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Nov 04, 2022

The week in investor relations: Mutual-fund pricing rule, Aramco joins oil giants’ bumper profits and stocks fall on interest rate rise

Our pick of the IR stories you might have missed this week

– The SEC proposed a mutual-fund pricing rule to protect long-term investors, reported the Financial Times (paywall), causing the industry to warn of ‘enormous negative impact’ for clients due to higher costs. Wall Street’s top regulator proposed changes to the way stock and bond mutual funds set their daily prices in order to protect buy-and-hold investors from having to bear the cost of rapid inflows or outflows, a move that drew immediate pushback from asset managers. The SEC proposal would require US funds that together hold more than $16 tn in assets to adopt so-called swing pricing, a practice common among European funds.

The New York Times (paywall) reported that Saudi Aramco, the world’s largest oil company, said it earned $42.4 bn in net income in the third quarter. The figure is more than double the nearly $20 bn ExxonMobil earned in the period. It also enabled Saudi Aramco, which is state-controlled and has a near monopoly on Saudi Arabia’s oil output, to pay a large dividend – $18.75 bn – mostly to the country’s government.

Aramco is the latest oil company to report very large profits in an environment marked by high petroleum prices after Russia’s invasion of Ukraine in February. BP, the London-based energy giant, earlier reported what it called underlying replacement cost profits of $8.2 bn for the quarter, down slightly from the previous quarter but more than double the $3.3 bn in the same period in 2021.

– Stocks fell earlier this week after the Fed delivered another three-quarter point interest rate hike and signaled that a pivot or rate cut won’t come anytime soon, reported CNBC.

The Dow Jones industrial average traded flat while the S&P 500 and Nasdaq Composite slid 0.5 percent and 0.9 percent, respectively. Yields spiked as traders digested the latest rate decision, putting pressure on equities. The yield on the two-year Treasury note hit its highest level since July 2007, while the benchmark 10-year Treasury yield popped eight basis points to 4.14 percent.

The Guardian reported that, according to an email sent from Twitter’s new leadership to its staff, Elon Musk will begin mass layoffs at the company this week, sharply reducing the social media platform’s workforce. The layoffs come as the multi-billionaire is expected to cut as much as 50 percent of Twitter’s workforce, just days after becoming head of the company he bought for $44 bn. Musk dissolved Twitter’s board of directors, consolidating his control over the platform. Meanwhile, Reuters (paywall) reported via Bloomberg that Twitter was being sued over Musk’s plans, citing a class-action lawsuit filed in a San Francisco federal court.

– The EU raised a warning over advice from TikTok ‘finfluencers’, according to Bloomberg (paywall). A senior EU official warned of the risks of financial advice on platforms such as TikTok and called on social media companies to help authorities to ensure people can access reliable information. ‘A lot of work needs to be done in the area of social media where there is advice being given around finance,’ said financial services commissioner Mairead McGuinness at an event in Dublin earlier this week.

– Peel Hunt was in talks with rivals about setting up a stand-alone company that would offer retail investors access to public offerings and other listed fund-raisings, reported the FT. The UK broker sounded out interest from potential partners including Numis, Hargreaves Lansdown and Investec about a deal that could include taking stakes in the new independent business, according to people familiar with the matter. AJ Bell and Interactive Investor have held discussions but are no longer involved. The move comes as UK ministers and regulators work on plans to encourage more retail investors to participate in the UK stock market, with involvement lagging behind countries such as the US. 

– Following the long-awaited meeting to decide on interest rates, the Bank of England confirmed this week that the UK is facing the longest recession since records began, with interest rates up to 3 percent and the pound sinking against the dollar, reported CNBC.

The central bank described the outlook for Britain’s economy as ‘very challenging’, noting that unemployment would likely double to 6.5 percent during the country’s two-year slump. UK GDP is projected to decline by around 0.75 percent over the second half of 2022, reflecting the squeeze on real incomes from surging energy and tradable goods prices.

The BBC noted that the higher interest rate will be welcomed by savers, but the rise will have a knock-on effect on for those with mortgages, credit card debt and bank loans. UK Prime Minister Rishi Sunak has promised a new plan to repair the nation’s finances later this month but tax rises and spending cuts are expected.

– September was the second-worst month for UK retail funds on record, reported the FT. UK investors continued to desert retail funds in September, withdrawing £7.6 bn ($8.8 bn) amid volatile markets and a looming recession. The high volume of sales, which marked the second-worst month for funds in the UK after March 2021, centered on equity funds, which saw £5 bn redeemed, according to the Investment Association. September, which saw the introduction of the mini-budget and subsequent chaos in bond and currency markets in the UK, marked the eighth month of outflows for the nation’s funds, which have seen £22 bn withdrawn so far this year. This is in comparison to £43 bn invested on a net basis last year and £30 bn the year before.

– As foreign funds headed for the exit, Chinese stock investors snapped up beaten-down shares of mainland firms, betting that outside views of China are overly pessimistic, reported Reuters. The gap in perception between offshore and onshore investors is so divergent, it has driven a wedge between markets in Hong Kong and China to their widest in 13 years. Hong Kong’s benchmark Hang Seng plunged 15 percent in October – the biggest monthly loss in 14 years, as Chinese President Xi Jinping consolidated power at the twice-a-decade Communist Party Congress, which triggered concerns Beijing will sacrifice economic growth for ideology.