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    KKR says China’s real estate correction may only be halfway done

    China’s real estate troubles are likely far from over and industry problems need to be addressed quickly for GDP growth to rise significantly, according to KKR.
    Based on comparisons to housing corrections in the U.S., Japan and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the report said.
    China’s GDP can grow by 4.7% this year thanks to growth in new industries, while real estate and Covid-related factors account for a drag of 1.4 percentage points, the report said.

    High-rise buildings are illuminated at night in the West Coast New Area of Qingdao, East China’s Shandong province, on March 22, 2024. 
    Nurphoto | Nurphoto | Getty Images

    BEIJING — China’s real estate troubles are likely far from over and industry problems need to be addressed quickly if overall GDP growth is to pick up significantly, according to a report released Thursday by global investment firm KKR.
    That’s one of the two key takeaways from a recent trip to China by the firm’s head of global and macro asset allocation, Henry H. McVey. It was his fourth visit in just over a year.

    “A fundamentally overbuilt real estate industry needs to be addressed — and quickly,” he said in the report, which counts Changchun Hua, KKR’s chief economist for Greater China, among the co-authors.
    “Second, confidence must be restored to drive savings back down,” McVey said, noting that would spur consumers and businesses to spend on upgrading to higher quality products, as Chinese authorities have promoted.
    Real estate and related sectors once accounted for about one fifth or more of China’s economy, depending on the breadth of analysts’ calculations. The property industry has slumped in the last few years after Beijing’s crackdown on developers’ high reliance on debt for growth.
    Based on comparisons to housing corrections in the U.S., Japan and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the KKR report said.
    “Both price and volume must come under pressure to finish the cleansing cycle,” the report said. “To date, though, it has largely been a contraction in volume.”

    While KKR’s report didn’t provide much detail on expectations for specific real estate policy, the authors said more action by Beijing to improve China’s real estate sector “could materially shift investor perception.”
    Amid geopolitical tensions, the country’s property market slump and drop in stocks have given many foreign institutional investors pause about China investing.
    “According to some of our proprietary survey work, many allocators have considered reducing China exposure to 5-6%, down from 10-12% today at a time that we think fundamentals in the economy are likely bottoming,” the KKR report said.
    Much of official Chinese data to start the year beat analysts’ expectations.
    Chinese officials have said the real estate sector remains in a period of adjustment, while Beijing shifts its emphasis toward manufacturing and what it considers “high-quality development.”
    Authorities have also released policies to promote financial support for select property developers, while many local governments — though not necessarily the largest cities — have significantly relaxed home purchase restrictions.

    Real estate’s drag to moderate

    KKR expects a modest slowdown in China’s GDP growth to 4.7% this year, and 4.5% next year, with real estate and Covid-related factors halving their drag on the economy from 1.4 percentage points in 2024 to a 0.7 percentage point drag in 2025.
    “Our bottom line is that: with the ongoing [property] correction as well as some potential further policy support, we think the drag to [the] overall economy should moderate a bit over the next few years,” McVey said in a separate statement. He is also chief investment officer of KKR Balance Sheet.

    Catering, accommodation and wholesale are set to modestly increase their contribution to growth in the next two years, while digitalization and the shift toward more carbon-neutral, green industry are expected to remain the largest drivers of growth, according to the report.
    For investors, the report said a more important development than China’s GDP increase would be whether authorities could make it easier for businesses and households to tap capital markets.
    “Repairing soft spots in [the] economy, especially around housing, will ultimately improve the cost of capital, and will also allow new consumer companies to access the capital markets likely at better prices if real estate and confidence are doing better,” McVey said in the statement.
    Beijing in March announced a GDP target of around 5% for this year. Minister of Housing and Urban-Rural Development Ni Hong said last month that developers should go bankrupt if necessary and that authorities would promote the development of affordable housing.
    Recent data have pointed to some stabilization in the property sector slowdown. The seven-day-moving average of new home sales in 21 major cities fell by 34.5% year-on-year as of Monday, better than the 45.3% drop recorded a week earlier, according to Nomura, citing Wind Information.
    Compared with the same period in 2019, that sales average was only down by 27.8% as of Monday, versus a 47% drop a week earlier, Nomura said, noting most of the improvement was in China’s biggest cities.

