Raphael Stevens

Rising rates will squeeze corporates, particularly with consumer or highly leveraged companies, Khazanah’s managing director said.
Opportunities in private equity for business spaces may arise out of need to cut cost, he added.

Malaysia’s sovereign wealth fund Khazanah Nasional is rebalancing its investment portfolio for greater resilience against market volatility, according to its managing director.
Khazanah’s net asset value declined 5% to 81 billion ringgit ($17.4 billion) in 2022 from a year ago, hit by global market downtrends, the fund said in March. The Kuala Lumpur-based fund invests more than half of its portfolio in public markets.

“What we are focused on doing here is to look at how we can be a bit more resilient in the market,” Khazanah’s managing director Amirul Feisal Wan Zahir told CNBC Monday on the sidelines of the Energy Asia conference in Kuala Lumpur.
“Looking at the volatility in the market, we are still in the process of rebalancing our portfolio,” he added.
Khazanah posted a 1.6 billion ringgit ($343 million) net profit in 2022 — more than doubling its net profit from the year before and a fourth-straight annual net profit after an unprecedented plunge in 2018.
In comparison, the MSCI World index saw a more than 18% slump in 2022 and the MSCI Emerging Markets index dived 20% in the same period.

Malaysia’s sovereign wealth fund Khazanah Nasional is fortifying its investment portfolio for greater resilience in volatile markets, according to its managing director Amirul Feisal Wan Zahir.
Bloomberg | Bloomberg | Getty Images

As of end 2022, Khazanah said 55.9% of its portfolio was invested in public markets in Malaysia, with 13.4% invested in public markets overseas. Nearly a quarter of its portfolio was invested in private markets, more than half outside Malaysia, with 8% invested in real assets.

“There is actually a lot of potential in deploying assets,” said Amirul Feisal, pointing to investment opportunities in volatile market environment.
“In this current moment, when you look at industrial consolidation … or we know there is a rising rate environment, and corporates will get squeezed — especially when you look at consumer or highly leveraged companies,” he said.

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Inflation rates have stayed persistently high globally despite multiple interest rate hikes as central banks seek to rein in years of super-easy monetary policy following the 2008-2009 financial crisis. Rate hikes and rising yields have combined to hurt many companies.
“But it does tell CEOs and corporates — how can I actually reduce my costs?” Amirul Feisal said.
“So when you look at areas such as business services, you could get opportunities in the private equity space there as well.” More

Chinese Premier Li Qiang said Tuesday his country was still on track to reach its annual growth target of around 5%.
He was speaking at the opening plenary of the World Economic Forum’s Annual Meeting of the New Champions.
“From what we see this year, China’s economy shows a clear momentum of rebound and improvement,” Li said.

Chinese Premier Li Qiang attends a meeting on June 26, 2023, with the Director-General of the World Trade Organization ahead of the World Economic Forum New Champions meeting in Tianjin, China.
Pool | Getty Images News | Getty Images

BEIJING — Chinese Premier Li Qiang said Tuesday his country was still on track to reach its annual growth target of around 5%.
He said growth in the second quarter was expected to be faster than it was in the first.

China’s economy grew by 4.5% in the first quarter, better than expected. However, subsequent data have pointed to slower growth. Economic data for May missed analysts’ expectations.
“From what we see this year, China’s economy shows a clear momentum of rebound and improvement,” Li said, via a livestream of an official English translation.
Li was speaking at the opening plenary of the World Economic Forum’s Annual Meeting of the New Champions.

The conference will run from Tuesday to Thursday in Tianjin, China. This year’s gathering marks the first time since the pandemic that the World Economic Forum’s annual China conference is being held in person.
Li became premier in March, following a twice-a-decade leadership reshuffle in October that packed the core team with loyalists of Chinese President Xi Jinping.

China announced its growth target of about 5% for the year in March. At the time, Li told reporters that China’s economy is picking up and that some international organizations had raised their forecasts for full-year growth.
On Tuesday, the Chinese premier repeated the line about forecast upgrades, again without mentioning specific institutions or dates.
Economists’ forecasts for China’s gross domestic product this year have fluctuated.

Several investment banks — including Goldman Sachs, JPMorgan, UBS and Bank of America — have trimmed their full-year China GDP forecasts in the last few weeks. Earlier this year, many firms had raised their expectations for 2023 growth.
In June, the World Bank raised its forecast for China’s growth this year to 5.6%, up from 4.3% previously.
The International Monetary Fund in April raised its forecast for China’s GDP to 5.2%, up from 4.4% previously.

