Finance

A sign is posted in front of a Broadcom office in San Jose, California, on June 3, 2021.
Justin Sullivan | Getty Images News | Getty Images

Check out the companies making headlines in midday trading.
Cisco Systems, Splunk — Shares of Cisco fell 3.9% Thursday after the company said it is acquiring cybersecurity software company Splunk for $157 per share in a cash deal worth about $28 billion. Splunk’s stock price popped 19.1% on news of the deal.

KB Home — The homebuilder stock slid 4.3% after saying it expected its gross housing margin to shrink in the current quarter. KB Home posted its fiscal third-quarter report Wednesday evening, reporting earnings of $1.80 per share on revenue of $1.59 billion. Analysts polled by LSEG, formerly known as Refinitiv, called for earnings of $1.43 per share and revenue of $1.48 billion.
Fox Corporation, News Corp — Shares of Fox Corporation and News Corp gained 3.2% and 1.3%, respectively, on news Thursday that Rupert Murdoch is stepping down as chairman of both companies. 
Broadcom — Shares of Broadcom moved lower by almost 2.7%. The action follows a report by The Information that Google is holding internal discussions about dropping the artificial intelligence chip supplier in favor of its own internally developed chips as soon as 2027. A Google spokesperson later told CNBC that the company is “productively engaged” with Broadcom and other suppliers for the “long term.” “Our work to meet our internal and external Cloud needs benefit from our collaboration with Broadcom; they have been an excellent partner and we see no change in our engagement,” the spokesperson said
Eli Lilly — Shares were down 3.4% after the company earlier this week sued several clinics and pharmacies across the U.S. for allegedly selling cheaper, unauthorized versions of the company’s diabetes drug Mounjaro.
Klaviyo — The marketing automation company stock closed Thursday roughly 2.9% higher. Shares of Klaviyo opened Wednesday at $36.75 on the New York Stock Exchange, which was greater than the company’s offering price of $30 per share.

PulteGroup, Zillow Group, D.R. Horton — Shares of companies in the housing industry fell Thursday after data showed U.S. existing home sales fell in August as tight supply raised prices. PulteGroup was down 3.3%, while both D.R. Horton and Zillow lost 3.7%.
FedEx — Shares gained 4.4% a day after the company reported mixed fiscal first-quarter earnings. FedEx reported adjusted earnings of $4.55 per share, greater than the $3.73 forecast by analysts polled by LSEG. Its revenue of $21.68 billion came in below expectations of $21.81 billion.
Paramount, Netflix, Disney — Shares of streaming companies moved higher as writers and producers neared a potential end to the Writers Guild of America strike, people close to the negotiations told CNBC’s David Faber on Wednesday. Paramount was about 0.5% higher, while Netflix lost 0.6% and Disney added 0.2%, taking back earlier gains.
— CNBC’s Alex Harring, Tanaya Macheel and Samantha Subin contributed reporting. More

The Bank had been hiking rates consistently since December 2021 in a bid to rein in inflation, taking its main policy rate from 0.1% to a 15-year high of 5.25% in August.
The Monetary Policy Committee voted 5-4 in favour of maintaining this rate at its September meeting, with the four members preferring another 25 basis point hike to 5.5%.

A passageway near the Bank of England (BOE) in the City of London, U.K., on Thursday, March 18, 2021.
Hollie Adams | Bloomberg | Getty Images

LONDON — The Bank of England on Thursday ended a run of 14 straight interest rate hikes after new data showed inflation is now running below expectations.
The Bank had been hiking rates consistently since December 2021 in a bid to rein in inflation, taking its main policy rate from 0.1% to a 15-year high of 5.25% in August.

The British pound dropped 0.7% against the U.S. dollar shortly after the decision.
The Monetary Policy Committee voted 5-4 in favour of maintaining this rate at its September meeting, with the four members preferring another 25 basis point hike to 5.5%.
“There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally,” the Bank said in a statement.
“The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation.”
The MPC also unanimously votes to cut its stock of U.K. government bond purchases by £100 billion ($122.6 billion) over the next 12 months, to a total of £658 billion.

