Aurelia Butler

Russia’s invasion of Ukraine has increased inflationary pressures including for energy, food and other commodities, and depressed the economic growth outlook, the head of the world’s largest sovereign wealth fund has said.Nicolai Tangen, chief executive of Norway’s $1.3tn oil fund, told the Financial Times that Russia’s war had intensified concerns about the two factors he thought could pull down financial market returns over the next decade.“This is amplifying the inflationary pressure we’re seeing, through oil and energy, food input, input into fertilisers and other more materials. It’s making that situation more problematic. It’s also negative for economic growth,” he added.Tangen warned in an interview with the FT in January that investors faced years of low returns as high inflation becomes a permanent feature of the global economy, dubbing himself “team leader for team permanent” in the debate on whether the rise in inflation is transitory or not.Trond Grande, the fund’s deputy chief executive, said the striking financial sanctions unveiled against Russia such as cutting banks off from the Swift payments system were “a test of the resilience of the system”.“The government bodies imposing these sanctions acknowledge that these are potentially a little bit blunt tools. You don’t really know the first, second, third, fourth order effects of how it impacts everyone,” he said.Tangen said the sanctions could affect the global supply chain as well as food and energy supply.The comments of the two executives came as the oil fund reported on Thursday that its Russian holdings were probably worthless after tumbling in value by 90 per cent in the past two weeks.Tangen said the fund had largely written off its Russian holdings after the Norwegian government at the weekend ordered them to be frozen and eventually sold.The oil fund had NKr27bn ($3bn) in Russian equities at the end of 2021, and they were still worth more than NKr25bn two weeks ago, before plunging to about NKr2.5bn on Thursday. Tangen conceded even that figure was highly uncertain.

Tangen said the fund had held an investment meeting on February 24 — the day of Russia’s invasion of Ukraine — and decided not to change its holdings. He said in an interview the day after that he did not want to sell its Russian shares because it would enable oligarchs to pick them up on the cheap.But he was overruled on Sunday by Norway’s centre-left government, who overturned decades of policy that the fund was purely a financial investor and not a political tool by ordering it out of Russia.“It was no investment decision, it was a political decision,” Tangen said. But he added that he did not think the decision would lead to other countries regarding it as a political fund. “It is an extraordinary situation right now,” he stressed. The fund, which on average owns 1.4 per cent of every listed stock globally, is down 6.1 per cent this year to date, while its equity holdings are down about 8 per cent. More

The writer is an investment director at GAMThe implosion of Russia’s financial markets following the country’s invasion of Ukraine is not the first crisis to befall emerging markets. Nor will it be the last.Since emerging markets were popularised as a collective asset class in the 1980s and 90s, there have been events like the Asian financial crisis, the 1998 Russia debt crisis and Argentina’s serial defaults. The scale of such episodes are a reminder of the risks that come with returns in emerging markets. But even notoriously amnesiac investors will take a long time before they regain trust in Russian markets.Those unfortunate enough to be caught with investments in Russian assets should obviously attract limited sympathy while Ukrainian civilians are being bombarded. But the combination of western sanctions on Russia in response to its aggression and Moscow’s response has severely disrupted Russian markets — including, crucially, sending the rouble spiralling. Index provider MSCI is removing Russian stocks from its widely tracked emerging markets indices and is likely to record the last price for them as “effectively zero”. Holders of Russian rouble bonds have either left their holdings marked at stale prices or marked them down in line with the external debt. The endgame there looks to be similar.Cutting some of Russia’s banks from the Swift financial messaging system has drawn many headlines but the most powerful international action was to freeze the foreign reserves of the Russian central bank. It is this that caused the 25 per cent drop in the rouble after the sanctions were announced, and this which prompted the effective declaration by Moscow of economic hostilities on foreign investors.The central bank first instructed local investors not to bid for assets held by foreigners, next froze foreigners’ accounts and then dictated that dividends and coupons would not be paid to foreigners. Neither equity nor bond markets had been reopened at the time of writing.Russia might believe it is self-sufficient in capital. After the experience of the 1998 financial crisis, the country opted for rigid fiscal discipline and has been running a sustained current account surplus. So the combination of capital controls and sanctions should in theory not require a significant adjustment at the macroeconomic level. However, that theory