Police are investigating a Chinese wealth management company owned by Zhongzhi Enterprise Group days after the firm told investors it was insolvent
HONG KONG — Police are investigating suspected crimes of a Chinese wealth company owned by Zhongzhi Enterprise Group, according to the Beijing Public Security Bureau, days after the firm told investors it was insolvent.
In a statement published on the social media platform WeChat over the weekend, the police said they had taken “criminal enforcement measures” against several suspects to investigate and had urged affected investors to lodge a complaint.
“Investors are requested to actively cooperate with the police in investigating and collecting evidence and safeguard their rights and interests through legal channels,” the statement said.
Authorities did not specify what crimes they were investigating. In the past, defaults or other troubles in the financial sector have prompted protests by aggrieved investors.
Zhongzhi, which is based in Beijing, did not immediately respond to an email for comment and phone calls to a number listed for the company did not connect.
The investigation came after media reports last week that Zhongzhi had apologized to investors in a letter, saying it was insolvent with up to $64 billion in liabilities. That far exceeds its total assets of about $28 billion.
Zhongzhi is one of China’s largest shadow banks, companies that provide financial services similar to banks while operating outside of banking regulations. It began showing signs of trouble in August when its subsidiary Zhongrong International Trust missed payments on some of its investment products.
As one of the major Chinese shadow banks, Zhongzhi has lent billions of yuan (dollars) for real estate dealings. The property sector is currently embroiled in a debt crisis, with many of China’s big developers having either defaulted or remaining at risk of default after the government restricted borrowing beginning in 2021.
To prevent troubles spilling into the economy from the property sector, Chinese regulators have drafted a list of 50 developers eligible for financing support, according to a Bloomberg report last week that cited unnamed people familiar with the matter.
Real estate drove China’s economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That has helped to push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.
Zhongzhi Enterprise Group has investments spanning real estate, mining, semiconductors and vehicle manufacturing. It was founded in 1995 in northeastern China’s Heilongjiang province.
The end of the year is a time to enjoy holiday parties, make New Year’s resolutions, and ensure your portfolio is ready for 2024 and beyond.
First, you should take care of basic housekeeping: fund your IRA, pay off any high-interest debt, and look into tax-loss harvesting within your taxable accounts. Also consider increasing your 401(k) contributions. The Internal Revenue Service raised the limit for 401(k) and other retirement plans to $23,000 for 2024, up from $22,500 for 2023.
A pro move: Consider converting a traditional IRA to a Roth IRA, which means paying taxes today, but your investments will grow tax-free in the Roth account. A Roth conversion makes sense for investors who anticipate being in a higher tax bracket in the future, or who intend to leave a Roth IRA as an inheritance to their children who will be in a higher tax bracket.
Potential tax changes are on the horizon and that may make this an ideal time to do a Roth conversion, says Jonathan Shenkman, president and chief investment officer of ParkBridge Wealth Management. The Trump-era tax cuts, for example, are due to expire in 2025. And Congress will probably have to tackle the ballooning federal budget deficits with tax increases, spending cuts, or a mixture of the two. “If you’re the kind of person who likes to plan ahead, then this is a good opportunity,” says Shenkman.
After that, investors should dig into their portfolios with an eye on the long term so that they are poised to take advantage of the return of more conventional market dynamics. The Federal Reserve is just about finished raising interest rates, the economy is projected to grow moderately, bonds are offering income, and stocks are rising and falling based on profits. “We’re back to normal,” says Lisa Shalett, chief investment officer for
Morgan Stanley Wealth Management
.
Investors need to “wrap their brain around this idea.”
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The recent market dynamics mark a significant shift from the period from the 2008-09 financial crisis through 2021, which was characterized by rock-bottom interest rates and paltry yields on bonds. Investors did well with the FAANG stocks (
Facebook
,
now
[ticker: META];
[AAPL];
[AMZN];
[NFLX]; and
Alphabet
,
formerly Google [GOOGL]), as did those who favored U.S. equities over international stocks. But yesterday’s playbook may not work as well going forward.
