Long-term investors are turning to alternative assets & private markets to lift returns in a low-growth world
By Elaine Kurtenbach
THE ASSOCIATED PRESS
BANGKOK _ News that a new virus that has afflicted hundreds of people in central China can spread between humans has rattled financial markets and raised concern it might wallop the economy just as it might be regaining momentum.
Health authorities across Asia have been stepping up surveillance and other precautions to prevent a repeat of the disruptions and deaths during the 2003 SARS crisis, which caused $40 billion-$50 billion in losses from reduced travel and spending.
The first cases of what has been identified as a novel coronavirus were linked to a seafood market in Wuhan, suggesting animal-to-human transmission, but it now is also thought to be spread between people. As of Wednesday, more than 500 people were confirmed infected and 17 had died from the illness, which can cause pneumonia and other severe respiratory symptoms.
A retreat in financial markets on Tuesday was followed by a rebound on Wednesday, as investors snapped up bargains. Share benchmarks were mostly higher both in Asia and in Europe.
While the new virus appears much less dangerous than SARS, “the most significant Asia risk could lie ahead as the regional peak travel season takes hold, which could multiply the disease diffusion,” said Stephen Innes, chief Asian strategist for AxiCorp. “So, while the risk is returning to the market, the lights might not turn green until we move through the Lunar New Year travel season to better gauge the coronavirus dispersion.”
The 2003 outbreak of Severe Acute Respiratory Syndrome in China, along with cases of a deadly form of bird flu, resulted in widespread quarantine measures in many Chinese cities and in Hong Kong. More than 8,000 people fell sick and just under 800 people died, a mortality rate of under 10%.
While the ordinary flu kills hundreds of thousands of people each year, such new diseases raise alarm due to the uncertainties over how deadly they might be and how they might spread. That’s especially true during the annual mass travel of the Lunar New Year festival, which begins this week.
“The cost to the global economy can be quite staggering in negative GDP terms if this outbreak reaches epidemic proportions as, until this week, the market was underestimating the potential of the flu spreading,” Innes said in a report.
In China, health officials stepped up screening for fevers. “We ask the public to avoid crowds and minimize the public gatherings to reduce the possibility of cross-infection,” Li Bin, deputy director of the National Health Commission, said Wednesday.
Just as with SARS, though, the impact of the disease is likely to fall heaviest on specific industries, such as hotels and airlines, railways, casinos and other leisure businesses and retailers, analysts said. Most declined Tuesday but rebounded on Wednesday as investors locked in profits ahead of the Lunar New Year holiday. The outbreak is a boon, meanwhile, for pharmaceutical companies and makers of protective masks and other medical gear.
“If the pneumonia couldn’t be contained in the short term, we expect China’s retail sales, tourism, hotel & catering, travel activities likely to be hit, especially in the first and second quarters,” said Ning Zhang of UBS. Government efforts to offset the shock would help, but growth will likely rebound less than earlier forecast, Zhang said.
As of Jan. 17, the World Health Organization had not recommended any international restrictions on travel but urged local authorities to work with the travel industry to help prevent the disease from spreading while warning travellers who fall ill to seek medical attention.
The illness is yet another blow for Hong Kong, whose economy is reeling from months of often violent anti-government protests. The wider concern is China, where the economy grew at a 30-year low 6.1% annual pace in 2019. An interim trade pact between Beijing and Washington had raised hopes that some pressure from tensions between the two biggest economies might ease, and the latest data have showed signs of improved demand for exports.
The virus outbreak raises the risk such optimism might be premature.
“According to our analysis of the spread of the SARS virus, which so far appears very similar to 2019-nCoV (the new virus), we expect increased downward pressure on China’s growth, particularly in the services sector,” Ting Lu and other analysts at Nomura in Hong Kong said in a commentary.
The growing number of global travellers has contributed to the spread of various diseases in recent years, including Middle East respiratory syndrome, the Ebola and Zika viruses, the plague, measles and other highly contagious illnesses.
The World Economic Forum estimates that pandemics _ cross-border outbreaks like the flu that killed 50 million people a century ago _ have the potential to cause an $570 billion in annual economic losses.
The 2014-16 Ebola virus epidemic caused losses amounting to over $2.2 billion, according to the World Bank. That includes a 40% decrease in the number of working Liberians at the height of the crisis, lower exports and harvests, and costs for combating the disease.
Apart from the human tragedy, such crises gobble up resources needed for other government spending, exacting a harsh toll on the poorest economies. In Africa, the loss of health care workers to Ebola resulted in thousands more deaths of mothers and babies, hindered work on other diseases such as preventing and treating malaria, HIV/AIDS and tuberculosis, reduced vaccination rates and fewer surgeries, the World Bank said in a report.
