Finance

In this articleDHILVSLUVNTGRUNPBlackstone Group office in Luxembourg.Geert Vanden Wijngaert | Bloomberg | Getty ImagesCheck out the companies making headlines in midday trading.DiDi – The Chinese ride-hailing giant’s shares shed more than 9% after Bloomberg News reported that Beijing is considering harsh penalties from a massive fine to even a forced delisting after its IPO last month. DiDi shares have fallen about 25% since its initial public offering at the end of June amid the regulatory pressure. China is conducting a cybersecurity review on the company after alleging that Didi had illegally collected users’ data.Blackstone Group — Shares of the investment firm jumped over 4% after Blackstone beat estimates on the top and bottom lines for the second quarter. The company reported 82 cents in earnings per share on $2.12 billion in revenue, with total assets under management rising 21% year over year. Analysts surveyed Refinitiv were looking for 78 cents in earnings per share and $1.84 billion in revenue. Southwest Airlines — The airline’s shares dipped more than 4% despite posting a second-quarter profit after getting federal aid. Excluding special items, the airline posted a wider loss than analysts expected. The Dallas-based airline’s sales rose nearly 300% from a year earlier to to $4 billion. That was still down 32% from $5.9 billion during the same time in 2019. Net income for the second quarter totaled $348 million, compared with a $915 million loss a year earlier. The airline also warned about higher fuel prices and costs related to bringing back employees from voluntary leave in the current quarter.Netgear –  Shares of the computer equipment maker tumbled more than 10% after the company reported lower than expected sales and revenue for its latest quarter. Netgear said supply chain constraints and factory closures due to the pandemic weighed on its performance. The company also gave guidance that fell short of analyst forecasts. Crocs — Shares of Crocs jumped over 5% after the shoemaker reported blowout second-quarter earnings. The company posted quarterly adjusted earnings of $2.23 earnings per share versus $1.60 expected, according to Refinitiv. Crocs also reported record revenue of $640.8 million. The shoemaker raised its full-year guidance amid strong demand.Las Vegas Sands — The casino giant’s share price dipped more than 3% after the company missed analysts’ expectations during the second quarter. Las Vegas Sands reported a loss of 26 cents per share excluding items on revenue of $1.17 billion. Analysts surveyed by Refinitiv were expecting a loss of 16 cents per share on $1.41 billion in revenue.Whirlpool — Whirlpool’s stock slid about 1.5% despite the company beating top and bottom line estimates during the second quarter. Whirlpool earned $6.64 per share on an adjusted basis, which was ahead of the expected $5.90, according to estimates from Refinitiv. Revenue also exceeded expectations, and the company raised its full-year guidance.Unilever – Unilever shares fell about 5% despite a better-than-expected earnings report for the second quarter. The consumer products giant said that an increase in commodity costs would hurt its full-year profit margins.MDH Acquisition Corp. — Shares of the black-check company rose 1.7% in midday trading following an announcement that Olive.com and PayLink Direct will merge with MDH to form a new publicly traded company. Olive.com — an online vehicle payment and protection platform — will be listed on the NYSE under the ticker “OLV.”D.R. Horton — Shares of the homebuilder dropped 2.3% despite beating on the top and bottom lines of its quarterly results. D.R. Horton earned $3.06 per share on revenue of $7.28 billion. Analysts expected earnings of $2.81 per share on revenue of $7.19 billion, according to Refinitiv.Union Pacific – The railroad stock jumped 1.4% after the company reported better-than-expected quarterly earnings. Union Pacific posted an EPS of $2.72 for the second quarter, ahead of a FactSet estimate of $2.55 per share. Revenue also came in above expectations.— with reporting from CNBC’s Yun Li, Jesse Pound, Pippa Stevens and Hannah Miao. More