In some ways, we’ve reverted to historical form. Mortgage rates, for instance, are near 8%. That may sound crazy high to millennial home buyers, but it isn’t unheard of for baby boomers and Gen Xers. Higher interest rates also mean investors can actually get a respectable yield on the cash portion of their portfolios. “You can earn about 5% in a money-market fund,” says Kara Murphy, chief investment officer of Kestra Investment Management. “We haven’t seen that since 2007.”
For investors, year end is an opportune moment to take a close look at their portfolio and financial goals. That means making sure you have the right asset allocation for your goals. Even if you do, you probably still need to rebalance to make sure you aren’t overweight cash, light on bonds, and heavy on stocks (a lot of people are). A 60/40 stock/bond mix makes sense, but investors should also consider how they deploy cash now—to make sure it is generating some yield—and maybe consider adding alternative investments, like venture capital or private credit. And keep a cautious eye on the pricey Magnificent Seven tech stocks: Alphabet, Amazon, Apple, Meta,
(MSFT),
(NVDA), and
(TSLA). They are so 2023.
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Here’s wisdom from the pros on setting up each part of your portfolio for the new year.
Stocks
While rebalancing usually means adjusting your allocations of stocks, bonds, and cash, this year you also may need to rebalance within your stock portfolio. Given that just a handful of stocks have provided much of the market’s overall returns this year, you may be way overweight the Magnificent Seven: Those stocks have outperformed the rest of the S&P 500 significantly. Their return from Jan. 1 to Oct. 31 was 53.2%, compared with 1.2% for the other 493 stocks in the bellwether index, according to asset manager
Tim Murray, capital markets strategist in T. Rowe’s multi-asset division, said the Magnificent Seven have almost become their own asset class. “It’s been such a top-heavy market,” Murray said at a Nov. 14 presentation. “That is distorting valuation and allocation.”
Top-heavy markets have occurred before, and the stock performance of the Magnificent Seven may be justified. But investors should check across their holdings to see how much exposure they have to these seven stocks in particular, and to growth and tech stocks more broadly. “Revisiting concentrated positions is really valuable right now,” says Evan Bloomberg, a private wealth advisor at
UBS
.
“If a client has more than 10% of their net worth in any asset, we want to check that against their plan and make sure they are protected.”
Morgan Stanley’s Shalett recommends positioning portfolios to be slightly underweight equities. “We are not excited about owning the S&P 500 at a market weight,” says Shalett. “It is dominated today by seven stocks that are correlated with each other, and they are all superexpensive as a starting point.”
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Instead, she sees opportunity in areas that are more interest-rate sensitive and could therefore benefit if rates stabilize or fall. She finds potential value in healthcare, energy, industrials, and small-caps—sectors that have underperformed the broader market and may be poised to catch up in 2024 if the economy continues to run not too hot and not too cold.
“As value investors, we’re betting on mean reversion,” Shalett says. “If this Goldilocks story is real, then you’re going to have a catch-up trade. You’re going to see the things that have underperformed, and that are most sensitive to interest rates, come back.”
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Investors should also review their allocation to international stocks, which have lagged behind U.S. stocks in recent years. That could change. Asset manager Vanguard estimates that 10-year annualized nominal returns will be lower for U.S. stocks than for non-U.S. developed markets equities; Vanguard projects 4.2% to 6.2% for U.S. stocks compared with 7% to 9% for non-U.S. developed markets equities.
Other wealth managers are slightly underweight international stocks, citing, for example, weaknesses or risks in Europe. But they aren’t forgoing international equities. Sequoia Sentinel Family Office, a unit of Sequoia Financial Group, currently recommends international equities for 30% of equity exposure. That’s less than the firm’s 35% long-term strategic target but it’s still a healthy allocation, says Michael Orfe, advisor group lead at Sequoia Sentinel Family Office. “There are periods of time when international can outperform U.S.,” Orfe says.
Cash
Investors have increased their cash holdings over the past year—and with good reason. Interest rates are higher than they’ve been in decades, and money-market funds are currently yielding around 5%. Investors would be wise to make sure that the cash part of their portfolio is generating some income in this environment. “If you’re not being proactive on this, then you’re leaving money on the table,” says ParkBridge’s Shenkman.