Investors on Wednesday ramped up bets that the Bank would pause its interest rate hiking cycle after U.K. inflation came in significantly below expectations for August.
The annual rise in the headline consumer price index dipped to 6.7% from the 6.8% of July, defying a consensus forecast that it would rise to 7%, as easing food and accommodation prices offset a hike in prices at the pump. Notably, core CPI — which excludes volatile food, energy, alcohol and tobacco prices — dropped to 6.2% from July’s 6.9%.
Early Thursday morning, money markets were split roughly 50-50 on whether the Bank would pause or opt for another 25 basis point hike, according to LSEG data, before swinging back to 60-40 in favor of a hike in the hour before the decision.
“Inflation is falling and we expect it to fall further this year. That is welcome news,” Bank of England Governor Andrew Bailey said in a video statement.
“Our previous increases in interest rates are working, but let me be clear that inflation is still not where it needs to be, and there is absolutely no room for complacency. We’ll be watching closely to see if further increases are needed, and we will need to keep interest rates high enough for long enough to ensure that we get the job done.”
Job ‘nearly done for now’
The Bank of England has been treading a narrow path between bringing inflation back to Earth and tipping the so far surprisingly robust economy into recession. U.K. GDP shrank by 0.5% in July, while a number of British companies issued profit warnings on Tuesday.
“While it may return to raising rates later in the year or into next year, the Bank of England has been bold and is signalling that its job is nearly done for now,” said Marcus Brookes, chief investment officer at Quilter Investors.
“Inflation surprised to the downside yesterday and with economic data rolling over, the BoE clearly feels it now has enough cover to hit the pause button and assess things as we go.”
The U.S. Federal Reserve on Wednesday also held its interest rates steady, but indicated that it still expects one more hike before the end of the year, along with fewer cuts in 2024 than previously anticipated.
Brookes suggested the MPC will have one eye on the U.S., where sentiment remains hawkish, but where the economy is in a stronger position to absorb a further rate rise.
Thomas Verbraken, executive director of risk management research at MSCI, said the burning question is whether the Bank of England’s Thursday decision signals the peak of the interest rate cycle.
“The rationale is that a steady rate can squeeze the economy more gently, averting heightened risks to financial stability and corporate defaults, while more effectively transmitting higher rates into fixed mortgage rates,” he said in an email.
Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said there is now a “good chance” that the Bank of England’s main policy rate has peaked, along with those of the Fed and the European Central Bank.
“Although the latest U.K. pay growth numbers are a cause for concern, labour market data is lagging. Forward looking indicators suggest the U.K. economy is already flirting with recession, a backdrop consistent with cooling wage growth and a policy pivot,” Mehdi said.
“We believe ongoing restrictive policy settings indicate there is a strong likelihood of developed markets entering recession in 2024.” More

