Finance

Suppose, for a minute, that you are a finance minister in the developing world. At the end of a year in which your tax take has disappointed, you are just about out of money. You could plough what little remains into your health-care system: dollars spent by clinics help control infectious diseases, and there is not much that development experts believe to be a better use of cash. But you could also spend the money constructing an electrical grid that is able to handle a switch to clean energy. In the long run this will mean less pollution, more productive farmland and fewer floods. Which is a wiser use of the marginal dollar: alleviating acute poverty straight away or doing your country’s bit to stop baking the planet?The thought experiment is a simplified version of a dilemma facing global institutions and developing countries. On June 22nd politicians descended on Paris for a summit to design “a new global financial pact”. The aim was to work out how to spread the cost of climate change. Leaders from poor countries turned up in droves; aside from Emmanuel Macron, France’s president, no Western head of state made it. Little surprise, then, that the jamboree ended without rich countries coughing up a single extra dollar. Instead, attendees tinkered with the World Bank and the imf, the biggest of the multilateral agencies that seek to reduce poverty. The lack of action means painful trade-offs lie ahead.After all, a huge amount of money is needed to help poor countries go green. In 2000 the developing world excluding China accounted for less than 30% of annual carbon emissions. By 2030 they will account for the majority. The Grantham Institute, a think-tank at the London School of Economics, estimates that at this point poor countries will need to spend $2.8trn a year in order to reduce emissions and protect their economies. Regardless of changes to the climate, the institute thinks these countries will also need to spend $3trn a year on things like health care and education to keep up poverty-alleviation efforts. This figure could rise. Since covid-19 struck, gains in development indicators, ranging from hiv deaths to the number of people in absolute poverty, have stalled.The world is spending nowhere near such amounts. In 2019, the latest year for which reliable data are available, just $2.4trn went on climate and development combined. According to the Grantham Institute, rich countries and development banks will have to stump up at least $1trn of the annual shortfall (the rest should come direct from the private sector, and from developing countries themselves). In 2009 rich countries agreed to provide $100bn in fresh finance a year by 2020. They have missed the target every year since then, reaching just $83bn in 2020—with much of the money coming from development banks. Excluding climate finance and spending on internal refugees, aid from oecd countries has been flat over the past decade.In a recent article, world leaders including Joe Biden of America, William Ruto of Kenya and Muhammad bin Zayed of the United Arab Emirates wrote that they were convinced “poverty reduction and protection of the planet are converging objectives”. Some policies do indeed provide useful fixes for both. Sustainable agriculture cuts emissions, climate-proofs the food supply and reduces the risk of famine. Mangrove preservation sequesters carbon, stops storm surges and helps provide fishermen with a living. Across the board, damage from climate change makes development more expensive—and halting climate change makes it more affordable.But although alignment is possible, it is also rare. Spending to cut emissions will inevitably be aimed at middle-income countries, which pollute more; spending to cut poverty will be aimed at low-income places, where poor people live. Researchers at the imf, who analysed data from 72 developing countries since 1990, find that there is an unfortunate pattern: a 1% rise in annual gdp is on average followed by a 0.7% rise in emissions. The reasons for this are simple. Growing industries require lots of power. Big, mechanised agriculture requires lots of space; its growth is the main reason for deforestation. The African Development Bank (afdb) reckons that Africa needs 160 gigawatts (gw) of extra capacity by 2025. The continent now generates just 30gw or so of renewable energy. At the African Exim Bank’s recent annual meeting in Accra, the talk was about how to mine metals for the green transition, with little concern about the pollution this would involve. In theory, the next generation of industrialising countries could power their growth using renewable grids, rather than ones that run on oil and gas. Africa has more solar potential than anywhere in the world, as well as plenty of minerals that could be used for batteries. Yet although green growth is possible, it is not happening—replacing old grids and installing new technology is just too expensive for developing countries. To reach net-zero emissions by 2050, the International Energy Agency, an official forecaster, reckons developing countries would have to spend at least $300bn on renewable grids until 2030, five times their current outgoings. Green dreamsThus there is no way around the missing finance. And as the meagre progress in Paris demonstrates, an enormous increase in aid spending is unlikely. After the conference, donor countries and the World Bank now plan to suspend more repayments in the event of extreme-weather disasters, and have recycled from rich countries a modest amount of special drawing rights, a financial instrument the imf allocates to the balance-sheet of every country’s central bank. Where some