Aurelia Butler

Foreign investors have dumped a record $6bn worth of Chinese shares in the first three months of 2022 as they take fright at new coronavirus outbreaks and the risk that western countries will sanction Beijing if it supports Russia’s war in Ukraine. Chinese shares took a heavy blow at the start of this week as Covid-19 cases surged in major cities like Shanghai and Shenzhen, extending declines that have proven persistent in the year so far. Local investments have edged back up after Beijing signalled it would take a suite of market-friendly measures. But foreign holdings of stocks listed in mainland China have not. That divergence, investors and fund managers say, reflects a host of concerns that have battered valuations even of companies that led the China stocks rally of 2020, when the market posted world-beating gains on the back of Beijing’s early success with its strict “zero-Covid” policy.“For the last two weeks, Chinese equities have been in a perfect storm,” said Pruksa Iamthongthong, senior investment director for Asian equities at fund management giant Abrdn. She added global investor confidence in Chinese stocks “is so low that some of this volatility will continue”.Pat Lu, a Hong Kong-based portfolio manager for Neuberger Berman who specialises in emerging markets, added that “when we are broadly fearful of the markets, we are skewed to look for risk and that is what is happening”. Chinese equities have lagged all year. The benchmark CSI 300 index is just 4 per cent above where it stood at the end of 2019, when the first Covid-19 outbreaks were reported in China. The Nasdaq Golden Dragons index of large Chinese tech groups listed in New York has dropped by about a quarter. By comparison, over that same period the US’s S&P 500 and tech-focused Nasdaq Composite have risen roughly 37 and 52 per cent, respectively. Foreign outflows through Hong Kong’s so-called stock connect trading schemes with Shanghai and Shenzhen began on March 7, but intensified dramatically earlier this week. By Friday’s close, net sales by offshore investors this year totalled almost Rmb40bn ($6bn), on track to mark the worst quarter since that link-up scheme began in 2014. The sell-off marks a sharp contrast from 2021, when net inflows through the scheme topped Rmb430bn.Investors pointed to three main drivers of foreign sales: renewed concerns over potential delistings for Chinese shares trading in New York, the surge of Covid-19 cases in major mainland cities including Shanghai and Shenzhen, and concerns over the possibility of China providing support to Russia in its invasion of Ukraine.On Tuesday, after China stocks notched their second day of double-digit falls, JPMorgan downgraded 28 of the 29 China internet stocks it covers to underweight or neutral. “We recommend investors avoid China internet on a six- to 12-month view,” the analysts wrote, describing the sector as “unattractive, with no valuation support in the near term”.An executive at the Hong Kong arm of one global hedge fund said the start of the week “felt like 2015”, when the leverage-fuelled stock bubble popped seven years ago.But on Tuesday, Liu He, a vice-premier and President Xi Jinping’s closest economic adviser, announced the government would take measures to “boost the economy in the first quarter” and introduce “policies that are favourable to the market”. State media immediately backed up He’s message with reports on talking points from a special meeting of China’s financial stability committee he had just chaired, which included a call to “quickly complete rectification of China’s big tech platforms” and a move to scrap regional test-runs for property taxes that had weighed heavily on property developers.“The message is very clear: the Chinese government wants to send a strong signal of market support,” said Jessica Tea, investment specialist for Greater China and Asia Pacific equities at BNP Paribas Asset Management. “It seems like they are pausing regulatory tightening to provide more support and shore up market confidence.”The slew of market-friendly promises from Beijing was swiftly followed by some global investment banks moving to upgrade Chinese stocks.Credit Suisse announced on Thursday it was raising its allocation to Chinese equities to overweight as Michael Strobaek, the bank’s global chief investment officer, flagged Beijing’s move as “significant”. Strategists at Citigroup also upgraded China equities to overweight on Thursday, saying that if authorities delivered on their pledges “it would remove almost all of the overhangs over Chinese equities that the market had been concerned about”.But both banks framed their intent to buy more shares as “tactical” — typically an indication that buying will be limited or will target specific stocks, rather than increase exposure to China’s market as a whole.Analysts also warned that after so much pain for Chinese stocks during the past 12 months, it would take time and concrete action to regain the confidence of global investors who had been burnt repeatedly.