LAST YEAR many South-East Asian countries were praised for preventing large outbreaks of covid-19, even as they recorded sharp declines in output. They have not escaped unscathed this year. While widespread vaccination may limit the spread and the severity of the Delta variant in much of the rich world, the vast majority of South-East Asians are still unjabbed. Indonesia, Malaysia, Myanmar and Thailand are reporting more cases than ever. New daily cases in Vietnam are three times higher than the annual total for 2020.High-frequency indicators suggest that the surge in cases has knocked economic activity. Daily mobility figures from Google suggest that people in Indonesia and Vietnam are spending more time at home than they did during the outbreaks of last summer. The most reliable indication of the scale of the economic impact may come from Malaysia, which was hit by a fresh outbreak a little before its neighbours. There the manufacturing purchasing-managers’ index, a gauge of activity in the sector, fell to 39.9 in June, the lowest since April 2020. (A figure below 50 indicates contraction.)On July 20th the Asian Development Bank (ADB) pared back its growth forecasts for South-East Asia. It now expects an expansion of 4% this year, compared with an earlier forecast of 4.4%. That may not sound so bad, given the scale of the public-health catastrophe. But it means that the region is no longer expected to return to its pre-pandemic level of output by the end of 2021. Some countries, moreover, will suffer much more than others. And they have fewer tools available to soften the blow.Vietnam has perhaps been luckiest. The country’s goods trade runs to 201% of its GDP, third-highest in the world after the free-trading ports of Hong Kong and Singapore. Burgeoning demand for consumer products from locked-down Westerners helped the country to one of the fastest recoveries in the world, and made it one of the few economies to expand in 2020. Though the ADB has trimmed its 2021 growth forecast for Vietnam, it is still among the highest in the region, at 5.8%.By contrast, Thailand has suffered without tourists, whose spending accounts for around a fifth of the country’s GDP. The economy shrank by more than 6% last year, and the ADB expects growth of only 2% this year. Faced with this dire economic picture, Phuket has reopened to some vaccinated foreign tourists, a move that Prayut Chan-o-cha, the Thai prime minister, described bluntly last month as a “calculated risk”. The decision by Indonesia’s government to ease lockdown restrictions from July 26th, while cases are still perilously close to their highs, likewise illustrates the difficult choices many middle-income countries face.Yet reopening at home alone cannot restore economic normality. The recent outbreaks have also dashed any remaining hope of the resumption of tourism from China. Chinese visitors made up between a quarter and a third of tourists in Cambodia, Myanmar, Thailand and Vietnam before the pandemic. Beijing’s reluctance to open its borders, which could persist well into next year or beyond, adds to the economic squeeze.Meanwhile, central banks in the region are less able to stoke domestic demand and cushion the impact of the outbreaks than they were when the pandemic began. Last year interest rates were slashed to historical lows in most emerging markets. Central banks in Indonesia and the Philippines even joined those in rich countries in pursuing modest bond-buying schemes. Nothing similar seems likely this time. Currencies across the region have stumbled, with selloffs accelerating in the past month. In May Thailand ran its widest current-account deficit in eight years, leaving the country little room to lower interest rates, for fear of discouraging foreign capital. The combination of more covid-19 and less policy space will make the climb back to normality far more arduous than it looked even a few months ago. ■Dig deeperAll our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.This article appeared in the Finance & economics section of the print edition under the headline “Hemmed in” More

SO MUCH IS unfamiliar about the pandemic that it has never been easy to make sense of what is going on. Yet in recent days uncertainty has gone into overdrive. Stockmarkets are volatile; uncertainty about the path of inflation and labour markets is high. The fate of the economic recovery seems to hinge on the answers to a number of big questions. Will the spread of the Delta variant of the coronavirus derail the global recovery? Will underlying weaknesses be revealed as governments unwind stimulus? How enthusiastic are households and firms about spending? But the answers are unclear. And four gauges of the recovery—market prices, “high-frequency” activity indicators, hard data and economists’ forecasts—are all giving mixed signals.Start with markets. America’s Treasuries are a haven in uncertain times. In March investors sold them off as they took fright at rising inflation, pushing the ten-year Treasury yield up to 1.7%. But it has slowly slipped back since, as doubts about the continued strength of the economic recovery have taken hold. The growth scare seemed to intensify on July 19th, when the ten-year yield dipped to 1.19%. The S&P 500, America’s main stock index, fell by 1.6%, with smaller companies hit hardest. Commodity prices also took a knock. That of Brent crude oil fell by 7% to $69 a barrel. The dollar strengthened