Many survivors, meanwhile, suffer from lingering effects of the illnesses and the powerful drugs used to save their lives, becoming more vulnerable to hunger and other risks.
At the same time, increasingly sophisticated tools for collecting data and analyzing are aiding efforts to prepare for and cope with severe disease outbreaks.
In 2016, the World Bank set up a $500 million rapid response insurance fund, working with the WHO and insurance companies, to combat pandemics in developing countries. The fund uses “cat bonds,” or catastrophe bonds, whose principal will be lost if the funds are needed to help deal with an outbreak. Private insurers have followed with products of their own meant to hedge against risks from such disasters.
By Kelsey Sheehy
THE ASSOCIATED PRESS
Money, it’s a gas. Unless you need to borrow some from your parents. Then it’s a conversation many adults will avoid at all costs, even if it means paying for groceries with couch nickels.
That’s not the only money conversation we avoid. More than 60% of millennials have never asked for a raise, largely because they don’t feel comfortable doing so, according to the salary data site PayScale. In many couples, partners hide debt, sometimes to the detriment of their relationship.
Avoiding these conversations often yields worse results than simply facing them head-on. These tips will help you get through tough money talks, like asking your parents for money, negotiating your salary and talking to your partner about money.
ASKING YOUR PARENTS FOR MONEY
Even bonafide adults need help from the bank of mom and dad sometimes. In fact, 70% of young adults (ages 18-34) received financial support from their parents in the past year, according to a 2018 survey by Merrill Lynch.
_ BE SPECIFIC. Tell your parents where you could use their help, whether it’s covering some (or all) of your rent, paying your car insurance, or buying groceries. Say upfront if you need ongoing help, rather than going back to them each month for more money.
_ OWN YOUR MISTAKES. This will play better than blaming other people or circumstances, says Nathaniel Ivers, an associate professor in the department of counselling at Wake Forest University.
_ PRESENT A PLAN. Create a budget to show your parents that you are trying to get your finances under control. Ask for their input and avoid getting defensive if they scrutinize your spending.
Taking this advice into account, Ivers suggests your ask could sound something like this:
“I was wondering if you could help me with my rent this month. I had a lot of unforeseen expenses (give examples) and, honestly, I didn’t manage my expenses as well as I could have.
“I have already started a budget to monitor things more closely. Would you be willing to go over it with me? It’s kind of tight, but if I cut down on some of the extra things … I will definitely have enough to cover things next month.”
TALKING WITH YOUR PARTNER ABOUT DEBT
Debt is a reality in most relationships, so it’s wise to disclose any you carry when things get serious. Ripping off the debt Band-Aid may be terrifying, but it can ultimately strengthen your bond, says Marla Mattenson, a relationship expert.
“The more comfortable you get about talking about your finances together, the easier it will be for you to discuss all the challenges that arise in a relationship,” Mattenson says.
Ask your partner to set aside time to chat and give them a heads up on where the conversation is heading, she adds. Keep it simple, something like: “Can we set aside 30 minutes sometime this week to talk about my personal finances?”
Be transparent during your conversation about how you got into debt, whether it’s student loans, credit cards or a combination of the two, and articulate your plan to pay off your debt. You should also share with your partner any fears you have about how this might affect your relationship.
Your salary serves as the basis for future raises and job offers. That’s why negotiating your salary at the outset and throughout your tenure is critical. Here’s how to approach the conversation.
_ RESEARCH INDUSTRY SALARY. Use sites like Glassdoor to research salaries by city and company and ask people in your network what someone with your experience can expect to earn. If you’re comfortable, talk to current coworkers about their compensation when angling for a raise.
_ BRING A LIST OF WINS. Come to the conversation armed with tangible examples of how you’ve added value to the company (if you’re asking for a raise). Prepare a list of business you’ve brought on, successful campaigns you’ve run or other metrics you’ve moved. If you’re negotiating for a new job, articulate how your skills and experience will add value to your new employer.
_ BE PREPARED FOR A `NO.’ If your boss declines your raise request, ask for an explanation. Welcome any recommendations for how to improve your performance and set the expectation that you would like to revisit the conversation in the coming months. When negotiating for a new job, find out if there is any wiggle room and consider negotiating for benefits like more vacation time in lieu of a higher starting salary.
Source: Nerd Wallet
The annual pace of inflation heated up in November as gasoline prices posted their first year-over-year increase since October 2018, Statistics Canada said Wednesday.
The agency said the consumer price index rose 2.2 per cent compared with a year ago to end a three-month streak where the annual pace of inflation had held steady at 1.9 per cent.
The increase in the pace of inflation compared with October came as energy prices in November posted their first year-over-year increase since April. Energy prices climbed 1.5 per cent compared with a year ago compared with a decline of 2.9 per cent in October.
