Aurelia Butler

Financial market conditions appear bleak. Inflation has driven interest rates higher, leading to falling prices in the equity and bond markets. The contrast with a prolonged period of rising prices in both markets is huge. It’s natural for retirement savers to feel depressed, not just about the present but also about future prospects. And it’s particularly gloomy because the ballast traditionally provided by bonds when equities fall can no longer be taken for granted.So the big question is: what can you do? I’ll focus on three aspects. What can savers do? What can retirees do? And what can you do to prepare for the inevitable next visitation of adverse conditions?The first question is the most comforting to answer. Savers should recognise that their assets no longer conform to their planned allocation (whatever it might be). So the first thing is to rebalance back to it. This has the fortunate effect of buying into whatever has fallen furthest, taking advantage of the new lower prices.

In fact, falling markets are, perhaps paradoxically, good for savers. Think of the falling prices as a sale. The amounts you had planned to invest regularly will now buy more units of each asset class than they would at the previous higher prices.Of course that advantage only holds if falls are temporary. But they usually are. That’s the good news. There’s always the possibility that markets never recover. That’s what author William Bernstein calls “deep risk” — and frankly there’s no satisfactory way to deal with that. It’s little comfort that the whole world will be seriously affected, not just you — but that’s the reality of it. So let’s assume that the falls are not so much long-term as short-term or medium-term. And short-term falls are not a problem if you don’t panic and sell. The only defence against panic is to think rationally rather than emotionally.The savers most affected by a medium-term fall are those who are relatively close to having to start cashing out gradually as they approach retirement. And the same problem is even worse for those who are already in retirement and see their pension pot fall in value. So let’s focus on them, and get to the second question I mentioned earlier.Retirees are particularly vulnerable to what is termed, in the jargon, “sequence of returns risk”. They don’t have the luxury of waiting to allow future high returns make up for current negative returns, because their assets are declining as they make withdrawals to sustain their spending needs, and those future high returns act on a smaller asset base. So a sequence of returns that starts low or negative can’t be balanced by later high returns.That means it’s essential to have a part of your pension pot that’s relatively immune to falling asset prices. And the only such assets are cash-like assets, or at any rate short-term assets, which decline little as interest rates rise. I think of this as a “safety pot”, in contrast to the rest of the pot, which is your “growth-seeking pot”. Of course there’s a further problem right now, in that stable-value assets are no protection against high inflation.The only protection lies in assets with returns that are themselves linked to inflation. Americans are lucky in that the US government issues what are called I-Class Savings Bonds (I-bonds for short) with returns that are constantly adjusted to match inflation. The closest equivalent available in the UK are index-linked gilts, for which the interest and maturity payments are adjusted to reflect inflation. But reflecting inflation doesn’t mean matching inflation. In fact for some years the yields on these gilts effectively reflect negative inflation, and it’s not much comfort to get payments that go up and down with inflation, but at a level constantly below inflation. Nevertheless, that’s life. To the extent that you seek safety against inflation, that safety comes at a price.

It’s these safety-oriented assets — or, if you don’t hold any, the shortest-term bonds in your portfolio — that offer you the least costly defence against sequence of returns risk.This leads to the final question. What lessons can you learn for next time?The answer for those of you who are more than, say, five years from having to withdraw money from your pot is nothing, other than that it’s wise to have a long-term investment plan which you can stick to, such as the now traditional “glide path” that underlies many accumulation plans for retirement. Why five years? There’s no magic to the number. It’s the period of time when historically markets tend to recover to their inflation-adjusted levels after a fall. And yes, history is not a prediction of the future, but it’s at least a guide.The answer for retirees and those close to retirement? Build up that safety pot to allow you to gradually withdraw up to five years of spending without touching your growth-oriented pot, if the market takes time to recover from a fall. (I wrote about this strategy in a piece for FT Money a year ago.) And the ultimate defence: be willing to adjust your spending too. Life constantly changes. If we can adjust without too much pain, that’s a big defence against panicky reactions.Don Ezra, now happily retired, is the former co-chairman of global consulting for Russell Investments worldwide, and author of “Life Two: how to get to and enjoy what used to be called retirement” More