against other rich-world currencies.All this seems consistent with concerns about the recovery and, in particular, a reassessment of what is known as the “reflation trade”, where investors buy assets most likely to benefit from an economic upswing. Yet by the next day the growth scare had seemingly blown over. Stockmarkets reversed their fall. The oil price and bond yields recovered a little.High-frequency data present a similarly muddled picture. Global mobility measures are still edging up, according to a recent report by JPMorgan Chase, a bank, suggesting continued growth in GDP. Yet Britain, the first big, rich country to be hit hard by the Delta variant, is telling a different story. Our “economic-activity index” for the country, using Google data on visits to workplaces, transit stations and sites of retail and recreation, has dropped by about 5% since peaking in June (and there is little sign of greater mobility from July 19th onwards, when England lifted all domestic covid-19 restrictions). The British story seems likely to set a trend to a degree. In America surveys suggest that the uptick in coronavirus infections linked to the Delta variant has been accompanied by a pickup in people’s reported fear of the virus.The hardest sort of data—releases from official statistical agencies—do not yet reflect the impact of rising covid-19 infections. But they also give contradictory signals. Measures of economic “surprise” in activity indicators (ie, a comparison of the published numbers with economists’ forecasts) still look fairly positive, especially in Europe. Housebuilding in America is proving more vigorous than almost anyone expected; Britain’s government is borrowing less than economic forecasters thought it would, a sign of a decent recovery in tax receipts. But there have also been disappointments. In America, for instance, the University of Michigan’s index of consumer sentiment declined in July, against expectations of an increase.Owing in part to the movements in activity indicators, economists’ revisions to their expectations of GDP growth—our fourth measure—also send mixed messages. Analysts at JPMorgan reckon that American output will rise at an annual rate of 4.3% in July, which is lower than what they had forecast a week ago (yet represents an acceleration compared with the month of June). Economists at Goldman Sachs, another bank, see downside risks to the global economy but still expect a robust recovery in 2021.Bring all this together and the picture is one of increasing uncertainty about whether or not the global economic recovery carries on at a rapid clip. In the rich world consumers are still sitting on piles of hoarded savings, and workers are in high demand. Yet the biggest rebound in activity, flattered by a favourable comparison with last year’s lockdown-induced depths and, in America, generous stimulus cheques, has passed. In its place are niggling doubts about whether the recovery can be sustained. Governments’ emergency stimulus programmes are coming to an end. There are growing fears that, as the Delta variant of the coronavirus spreads, the resurgence in cases could impinge on economic growth, especially in places with large unvaccinated populations. The following two stories consider each of those worries in turn. ■This article appeared in the Finance & economics section of the print edition under the headline “Mixed messages” More

NOWADAYS THE Bank of England, like most rich-country central banks, has two main functions: maintaining monetary stability and ensuring the soundness of the financial system. For most of its life, though, it was also responsible for managing government debt. (Thankfully, the original reason for the bank’s creation in 1694, to raise money for “carrying on the war against France”, fell by the wayside.) That function was only hived off to the newly created Debt Management Office (DMO) in 1997, when the bank was given free rein over monetary policy. But in the past decade the bank’s successive rounds of quantitative easing (QE), whereby it creates new money to buy bonds, have left it holding more than a third of the government’s entire stock of debt. That has, awkwardly, dragged it back into the realm of public-debt management.Britain ran a fiscal deficit of 14.3% of GDP in the latest financial year, higher than in any peacetime year on record and comparable to the wartime borrowing of 1914-18 or 1939-45. The stock of government debt has risen from around 80% of GDP before covid-19 to 100%. The pandemic is the second fiscal shock in little over a decade, after the global financial crisis of 2007-09. As the experience of managing debt after war shows, the divisions between fiscal and monetary policy can often become hazy in times of high public debt and wide deficits, and especially so