Thomas Gatley, an analyst with Beijing-based consultancy Gavekal Dragonomics, said the committee’s statement was “couched in terms that were so positive that if they don’t deliver over the course of the next month . . . we’ll see another drop in markets”.Gatley added that like many pledges from top officials, the statement was carefully worded to provide plausible deniability if Beijing’s priorities suddenly shifted or regulators pushed ahead with disruptive enforcement measures that were already in train. “That [approach] works pretty well for macroeconomic policy in general and governance of a large, diverse country,” he said. “But it’s not so great for market signalling.” More

Shouldn’t we be doing more to respond to the climate emergency? It’s a natural question to ask. But, perhaps, we should turn the question around, and ask: why haven’t we solved the climate change problem already?Economics suggests a ready answer: externalities. Unfortunately, the concept of externalities is a century old, and it shows. So why do economists persist in using this dusty old term, and is it still useful?An externality is a cost — or sometimes, a benefit — that is not borne by either the buyer or the seller of a product. And, if neither has to bear the cost, neither has much reason to care.This is not the way a market usually works. Normally, when companies make the products that surround us, they have plenty of incentive to cut every possible source of waste.Consider a familiar product: a can of lemonade. The first such cans, produced in the middle of the 20th century, weighed about 80g when empty. Now they weigh just 13g. The saving in weight means the can manufacturers have to pay less for materials and transportation.

It costs less to put a can of lemonade in front of you in a shop, and that means either the manufacturer and retailer make more profit, or that you pay less for your lemonade — or, often, both. The cans are also easier to open and less likely to give the drink a metallic tang. A better product, for less money — that is the way the free market tends to work.But not necessarily. What incentive does the drinks maker have to reduce the carbon dioxide emissions from the manufacture of the drink — for example, by using renewable energy in refining the aluminium? Not much. The main incentive would be if renewable energy were cheaper.The carbon dioxide emissions are hardly a consideration for a profit-seeking firm. And, as the consumer, you have a keen interest in the price and the quality of the drink. But the carbon emissions? Any worries you might have are rather vague. How would you even know which soft drinks produce low emissions? Even if you did care, other customers might not.That, then, is the externality problem: a seller makes a product, a consumer buys the product, but the greenhouse gas emissions associated with that product are of no real concern to either of them. An army of designers, engineers and technologists may be deployed to shave a fraction of a penny off the cost of producing each product — but reducing carbon dioxide emissions is an afterthought.

So what can be done? There is some room for consumer pressure: we all want to feel that we are doing something to help. But consumer pressure only goes so far: we may have only a faint idea of products are doing the most harm to the environment, or where the easiest improvements can be made. Some products attract a lot of attention, while others fly under the radar.Policymakers could directly regulate the market. That can work for some large and obvious sectors of the economy — for example, we know that coal is a source of energy that produces a huge amount of carbon dioxide, so policymakers could ban the use of coal-fired power stations. Another straightforward regulation is to require more energy-efficient cars or washing machines.Governments can also try to fund innovations that might solve the problem, from battery charging to low-energy lighting. But these efforts only go so far. Tempting as it is to think of the transition to a clean economy as a huge leap, it is in fact a trillion tiny steps — the steps that each of us take, many times a day, all around the world, when we decide how to live and what to buy.

Tim Harford

In each of these trillion steps is an externality: a cost borne not by the buyer or the seller of a product, but by all of humanity now and in the future. And, unless we can eliminate a trillion little externalities, we are unlikely to solve the problem.In 1920, the economist Arthur Pigou produced a formal definition of an externality, and proposed a way to solve it: a tax in direct proportion to the external cost. In some cases, this “Pigouvian” tax is hard to calculate. But, in the case of carbon emissions, it should be possible to tax coal, oil and natural gas when it is first extracted.It has been encouraging to watch the world finally start to mobilise action on climate change — and even more encouraging to watch the rapidly falling costs of solar and wind energy. A carbon tax would help to push this clean energy revolution forward — and into the decisions each of us makes every day.Tim Harford is a senior columnist for FT Magazine. His latest book is ‘How to Make The World Add Up’. More

