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10 big investment themes for 2020 according to BNP Paribas – Wealth Professional

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First, three for those investors that prefer a more conservative risk profile.

These include a shift from bonds to equities, which should be attractive for investors looking for steady income, but they will need to accept higher volatility than in the bonds market and invest for the long term.

Picking stocks in companies with high profitability, low gearing, and low profit variability should provide some defence to economic shocks.

And portfolio diversification is also recommended with a mix of low-risk and calculated-risk products.

Global trends
For investing to take advantage of global trends, the bank suggests hedging portfolios with safe-haven assets to mitigate the impact of a reversal of global trade.

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Digital Chamber Asks Court to Draw Line Between Investment Contracts and Assets in Telegram Case – Coindesk

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The Chamber of Digital Commerce, a blockchain advocacy group, wants a U.S. court to distinguish between an investment contract and the underlying asset used by Telegram during a 2018 initial coin offering (ICO).

The Digital Chamber submitted an amicus curiae brief – a filing made by someone who is not a party in the litigation – in Telegram’s ongoing fight in court with the U.S. Securities and Exchange Commission (SEC), which alleged the messenger platform violated securities law during its $1.7 billion ICO. The chamber urges the SEC to draw a clear line between investment contracts in general, which are treated as a security under federal law, and digital assets.

“Without a clear legal distinction between a transaction determined to be an investment contract and the digital asset that is the subject of the investment contract, these software developers, retailers, healthcare providers, advertising companies, and others may not be able to develop or use blockchain technology without unintentionally triggering the U.S. federal securities laws every time a digital asset is used as part of their network,” the brief says.

The chamber does not have a view on whether the sale of grams, Telegram’s token, is a securities transaction, it added. Rather, the group’s interest is “in ensuring that the legal framework applied to digital assets underlying an investment contract is clear and consistent.”

Telegram is scheduled to meet the SEC in court on Feb. 18 and 19 to discuss whether grams are securities. 

The brief was written by Lilya Tessler, the New York head of the FinTech and Blockchain group at Sidley Austin law firm.

The argument echoes Telegram’s own response to the SEC’s allegations, which insists that while the purchase agreements for the tokens were securities, grams themselves, once issued, will be utility tokens to be used in its new proof-of-stake blockchain.

“In Howey, specific orange groves sold pursuant to an investment contract were not themselves securities. On the premise that a digital asset that is the subject of an investment contract is not necessarily a security itself, the asset (a commodity) may simply be the subject of an ordinary commercial transaction,” the brief says, referencing the famous Supreme Court case often used to determine whether an investment is a security.

The brief warns that deeming any digital assets securities for the sole reason of being recorded digitally could mean “the companies operating these systems may need to become registered broker-dealers or another type of regulated financial institution or worse, subject to severe enforcement action.”

This, in turn, can push innovative businesses out of the U.S., the brief said.

“Like so many other types of assets (which will often be commodities), digital assets may be the subject of an investment contract without being a security,” the brief says, hinting that grams might not be unregistered securities, as the SEC believes, but a digital commodity. 

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Investment policy addresses climate change as key global issue of our time – UVic The Ring

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The University of Victoria is proposing to significantly reduce the carbon footprint of its $225 million short-term investment fund, resulting in divestment from high-carbon emitting companies, and increased investment in renewable energy and other clean technologies.

The recommendation follows months of research, meetings with student groups, and consultation with a range of stakeholders and external experts. It goes to the university’s Board of Governors for consideration Jan. 28.

The proposed policy for short-term investments will lower carbon emissions across the entire portfolio in all sectors by at least 45 per cent by 2030, in line with targets set by the UN’s Intergovernmental Panel on Climate Change (IPCC) and the Paris Climate Agreement that would limit rising global temperatures to 1.5 C.

Setting targets to substantially lower emissions throughout the portfolio is a more holistic way to accomplish the change needed across all sectors of the economy and to support the development of low-carbon technologies needed to significantly reduce the use of fossil fuels.

This is in comparison to alternative approaches such as outright divestment and disengagement with all fossil fuel companies.

“The university knows it has a critical role in responding to the climate crisis caused by excessive emissions of greenhouse gases due to human activity,” says Gayle Gorrill, vice-president of Finance and Operations, whose department worked on the policy options and organized education sessions with external experts for the board.

“While a target of 45 per cent is an ambitious goal that will challenge the university, we believe it was an important goal to set, and that this comprehensive approach will bring real and meaningful change.”

In recognition that climate change is the key global issue of our time, UVic is also embarking on an integrated and comprehensive Climate and Sustainability Action Plan across campus. Early discussions have been held about how to undertake this critical work with more details will be provided in the coming weeks.

This initiative will build on UVic’s world-leading research and academic programming related to climate change, sustainability and environmental stewardship, as well as its action plan for sustainable campus operations including building construction, energy and water use, transportation and waste management that has earned UVic a rating as one of North America’s most sustainable universities.

Gorrill said the administration appreciates the research and perspective of Divest UVic which has played an important role in engaging the university in the critical dialogue about how to address climate change as well as the efforts of faculty and members of administration who are committed to addressing the perils of a warming climate by working together to seek solutions.