The heads of the FBI and MI5 have warned that China’s industrial espionage poses a growing threat to western groups, including through special purpose acquisition companies.In a joint appearance in London, the chiefs of the US and British intelligence agencies called on companies to be much more vigilant about China. FBI director Christopher Wray said Beijing was using “elaborate shell games” to disguise its spying and was even taking advantage of Spacs. “The Chinese government poses an even more serious threat to western businesses than even many sophisticated businesspeople realise,” Wray told business leaders at an event with his MI5 counterpart, Ken McCallum. “I want to encourage you to take the long view as you gauge the threat.”In a reference to the Ministry of State Security and the People’s Liberation Army, Wray added: “When you deal with a Chinese company, know you’re also dealing with the Chinese government — that is the MSS and the PLA — too, almost like silent partners”.The intelligence chiefs were holding the first public event between the two agencies, in a move Wray said underscored the need to tackle the expanding espionage challenge from Beijing.McCallum said MI5 had seen a sevenfold increase in China-related investigations since 2018, had doubled its capacity to deal with them over the past three years, and would probably double capacity again over the next “handful of years”. Wray said FBI field offices across the US opened one investigation into Chinese espionage on average every 12 hours.“We’re not crying wolf,” McCallum said. “China is the most game-changing of all the threats in the sense that it pervades so many aspects of our national life.”Wray said Beijing was using “every tool” at its disposal to steal western technology in an effort to eventually undercut non-Chinese businesses and dominate their markets — even stealing genetically modified seeds from US farmland. He added that the Ministry of State Security, which oversees Chinese overseas espionage, was homing in on western companies that it wanted to “ransack” to help obtain corporate secrets. Meanwhile, assessing the risks from Chinese counterparts was becoming more difficult because Beijing was restricting access to the data needed for due diligence, he said.Both chiefs stressed China often employed people who were not directly connected to its intelligence services to target western companies — a group Wray called “co-optees”. They said companies had to be more attuned to the fact that their dealings with Chinese companies might have connections to Beijing’s intelligence, which McCallum described as “hidden manipulation”.They urged companies to step up co-operation with the FBI and MI5, singling out China’s ability to conduct espionage at scale, across a huge breadth of activities, and to take the long view — to the extent it courts politicians just starting out on their careers. McCallum and Wray insisted they wanted companies to be more vigilant, not to disengage with China.“The aim here is not to cut off from China. We want a UK which is both connected and resilient,” McCallum said.

He cited the presence of 150,000 Chinese students studying at UK universities as being “good for them and good for us”. But he said vetting had led to 50 of them with military links leaving.Wray also said business should think more about the implications of China’s threat to Taiwan in the wake of Russia’s invasion of Ukraine, underlining that western companies had been caught in sanctions against Moscow and economic disruption.“There were a lot of western companies that had their fingers still in that door when it slammed shut,” he said. “If China does invade Taiwan, we could see the same thing again, at a much larger scale. Just as in Russia, western investments built over years could become hostages.”The Chinese embassy in Washington did not immediately respond to a request for comment. More