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Some investors may also be overweight cash and should move back into longer-term bonds. If longer-term interest rates continue to fall, there are gains to be made. And yields on cash could fall if the Federal Reserve cuts rates.
Bonds
For these reasons and more, investors should re-evaluate the fixed-income portion of their portfolios.
Some financial advisors have been recommending clients buy longer-dated Treasuries now to lock in today’s higher yields.
“The clock is ticking between here and a Fed pause,” says Bloomberg, the UBS advisor. Yields, which dropped in the past month, will continue to fall if the Fed gets more dovish. “That means there is reinvestment risk. By the time the Fed does pause, there is a risk for it being too late to transition from cash to bonds.”
Fixed income has taken a beating since the Fed started hiking rates. Kestra’s Murphy says the Federal Reserve’s rapid rate increases meant the “bond market had to take these hits in a very concentrated way.” But yields on bonds are now attractive in a way they haven’t been in years.
Owners of long-term bonds may also benefit should rates continue to fall (as they have this month) and the economy slow down; in that scenario, their bonds could appreciate in value, and investors could then sell them at a profit. Consider this: The $49.2 billion
iShares 20+ Year Treasury Bond
ETF (ticker: TLT) is up about 9% since mid-October.
Some investors may choose to buy longer-dated bonds and simply hold them to maturity, collecting the coupon without having to worry about fluctuations in the underlying price of the bond.
Morgan Stanley’s Shalett notes how fixed income compares favorably with stocks, particularly given valuations. “I’d just as soon take 5.5% in investment-grade paper as buy a company stock at these levels,” she says.
Retirees or investors nearing retirement in particular may benefit from the higher yield environment because they can generate attractive income from safe investments. That wasn’t possible before the Fed started hiking rates in 2022. And in the previous decade, some investors seeking higher yields might have bought riskier investments such as junk bonds or leveraged loans. As part of rebalancing within the bond portion of their portfolios, investors should make sure they aren’t overallocated to riskier fixed-income investments.
“With rates going up, a lot of these weaker companies that took on more risk over the past 10 to 15 years, they could default,” says Shenkman. “That’s another reason to move up in credit quality; you want to limit your exposure to these riskier assets.”
Shenkman says retirees shouldn’t forsake stocks for fixed income. That’s because they face longevity risk, or the risk that they will live a very long time and inflation will erode their buying power. “If you want to outpace inflation, you need a meaningful amount of equity exposure,” he says.
Alts
For high-net-worth and ultrahigh-net-worth investors, it’s also important to consider an allocation to alternative investments—but it isn’t a must-have. More investors have bought into alts, particularly high-yielding funds that invest in private credit and real estate. Alternative-asset manager
said in a recent paper that incorporating private credit, private infrastructure, and private real estate can increase the income potential of a portfolio. The firm’s hypothetical portfolio consisted of 40% bonds, 30% stocks, and 30% alts (which consisted of 15% of private credit and 7.5% each of private real estate and private infrastructure).
Sequoia Financial’s Orfe says they’ve been suggesting that clients invest in private credit, or portfolios of direct loans to midsize companies. Private credit is growing as an asset class because some banks have scaled back lending and others are focusing more on larger borrowers.
Of course, alts aren’t for everyone. For starters, some alternative funds lock up your money for extended periods of time or have limits on how fast you can exit. Fees and investment minimums can be high. So, alts are worth a look, but many investors may do just as well with a traditional mix of stocks and bonds.
Whatever your long-term goals, the key is to make sure you have asset-allocation targets to help you meet them and then make sure each quarter that your actual investments align with those targets. It can be easier said than done. This year in particular, investors should avoid making outsize bets based on past market conditions. Instead, align your investments for the more normal market environment that lies ahead.
No allocation can be the right one if it doesn’t help you achieve your financial dreams. “A portfolio is much more powerful when it is tied to a financial plan,” says Kestra’s Murphy.
Write to Andrew Welsch at andrew.welsch@barrons.com
Published: Nov. 8, 2023 at 3:16 a.m. ET
By Ian Walker
UK Commercial Property REIT said it is in all-share merger talks with Picton Property Income, while cautioning that there is no certainty a deal will be agreed.