of the promised finance will come from is yet to be revealed, as are the mechanics of spending it. More ambitious proposals came from African politicians, and included ideas for global taxes and a new international financial institution, as Mr Ruto put it, “not hostage to its shareholders”. They were treated as outlandish. “Taxed by whom? And for whom?” demanded Mr Macron. Even a worldwide tax on shipping, which Mr Macron supports, faces years of political wrangling. “We will forget all about it in a few months,” sighed a finance minister. “There is a clash between the global good and the national interest,” Mr Ruto said. “And the national interest always wins.” This produces two bleak trade-offs. The first concerns priorities for national governments. Given their lack of preparation and sweltering temperatures, developing countries are among the most vulnerable to climate change. In the next couple of decades, pollution and extreme heat will worsen health outcomes. Natural disasters will wreak havoc and impose vast reconstruction costs. But in the short run, governments are unsure how to grow without fossil fuels. Their economies are held back by dodgy electrical grids and insufficient energy, meaning officials are on the hunt for power. Oil, gas and other raw commodities are a valuable source of foreign exchange for countries that export. Without fossil-fuel revenues, at least a dozen poor countries, including Ecuador and Ghana, would face unmanageable debt burdens, according to reports by the imf. Governments are not always responsible with their fossil-fuel bounties—but pollutants have nonetheless paid for billions of dollars in African social spending and pension contributions in recent years.The short-term pressure to find funding for public services is intense. Last year, after paying creditors and civil servants, Zambia had just 13% of its budget remaining. The country is an extreme case, but governments in most of the developing world have little room for manoeuvre. “How do I justify to voters taking away subsidies, school funding and health care to build a waste-processing plant or a big sea wall?” asks a finance minister. “In 20 years of course it will be useful, but it is the cost now that is concerning.” The minister reckons that the cost of building a school in his capital city has doubled in the past decade, owing to the need to make facilities green and resilient. “What about when we have to choose between hospitals treating lung disease and swapping to electric buses?”The result is that developing countries are a long way from the national climate targets first offered at the cop21 meeting in 2015. New coal power plants will provide Indonesia with 60% of its electricity until at least 2030. The associated carbon release will push the country even further from the recent emissions target it submitted to cop. Between 2019 and 2027 Brazilian policymakers, seeking to avoid hydropower shortages that occur thanks to increasingly frequent droughts, plan to spend $500bn on oil and gas. “African countries need a fair exit plan from fossil fuels,” says Mavis Owusu-Gyamfi of the African Centre for Economic Affairs, a think-tank. The Matthew effectWhich brings international financiers to the next trade-off. If the aim is to cut emissions as fast as possible, or to “mitigate” climate change, then the best way to spend is to pump cheap loans and grants into big, middle-income countries. Last year Indonesia’s coal-powered energy industry released more carbon dioxide than sub-Saharan Africa minus South Africa. The country’s coal plants will be profitable until 2050, unless the government is coaxed to retire them early through cheap loans and grants. According to researchers at the imf, some $357bn will need to flow to three big middle-income countries (India, Indonesia and South Africa) each year until 2030 in order to phase out their coal power plants by 2050. Mia Mottley, the prime minister of Barbados, who served as Mr Macron’s co-host for the conference in Paris, is pushing the World Bank to offer middle-income countries the cheap rates it usually reserves for the poorest. Dollars go further in middle-income countries, since it is easier to attract private money. In Paris, Ajay Banga, the World Bank’s new president, led a group brimming with ideas about guarantees and insurance schemes that need concessional finance. Most will land in middle-income countries, where there are big private sectors and doing business is pretty straightforward. Such countries also have more desire for clean energy, which will yield a return, than for costly adaptation to protect against the effects of climate change, which does not bring in cash. “Every month, I have oil-and-gas [companies] knocking on my door. Do you know how much [of the private sector] has knocked to protect my forests? None,” says an African minister. Last year Kenya and rich countries hosted a humanitarian fundraiser for Africa. Advanced economies committed just $2.4bn out of a $7bn target. The biggest climate-finance projects to date are jet-ps—or “Just Energy Transition” packages—made up of loans and grants from banks, rich countries and private businesses, which are intended to shepherd middle-income countries from fossil fuels to cleaner energy. Indonesia’s package is worth $20bn, some $10bn of which comes from other governments at cheap rates. South Africa has won $8.5bn in concessional finance, though Cyril Ramaphosa, the country’s president, unsurprisingly thinks the country deserves still more. Such plans offer a good bang per buck. If Indonesia sticks to its jet-p promises, rather than its national energy plan, it will limit annual