TOKYO (Reuters) – The Japanese yen will likely remain weaker than the key psychological level of 130 per dollar over the next six months as a gap between Japanese and U.S. benchmark yields weighs on the currency, a Reuters poll showed.This year the yen has slumped against the greenback and other major peers as the Bank of Japan (BOJ) resolutely stuck to its ultra-dovish monetary policy, in contrast to a growing number of increasingly hawkish central banks overseas.Weakness in the currency comes mainly from widening interest rate differentials between Japan and elsewhere.In the July 1-6 poll, the median forecast was for Japan’s currency to strengthen to 131 per dollar in six months’ time, compared with 126.84 in last month’s forecast, meaning it would stay weaker than the 130-yen-per-dollar level.The Japanese currency hit its weakest against the dollar since 1998 at 137 last week. Seven of 61 respondents projected the yen to be at a weaker level than that six months from now, including four forecasting it to be at 140.Despite the yen’s rapid decline this year – it has lost about 15% against the greenback – Japan was unlikely to intervene in the FX market to stop it from sliding, 45% of 22 poll respondents said.”The BOJ will probably be forced to abandon the yield curve control policy in the coming months if JPY depreciates further. However, direct intervention looks unlikely,” said Roberto Cobo Garcia, head of FX strategy at BBVA (BME:BBVA).Some market players have speculated the country could conduct yen-buying intervention to arrest sharp falls in the currency after authorities stepped up their warnings about its strong declines.While the BOJ has firmly rejected the idea of adjusting its policy in the face of the yen’s falls, some strategists said it would be the central bank, not the government, that would move first if policymakers were to act in response to its declines.”Japanese officials have been expressing concerns over yen weakness, and the BOJ highlighted that a rapid depreciation of the yen has a negative impact on the economy,” said Khoon Goh, head of Asia research at ANZ Bank.”At this stage, JPY weakness is not enough for the BOJ to change its monetary policy stance, but if there is a push towards 140-150, the situation could change.”Ten of 22 poll respondents said Japan would not intervene.That compared with six respondents who predicted intervention at the 140 yen per dollar level, and four who chose 145 as the likely trigger level. One selected 150 as the dollar/yen rate at which Japan would intervene, while another said 155 or weaker.The last time the authorities intervened to prop up the yen was in 1998.(For other stories from the July Reuters foreign exchange poll:) More

India’s commerce minister has said New Delhi is on track to conclude a full trade agreement with the UK by October, adding negotiators had already finalised nearly half of what would be one of Britain’s most ambitious deals since Brexit.Piyush Goyal told the Financial Times he expected the two countries would conclude the trade deal “within the next few months” and that 11 of the proposed pact’s 26 chapters were already “dusted and ready”.Both Indian prime minister Narendra Modi and UK counterpart Boris Johnson have pushed trade diplomacy as part of their economic agendas. India is pursuing trade agreements with everyone from the EU to Canada after inking deals with the United Arab Emirates and Australia, while Downing Street sees an agreement with New Delhi as a centrepiece of its post-Brexit economic strategy.The mooted deal is expected to improve market access for goods such as British whisky and Indian textiles. But it also touches on politically sensitive areas, including potentially opening up the UK to more students and skilled workers from India. Johnson said on a visit to New Delhi in April that he hoped it would be concluded by the Hindu festival of Diwali at the end of October, a deadline Goyal endorsed.“Whenever you have a free trade agreement, there is always a lot of give and take,” Goyal said, while declining to discuss the outstanding differences between the two sides. “The challenges are there. But there are no challenges that cannot be overcome.”Goyal brushed aside criticism of New Delhi’s growing imports of Russian oil at a time when western countries are reducing their energy trade with Moscow because of its war on Ukraine. “We had an old relationship with Russia which continues as it did,” he said. “There’s no change in our position.”Since the start of the Ukraine conflict, Russia has grown into one of oil import-dependent India’s largest suppliers as its refiners enjoy steep discounts on Urals crude. “Europe is using gas from Russia,” Goyal added. “Every country has to protect its national interests.” India’s growing importance as a consumer market, and as an Asian geopolitical counterweight to China, has muted criticism of the Modi government’s ties with Russia from the UK and others.India’s economy is being buffeted by higher food and oil prices, with India this week reporting a record $26bn monthly trade deficit for June.