On de-risking and security

Li on Tuesday also emphasized the need for global cooperation on trade and economic growth.
“As you know, some in the West are hyping up the so-called phraseologies of reducing dependencies and de-risking,” he said. “These two concepts, I would say, are false propositions.”
“As economic globalization has already made the world economy an integral whole where everyone’s interests are closely entwined, countries are interdependent, interconnected with each other, on their economies,” Li said. “We can enable each other’s success.”
China is a major, if not the top, trading partner of many countries in the world.
During his speech Tuesday, Li highlighted “security” as crucial in the context of the need to “cherish peace and stability.”
“In China’s official lingo, we compare security to the number of one, and other things, the many zeroes that come after it,” he said.
“In an American sense, without the number one, all the zeroes following it would come to nothing,” Li said, via the official English translation.
Beijing has increasingly emphasized the need to ensure national security. The U.S. has also cited the term in recent actions such as restricting China’s ability to access high-end semiconductors.
Earlier this year, Liu He, then a vice premier, spoke at the World Economic Forum’s annual event in Davos, Switzerland.
In that speech, Liu said “high-quality economic development must always be [China’s] goal,” and that the country would focus more on attracting foreign investment.
— CNBC’s Jihye Lee contributed to this report. More

“Iknow the allocation models don’t say this,” admitted Steven Mnuchin, a Treasury Secretary turned private-equity investor, last month, “but if I had to put money to invest for the next ten years I’d put 100% of it in the us economy.” Although Mr Mnuchin’s patriotism may be in part ideological—for he is both an investor and a political creature—he is not alone. According to Morningstar Direct, a data firm, American fund investors hold just a sixth of their equity allocation overseas. Jack Bogle, who invented index funds, called international exposure an overcomplication. Warren Buffett, an investor, thinks his wife should allocate 90% of her wealth to the s&p 500, America’s leading index, and 10% to Treasuries after his demise. This patriotism is an oddity. After all, Mr Mnuchin is right: it is not what asset-allocation models suggest. Diversification is perhaps the most important idea in modern finance. Its power was shown by Harry Markowitz, an economist who died on June 22nd, in the 1950s—when portfolio theory suggested investing in whichever stock held the highest present value of future dividends. Markowitz realised such analysis ignored risk. Andy’s apple farm might return 10% a year on average, but with wild swings. Barry the bootmaker posts a steady 7% a year. As long as the two firms’ fortunes are not in sync, a portfolio that contains a little of Andy and a little of Barry will offer better risk-adjusted returns than one holding shares in either firm. The insight won Markowitz a Nobel prize. It also laid the groundwork for Bogle’s index funds (which hold shares in a vast swathe of firms, not just a few) and modern academic finance. The capital-asset-pricing model, invented by William Sharpe, another economist, assumes all investors behave as Markowitz describes—maximising risk-adjusted returns—in the same way the theory of the firm assumes that companies maximise profits. Diversifying holds benefits at all levels of portfolio construction. Within stocks, investing in many firms is better than holding a few; across assets, holding stocks, bonds, real estate, commodities and so on is better than holding one or two assets. And holding these assets in many countries is preferable to just one. Americans love America, but nothing is more American than making money. Why, then, the home bias? Maybe owning foreign stocks is not necessary for geographic diversification. American firms are multinational. Growth tends to move in sync across the globe. There are risks that volatility in returns—Markowitz’s measure—cannot capture. No portfolio manager will be fired for buying American. If they invest in a country that seizes their assets, they will be shown the door.Yet the real reason for patriotism may be simpler: it has worked. American stocks have outperformed the rest of the world for three decades—an inordinately long time. Since 1990 America has on average returned 4.6 percentage points more per year than a broad index of rich-world stocks—an inordinately large premium. Although stocks everywhere moved in the same direction, which negated the benefits of diversification, America’s moved faster. The result is that, even though America is only 25% of the global economy, its stocks count for 60% of the global market capitalisation. This share has risen by 12 percentage points in the past decade. The only other country to have seen its share rise by more than a percentage point is China. Will the streak continue? America has deeper capital markets, stronger institutions and a bigger economy than anywhere else. Innovation flows freely—just look at the recent artificial-intelligence boom. Yet these traits are not new, meaning they should be priced in.A new paper by Cliff Asness and colleagues at aqr Capital Management sounds another note of caution. They adjust returns for changes in valuations, finding the vast majority of American outperformance is because valuations have soared. Of the 4.6% premium American stocks have commanded, some 3.4% exists because price-to-earnings ratios in America rose. Just 1.2% comes from fundamentals, like higher earnings.Outperformance owing to strong fundamentals might be repeatable. Winning “simply because people were willing to pay more for the same fundamentals”, as Mr Asness has written, is probably not. Shifting to foreign stocks after their long losing streak might feel risky. But the case for diversification is reasserting itself. America is the home of the brave. The country’s investors should remember that—and look abroad. ■ More

Publishers Clearing House agreed to settle a lawsuit with the Federal Trade Commission for $18.5 million, the agency said Monday.
The FTC alleged that PCH, well known for its sweepstakes, used “dark patterns” and other deceptive, unlawful business practices.
The agency also sued Amazon last week for using dark patterns relative to Prime subscriptions.
The PCH settlement money will be used to refund customers. It’s unclear how many are affected and when they might receive a refund.

