of planned new members – Saudi Arabia, Iran, UAE, Egypt and Argentina – show democracy is low on the list of any entry criteria.Designed more as a strategic counterweight to the G7-led developed world more than any cohesive economic structure, the group’s political influence will have clout among emerging markets far and wide – and sharpen some investment thinking too.Seasoned emerging markets investors have typically responded to ethical issues about the oft-dubbed “dictator trade” with a collective shrug, preferring to stress that risk and volatility come with the turf, global diversification is driver and returns are superior if well managed around hard-nosed metrics on growth, creditworthiness or resource wealth.Communist China’s rise to become the second-largest economy in the world, and near impossible to avoid in global investment terms, is the obvious cause celebre in that regard. There’s little doubt that emerging market risks are many and rising for Western investors.The dangers of cross-border investment have skyrocketed this decade as the post-pandemic geopolitical fracture around Russia’s invasion of Ukraine, China’s ongoing claim on Taiwan and stinging Western sanctions and investment curbs up the ante.Indeed investment returns in volatile broad indices of emerging market stocks, such as MSCI’s benchmark, have been dire and the U.S. dollar is about 10% stronger in nominal terms against a basket of emerging currencies over the past 15 years. For all its ups and downs in the interim, that MSCI equity index is still where it was in 2007 – while MSCI’s all-country catchall index has doubled over the same period. But questions about ethics and sustainability in investment have mushroomed over the past decade with a boom in demand for funds screened for environmental, social and governance (ESG) standards.Democracy presumably fits into any “governance” consideration and should be a primary question for investors in emerging market sovereign debt – directly funding many autocratic governments rather than just the companies in their realm.Russia’s sanctioned debt wipeout since Ukraine aside, these bond indexes really have performed over time – with JP Morgan’s EMBIG total return index of hard currency emerging sovereign debt almost doubling over 15 years, more in line with world stocks. DEMOCRACY AND BELLIGERENCEBoston-based fund manager GMO took up the issue in research this week, aiming to develop an emerging hard currency debt portfolio prioritising “freedom and democracy while preserving the key investment characteristics of the asset class.”To screen for democratic values per se, GMO strategists Eamon Aghdasi and Mina Tomovska used the World Bank’s “Voice and Accountability” (V&A) scoring – capturing “the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association and a free media.”While GMO acknowledged governance scores in general were lower for poorer countries than developed ones, regardless of the debate about the direction of causation, they claim the correlation between V&A scores and borrowing costs and bond spreads was “surprisingly weak” – much less than with other governance metrics such as corruption or regulation.What’s more, there were as many emerging economies in its sample with relatively low bond spreads in the group with very low V&A scores as the group with very high V&A scores.”Relatively undemocratic countries with otherwise sound economic, fiscal, and governance characteristics can – and often do – earn the privilege of low borrowing costs,” it said, adding Russia was a case in point before the Ukraine invasion – raising a reasonable question about whether risks that materialized there so clearly last year were fully appreciated.But while the researchers admitted that screening out countries with poor overall governance, low credit ratings and high bond spreads merely reduced the performance of the portfolio, they said simply adjusting for V&A scores alone did lift returns significantly.One problem with the latter, however, is that it’s skewed by the Russia and Belarus shock over the past couple of years. If you removed those two wipeouts, screening just for V&A democratic values made much less difference to the bottom line.”This brings us back to an inescapable question: Was democracy, or the lack thereof, really the issue that caused Belarus and Russia to fall off the map financially and produce such disastrous returns?” wrote Aghdasi and Tomovska, adding that while lack of democracy and belligerence were related, it would have been hard to predict or model the cascade of events.Yet flipping the issue of indifference to democracy on its head, GMO concluded that their approach did show ESG and democracy-conscious investors could construct a portfolio they preferred “without significant sacrifices.”Of course sceptics might argue that just looking at emerging markets in relation to democratic risks may be inadequate in the light of the Jan. 6, 2001, events in Washington and subsequent trials.What’s more, analysing past returns may not fully capture the seismic geopolitical changes of the decade so far – where true risks to portfolios are underappreciated after 30 years of relative stability.”The challenge for fund managers today is having an instinct for geopolitical risk when, in most cases, they haven’t actually experienced it,” Federated Hermes (NYSE:FHI) chief executive Saker Nusseibeh wrote in an op-ed in the Financial Times last week.”Taking heed of these geopolitical risks could be the crucial difference between securing your returns or ending up with nothing.”The opinions expressed here are those of the author, a columnist for Reuters. More

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