power emissions to 290 megatons in 2030. This will involve shutting multiple coal plants and becoming one of the few countries in the world with emissions close to those required for a world with only 1.5°C of warming.Grants are development finance’s gold-dust. With a limited amount to go around, the concern is that low-income countries, which have come to rely on cheap financing, are going to miss out. Ministers in such countries are worried about a lack of finance for their energy transition. Without support, they will be left with stranded assets from investment in fossil-fuel facilities, for which there will be little demand. But they are more worried about having to whittle down spending on health and education. Ultimately, they may have little choice. In 2021 less than a quarter of grants and cheap loans from development outfits went to the poorest countries, down from almost a third a decade earlier. Eighty poor countries, including Nigeria and Pakistan, together received just $22bn in mitigation and adaptation aid in 2021. Last year bilateral aid to sub-Saharan Africa fell by 8%. In Paris, the presidents of both Kenya and Chad held up events in order to criticise rich countries’ paralysis on debt relief. “We would appreciate a little understanding,” complained Mr Ruto. To scant surprise, they did not back Ms Mottley’s campaign for more generous lending to middle-income countries. In private, they also complained about Western hypocrisy. European leaders demand poor countries stop subsidising fossil fuels, and skip developing gas and coal as domestic energy sources altogether, all the while bringing coal power plants online at home and increasing imports of gas from Africa. The world’s biggest provider of climate and development finance, the World Bank, is caught between the two aims. Janet Yellen, who as America’s treasury secretary has outsize influence over the institution, spent much of a tour of Africa last year bemoaning the quality of its climate finance. The Centre for Global Development, a think-tank, finds that the 2,500 climate-finance projects the Bank has set up since 2000 have had almost no discernible impact on emissions, or how well prepared countries are for a hotter world. Despite the projects’ stated green intentions, most of the spending went on work that served the Bank’s poverty-alleviation aims. Indeed, part of the reason for the Bank’s troubles when it comes to climate change is that it is geared towards poverty alleviation. It is planning to set up a new system to track the impact of money it spends on climate change. Yet there are a number of suggestions for how it could go further. These range from devoting extra lending to climate change, which already receives more than a third of its total, to changing the criteria by which its bankers get bonuses, from the amount of loans they get out the door to the amount of private-sector finance they crowd in. Such proposals feed fears among low-income countries that fixing the World Bank risks diminishing the flow of funds for poverty alleviation. Financial troubleBehind the scenes in Paris, faultlines solidified. Some in international finance think climate is now the priority. They argue that if there is no planet on which to live, poverty alleviation is besides the point. “We have been talking about development for 40 years,” says Vera Songwe of the Grantham Institute. “This is a luxury we do not have with climate.” The hope is that some countries will get rich off the green transition. Regardless, all countries need to eliminate net emissions, this camp argues, including those in Africa, some of which emit next to nothing. Vast amounts of finance should be diverted to those that currently emit the most. Compromises should be made to get private capital on board. Multilateral development banks need new criteria by which to judge their lending, and governments help spending their climate finance effectively. Others disagree. “Please do not make [climate finance come] at the expense of basic investments in human capital,” says Mark Suzman, chief executive of the Gates Foundation, a charity. The green transition, argues this group, will only work if a productivity boost from gains in health and education for skilled workers lays the groundwork. The group’s members wonder if middle-income countries need quite as much help as they claim. The poorest countries should get climate finance for adaptation, they argue, rather than stuff that comes with emissions limits attached.What counts as adaptation finance is an early flashpoint in this debate. The development camp counts spending to increase “climate resilience”, which includes things like schools with storm drains, as well as teaching children about green tech. The climate camp calls some of this “greenwashing”. The idea that international financiers are having this debate between themselves—rather than giving the main say about what to do with such cash to developing countries—is making local ministers furious. Even smaller institutions are taking sides. The Asian Investment and Infrastructure Bank, an outfit led by China, is considering shifting all of its lending to climate finance. Unlike the World Bank, it is not beholden to poverty alleviation. “It [poverty alleviation] will become a second-order priority,” shrugs one official. While reporting this article, your correspondent spoke to more than 20 economists, financiers and policymakers involved in the debate. When asked whether climate or development should be the ultimate priority, their allegiances were evenly divided. As the world gets hotter and poverty becomes no less pressing, the schism will only widen. ■ More