The country in May curtailed wheat exports over concerns about domestic food security after a severe heatwave damaged its crop, prompting alarm that it would further tighten already strained global supplies.But Goyal defended the move, arguing that it had allowed the Indian government to continue providing grain to other governments that needed it the most, while limiting private speculation. “We want to make sure the truly deserving countries . . . get our wheat at affordable prices,” he said.Goyal said he aimed to help India become a $30tn economy within 30 years, from about $3tn now.“The world recognises there’s no other country in the world which offers a market like India, which offers 1bn people aspiring for a better quality of life,” Goyal said. “A market which will probably grow 10X in the next 30 years, as against the developed world which will probably be 2X or 3X 30 years from now.” More

WASHINGTON (Reuters) -The IMF’s managing director, Kristalina Georgieva, said on Wednesday she discussed the implementation of a $44 billion International Monetary Fund program with Argentina’s new economy chief, Silvina Batakis.”Very good call with Minister (Batakis) today to discuss implementation of Argentina’s program,” Georgieva wrote on Twitter (NYSE:TWTR). “Looking forward to continuing our constructive engagement to promote economic stability and inclusive growth in (Argentina) in a very challenging global environment.”Batakis, sworn-in late on Monday, had already spoken with the head of the IMF’s Western Hemisphere department and committed to support the objectives of the IMF program, which her predecessor Martin Guzman negotiated to replace a failed 2018 loan.Guzman’s abrupt departure on Saturday sparked concerns of a shift toward populist policies and state spending in Argentina, which is grappling with sky-high inflation, while raising concerns that the new government would seek to change the terms of the IMF deal.”The world is really changing very rapidly, but she did commit to the objectives of the program and she did commit to work with the fund constructively to achieve these objectives,” Georgieva told Reuters earlier on Wednesday.She said Argentina faces a “very complex, very difficult time,” and the IMF would do what it could to help Argentine authorities deal with surging inflation.”The minister … understands the purpose of fiscal discipline and also understands that if you want to help the poor it cannot be in conditions of galloping inflation,” Georgieva said.Asked if Batakis would push for changes to the IMF program approved by the Fund’s board in late March, Georgieva said Guzman also had different views than the IMF on occasion and said it was important to reach consensus by exploring different options.Argentina’s dollar bonds hit record low prices on Wednesday, partly on the uncertain economic policy outlook and also pressured by global inflation and recession concerns. More