The real-estate investment trust said Wednesday that Picton has until Dec. 6 to either make an offer for the company or walk away under U.K. Takeover Panel rules.
…
By Ian Walker
UK Commercial Property REIT said it is in all-share merger talks with Picton Property Income, while cautioning that there is no certainty a deal will be agreed.
The real-estate investment trust said Wednesday that Picton has until Dec. 6 to either make an offer for the company or walk away under U.K. Takeover Panel rules.
No further information on the talks has been disclosed. Any merged company will be worth around 1.1 billion pounds ($1.35 billion) based on the companies closing share prices on Tuesday.
Separately, Picton confirmed that it was in talks with UK Commercial Property over a merger and said that any combined company would be internally managed.
UK Commercial Property shares at 0810 GMT were down 0.40 pence, or 0.7%, at 55.60 pence; Picton shares were up 1.50 pence, or 2.3%, at 68.0 pence.
Write to Ian Walker at ian.walker@wsj.com
As a co–chief investment officer of Bridgewater Associates, the world’s biggest hedge-fund firm, Karen Karniol-Tambour scours global markets for good investment opportunities. She’s increasingly finding them outside the U.S.
“I’m definitely a little bit bearish on U.S. stocks, and I especially don’t like their valuation relative to other opportunities around the world,” Karniol-Tambour said in an interview with MarketWatch. “U.S. stocks are pricing in perfection because what’s happened is the U.S. has just outperformed the world for so long.”
At age 38, Karniol-Tambour has watched U.S. stocks outperform for much of her professional career, as she climbed the ranks at Bridgewater before being named co–investment chief earlier this year. With the retirement of Ray Dalio and the leadership change at Bridgewater, Karniol-Tambour is set to play an outsized role at the firm for years to come and lands on the MarketWatch 50 list of the most influential people in markets.
When U.S. stocks started to outperform stocks in other countries years ago, Karniol-Tambour recalls, U.S. stock valuations were relatively low and positive earnings surprises would boost them. But these days, she says, valuations for U.S. stocks reflect pretty reasonable expectations for earnings.
“In other words, I don’t think companies are going to struggle that much because I don’t expect growth to be a total disaster. They’re not amazing. I think prospects are OK. The problem is, it’s already in the price. Valuation already reflects that,” Karniol-Tambour said. “So it’s just much easier to get a downside surprise, whereas in other parts of the world there’s much weaker earnings expected. It’s just not already valued. It’s not already in the price. It’s much easier to outperform.”
Specifically, Karniol-Tambour referenced the exposure in so many portfolios to big tech companies, such as Apple
AAPL
,
Microsoft
MSFT
and Alphabet
GOOGL
GOOG
,
that have driven so much of the gains of the S&P 500
SPX.
At some point, investors will view a portfolio rebalancing as prudent, she added, making U.S. stocks more vulnerable.
Opinion: This market pro likes the ‘Magnificent Seven’ but thinks stocks are on thin ice
So where else in the world can investors go? Karniol-Tambour thinks they should take a close look at Japan. These days, when Karniol-Tambour talks about the opportunities in Japan, she often feels people look at her like she’s stuck in the 1980s. But Karniol-Tambour says that because investors ignored Japan for so long — not buying Japanese stocks or bonds — the result was that Japanese companies just didn’t even think about returning money to shareholders. But that is starting to change.
“You have some of the best valuations because of that history of that success not already being priced in,” Karniol-Tambour said.
Back home in the U.S., Karniol-Tambour says the economy remains pretty strong, as several forces offset the Federal Reserve’s tightening efforts. Her projection is that the economy will gradually weaken but that inflation will remain a little too sticky and limit the U.S. central bank’s ability to come to the rescue.
“As the economy stays strong and just kind of gradually grinds down, you don’t get enough decline in inflation to really make the Federal Reserve comfortable with really strongly easing into those conditions,” says Karniol-Tambour. “So could they ease a little bit? Sure. Could they ease a lot? I think that’s challenging to see without a very significant economic slowdown.”
Will there be a recession in the U.S. next year? Karniol-Tambour says the odds are reasonable and the Fed will have a tough time responding the way it has in recent years. “Eventually, the fact that you can’t ease just changes the game from the one we’ve gotten familiar with where any slowdown gets immediately reversed.”
