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Norway’s $1tn wealth fund urged to keep oil and gas investments

Government advisers reject central banks proposal to sell billions held in oil stocks

Government advisers have urged Norway not to ditch oil and gas investments from its $1tn sovereign wealth fund, in a setback for those backing the worlds biggest fossil fuel divestment.

Norways central bank last year recommended the fund sell the billions it holds in oil stocks to avoid the risk of a permanent drop in crude prices.

However, a government-appointed commission has rejected the proposal, warning that a less diverse investment strategy would have major consequences for the funds returns.

A sale of energy stocks would challenge the current investment strategy of the fund, with broad diversification of the investments and a high threshold for exclusion, the commission said on Friday.

The Government Pension Fund Global was built off the oil and gas revenues that have made Norway rich.

It also has major holdings in international oil firms, including $6.14bn in Shell, followed by billions of dollars invested in other oil majors such as BP, Chevron, ExxonMobil and Total.

It has smaller stakes in the Italian oil firm Eni, the US oil firm ConocoPhillips and the US oil services group Schlumberger. Most oil company share prices have climbed in the past year along with crude prices.

Divesting those stocks was not an effective insurance against the substantial hit Norway faced to its tax take if its oil and gas sector was hurt by an oil price crash, the commission argued.

The commission, headed by the economist ystein Thgersen, said the funds existing investment strategy was simple, well-founded and has served the fund well.

Nicol Wojewoda, the Europe team leader at the climate campaign group 350.org, said: This summer Nordic heatwaves, wildfires in the Arctic Circle and alarming news of the thickest Arctic sea ice starting to break up, have brought climate change so close to home for Norway. It seems unthinkable to continue to invest in companies that have caused this chaos.

The government said a final decision would be made this autumn.

Siv Jensen, the minister of finance, said: Together with the advice from Norges Bank [the central bank] and the public consultation of the banks advice, this report will constitute a solid foundation for decision-making.

Norways state-owned oil company Statoil earlier this year rebranded itself as Equinor, to reflect what it said was its new role as a broad energy company.

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Why Emerging Markets Need to Keep Pace With the Fed

A U.S. 10-year bond yield at 5 percent? Emerging markets positioned for any such possibility are being handsomely rewarded. 

Over the last month, Indonesia and the Philippines were among the world’s best-performing stock markets, with the Jakarta Composite Index gaining about 6 percent and the Philippine Stock Exchange PSEi Index up more than 9 percent.

Surprise Rally

Indonesia and the Philippines were among the best-performing emerging markets in the last month

Source: Bloomberg

Some of this could be a relief rally, because both markets were battered earlier in the year, but the hawkish stance of those nations’ central banks helped. Bank Indonesia has increased the benchmark rate by a full percentage point over the past three months, including a bigger-than-expected half-point hike on June 29. The Philippine central bank pushed its rate up a half-point this year and is expected to raise by another 50 basis points at an Aug. 9 meeting.

One can argue that Indonesia and the Philippines are insulated from the escalating global trade war. Their listed companies tend to be domestic and services-oriented: Nomura Securities reckons their combined revenue from overseas is less than 10 percent of the total. 

But weak national currencies are a risk for dollar-based investors. This year, foreigners pulled $3.5 billion from Indonesia and $1.3 billion from the Philippines after bruising 6.3 percent and 5.9 percent declines in the rupiah and the peso, respectively. That was the worst outflow in at least a decade.

Last week, foreign investors were net buyers of stocks in both markets for the first time since January. Before the trickle can turn into a flood, however, they need to see the rupiah and the peso stabilize – especially as the People’s Bank of China is deploying the yuan as a weapon in the trade dispute with the U.S. 

Currency Weapon?

The yuan has dropped to a five-year low against the basket of currencies used by the People’s Bank of China

Source: Bloomberg

There’s another risk: The emerging-market rout may not be over yet. The latest catalyst is the Bank of Japan, which last week found cover for tapering by widening the trading band for the 10-year government bond yield – possibly permitting an increase to 0.2 percent, according to Governor Haruhiko Kuroda.

The move may entice Japan’s long-term investors, mainly pension funds and insurers, to reduce their U.S. bond holdings. The 30-year Treasury yields 3.09 percent, but that drops to 0.56 percent when yen hedging costs are included. In other words, Japan’s yields don’t need to rise much to tip the scale; and if U.S. Treasuries were to bear the brunt of selling, emerging markets would suffer. 

EM investing is all about narratives. Look at Indonesia: Naysayers can point out that its companies had a horrible earnings season, missing analysts’ estimates by 24 percent with aggregate 6.4 percent profit growth. Optimists will note that the latest GDP report shows the economy’s resilience in the face of trade conflict. Household consumption, a key metric, grew at the fastest pace since 2014.