The world’s governments have done only a fraction of what is needed to limit the global temperature rise to 1.5C, or even 2C, above pre-industrial levels. Why is this, when the science of climate change is so clear?First, all governments are driven mainly by politics at homeCutting greenhouse gas emissions means acting across the whole economy: electricity generation, heating, transport and so on. The policies to do so will often incur short-term costs, or concern influential groups who fear they will lose out, such as coal and oil producers, or farmers wanting to cut down trees for agriculture. These perceived losers are today’s domestic voters.A positive development is that affordable low-carbon solutions are emerging. Electricity from renewable energy, such as wind and solar, is now cheaper in much of the world than coal. Similarly, electric vehicles are forecast to be cheaper than petrol-powered cars in the next few years. But the transition is complex: for instance, countries worry that reliance on renewables will leave them without energy when there is no sun or wind.Countries argue about how to share the burden of reducing emissionsEmerging economies are now responsible for the bulk of global emissions (China alone is a bigger emitter than the US, the EU and Japan combined), and some of them have very high emissions per head, even on a historical basis. But, under pressure from the developed world to cut their emissions, these countries argue that rich countries have a long history of burning fossil fuels and have emitted more per head over the past century.Big emerging economies, such as China, India and Brazil, face other immediate priorities — driving economic growth and tackling poverty, for example — and say developed countries should provide them with financing to support their carbon cutting. They point out that developed countries, including the US, Japan and Canada, have missed their own targets in the past. Many of the poorest and most vulnerable countries require support to help them adapt to the effects of climate change, which are already being felt. Some are pressing for action on “loss and damage” — problems that they cannot adapt to, including loss of territory.The consensus is that the developed world should lead in cutting its emissions and provide finance. But precisely what that means remains highly contested.COP26 made some progressGovernments last met to discuss climate change at COP26, the UN conference, in Glasgow in November. About 90 per cent of the world’s emissions are now covered by net zero emissions targets by 2050-2070. But such goals can merely be statements of broad intent.With the exception of Australia, big, developed countries made stronger commitments to cut emissions by 2030: the US, a 50 per cent reduction; the EU, 55 per cent; Japan, 46-50 per cent; Canada, 40-45 per cent; the UK, 68 per cent. Yet none of these countries has the policies in place, so far, to deliver these targets. So they will need to be held to account.Big emerging economies, apart from South Africa, made only very modest changes to their targets — China included. Some did not change targets at all (Indonesia); or even weakened them (Brazil and Mexico).What do these changes mean in aggregate? The Climate Action Tracker study estimates that the new 2030 targets could mean the world is on course for a temperature rise of nearer 2.4C. If you assume long-term goals will be met, then it might be more like 2.1C — which is much better than if there had been no action, but not nearly enough to put us on track for 1.5C. At COP26 in Glasgow, parties agreed that all countries should revisit and strengthen their 2030 targets by the end of 2022. Another important goal was finance, but developed countries failed to meet their goal of mobilising $100bn a year to developing countries by 2020. Only a quarter of the money that did come was for adaptation; developed countries committed in Glasgow to doubling adaptation funding by 2025.What will the next COP at Sharm ­el-Sheikh in November achieve?There is little evidence to suggest that countries will raise the ambition of their 2030 targets. In Egypt, the focus may turn to finance and adaptation, with pressure on developed countries to demonstrate a plan for achieving their targets.The war in Ukraine is already leading to surging prices for oil, gas and metals, and also for food. This will affect the developing world most severely. But the conflict is likely to affect all countries’ broader energy strategies. Senior politicians in Europe have emphasised the need to end dependence on fossil fuel imports from Russia through a dramatic expansion of renewables. Some in the US argue for an increase in domestic oil and gas production and, in China, there are signs of an increased reliance on home-produced coal.All have a shared interest in tackling climate change. However, global ambition is heavily influenced by the politics in each major economy. International co-operation is vital and current geopolitics will not help. There is reason to be optimistic, though: the costs of acting continue to fall, and governments, businesses, investors and individuals are seeing more opportunities for doing so.The writer is a visiting professor in practice at the Grantham Research Institute, London School of Economics More