during crises.Policy pick ‘n’ mixBritain’s government debt to GDP over the past century tells a dramatic but familiar story. The huge borrowing of the two world wars is clearly visible, as is the impact of the banking crisis and the pandemic. Looking at servicing costs changes that dramatic narrative. Despite a large increase in debt in the second world war, the burden on taxpayers of servicing that debt fell compared with the 1920s. In the latest financial year debt rose to its highest since the early 1960s but the ratio of interest costs to tax receipts dropped to new lows (see chart). Understanding the varying relationship between debt levels and interest costs means looking at how the functions of fiscal and monetary policy have varied over time.The first world war may have ended in a military victory for Britain but it was also a fiscal disaster. Interest rates rose, enticing investors into buying gilts. The 1917 War Loan, a bond issued by the government, came with a yield of 5%, compared with a pre-war norm of under 3%. This left a toxic legacy for the 1920s, especially as much of the borrowing was short-term and left the Treasury exposed to rising interest rates. Monetary policy in that decade was primarily concerned with returning sterling to the gold standard. The result was higher interest rates than needed for domestic purposes, which not only depressed demand and employment but added to soaring interest costs for the Treasury.The fiscal crisis of the 1920s and 1930s cast a long shadow, leading things to take a different course during the second world war. John Maynard Keynes outlined his plans for a “three per cent war”. The “business-as-usual” approach that had characterised the early years of the first world war was entirely absent in the second. Monetary policy was made subservient to debt management and the purpose of the Bank of England became to help finance war.Debt management remained central to monetary policy between the 1940s and the mid-1970s. Interest rates were set with an eye on sustaining the public-debt burden, and fiscal policy took the lead in trying to stabilise the economy. Central banks were, in other words, subject to what economists call “fiscal dominance”. Real interest rates were negative for more than half of the period 1945-80, thanks in part to high inflation. A 2011 paper by Carmen Reinhart and Belen Sbrancia found that such financial repression—a combination of negative real rates with capital controls and the use of prudential powers to force domestic investors to hold public debt—accounted for most of the reduction in the debt ratio after 1945. Similar policies were pursued in America and much of Europe.Only in the late 1970s and 1980s, as concerns about inflation intensified, did British monetary policy downplay the importance of debt management in setting interest rates. By the late 1990s a new framework was in place. Monetary policy, set by an independent central bank, would target inflation and stabilise the economy. Debt management would be handled by the DMO. For as long as the debt stock remained low, this separation appeared to work well.Those low-debt days now seem like a distant memory, however. The question of the roles of monetary and fiscal policy therefore looms again. Suborning monetary policy to fiscal needs can make managing public debt much less painful. A spell of low or even negative real interest rates may well provoke fewer political problems than years of tight spending and high taxes. But while austerity is not popular, nor was the inflation that accompanied financial repression. Independent central banks stabilised inflation expectations in the 1990s and 2000s. That hard-won credibility would vanish if investors thought that helping the government meet its bills was the main job of monetary policy.Worryingly, some investors already seem to believe that the monetary-fiscal separation has broken down in Britain. A survey by the Financial Times of the 18 largest gilt managers in January 2021 found that most believed that the main aim of QE was to lower government-borrowing costs. Cynics note that monthly asset purchases by the Bank of England between April and December last year almost exactly tracked DMO issuance. Andy Haldane, the Bank of England’s departing chief economist, warned in June of the risk of “fiscal dominance”. On July 16th a House of Lords committee, led by Lord Mervyn King, a former governor of the Bank of England, branded QE “a dangerous addiction”, arguing that the trade-offs involved were only acceptable as a temporary measure.The fears are understandable. The subordination of monetary policy to fiscal needs is not inevitable, but history suggests that when debt is high the temptation will always be strong. The central bank could do more to reassure investors that it is not bending to political pressure. It could start by more openly setting out the rationale for QE, and outlining its plans for an eventual exit. ■This article appeared in the Finance & economics section of the print edition under the headline “War and peace” More