When economists pass judgment on exchange-rate regimes, they like to invoke the monetary-policy “trilemma”. A country might want a stable currency, free capital flows and an independent monetary policy, which can respond to the needs of the domestic economy, regardless of what central banks elsewhere are doing. There are, however, intrinsic tensions between these objectives. And so, sad to say, a country can choose only two of the three.The trilemma is a canonical bit of theory. In practice, however, the choice is not so stark. No country can have all three blessings in full. But some countries, such as China, like a little of each.image: The EconomistThis year, for example, China has tried to go its own way in monetary policy. A property slump, low consumer morale and falling exports have marred the economy’s reopening from covid-19, contributing to dangerously low inflation. In response, China’s central bank has eased its monetary stance, even as interest rates have risen dramatically in America and elsewhere. It lowered reserve requirements for banks on September 15th for the second time this year. It has also twice cut interest rates.China’s slowdown and its monetary response have, predictably, weighed on the yuan. From mid-January, when euphoria about China’s reopening peaked, to September 8th, the yuan fell by 9% against the dollar. On the face of it, this is a good thing. A weaker currency should boost exports and ward off deflation. According to Goldman Sachs, a bank, a sustained 10% drop in the yuan against China’s trade partners could add 0.75 percentage points to China’s growth, which is struggling to reach 5% this year. It could also increase consumer-price inflation, which is near zero, by one percentage points in the long term.China, however, would also like a little currency stability to go with its monetary independence. It fears that sharp declines in the yuan can lead investors to expect further falls. It still bears the scars of 2015, when a devaluation triggered heavy capital outflows. The central bank thus feels inhibited in its exercise of monetary autonomy. Its rate cuts have been small—only 0.1 percentage points each time for the short-term rate. They have also been discreet. In June it cut this seven-day rate two days earlier than such moves are normally made, notes Becky Liu of Standard Chartered, another bank, perhaps to avoid too conspicuous a clash with the monetary-policy meeting of America’s Federal Reserve.China’s central bank has also tried to prop up the yuan. Officials have told speculators not to take one-sided bets. They have cut foreign-exchange reserve requirements for banks, releasing dollars into the system. The central bank has tightened yuan liquidity offshore, making it harder for speculators to borrow yuan in order to sell it. The central bank’s own foreign-exchange reserves fell by $44bn in August, not all of which can be easily accounted for by changes in the valuation of assets it holds. This raises the possibility that the bank intervened modestly itself.China’s distinctive exchange-rate system also gives the central bank a chance to intervene in another way. The yuan is not allowed to float by more than 2% above or below a “fix”, which the bank calculates each morning. The fix is supposed to reflect the previous day’s market forces. But the bank sometimes introduces what it calls a “countercyclical factor” (ie, a fudge factor) into its calculations. This has allowed it to set the fix at a rate that is stronger than the previous day’s close. Indeed, in recent days there has been more fudge in the fix than ever before.These interventions have enjoyed some success. The yuan has stopped falling against the trade-weighted basket of currencies that the authorities use as a benchmark for managing its value. The currency is also a little stronger against the dollar than it was early in the month.All this intervention comes at a cost. It tightens financial conditions, undoing some of the monetary easing the central bank is pursuing. Although a slightly more stable yuan can be engineered, it produces a somewhat less powerful monetary stimulus. China can have a little of everything. But not too much of anything. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

