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Global investment community begins to take stock

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According to new forecasts from UBS which take account of the effects of the coronavirus, the Chinese economy is now likely to grow at a rate of around 5.4% this year, down from the previously modelled 6%.

One of UBS’s assumptions is that the virus will be contained by the end of the quarter, and that the effects will therefore tail off as the year progresses. It’s a big assumption to make, but one which is part justified by a comparison to the effects of the SARS virus, which briefly unsettled markets back in 2003. That virus too began in Asia, and its effects in generating headlines and unsettling the investment community have indeed been comparable, albeit that it now seems clear that coronavirus is surpassing SARS in scale.

Nonetheless, markets as a whole appear for now to be following UBS’s line. A host of companies have released updates about the financial effects the virus will likely have on their bottom line, and there’s even some data out from South Korea which gives some indication of the potential impact at a national level.

So far, it’s fair to say that it’s serious, but not yet at crisis proportions.

The severity of the financial impact is also varied, depending on proximity to China, amount of business done in China, or the amount of business done with China. And although there are new reports of cases outside of China on a daily basis, including more than 60 new ones on a cruise ship docked at Yokohama, China remains the central locus and ground zero for both the physical effects of the virus and its financial impact.

At the worst end of the scale, Hong Kong’s economy is likely to suffer a contraction of 8% this quarter, with Taiwan not far behind, and the Chinese economy as a whole contracting for the first time quarter-on-quarter since 1976. These numbers are at the root of UBS’s decision to shave 0.1% off its global growth forecast for this year, a number which it now pegs at 2.9%.

Among the companies operating inside China, Disney has announced that it will take a US$280mln hit after it was forced to close down two theme parks in China that are usually busy over the New Year period. Other companies that have yet to release financial updates, but which have publicly stated they have slowed or stopped operations inside China include Airbus, Toyota, General Motors, Volkswagen, Nike, Adidas, H&M, Gap and Ikea. Royal Caribbean has said it will take a US$50mln hit as a result of the travel restrictions around Hong Kong and China.

The impact on the US economy remains to be seen. President Trump’s top economic advisor Larry Kudlow has said the coronavirus could shave around 0.2% off US growth, but markets responded positively to a well-flagged Chinese move to cut 1,700 tariffs on imported US goods.

The tariff reductions ought to have come anyway as a part of President Trump’s phase one US-China trade deal, but the alacrity and vigour with which they were flagged, coupled with the Chinese decision to pump more than US$242bn of new liquidity into the market, was well received internationally.

After initial nervousness at the end of January, when both the VIX and the gold price spiked, relative calm has returned, the VIX and the gold price have dropped back, and instead base metals prices and Treasury yields rose.

The big loser, to date, has been oil, with Brent down at US$55 and West Texas Intermediary at US$50 per barrel. An OPEC meeting in the first few days of February put coronavirus at the top of its agenda, but precisely what action the cartel intends remained unclear at the end of the meeting. As a bellwether for the global economy oil is worth keeping a close eye on. West Texas has dropped by nearly US$10 over the past month, and has just bounced off a 12-month low.

Another bellwether, copper, has also dropped off a cliff in the past month, but has also bounced slightly in recent days. If the coronavirus starts to fade, then that recovery is likely to gather strength fairly rapidly. On the other hand, if UBS is wrong, and the effects of coronavirus start to be felt into the second quarter and beyond, then all bets are off.

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Planning to invest in index funds? Check the pros and cons – Economic Times

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In recent times, investor interest has been rapidly increasing in passive index strategies. 2021 has already seen the launch of over 15 index funds and ETFs (exchange-traded funds). The figure for entire 2020 was just 17.

What are index funds?

Index funds replicate the weightages of companies that form part of the benchmark index under consideration. The weightage of the stocks in the fund will closely match the weightage of each stock in the index. In case od a change in the weight of stock within the index, the fund manager too will make changes to have its weight in the portfolio aligned to that of the index. For example, a Nifty index fund will invest in the 50 companies forming the Nifty50 index.

Benefits of Index Funds

Diversification: Index funds, in a simple and easy manner, provide diversification by investing across many stocks. Take Nifty 50 index. Through this index, an investor gets access to 50 different companies. As a result, the value of one’s portfolio will not be adversely impacted in the event of any negative development in any one of the companies which is a part of the index. Furthermore, this diversification comes with a ticket size as low as Rs 100.

Lower Costs: Costs associated with an index fund are generally very low. The total expense ratio (TER) for an index fund, as per market regulator SEBI, is capped at 1 percent. When compared to actively managed counterparts, this turns out to be a cheaper option for an investor who is comfortable with index fund investing.

Return Potential: The aim of an index fund is to generate returns as close to that of its underlying index. Over the long term, if an investor is ready to stay invested, the return profile is likely to reflect the growth of the economy. For example, the 5-year CAGR of an index like Nifty 50 TRI is about 15%.

SIP Facility: Just like any actively managed fund, investors can opt for daily, weekly, fortnightly, monthly, or quarterly SIP options.

Limitations of Index Funds
Lack of Flexibility: Unlike an actively managed fund, if there is any material development in the economy or markets, the fund manager here cannot make any changes to the portfolio. As a result, there is no scope for the fund manager in managing market downsides.

No room for Alpha: By investing in an index fund, the investor is signing up for returns that will be in line with that of the index which the fund is tracking.

Tracking Error: Tracking error is the difference between the scheme’s return and the benchmark index’s return. While index funds try and replicate an underlying as close as possible, there is likely to be a gap due on account of factors such as expenditure incurred by the fund, cash balance, or portfolio deviation.