WHEN The Economist introduced its Big Mac index 35 years ago, the ubiquitous McDonald’s hamburger cost just $1.60 in America. Now it costs $5.65, according to an average of prices in four cities. The increase comfortably outstrips inflation over the same period.Indeed, the Big Mac’s birthplace is one of the priciest places to buy it, according to our comparison of over 70 countries around the world (see chart). In Vietnam, for example, the burger costs 69,000 dong. Although that sounds like an awful lot, you can get a lot of dong for your dollar and, therefore, a lot of bang for your buck in Vietnam. You can buy 69,000 dong for only $3 on the foreign-exchange market. And so a Big Mac in Vietnam works out to be 47% cheaper than in America.Good to know. But the index was intended not as a shopper’s guide to burgers but as a tongue-in-cheek guide to currencies. In principle, the value of a currency should reflect its power to buy things, according to the doctrine of “purchasing-power parity”, a term coined by Gustav Cassel, a Swedish economist, in 1918. Since 69,000 dong and $5.65 have the same power to buy a burger, they should be worth the same amount. The fact that you can buy a burger’s worth of dong for 47% less than a burger’s worth of dollars suggests the dong is undervalued.America’s Treasury certainly thinks so. Twice a year it reports to Congress on countries that might be keeping their currencies artificially cheap to boost exports and steal a competitive edge. In April it confirmed that Vietnam was one of a trio of trading partners, alongside Switzerland and Taiwan, pursuing “potentially unfair” currency practices, based on three tests of its devising. (Vietnam has a “significant” trade surplus with America, a “material” external surplus with the world, and its central bank buys a lot of dollars and other foreign currencies.) In recent months, America’s Treasury has been browbeating Vietnam to mend its ways, a process known as “enhanced engagement”.On July 19th the two sides reached a deal. Vietnam’s central bank promised not to indulge in competitive devaluation. It also said it would gradually let the currency fluctuate more freely and it would be more open about its interventions in the currency markets. With luck this will avert harmful tariffs or any similar enhancements of the two countries’ engagement.Lest the Big Mac index contribute to Vietnam’s difficulties, it is worth pointing out that it is common for poor countries to seem cheap relative to rich ones in any simple comparison of prices. Vietnam is not an outlier in this regard. The price of a burger is about what you would expect given the country’s GDP per person. (Taiwan, another country on the Treasury’s naughty step, is a different case. It remains surprisingly cheap, given how prosperous it has become. And Switzerland seems expensive by any measure.)The cheapest burger we could find is in Lebanon. Although the price of a Big Mac has increased spectacularly to 37,000 Lebanese pounds, the currency has collapsed even more dramatically on the black market, where 22,000 pounds buy a dollar.As a consequence, the Big Mac costs the equivalent of only $1.68. One reason the burger has remained so cheap may be that Lebanese importers can purchase some of the Big Mac’s ingredients at a more favourable, subsidised exchange rate. They can buy a dollar’s worth of wheat, for example, for 1,500 pounds and other foodstuffs, including cheese, at a rate of 3,900. Lebanon’s currency chaos is both a reflection of its economic disaster and a contributor to it. Even at an artificially low price, a Big Mac is small consolation. ■This article appeared in the Finance & economics section of the print edition under the headline “The happiest meal” More

IN FINANCE there are numbers people and stories people. Quants are archetypal numbers people: they only buy securities that fit statistical criteria. Venture capitalists are stories people. They have to be. They provide finance to technology startups that may have great potential but do not—or do not yet—have the numbers to back it up. Nothing speaks of potential quite like India with its vast, young, tech-savvy population. And no venture-capital story is quite as seductive as Indian tech.A flood of foreign money is washing into India’s startup scene. Flipkart, an e-commerce site, has just raised $3.6bn in a record-breaking funding round. There has been a wave of public listings this year, as fledglings take advantage of India’s buoyant stockmarket to raise capital and provide an