is reliant on sanctions not inducing big changes in behaviour. This seems optimistic.More important is the effect on the rouble. Since the end of communism, convertibility of the rouble was crucial to restoring the domestic currency as a store of value.At least part of the rationale for preventing foreigners from selling Russian assets was to reduce the pool of roubles looking to buy foreign currency. The situation is clearly perilous. Before sanctions were announced, a dollar was worth 83 roubles in the market. Three days later, the currency market rate touched 122, while ordinary Russians faced much higher retail rates — where there were dollars available at all. Financial uncertainty leads to capital flight — the proximate cause of the 1998 meltdown.The Russian authorities have boasted of how little the country relies on imports. It is comfortably self-sufficient in food and energy. However, Russian industry is reliant on western machinery and parts. And Russia’s efforts to prepare for sanctions have also been heavily reliant on China.China is unlikely to match western sanctions. It is an eager buyer of Russian resources and Moscow is also the biggest foreign holder of Chinese bonds, according to ANZ. But there would be an irony if Russia’s attack on Ukraine left it at the mercy of a richer, more populous neighbour.The good news for international investors is that almost none of the factors that caused the 1998 debacle are in place. The default then triggered a chain reaction that ripped through highly leveraged markets, starting at hedge fund Long Term Capital Management. There is now far less leverage applied in emerging market assets and the run-up to the Russian attack was drawn out, giving some investors time to adjust.But what this week has illustrated is how important access to international capital markets have been for Russia. It has allowed the country to import a degree of institutional certainty — vast foreign reserves in reserve currencies and the use of western courts for dispute resolution. These are not available to a country with arbitrary government. And the current crisis serves as an excellent example of what can go wrong for investors braving erratic jurisdictions in search of higher yields. More

The writer is Deputy Prime Minister and Minister of Finance of CanadaMartin Luther King believed that the arc of the moral universe is long but that it bends toward justice.But he also knew that there are evil men in the world, who seek to thwart that benign curve and push us all back into darkness.Because of those men, there are moments in history when the great struggle between freedom and tyranny comes down to one fight, in one place, which is waged for all of humanity.In 1863, that place was Gettysburg. In 1940, it was the skies above Britain. Today, in 2022, it is Kyiv. On the cobbled streets of that golden-domed city, a fierce and united citizenry, led by its cheerfully resolute president Volodymyr Zelensky, is fighting a barbaric invasion. Those courageous Ukrainians are fighting for themselves, and they are also fighting for us all. Right now, indeed, brave Ukraine is the moral leader of the free world.But there is another side to this story. While Ukrainian civilians gamely learn to make Molotov cocktails to defend their homes, one of the world’s most brutal war machines is bombarding them.Not content with terrorising his own people, President Vladimir Putin is seeking to impose his tyranny on his democratic, freedom-loving neighbours. In launching this war against Ukraine, Putin attacked the values and the international rules that are the foundation of all the democracies of the world.And in so doing, he has forfeited the right to partake in the global prosperity that we, the world’s democracies, have built together since we first established that rules-based international order after the second world war.Russia cannot simultaneously open fire on our system, while also enjoying its fruits. You cannot bomb Kyiv in the morning and dock your yacht on the Côte d’Azur in the evening.That is why, in close collaboration and in solidarity with the Ukrainian government, the G7 has put in place the toughest sanctions ever imposed on a major economy.We have personally imposed sanctions on Putin and his hangers on. We have done the same to Russian oligarchs. We have cut Russia’s major financial institutions and its sovereign wealth funds out of the global economy. We have frozen the assets of its central bank.These measures will sever Russia financially from the western world, and will render useless much of the war chest of reserves that Putin has amassed. The Russian president and his enablers may have believed that they had built an economic Fortress Russia, but we have shown that there are no fortresses in the interconnected global economy. No country is sanction-proof.And to the Russian technocrats who are this week vainly struggling to prop up a rouble in freefall, let me say: We warned you.Two weeks ago at the meeting of G20 finance ministers and central bank governors, I urged Elvira Nabiullina, the governor of the Russian central bank, not to allow her government to launch an illegal and unprovoked war. I cautioned her that if her country took this horrible step, it would be, as Talleyrand reportedly said, worse than a crime — it would be a mistake. Our economic