Who can consider investing in Index Funds?
Every Investor should have index funds as part of their asset allocation. First-time investors may also consider index funds as a stepping stone into the world of equities. In the short term, returns could be volatile but over the long term the fluctuations average out. To conclude, an index fund offers one of the cheapest ways to take exposure to equity markets but before investing do check if the fund matches your risk appetite, investment horizon, and financial goal.

The author, Chintan Haria, is Head- Product Development & Strategy, ICICI Prudential AMC. The views are his own.

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How To Invest In AMC And Really Make Long-Term Money – Forbes

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AMC, the nation’s largest movie theater chain and darling of the meme stock afficionados, has all the hallmarks of a disaster movie: a monster (the pandemic), questionable actions from main characters (the company’s ownership) and skanky fundamentals (too much debt, share-price dilution).

That’s not to mention that fast-growing streaming services are eating into its customer base like acid, and the Delta virus variant could squelch the former multiplex goers’ thoughts about returning.

In any disaster movie, the beleaguered good guys also find the monster’s vulnerability. In The War of the Worlds, H.G. Wells’ classic Martian-invasion book later made into several flicks, the aliens’ weakness is a lack of immunity to our planet’s germs. For AMC and other such troubled companies like GameStop

GME
, it’s the low regard ease with which a mob can take down short seller. A coterie of young folks have a deep distaste for the Wall Street establishment, which failed their parents and their families very badly during the financial crisis some 13 years ago.

Today, that translates into making meme stocks, which stodgy old hedge funds have shorted, into a cause célèbre for Gen Z investors. The young amateur stock jockeys have pumped up these names, sticking it to those smug Wall Street tycoons, who get caught in short squeezes.

Due to the Robinhood crowd’s support, AMC has seen its stock price triple thus far in 2021. That’s despite losing $4.5 billion last year ($1.42 per share) as pandemic-spooked film audiences stayed home, and also logging a $500 million loss in 2021’s first quarter. Second quarter earnings, slated for Aug. 9, are expected to show a narrower loss, just 91 cent per share, per the Zach’s Consensus. In the January-March quarter, attendance had fallen almost 90%, versus the year-earlier period.

The popularity of AMC’s stock has been a boon for the chain, even though the outfit diluted shares a bunch via new stock issued. The company has floated common stock offerings, raising a total of $1.25 billion—cash that it desperately needs in a nasty time like now. Analysts project that the company will be in red ink for at least three more years.

Meanwhile, management, led by CEO Adam Aron, also whittled down net debt to $4.6 billion as of March 31, from $5.4 billion. Plus, it completed a debt-for-stock exchange offer, and extended maturities on $1.7 billion in bonds until 2026. As a result, S&P Global Ratings last month raised AMC’s rating to CCC+ from CCC-. Granted, this is still deep in junk bond territory, but represents a forward step.

The larger question is: Does AMC have a future, or will it dwindle to little or nothing? Think of all the corporate powerhouses of yore, like Eastman Kodak

KODK
or Xerox

XRX
, that time has passed by.

Maybe AMC can avoid that fate. For the near future, AMC likely will consolidate its hold on what remains of the cinema-going public. Many small operations tanked over the past year. Regal Entertainment and Cinemark, its two biggest U.S. competitors, are in a weaker condition, and AMC could end up the last chain standing.

After that, AMC has to bet that people eventually will want to return to the wide-screen auditoriums that, indeed, offer a much richer visual experience than even the largest TVs at home. Going out to the movies has always been a communal undertaking, and like live sports, which are showing a decent comeback, could reclaim their patrons. True, stadium-viewed sporting events offer the extra dramatic element of rooting for the home team. Once Hollywood starts putting out better movies—its pandemic entries have been kind of lame (Tenet, anyone?)—sitting in the dark to watch a blockbuster will have better appeal.

If you agree with that thesis, then when is the right time to purchase AMC shares? One answer is to buy on the dips. In fact, we’re in a dip now: AMC has fallen almost 30% since mid-June, partly owing to the onset of the Delta variant. And odds are that Robinhood gang will tire pf AMC.

At that point, is buying the shares a mad-money play? Sure. Still, look at other pandemic-stricken stocks that are rising anew, like oil companies. That could be enough for a Hollywood ending.

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Feds, province announce $40M road investment in Thompson – Winnipeg Sun

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The federal government and the province have announced a major roadwork investment in Thompson, Manitoba’s northernmost city.

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As part of the Investing in Canada Infrastructure Program – Rural and Northern Infrastructure Stream, $40 million will be spent over the next five years. The funds include $20 million from the federal government, $13.3 million from the province and $6.7 million from the City of Thompson. Twenty kilometres of road will be refurbished over the next five years.

“This is totally unusual,” Thompson Mayor Colleen Smook told the Winnipeg Sun on Thursday. “It means governments are starting to take us seriously. They used to think of us as a small mining town that was going to die out. They’ve realized we are the hub of the North and we aren’t going anywhere. They have to step up and make us viable. This is absolutely fantastic.”

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Smook said her community has specific challenges – adverse weather and frost heaves – when it comes to road maintenance. Simply repaving and refinishing roads in Thompson provides only a short-term fix.

“People just say you take off the surface and resurface it,” she said. “A lot of the time the damage is down into the base. You can’t just take off the top and repave it. That doesn’t work up here. So this is doing the roads properly again, getting some of the streets done that haven’t been worked on for 40 or 50 years.”

Smook said the project affects the entire North.

“Being the hub for the outlying communities, it’s going to do some of our main drags. It’s going to be noticed,” she said. “It’s also going to make it more attractive with businesses attracting people. You come in and we have decent roads to drive on. When we did a survey, that was one of the concerns – our infrastructure was in such rough shape.”

jsnell@postmedia.com

Twitter @JamesWestgateSn

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