It matters when electricity is produced. A barrel of oil may be a barrel of oil whether it is pumped at midday or midnight, but a megawatt hour (mwh) of electricity is worth a great deal less when you are sleeping than during the middle of the day or, indeed, during moments when everyone decides to boil the kettle. The difficulty of bottling electricity makes its economics unusual: it is a question not just of “how much” but also “when”.At the same time, if there is one thing that everyone knows about renewable energy, it is that it is getting cheaper. Each year, or so the story goes, the costs of wind and solar power fall as the world improves its ability to harness natural resources. In 2014 the levelised cost of offshore wind, a measure for comparing different methods of generating electricity, was around $200 per mwh, according to America’s Energy Information Administration (eia), an official agency; by 2023 it had fallen to $127, excluding subsidies. Yet the industry is struggling. Six state governors recently begged Joe Biden to intervene to keep producers alive, according to Bloomberg, a news service. In Britain the latest annual offshore wind auction attracted no bids whatsoever.To understand what is going on, consider the levelised cost of energy in more detail. Do away with sun and wind, too, and return to a world where the choice is gas, coal or nuclear energy. These differ in terms of both their fixed and variable costs. The costs of a nuclear plant are mostly fixed: once built it is inexpensive to produce another unit of electricity. Natural-gas plants are the opposite: most of the costs are the fuel, and are thus variable.A levelised cost means taking these fixed and variable costs over the lifetime of the plant and weighting them by the expected number of watt-hours the plant will produce. This gives a comparable measure. According to the eia, the levelised cost of nuclear power is $91 per mwh. Natural gas comes to $43. Compare that with expectations for the price of electricity and you should have a good idea of whether or not a new plant is worthwhile.Yet these costs vary depending on how often a source is producing energy. A nuclear plant will be cheapest if it is running constantly, as the high upfront costs will have produced greater output. Gas, with low fixed costs and high variable costs, has lower economies of scale. Coal sits somewhere between the two. Considered purely on the financial merits, the optimal power mix is to have nuclear cover the “baseload”, or minimal level of demand, coal for the “mid-load” and, finally, natural gas for the “peak load”, when demand is highest. Add a carbon price and the coal will be displaced by natural gas, which is less dirty, as has happened in Europe over the past few decades.Unfortunately, this dynamic is upset by renewables, which provide power according to the weather and often require the rest of the energy system to accommodate them. Gas, with its low fixed but high variable costs, can do so easily. Nuclear, with high fixed and low variable costs, becomes much more expensive. It is costly to build a nuclear power plant to cover only the windless hours.As such, solar panels and wind turbines are themselves less beneficial than they might seem. If they cannot reliably produce electricity when it is needed, then their generating capacity is not as valuable as that of a regular power plant. To truly compare the two requires a measure of not just how much each megawatt hour costs to produce, but the value of that particular hour.In an idealised market, with prices updating moment-to-moment and geographically from node-to-node on the grid, the relative benefit of any energy source would be easy to calculate: it would depend on the “capture rate”. This is the difference between the market price that a source receives and the average price for electricity over a period. Prices should be higher when people most want electricity, boosting the capture rate of sources that produce at that time. Fortunately for renewables, this is usually during daylight hours, making solar useful, or during the cold windy months. But as more renewables join the grid the capture rate will fall, since an abundance of solar panels means that when it is sunny electricity prices are very low, or even negative.Consider these costs, as measured by the eia in America, and most renewables look less competitive: solar’s cost of $23 per mwh falls below an average capture rate of $20 for the electricity generated. That is still sufficiently good to beat everything other than onshore wind, geothermal energy and adding more battery storage to the grid. Offshore wind, by contrast, looks downright uncompetitive: the capture rate of its electricity is around $30 compared with a cost of $100 per mwh—only nuclear and coal have lower ratios. Add in rising costs, due to higher interest rates and disrupted supply chains, and it is no wonder many offshore-wind providers are struggling.Scottish powerMost electricity markets are not ideal. Prices do not reflect the true value of time and place, meaning they are not a perfect guide to how much society wants each mwh of electricity. Look at Britain. Wholesale electricity prices are settled for half-hour blocks, which should mean pricing will give a decent idea if renewables are producing at the wrong times of day. But there is only one price for the whole country. Most onshore wind is in Scotland, since England until recently had a de facto ban on building such wind farms, though more of the demand for electricity is in the south of England. A lack of capacity on the grid to move the electricity south means that the grid manager pays to turn off Scotland’s wind turbines while gas power plants in England are turned on.Eventually, increasing the grid’s capacity to shift and store electricity will solve such problems. But for the moment, comparing costs with the capture rate would not give an accurate idea of the relative benefits of building more Scottish wind power. The true costs of renewable energy are greater than they appear. ■Read more from Free exchange, our column on economics:Does China face a lost decade? (Sep 10th)Argentina needs to default, not dollarise (Sep 7th)How will politicians escape enormous public debts? (Aug 31st)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

