Global Markets: Stocks bounce and dollar falls, investors cling to China COVID optimism Global stocks edged higher in volatile trade on Monday, even though Beijing denied it would consider easing its zero COVID-19 policy, which stemmed safe-haven flows into the dollar ahead of potentially pivotal consumer inflation data this week. Risk assets had rallied on Friday amid speculation China was preparing to relax its pandemic restrictions, but over the weekend health officials reiterated their commitment to the “dynamic-clearing” approach to COVID cases as soon as they emerge. Also read: Why US is the perfect market to diversify away from India’s risk By mid-morning in Europe, an overnight rally in the dollar had fizzled out, as traders clung on to the idea that China could temper some of its restrictions, after the government on Monday indicated it will make it easier for people to enter and exit the capital. The dollar sagged against other major currencies, pushing the pound up by almost 0.8% to $1.1453 and boosting the euro by 0.4% to near-parity at $0.99975. The biggest macroeconomic risk event this week will be the October consumer price index (CPI), which could be instrumental in setting investor expectations for the likely course of Federal Reserve monetary policy. Fed Chair Jerome Powell quashed speculation last week that the central bank could slow the pace of its rate rises, saying interest rates would likely stay higher, for longer. On Friday, the October employment report showed much faster job growth than expected, but slower wage growth and a rise in the unemployment rate, suggesting some of the tightness in the labour market may be easing. MEDIAN FORECASTS For Thursday, median forecasts are for annual CPI inflation to slow to 8.0% and for the core to dip a tick to 6.5%. “If we can see a moderation in core cpi which I think might be a little bit to imply that but I think if we do see that it will encourage this correction to run a little bit further,” CIBC’s Stretch said. On the equity market, travel and leisure stocks, led by online betting group Flutter Entertainment and budget airline Ryanair, were among the biggest gainers on the STOXX 600, which rose 0.6%. The MSCI All-World index gained 0.5%, lifted by strength overnight across Asian markets, where Shanghai’s CSI 300 ended 0.2% higher and Hong Kong’s Hang Seng gained 2.75%, following last week’s 8.7% gain. Also read: Adani Enterprises among 172 BSE stocks to hit new 52-week highs; Bandhan Bank, Reliance Cap at fresh lows The offshore yuan fell 0.7% to 7.2282, but still held near its strongest against the dollar in around a week. Speculation that China, the world’s largest commodity consumer, might open its economy saw copper jump 7% on Friday in its biggest one-day rally since 2009, while oil rose by more than 4%. S&P 500 and Nasdaq futures erased earlier losses and rose 0.3%. Four Federal Reserve policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting, sounding less hawkish than Chair Jerome Powell. There are at least seven Fed officials scheduled to speak this week, which will help refine the rate outlook with markets now narrowly leaning toward a half-point rate hike next month to 4.25-4.5%. “We maintain the Fed will see sufficient progress on inflation to pause at 4.75% in February, but the risks are skewed to more hikes that likely bring about a recession sometime later in 2023 or early 2024,” said Bruce Kasman, head of economic research at JPMorgan. Two-year Treasury yields, which are the most responsive to expectations around inflation and interest rates, were last up 3 basis points on the day at 4.68%, off Friday’s 2007 peak. Also of note will be midterm US elections on Tuesday where Republicans could win control of one or both chambers and lead to deadlock on fiscal policy. Meanwhile, oil eased, surrendering some of last week’s gains. Brent crude fell 0.1% to $98.37 a barrel, while US crude dipped 0.3% to $92.29 a barrel.
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.