    Consumer outlook

    KKR said most of its local portfolio is in consumer and services companies, whose business reflect how Chinese people in the middle to higher income range are spending modestly to upgrade their lifestyles.
    “Top line growth is solid, margins are holding, and consumers are spending on less conspicuous items such as ‘smart homes,’ pets, and recreational activities,” the report said. “Domestic travel is also strong.”
    Retail sales rose by a better-than-expected 5.5% year-on-year in January and February, boosted by significant growth in Lunar New Year holiday spending.
    Longer term, KKR still expects that China can follow historical precedent in changing policy to be “more investor friendly.”
    “While our message is not an all-clear signal to lean in,” the report said, “it is a reminder – using history as our guide – that, if China does adjust its domestic policies to be more investor friendly (especially as it relates to supply side reforms), this market could rebound significantly from current levels.” More

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    Fed’s Powell emphasizes need for more evidence that inflation is easing before cutting rates

    Federal Reserve Bank Chair Jerome Powell speaks during the Stanford Business, Government and Society Forum at Stanford University on April 03, 2024 in Stanford, California. 
    Justin Sullivan | Getty Images

    Federal Reserve Chairman Jerome Powell said Wednesday it will take a while for policymakers to evaluate the current state of inflation, keeping the timing of potential interest rate cuts uncertain.
    Speaking specifically about stronger-than-expected price pressures to start the year, the central bank leader said he and his fellow officials are in no rush to ease monetary policy.

    “On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Powell said in remarks ahead of a question-and-answer session at Stanford University.
    “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent,” he added. “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”
    The remarks come two weeks after the rate-setting Federal Open Market Committee again voted to hold benchmark short-term borrowing rates steady. In addition, the committee’s post-meeting statement on March 20 included the “greater confidence” qualifier needed before cutting.

    ‘Bumpy path’

    Markets widely expect the FOMC to start easing policy this year, though they have had to recalibrate their outlook for the timing and extent of cuts as inflation has held stubbornly higher. Other economic variables, particularly in the labor market and consumer spending, have held up as well, giving the Fed time to assess the current state of affairs before moving.
    The Fed’s preferred inflation measure, the personal consumption expenditures price index, showed a 12-month rate of 2.5% for February, or 2.8% for the pivotal core measure that excludes food and energy. Virtually all other inflation gauges show rates in excess of 3%.

    “Recent readings on both job gains and inflation have come in higher than expected,” Powell said. “The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”
    Other Fed officials speaking this week have made remarks consistent with the Fed’s patient approach.
    Atlanta Fed President Raphael Bostic told CNBC on Wednesday that he thinks just one cut might be in the offing as prices of some important items have turned higher. San Francisco Fed President Mary Daly said three cuts is a “reasonable baseline” but noted there are no guarantees, while Cleveland’s Loretta Mester also said cuts are likely later this year while adding that rates over the longer term may be higher than anticipated. All three are FOMC voters.
    Powell reiterated that decisions are being made “meeting by meeting” and noted only that cuts are “likely to be appropriate … at some point this year.”
    The uncertainty about rates has caused some consternation in markets, with stocks falling sharply earlier this week as Treasury yields moved higher. The market stabilized Wednesday, but traders in the fed funds futures market again repriced their rate expectations, casting some doubt on a June cut as the market-implied probability moved to about 54% at one point, according to CME Group data.

    Election ahead

    Along with his comments on rates, Powell spent some time discussing Fed independence.
    With the presidential election campaign heating up, Powell noted the importance of steering clear of political issues.
    “Our analysis is free from any personal or political bias, in service to the public,” he said. “We will not always get it right — no one does. But our decisions will always reflect our painstaking assessment of what is best for our economy in the medium and longer term — and nothing else.”
    He also talked about “mission creep,” specifically as it relates to some demand for the Fed to get involved in climate change issues and the preparations financial institutions take for related events.
    “We are not, nor do we seek to be, climate policymakers,” he said.
    Correction: Powell’s remarks come two weeks after the Federal Open Market Committee again voted to hold rates steady. An earlier version misstated the timing. Raphael Bostic is president of the Atlanta Fed. An earlier version misstated the city.