exit for their venture-capital backers. The recent initial public offering of Zomato, a food-delivery firm, was heavily oversubscribed. Paytm, a much-touted payments app, is due to list soon.This burgeoning interest in India owes a lot to the diminishing appeal of China, whose tech firms are facing a regulatory backlash. To outsiders, India seems like a younger, more freewheeling China. Look closer, though, and it does not live up to the billing.Start with what is meant by Indian tech. An ideal tech startup would give investors exposure to a couple of important elements. One is entrepreneurship. India is a hard place to make a living in. Every proprietor of a kirana (a small shop) has to overcome obstacles that would floor MBA-educated managers in richer places. India’s tough business climate thus breeds a certain commercial flair, which its best startups exhibit. The other element is engineering chops. India’s computing talent is in design rather than patent-level technology, says a Bangalore-based tech investor. But it is a distinctive edge. Add a dash of venture capital to these elements and, with luck, the result is a company with a true competitive advantage that can be exploited in India and beyond.In practice, however, the Indian tech firms that draw attention belong to one of two types. The first carries out routine tasks on behalf of businesses in the rich world. The big names here are Infosys and Tata Consultancy Services, the mainstay of Tata Group, a family-owned conglomerate. They are not purely tech; you might think of them as engaged in tech-enabled wage arbitrage. The second type is the copycat firm. These are versions of American or Chinese tech businesses that require an on-the-ground presence in the markets they operate in. So Flipkart is the Indian Amazon; Ola is the Indian Uber; and Paytm is the Indian Alipay. Much of the current enthusiasm is for copycat firms. This is a story that investors who are fairly new to venture capital seem happy to buy into. If a business model has made money for others elsewhere, it can make money for them in India.But can it? Flipkart was founded in 2007 by two software engineers who had worked at Amazon. The e-commerce market was then wide open. It isn’t anymore. Amazon itself entered the Indian market in 2013. India’s old conglomerates have woken up to the fact that their consumer franchises might be upended by startups. Reliance, one of India’s big business groups, has invested heavily in telecoms and broadband, and has a large network of supermarkets. Incumbency is an especially powerful force in Indian business. With it comes the lobbying power to tilt regulations in your favour.That is not the only hole in the story. India has a population that is similar in size to China’s. But it is a lot poorer. Average income per head is around $2,000 in current prices, compared with more than $10,000 for China. The average figure in India masks a hefty skew towards a wealthy elite. The vast majority of India’s workforce is not in formal employment and earns far less than the average. And despite the odd burst of impressive GDP growth, India is not obviously on a path to follow China’s rapid economic development. Its addressable market is a lot smaller.India has undeniable strengths, too, of course. Its computing and commercial talent makes it natural territory for venture capital. The potential to spawn game-changing startups is there. But the money flowing into venture capital worldwide is not really seeking originality. Like a Hollywood producer, it prefers to back variants of ideas that have already been hits. India is a decent story, but only a few will make decent money from it. The numbers just don’t add up.This article appeared in the Finance & economics section of the print edition under the headline “A tiger’s tale” More

“WE’RE GOING to make a lot of money,” says Ken LaRoe, chief executive of Florida’s Climate First Bank. That might seem like an unseemly boast from a traditional banker peddling conventional loans. But the lender aims to make its profits by financing green refrigeration, construction retrofits and other investments designed to help borrowers adapt to climate change. “Storm-hardening is getting to be a really big thing in Florida,” Mr LaRoe reckons, “which will be a nice lending opportunity for us.”The need for such spending is clear. The UN Environment Programme reckons that annual adaptation costs in poor countries alone are likely to rise from around $70bn today to $140bn-300bn in 2030, and twice that by 2050, in nominal terms. It seems likely that private investors will have to get more involved. According to the Climate Policy Initiative, an expert body, they contributed a paltry 2% to global adaptation spending in 2018. The apathy reflected, among other things, a lack of