When russia invaded Ukraine, panic gripped Europe’s nuclear experts—the civilian variety, that is. Ukraine, where 15 reactors relied on Russia for their uranium, rushed to sign an unusually long 12-year deal with Canada. European utilities, also reliant on Russia, drew the maximum they could under other contracts. Most exposed were operators in Finland and eastern Europe that owned Russian-made reactors, which only Russian firms knew how to feed. Finding an American rival that could bundle uranium rods into the hexagonal blocks such plants demand took a year. Now they are searching for the metal needed to restart the atomic Tetris.Such last-minute procurement of uranium is very rare, notes Per Jander of wmc, a trader. Utilities usually take deliveries two to three years after signing a contract. The scramble is just one illustration of the fallout of the war on a once-sedate market already squeezed by rising demand, supply shocks and speculation. In the week to September 18th uranium’s spot price hit $65 a pound, its highest since 2011, reports uxc, a data firm. At the industry’s yearly shindig in London, which drew a record 700 delegates this month, some warned it could reach $100. The two largest producers are sold out until 2027; some utilities are thought to be short for 2024.image: The EconomistJust 85,000 tonnes of uranium are used each year. This compares with 170,000 for niche metals like cobalt and many millions for industrial ones like copper. Unlike coal or gas plants, nuclear reactors cost a lot to build but little to run, so utilities mostly opt to keep them going regardless of, say, the economic cycle, making demand for fuel predictable. It also means that utilities cannot afford to run out, which is why they buy the stuff via long-term contracts.Most supply comes directly from mines. Canada and Kazakhstan, two reliable exporters, account for 60% of such “primary” supply. A quarter of total global supply arrives from “secondary” sources. Exhausted fuel blocks, replaced every three-to-four years, are re-enriched and re-used. Fuel is also made by diluting weapons-grade uranium, which contains more than 90% fissile elements, to concentrations of just 3-4%. In the two decades following the cold war the dilution of just 30 tonnes a year displaced 10,000 tonnes of annual mine output. More supply is regularly released from stockpiles. America, China, France and Japan hold a combined stash worth years of global use, which can be drawn from when prices are high.This tranquil trade is now being rocked by two forces. One is resurgent demand. For years after the Fukushima disaster in 2011 the closure of plants in Japan, Germany and elsewhere pushed the market into surplus. But the search for steady sources of low-carbon power, and Russia’s war in Ukraine, have led governments back to nuclear energy, which emits about the same as wind power and can operate even if pipelines are shut. Some 60 new reactors are under construction, which should add an additional 15% to the world’s nuclear-power-generation capacity over the next decade, reckons Liberum, a bank. Small “modular” reactors—cheap and easy to build—could turbocharge demand for fuel. The World Nuclear Association, an industry body, forecasts that they could make up half of France’s nuclear capacity by 2040.Uranium’s glowing prospects are not lost on financiers. In recent years several listed funds have launched. Sprott Physical Uranium Trust and Yellow Cake, the two biggest, have bought 22,000 tonnes in the past two years, equivalent to over a quarter of annual demand. Both are set up for the long run, with no fixed date or target price at which they will liquidate their holdings.Meanwhile, supply is looking precarious—the second reason why prices are soaring. Early panic aside, Russian ores can still be obtained. But a coup in Niger in July has put 4% of mined supply in jeopardy. Last week Orano, France’s state-owned giant, said it had halted its ore processing there owing to a lack of critical chemicals. Logistical headaches are causing Kazatomprom, the leading Kazakh supplier, to ship less uranium than expected (it typically passes through Russia). Cameco, Canada’s champion, recently cut its production forecast by 9% after hiccups at two mines.All this will probably keep the market in deficit next year, as it has been since 2018. Outright shortages remain unlikely, however. Major utilities retain stocks. And the fuel blocks inserted into operating reactors have another one-to-three years of life left, with a year’s extension possible at limited costs. Most also have the next block ready to go. Thus the risk of running out lies more than four years ahead.That leaves time for supply to respond. Cameco and Kazatomprom, which have lots of unused capacity after trimming output during the dreary 2010s, will not like to see higher-cost producers nab market share. Tom Price of Liberum estimates that they could add another 15-20% to global supply in as little as 12-18 months. If that fails to tame the market, then a sustained rise in price will incentivise the opening of new mines. Jonathan Hinze of uxc reckons a spot price of $70-80 would be enough to get many projects started. Supply snags are also unlikely to last too long. Niger’s junta has a beef with France, but not with China, which runs other mines in the country. If all else fails, Kazatomprom can always decide to export uranium by plane.So the most likely outcome is high prices for a few years, with a surplus returning by the middle of the decade. No one anticipates a repeat of 2007, when buying by the first uranium fund and floods at big mines combined to push the spot price beyond $135 a pound. Utilities have ample room for absorbing price shocks anyway. Because uranium is heavily processed, raw materials are worth less than half as much as finished fuel, which itself accounts for just 10% of a plant’s operating costs (against 70% for natural gas). The rally matters more to speculators than to the cost of what comes out of your socket. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