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    Half of adults globally are stressed about their finances, and inflation is a key reason


    At least half of adults in a range of major economies said they were stressed about their personal finances, the International Your Money Financial Security Survey conducted by SurveyMonkey found.
    Half of adults in Australia, Germany and the U.K. said they were worse off than they were five years ago.
    Of adults who considered themselves middle class, between 45% and 62% said they were “living paycheck to paycheck.”

    Roughly half of adults are stressed about personal finance, a new survey spanning various advanced economies found.
    D3sign | Moment | Getty Images

    At least half of adults in a range of major economies report being stressed about their personal finances, and say inflation is one of the main reasons.
    A significant number also say they feel worse-off financially than their parents, and are pessimistic about their children’s financial futures, the International Your Money Financial Security Survey conducted by SurveyMonkey found.

    In the U.S., Australia, Spain and Mexico, around 70% of adults said they were “very or somewhat stressed” about money. The percentage reduced slightly to 63% in the U.K., 57% in Germany, 55% in Switzerland, and roughly half of people in Singapore and France.

    As part of its National Financial Literacy Month efforts, CNBC will be featuring stories throughout the month dedicated to helping people manage, grow and protect their money so they can truly live ambitiously.

    Across those countries, between a half and two thirds of people said they considered themselves to be part of the middle class — except in the U.K., where it was a lower 37%.
    Yet despite the middle classes traditionally being considered financially comfortable, between 45% and 62% of those who put themselves in that group described themselves as “living paycheck to paycheck.”

    Half of adults in Australia, Germany and the U.K. said they were worse off than they were five years ago.
    Meanwhile, of the countries surveyed, only adults in Singapore and Mexico were more likely than not to say they were better-off financially than their parents.

    Inflation was widely cited as the source of financial stress, along with a lack of savings, economic instability and rising interest rates.
    The study of 4,342 adults was carried out in March and released on Wednesday,
    “The health of the global economy, though muted in some areas, is not being reflected in the perceptions of the average person … Despite the performance of the economy writ large, roughly half of adults are stressed about their personal finances in every country studied around the world,” said Eric Johnson, CEO of SurveyMonkey, in an accompanying article.
    Global economic growth is slowing yet most developed economies have avoided the recessions that were forecast amid high inflation and interest rate hikes. Labor markets have proved resilient, but numerous surveys have suggested grim sentiment among consumers who have been hit hard by price rises in household bills and everyday goods. More

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    Fed officials still expects rate cuts this year, but not anytime soon

    Cleveland Fed President Loretta Mester said Tuesday she still expects interest rate cuts this year but ruled out the next policy meeting in May.
    Mester also thinks the long-run federal funds rate will be higher than the long-standing expectation of 2.5%. Instead, she sees the so-called neutral or “r*” rate at 3%.
    San Francisco Fed President Mary Daly said that three reductions this year is a “very reasonable baseline” though she said nothing is guaranteed.

    Cleveland Federal Reserve President Loretta Mester said Tuesday she still expects interest rate cuts this year, but ruled out the next policy meeting in May.
    Mester also indicated that the long-run path is higher than policymakers had previously thought. Her fellow policymaker, San Francisco Fed President Mary Daly, also said Tuesday she expects cuts this year but not until there’s more convincing evidence that inflation has been subdued.

    The central bank official noted progress made on inflation while the economy has continued to grow. Should that continue, rate cuts are likely, though she didn’t offer any guidance on timing or extent.
    “I continue to think that the most likely scenario is that inflation will continue on its downward trajectory to 2 percent over time. But I need to see more data to raise my confidence,” Mester said in prepared remarks for a speech in Cleveland.
    Additional inflation readings will provide clues as to whether some higher-than-expected data points this year either were temporary blips or a sign that the progress on inflation “is stalling out,” she added.
    “I do not expect I will have enough information by the time of the FOMC’s next meeting to make that determination,” Mester said.
    Those remarks come nearly two weeks after the rate-setting Federal Open Market Committee again voted to hold its key overnight borrowing rate in a range between 5.25%-5.5%, where it has been since July 2023. The post-meeting statement echoed Mester’s remarks that the committee needs to see more evidence that inflation is progressing toward the 2% target before it will start reducing rates.

