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2022 caution signs include inflation, China and stubborn Covid – Investment Executive

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Lingering Covid concerns could disrupt business well into 2022, says Michael Arno, an associate portfolio manager and senior research analyst with Brandywine Global Investment Management.

Arno said that while the omicron variant has proven less severe than delta, its quick spread poses an ongoing threat to global manufacturing and logistics, especially given China’s zero-tolerance policy to Covid exposure.

“If we see a wave of cases followed by closures at plants and ports, we’re going to continue seeing supply chain issues,” he said.

Covid-related hardships have also pushed millions of people around the world further into poverty, Arno said, creating new market risks with a swing to the political left in some emerging countries, particularly in Latin America.

Chile is going through a constitutional rewrite following the election of its new left-leaning president Gabriel Boric, and social spending is expected to increase. In Brazil, leftist former president Luiz Inácio Lula da Silva has a dominant lead in the current election campaign. And in Colombia, the former left-wing mayor of Bogota, Gustavo Petro, has emerged as the front-runner in polls for the May 2022 national election.

“So [there’s] definitely some pressure on spending and a shift to the left in a number of places around the world,” Arno said.

Arno discussed market risks on the latest episode of the Soundbites podcast, sharing the microphone with Jennifer O’Hara Martin, portfolio specialist with T. Rowe Price.

Martin agreed that vaccine effectiveness and government responses to Covid concerns will continue to shape the investing landscape through 2022.

“The global pandemic has created near-term distortions in the market, but this has also created opportunities for long-term investors to invest in high-quality companies that are trading at a discount,” Martin said.

She described Covid as a high-impact event that has driven environmental, social and governance initiatives by demonstrating how intertwined economic outcomes are with the prosperity of the planet.

“Companies that understand these connections are often the innovators that are positioning themselves for real and future growth,” she said. “We believe this is a very good disruption that we seek to be on the right side of.”

In addition to Covid-related challenges, Arno and Martin said uncertainty about China’s fiscal policy will undoubtedly affect markets in 2022.

“We saw a credit impulse drag for ’21. That has knock-on effects for countries around the world,” Arno said. “Seeing their change in policy in ’22 could offset some of the tightening that we’re seeing in developed markets from the central banks; however, it depends on the degree of fiscal stimulus they take.”

Martin described the evolving relationship between the U.S. and China as a struggle between two superpowers that is creating complex dynamics for multinational corporations.

“It’s become very clear that underlying tensions between these two nations are real, structural and unlikely to be resolved with ease,” she said. “So, this is an area that we continue to monitor for both risk and opportunities.”

Martin maintained, however, that market uncertainty is neither new nor particularly worrisome.

“As we approach 2022, we must maintain a healthy level of caution while also really keeping our eyes open to the opportunities that present themselves,” she said. “As global investors we remain prudent, and we must maintain some balance and stay true to the framework while also acknowledging and being aware of our blind spots.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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Ford sees $8.2 billion gain on its investment following Rivian’s IPO – Driving

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Ford continues to gain, despite abandoned plans to jointly develop an EV with the startup

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Ford Motor Co. expects to record a gain of $8.2 billion in the fourth quarter on its investment in RivianAutomotive Inc. after the electric-truck maker’s blockbuster initial public offering late last year.

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The legacy automaker disclosed the gain Tuesday along with several special items it intends to report when Ford releases earnings on Feb. 3. The Dearborn, Michigan-based company will also reclassify a non-cash gain of about $900 million on the Rivian investment from the first quarter of last year as a special item, meaning it will be excluded from the full-year adjusted results, according to a statement.

The disclosures show Ford continues to gain from its connection to the startup even after the auto giant exited Rivian’s board in September and subsequently announced it had abandoned plans to jointly develop an electric vehicle. Ford, which has invested a total of $1.2 billion in Rivian since early 2019, has a 12 per cent stake that the company has said was valued at more than $10 billion in early December.

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  1. Rivian delays big battery packs to prioritize more deliveries

    Rivian delays big battery packs to prioritize more deliveries

  2. Tesla doubles down on accusations rival Rivian stole its battery secrets

    Tesla doubles down on accusations rival Rivian stole its battery secrets

Since a November listing that was the largest IPO of 2021, Rivian has been on a roller coaster. The shares peaked at more than $172, but have tumbled 57 per cent since then as the company faced new competition in the electric-vehicle market. Rivian was briefly valued at more than $100 billion, then more valuable than Ford, but Ford has subsequently reclaimed the lead after it topped $100 billion in value for the first time last week.

Ford shares were little changed in after-hours trading Tuesday in New York, while Rivian climbed less than one per cent.

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ByteDance reorganizes strategic investment team, causes panic – Yahoo Movies Canada

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What a roller coaster day for China’s tech industry. TikTok’s parent company ByteDance has dissolved its strategic investment team, sending worrying messages to other internet giants that have expanded aggressively by investing in other companies.

