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Delisting Chinese Firms: A Cure Likely Worse than the Disease
June 9, 2020-In May, the Senate unanimously passed a bill-the Holding Foreign Companies Accountable Act-designed to improve financial reporting by China-based firms trading on U.S. exchanges. Fraud at these firms-including most recently Luckin Coffee-has cost American investors tens of billions of dollars over the last decade. The bill thus targets a real problem. Unfortunately, its remedy is likely to hurt-not help- the American shareholders of these firms.
To reduce fraud, the Sarbanes-Oxley Act of 2002 requires audits of every U.S.-traded firm to be inspected by the Public Company Accounting Oversight Board. But U.S.-traded firms based in China, whose market capitalizations collectively exceed $1 trillion, refuse to comply. They and Beijing say PCAOB inspection of China-based audit records would violate state-secrecy laws. Why hide these records from the PCAOB? Inspections would likely turn up improper payments to officials, putting them at risk and embarrassing the Chinese Communist Party.
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Source: corpgov.law.harvard.edu
Collapsing rates leave investors dangerously exposed to equity risk
June 8, 2020--The classic portfolio-60% stocks, 40% government bonds-no longer makes sense
Covid-19 has brought us to a historic turning point in financial markets. A fundamental investment strategy that has protected institutional and retail investors alike for decades-balancing equity risk by holding high-quality government bonds-has finally run its course.
When the Fed lowered short-term rates to zero in response to the pandemic, the last shoe dropped.The implications of this change are huge. For one thing, millions of retail investors have been left largely defenceless, lacking a tried and tested means of diversifying the inevitable risk of holding equities.
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Source: FT.com
U.S. Trade Gap Widened in April Amid Coronavirus Disruptions-2nd Update
June 4, 2020--U.S. exports and imports both posted their largest monthly decreases on record amid coronavirus-related shutdowns around the world.
Imports decreased 13.7% in April. Exports, meanwhile, fell 20.5% from March. Both marked the largest month-over-month declines since record-keeping began in 1992, the Commerce Department reported Thursday.
The declines left the U.S. with a larger deficit in trade of goods and services. The foreign-trade gap expanded 16.7% from the prior month to a seasonally adjusted $49.41 billion in April. Economists surveyed by The Wall Street Journal had expected a trade deficit of $50 billion.
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Source: morningstar.com
US borrowers shun leveraged loan market as demand wanes
June 4, 2020--Borrowers that have historically turned to the US leveraged loan market are instead looking to high-yield bonds to refinance existing loans as bank debt becomes more costly and hard to access while demand for the asset class drops.
Health insurer Molina Healthcare and food distributor Del Monte Foods raised a combined US$1.3bn in bonds to repay their term loans in May. Artificial intelligence firm Cerence followed suit raising US$150m in convertible bonds to partially repay a US$270m syndicated loan, banking sources said.
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Source: reuters.com
Fidelity Launches 3 Nontransparent ETFs
June 4, 2020--It is the third asset manager to launch such funds, which are the firm's first actively managed equity ETFs.
Fidelity Investments is the latest asset manager to bring to market actively managed nontransparent ETFs.
Fidelity today introduced three such equity ETFs, each charging a 0.59% expense ratio: the Fidelity Blue Chip Growth ETF (FBCG), Fidelity Blue Chip Value ETF (FBCV) and Fidelity New Millennium ETF (FMIL). They are the firm’s first actively managed equity ETFs.
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Source: thinkadvisor.com
For U.S. economy, the bottom may be here, but the rebound is slow so far
June 4, 2020--The U.S. economy may have hit its low point in the coronavirus crash but the rebound so far remains tepid, according to both broad indexes of activity and higher frequency counts of cellphone data and employee time information.
Indicators of retail foot traffic continued climbing last week. Cellphone location data from Unacast showed the nation overall now within around 20% of its 2019 level, and an expanding group of states where traffic is now higher than it was last year.
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Source: Reuters
Wall Street strategists turn bearish on US dollar, say dramatic falls likely-FT
June 3, 2020--After the US dollar fell to its lowest in three months against its six major rivals, the Wall Street strategists, including Goldman, JPMorgan, Deutsche Bank and Citigroup, argued in recent days that the currency's long rally could be finally over, as cited by the Financial Times (FT).
Key quotes
"Several props for the dollar have recently fallen away or begun to wobble."
"We had been discouraging investors from putting dollar shorts in their portfolios during the past few months because of our concern about the [backdrop], but that has changed."
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Source: fxstreet.com
Private equity eyes $400bn windfall from US retirement savers
June 3, 2020--The Trump administration on Wednesday cleared a path for ordinary savers to invest in private equity funds through their employer-sponsored retirement accounts, handing the alternative investment management industry a victory after a years-long push.
The US labour department, which governs 401(k) retirement accounts, said private equity could be used within the professionally managed funds on offer to savers, such as target date funds which invest in multiple asset classes.
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Source: FT.com
Bears Stampede Out of High-Yield ETFs With Fed Backstop in Play
June 2, 2020--Bearish bets on exchange-traded funds that track high-yield bonds plunged as the Federal Reserve stepped into the market.
Short interest as a percentage of shares outstanding on the $12 billion SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, sank below 2%-- a four-year low ---after surging to as high as 25% in early March, according to data from IHS Markit Ltd. For the $25 billion iShares iBoxx High Yield Corporate Bond ETF, ticker HYG, bearish wagers are at the lowest level this year.
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Source: bnnbloomberg.ca
Changes Are Coming For Airline ETF, Slight Reduction In Dependence on Top 4 US Carriers
June 1, 2020--The U.S. Global Jets ETF, the lone exchange-traded fund dedicated to airline equities, is set to undergo some changes that will slightly reduce the fund's exposure to the four largest domestic carriers.
JETS follows the U.S. Global Jets Index, which typically includes 30 to 35 stocks. When that index rebalances in March, June, September and December, it assigns weights of 12% to the four largest U.S. carriers.
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Source: benzinga.com
