"The idea that somehow, there’s a way to have gotten out without chaos ensuing, I don’t know how that happens." — US President Joe Biden, referring to the unavoidable chaos with US withdrawal from Afghanistan.
IMF curbs Afghanistan’s funding access
The International Monetary Fund (IMF) said that the new government in Afghanistan is cut off from using fund reserve assets days before the nation was set to receive almost US$500 million ($682.3 million), depriving the Taliban of key resources.
The country has been in line to automatically receive new reserves, known as special drawing rights or SDRs, on Aug 16 as part of a recently approved IMF plan to inject US$650 billion of liquidity into the troubled global economy.
While Afghanistan will still receive the assets, it will not be able to use them because the new regime lacks international recognition, the IMF said.
“As is always the case, the IMF is guided by the views of the international community,” an IMF spokesperson said by email on Aug 18.
“There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRs or other IMF resources.”
By the IMF’s rules, all 190 members get the assets allocated on their balance sheets, with the total divided roughly proportionately based on their share of global economic output.
For Afghanistan, that is 0.07% of the total, or US$455 million. The vast majority of nations will be allowed to exchange the reserves for cash to pay debt or provide fund pandemic health spending.
But Afghanistan is suspended from doing so, joining a small set of countries — including Venezuela and Myanmar — who will receive the assets at the IMF but be unable to control them due to a lack of international recognition. — Bloomberg
World’s leading wealth fund makes US$110 billion as stocks soar
Norway’s US$1.4 trillion sovereign wealth fund — the world’s biggest — generated a 9.4% return in the first half of the year after its investments in energy, finance and technology companies helped drive double-digit gains in its stock portfolio.
Oslo-based Norges Bank Investment Management returned almost 14% on stocks, with energy investments up nearly 20%, it said on Aug 18. Investments in bonds and renewable energy infrastructure slipped, while real-estate holdings grew.
Its total return, equivalent to roughly US$110 billion, was marginally higher than that of the benchmark against which it measures itself.
CEO Nicolai Tangen, a former hedge-fund manager who has been running Norway’s giant sovereign investment vehicle for almost a year, has previously cautioned against expecting continued bumper returns.
Earlier this week, he said that inflation is now emerging as the biggest threat to returns with both stocks and bonds potentially vulnerable. That is amid an ongoing debate as to whether price growth is “transitory” or becoming more entrenched.
US inflation has been above 5% for the past two months, the highest in over a decade.
“The strongest performance during the period was in sectors exposed more to inflation, such as energy, financials, materials, real estate and industrials,” the fund said. What’s more, “the highest returns shifted from growth stocks to value stocks.”
Since Tangen started as CEO, Norway’s wealth fund has spoken more publicly of a commitment to sustainability. The investor plans to step up the pace at which it offloads companies that pose a risk when viewed through an environmental, social or governance lens. It will also limit its exposure to emerging markets as part of the same strategy.
Meanwhile, the fund has been pushing through a broader shift in its weighting to favour North America over Europe, in pursuit of higher returns.
On Aug 18, it revealed a 16.8% increase in the value of its technology holdings, which are dominated by stakes in Apple, Microsoft, Alphabet and Amazon. North American stocks returned 17% in the first half, and made up 45.2% of the equity portfolio.
The fund’s equity portfolio represented 72.4% of total assets at the end of June, which is slightly less than in the first quarter and shows the investor has already had to reduce its stock-market exposure to avoid straying too far from its 70% mandate.
Roughly half a decade ago, the fund was mandated to hold just 60% in stocks. — Bloomberg
SEC asking China IPOs more detailed questions on offshore structures
Chinese companies applying to go public in the US are facing increasingly detailed questions from the US Securities and Exchange Commission (SEC) about their offshore corporate structures, according to people familiar with the matter.
Many of the SEC’s queries have focused on the nature and direction of cash flows through so-called variable interest entities, which allow Chinese companies to circumvent Beijing’s restrictions on foreign ownership, the people said, asking not to be identified because the discussions are private.
SEC officials have asked the firms to quantify transfers and dividends between the parent company and other entities, as well as their respective balances and any tax implications, the people said.
The regulator has also asked for additional disclosures on political and regulatory risks in China, one of the people said, adding that new applicants may face as many as 20 more questions than was typical before this month.
The questions offer an early look at how SEC chairman Gary Gensler is following through on a pledge in late July to push for more disclosures on Chinese IPOs in New York. While some listing hopefuls may take comfort in the fact that the SEC is still engaging with them, it remains unclear whether regulators will ultimately sign off on new Chinese offerings.
Gensler said on Aug 16 that he has asked SEC staff to “take a pause for now” in green-lighting IPOs that use the VIE structure.
The Commission is turning more cautious after Chinese regulators announced scores of actions in recent weeks directed at companies in the country’s technology and education sectors, sending their share prices plunging and prompting some investors to ask whether American depositary receipts representing stakes in Chinese companies have become uninvestable.
Gensler has faced pressure to increase scrutiny of Chinese companies after shares in Didi Global plunged in the wake of its US IPO in June.
Right after the listing, China announced it was conducting a security review and restricting the ride-sharing company from adding new customers.
China later mandated cybersecurity reviews of companies listing abroad with data on more than one million users. Regulators also ordered some tutoring companies to become non-profits, wiping billions off their market value and sending investors scurrying to examine the country’s media for signs of where the next crackdown would strike.
Chinese companies from on-demand logistics firm Lalamove to home-services outfit Daojia have put their US IPO plans on hold or weighed going public in Hong Kong instead. Others, such as bike-sharing giant Hello, scrapped their registrations entirely.— Bloomberg
Goldman cuts US growth forecast to 6% this year
Goldman Sachs Group economists lowered their forecast for US economic growth for 2021, citing a bigger-than-anticipated impact from the Covid-19 delta variant that bodes for further supply-chain disruptions and elevated inflation.
The bank now sees US gross domestic product rising 6% this year, from a prior full-year forecast of 6.4%. That is lower than the median expectation of 6.2% in a Bloomberg survey, which has a low estimate of 5%. Goldman slightly boosted its 2022 forecast to 4.5%, from 4.4%.
“The impact of the delta variant on growth and inflation is proving to be somewhat larger than we expected,” Goldman economists including David Mericle wrote in a note to clients on Aug 18.
“The delta variant and other disruptions are also likely to further raise prices of supply-constrained durable goods through year-end.”
Goldman forecast a 1% drop in consumer spending in August, following a report earlier this week showing July retail sales that fell more than expected.
The economists see supply-chain hurdles plaguing companies for some time, forcing them to increase prices. They bumped up their forecast for the core personal consumption expenditures measure of inflation to 3.75% at the end of this year. — Bloomberg
Cover photo: Bloomberg
