1 China worries lead to worst week for markets in
years (San Francisco Chronicle) Growing concerns about a slowdown in China
shook markets around the world on Friday, driving the US stock market to its
biggest drop in nearly four years.
The rout started in Asia and quickly spread to
Europe, battering major markets in Germany and France. In the US, the selling
started early and never let up. Investors ditched beaten-down oil companies, as
well as Netflix, Apple and other technology darlings. Oil plunged below $40 for
the first time since the financial crisis, and government bonds rallied as
investors raced into hiding spots.
"Investors are wondering if growth isn't coming
from the US or China, where is it going to come from?" said Tim Courtney,
chief investment officer of Exencial Wealth Advisors. "This is about
growth."
By the time it was over, the Standard and Poor's 500
index had lost 5.8 percent for the week, its worst weekly slump since 2011.
That leaves the main benchmark for US investments 7.7 percent below its
all-time high — within shooting range of what traders call a
"correction," a 10 percent drop from a peak. The Dow Jones industrial
average fell 530.94 points, or 3.1 percent, to 16,459.75. That's 10 percent off
its high, a correction.
For all the markets’ jitters, many economists say
they remain confident that the US economy is resilient enough to withstand a
slowdown in the developing world. And Europe's economy appears to be emerging
from its long slump.
2 Fears of a 1997 repeat in Asia (Karishma Vaswani &
Robert Peston on BBC) Emerging markets' currencies tumbling to near record
lows. Millions of dollars’ worth of foreign funds pulled out of stock markets
in the region. And some investors around the world fearing a major financial
meltdown. It certainly feels like we've been here before.
Many in Asia's financial circles are calling this a
re-run of the 1997-1998 Asian financial crisis. The meltdown in Asia was set
off when Thailand floated the baht in 1997, setting off a domino effect in the
region where one by one, currencies fell against the US dollar. Today, many are
worried that China's devaluation last week could set off a similar trend.
Emerging markets are in a far stronger position than
they were back in 1997-98. They have stronger current account balances, higher
foreign exchange reserves and mostly floating as opposed to fixed exchange
rates - which means they don't have to be defended from speculative attacks.
The other factor to consider is India's economy - it
now claims higher growth than China's (although many analysts have questioned
how those figures have been calculated) and its stock exchange - the Sensex -
has seen record inflows in the last six months, attracting investors who have
fled from the volatility in Chinese shares.
So it could provide an alternative engine for global
growth, if the government's figures are to be believed. So that's all good news
- and should have investors and policy-makers breathing a sigh of relief.
Daily stock market fluctuations in a highly
connected and globalised world are to be expected, but they shouldn't
necessarily be seen as the beginning of the end of the world. What we should be
paying more attention to, perhaps, is whether there are long lines outside of
our banks and supermarkets. Now that's what you call a crisis.
3 A $870bn fund learns to use its clout (Richard
Milne in Financial Times/Gulf News) Yngve Slyngstad is something of a corporate
philosopher. Slyngstad, who heads Norway’s oil fund, the world’s largest
sovereign wealth fund, is not merely content with trying to make more money for
the local population. He is also thinking deeply about how companies and
markets work.
“Where do we actually see the public company going
forward? How can we make sure that the public company is actually able to put
together a profitable proposition and appropriate flexibility in the way they
run their business?” he says in an interview in his office in Norway’s central
bank, which manages the fund.
Underlying all this is the extraordinary scale of
the oil fund. Less than two decades old, it has experienced a particular growth
spurt in the past 10 years as its assets have grown sevenfold to $870 billion. Its
size can be difficult to comprehend — it has stakes in almost 10,000 companies
and on average owns 1.3 per cent of every group listed on a stock market
globally.
However, with this power comes responsibility. The
size of the fund’s stakes in many companies means it has been forced to
jettison its insistence that it is a mere financial investor and take a more
active ownership role and focus on corporate governance. In the past two years
the oil fund has moved to becoming an active investor in at least three
different ways.
First, it has started revealing its voting
intentions at annual meetings. Currently, it discloses how it voted the day
after the meeting. Second, the fund is issuing “position papers” setting out
its corporate governance principles. So far it has only released two — on proxy
access and the ability to vote on individual directors — but Slyngstad says it
should be 20 by the end of next year.
The third area of engagement has been more local.
Under the Nordic model of governance, a company’s largest shareholders often
sit in the nomination committee that decides who the board members will be.
After years of declining to join them, the oil fund signed up in 2013 to its
first two: truck maker Volvo and paper company SCA, both in Sweden.
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