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Analysis-As Fed kicks off taper, some investors seek to dial down risk

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November 4, 2021

By Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed

NEW YORK (Reuters) – The Fed’s well-telegraphed taper announcement has done little to soothe the nerves of some investors, who remain on edge about stubbornly persistent inflation and are looking to trim risk as they prepare for rockier times.

The Federal Reserve on Wednesday said it will begin paring back its monthly bond purchases this month with plans to end them in 2022, marking the beginning of its tightening cycle. But it stuck to its long-held view that high inflation would prove “transitory” and likely not require a fast rise in interest rates, prompting investors to call it a “dovish taper”.

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Market reaction immediately after the announcement was muted, with the dollar falling while U.S. stocks gained. Investors said that may not be sustained long-term.

(For graphic on Breakeven inflation rates – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkregodvm/Pasted%20image%201635981069299.png)

“As inflation persists in a very strong way … people will become a little more nervous. That’s when you’ll see investors maybe dialing back on their risk exposures,” said Lon Erickson, portfolio manager at Thornburg Investment Management, Santa Fe, New Mexico, who said this could set in during the first half of 2022.

Erickson favors shorter-duration assets in the fixed income space to protect from looming volatility as inflation continues to surge.

The central bank’s easy money policies have been a source of significant support for financial markets, with the S&P 500 more than doubling since its March 2020 low during the onset of the pandemic. However, that has raised concerns about stretched valuations and a piling into comparatively risky assets, such as stocks.

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“It’s a dangerous game when financial conditions are this loose, the economy is doing this well and inflationary pressures are this high, to be running monetary policy for a crisis-like environment,” said Troy Gayeski, chief market strategist for FS Investments. He advises investors seek products with inflation protection and avoid investments like long-duration U.S. Treasuries which see their value erode with inflation. “But it could be setting us up for a really tough 2022.”

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina said that given the uncertainty on inflation and interest rates over the next 12 months, he believes it is prudent to still maintain equity exposure, but reallocate his portfolios toward companies with strong balance sheets and robust pricing power and away from those that are more speculative in nature.

Cliff Hodge, chief investment officer, at Cornerstone Wealth, said in a “dovish taper” environment, he’s looking at lower volatility and higher-quality types of assets.

Todd Sandoz, co-head of global equities, Barclays, said that for equity markets, the key question will be how earnings growth balances against increases in nominal rates.

“Where equities would really underperform is if inflation expectations and nominal rate increases…dramatically outpace earnings growth. That’s where you get a very bad scenario for equities.”

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The benchmark 10-year yield climbed to a session high of 1.602% on Wednesday, but was below recent peaks of 1.7% in late-October.

The Treasury market has churned in recent weeks as investors sharply increased expectations that inflation would force the Fed to raise rates sooner and faster than projected. Short-term rates have risen and the yield curve flattened, before partially receding.

Investors, however, have generally praised the Fed for well-telegraphing the taper. That is in contrast to 2013, when bond yields rocketed during the so-called “taper tantrum” after then-Fed chief Ben Bernanke unexpectedly told lawmakers the central bank could slow its pace of asset purchases that had been propping up markets.

Futures on the federal funds rate, which track short-term rate expectations, were little moved on Wednesday, continuing to price in two rate hikes next year.

Despite the pending tightening, some investors still see a positive investment environment.

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Jack Ablin, chief investment officer at Cresset Wealth Advisors in Palm Beach, Florida, who is comfortable owning equities despite some reservations about lofty valuations, said Wednesday’s meeting and Fed Chair Jerome Powell’s comments were reassuring.

“I do think the economy is strong enough to withstand a tighter Fed,” Ablin said.

(Reporting by Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed; additional reporting and editing by Megan Davies and Sam Holmes)

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Tesla sold 52,859 China-made vehicles in November – CPCA

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December 8, 2021

BEIJING (Reuters) – U.S. electric vehicle maker Tesla Inc sold 52,859 China-made vehicles in November, including 21,127 for export, the China Passenger Car Association (CPCA) said on Wednesday.

Tesla, which is making Model 3 sedans and Model Y sport-utility vehicles in Shanghai, sold 54,391 China-made vehicles in October, including 40,666 that were exported.

Chinese EV makers Nio Inc 10,878 cars last month, a monthly record high, and Xpeng Inc delivered 15,613 vehicles. Volkswagen AG said it sold over 14,000 ID. series EVs in China in November.

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CPCA said passenger car sales in November in China totalled 1.85 million, down 12.5% from a year earlier.