If you ever hear a professional investor talk about a trade that taught them a lot, prick up your ears. Usually, this is code for “a time I lost an absolutely colossal amount of money”, and you are in for one of the better stories about how finance works at the coalface.On this front, Victor Haghani is a man to whom it is worth listening. He spent the mid-1990s as a partner and superstar bond trader at the hottest hedge fund on Wall Street. In its first four years, Long-Term Capital Management (ltcm) made its initial backers average returns of more than 30% a year and never lost money two months in a row. Moreover, its partners had been trading the capital of Salomon Brothers, an investment bank, for the preceding 20 years, with similar results. But in 1998 the wheels came off in spectacular fashion. ltcm lost 90% of its capital at a stroke. Despite a $3.6bn bail-out from a group of its trading counterparties, the fund was liquidated and its partners’ personal investments wiped out. Mr Haghani writes that he took “a nine-figure hit”.Now, along with his present-day colleague James White, he has written a book that aims to spare other investors his mistakes. Fortunately, “The Missing Billionaires” is not a discussion of the minutiae of ltcm’s bond-arbitrage trades. Instead, it examines what its authors argue is a much more important—and neglected—question than picking the right investments to buy or sell: not “what” but “how much”.People tend to answer this question badly. To show this, the book describes an experiment in which 61 youngsters (college students of finance and economics, plus some young professional financiers) were given $25 and asked to bet on a rigged coin at even odds. Each flip, they were told, had a 60% chance of coming up heads. They had time for about 300 tosses, could choose each bet’s size and would keep their winnings up to a cap of $250. This was an exceptionally good deal: simply betting 10% of the remaining pot on each toss had a 94% chance of yielding the maximum payout and none of going bust. Yet the players’ average payout was just $91, only a fifth of them hit the cap and 28% managed to lose everything.A list of the coin-flippers’ mistakes reads like a parable of how not to invest in the stockmarket. Rather than picking a strategy and sticking to it, subjects bet erratically. Nearly a third wagered their entire pot on a single flip and, amazingly, some did so on the 40% chance of getting tails. Many doubled down on losses, even though doing so is a reliable way of making mild ones catastrophic. Others made small bets fixed in dollar amounts, avoiding ruin but also giving up the lion’s share of their potential returns. Few considered the optimal, lucrative strategy of betting a constant fraction of their wealth on an attractive opportunity.The rest of the book offers a corrective to these wealth-sapping instincts. Most important is to devise rules for spending, saving and allocating investments, expressed as fractions of your total wealth. Then you must stick to them, avoiding the temptation to chase hot assets or spend too much in the face of losses.The authors’ great success is in offering a consistent and explicit framework within which to do all this. At its core is the concept of “expected utility”, or the pleasure derived from a given level of wealth. This accounts for the fact that most people are averse to risking large chunks of their capital. A happy consequence is that sizing investments to maximise expected utility, rather than wealth, can sharply reduce your chances of intolerable losses while keeping enough risk for a shot at decent returns.In practical terms, the book’s crowning achievement is its explanation of the “Merton share”. This is a simple rule of thumb for determining asset allocation, which says that allocations should rise in proportion to expected returns, fall in proportion to the investor’s risk aversion and fall a lot in proportion to volatility (specifically, to its square).This is not to suggest the book makes for light reading. The authors prescribe calculations that will appeal to only the most dogged investors, ideally with access to a Bloomberg terminal. Most will conclude that they need a wealth-management firm to help them; conveniently enough, Messrs Haghani and White run one. Yet for those investing in their own business—or, indeed, a hotshot hedge fund—it is worth reading simply for Mr Haghani’s reflection on how much he ought to have ploughed into ltcm all those years ago. Spoiler alert: it was rather less than he did. ■Read more from Buttonwood, our columnist on financial markets: Why diamonds are losing their allure (Sep 13th)Should you fix your mortgage for ever? (Sep 7th)High bond yields imperil America’s financial stability (Aug 29th)Also: How the Buttonwood column got its name More