At the beginning of this year, ByteDance reviewed its “businesses’ needs” and decided to “reduce investments in areas that are not key business focuses,” a company spokesperson said in a statement.

ByteDance isn’t halting external investments outright, though; instead, the investment team will be “restructured” and “integrated across the various business lines to support the growth” of its business.

In other words, some members from its strategic investment team, which has backed 169 companies, according to Chinese startup database IT Juzi (some deals may not be public), will be reassigned roles in other business departments and continue to invest there.

The “restructuring” still stirred up a wave of panic in the industry. China’s cyberspace regulator has drafted new guidelines that will require its “internet behemoths” to get its approval before undertaking any investments or fundraisings, Reuters reported, citing sources. Some Chinese media outlets also reported similar drafted rules.

“Behemoths” refer to any internet platform with more than 100 million users or more than 10 billion yuan ($1.58 billion) in revenue, said Reuters’ sources. That rule, if true, will put a slew of Chinese internet giants, from Tencent, Alibaba, Pinduoduo, JD.com to Baidu, under regulatory review for their investment activities. Tencent in particular is famous for its expansive investment portfolio, which earns it the moniker “the SoftBank of China.”

In a surprising turn, China’s cyberspace regulator said that the “rumored guidelines for internet companies’ IPO, investment and fundraising are untrue.” Furthermore, the authority will “investigate and hold relevant rumormongers responsible in accordance with the law.”

ByteDance’s motive for restructuring may indeed be to generate more synergies between its external investments and internal businesses. We don’t know for sure yet. But there are signs that China’s antitrust action on its internet darlings are nowhere near the end.

Tencent recently sold a great chunk of its shares in two of its most important allies, Chinese online retailer JD.com and Singaporean video games and e-commerce conglomerate Sea. While antitrust pressure wasn’t cited as the cause for its divestments, speculation is rife that China is continuing to blunt the monopolistic power of its largest interent platforms. A handful of them have received various degrees of fines for violating anticompetition rules, but a pause on their investment game will carry much greater consequences. The question now is who’s next.

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CSA shines a light on greenwashing – Investment Executive

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Greenwashing has become an issue for regulators who worry that investors could be intentionally or inadvertently misled about the green credentials of the funds they buy.

“In addition to leading investors to invest in funds that do not meet their objectives or needs, greenwashing may also have the effect of causing investor confusion and negatively impacting investor confidence in ESG investing,” the CSA warned in its notice setting out the new guidance.

The regulators reported that targeted reviews of investment funds’ continuous disclosure in this area revealed a number of shortcomings. Some funds had potentially misleading disclosure, the CSA found, while others featured inadequate reporting to investors on investment strategies, proxy voting practices and ESG performance.

Many funds “lacked detailed disclosure” about the specific ESG factors considered in their investment strategies and how those factors are evaluated.

Regulators also found that many funds provided more detailed ESG disclosure in their marketing materials than in their prospectuses; that most funds didn’t detail portfolio changes that were driven by ESG considerations; and that more than half of the funds that use proxy voting as part of their ESG strategies didn’t set out specific voting policies.

“In addition, the vast majority of the funds reviewed did not report on their progress or status with regard to meeting their ESG-related investment objectives,” it said.

In the wake of that review, the regulators indicated they don’t believe current disclosure requirements need to be revised to specifically address ESG factors. However, the CSA said “regulatory guidance is needed to clarify how the current disclosure requirements apply to ESG-related funds and other ESG-related disclosure in order to improve the quality of ESG-related disclosure and sales communications.”

The new guidance doesn’t add requirements for fund managers, but it does provide insight into areas where firms may be falling short of meeting existing disclosure expectations.

On the issuer side, the CSA is consulting on proposed new climate risk disclosure requirements for public companies.

For investment funds, the regulators are hoping that guidance will be enough by bringing “greater clarity to ESG-related fund disclosure and sales communications to enable investors to make more informed investment decisions.”

Among other things, the guidance recommends that funds that aim to generate a measurable ESG outcome report their results to investors.

“For example, where a fund’s investment objectives refer to the reduction of carbon emissions, investors would benefit from disclosure in the fund’s [performance report] that includes the quantitative key performance indicators for carbon emissions,” it said.

On marketing materials, the CSA said that “a sales communication that does not accurately reflect the extent to which a fund is focused on ESG, as well as the particular aspect(s) of ESG that the fund is focused on, would both be misleading and conflict with the information in the fund’s regulatory offering documents.”

It also said that the use of fund-level ESG ratings, scores or rankings may be misleading. Reasons include conflicts with the rating provider, cherry-picking positive scores, and failing to disclose qualifications or limitations to a rating or ranking that would supply added context.

“Interest in ESG investing is on the rise and this enhanced and practical guidance will play an important role in helping investors make informed decisions about ESG products, as well as preventing potential greenwashing,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.

The CSA indicated that it will continue to review ESG-related disclosures as part of its continuous disclosure reviews.

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