What Trade War?

Indonesia’s GDP growth ticked up on firmer domestic consumption

If the rupiah stabilizes, talking points will swing to the second case, and Indonesia could be seen as a haven for funds escaping China.

Central banks around the world would prefer to act only on national concerns. But President Donald Trump’s trade war, the tax cut that supercharged the U.S. and the Federal Reserve’s determination not to overheat the economy means that at this critical time, external events are key for many monetary authorities.

Emerging-market central banks would do well to stay in sync with the Fed.

    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Shuli Ren at sren38@bloomberg.net

    To contact the editor responsible for this story:
    Paul Sillitoe at psillitoe@bloomberg.net

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    Hong Kongs IPO Takeoff Is Running Out of Runway

    Brace, brace. Hong Kong’s IPO takeoff is going to come to a screeching halt.

    There’s a flood of deals still in the pipeline, it’s true, from food delivery giant Meituan Dianping to biotech unicorn Innovent Biologics Inc. But investor fatigue is setting in, with many of the hot sales that helped to reignite the market in the past year trading below their offer prices or showing lackluster gains.

    China Tower Corp. closed unchanged on its debut Wednesday after completing the world’s biggest initial public offering in two years. That mirrors the performance of smartphone maker Xiaomi Corp., another keenly anticipated listing that’s little changed a month after it started trading. Ascletis Pharma Inc., a Hangzhou-based maker of HIV drugs, has slumped 20 percent since making its entrance at the end of July. 1

    Even the online insurer that sparked a revival of Hong Kong’s IPO frenzy is in the red. 

    In the Red

    The bulk of major Hong Kong IPOs in the past year are trading under water

    Source: Bloomberg

    Note: China Tower and BeiGene started trading in Hong Kong on Wednesday.

    ZhongAn Online P&C Insurance Co., a company backed by internet behemoths Tencent Holdings Ltd. and Alibaba Group Holding Ltd., surged on its debut in September, but now stands 42 percent below its price on listing. Two-thirds of IPOs that raised more than $1 billion in the two years ended July 2017 were below their offer prices after six months; three-quarters had dropped after a year, data compiled by Bloomberg show.

    Ironically, the cause of the pain can be traced partly to measures Hong Kong Exchanges & Clearing Ltd. has taken to fight back against a U.S. market that was luring away China’s new-economy stars. Under Chief Executive Officer Charles Li, the exchange operator opened the gates to both dual-class stocks such as Xiaomi and “pre-revenue” biotech firms such as Ascletis. 

    The promise to IPO hopefuls was simple: List in Hong Kong and get access to the trading pipes that allow investors in mainland China’s partially closed capital markets to buy into the city’s stocks (another Li initiative). Often unable to list at home, this offered a way for Chinese pharma and tech companies to tap the wall of mainland investment money. It also helped Hong Kong to regain its crown as the world’s biggest biggest IPO fundraising venue.

    Leading Edge

    Hong Kong is the world's top venue for IPO fundraising this year, beating New York and Nasdaq

    Source: Bloomberg

    Note: Indian fundraisings are on the National Stock Exchange.

    Hong Kong’s pitch also held out the prospect of a more direct route back into the mainland stock market, via China depositary receipts, though this didn’t pan out as hoped. China decided that CDRs were a concept whose time hadn’t yet come, forcing Xiaomi to postpone a sale that it had planned to conduct simultaneously with its Hong Kong IPO. That’s not all: China’s stock exchanges subsequently said they wouldn’t let mainland investors buy shares with weighted-voting rights, closing Xiaomi off from the Shanghai and Shenzhen stock connects.

    The takeaway? Hong Kong probably isn’t ready for companies that have yet to turn a profit. The two big gainers among listings since mid-2017 are Chinese new-economy firms that are making money: Tencent-backed online bookstore China Literature Ltd.  and biotech WuXi Biologics (Cayman) Inc. 

    A biotech firm that’s further along than Ascletis in clinical trials, such as Innovent, may win more fans, but even that’s no guarantee. Cancer drug developer BeiGene Ltd. dropped on its debut Wednesday.

    America First

    Three of the top 10 IPOs in the U.S. in the past year were Chinese tech companies; only Qudian has fallen

    Source: Bloomberg

    Note: iQIYI, Pinduoduo, and Qudian are all Chinese new economy firms.

    Chinese IPOs tend to be smaller in the U.S. but their performance has been better, with lack of profitability no bar in a market that prizes growth. Conversely, earnings are no shield when growth prospects dim: Qudian Inc., a Beijing-based online lender that is profitable, plunged by more than half since March amid a regulatory crackdown on the industry.