Boris Johnson’s turbulent three-year premiership was nearing its end on Wednesday night after he was urged to quit by a delegation of his closest cabinet allies on a night of chaos in Downing Street. As his premiership hung by a thread, Johnson retaliated by sacking Michael Gove, one of the ministers who told the prime minister to go, according to allies of the levelling up secretary. The UK prime minister was warned that unless he stepped down there would be further cabinet resignations, followed by an inevitable humiliating defeat by Tory MPs in a no-confidence vote next week. Gove had been the first minister to tell Johnson to step down. One individual with knowledge of the conversation said: “Michael essentially told him that it’s time to go — it’s over.” But Johnson told ministers he would fight on, effectively daring them to resign, and warned that if he quit there would be a chaotic Tory leadership contest in the midst of an economic crisis. Johnson’s power drained away during the course of a dramatic day, which saw more than 35 government resignations and many more Tory MPs denounce his character and integrity.Read moreInside Westminster: An inside look at how the mood at Westminster quickly turned against JohnsonJohnson’s possible successors: These six key contenders are expected to launch bids to succeed the prime minister as Tory leader.Who’s already left?: Here’s our running list of UK officials who have quit since Tuesday evening — and their messages to Johnson.FT View: The departure of Boris Johnson is long overdue, writes our editorial board.Thanks for reading FirstFT Asia and here is the rest of today’s news — EmilyFive more stories in the news1. US and UK intelligence chiefs call for vigilance on China The heads of the FBI and MI5 have warned that China’s industrial espionage poses a growing threat to western groups, including through special purpose acquisition companies. In a joint appearance in London, the chiefs of the US and British intelligence agencies called on companies to be much more vigilant about China.Go deeper: Chinese hackers kept up their hiring drive despite an FBI indictment.2. Hong Kong’s biggest IPO of 2022 Tianqi Lithium, a Chinese supplier of key components in rechargeable batteries, has priced its Hong Kong share offer near the top of an expected range to raise about $1.7bn, in the city’s biggest listing this year.3. South Korean effort to compensate wartime slave labourers The country has launched an initiative to resolve longstanding compensation claims from the victims of Japanese wartime forced labour practices. The “government-private consultative body” marks a concerted effort by South Korea’s conservative administration to repair the countries’ rocky relationship.4. Ben & Jerry’s sues owner Unilever over sale of Israel licence The maker of Cookie Dough and Phish Food ice cream filed a suit in a New York court late on Tuesday to block Unilever selling its Ben & Jerry’s brand in Israel to a local licensee, saying operating in the occupied territories conflicted with the group’s “core values”.5. Meta pushes ahead with digital collectibles Facebook’s parent is moving forward with plans to roll out access to non-fungible tokens to its 3bn users despite the crash in crypto asset prices, the company’s new head of fintech has told the Financial Times. Stephane Kasriel said the company would not “in any way” adjust its plans concerning so-called non-fungible tokens which it hopes will appeal to young people.The day aheadHajj begins After a two year hiatus because of the pandemic, Saudi Arabia will again welcome international pilgrims to perform the annual ritual. One million people are expected to attend. (Al Jazeera) G20 foreign ministers meeting Officials will gather in Bali today. Russian Foreign Minister Sergei Lavrov is expected to attend despite the sanctions that some G20 nations have imposed on Russia. (Reuters) Samsung pre-earnings guidance The South Korean company will issue its expectations for second-quarter earnings, which will be released later this month. The guidance comes amid signs the global chip shortage is slowing. (NYT)What else we’re reading Fumio Kishida’s ‘golden’ chance to reform pacifist constitution On the surface, Sunday’s upper house election appears to be about the economy and soaring commodity prices that have squeezed living standards. But experts said the outcome could have profound consequences for Japan’s security and defence strategy — and might even open the way for a revision of its war-renouncing constitution.Qatar comes out on top The Gulf state has built an outsized role in global commodity markets since it began exporting liquefied natural gas more than two decades ago. Now, following Russia’s invasion of Ukraine and several deals to develop a gasfield, Qatar’s influence is set to grow.Will the crypto crash derail the next web revolution? This year’s market collapse — part of a broader retreat from risky financial assets in the face of rising interest rates — could seriously weaken the incentives that have made crypto one of the hottest corners of the tech world. Web3, a new generation of user-controlled online services that supporters believe will dethrone today’s internet giants, are now at risk. Martin Wolf: Cryptocurrencies are not the new monetary system we need. Why the yen is down but not necessarily cheap Investors should be wary of arguments that imply the yen is grossly undervalued. These fail to take into account structural changes in Japan’s economy that have fundamentally altered the trading backdrop for the yen, writes JPMorgan’s Benjamin Shatil. Congo president warns of risk of war with Rwanda Félix Tshisekedi told the Financial Times that conflict could break out unless his country’s neighbour stopped backing rebel groups fighting in the east. The president’s comments followed a strong offensive in eastern Congo by the M23 militia, which he said was backed by Rwanda.FashionWhat does one wear to the office when it’s too hot to wear anything? Whatever you do, do not succumb to those tempting shapeless linen dresses that look like a discarded dishcloth at the end of the day. They do nothing for anyone, writes style columnist Anna Berkeley.

Publisher and fashion director Caroline Issa wears a blue dress and sandals © Getty Images More