Lordstown Motors Corp Chief Executive Steve Burns poses with a prototype of the electric vehicle start-up’s Endurance pickup truck, which it will begin building in the second half of 2021, at the company’s plant in Lordstown, Ohio, U.S. June 25, 2020.
Lordstown Motors | Reuters

Check out the companies making headlines in midday trading.
Lordstown Motors — The embattled electric truck maker dropped more than 17% after filling for bankruptcy. Lordstown is also suing Taiwanese manufacturer Foxconn over a $170 million funding deal.

Walgreens Boots Alliance  — Shares tumbled 9.3% after the retail pharmacy chain lowered its full-year earnings guidance to $4 to $4.05 per share from its previous forecast of $4.45 to $4.65 per share. Walgreens also reported adjusted earnings per share for its fiscal third quarter of $1, missing a Refinitiv forecast of $1.07.
Delta Air Lines — Shares rose 6.8% after the airline put its forecast for full-year earnings at $6 per share, at the high end end of the previously set range. Delta said it has been helped by strong demand and customers opting for more expensive fare classes.
American Equity Investment Life — The insurance firm’s stock popped about 17.2% following a report by Bloomberg News that Canadian investment firm Brookfield was close to making a deal to buy American Equity Investment Life for approximately $4.3 billion.
Cruise stocks — Carnival climbed 8.8%, reversing course after tumbling Monday. The cruise line reported a smaller than expected loss for its second quarter, while also giving strong guidance. Royal Caribbean and Norwegian advanced 4.3% and 5.7%, respectively, after also taking a leg down on Monday.
Generac — The generator stock climbed 8.8% after Bloomberg News reported that Generac CEO Aaron Jadgfeld said the company was seeing a “dramatic increase” in demand in the Texas region.

Roblox — The gaming platform popped 6.7% after Bank of America reiterated its buy rating, saying the stock is a leader in the Metaverse category.
Meta Platforms — The big technology stock added 3.1% after Citi reiterated its buy rating. The firm said its particularly optimistic about Reels.
Kellogg — Kellogg traded 1.7% higher on the back of an upgrade to buy from neutral by Goldman Sachs. The Wall Street firm said shares were mispriced given the growth potential for investors.
Nike — The athletic retailer added 1.7% after Oppenheimer reiterated its outperform rating ahead of earnings later this week.
Frontier Communications — Shares rose 8.1% on the back of Wolfe Research initiating coverage of the stock at outperform. Wolfe said the company has leading speed and reliability.
Coterra Energy — Coterra added 1.3% on the back of an upgrade from JPMorgan to overweight from neutral. JPMorgan said shares are attractively valued.
Unity Software — The gaming software stock jumped 15.4% after Wells Fargo initiated coverage of Unity with an overweight rating. Negative sentiment about the metaverse has overshadowed the stronger aspects of Unity’s business, Wells Fargo said in a note to clients.
Saia — The transportation stock rose 6.3% on the back of Evercore ISI upgrade to outperform from in line. The firm said risk seems skewed to the upside.
Wingstop — Shares gained 3.9% after Northcoast upgraded Wingstop to buy from neutral, citing the potential for the growth story to keep it as an industry leader.
Cars.com — Shares advanced 5.9% following JPMorgan’s initiation of the online auto marketplace at overweight. The firm called the stock a safe place to hide in this tough macroeconomic environment.
— CNBC’s Jesse Pound and Michelle Fox contributed reporting More

Consumers can buy two types of life insurance: term or permanent. The latter category includes whole life and universal life.
Term life insurance is generally the best option for most people since it’s the most cost-effective, say financial advisors.
Yet, 60% of policies sold in 2021 were permanent policies, while 40% were term, according to the American Council of Life Insurers.