Macau is best known as the casino capital of Asia. But the former Portuguese colony, on China’s south coast, is hoping to gain a reputation for more reputable ways to make money. In August trading began on the mcex, an over-the-counter market that is the first of its kind. Investors are not exchanging currencies, debt or equity. Instead, they are buying the future revenues of businesses in mainland China.If successful, the exchange may help solve a problem that plagues smaller firms both in China and elsewhere: the difficulty of finding finance. Charles Li, a former boss of Hong Kong’s stock exchange and the creator of the new market, has said that investors tend to eschew lending to such businesses simply because the risks and rewards are poorly matched, with borrowers burdened if a venture flops and financiers short-changed if it goes well. For bigger companies, the solution is listing on a public market—something beyond the means of their smaller peers.Mr Li believes he may have solved this mismatch. mcex allows investors to buy and sell a new type of financial instrument called a Daily Revenue Obligation (dro). Contract owners gain a fraction of a business’s revenue for a fixed period of time, in effect buying the right to future income. Issuance has been strong. dros worth almost 2.2bn yuan ($300m) were offered on the exchange in the first month of trading.Selling future revenues is a good deal for small firms. Owners get access to capital without diluting their stake and without repayment obligations. For investors, the advantage is less clear (indeed, no information is available about their appetite so far). Micro Connect, which owns the exchange, claims they can enjoy “equity-like returns”. Their exposure is, however, rather large. Small firms often fail. Whereas a loan secured against assets has limited downside for its financier, the risk for a dro holder is limited only by the size of the investment. They have no claims on the assets of the business if it goes bankrupt.But Micro Connect does have a couple of selling points. If financial instruments designed to fund firms that banks won’t lend to and investors won’t buy sounds unpalatable, allocators can diversify their risk by buying up pools of dros, known as a “Daily Revenue Portfolio”. The underlying dros are unrated, but the pools are given a risk indicator under a framework developed by a Chinese rating agency, which relies on predictions of cash flows.Mr Li’s financial innovation also offers foreign investors something valuable: access to China. After decades of trying, overseas investors still have few good options. Cross-border private-equity deals have collapsed; “keepwell agreements”, between parent firms and subsidiaries, have been the subject of years-long court disputes. mcex promises to be different. dros are Macau-issued copies of contracts agreed on the mainland. Micro Connect takes on the enforcement risk in mainland China and offers investors the assurance of a contract enforceable under Macanese law.The company that issues a dro will have its revenues verified and disbursed by local banks each day, and recorded on a blockchain, providing investors with real-time insight into the performance of the business in which they have an interest. Although technology cannot eliminate accounting trickery, such as changing when invoices are issued, it can prevent fraud. It is almost impossible for a business to earn and not disclose cash revenues in China’s entirely digitised economy.China’s entrepreneurs may be especially eager to make use of the scheme now. Banks are scrutinising lending more closely owing to the economy’s struggles, so firms are looking elsewhere for capital. Many are turning to outfits beyond the banking system, known as “shadow lenders”, from which China Beige Book, a data firm, says borrowing is at near-record highs as a share of total lending. This helps explain why China’s smaller firms are keen. Whether these are the sorts of businesses in which foreign investors want to invest is another question entirely. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Chinese electric car brand Nio released an Android smartphone on Thursday.
The company’s CEO William Li spoke with CNBC in an exclusive interview.
Nio doesn’t have plans to release the smartphone in Europe – until the market grows larger, Li said.

SHANGHAI — Chinese electric car brand Nio on Thursday released an Android smartphone, which the company expects at least half its users to buy, CEO William Li told CNBC in an exclusive interview ahead of the launch.
The phone, priced from around $900 to $1,000, is an Android device that’s about $150 cheaper versus a comparable Huawei phone, Li said in Mandarin.