sanctions, I warned, would be swift, co-ordinated, sustained and crushing. They are. And they will continue to be.Dictators, very much including the Kremlin’s tyrant, often fail to understand democracies. We can seem, to them, to be weak and divided, compared with the servile conformity they impose on their societies at the barrel of a gun. But our very openness to debate and dispute means that once we are agreed on a course of action, we are strong and we are united.Indeed, with their remarkable resistance, the people of Ukraine have shaken the world’s older democracies out of our malaise. In dying for freedom and democracy, Ukrainians have shown us that these values can come at a high price, but that it is a price worth paying. And Ukraine’s courage has renewed our confidence that democracies can actually win.The people of Ukraine are today showing the incredible strength of a free people fighting for their democracy. That is why the world’s democracies are equally resolute in our support for the people of Ukraine.This is one of those times, and one of those places, where freedom confronts tyranny. We are determined that freedom will triumph, and it will. More

By Eduardo Baptista and Clare JimBEIJING/HONG KONG (Reuters) – China’s so-called “common prosperity” push in the near-term will not only aim to bridge the widening wealth gap but is also set to shape the country’s regulatory approach, with sectors seen crucial for the economy getting more state support.As part of that move, analysts expect the embattled property sector, accounting for a quarter of the economy, to get more regulatory support, while internet firms will remain a crackdown target due to what Beijing says is disorderly capital expansion.Global investors who were burned by numerous crackdowns last year will be looking for signs of clear regulatory divergence at China’s rubber-stamp parliament annual meeting starting on Saturday, when policymakers are expected to unveil more stimulus to ease slowing economic growth.Thousands of delegates from across China will gather in the capital, Beijing, for the meeting that will discuss economic and social policies.Last month, the Chinese technology sector was hit by fears of a fresh wave of regulatory clampdowns after the last couple of years’ unprecedented changes stemming from antitrust violations and data security concerns, among other issues.The mammoth property sector, on the other hand, has seen easing of some rules since the beginning of this year, paving the way for debt-laden developers to find their feet after having come close to the brink of collapse.The move underscores Beijing’s focus on halting the growth slowdown as war in Ukraine adds fresh uncertainty in a year when President Xi Jinping is almost certain to secure a precedent-breaking third term as leader.”If you were only to look at the regulatory developments … you would certainly be of the view that the Chinese government is really reining down on tech and they have relaxed their approach towards the property sector,” said Alfredo Montufar-Helu, director of the Economist Intelligence Corporate Network.”The property sector is seen as a key driver for economic growth, because it leads to investment, it leads to purchase of houses, it leads to property development, but it also carries a lot of demand for other sectors like commodities,” he said.China last year launched a multi-pronged regulatory and unprecedented crackdown on a broad range of industries, leaving startups and decades-old firms alike operating in a new, uncertain environment as part of Xi’s “common prosperity” drive.Both technology and property sectors saw a plunge in their revenues and massive sell-off in their stocks and bonds, as new rules curbing their businesses were framed, hefty penalties for violations imposed, and new capital raising plans thwarted.SYSTEMIC RISKSince the end of last year, however, Beijing has taken a number of initiatives to help revive the cooling property sector, which included making it easier for large and state-owned developers to raise fund, easing the escrow accounts for pre-sale funds and allowing some local governments to lower mortgage rates and down-payment ratios. The regulatory respite being given to the property sector was likely driven by regulators’ concerns about the knock-on effects of the common prosperity measures on the broader economy, according to Montufar-Helu.In comparison, the technology sector was hit with a spate of tighter regulations, affecting everything from overseas listings to outright bans on industries such as after-school private tutoring, along with a constant stream of fines. Companies most often on the receiving end have included tech giants like Tencent Holdings (OTC:TCEHY) and Alibaba (NYSE:BABA) Group.”Technology and education are under the umbrella of ‘common prosperity’, but real estate is a different issue, because it involves systemic risk,” said Gavekal Dragonomics’ China investment analyst Rosealea Yao.The central government’s goal for the property sector is clear, Yao said, which is to ensure it manages to emerge from a deep liquidity crisis, so more easing measures will have to be rolled out.The Hang Seng Mainland Properties Index has eased 0.2% this year versus a 6% drop in the Hang Seng Index, as some investors bought property shares on low valuations and stimulus expectations.In comparison, the main Chinese tech share index, the Hang Seng Tech Index has fallen 12.1% so far this year.Louis Lau, a. U.S.-based fund manager at Brandes Investment Partners LP, said he was surprised that regulators were still tightening the screws on the tech sector, dashing hopes for a period of recovery.”People don’t know when it’s going to end, it’s taken longer than expected,” said Lau, adding that he expected the crackdown to last until the second half of this year.(Corrects juxtaposition of words in name of networking forum in paragraph 8) More