Supersizer | E+ | Getty Images

There are two broad categories of life insurance, and data suggests many households aren’t buying the most cost-effective one.
Americans bought 4.1 million term insurance policies in 2021, accounting for 40% of all individual policies purchased that year, according to the most recent data from the American Council of Life Insurers. About 6.3 million policies, or 60%, were permanent life insurance.

But this doesn’t seem to jibe with financial advisors’ general recommendation.
“Most people just need term insurance,” said Carolyn McClanahan, a certified financial planner based in Jacksonville, Florida, and a member of CNBC’s Advisor Council.
More from Personal Finance:How many credit cards should you have? The answer isn’t zeroAmericans think they will need nearly $1.3 million to retireRepublicans, Democrats divided on Social Security reform

How term and permanent life insurance differ

Life insurance is a form of financial protection that pays money to beneficiaries, such as kids or a spouse, if a policyholder dies.
Term insurance only pays out a death benefit during a specified term, perhaps 10, 20 or 30 years. Unless renewed, the coverage lapses after that time.

By contrast, permanent insurance policies — such as whole life and universal life — offer continuous coverage until the policyholder dies. They’re also known as cash value policies since they have interest-bearing accounts.

Permanent insurance is generally more costly, advisors said. Policy premiums are spread over a longer time, and those payments are used to cover insurance costs and build up cash value.
“Term insurance will probably be the most cost-effective way to address survivor income needs, especially for minor children,” said Marguerita Cheng, a CFP based in Gaithersburg, Maryland, also a member of CNBC’s Advisor Council.
Premiums can vary greatly from person to person. Insurers base them on a policy’s face value and the policyholder’s age, gender, health, family medical history, occupation, lifestyle and other factors.

Reasons you may need permanent life insurance

There are three main reasons it may make more sense to buy a permanent policy, despite the higher premiums, said McClanahan, founder of Life Planning Partners. This would aim to ensure there’s an insurance payout upon death, no matter when that occurs.
For example, some beneficiaries such as kids with special needs may need financial help for a long time, and a policyholder’s lifetime savings wouldn’t be adequate to fund their needs, McClanahan said.
Some policyholders may also want to leave a financial legacy for family or charities. Additionally, others may have a relatively minor health complication with the potential to worsen later. At that point, the policyholder may be uninsurable, in which case, it’d be beneficial to buy a permanent policy today to ensure coverage later, McClanahan said.

Most people just need term insurance.

Carolyn McClanahan
founder of Life Planning Partners

Some shoppers buy permanent life insurance for the cash value, thinking they can borrow against that cash value or use it as a retirement savings account. But that’s a “horrible reason” to buy a permanent policy, said McClanahan, adding that the primary reason for buying a policy is always for an insurance need.
For one, there may be taxes and penalties for accessing a policy’s cash value. Withdrawing or borrowing too much money from a permanent policy could cause the policy to lapse inadvertently, meaning the owner would lose their insurance.
Policyholders should instead treat the cash value as an emergency fund at the end of one’s life, as the last asset someone taps, similar to home equity, McClanahan said.

How to determine life insurance amount and term

Prospective buyers should consider the “three Ls” when deciding how much life insurance to get: liability, loved ones and legacy, said Cheng, CEO of Blue Ocean Global Wealth.
For example, if you die, how much money would you want to leave for liabilities such as a mortgage, student loans or auto loans? How much money would loved ones such as a spouse and kids need if they were to suddenly lose a policyholder’s income? How much would you want to leave as a legacy for causes that are important to you?
Thinking about these questions will help guide the term of a policy, Cheng said.
Cheng offered her personal situation as an example. She purchased a 20-year term policy with a $750,000 death benefit when all three of her kids were younger than age 18. Her husband also works and has a regular income. If Cheng were to have died prematurely, each child would have received $250,000 to fund their educations. She also bought $250,000 of permanent insurance, earmarked for Cheng’s husband, to help pay off their mortgage.
Coupling term and permanent insurance policies can help make an insurance purchase more cost-effective than buying just permanent insurance, advisors said.
Those buying a term policy should be sure to buy “convertible” term insurance, advisors said. This gives policyholders the option to convert their term policy into a permanent policy once the term has ended, but without having to undergo another round of medical underwriting. At that point, the person may be denied coverage if in poor health. More

In its midyear outlook, the British banking giant’s asset manager said recession warnings are “flashing red” for many economies, while fiscal and monetary policies are “out of sync” with stock and bond markets.
Along with China, HSBC believes India is the “main macro growth story in 2023” as the economy has recovered strongly from the Covid pandemic on the back of resurgent consumer spending and services.