Gasoline prices were up 0.9 per cent year-over-year compared with a drop 6.7 per cent in October.
Royal Bank senior economist Josh Nye said oil prices were down in November last year.
“The fact that wasn’t repeated this November means energy price growth is back into positive territory,” he said, noting that inflation will likely remain above two per cent in the short term due to the lower gasoline prices a year ago.
The strongest pace in a decade
However, Nye said the underlying inflation trends appear to be firming with the average of the core measures of inflation at their strongest pace in a decade.
Excluding gasoline, which had been weighing on overall inflation in recent months, the consumer price index was up 2.3 per cent compared with a year ago, matching the increase in October.
And, the average of Canada’s three measures for core inflation, which are considered better gauges of underlying price pressures and are closely watched by the Bank of Canada, was 2.17 per cent compared with a revised figure of 2.10 per cent for October.
In the statement accompanying the Bank of Canada’s decision to keep its key interest rate on hold at 1.75 per cent earlier this month, the bank said it expected inflation to increase temporarily in the coming months due to year-over-year movements in gasoline prices.
However, the central bank said at the time that it “continues to expect inflation to track close to the two per cent target over the next two year
Higher costs for food, auto insurance, mortgage interest
CIBC senior economist Royce Mendes said the Bank of Canada won’t be too concerned with headline inflation rising above two per cent for a few months, given that it’s largely the result of base effects.
“However, if the core measures accelerate further, monetary policy-makers could start to take more notice of consumer prices, something they haven’t had to do given that inflation has been so consistently around the central bank’s target recently,” Mendes wrote in a report.
The overall increase in prices of 2.2 per cent compared with a year ago was driven by increased mortgage interest costs, passenger vehicles and auto insurance premiums. The increases were partly offset by lower prices for telephone services, Internet access and traveller accommodation.
Canadians also saw the price for meat rise 5.2 per cent compared with a year ago, the fifth month of increases at or above 4.0 per cent. The cost of fresh or frozen beef was up 6.2 per cent, while ham and bacon prices rose 9.1 per cent. Fresh or frozen pork was up 0.7 per cent.
Regionally, prices on a year-over-year basis rose more in November in every province except British Columbia.
Massive reorganization at one of the country’s largest financial services firms
By David Scanlan | Bloomberg.com
Billionaires Andre Desmarais and Paul Desmarais Jr. are stepping down as co-chief executive officers of Power Corp. of Canada as part of a massive reorganization at one of the country’s largest financial services firms.
The Desmarais brothers, sons of the family who runs the Montreal-based firm, will stay on as chairman and deputy chairman. Jeffrey Orr, current CEO of the Power Financial Corp. unit, takes the top job at a new entity combining the two main units of the insurance and asset management company.
“The reorganization is a natural step that reflects our evolution from a diversified holding company into one that is primarily focused on financial services,” Andre Desmarais, 63, said in a statement Friday.
Shares of Power Corp. surged as much as 7.5 per cent, heartened also by a 10 per cent increase in the dividend, while Power Financial was up as much as 9.4 per cent. Both were the biggest intraday increases in a decade and handing the brothers an immediate payoff. The family was worth $8.38 billion in 2018, putting them seventh among Canada’s wealthiest families according to Canadian Business magazine.
By combing the two companies, Power Corp. says it will simplify its corporate structure, eliminating the dual-holding format and reducing costs. That may help unlock shareholder value. Neither Power Financial nor Power Corp. have regained their pre-2008 financial crisis highs, unlike the country’s big banks.
Power Corp. also said the new structure should allow the company to focus on financial services, where it faces relentless pressure on fees from ETFs and robo advisers, and from declining interest rates for its life insurance business. Power businesses include insurer Great-West Lifeco Inc. and money manager IGM Financial Inc.
“Canadian banks have been able to take advantage of their booming individual, or retail, businesses in Canada to substantially grow their earnings and balance sheets,” Paul Desmarais Jr., 65, said in a May 2018 speech. “By contrast, during the same 10-year period, the individual businesses of the three major Canadian life insurance companies – including our subsidiary Great-West Lifeco – have more or less stagnated.”
As part of the reorganization, Power Financial shareholders will receive 1.05 Power Corp. subordinate voting shares, or $33.50, and some cash for each share they own. That’s little more than the $32.77 Power Financial last traded at. Power Financial is currently controlled by Power Corp.
“There’s change but it’s evolutionary change and it’s continuity,” Orr told analysts on a conference call. “It’s just part of an ongoing strategy that we’ve been pursuing to create shareholders value.”