Noting that based on data from the US that 80 per cent of greenhouse gas emissions come from the consumption of fossil fuels and 20 per cent from the production of fossil fuels, Gorrill said UVic’s approach broadly targets the release of greenhouse gases (GHG) by many different types of activities including consumer behaviour, deforestation or industrialization among others. 

In addition to materially lowering carbon emissions, the policy will allocate a portion of the funds to themed impact investments that align with the university’s Strategic Framework and further the UN Sustainable Development Goals. Impact investments seek to generate positive, measurable social and environmental impact along with financial return.

Investment opportunities would include Indigenous economic development, Passive House construction (the most rigorous global building standard for sustainability and energy efficiency), impact GICs, and green bonds among others.

Other elements of the policy include: becoming a signatory to the United Nations Principles of Responsible Investment; participating in activities to encourage carbon emission reductions; evaluating the portfolio for physical, liability and transition risks associated with climate change; and encouraging better disclosure of carbon emissions and climate-related risks.

The university identified sustainable futures as one of the six priorities in its Strategic Framework,2018 to 2023. In addition to the updated investment policy the university is continuing to review and renew its approach to sustainability in every domain—research, education, community engagement and campus operations in a comprehensive response to the challenges of climate change.

The draft policy is available for viewing as part of the public docket of the Board of Governor’s Jan. 28 meeting on the University Secretary’s website.

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Greater flexibility for financing and structuring foreign investment in China – International Tax Review

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In recent years the Chinese government has been steadily reducing restrictions on foreign investment in China. The number of industries that are off limits to foreign investment have been reduced. The remaining prohibited or restricted sectors are detailed in a Foreign Investment Negative List, while investment in restricted sectors can still go ahead with special approvals. The requirements for foreign investors to co-invest with Chinese joint venture partners are also being scrapped for many sectors.

China’s new Foreign Investment Law went into effect on January 1 2020. The new law notably provides that foreign investors can use the same forms of a Chinese legal entity as used by Chinese investors, while also improving intellectual property protection. In parallel with these developments, China’s State Administration of Foreign Exchange (SAFE) recently rolled out new measures that give foreign investors greater flexibility in how they finance and structure their China investments and operations, as detailed below. 

An era of restraint

Up until recently, foreign invested enterprises in China (FIEs) were subject to severe restrictions on making investments in the equity of other enterprises in China. Where a FIE was set up as the Chinese subsidiary of a foreign enterprise, and it converted its foreign currency equity capital into RMB, it could only use this for expenditure associated with business operations, and not for investment in the equity of other enterprises in China. This was because only very limited categories of FIEs were allowed to include ‘equity investment’ as an activity within their approved business scope, registered with the Chinese authorities. Thus, in practice, such ‘standard FIEs’ could only invest in China enterprise equity by using their accumulated business profits.

There were a number of ‘specialised’ FIEs that were allowed to include equity investment in their scope of business. These limited categories of ‘approved investment enterprises’ included foreign invested venture capital investment enterprises (FIVCIEs) and qualified foreign limited partnerships (QFLPs), amongst others. There was also a regime for China holding companies (CHCs), but this had extremely high capital requirements that limited its usefulness. The net effect of these rules was that it was very difficult for most foreign enterprises to consolidate their various Chinese subsidiaries under an onshore holding company, and their ability to conduct restructuring and strategic M&A within China was restricted.

Breaking barriers

Starting in July 2019, SAFE pilot programs in Shanghai and Shenzhen started to dismantle these restrictions, such that standard FIEs could use their registered capital to make equity investments in Chinese enterprises regardless of the terms of their registered business scope. Criteria were established that the investment must ‘genuine’ and ‘reasonable’ and comply with the Foreign Investment Negative List. Effective from October 2019, SAFE Circular 28 takes this treatment nationwide. The benefits of this change are multi-fold:

  • Going forward, foreign investors have much more flexibility to establish their China operations under onshore holding companies, restructure operations, and conduct M&A activity.
  • Red chip structures can also benefit. These are Chinese companies with a Hong Kong or Cayman top company as listing entity. Such enterprises can now can inject the foreign capital, raised overseas, into their onshore controlled entities, which can then make onward domestic equity investments.
  • Standard FIEs may now offer an alternative structure for making domestic equity investments, alongside QFLP, FIVCIEs, and the other specially approved investment enterprises. Indeed, the tax rules are clearer for FIEs than for other investment platforms such as QFLP. FIEs can also benefit from the tax incentive in Circular 102 (2018) which defers the application of withholding tax (WHT) on dividends where profits are reinvested in China.

Clarifications needed

A number of matters do remain to be clarified, including the meaning of ‘genuine’ and ‘reasonable’ investments. It also remains to be clarified whether the reduced national restrictions will cover debt raised overseas for making domestic equity investments, in the same way as now done for equity raised overseas. Debt use is facilitated in this manner under the Shanghai and Shenzhen pilot schemes but this is not yet explicitly the case for the national rules. 

There are also procedural matters to be clarified around permissible cash flow and registration processes for domestic investments. Nonetheless, the new rules significantly raise the flexibility that foreign enterprises have for financing and structuring their China operations.

Lewis Lu

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