The fun things go first, explained Michelle Nicholls, a self-employed cleaner in the English town of Harlow in Essex, just north east of London, who earns £8,000 a year.Since food costs hit the escalator and petrol prices spiked, the 47-year-old and her partner, who works as a delivery driver earning £25,000 before tax, have had to cut back on weekend trips to see friends and family as well as occasional nights out.It will be her dance classes, and excursions for her 13-year-old son that go next, said Nicholls. In recent weeks the cost of her basic weekly shop has climbed from £80 to £119. When the energy bill doubles next month and national insurance contributions go up, she is not sure how the family will cope. “There’s not a lot left to go out and have fun. That’s already squeezed,” she said.With the economic shocks from the war in Ukraine further fuelling inflation, Rishi Sunak, the chancellor, is under mounting pressure to find ways of alleviating the worsening cost of living crisis when he delivers his Spring Statement next week. In Harlow 61% of residents have less than £125 of disposable monthly income © Charlie Bibby/FTHarlow, where 61 per cent of residents have less than £125 of disposable monthly income, according to the council, has been especially hard it. The town, which is predominately white working class, has been a bellwether parliamentary seat that has been held by the governing party since the 1980s. The incumbent Conservative MP Robert Halfon is a long time campaigner against fuel tax. For low income earners such as Nicholls, inflation is a cruel postscript to the coronavirus pandemic. It is paring back their existence and causing renewed anxiety just as things had opened up after two years of social isolation.“I know they don’t have a magic money tree in Downing Street but I hope that they can help us,” said Nicholls.Harlow councillor Dan Swords: ‘There are times everyone needs help and this is one of them’ © Charlie Bibby/FT“People don’t blame the government for these problems, but they will for not doing anything about it,” said Dan Swords, at 21 the youngest councillor in Harlow, who helped the Conservatives win the traditionally Labour council last May by campaigning for a cut to local taxes.“There are times everyone needs help and this is one of them,” he said, arguing that after all the restrictions imposed during the pandemic there was a greater onus on government to help people bounce back. “Just taking the sting out won’t be enough.”According to the Resolution Foundation think-tank, the typical family could see disposable income fall by 4 per cent, or £1,000, in real terms in the 12 months to April 2023. The poorest will be hardest hit because they spend a bigger proportion of income on food and energy, where prices are likely to rise most.Household budgets are feeling the pinch: food inflation is at its highest since 2013 and petrol and diesel prices have hit record levels. But the squeeze is set to worsen dramatically from next month through a combination of tax rises and a jump in the average annual energy bill to almost £2,000, even as wages and benefits lag inflation.The Bank of England warned on Thursday that the effects of Russia’s invasion of Ukraine could push inflation up to 8 per cent in the spring, adding that monetary policy was powerless to prevent the energy shock weighing on UK income and spending.The Institute for Fiscal Studies has calculated that Sunak would need to spend an extra £12bn if he wanted to provide the same degree of protection against rising prices as he intended when he unveiled a £9bn package to help households with rising energy bills in February. The Citizens Advice bureau in Harlow has seen the number of people needing help with energy debts increase by 127 per cent since last year. There has also been a steady rise in pupils qualifying for free school meals, according to Laura Ciftci, headteacher at the Jerounds Primary Academy.Halfon has called on the government to cut fuel taxes and ease the green levy on energy bills to mitigate the pain. He has a track record for similar successful campaigns in the past, and was dubbed “the most expensive MP in parliament” by David Cameron when he was prime minister.“It is the people who were just about managing that are finding it hardest. These are not people at home sitting on the couch all day. They are working,” he said, arguing the Treasury should use a VAT windfall of £3bn from rising fuel prices.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Steve LeMay, the retired owner of a big family business in the town, echoed Halfon, calling on the government to cap duties on petrol. “There will be people thinking if it goes up to £2 a litre they won’t be able to use their cars.”At the Jerounds Academy school, Siobhan Dean, a learning support assistant on a net salary of £1,000 a month, has already decided to stop using her car. Her husband, who works in building maintenance, volunteered for a 20 per cent pay cut during the pandemic, and the family, with three children, was struggling. The government, she argued, should be forcing energy and oil companies to save some profits in buffer accounts when times are good, to use to maintain consumer prices at sustainable levels at moments like this. Cab driver Martin Davies: ‘It’s getting a bit like during Covid. Although you are earning more now,  the costs are taking all your profits’ © Charlie Bibby/FT“There will be a point when people like me have to start selling things,” she said, adding: “We are seeing families who have to choose whether to heat their homes or feed their children.”Meanwhile, inflation is undermining the economic rationale of some jobs. Cab drivers at Harlow train station were in despair. Martin Davies, who has been driving a taxi for 15 years said that with diesel prices at £1.79 a litre, he needed to make £550 a week to break even after paying the minicab agency and rent on his car. Yet his clients were squeezed and using taxis less. “It’s getting a bit like during Covid. Although you are earning more now, the costs are taking all your profits.”  More