    The lesson for China’s budding new-economy stars is that Hong Kong may not be worth the hassle. And for the city’s IPO investors: Stick to firms that are already in the black.

    1. Barring very weak demand, new listings don't tend to fall much in the first month as bankers stabilize their prices.

    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan at ngopalan3@bloomberg.net

    To contact the editor responsible for this story:
    Matthew Brooker at mbrooker1@bloomberg.net

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    Certify acquires real-time expense management startup and YC alum Abacus

    Expense management software provider Certify is beefing up its artillery against rival Concur with the acquisition of Abacus, which enables companies to deal with expenses in real time. The deal’s financial terms were not disclosed. The addition of Abacus will help Certify, which includes other expense management solutions like Nexonia and ExpenseWatch under one umbrella, become a stronger rival to SAP-owned Concur by reaching new customer segments.

    Founded by Omar Qari, Josh Halickman and Ted Power, Abacus says it was the first real-time expense reporting solution on the market when it launched in 2013. The Y Combinator alum, whose investors included General Catalyst, Bessemer Venture Partners, Google Ventures and Salesforce Ventures, currently counts 1,000 customers. Its team will join Certify and the Abacus product will continue to be independent.

    Expenses are a bane for everyone involved: the employees who need to turn in receipts, the managers who have to approve them and everyone in the finance department who needs to reconcile corporate credit cards and make sure company policy is followed. Abacus eases their pain with features like automatic expense suggestions and Slack integration for employees.

    For companies, it lets them set prompts to enforce spending limits and make sure details, like client names, are filled in correctly. If expenses need to be approved by specific managers or departments, Abacus routes them to the right person. Real-time analytics also help companies make quick budget decisions.

    Abacus’ clients include Betterment, Dropbox, GLG and North American Substation Services. In an email, Qari, the CEO of Abacus, told TechCrunch that Abacus is a good fit for “companies that need out-of-the-box flexibility in approval flows, spending controls and ERP sync.”

    For example, he said North American Substation Services, which provides installation, repair and maintenance work for high-voltage stations, uses Abacus to speed up its account receivables by billing back expenses closer to when they actually happened, while Dropbox chose Abacus to reimburse interview candidates more quickly.

    Certify was acquired by K1 Investment Management last year and combined with expense management software providers Nexonia, ExpenseWatch and Tallie to serve a total of 10,000 businesses. Certify says this makes it the largest competitor to Concur.

    Each brand operates independently, serving its own niche, like Abacus will. Qari said that “in a prospect overlap analysis, we found hardly any opportunities are common across the portfolio, highlighting how unique each brand’s segment is. The expense management industry’s typical customer profile is fairly fragmented, so it’s going to take multiple solutions approaching the space from multiple angles to fully satisfy market demand.”

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    Ultimate Software is acquiring PeopleDoc for $300 million

    Public company Ultimate Software is acquiring French startup PeopleDoc for $300 million in cash and stock. The transaction is expected to close in the third quarter of 2018. These two companies both make HR solutions.

    Ultimate Software has been around for a while. It went public in 1998 and switched to a software-as-a-service solution in 2002 — this solution is called UltiPro. It lets you manage all things HR, from payroll to benefits, time management, onboarding, performance management and more.

    PeopleDoc is a younger French startup that has raised over $50 million. As the name suggests, PeopleDoc lets you centralized all HR documents related to you in a single location. They can come from multiple sources and systems, they’ll all be there.

    The startup has also worked on an onboarding solution and other tools to automate HR processes as much as possible. For instance, you can use PeopleDoc to communicate with the HR team and notify them of a change.

    Ultimate Software has around 4,100 customers, which represent around 38 million employees. So it’s clear that the company is going after big clients. Each customer employs 9,200 people on average.

    PeopleDoc has a thousand customers and serves 4 million employees. While PeopleDoc is significantly smaller than Ultimate Software, it’s a notable acquisition for the startup.

    Ultimate Software says that it plans to spend $75 million in cash when the acquisition closes. PeopleDoc shareholders will receive another $50 million a year later.

    Finally, Ultimate Software is spending around $175 million in stock for the rest of the acquisition. The company has been doing incredibly well on the stock market, consistently going up over the past ten years.

    There are two reasons behind the acquisition. First, Ultimate Software has been mostly focused on American customers. With today’s acquisition, Ultimate Software will be able to convince new international customers, particularly in Europe.

    Second, PeopleDoc will continue to operate as a subsidiary as these two companies don’t exactly do the same thing. In fact, Ultimate Software will start distributing PeopleDoc’s services to its own customers next year.