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Investment banks slash China growth outlook — one puts GDP below 4% – CNBC

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Prolonged lockdowns in Shanghai have snarled supply chains and prompted banks to cut China GDP forecasts. Here, a truck leaves a port on April 13, 2022, with healthcare supplies for Shanghai.
Tang Ke | Visual China Group | Getty Images

BEIJING — In just about a week, several investment banks have cut their China growth forecasts as Covid lockdowns drag on in the economic hub of Shanghai.

The new median forecast among nine financial firms tracked by CNBC predicted 4.5% China GDP growth for the full year. That’s well below the official government target for a 5.5% increase.

At the low end of predictions was Nomura with a forecast of 3.9%, down from 4.3% previously.

“The stringently enforced [zero-Covid strategy] causes a big supply shock to the overall economy, especially to cities under full and partial lockdowns,” the Japanese investment bank’s chief China economist Ting Lu said in a report on Wednesday.

“This supply shock may further weaken demand for homes, durable goods and capital goods due to falling income and rising uncertainty,” he said.

Since March, mainland China has battled its worst Covid outbreak since early 2020. Shanghai, home to the world’s busiest port, has been one of the hardest-hit regions. A citywide, two-part lockdown that began about a month ago has dragged on with no clear end in sight.

A major business district in Beijing, the national capital, began three days of mass testing on Monday and closed non-essential businesses in one area to control a spike in cases over the weekend.

UBS: The biggest cut

Among nine financial firms, UBS cut its China GDP growth target the most, down by 0.8 percentage points to 4.2% based on “intensified downward pressure on the economy.”

Despite expectations for more policy support, economist Wang Tao said in an April 18 report her team does not expect Beijing to do “whatever it takes” to achieve the official 5.5% target since it was set before the latest wave of Covid and the Russia-Ukraine war.

“We also do not believe that economic impact of Covid policy alone will change the government’s Covid policy shift soon, as minimizing Covid cases and death will likely remain the top priority,” Wang said.

As of Tuesday morning, Shanghai had recorded more than 150 Covid-related deaths.

Bank of America: The second-largest cut

Bank of America’s China economist Helen Qiao made the second-largest cut, down by 0.6 percentage points to 4.8%.

“Covid-19 lockdowns and restrictions imposed in Shanghai and neighboring cities are not only hitting local demand but also causing logistic breakdowns and widespread supply-chain disruptions within and outside of the area,” the bank said in an April 19 report.

“In our view, even if such control measures will ultimately be rolled back and economic activities will gradually normalize by mid-year, a heavy toll on growth already seems inevitable,” the report said.

Allianz Trade: Frequent cuts

Allianz Trade’s forecast reduction marked the second cut in just a few months.

On Wednesday, the firm lowered its GDP forecast to 4.6%, down from 4.9% — which itself was a revision from the 5.2% estimate set around the start of the year.

The first downgrade came after Russia invaded Ukraine in late February, and the second downgrade assumes the Shanghai lockdown lasts for a month before a return closer to pre-pandemic levels in May, said Françoise Huang, senior economist at Allianz Trade.

If the lockdown in Shanghai lasts for two months and other large cities are affected, she expects China’s GDP would only grow by 3.8% this year.

Last week, the International Monetary Fund also lowered its China GDP forecast for the second time this year. The new estimate is for 4.4% growth, down from a cut in January to 4.8%, versus the IMF’s expectations in October for 5.6% growth in 2022.

JPMorgan, Barclays: Trimming after GDP data

China reported on April 18 that first-quarter GDP grew by a greater-than-expected 4.8%, with industrial production and fixed asset investment also topping forecasts. But retail sales contracted by a more-than-expected 3.5%.

Later that day, JPMorgan cut its forecast for full-year GDP to 4.6%, down from 4.9% previously. The bulk of the downgrade came from reduced expectations for consumption growth, with that for exports unchanged and investment trimmed by 0.1 percentage points.

“It should not be surprising [the] Omicron drag on economic activity will be larger in April than in March,” said the bank’s emerging markets Asia economic and policy research team. They estimated parts of China accounting for about 25% of national GDP were in full or partial lockdown as of early April.

Also on April 18, Barclays trimmed its full-year GDP forecast to 4.3%, down from 4.5%, on expectations Covid disruptions will last for a while.