The shake-up makes no mention of Paul Desmarais III, 37, son of Paul Jr. and a senior vice president of Power Corp. who oversees the company’s startup strategy, which includes majority-owned robo adviser Wealthsimple Inc. He is also the executive chairman of Sagard Holdings, a subsidiary of Power Corp. which has invested in public and private equity since its founding in 2005 and has moved into private credit last year.
The Desmarais family will continue to control the company through its Pansolo Holding Inc.
With assistance from Sandrine Rastello, Paula Sambo and Doug Alexander
JAMES BRADSHAW BANKING REPORTER | The Globe and Mail
Brookfield Asset Management Inc.’s private-equity arm is making a long-term bet on Canada’s mortgage market with a $2.4-billion deal to take control of Genworth MI Canada Inc., the country’s second-largest mortgage insurer.
Brookfield Business Partners LP, a publicly-traded subsidiary of the global asset manager, is acquiring a 57-per-cent stake in Genworth MI Canada from the mortgage insurer’s American parent company, Genworth Financial Inc.
Brookfield will pay $48.86 a share for nearly 49 million shares in Genworth MI Canada – a 5-per-cent discount to the price at Monday’s close on the Toronto Stock Exchange, but an 18-per-cent premium compared with the date when the company was formally put up for sale.
The deal appears to relieve a headache for Richmond, Va.-based Genworth, which has waited years for regulators to approve a separate deal that would see the American company acquired for US$2.7-billion by a privately held Chinese buyer, China Oceanwide Holdings Group Co. Ltd. That transaction, which was first announced in October, 2016, has stalled while awaiting approval from Canadian regulators and federal officials, who are required to consider the potential impact on Canada’s mortgage industry and have held the deal up over national-security concerns, even after U.S. regulators gave it a green light.
Earlier this summer, Genworth Financial announced it was considering “strategic alternatives” for Genworth MI Canada, seeking to break the deadlock. That raised the prospect that, absent a suitable buyer, Genworth Financial’s stake in its Canadian subsidiary might have to be sold into the public market at a discount. But Brookfield emerged with deep pockets and the industry expertise needed to take control.
“We are pleased to find such a high-calibre buyer for our interest in Genworth Canada,” said Genworth Financial president and chief executive Tom McInerney.
Genworth Financial’s share price shot up 15.8 per cent on Tuesday, and Brookfield Business Partners shares rose 2.7 per cent, but stock in Genworth MI Canada fell 1.7 per cent.
The Canadian arm of Genworth is a rare asset. It is Canada’s largest private-sector mortgage insurer, providing a backstop against defaults to residential mortgage lenders, and it trails only the government-owned Canada Mortgage and Housing Corporation (CMHC) in size. Its only privately owned competitor is Canada Guaranty Mortgage Insurance Company, which is jointly owned by Ontario Teachers’ Pension Plan and financier Stephen Smith.
Genworth Canada currently has a 33-per-cent share of the country’s mortgage-insurance market, while CMHC holds half and Canada Guaranty the remaining 17 per cent, according to data from RBC Dominion Securities Inc. But the federal housing agency has been ceding its share to the private insurers.
Genworth’s improving position in a highly consolidated market made it a logical target for Brookfield Business Partners, which seeks to acquire and manage companies in sectors where the barrier to entry is high. Brookfield also has extensive expertise in mortgages and housing: It is one of the largest residential real estate developers in North America, active in real estate financing, and owns the Royal LePage brokerage.
Brookfield Business Partners managing partner David Nowak described Genworth Canada as “a high-quality leader in the mortgage-insurance sector,” in a statement.
The total share of mortgages that are insured has been falling, from 57 per cent in 2015 to 41 per cent in 2019, according to a recent CMHC report. The shift toward uninsured mortgages comes as regulators have tightened rules on mortgage lending, requiring borrowers to meet stricter tests to qualify for mortgage insurance.
Even so, the housing sector as a whole has continued to grow, adding a steady stream of new demand for mortgage insurance, particularly from first-time home buyers. And Brookfield is betting that Genworth can grab a larger share of the market, making full use of Brookfield’s deep relationships with banks that do the lion’s share of Canada’s mortgage lending.
The deal is expected to close before then end of 2019, subject to approvals from Canada’s banking regulator and Minister of Finance.
Brookfield is not currently looking to acquire the 43 per cent of Genworth MI Canada’s shares that are owned by other investors. But Jaeme Gloyn, an analyst at National Bank Financial Inc., said that prospect “is not entirely off the table” and “would likely unfold at a premium” to the price Brookfield is paying for control.
Ratings agency DBRS Ltd. called the deal “positive for Genworth Canada,” which has been more stable than its U.S. parent.
Oceanwide Holdings consented to the transaction and extended the deadline to finalize its own deal with Genworth Financial until Dec. 31.
Source: The Globe and Mail