NEW YORK (Reuters) – Wall Street stormed back this week after absorbing a long-awaited rate hike from the Federal Reserve, leaving investors to determine whether stocks are set for a sustained rebound or more turbulence. Following a months-long drubbing, the S&P 500 delivered its best weekly gain since November 2020 as investors cheered increased clarity on monetary policy and an encouraging assessment of the U.S. economy from the Fed. The surge cut the index’s year-to-date losses by nearly half, though it is still down 6.7% for 2022 after falling into a correction last month.Whether to hop on board the rally is a thorny question in a market that still faces its share of risks – chief among them the hawkish rate hike path the Fed unveiled on Wednesday and geopolitical uncertainty over Russia’s invasion of Ukraine. Still, some big banks believe the worst may be over, for now. Strategists at UBS Global Wealth Management on Friday said the projected pace of Fed tightening is “consistent with rising stocks” and advised clients to remain invested in equities.JPMorgan (NYSE:JPM) earlier in the week forecast the S&P 500 would end the year at 4,900, about 10% above Friday’s close, saying that markets “have now cleared the much-anticipated Fed liftoff with policy likely as hawkish as it gets.” Others are less sanguine. Worries that the Fed’s fight against inflation could bruise growth were apparent in the bond market, where a flattening of the yield curve accelerated after the Fed’s policy meeting this week. An inverted yield curve, in which yields of shorter-term government bonds rise above those of longer-term ones, has been a reliable predictor of past recessions.Stubborn inflation, sky-high commodity prices and few signs of an end to the war in Ukraine further cloud the picture for investors, said Rick Meckler, a partner at Cherry Lane Investments. “The markets are more complicated now by interest rates, they are more complicated by inflation, and they are definitely more complicated by the Russian situation,” he said. “You had a lot of people in this week who thought we made a bottom, but it’s difficult to keep having higher and higher prices just based on that.” Many also believe the week’s sharp gains in stocks are unlikely to quiet the economic concerns that fanned bearish sentiment in recent months. Fund managers’ allocation to cash stand at their highest levels since April 2020, according to BofA Global Research’s monthly survey. Bearish sentiment among retail investors is close to 50%, the latest survey from the American Association of Individual Investors showed, well above the historic average of 30.5%. “The thing we are most concerned about right now … is really a question of whether we are going to go into a recession or not,” said King Lip, chief strategist at BakerAvenue Asset Management. Wary of a potential “stagflationary” environment of slowing growth and rising inflation, Lip’s firm is investing in energy shares, commodities and precious metals such as gold ETFs or gold-mining stocks. Cresset Capital Management is recommending that clients underweight equities and raise their exposure to gold, which is viewed as a safe-haven asset, said Jack Ablin, Cresset’s chief investment officer. “We see certainly a pretty aggressive Fed that has really made inflation-fighting its number one priority and not necessarily protecting equity market values,” Ablin said. To be sure, signs of rampant pessimism – such as high cash levels and dour sentiment — are often seen as contrarian indicators that are positive for equities. Indeed, hedge funds tracked by BoFA Global Research were recently piling into cyclical stocks, which tend to thrive when economic growth is strong. “Despite weakening optimism on global growth, clients do not appear to be positioning for a recession,” BoFA’s strategists wrote. Stocks historically have weathered rate-hike cycles fairly well. Since 1983, the S&P 500 has returned an average of 5.3% in the six months following the first Fed rate rise of a cycle, data from UBS showed. “The Fed’s goal remains to engineer a soft landing for the economy,” the firm’s analysts wrote. “We advise investors to prepare for higher rates while remaining engaged with equity markets.” More