    Mester’s comments would seem to rule out a cut at the April 30-May 1 FOMC meeting, a sentiment also reflected in market pricing. Mester is a voting member of the FOMC but will leave in June after having served the 10-year limit.
    Futures traders expect the Fed to start easing in June and to cut by three-quarters of a percentage point by the end of the year.
    San Francisco Fed President Daly said that three reductions this year is a “very reasonable baseline” though she said nothing is guaranteed. Daly also is an FOMC voter this year.
    “Three rate cuts is a projection, and a projection is not a promise,” she said, later adding, “We’re getting there, but it’s not going to be tomorrow, but it’s not going to be forever.”
    While looking for rate cuts, Mester said she thinks the long-run federal funds rate will be higher than the long-standing expectation of 2.5%. Instead, she sees the so-called neutral or “r*” rate at 3%. The rate is considered the level where policy is neither restrictive nor stimulative. After the March meeting, the long-rate rate projection moved up to 2.6%, indicating there are other members leaning higher.
    Mester noted the rate was very low when the Covid pandemic hit and gave the Fed little wiggle room to boost the economy.
    “At this point, we are seeking to calibrate our policy well to economic developments so we can avoid having to act in an aggressive fashion,” she said.

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    SEC Chair Gary Gensler signals that disclosure will be a key issue in the year ahead

    U.S. Securities and Exchange Commission chairman Gary Gensler testifies during a Senate Banking Committee hearing on Capitol Hill September 12, 2023 in Washington, DC.
    Drew Angerer | Getty Images

    The annual two-day “SEC Speaks” event kicked off Tuesday, offering clues to what the priorities will be for the Securities and Exchange Commission in the coming year.
    Sponsored by the Practicing Law Institute, it is a forum where the SEC provides guidance to the legal community on rules, regulations, enforcement actions and lawsuits. The event allows the SEC to get its main messages across, and this year a key issue is “disclosure.”

    “[W]e have an obligation to update the rules of the road, always with an eye toward promoting trust as well as efficiency, competition, and liquidity in the markets,” SEC Chair Gary Gensler said in his introduction to the conference. Besides Gensler, all the SEC division heads and senior staff will be speaking.
    Based on Gensler’s introductory remarks, there will be discussions about the upcoming move to shorten the securities settlement cycle from two days to one (T+1, which takes place May 28), the expansion of the definition of an exchange to include more recent trading platforms (like request-for-quote, or RFQ, electronic trading platforms), consideration of a change in the current one-penny increment for quoting stock trades to sub-penny levels, creation of a best execution standard for broker-dealers, and creation of more competition for individual investors orders (so-called payment for order flow).

    The SEC’s mission

    You often hear SEC officials say the role of the SEC is to “protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.”
    That sounds like a pretty broad mandate, and it is. Deliberately so. It came out of the disaster of the 1929 stock market crash, which was the initial event in the greatest economic catastrophe of the last 100 years: the Great Depression.
    Prior to 1933, and particularly in the 1920s, all sorts of securities were sold to the public with wild claims behind them, much of which were fraudulent. After the crash of 1929, Congress went looking for a cause, and fraudulent claims and lack of disclosure were high on the list.

    Congress then passed the Securities Act of 1933, and the following year passed the Securities Exchange Act of 1934, which created the SEC to enforce all the new laws. It also required everyone involved in the securities business (mainly brokerage firms and stock exchanges) to register with the SEC.
    The 1933 Act did not make it illegal to sell a bad investment. It simply required disclosure: all relevant facts about an investment were supposed to be disclosed, and investors could make up their own minds.
    The 1933 Act was the first major federal legislation to regulate the offer and sale of securities in the United States. This was followed by the Investment Company Act of 1940, which regulated mutual funds (and eventually ETFs), and the Investment Advisers Act of 1940, which required investment advisers to register with the SEC.

