Investors can expect more Chinese green bond issues. Investment themes will include environmental protection and spending on technological innovation, healthcare, water conservation and renewable energy.
With a development vision through 2035, there are crucial strategic investment implications:
The Plenum communique did not set any growth target for the next five years, probably because of the increasing challenges to growth and geopolitical volatility. At a later date, Beijing may set a 5.5% to 6.5% range for medium-term growth to anchor macroeconomic policy in the new five-year plan.
Industrial migration and hence reverse urbanisation to the inner parts of the country to spread income and consumption growth more evenly will be key trends to monitor when investing in the domestic-oriented sectors.
This has been reiterated as the strategic policy direction for the medium-term:
- Emphasising internal circulation (i.e. domestic demand)
- Continuing the push for (but not relying on) external circulation by opening up the domestic system, and through the Belt & Road Initiative and renminbi internationalisation.
Domestically, the emphasis is on high-end manufacturing and technology, and redirecting Chinese consumers’ overseas spending to the domestic market.
- This should be positive for domestic retailers and companies catering to Chinese buyers who previously bought items abroad.
- It is negative for those companies and countries whose retail businesses depend on Chinese tourists.
As China steps up its efforts to substitute imports and strengthen self-sufficiency, domestic brands in the technological and financial innovation sectors, industrial consolidation and consumer-upgrading will be the long-term themes driving should the equity market.
- This argues for cutting positions in companies with a high overseas exposure, such as consumer electronics companies.
- It would make sense to increase the allocation to companies and sectors that are related to state investment in the priority sectors on the policy agenda such as aerospace, defence and domestic high-tech industries.
Technology innovation and self-sufficiency
Industrial consolidation & upgrading and innovation & technological independence are set to speed up and become a strategic pillar for future development.
Expect higher R&D spending by the government in the next 5-10 years, with a focus on:
- Cloud computing
- 5G networks
- Digitisation (including, but not limited to a digital renminbi)
- Big data.
Green economy and climate change
The Plenum called for faster carbon emissions control by 2035, setting higher standards for environmental protection and pollution. This includes a higher share of non-fossil energy in overall energy consumption and reducing the energy use per unit of GDP and CO2 and SO2 emissions.
This should be positive for investment in related equipment and services.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Swiss Reject Business Liability Measure, Ban on SNB Investments – Bloomberg
Two Swiss votes that had the potential to alter the corporate landscape of a country known for low taxes and light-touch regulation failed.
Nearly 60% of voters on Sunday rejected a measure that would’ve banned the Swiss National Bank from investing in defense companies.
A second measure, the Responsible Business Initiative, was also unsuccessful. It would’ve held multinational corporations responsible for human rights and environmental lapses abroad but failed to get the requisite majority among the country’s cantons, or states.
While activists pushed for the two initiatives in a bid to force businesses and investors to adhere to higher moral standards, Switzerland’s government argued they’d hurt the economy.
Multinational corporations also campaigned against the RBI, saying it would’ve saddled them with additional bureaucracy and had the potential to cause a flood of lawsuits.
“Of course I’m disappointed,” lawmaker Mattea Meyer, who supported the RBI, told broadcaster SRF.
For the SNB, the vote result means it escapes having to offload stocks valued at almost 20 billion francs ($22 billion). The central bank holds the equities as part of its mammoth 870 billion francs in reserves, built up during a decade of currency interventions.
The initiative would also have stopped pension funds from providing both debt and equity financing to companies that derive more than 5% of their revenue from arms sales.
The failure of the RBI paves the way for the adoption of the government’s less stringent counterproposal. It’ll institute new reporting and due-diligence for firms.
Initiatives require 100,000 signatures to make the national ballot in Switzerland. To be successful, they must get a majority of votes, as well as a majority of cantons.
Stefan Brupbacher, director of machine industry group Swissmem, said he was “relieved” that damage to the Swiss economy and employment was averted.