Morgan Stanley had already cut its forecast back on March 31, to 4.6% from 5.1% previously. Economist Robin Xing and his team said China would not likely end its zero-Covid policy until after a scheduled political reshuffle in the fall.

“This means that sporadic lockdowns across the nation in the coming two quarters would constrain consumption, even as production would be sheltered by closed loop management systems,” the report said.

Citi, Goldman Sachs: Holding steady

Not all banks have cut their China GDP forecast.

Citi on April 18 raised its estimate to 5.1% after China’s first-quarter GDP beat. In late March, the bank had raised its forecast to 5% growth from 4.7% based on better-than-expected economic data in January and February, and expectations of stronger government support.

Goldman Sachs said last week it maintained its China GDP forecast of 4.5% for the year after the first quarter data release.

“We believe the negative Covid impact could extend to April and even beyond and expect a weak start for Q2, despite the stronger-than-expected Q1 GDP print,” Lisheng Wang and a team said in an April 18 report. They expect more easing measures in coming months to support growth.

The investment bank had raised its GDP forecast in January to 4.5% after a better-than-expected fourth quarter GDP report. Earlier that month, Goldman had announced a forecast of 4.3%, down from 4.8%, on expectations that consumption would be affected more as China tries to control the highly transmissible omicron variant.

— CNBC’s Michael Bloom contributed to this report.

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Al Gore's Investment Firm Unveils $1.7 Billion Sustainable Fund – BNN

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(Bloomberg) — Generation Investment Management, the $36 billion investment firm co-founded by Al Gore, launched a new fund targeting companies that contribute to lower emissions, increased financial inclusion and more accessible healthcare. The $1.7 billion Sustainable Solutions Fund IV will allow Generation to invest in growing companies that “are shifting industries toward sustainability and responsible innovation at scale,” the fund manager said in a statement Wednesday. The new fund is Generation’s response to the “sustainability revolution,” which will have “the magnitude of the industrial revolution and the speed of the digital revolution,” Lila Preston, the firm’s head of growth equity, said in an interview. The asset manager has researched “all pockets of the economy” to identify where the disruption will play out and which companies will perform best, she said.Generation’s latest sustainability fund is opening in the middle of an energy crisis that’s driven fossil-fuel prices higher and left many environmental, social and governance funds underperforming their benchmarks. In the US, ESG funds are down about 15% this year, compared with a roughly 35% increase in the MSCI world index for oil, gas and consumable fuels.Co-founded in 2004 by former U.S. Vice President Al Gore and and David Blood, a long-time Goldman Sachs Group Inc. executive, Generation has long shunned fossil fuels and warned that the finance industry is running out of time to shift capital away from greenhouse-gas emitters. Gore, whose 2006 documentary, “An Inconvenient Truth,” brought the issue of climate change to the awareness of the general public, has repeatedly warned of a “subprime carbon bubble’’ with investors caught on the wrong side of history facing significant losses.Preston said Generation’s new fund will target companies with revenues between $30 million and $300 million. All potential portfolio companies are assessed not only on the quality of their business and management, but also on their so-called system-positive contribution “to ensure they are clearly driving the transition to a more sustainable future,” Generation said.The new fund will target three key areas: planetary health, which focuses on a company’s ability to deliver net-zero carbon solutions in mobility, agriculture, energy and enterprise by cutting waste and emissions and supporting biodiversity;  “people health,” which targets companies that help deliver better, cheaper access to health care; and financial inclusion, which looks for companies that aid access to finance, help reduce inequality and support an equitable future of work.Generation said its analysis measures the “first and second-order effects of a business model on people and planet, including implications of its products, supply chain, organizational culture and broader role in society.”. In October, the firm announced that it’s teaming up with Goldman Sachs Asset Management, Microsoft Climate Innovation Fund and Harvard Management Co. to create a venture that will make investments pegged to limiting global warming to 1.5 degrees Celsius above pre-industrial levels.

©2022 Bloomberg L.P.

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How the investment thesis for crypto has changed – Investment Executive

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However, in the first half of this year, the digital currency has been increasingly correlated to equities and other risk assets. Despite a slight rally in recent days, Bitcoin was down 36% year-to-date as of market close on Tuesday. Tech stocks such as Amazon, Netflix and Meta Platforms (formerly Facebook) are down about 32%, 68% and 40%, respectively, year-to-date.