    On the agenda

    Tuesday’s conference is a chance for Gensler and his staff to tell everyone what they are doing in greater detail. The agency has six divisions, but they can be boiled down to disclosure, risk monitoring and enforcement.
    Risk monitoring. To fulfill its mandate to protect investors, it’s critical to understand what the risks to investors are. There is an economic and risk analysis division that does that.
    Disclosure. At the heart of the whole game is disclosure. That is the original requirement of the 1933 Act. The SEC has a division of corporation finance to make sure that Corporate America provides disclosures on issues that could materially affect companies. This starts with an initial public offering and continues when the company becomes publicly traded.
    There’s also a division of examinations that conducts the SEC’s National Exam Program. It’s just what it sounds like. The SEC identifies areas of high concern (cybersecurity, crypto, money laundering, climate change, etc.) and then monitors Corporate America (investment advisers, investment companies, broker-dealers, etc.) to make sure they are in compliance with all the required disclosures. Current hot topics include climate change, crypto and cybersecurity.
    The problem is that the definition of what should be disclosed has evolved over the decades. For example, there is a bitter legal fight brewing over the recent enactment of regulations requiring companies to disclose climate risks. Many contend this was not part of the original SEC mandate. The SEC disagrees, arguing it is part of the mandate to “protect investors.”
    Enforcement. The SEC can use the information they gather to make policy recommendations, and if they feel a company is not in compliance, they can also refer them to the dreaded division of enforcement.
    These are the cops. They conduct investigations into securities laws violations, and they prosecute the civil suits in the federal courts. This division will be providing an update on the litigation the SEC is involved in, which is growing.
    Mutual funds, ETFs and investment advisers. We’ll also hear from the division that monitor mutual funds and investment advisers. Most people invest in the markets through an investment advisor, and they usually buy mutual funds or ETFs. This is all governed by the Investment Company Act of 1940 and the Investment Advisers Act of 1940. There’s a division of investment management that monitors all the investment companies (that includes mutual funds, money market funds, closed-end funds, and ETFs) and investment advisers. This division will be sharing insights on some of the new disclosure requirements that have been enacted in the past couple years, particularly rules adopted in August 2023 for advisers to private funds.
    Trading. Finally, the division of trading and markets monitors everyone involved in trading: broker-dealers, stock exchanges, clearing agencies, etc. We can expect updates on record-keeping requirements, shortening the trading cycle (the U.S. goes to a one-day settlement from a three-day settlement on May 28, which is a big deal), and short sale disclosure.

    Did we mention SPACs?

    Donald Trump will likely not come up at the conference, but the SEC in January considerably tightened the rules around disclosure of special purpose acquisition companies, or SPACs. Trump’s company, Truth Social, went public on March 22 through a merger with a SPAC known as Digital World Acquisition Corp. It is now trading as Trump Media & Technology (DJT), and it made disclosures Monday that caused the stock to drop about 22%.
    Prior to the recent rule changes, executives marketing a company to be acquired by a SPAC often made wild claims about the future profitability of these businesses — claims that would never have been possible to make had a traditional initial public offering route been used. The new SPAC rules that the SEC adopted made the target company legally liable for any statement made about future results by assuming responsibility for disclosures.
    Additionally, companies are provided with a “safe harbor” protection when they make forward-looking statements, which provide them with protection against certain legal liabilities. However, IPOs are not afforded this “safe harbor” protection, which is why forward-looking statements in an IPO registration are usually very cautiously worded.
    The rules clarified that SPACs also do not have “safe harbor” legal protections for forward-looking statements, which means the companies could more easily be sued.
    Like I said, Trump will likely not come up at the conference, but the message: “Disclosure!” will likely be the dominant refrain. More

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    Xiaomi shares pop 16% after the Chinese smartphone maker launches its first EV

    In a sign of how competitive China’s electric car market is, Xiaomi announced late Thursday that the SU7 would be priced at about $4,000 less than Tesla’s Model 3.
    Li Auto and Nio both trimmed first quarter delivery forecasts in late March.
    BYD remained the industry giant with 139,902 battery-powered passenger cars sold last month.

