Investor Relations Week: Mutual Fund Pricing Rule, Aramco Joins Oil Giants Windfall Earnings, Stocks Fall on Interest Rate Rise
– The SEC has proposed a mutual fund pricing rule to protect long-term investors, the report reported. FinancialTimes (paywall), leading the industry to warn of the “huge negative impact” for customers due to higher costs. Wall Street’s top regulator has proposed changes to the way stock and bond mutual funds set their daily prices to avoid buying and holding investors having to bear the cost of inflows or quick exits, a move that prompted an immediate pushback from asset managers. The SEC’s proposal would force US funds that together hold more than $16 billion in assets to adopt so-called swing pricing, a common practice among European funds.
– The New York Times (paywall) reported that Saudi Aramco, the world’s largest oil company, said it made $42.4 billion in net profit in the third quarter. This figure is more than double the nearly $20 billion earned by ExxonMobil during the period. It also allowed Saudi Aramco, which is state-controlled and has a virtual monopoly on Saudi Arabia’s oil production, to pay a large dividend – $18.75 billion – mainly to the country’s government.
Aramco is the latest oil company to report very strong profits in an environment marked by high oil prices after Russia invaded Ukraine in February. BP, the London-based energy giant, earlier reported what it called underlying replacement cost profits of $8.2 billion for the quarter, down slightly from the previous quarter. , but more than double the $3.3 billion of the same period in 2021.
– Stocks fell earlier this week after the Fed announced another three-quarter point interest rate hike and signaled that a pivot or rate cut would not happen anytime soon, reported CNBC.
The Dow Jones Industrial Average traded flat while the S&P 500 and Nasdaq Composite slipped 0.5% and 0.9%, respectively. Yields soared as traders digested the latest rate decision, putting pressure on stocks. The yield on the two-year Treasury note hit its highest level since July 2007, while the benchmark 10-year Treasury yield jumped eight basis points to 4.14%.
– The Guardian reported that, according to an email sent by Twitter’s new management to its staff, Elon Musk will begin mass layoffs at the company this week, significantly reducing the social media platform’s workforce. The layoffs come as the multi-billionaire is set to cut up to 50% of Twitter’s workforce, just days after taking over the helm of the company he bought for $44 billion. Musk dissolved Twitter’s board, 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 federal court in San Francisco.
– EU has issued warning over TikTok advice’finfluencersaccording Bloomberg (pay wall). A senior EU official has warned of the risks of financial advice on platforms such as TikTok and called on social media companies to help authorities ensure people can access reliable information. “There is still a lot of work to be done in the area of social media where financial advice is given,” Financial Services Commissioner Mairead McGuinness said at an event in Dublin earlier this week.
– Peel Hunt was in talks with rivals about forming a standalone company that would give retail investors access to public offerings and other listed fundraising, the report reported. FT. The UK broker has sounded out interest from potential partners including Numis, Hargreaves Lansdown and Investec in a deal that could include a stake in the new independent venture, according to people familiar with the matter. AJ Bell and Interactive Investor have had 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 interest rates, the Bank of England confirmed this week that the UK is facing the longest recession since records began, with interest rates hitting 3 % and the pound collapsing against the dollar, reported CNBC.
The central bank called the outlook for Britain’s economy “very difficult”, noting that unemployment was likely to double to 6.5% during the country’s two years of crisis. UK GDP is expected to decline by around 0.75% in the second half of 2022, reflecting pressure on real incomes from soaring energy and tradable goods prices.
The BBC noted that the higher interest rate will be welcomed by savers, but the rise will have a ripple effect on those with mortgages, credit card debt and bank loans. British Prime Minister Rishi Sunak has promised a new plan to fix the country’s finances later this month, but tax hikes and spending cuts are expected.
– September was the second-worst month on record for UK retail funds, reported the FT. British investors continued to desert retail funds in September, withdrawing £7.6 billion ($8.8 billion) 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, was concentrated in equity funds, which saw £5bn bought up, according to the Investment Association . September, which saw the introduction of the mini-budget and the ensuing chaos in UK bond and money markets, marked the eighth month of outflows for national funds, which saw £22bn sterling withdrawn so far this year. This compares to £43bn invested on a net basis last year and £30bn the year before.
– As foreign funds headed out, Chinese stock investors bought battered shares of mainland companies, betting outside views on China are too pessimistic, reports Reuters. The perception gap between offshore and onshore investors is so divergent that it has driven a wedge between the Hong Kong and China markets to its widest in 13 years. Hong Kong’s benchmark Hang Seng plunged 15% in October – the biggest monthly loss in 14 years, as Chinese President Xi Jinping cemented his power at the two-decade Communist Party Congress, which has raised concerns that Beijing will sacrifice economic growth for ideology.