(Reporting by Sophie Yu, Brenda Goh; editing by Jason Neely)

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Renault Zoe goes from hero to zero in European safety agency rating

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December 8, 2021

By Nick Carey

LONDON (Reuters) – French carmaker Renault on Wednesday received a blow for its popular Zoe electric model, as the European New Car Assessment Programme (NCAP) gave it a zero-star safety rating in tests that are standards for Europe.

The carmaker, which is cutting costs and working to turn around its performance after overstretching itself over years of ambitious global expansion, also received a one-star rating for its electric Dacia Spring model.

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Euro NCAP said the latest Zoe had a worse seat-mounted side airbag than earlier versions. Euro NCAP noted the Renault Laguna had been the first car ever to receive a five-star rating in 2001.

“Renault was once synonymous with safety,” Euro NCAP secretary general Michiel van Ratingen said in a statement. “But these disappointing results for the ZOE and the Dacia Spring show that safety has now become collateral damage in the group’s transition to electric cars.”

In the year through October, the Zoe was the third top-selling fully-electric car in Europe, behind Tesla’s Model 3 in top place and Volkswagen’s ID.3.

In a press release titled “Hero to Zero,” UK insurance group Thatcham Research noted the Zoe had initially received a five-star rating back in 2013.

“It’s a shame to see Renault threaten a safety pedigree built from the inception of the rating,” said Matthew Avery, Thatcham’s chief research strategy officer and a Euro NCAP board member.

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Eleven cars received ratings in Euro NCAP’s final round of tests for 2021, which did not include Tesla models.

A number of other vehicles received five-star ratings, including BMW’s electric iX, Daimler’s electric Mercedes-Benz EQS, Nissan’s Qashqai and Volkswagen’s VW Caddy.

(Reporting By Nick Carey; Editing by Bernadette Baum)

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Weibo shares close down 7.2% in Hong Kong debut

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December 8, 2021

By Scott Murdoch

HONG KONG (Reuters) -Chinese social media giant Weibo Corp’s shares closed 7.2% below their issue price in Hong Kong on Wednesday, as it became the latest U.S.-listed China stock to seek out a secondary listing closer to home.

The Hong Kong debut was in line with a fall in Weibo’s primary listing in New York after a torrid week for U.S.-listed China shares, which are facing greater U.S. regulatory scrutiny and also under pressure from Chinese authorities.

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Weibo, which raised $385 million for its Hong Kong listing, opened at $256.20 and closed at HK$253.2 after a volatile debut session.

The stock had been priced at HK$272.80 each in its secondary listing in which 11 million shares were sold.

“For Weibo, it’s a matter of timing. The Hong Kong market had started to rebound this week and now we are seeing some softness emerging in the market,” said Louis Tse, Wealthy Securities director in Hong Kong.

Weibo’s fall came as Hong Kong’s Hang Seng Index closed Wednesday up 0.06% while the Tech Index was 0.03% higher.

Some major stocks such as Alibaba Group Holdings, down 4.35%, were off sharply as sentiment towards tech majors remains fragile.

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“The listing market in Hong Kong is very lukewarm right now,” said Dickie Wong, Kingston Securities executive director.

“Plus, there is regulatory pressure from the (U.S. Securities and Exchange Commission) on Chinese companies to disclose basically everything within three years.

“So there is a major trend that most of the U.S.-listed Chinese companies will seek secondary or dual primary in Hong Kong so they can exit the U.S. market if they need to.”

Ride-hailing giant Didi Global decided last week to delist from New York https://www.reuters.com/technology/didi-global-start-work-delisting-new-york-pursue-ipo-hong-kong-2021-12-03, succumbing to pressure from Chinese regulators concerned about data security and denting sentiment toward Chinese stocks.

Hong Kong and China’s mainland STAR Market have attracted $15.2 billion worth of secondary listings from U.S. listed Chinese companies so far this year, according to Refinitiv data.

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“The moves are probably based on the increasing recognition that the U.S.-China decoupling will not stop and will proceed steadily,” said LightStream Research analyst Mio Kato, who publishes on Smartkarma.

“I would expect a continuous flow of listings from New York to Hong Kong over the next year or two.”

The U.S administration is progressing plans to delist Chinese companies if they do not meet the country’s auditing rules, which could affect more than 200 companies.

Chinese companies https://www.reuters.com/business/us-sec-mandates-foreign-companies-spell-out-ownership-structure-disclose-2021-12-02 that list on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity, and provide evidence of their auditing inspections, the Securities and Exchange Commission (SEC) said last week.

(Reporting by Scott Murdoch and Donny Kwok; editing by Richard Pullin and Louise Heavens)

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