reliable data on climate risks and the perception that adaptation offers low returns. But the mood could be shifting, as Mr LaRoe’s enthusiasm suggests.There is reason to think that investing in climate adaptation can pay off handsomely, if only because not making such investments can cost companies. A study in 2019 by BlackRock, an asset manager, argued that property will be especially badly hit by the impacts of climate change. Beyond the immediate damage from storms and floods, it pointed to costlier or reduced insurance coverage, pricier energy, costs of installing backup generators and other emergency systems, and falling property prices in vulnerable areas.In hurricane-prone Florida a study of insurance data found that new buildings adhering to a stricter building code suffered far less damage, yielding $3.50 in benefits for every dollar in extra compliance costs. A recent report by the Global Commission on Adaptation (GCA), an NGO of worthies that include Bill Gates, identified $1.8trn in investments that could deliver net benefits of $7.1trn by 2030.It makes sense, then, that reinsurers are also banging the drum. Swiss Re reckons it is far cheaper to invest ahead of climate disaster than to pay to fix it afterwards. Boffins at Munich Re have co-written a recent paper showing that linking adaptation and insurance, for example by restoring coral reefs that reduce the damage done by subsequent storms, could lead to reduced premiums and a sixfold return on initial costs over 25 years.The trickle of investment into climate adaptation could turn into a torrent as companies are forced to disclose climate-related risks. The EU is moving towards mandatory disclosure. In America, President Joe Biden issued an executive order in May along the same lines, and the Securities and Exchange Commission is expected to unveil a related proposal soon.Investors are paying more attention. “If you are not protected against climate risk, you are probably going to get lower financial returns in future,” says Vivek Pathak of the International Finance Corporation, the private-sector arm of the World Bank. Natalie Ambrosio Preudhomme of Four Twenty Seven, an advisory firm, points to the emergence of resilience bonds, the proceeds of which must go to climate adaptation, as something that fits with “the investment strategies of many large institutional investors”. An issuance in 2019 by the European Bank for Reconstruction and Development was oversubscribed.Resilience-focused investment funds are emerging too. Sanjay Wagle, co-founder of Lightsmith Group, a private-equity firm, is ploughing money into technologies such as geospatial imaging, weather analytics and precision agriculture. On July 19th Generate Capital, an American private-equity fund focused on sustainable infrastructure, said it had raised $2bn, taking its balance-sheet to some $10bn. Scott Jacobs, the fund’s boss, insists that “we do not accept lower returns for investments with resilience benefits.” He points to his firm’s durable electric “microgrids” in Texas and California, which kept the power flowing and continued to earn revenues during recent outages caused by freezing weather and wildfires.Utilities firms may prove to be keenest on resilience of them all. Mr Wagle contrasts Pacific Gas & Electric, a northern Californian utility driven to bankruptcy in large part by its failure to prepare for wildfires and weather-related shocks, with Southern California Edison, its flourishing southern counterpart that is spending more than $1bn a year on resilience. BlackRock’s report analysed the climate exposure of 269 American utilities and found that the most resilient of them trade at a premium. “We believe this premium could increase…as the risks compound and investors pay greater attention to the dangers,” it concluded. Adaptation sceptics should note that its lead author was Brian Deese, now a top adviser to Mr Biden. ■This article appeared in the Finance & economics section of the print edition under the headline “Overlooked no more” More

An illustration showing the cryptocurrency bitcoin with a price chart in the background.STR | NurPhoto via Getty ImagesFunding for blockchain start-ups topped $4 billion for the first time in the second quarter, despite a sharp slump in cryptocurrency prices.Companies in the nascent industry raised a record $4.38 billion, according to data from analytics firm CB Insights, up more than 50% from the previous quarter and a nearly ninefold increase from the same period a year earlier.Blockchain is the underlying technology behind most cryptocurrencies. It’s essentially a digital ledger of virtual currency transactions which is distributed across a global network of computers.The largest financing round for a blockchain company in the second quarter was a $440 million