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Insurer AXA says made investment portfolios greener in 2019 – TheChronicleHerald.ca

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LONDON (Reuters) – French insurer AXA said it reduced the temperature score of its investments in 2019, bringing them closer to alignment with the targets of the Paris Agreement on climate change.

The so-called “warming potential” of its investments, a measure of their contribution to climate change, had fallen to 2.8 degrees Celsius from 3 degrees Celsius in 2018, AXA said in its 4th Climate Report released on Friday.

The Paris Agreement, struck in 2015, aims to keep average global temperature rise to below 2 degrees Celsius and ideally at 1.5 degrees Celsius above pre-industrial norms by 2050.

(Reporting by Simon Jessop; editing by Jason Neely)

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Why It Might Be Time to Invest in Non-U.S. Stocks – The Wall Street Journal

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Foreign stocks have had a rough go of it compared with U.S. stocks over the past decade. That might be about to change.

Stocks in foreign developed markets as well as emerging markets have greatly underperformed U.S. shares for years, pushing U.S. stock valuations far above foreign valuations. Even last year, when stocks were strong world-wide, the average U.S.-stock mutual fund or exchange-traded fund rose 28%, outpacing the average international-stock fund’s 23% advance, according to Refinitiv Lipper data. This year, U.S.-stock funds were down 2.1% on average through July and international-stock funds were down 5.5%.

Now, the question is whether valuations, along with shifting global economic fundamentals, make foreign stocks an attractive investment—perhaps finally justifying the long-held advice that U.S. investors keep at least a portion of their portfolios in overseas shares or funds. Many investing professionals say the answer to that question is yes.

“If you’re investing for the next 10 years, valuations are compelling to invest overseas,” says Steven Violin, a portfolio manager at F.L.Putnam Investment Management Co. in Wellesley, Mass.

In the 10 years through July 31, the S&P 500 returned 13.84% annualized, including dividends. That compares with 5.3%, in dollar terms, for the MSCI World ex-USA Index of developed nations and 3.69%, in dollar terms, for the MSCI Emerging Markets Index.

That has kept U.S. stock valuations at the top of the totem pole. As of July 31, the forward price-earnings ratio, based on earnings estimates for the current fiscal year, totaled 23.84 for the S&P 500, 18.57 for the MSCI World ex-USA Index and 15.84 for the MSCI Emerging Markets Index, according to Morningstar Direct.

On the economic front, many countries are further along than the U.S. in emerging from coronavirus lockdowns. That has helped put some of their economies in a stronger position than the U.S., many investing pros say. Numerous countries also have adopted successful economic-stimulus plans.

Those perceived economic advantages show up in earnings forecasts. Analysts polled by

FactSet

predict earnings for companies in the MSCI Emerging Markets Index will fall less than earnings for companies in the U.S. S&P 500 index this year. And emerging-markets earnings are seen rebounding more than U.S. earnings next year.

Those analysts also estimate earnings for developed-markets companies in the MSCI World ex-USA Index will drop more this year than for companies in the S&P 500—but developed-markets earnings are seen bouncing back further than U.S. profits next year.

Emerging-markets interest

Some investment managers are particularly enthusiastic about emerging markets, where stocks already have outperformed their U.S. counterparts over the past three months.

“With a long-term view of where the world’s growth is likely to emanate from, emerging markets is where you might like to place your bets,” says Karim Ahamed, a financial adviser at Cerity Partners in Chicago. “They have young and vibrant economies, growing faster than developed markets.”

The labor pools of emerging-markets countries should grow faster than those of developed nations—providing fuel for economic growth—because emerging-markets nations have younger populations than developed countries, he notes.

On the pandemic front, a number of emerging-markets countries have done well fighting Covid-19. “South Korea is the gold standard,” says Amanda Agati, chief investment strategist for

PNC Financial Services Group.

“This is a tailwind for emerging markets, though not every country has been perfect.”

Economic-growth numbers are stronger for important emerging markets, such as China, than for the U.S. The International Monetary Fund estimates that U.S. GDP will contract 8% this year, compared with a 3% contraction, on average, for emerging markets. Next year, the IMF expects a 4.5% rebound in the U.S., compared with a 5.9% bounceback, on average, in emerging markets.

Many developed countries, as well, are ahead of the U.S. in the coronavirus cycle. “We’re seeing signs of a potential second wave in countries like Spain and France,” Ms. Agati says. “But they’ve already proven they can deal with a temporary shutdown, whereas the U.S. is still struggling with that initial wave.”

Many investment pros are impressed with the European Union’s ability to craft a €750 billion ($880 billion) fiscal stimulus package, passed last month. In the U.S., by contrast, Democrats and Republicans have been unable to agree on another round of stimulus that most analysts think is needed to buoy the economy.

While the IMF predicts GDP will shrink more in the euro area than in the U.S. this year—10.2% to 8%—it sees a bigger recovery for the euro area than for the U.S. next year—6% to 4.5%.