Last Thursday, Bitcoin plummeted below US$26,000 for the first time since December 2020. More than US$200 billion was erased from the market that day alone.

Alex Tapscott, managing director of the digital asset group at Ninepoint Partners, which manages the Ninepoint Bitcoin ETF, has observed the increasing correlation this year between Bitcoin and tech stocks.

“That tells me a couple of things: one, it’s an asset class that’s more widely held. It’s held by a lot of institutions, it’s quoted in mainstream media. So it is beginning to trade like a more conventional financial asset,” he said. “But it’s also a little disappointing, because one of the big attributes of Bitcoin, historically, has been that it’s uncorrelated, which can improve measures of risk-adjusted returns when added to a portfolio.”

Tapscott said he thinks Bitcoin will regain that role of being an uncorrelated asset over the medium and longer term. “But it is clear that during times of financial stress, in all markets, that it does begin to converge on the performance of other kinds of assets.”

Greg Taylor, chief investment officer at Purpose Investments, said a certain type of investor could be contributing to Bitcoin’s turbulence.

“It feels like a lot of the investors that took on more risky positions — whether it’s in technology, or startups, or private assets — also hold Bitcoin. So those parts of the portfolio are being hit,” said Taylor, whose firm manages various Bitcoin and Ether ETFs.

“It could also be that they’re just selling anything to make margin requirements or to pay bills.”

According to April Canadian ETF flows data from National Bank, cryptoasset ETFs had the “worst monthly outflow” since their inception in February 2021, with CAD$338 million in outflows.

Despite last Thursday’s dramatic drop in Bitcoin, Taylor said there haven’t been a significant amount of outflows for any of Purpose’s crypto funds. In fact, he said one day last week, the company had its “biggest day of inflows” for its Bitcoin ETF in U.S. dollars.

“Given the space and the volatility that we know, there was probably a little bit of ‘buy the dip.’ People have been targeting Bitcoin to come back to $30,000. So when it hit that level, that’s where we saw some buying come in,” he said.

Amy Arnott, portfolio strategist at Morningstar, wrote an article in April about whether crypto is truly a portfolio diversifier.

Arnott noted Morningstar’s 2022 Diversification Landscape Report, where the firm examined how different asset classes performed and how correlations between them had changed in the past couple of years.

“We found that while cryptocurrency has an unusually low correlation with traditional asset classes, its volatility makes it tough to use in a diversified portfolio,” she wrote.

Arnott cited the CMBI Bitcoin Index’s 2021 performance, noting how it was up 104% in Q1, then dipped 40% in Q2, then gained 25.3% in Q3 before falling into the red in Q4 as high-risk assets sold off in December.

“These dramatic performance swings have continued in early 2022,” she wrote.

“Diversification value is one potential reason to add cryptocurrency to a portfolio, but investors should also consider other factors, such as their ability to hold on through crypto’s periodic downdrafts, which have been unusually swift and severe.”

Despite the recent crypto volatility, Tapscott said Bitcoin has been a good long-term diversifier and has “demonstrated an ability to improve risk-adjusted returns.” And the run-up until the last few months has been astounding, if volatile.

Tapscott cited data released last year by Charlie Bilello, founder and CEO of Compound Capital Advisors, which showed that from 2011 to 2021, Bitcoin was the best performing asset class over the 10-year period, with an annualized return of 230%.

Bitcoin was trading above US$60,000, near its peak, at the time of the study, and a lot of its gains came during the pandemic when tech stocks also soared. At the beginning of 2020, Bitcoin was trading at about US$7,300.

“We’re still believers that crypto is going to be something that’s going to be with us for a long time. It’s not a flash in the pan — there will be some utility that comes out of this,” Taylor said.

He compared crypto to the dot-com bubble in the late 1990s.

“There were a lot of companies that came out, and a lot that failed. But, at the end of the day, you’re still going to get the Amazons, the Facebooks, the Googles that come out of that,” he said. There’s still some “sorting out” of the crypto market’s winners, he said.

Tapscott and Taylor both acknowledged crypto’s volatility, which is why they’d recommend an allocation of 5% or less for the average investor.