The Publishers Clearing House offices in Jericho, New York on Jan. 30, 2019.
Bill Perlman/Newsday RM via Getty Images)

How ‘dark patterns’ can trap consumers

Sara Adair shows off the oversized check for $1 million her husband Mark received from the Publishers Clearing House Prize Patrol in South Boston, Massachusetts, on April 1, 2022.
Craig F. Walker/The Boston Globe via Getty Images

The FTC also sued Amazon last week for allegedly using “dark patterns” to trap people into recurring subscriptions for its Prime service without consent.  
Dark patterns are a “manipulative” and unlawful design trick, examples of which include pre-checked boxes, hard to find and read disclosures, and confusing cancellation policies, the FTC said. They pose “heightened risks” for consumers online, it added.

“This is our second dark pattern lawsuit over the last week,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said of the PCH lawsuit in a written statement. “Firms that continue to deploy deceptive design techniques are on notice.”

In the PCH case, the FTC claimed the company used “manipulative phrasing and website design” to convince consumers they needed to buy a product of some kind to enter the company’s sweepstakes or increase their odds of winning.
When it included disclaimers or clarifying information, the text was in small, light font and overlooked by consumers, the FTC claimed.
In addition to sweepstakes, PCH also sells merchandise and magazines. The FTC alleged the company charged hidden fees that averaged more than 40% of the product costs, and misled customers with deceptive language in email subject lines and statements in its privacy policy.

PCH agreed to settle charges, which claimed it had violated the FTC Act and CAN-SPAM Act. The company will pay $18.5 million to the FTC, which will refund impacted consumers. The company is also required to stop using deceptive language around sweepstakes and sales, and halt use of surprise fees, among other changes to its business practices.
More broadly, consumers may not realize they are being manipulated or misled by dark patterns since they are “covert or otherwise deceptive,” the FTC said. There are numerous examples, but some common ones consumers may confront online include phony customer endorsements (for example, the endorser may have been paid), fake low-stock messages (for example, there’s only one item left in stock) and a fake countdown clock (which pressures consumers to buy immediately, but resets after timing out). More

Budrul Chukrut | Lightrocket | Getty Images

Check out the companies making headlines in midday trading.
Lucid Group — Lucid shares jumped 9% after the electric-vehicle maker said it will provide powertrain and battery systems to British luxury automaker Aston Martin.

WSFS Financial — The regional bank added 4.4% after D.A. Davidson upgraded the stock to buy from neutral, noting WSFS could benefit from a higher-for-longer interest rate environment. The gain helped the SPDR S&P Regional Banking ETF (KRE), which traded 2% higher.
Pfizer — Pfizer slid 4.5% after it said it would end development of its experimental obesity and diabetes drug, lotiglipron, because of elevated liver enzymes that could indicate liver damage. Pfizer said no participants reported any symptoms or side effects.
Carnival — Shares sank nearly 12% despite the cruise line reporting a smaller-than-expected loss for its second quarter and giving an upbeat outlook. The stock has soared more than 70% year to date as the industry recovers from the Covid-19 pandemic. Royal Caribbean and Norwegian Cruise Line also fell Monday, dropping about 3% and 6%, respectively.
Moderna — Moderna rose 2.5% during midday trading. UBS upgraded the pharmaceutical stock to buy from neutral, saying the potential for other vaccines for the company isn’t fully appreciated by investors.
Alphabet — Shares of Alphabet fell 1.8% after UBS downgraded the tech giant to neutral from buy. UBS said Alphabet has limited upside from here and that the shift toward artificial intelligence could weigh on financial results in the near term.

Tesla — The EV maker dropped 2.8% after Goldman Sachs downgraded Tesla to neutral from buy. The Wall Street bank lowered its rating after Tesla’s recent rally and the competitive space for EVs. The downgrade follows similar rating changes recently from firms Morgan Stanley and Barclays.
— CNBC’s Michelle Fox, Alex Harring and Jesse Pound contributed reporting. More