Proposed reforms to the US’s largest and longest-running trade preference programme threaten to freeze out some of the south-east Asian countries that rely on it for duty-free access to the American market.The Generalized System of Preferences was established in the 1970s to help developing countries by reducing tariffs on up to 5,000 products, ranging from bags and jewellery to mattresses and car parts. It plays an important role in regional manufacturing — its top five beneficiaries include Thailand, Indonesia, Cambodia and the Philippines.However, the scheme, which covered about $16bn in imports in 2020, has been inactive since the end of that year, when its most recent extension expired.Renewal lags are not uncommon. The GSP, which includes 119 countries, must be regularly reauthorised by Congress. Out of the 14 times it has been renewed, 10 came after lapses of varying lengths. In each of those cases, the programme was enforced retroactively, with importers reimbursed for the extra tariffs.The current delay, now approaching 18 months, has cost companies at least $1.4bn in extra taxes, according to US-based lobby group Coalition for GSP. The group points out that large companies can absorb the extra hit for the duration of the expiry, but smaller firms are struggling.There is bipartisan support to renew the programme. But, marking a major shift from previous lapses, there are also efforts to change it.Proposed legislation to renew the programme introduces new eligibility criteria on top of previous provisions that centred on labour rights. New “mandatory criteria” would bar countries that violate human rights or fail to enforce environmental laws.Further proposed clauses would see a country’s respect for rule of law, its poverty reduction and anti-corruption efforts and its progress on women’s empowerment taken into consideration when determining eligibility.Critics, including the importer lobby group, warn the shift could disqualify a significant number of participants and thus undermine the scheme’s mission. They want the programme to recognise “good-faith efforts” by beneficiary countries to address deficiencies.Edward Gresser, formerly an official at the Office of the US Trade Representative who oversaw the programme, said overloading eligibility requirements would make the GSP difficult to administer.While differences in language exist between the senate and house versions, both propose new requirements that could see unintended consequences, said Gresser, now vice-president and director for trade and global markets at the Progressive Policy Institute.“Some scenarios could mean you have to remove almost all of the low-income countries based on lack of government capacity,” he told Nikkei Asia. “I don’t think that’s what Congress wants, but I do think there hasn’t been a lot of close vetting of this language for its implications.”For now, the final wording of the GSP reauthorisation and its timeframe remain uncertain.Its renewal is bound up in the bipartisan innovation and competition legislative package dubbed HR 4521 that is in committee as lawmakers work to reconcile differences between house and senate versions.The wide-ranging bills, which propose hundreds of billions of dollars in spending, are ostensibly aimed at countering competition from China, but cover a vast array of provisions, from semiconductors to seafood imports.Josh Teitelbaum, senior counsel at Akin Gump Strauss Hauer & Feld, said if Congress missed its informal deadline of end-July, it would likely not be passed until after midterm elections in November.Teitelbaum said the proposed eligibility changes to the GSP should be balanced.“My preference would be that, since we’re adding sticks to the programme, we also add additional incentives, by expanding product eligibility including things like apparel,” he said.“That would be a huge incentive for countries in south-east Asia to try and comply with the programme because that’s one of their top exports to the United States.”There are also efforts to loosen “Competitive Need Limitation” rules that cap how much of a GSP product a country can export to the US.But, as the congressional process drags on, companies that rely on the programme are under increasing pressure.Piet Holten, chair of Pactics, a Cambodia-based manufacturer that ships products to the US market, said the GSP lapse had contributed to a “disastrous” situation together with hits from Covid-19 and ballooning transport costs.The company is among several in Cambodia that moved into travel goods after they were included in the GSP in 2016. The expiry of the programme led to costs increasing by hundreds of thousands of dollars last year and forced the company to sign new deals asking buyers to cover half of import duties until refunds are available.The importance of the GSP, and similar preference programmes by other developed countries, was huge for the region, said Holten, particularly with an increasing preference for nearshoring amid global logistics snarls.“South-east Asia, it’s not all a pretty picture,” he said. “[The GSP] was one of the big ways for us to be in Cambodia and compete with China. Everything in Cambodia is more expensive than in China except for the labour. So it’s very tough to compete.”A version of this article was first published by Nikkei Asia on June 29 2022. ©2022 Nikkei Inc. All rights reserved.Related storiesUSTR Tai calls US tariffs on Chinese goods ‘significant’ leverageUS reviews China tariffs, possible gas tax pause to curb inflationBiden freeze on solar tariff puts green agenda over China tensionsFrom China to India, Asia braces for EU plan to kill fast fashion More