ORLANDO, Fla. (Reuters) -The ballooning euro cost of oil and gas to record highs as war rages in Ukraine has prompted markets to murmur about the chances of a rare, even if unlikely, ECB intervention to bolster the euro against the dollar. At first glance, it would be odd for the European Central Bank to opt for euro buying over interest rate rises to cap soaring inflation. While both effectively tighten monetary policy, the ECB has been reluctant to signal any rates move until the second half of the year at the earliest and will be careful about the economic hit as much as the inflation spur. And while the euro has slumped against the dollar this week, exaggerating the cost of dollar-priced commodities, it’s stable against a broad trade-weighted basket of currencies – still less than 5% from record highs. There have been few signs of disorderly movements, and it has been more than 20 years since a direct euro-targeted intervention on the markets. But in times of war and crisis, nothing can be ruled out.The surge in commodity prices since Russian tanks rolled into Ukraine, particularly oil and natural gas, is of such a magnitude that further euro depreciation could spin an already toxic inflationary vortex out of control.At least, that’s the warning from George Saravelos, head of global currency strategy at Deutsche Bank (DE:DBKGn) in a note headlined: “The ECB should intervene in EUR/USD.” To be clear, he says this remains unlikely and that the ECB can support the euro in other ways, like interest rate hikes or verbal intervention.But he argues that surging energy prices are now the single biggest threat to the euro zone economy, which could unleash “a vicious inflationary spiral” that infects broader financial conditions.Oil in euro terms is its most expensive ever. On Thursday it nudged 108 euros a barrel, up almost 25% in a week and 50% this year. Natural gas prices have more than doubled since mid-February and are up over 800% in the past 12 months.”If financial conditions get disorderly, there is precedent for coordinated FX intervention from the G7,” Saravelos says, pointing to the G7’s action in 2011 to weaken the Japanese yen after the Japanese earthquake, tsunami, and Fukushima nuclear disaster in March that year.That was the last time the ECB waded into the FX market. Before that, you have to go back to 2000 when it conducted seven bouts of euro-buying intervention worth 10 billion euros, as the fledgling currency lost almost 30% of its launch value.Clearly, FX intervention is not something the ECB takes lightly. Since Russia invaded Ukraine the euro has weakened 2% against the dollar to $1.1050 but its trade-weighted value remains stable and strong.FORGET ITA weaker euro may yet pose a headache for the ECB – annual inflation is at a record high 5.8% and likely to rise further – but that seems some way off. As former ECB Vice-President Vitor Constancio points out, the exchange rate is generally not an objective of monetary policy because it is very difficult to reliably identify its drivers.Constancio also notes that unilateral intervention is rarely effective. In that context, it is difficult to imagine the U.S. Federal Reserve getting on board a policy to weaken the dollar just when it will almost certainly be raising interest rates.”Right now, the euro is hovering around $1.11, and there is no need or the possibility of organizing a multilateral intervention. It is better, therefore, to forget the issue,” he said.There is a building consensus, however, that the euro is heading lower. Robin Brooks, chief economist at Washington-based Institute of International Finance, reckons parity with the dollar – a 10% depreciation from current levels – could come within three months.ECB policymakers’ consistent position since the euro’s launch in 1999 has been that the central bank will intervene in the currency market if it sees disorderly movements or unwarranted volatility. That it has acted so infrequently suggests market conditions would have to deteriorate significantly for it to do so again. Implied euro/dollar volatility is spiking up toward 10%, but from a low base. It is also well below previous peaks, levels which did not trigger intervention. But even if the euro soon trades at parity with the dollar, as the IIF’s Brooks predicts, market volatility may not matter to ECB policymakers if they are facing down an oncoming recession. “The picture in the euro zone has turned on a dime and the whole notion of second-round inflation effects is just fanciful now. ECB intervention to support the euro is counterintuitive. An effective tightening of policy makes no sense,” Brooks said. (The opinions expressed here are those of the author, a columnist for Reuters)(By Jamie McGeever; Editing by Andrea Ricci) More