Hong Kong observation wheel, and the Hong Kong and Shanghai Bank, HSBC building, Victoria harbor, Hong Kong, China.
Ucg | Universal Images Group | Getty Images

The U.S. will enter a downturn in the fourth quarter, followed by a “year of contraction and a European recession in 2024,” according to HSBC Asset Management.
In its midyear outlook, the British banking giant’s asset manager said recession warnings are “flashing red” for many economies, while fiscal and monetary policies are out of sync with stock and bond markets.

Joseph Little, global chief strategist at HSBC Asset Management, said while some parts of the economy have remained resilient thus far, the balance of risks “points to high recession risk now,” with Europe lagging the U.S. but the macro trajectory generally “aligned.”
“We are already in a mild profit recession, and corporate defaults have started to creep up too,” Little said in the report seen by CNBC.
“The silver lining is that we expect high inflation to moderate relatively quickly. That will create an opportunity for policymakers to cut rates.”
Despite the hawkish tone adopted by central bankers and the apparent stickiness of inflation, particularly at the core level, HSBC Asset Management expects the U.S. Federal Reserve to cut interest rates before the end of 2023, with the European Central Bank and the Bank of England following suit next year.

The Fed paused its monetary tightening cycle at its June meeting, leaving its fed funds rate target range at between 5% and 5.25%, but signaled that two further hikes can be expected this year. Market pricing narrowly anticipates the fed funds rates to be a quarter percentage point higher in December of this year, according to CME Group’s FedWatch tool.

HSBC’s Little acknowledged that central bankers will not be able to cut rates if inflation remains significantly above target — as it is in many major economies — and said it is therefore important that the recession “doesn’t come too early” and cause disinflation.
“The coming recession scenario will be more like the early 1990s recession, with our central scenario being a 1-2% drawdown in GDP,” Little added.
HSBC expects the recession in Western economies to result in a “difficult, choppy outlook for markets” for two reasons.
“First, we have the rapid tightening of financial conditions that’s caused a downturn in the credit cycle. Second, markets do not appear to be pricing a particularly pessimistic view of the world,” Little said.

“We think the incoming news flow over the next six months could be tough to digest for a market that’s pricing a ‘soft landing.'”
Little suggested that this recession will not be sufficient to “purge” all inflation pressures from the system, and therefore developed economies face a regime of “somewhat higher inflation and interest rates over time.”
“As a result, we take a cautious overall view on risk and cyclicality in portfolios. Interest rate exposure is appealing — particularly the Treasury curve — the front end and mid part of the curve,” Little said, adding that the firm sees “some value” in European bonds, too.
“In credit, we are selective and focus on higher quality credits in investment grade over speculative investment grade credits. We are cautious on developed market stocks.”
Backing China and India
As China emerges from several years of stringent Covid-19 lockdown measures, HSBC believes that high levels of domestic household savings should continue to support domestic demand, while problems in the property sector are bottoming out and government fiscal efforts should create jobs.
Little also suggested that comparatively low inflation — consumer prices rose by a two-year monthly low of 0.1% in May as the economy struggles to get back to firing on all cylinders — means further monetary policy easing is possible and GDP growth “should easily exceed” the government’s modest 5% target this year.
HSBC remains overweight on Chinese stocks for this reason, and Little said the “diversification of Chinese equities shouldn’t be underestimated.”

“For example, value is outperforming growth in China and Asia. That’s the opposite of developed stock markets,” he added.
Along with China, Little noted that India is the “main macro growth story in 2023” as the economy has recovered strongly from the pandemic on the back of resurgent consumer spending and a robust services sector.
“In India, recent upward growth surprises and downward surprises on inflation are creating something of a ‘Goldilocks’ economic mix,” Little said.
“Improved corporate and bank balance sheets have also been boosted by government subsidies. All the while, the structural, long run investment story for India remains intact.” More

Wise said in a statement to the stock market that its profit before tax nearly tripled to £146.5 million ($186.5 million).
Wise benefited from surging interest rates, which last week were raised by the Bank of England to 5% as policymakers grapple with high inflation.
Overall income reported by the firm rose to £964.2 million, up 73% year-on-year, boosted by a surge in customer balances.

