‘Twas the week before Christmas: Mawer’s 2019 year-end investing review — in poem form - Financial Post - Canada News Media
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‘Twas the week before Christmas: Mawer’s 2019 year-end investing review — in poem form – Financial Post



Each year, some of the more creative types at Mawer Investment Management Ltd. put their lyric-writing talents to work to offer a timely variation of the “Twas the night before Christmas.”

This year, Mawer riffs on rate cuts, Brexit, trade wars, cannabis’ crazy ride and more.
The privately owned, independent investment firm, which takes pride in offering clients its “boring” investment approach, manages over $50 billion in assets for individual and institutional investors across all major investment strategies, with more than 150 employees across Calgary, Toronto, and Singapore.

‘Twas the week before Christmas

And Mawer’s on the scene
To tell you the tale
Of 2019

Was it good? Was it great?
Some say: yes! Ho, ho, ho!
(Though mixed signals and offsets
Oft’ ran the show)

Central banks’ interventions
Were less hawk than dove
Looking to bond markets
Like the North Star above

Interest rates, interest rates
The Fed doth cut thrice
Discount rates remain lower
Supporting stocks’ price

Quality is expensive
But may see us through
When you look at the long-term
With a bottom-up view

But we do pay attention
To themes that arise
That could impact markets
To avoid a surprise

Global economic growth
It did indeed slow
But shrink, it did not,
And onwards it goes

PMIs are indices
That tell you the trends
Of prevailing directions
Of the economy’s wends

Manufacturing was down
Germany was blue
A potential recession?
That could become true

But Servicing was steadfast
Employment was strong
Debt servicing manageable
Things kept chugging along.

And the saga continues
The deal’s not yet done!
Of course, we mean Brexit
It’s not a home run
Not all UK businesses
Will be affected the same
So whatever’s decided
Mawer’s still in the game.*
Oh Canada, Oh Cannabis
A wild ride for sure
A budding industry
We can’t yet endure

Now that brings us to trade wars
China vs. Trump
Tweets sending mixed messages
Stocks rise and then slump

But short-term daily movements
Don’t mean a whole lot
With great fundamentals
Our holdings—less fraught

Quality at a good price
—Both elements key—
To get the balance just right,
We work diligently.

Making sure we have offsets,
Looking for edges,
Natural contradictions
Are what make our hedges

Whether a blog or a podcast
We strive to make clear
We think micro not macro
—No predicting the year!

While the world is complex,
The road, it may wind,
We keep being boring
To give peace of mind.

* yes … we shamelessly reused this stanza from last year, as our thesis remains unchanged.

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



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



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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China's tech services are a top investment pick amid decoupling with the US, says CITIC Capital CEO – CNBC



Zhang Yichen, chairman and chief executive officer of Citic Capital Holdings Ltd.

Paul Miller | Bloomberg | Getty Images

Consumption, healthcare and technology are three sector picks for investing in China, said CITIC Capital’s top executive on Tuesday.

“For us, the top priority … is still on consumption, because it’s still growing at a higher rate than GDP growth,” said Zhang Yichen, chairman and CEO at CITIC Capital, the flagship investment arm of Chinese state-owned conglomerate CITIC Group.

China’s GDP growth was 6.1%, down from 6.6% in 2018 as the economy took a hit from its bitter trade war with the U.S.

Speaking to CNBC at the World Economic Forum in Davos, Switzerland, Zhang said health care is also an important sector as the Chinese society is aging rapidly, so there’s robust demand for good health-care services.

Another potential area for investment is technology services due to the potential decoupling with the U.S. in that area, Zhang said.

In the area of database software, “nobody in China will think of against competing with Oracle because that’s the international, the industry standard,” he said. But now, “decoupling could happen any minute, you cannot possibly run that risk, so there will be domestic competitors in that field as well.”

Beijing has been managing a transition of its economy from an export-driven manufacturing giant to one lead by domestic consumption.

Zhang said CITIC Capital has been focusing on “a lot of” buyouts in China over the last several years to deal with the consequences that come with overcapacity in “almost every” industry in China.

“Consolidation was needed to improve the return on capital, hence reducing the leverage through the improvement in cashflow, so buyout is clearly on the rise,” he said.

Going forward, “most Chinese businesses need to improve themselves through expanding internationally,” Zhang said.

However, “given the overall trade tensions, all the protectionism on the rise, we’re clearly cautious on that front as well,” he added.

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