Another factor that could help foreign stocks is the dollar’s weakness. The Bloomberg Spot Dollar Index slid 9% from its March 23 high through July 31. A sliding dollar makes foreign stocks more attractive for U.S. investors because foreign stocks gain value in dollar terms when the dollar is falling.

Market psychology

Psychology will also play a role in lifting foreign stocks compared with U.S. stocks, says Jeffrey Kleintop, chief global investment strategist at

Charles Schwab.

“It’s almost more behavioral than fundamental,” he says. “After a decade, whatever markets led in investor expectations get high in value, and then recession resets expectations. Where expectations were highest, valuations come down the most.”

Market history has played out that way for the past 50 years, with the direction of U.S. and foreign markets flipping at the end of every economic cycle, which often last about 10 years, Mr. Kleintop says. So he anticipates foreign stocks will outpace U.S. shares for the next decade.

“There may be real value in Asian and European companies that serve the same customer base as U.S. companies but can be purchased for a lower cost,” he says.

Allocation strategy

So how should investors interested in foreign stocks allocate their money? A broad, diversified exposure to countries and industries gives investors a chance to participate in the upside of foreign stocks while potentially damping declines, analysts say.

“You don’t need to get fancy,” Mr. Kleintop says. He figures that including one broad exchange-traded fund for developed markets and one for emerging markets in a portfolio would do the trick. That would give investors a chance to tweak their weighting between the two, as emerging-markets stocks often outperform developed-markets stocks early in the economic cycle before lagging later, he says.

The two biggest developed-markets ETFs are

Vanguard FTSE Developed Markets

ETF (VEA) and

iShares Core MSCI EAFE

ETF (IEFA). Both funds receive Morningstar’s top rating of gold.

The two biggest emerging-markets ETFs are

Vanguard FTSE Emerging Markets

ETF (VWO) and

iShares Core MSCI Emerging Markets

ETF (IEMG). Both have Morningstar’s third-highest rating of bronze.

While broad ETFs offer a convenient, inexpensive option, Mr. Ahamed of Cerity Partners says a good active manager can provide more downside protection. He recommends a combination of active and passive funds.

One active mutual fund Mr. Ahamed likes is

Harding Loevner Emerging Markets Advisor

(HLEMX), rated silver by Morningstar. “It’s conservative: quality with a growth bias,” he says. “It’s a one-stop solution.”

One issue investors face when venturing overseas is whether to hedge their currency exposure. That exposure helps when the dollar is falling—but hurts when the dollar is rising, as foreign holdings are then worth less in dollars.

Many experts recommend against hedging, because exposure to foreign currencies diversifies a portfolio, and hedging can be expensive, especially for emerging-markets currencies. “If you’re a long-term investor, being unhedged makes sense,” Mr. Ahamed says.

Either way, it’s high time to consider foreign stocks, many experts say. “Most investors faced with challenges retreat to what has worked—leaders of the last cycle,” Mr. Kleintop says. “That’s the wrong instinct. Rebalancing now [toward foreign stocks] is more important than anytime in the last decade.”

Mr. Weil is a writer in West Palm Beach, Fla. He can be reached at reports@wsj.com.

Share Your Thoughts

What role have non-U.S. funds played in your portfolio in recent years? Do you see that changing? Join the conversation below.

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Aramco Still Aims for $15 Billion Investment in India's Reliance – BNN

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(Bloomberg) — Saudi Aramco said it’s still working on a deal to buy a $15 billion stake in Reliance Industries Ltd.’s refining and chemicals business, even as lower oil prices forces it to slash investment spending.

Reliance’s shares fell in mid-July after Chairman Mukesh Ambani said a transaction had been delayed “due to unforeseen circumstances in the energy market and the Covid-19 situation.”

A deal with Reliance would help the world’s biggest crude exporter join the ranks of the top oil refiners and chemical makers. State-owned Aramco is already a major supplier of crude to India, while Reliance sells petroleum products, including gasoline, to the kingdom.

“We are still in discussion with Reliance,” Aramco Chief Executive Officer Amin Nasser said on a call with reporters on Sunday. “The work is still on. We will update our shareholders in due course about the Reliance deal.”

Aramco reported on Sunday that second-quarter net income was down almost 75% from a year earlier. It has been slammed by the roughly 33% drop in oil prices in 2020. The coronavirus pandemic halted travel and business, slashing demand for crude and fuel.

Ambani, the world’s fourth-richest person, said last year that Aramco was set to buy a 20% stake in his company’s refining and petrochemicals business, valuing it at $75 billion.

The Reliance transaction would help Aramco reach its goal of more than doubling refining capacity to between 8 million and 10 million barrels a day. The Saudi firm had refining capacity of 3.6 million barrels a day at the end of last year, including wholly-owned plants and stakes in joint ventures. The gross capacity of facilities in which Aramco has stakes was 6.4 million barrels daily.

The company, officially known as Saudi Arabian Oil Co., is working to start the 400,000 barrel-a-day Jazan refinery on Saudi Arabia’s southern Red Sea coast this year. It also owns the biggest refinery in the U.S. as well as plants in countries such as South Korea and Japan. It’s planning several Chinese ventures.