    A Xiaomi SU7 electric sedan is seen displayed at a regional HQ of Xiaomi in Nanjing in east China’s Jiangsu province. 
    Future Publishing | Future Publishing | Getty Images

    BEIJING — Shares of Chinese smartphone maker Xiaomi surged as much as 16% on Tuesday, the first trading day since the company launched its SU7 electric car ahead of the Easter holiday.
    Hong Kong-listed shares of Xiaomi touched 17.34 Hong Kong dollars on an intraday basis, its highest level since January 2022.

    In a sign of how competitive China’s electric car market is, Xiaomi announced late Thursday that the SU7 would be priced at about $4,000 less than Tesla’s Model 3, and claimed the new car would have a longer driving range.
    As of Tuesday morning, Xiaomi’s online store showed wait times of at least 5 months for a basic version of the SU7. The company had said it received orders for more than 50,000 cars in the 27 minutes since sales started at 10 p.m. Beijing time Thursday.

    Chinese EV startups Xpeng and Nio announced car purchase subsidies Monday of 20,000 yuan ($2,800) and 10,000 yuan each, respectively. Nio said the promotional deal followed the Chinese government’s policy efforts to promote consumption with trade-ins.
    The price reductions come as growth of new energy vehicles in the world’s largest auto market shows signs of slowing. Penetration of battery and hybrid-powered passenger cars has surpassed more than one third of new cars sold in China, according to the China Passenger Car Association.

    Li Auto, most of whose cars come with a fuel tank to extend driving range, said Monday it delivered 28,984 cars in March. While up from February, the figure is below Li Auto’s recent delivery streak. The company in late March cut its first quarter delivery estimate by more than 20,000 vehicles.

    Around the same time, Nio also trimmed its first quarter forecast by a few thousand cars. The company said Monday it delivered 11,866 cars in March.
    Xpeng delivered even fewer cars last month, at 9,026 vehicles.
    In contrast, Huawei’s new energy car brand Aito said it delivered 31,727 cars in March.
    BYD remained the industry giant with 139,902 battery-powered passenger cars sold in March, and 161,729 hybrid vehicles sold during that time. BYD’s total passenger car sales last month rose by nearly 14% from a year ago. More

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    Swiss banking giant UBS to launch share buyback of up to $2 billion

    “Our ambition is for share repurchases to exceed our pre-acquisition level by 2026,” it said.
    The new program comes after the completion of the 2022 buyback, which saw 298.5 million of it shares purchased.

    UBS logo is seen at the office building in Krakow, Poland on February 22, 2024.
    Jakub Porzycki | Nurphoto | Getty Images

    UBS on Tuesday announced a new share repurchase program of up to $2 billion, with up to $1 billion of that total expected to take place this year.
    “As previously communicated, in 2024 we expect to repurchase up to USD 1bn of our shares, commencing after the completion of the merger of UBS AG and Credit Suisse AG which is expected to occur by the end of the second quarter,” the bank said in a statement.

    “Our ambition is for share repurchases to exceed our pre-acquisition level by 2026.”
    The new program follows the completion of the 2022 buyback, during which 298.5 million of it shares were purchased. This represented 8.62% of its stock worth $5.2 billion, according to UBS.
    The bank’s 2022 share repurchase program concluded last month.

    Buybacks take place when firms purchase their own shares on the stock exchange, reducing the portion of shares in the hands of investors. They offer a way for companies to return cash to shareholders — along with dividends — and usually coincide with a company’s stock moving higher, as shares get scarcer.
    UBS has undertaken the mammoth task of integrating Credit Suisse’s business, after announcing in late March 2023 that former chief Sergio Ermotti would return for a second spell as CEO.

    Figures last week showed that Ermotti earned 14.4 million Swiss francs ($15.9 million) in 2023, following his surprise return. The bank in February reported a second consecutive quarterly loss on the back of integration costs, but continued to deliver strong underlying operating profits.
    Shares are up more than 6% so far this year.
    — CNBC’s Elliot Smith contributed to this article. More