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Poilievre personally holds investment in Bitcoin as he promotes crypto to Canadians – CTV News

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Conservative Party leadership candidate Pierre Poilievre has a personal financial interest in cryptocurrencies that he has promoted during his campaign as a hedge against inflation.

The Ottawa-area MP’s assets include units of Purpose Bitcoin, a Canadian-based, exchange-traded fund that holds cryptocurrencies, according to his May 4 disclosure to the federal ethics commissioner.

Poilievre’s campaign denied encouraging investment in crypto puts him in a conflict of interest.

“Mr. Poilievre spoke with the Office of the Conflict of Interest and Ethics Commissioner prior to publicly commenting on Bitcoin and Bitcoin related policies,” his spokesperson Anthony Koch said in an email.

“The Office cleared him to do so without issue.”

The campaign provided an email from the Office of the Ethics Commissioner from November that said the interest in Bitcoin “does not prevent you from commenting on cryptocurrencies in general, participating in debates and vote on public policies related to the regulation of cryptocurrencies.”

The commissioner’s office also said Poilievre was free to host conversations with other MPs “on this subject matter as any policies or regulations would apply to you as one of a broad class.”

Poilievre has proposed barring the Bank of Canada from developing its own digital currency and said Canadians should be free to use alternative currencies for payments.

“We need sound money again—and also the freedom for buyers and sellers to choose #bitcoin and other technology,” he tweeted on April 1.

In March, he held an event at a London, Ont., restaurant and paid for a shawarma using Bitcoin. And at an event in April in BC, he made a Bitcoin donation to the BC SPCA, accompanied by a dog wearing a Bitcoin logo.

“A Poilievre government would welcome this new, decentralized, bottom-up economy and allow people to take control of their money from bankers and politicians,” his campaign said in a press release.

Since then, the value of Bitcoin and other cryptocurrencies has plunged, exposing Poilievre to criticism from opponents who say encouraging Canadians to invest in something so volatile is reckless.

The value of the Purpose Bitcoin ETF has fallen nearly 40 per cent over the past six months.

The Conflict of Interest Code for Members of the House of Commons requires MPs to report assets and liabilities in excess of $10,000. But it does not require them to reveal the value of their assets or when they were acquired.

Poilievre’s campaign said his holdings in Bitcoin were right around the disclosure threshold.

In his disclosure, Poilievre also reported holding exchange-traded funds based on the stock indexes of Singapore and Switzerland. His campaign said he was required under the conflict-of-interest Code to publicly disclose these ETFs, but not his holdings in a Canadian stock index fund.

“Mr. Poilievre’s largest investment by far is in Canadian Index Fund that tracks the TSX,” the campaign said.

The co-founder of ethics advocacy group Democracy Watch said MPs should be prevented from holding assets like Bitcoin.

“It’s clearly unethical for MPs or party leadership candidates to advocate for changes that will help businesses they are invested in, and the best way to stop this is to prohibit MPs from having investments,” Duff Conacher, said in an email.

During last week’s leadership debate in Edmonton, Poilievre was challenged over his past comments on Bitcoin. He should not be encouraging investment in “magic internet money,” said Brampton, Ont., mayor and leadership candidate Patrick Brown.

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“People can make their own investment decisions,” Poilievre said in response to a question from Leslyn Lewis, an Ontario Conservative MP and leadership candidate.

“I simply said they should be free to decide whether they want to use Bitcoin. I don’t want to be like communist China and ban Bitcoin or other technologies.”

Canadian investors are already free to invest in cryptocurrencies. Indeed, Poilievre is not the only MP with investments in crypto. At least seven others declared Bitcoin or other digital currency assets in their disclosures, including:

Ben Lobb (Conservative, Ontario): Bitcoin.

Chandra Arya (Liberal, Ontario): Stock options of Coinbase Global Inc.

Taleeb Noormohamed (Liberal, BC): Bitcoin, Ethereum, Stacks and Coinbase Global Inc.

Joël Lightbound (Liberal, Quebec): Purpose Bitcoin ETF, Purpose Ether ETF, Bitcoin and Solana.

Scot Davidson (Conservative, Ontario): Evolve Cryptocurrencies ETF, held by spouse.

Tony Van Bynen (Liberal, Ontario): Ethereum.

Terry Beech (Liberal, BC): Ethereum. 

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