Reliance’s need for a cash infusion has eased in recent months. The Indian conglomerate raised some $30 billion by attracting investments from the likes of Google and Facebook Inc. into its digital unit, Jio Platforms Ltd., and by selling shares to existing stakeholders.

©2020 Bloomberg L.P.

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The Changing Venture Capital Investment Climate For AI – Forbes

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The venture capital (VC) world often follows the general trends of the markets. When social media is the in-thing, investors will flock to all manner of social media startups. The same goes for any area of investing from mobile apps to live-work-play co-working places and everything in between. So too is the investor perspective on artificial intelligence. When it became clear less than a decade ago that AI was the latest, hottest place to build companies that could grow from tiny startups to huge public market exits of acquisitions, the VC community got all in. 

In the past few years, it seemed that just the mere mention of AI in your product was attractive enough to raise substantial funding rounds. As a result, startups of all sorts played into this trend adding AI and ML jargon and buzzwords into business plans or marketing material and raising more money than ever. Yet, are these companies actually building solutions that the market is looking for and pusing AI forward, or are they simply “AI-washing” their otherwise unintelligent offerings?

Waves of Investment in AI

We’ve been here before. In fact, this latest wave of AI is the third major wave of AI research, development, and investment, with the first two waves coming roaring in and crashing down in what became known as the AI Winters. Much has been talked about whether this latest AI summer will be permanently here to stay, but we can look at the investor climate as an early warning to see if attention, interest, and resources continue to be strong for AI or we’re already starting to see signs of an impending chill in the market.

During the first wave of AI starting in the 1950’s initial funding was largely supplied by governments. Governments funded R&D efforts around artificial intelligence but as governments lost interest funding dried up and AI projects basically did as well. During the second wave of AI in the 1980’s the market also saw the rise of venture capitalism. This opened up entire new avenues for funding resulting in increased research, projects, and more diverse projects.

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This current third wave of AI is being pushed forward by different factors. In addition to government and corporate investment, big data and computing power leveraged by the huge cloud-based technology combined with the emergence of data-hungry deep learning neural network algorithms are powering the latest renaissance in AI. Startups in the AI space are raising significant funds from VC firms all over the world. 

However, things are a bit different with AI. Whereas in the past Silicon Valley was by far the overwhelming investor location of choice for technology-focused startups, the AI market is decidedly more global. Chinese-based firms have raised eye-watering sums of money and “unicorn” startups are being founded everywhere from Bucharest to Bangalore. While Silicon Valley has still not been unseated as the top investor location, other locations inside the US as well as overseas are definitely posing significant challenges to that leadership. 

Venture funding in AI companies had reached a mind-blowing $61 billion from 2010 through the first quarter of 2020. The majority of these investment dollars are to companies based in the USA or China. Is this investment sustainable? Some would say not. Venture capitalists are mostly driven by finding that unicorn needle in the startup haystack, driving outsized returns to their investors that offset the expected losses in the rest of their investments. As such, the only way so much money would be pumped into this industry is if the market believes that AI is a “transformational” technology that will revolutionize entire industries and markets, in much the same way that mobile, social, cloud, and other technologie have similarly disrupted their markets. Disruption means change. Change means opportunity. And where there’s opportunity, there’s venture capital.

Perspectives from a Venture Capitalist

VC firms still seem committed to the long-haul in their AI-focused investing. On an AI Today podcast, John Frankel of ffVC shared his insights into why like cloud and mobile, AI is here to stay. John founded ff Venture Capital (ffVC) with partner Alex Katz in 2008.  The primary interest of the company are emerging technology companies that focus on artificial intelligence, drones, robotics, and cybersecurity.

One cornerstone to their strategy is a partnership with New York University (NYU), with an incubator set up to assist startup companies to accelerate their AI efforts. Part of the reason why New York has had such a strength in AI companies is because of its unique combination of financial strength, research and academic strength, and the location of major corporations that can apply technology. AI is proving its value in many industries and as such being in close proximity to hubs of finance, advertising, insurance, and other markets provides a larger scope of immediate access to markets than possible even in Silicon Valley.

Indeed, VC firms are starting to move beyond the sci-fi aspects of AI to the more mundane applications in industry. Indeed, VCs are investing less in AI “concept” companies and more in applying machine learning and AI to transform existing markets from retail to real estate. According to John Frankel, the big shift he is seeing is the vertical application of AI in which startups are taking technologies that already exist such as image or voice recognition and building industry- and enterprise-specific applications. 

John offers a bit of advice when it comes to investors or companies jumping into the AI waves. He says that it’s a bit late at this point to invest in the underlying, infrastructural technology unless there’s a major revolution in the fundamental technology of that company. The large incumbents have significant resources that they are applying to bear in the markets. He points out that AI should be seen as a way to improve or build upon what we had rather than a replacement strategy for things that are not working. While there will be a major shift in some areas such as the type of workers that are needed or products that are being sold, ultimately the technology is going to be used to enrich the experiences of day-to-day customers and citizens and not necessarily just line the pockets of a few well-timed and well-placed investors.

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