Published: Oct. 30, 2023 at 4:31 p.m. ET
Shares of Canadian Apartment Properties Real Estate Investment Trust Un CAR.UT inched 0.00% higher to C$40.92 Monday, in what proved to be an all-around positive trading session for the Canadian market, with the S&P/TSX Composite Index GSPTSE rising 0.64% to 18,856.76. Canadian Apartment Properties Real Estate Investment Trust Un closed C$12.06 below its 52-week high (C$52.98), which the company achieved on July 14th. Trading volume of 396,010 shares eclipsed its 50-day average volume of 318,560.
…
Shares of Canadian Apartment Properties Real Estate Investment Trust Un
CAR.UT
inched 0.00% higher to C$40.92 Monday, in what proved to be an all-around positive trading session for the Canadian market, with the S&P/TSX Composite Index
GSPTSE
rising 0.64% to 18,856.76. Canadian Apartment Properties Real Estate Investment Trust Un closed C$12.06 below its 52-week high (C$52.98), which the company achieved on July 14th. Trading volume of 396,010 shares eclipsed its 50-day average volume of 318,560.
Editor’s Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.
Published: Oct. 26, 2023 at 4:31 p.m. ET
Shares of Canadian Apartment Properties Real Estate Investment Trust Un CAR.UT slid 0.75% to C$41.19 Thursday, in what proved to be an all-around negative trading session for the Canadian market, with the S&P/TSX Composite Index GSPTSE falling 0.38% to 18,875.31. Canadian Apartment Properties Real Estate Investment Trust Un closed C$11.79 below its 52-week high (C$52.98), which the company achieved on July 14th. Trading volume of 274,011 shares remained below its 50-day average volume of 318,937.
…
Shares of Canadian Apartment Properties Real Estate Investment Trust Un
CAR.UT
slid 0.75% to C$41.19 Thursday, in what proved to be an all-around negative trading session for the Canadian market, with the S&P/TSX Composite Index
GSPTSE
falling 0.38% to 18,875.31. Canadian Apartment Properties Real Estate Investment Trust Un closed C$11.79 below its 52-week high (C$52.98), which the company achieved on July 14th. Trading volume of 274,011 shares remained below its 50-day average volume of 318,937.
Editor’s Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.
Barclays posted a 30% decline in dealmaking fees during the third quarter — the biggest drop so far reported by any major investment bank as the UK lender has battled an exodus of talent this year.
Barclays made £375m from deals in the third quarter, down by 30% on the same period a year earlier as M&A fees slumped. Barclays posted revenue of £80m from M&A deals during the three months to end of September, down by 47% compared with 2022. A 48% uptick in revenue from equity underwriting, which has been hit by a dearth of IPOs over the past two years, did not offset this decline in investment banking fees.
The drop is the biggest of any major investment bank to unveil third quarter results so far. Barclays kicks off a reporting season for European banks, following Wall Street rivals, which has largely seen dealmaking fees stabilise during the third quarter. Bank of America, Goldman Sachs and JPMorgan all posted dealmaking fees that were largely in line with a year earlier, while Citigroup saw revenue surge by 34% and Morgan Stanley battled a 27% drop.
Barclays has been restocking its investment bank with senior dealmakers after an exodus of talent earlier this year, when around 30 bankers — predominantly in the US — departed for rivals. The slew of exits follows the appointment of former Credit Suisse M&A boss, Cathal Deasy, as head of its global banking business. The hire, which displaced some long-serving former Lehman Brothers bankers, has upset many who joined the UK lender after its acquisition of the failed bank’s US operations in the wake of its collapse in 2008.
READ Barclays re-hires top healthcare banker Jed Brody
Overall income of £6.3bn was largely in line with analyst expectations, while pre-tax profit of £1.9bn was slightly ahead of consensus. Barclays chief executive C. S. Venkatakrishnan flagged a possible restructuring.
“We see further opportunities to enhance returns for shareholders through cost efficiencies and disciplined capital allocation across the group,” said Venkatakrishnan in a statement.
