Business Maverick

Business Maverick

January 23: Five Things You Need to Know to Start Your Day

The Chinese city at the centre of the deadly coronavirus outbreak is on lockdown, the UN has accused Saudi Crown Prince Mohammed bin Salman of hacking Jeff Bezos’ phone and hedge funds suffered almost $98 million in outflows last year. Here are some of the things people in markets are talking about today.

On Lock Down

The city at the centre of a widening respiratory-virus outbreak suspended outbound flights and rail service, as China ramps up efforts to contain an illness that’s killed at least 17 people and infected hundreds. The travel halt by the city of Wuhan was reported by state broadcaster CCTV. The halt also includes travel by bus, subway and ferry. Citizens shouldn’t leave the city without special reasons, the report said. Health officials around the world have been racing to control the SARS-like virus that first appeared last month, as the death toll nearly doubled from a previous total of nine. There have been more two “preliminary positive” reports of the pneumonia-causing virus in Hong Kong, one diagnosis in the U.S., and patients under examination in Mexico and Russia. On Wednesday, the World Health Organization delayed a decision on whether to declare the outbreak a public health emergency of international concern, a designation used for complex epidemics that can cross borders. Tedros Adhanom Ghebreyesus, director-general of the WHO, said China’s response has been “commendable” but the WHO was nevertheless sending a team to work with Chinese authorities on tackling the outbreak.

Markets Drop

Asian stocks looked set to resume declines amid ongoing efforts to control the widening coronavirus outbreak. U.S. equities pared earlier gains to close flat and Treasury yields edged lower. After a day of respite Wednesday from a sharp sell-off earlier in the week, futures in Japan, Hong Kong and Australia pointed lower again Thursday, which is also the final day of trading for mainland Chinese equities before the week-long Lunar New Year holiday. In a volatile session, the S&P 500 Index ended up less than 0.1%, lifted by gains in technology shares and positive earnings reports but held back by concern about the virus. Meanwhile, the European Central Bank later decides on policy when its two-day meeting concludes, followed by a press conference with President Christine Lagarde. The pound climbed after U.K. Prime Minister Boris Johnson’s Brexit deal cleared its final hurdle in Parliament. Elsewhere, oil tumbled on concern the market is oversupplied. The Australian dollar was steady ahead of jobs data.

Hacked

United Nations experts accused Saudi Crown Prince Mohammed bin Salman of possible involvement in hacking Jeff Bezos’s phone in an effort to “influence, if not silence” reporting on Saudi Arabia by the Bezos-owned Washington Post. Bezos’s iPhone was infiltrated via an MP4 video file sent from the WhatsApp account used by the prince in 2018, according to a statement Wednesday by U.N. independent experts appointed by the Human Rights Council. Why? Around that time, Jamal Khashoggi, a Saudi dissident who was living in self-imposed exile in the U.S. and working as a columnist for the Washington Post, was writing pieces critical of the Saudi government. Khashoggi was murdered at the Saudi consulate in Istanbul in October 2018 by agents of the Saudi government, and as the Post began to report on the murder and role of the Saudi government and crown prince, a massive online campaign was being waged against Bezos, (who is also the chief executive officer of Amazon.com Inc.) identifying him principally as the owner of the Washington Post and prompting Twitter hashtags of “Boycott Amazon.” Meanwhile, Bezos remembered the slain Saudi journalist on Twitter hours after the UN came forward with the accusation, tweeting the hashtag #Jamal, along with a photo of himself at a memorial service for Khashoggi held in Istanbul in October.

Risky Business

After years of falling debt yields and new technologies enabling one-click purchases of complex financial products, mom and pop investors around the world are making bets that put them at danger of getting burned. In South Korea, regulators are investigating sales of derivative-linked products that caused individuals to lose almost all their invested money. Chinese savers have ignored government warnings about possible losses on so-called wealth management products. In India, shadow banks whose woes have triggered a credit crisis have sold bonds to the public. The list goes on. Amateur investors are trying to make up for decreasing yields by getting into risky markets they aren’t familiar with and don’t fully understand, and those bets are popping up all over the globe. Advances in technology including high-speed computing may also be fueling speculative trading, and in the worst case, the fallout could be mass individual defaults that hurt the financial sector, according to Rawley Heimer at Boston College. Failure in these markets can be disastrous, leading some to ask: Should the authorities step in?

Hemorrhaging Hedges

Hedge funds suffered almost $98 billion in outflows in 2019, the most in three years, as managers trailed the stock market rally. Investors pulled more than $16 billion from the industry in December alone, capping a year that saw the longest stretch of monthly client withdrawals since the 2008 financial crisis, according to data compiled by eVestment. The redemptions equal about 3% of industry assets and are almost triple the $37.2 billion in outflows seen in 2018. Hedge funds are under pressure as investors revolt after years of high fees and lacklustre performance. Closures have outpaced openings in a difficult fundraising environment, and marquee names including billionaire Louis Bacon have shut funds or returned client capital. The spike in redemptions came as the industry lagged behind the S&P 500 Index, which returned 31% last year with dividends reinvested. Hedge funds on average gained 9.2%, according to data compiled by Bloomberg. Even the year’s top-performing strategy, equity funds, ended 2019 with outflows of $27.5 billion.

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