He told CNBC that among Nio users from which the company makes a profit, more than half are iPhone users, while the other half uses flagship Android phones from Huawei and other brands.
“I believe this portion of users are very likely to use this new form [of device] when they are changing their phones,” Li said according to a CNBC translation, citing the phone’s overall performance and car connectivity.
Nio is the first high-end Chinese electric car brand to release its own smartphone, which Li said the company developed in about a year. Electric car companies in China have sought to make in-car entertainment and mobile phone connectivity a selling point for their vehicles.
Delivery starts on Sept. 28, with orders starting immediately.

Chinese electric vehicle maker Nio launches a smartphone at an event in Shanghai on Sept. 21, 2023.
Evelyn Cheng | CNBC

Swedish electric car maker Polestar, which counts China as a major market, told CNBC earlier this month it plans to launch a phone in December.

Smartphone companies Apple and Xiaomi have long been reportedly working on their own cars.
Less than two years ago, Huawei released the Aito brand, which sells electric cars in China that are integrated with the smartphone company’s operating system. Huawei also sells its in-car software to other electric car companies such as Avatr and BAIC’s Arcfox.
That connectivity allows drivers to sync their personal device settings — such as for music — with the car. Nio also has a standalone mobile app.

A smartphone for cars

While the new Nio device resembles a typical smartphone, it comes with a special button that acts as a key for the car, Li told CNBC on Wednesday.
The Nio smartphone also allows users to connect more seamlessly with the car, such as when transitioning between the phone and the vehicle during online meetings, he said.

What we are pursuing is the car experience and the emotional experience we can provide to our users.

William Li

The new device is an opportunity for Nio to make more money per user.
“We pay more attention to the value that each user brings to our entire brand, and it is more convenient to connect users. It is also more efficient than before,” Li said. “What we are pursuing is the car experience and the emotional experience we can provide to our users.”
The phone is available to all consumers in China, not just those who own Nio cars, Li added.
He pointed out that the Nio phone app has 600,000 active users a day, about 1.5-times the number of car users.
Nio’s monthly deliveries rose to around 20,000 in August and July, after a decline in delivery volume the prior three months.

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Nio shares

In the second quarter ended June 30, Nio reported that revenue from the “other sales” category was mainly driven by a boost in the sales of used cars, accessories and power services, which more than doubled from a year ago to 1.59 billion yuan ($217.86 million) despite a decline in total revenue.
The company attributed the year-on-year and quarter-on-quarter increase in other sales to “continued growth of our users.”

Europe market

However, Nio doesn’t have plans to release the smartphone in Europe — at least not until the market grows larger, Li said.

Nio holds a product event in Shanghai on Sept. 21, 2023.
Evelyn Cheng | CNBC

Nio is in five countries in Europe, including Germany, and the company needs time to focus on developing local car services, Li said, noting those are important for auto products.
When asked about the European Union’s anti-subsidy probe into Chinese EVs, Li said the company was still learning the details.

We believe time is still on Nio’s side.

William Li

It’s more important for the world to cooperate, especially on addressing climate issues, he added.
“I don’t think anyone should block users from using good products through multiple ways” such as investigations, he said.

Investing for the future

In China, the penetration of new energy vehicles has expanded quickly, but an overall slowdown in economic growth has weighed on the market.
Competition in the domestic electric car market is “fierce,” Li said, noting challenges for industry peers as well.
But he expects business investments will help Nio create barriers to entry. “We believe time is still on Nio’s side,” Li said.
He noted the company spends about $500 million on research and development every quarter. Other major areas of investment for the company, he said, are battery charging and development of a mass market brand.

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Nio previously said it plans to release a vehicle in the second half of next year under the mass market brand “Alps.”
The company has faced financing challenges more than once since its founding in late 2014. Earlier this year, Nio said it was delaying some spending plans due to lackluster deliveries.
But the company subsequently received nearly $740 million from an Abu Dhabi-backed fund. Nio also announced this week a refinancing plan for a portion of its debt. More