In a note, Jefferies analysts said that the flagged cost cuts at Barclays was the “Nth restructuring” at the UK lender. “Management are flagging an upcoming cost restructure which could drive higher charges at Q4,” they wrote
Like its Wall Street rivals, Barclays’ trading revenue also declined. In previous quarters, fees from sales and trading had helped offset slumping dealmaking revenue. However, the UK lender posted a 26% decline in fixed income revenue to £1.1bn, which fueled an overall 19% drop in markets revenue.
Revenue across Barclays corporate and investment bank was down 11% to £1.1bn.
The slump in deal activity has forced most investment banks to roll out their deepest job cuts since the 2008 financial crisis. Citigroup, Goldman Sachs and Morgan Stanley have all cut thousands of employees and Barclays has also made redundancies. It is cutting 50 dealmaker jobs as part of 300 redundancies across its investment bank.
To contact the author of this story with feedback or news, email Paul Clarke
Citigroup has hired the head of Evercore’s debt advisory unit in Europe to lead the healthcare team within its commercial bank — a big area of expansion for the Wall Street lender.
Nauman Ansari has been named global industry head of healthcare at Citigroup’s commercial bank, according to a memo seen by Financial News and confirmed by a bank spokesperson. He will be based in London and report to Gaurang Hattangdi, its global head of coverage.
Ansari was latterly head of the corporate debt advisory team for Europe, the Middle East and Africa at Evercore. He has also worked in senior leveraged finance roles at HSBC, Morgan Stanley and Bank of America.
Citigroup is in the midst of a strategic overhaul unveiled by chief executive Jane Fraser in September, which will see layers of management stripped out and reorganisation around five key business lines. The changes are likely to result in job losses, with 250 jobs currently under review in its London operations.
READ Citigroup to review 250 London jobs as CEO Jane Fraser’s overhaul kicks off
However, the commercial banking division has been singled out as an area of expansion after Citi unveiled financial targets on an investor day last year. It plans to ramp up recruitment, bringing in 900 new hires over the next three years, a large part of which will be within its Asia-Pacific operations.
The unit is headed by London-based Tasnim Ghiawadwala, who returned to Citi to become global head of its commercial bank in 2021 after a stint at Barclays. It has around 2,800 employees.
JPMorgan is one of the other large US banks that is also building its commercial banking unit, even as investment banking activity has stalled over the past 18 months. It added a team of 20 bankers in July to its UK-based commercial banking team, following on from the December recruits of Roger Fix, Franz Kramer and Thibaud De Maria from UBS, BNP Paribas and Deutsche Bank respectively.
Click here to make sure you’re signed up to the latest investment banking updates
To contact the author of this story with feedback or news, email Paul Clarke
Profitability at US commercial vehicle insurers has deteriorated this year in a sign that headwinds for the troubled segment are strengthening, AM Best says.
Underwriting losses hit $US3.3 billion ($5.22 million) last year on a combined ratio of 105.4%.
In the first six months of 2023, the direct incurred liability loss ratio was 72.7%. AM Best says that was the “worst by a wide margin” over previous years.
“Early results for 2023 show continued deterioration for the line, indicating that headwinds are beyond persisting and are strengthening,” the ratings agency says in a new report.
Commercial auto pricing rose by an average 7% in 2022, which AM Best says “may seem like a considerable hike,” but did not keep pace with inflation, which averaged 8%. Aggressive price increases in the first half of 2023, coupled with lower inflation, create a “potential bright spot” in the short term.
Since 2012, commercial auto insurance in the US has been one of the worst-performing lines of business in the national industry, generating a higher combined ratio each year than broader commercial lines.
The combined ratio for physical damage has been below the 100 break-even point since 2018. Lawyer involvement in claims will keep adding to loss severity as well.
More than half the recent underwriting loss can be attributed to adverse loss development on older accident years, which was over $US2.1 billion ($3.32 billion) in 2022. Over half was from accident years 2018 and 2019, suggesting “more may be on the way.”
Most of the top 20 US insurers have generated combined ratios higher than 100% almost every year since 2018 — some for all five years. For most, commercial auto is a small piece of their commercial portfolios and may be a loss leader or a diversifying line that is written as part of a package that includes the more profitable general liability and workers’ compensation coverages, the report says.