investment in Circle, a payments and digital currency firm. Circle recently announced plans to go public through a $4.5 billion merger with a blank-check company.Ledger, which develops hardware wallets for people to store their digital currencies, attracted the second-biggest round in the quarter, raising $380 million. In a December interview, Ledger CEO Pascal Gauthier told CNBC the crypto market was maturing, with major institutional players getting involved.”In 2018, when we raised our last round, financial institutions were not in the game,” he said, adding that now, “every major financial institution in the world either has a plan or is working on a plan” to invest in crypto.The record funding highlights how investors are finding alternative ways to gain exposure to the crypto industry, by acquiring stakes in private start-ups developing technology for digital currencies and the distributed networks that underpin them.Venture investors appear unfazed by declining cryptocurrency prices. Bitcoin has more than halved in value since hitting an all-time high of nearly $65,000 in April, when U.S. crypto exchange Coinbase went public.Ether, the world’s second-biggest digital coin, has also fallen over 50% since notching a record high of more than $4,000 in May.”At the current rate, blockchain funding will shatter the previous year-end record — more than tripling the total raised back in 2018,” Chris Bendtsen, senior analyst at CB Insights, told CNBC.”Blockchain’s record funding year is being driven by the rising consumer and institutional demand for cryptocurrencies,” he added. “Despite short-term price volatility, VC firms are still bullish on crypto’s future as a mainstream asset class and blockchain’s potential to make financial markets more efficient, accessible, and secure.”Last month, Andreessen Horowitz launched a $2.2 billion cryptocurrency-focused fund. “We believe that the next wave of computing innovation will be driven by crypto,” the Silicon Valley venture capital firm wrote in a blog post.Fintech funding frenzyFunding for fintech companies as a whole also hit a new record. According to CB Insights, fintech start-ups raised an eye-watering $30.8 billion in the second quarter, up 30% from the previous quarter and almost triple the amount raised by fintechs in the second quarter of 2020.Europe’s fintech sector gained significant traction, with 50% of the top venture deals in the quarter going to European firms. The trend was boosted by growing interest from foreign investors in the continent’s fast-growing tech industry.German stock-trading app Trade Republic raised the biggest round in Europe, bagging $900 million from the likes of Sequoia Capital and Peter Thiel’s Founders Fund. Mollie, a Dutch rival to payments firms Square, Stripe and Adyen, netted $800 million.Private fintech valuations have also been climbing substantially, with Swedish buy-now-pay-later firm Klarna securing an almost $46 billion market value in June.This has led to fears of a potential bubble in fintech. Iana Dimitrova, CEO of U.K. fintech start-up OpenPayd, told CNBC the uptrend in private financing rounds was “detrimental to the long-term sustainability of our industry.” The average size of fintech deals grew 28% in the second quarter, according to CB Insights.Is fintech in a bubble?Another fintech boss, Stefano Vaccino of London-based Yapily, disagrees. “I wouldn’t see it as a bubble,” he said. “We have seen in the last 12 to 18 months an acceleration in financial services.” Andreas Weiskam, a partner at Yapily investor Sapphire Ventures, said it’s “a reflection of the great opportunity” in digital finance.Yapily, which raised $51 million in fresh funding this week, is one of many companies developing technology to advance a new movement in finance called open banking, which aims to open up banks’ data and payment initiation to fintechs and other third parties.Open banking has been gaining a lot of momentum lately, with Visa recently agreeing to acquire Tink, a Swedish open banking start-up, for $2.1 billion after failing to acquire Plaid, a similar firm in the U.S., due to regulatory pressure. Plaid went on to raise $425 million at a $13.4 billion valuation in an April funding round, while British rival TrueLayer raised $70 million.Meanwhile, a growing number of fintechs have been tapping the public markets for the first time, with 19 firms going public or announcing IPO plans in the second quarter.British money transfer Wise went public in London at an $11 billion valuation earlier this month, while a number of firms including Better.com, Dave, and Acorns announced plans to go public via mergers with special purpose acquisition companies, or SPACs.In the crypto world, virtual currency exchange Coinbase went public in a blockbuster Nasdaq debut in April. More