The Wise logo displayed on a smartphone screen.
Pavlo Gonchar | SOPA Images | LightRocket via Getty Images

Online money transfer firm Wise’s shares soared nearly 18% Tuesday as the company reported a spike in profits thanks to rising interest income.
The company said in a statement to the stock market that its profit before tax tripled to £146.5 million ($186.5 million). Earnings per share also more than tripled, to 11.53 pence.

That was as the company saw customer growth of 34%, with 10 million total users by March 31, 2023, and volumes increased 37% to £104.5 billion.
Wise was trading at about £6.18 at around midday London time, up almost 18% on the day.
Wise benefited from surging interest rates, which last week were raised by the Bank of England to 5% as policymakers grapple with persistently high inflation.
Like other fintechs, Wise has been able to accrue income from interest on funds sitting in customer accounts.
Monzo and Starling Bank recently reported their own respective profitability milestones, citing increased income from lending.

Wise said Tuesday its revenues grew 51% to £846.1 million, from £559.9 million the year prior.
Overall income reported by the firm rose to £964.2 million, up 73% year-on-year. This was boosted by a surge in the amount of funds deposited by customers.
Still, Wise has been grappling with a number of less positive developments.
The company’s CEO Kristo Kaarmann last year became the subject of an investigation by Her Majesty’s Revenue and Customs over a £365,651 tax bill he failed to pay on time.
The news is significant as it could lead to serious ramifications for Kaarmann’s position if he is found to have breached U.K. tax laws.
“The FCA [Financial Conduct Authority] is still conducting the investigation and it’s taking a while. I find this is a bit unfortunate but we’ll have to wait until we hear what they conclude,” Kaarmann said in an interview with BBC Radio Tuesday.
“It has really not much to do with the business that we’re running, it was a personal mistake. I was really late with my taxes a long time ago and I paid the fines.”
Wise was also the subject of a $360,000 fine by regulators in Abu Dhabi over failings in its anti-money laundering controls.
This issue has since been “resolved,” Kaarmann told the BBC.
Kaarmann earlier this year announced that he plans to take a three-month sabbatical between September and December to spend time with his baby.
Harsh Sinha, the company’s chief technology officer, is set to assume his duties as CEO in the interim. This has led to speculation from some investors that Sinha may step up into the CEO role permanently. Wise has not itself indicated this will be the case. More

A man walks out of Walgreens pharmacy on March 09, 2023 in New York City. 
Leonardo Munoz | Corbis News | Getty Images

Check out the companies making the biggest moves in premarket trading:
Walgreens Boots Alliance — The retail pharmacy chain sank about 7% after the company lowered its full-year earnings guidance to $4 to $4.05 per share from its previous forecast of $4.45 to $4.65 per share. It also reported adjusted earnings per share for its fiscal third quarter of $1, missing a Refinitiv forecast of $1.07.

Kellogg — Shares added 2.5% in premarket trading after an upgrade from Goldman Sachs to buy. The firm said Kellogg was “mispriced” compared to the potential growth opportunity offered to investors.
Lordstown Motors — Lordstown Motors tumbled 61% in the premarket after the U.S. electric truck maker filed for bankruptcy protection and sued Taiwan’s Foxconn for a deal that came apart.
Delta Air Lines — The travel stock added about 1% in premarket trading after Delta forecast full-year adjusted earnings of $6 per share, at the high end of previous guidance. The company cited strong demand and customers trading up to more expensive share classes as reasons for the more optimistic outlook.
American Equity Investment Life — The stock jumped 15% in premarket trading after Bloomberg reported Canadian investment firm Brookfield was close to making a deal to buy the insurance firm for approximately $4.3 billion.
Eli Lilly — Shares gained 1.5% in the premarket. Eli Lilly released clinical results Monday that showed its experimental drug retatrutide helped patients lose up to 24% of their weight after almost a year.

Host Hotels & Resorts — Shares fell nearly 2% following a downgrade by Morgan Stanley to underweight from equal weight. The Wall Street firm said it expects deteriorating trends in key markets and higher competitive supply versus its peer group.
— CNBC’s Sarah Min, Brian Evans, Jesse Pound and Michael Bloom contributed reporting. More

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.
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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.
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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