Swiss Ban on SNB Arms Investment Trending Toward 'No,' SRF Says – BNN
(Bloomberg) — Swiss voters appear to be on course to reject a measure that would ban the country’s central bank from investing in defense companies, according to broadcaster SRF.
Results are due later on Sunday. No trend was yet available for an initiative on corporate ethics, the broadcaster said.
The Swiss National Bank holds defense company stocks as part of its mammoth 870 billion francs ($960 billion) in reserves. It’s a passive investor, merely tracking indexes, but anti-war activists argued a ban would send a strong signal about the ethics of weapons financing.
©2020 Bloomberg L.P.
Investment fees you don’t realize you’re paying – Sentinel & Enterprise
When it comes to investing, there are some things you can’t control. However, the one thing all investors can control is how much they pay in fees.
Numerous studies and surveys over the years have consistently demonstrated that when it comes to investment fees, most investors are unaware of two things: how much they are paying, and how they are paying for it.
One of the biggest reasons most investors are unaware how much they are paying is due to the fact that the vast majority of financial advisers and all mutual-fund fees are automatically deducted from their accounts.
Financial adviser fees
One of the most common methods of compensation for fee-only and fee-based advisers is based on the number of assets they have under management. When it comes to being compensated for their services, more than 95% of financial advisers choose to have their management fees automatically deducted from their client’s accounts. The problem with this “out of sight, out of mind” compensation arrangement is that a financial adviser’s fees are reducing the returns of a portfolio you are paying your adviser to grow.
The industry average asset management fee is 1.1%. At Capital Wealth Management, our asset management fee is 0.5%; however, unlike most financial advisers, we never deduct our management fee from our client’s accounts. Every quarter we mail our clients a detailed invoice that allows them to write a check from a separate outside account, earning little to no interest for our asset-management services, thus keeping more money in their account to grow for retirement.
An additional fee that investor’s have is that associated with investing in mutual funds. Every mutual fund has fees and, similar to most financial advisers, all mutual funds automatically deduct their fees from their shareholders’ accounts. The average stock mutual fund has an expense ratio of about 1%. At Capital Wealth Management, approximately 75% of our clients’ assets are invested in index funds, which have an average expense ratio of 0.1%.
Both fees combined
Mutual-fund fees combined with any fees deducted from an account to pay for a financial adviser’s management fee can significantly reduce the rate of return an individual investor can earn over time. The average financial adviser’s fee of 1.1% and mutual-fund fees of 1% combine for a total pf 2.1% in annual fees deducted from an account.
At Capital Wealth Management, the total fees deducted from our clients’ accounts is 0.1%, for a difference of 2%. How much can this 2% difference in fees make?
Say two individuals each have the same starting portfolio value of $500,000, and earn the same average annual return (before fees) of 8% over 10 years. Portfolio A’s financial adviser and mutual-fund fees of 2.1% are automatically deducted from his account. Portfolio B chooses to pay his financial adviser’s feefrom a separate outside account rather than having it deducted from his account. As a result, the only fees deducted from Portfolio B are the mutual-funds fees of 0.1%. The results after 10 years:
Portfolio A’s total fees: $136,657; Portfolio B’s total fees: $7,201.
Portfolio A’s average return after fees: 5.7%; Portfolio B’s average return after fees: 7.8%.
Portfolio A’s ending value: $873,007; Portfolio B’s ending value: $1,068,721.
Portfolio B ends up with $195,714 more than Portfolio A. The $129,456 of savings in fees allows an additional $66,258 of earnings to compound. This additional 22% of savings is due entirely to Portfolio B’s lower fees.
The fact is that high fees reduce investment returns, and it’s important for all investors to understand what investment fees they’re paying, and how they are paying for them.
Martin Krikorian, is president of Capital Wealth Management, a “Fee-Only” registered investment adviser at 9 Billerica Road, Chelmsford. He is the author of the investment books, “10 Chapters to Having a Successful Investment Portfolio” and the “7 Steps to Becoming a Better Investor.” He can be reached at 978-244-9254, Capital Wealth Managements website; www.capitalwealthmngt.com, or via email at, email@example.com.
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