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The finding, which doesn’t absolve the Russian leader of ultimate responsibility, deepens the mystery surrounding the dissident’s death at an Arctic gulag

WASHINGTON—Alexei Navalny’s February death in an Arctic penal colony prompted a new wave of sanctions targeting Russia’s economy, upended delicate negotiations to exchange prisoners between Russia and the West, and left Russia’s limited opposition in disarray.

Russian President Vladimir Putin might not have planned for it to happen when it did.

U.S. intelligence agencies have determined that Putin likely didn’t order Navalny to be killed at the notoriously brutal prison camp in February, people familiar with the matter said, a finding that deepens the mystery about the circumstances of his death.

The assessment doesn’t dispute Putin’s culpability for Navalny’s death, but rather finds he probably didn’t order it at that moment. The finding is broadly accepted within the intelligence community and shared by several agencies, including the Central Intelligence Agency, the Office of the Director of National Intelligence, and the State Department’s intelligence unit, the people said.

Some European intelligence agencies have been told of the U.S. view. Certain countries remain skeptical that Putin wouldn’t have had a direct hand in Navalny’s death, according to security officials from several European capitals. In a system as tightly controlled as Putin’s Russia, it is doubtful that harm could have come to Navalny without the president’s prior awareness, those European officials said.

President Biden and other world leaders have held Putin ultimately at fault based on years of the Kremlin’s targeting Navalny, including by allegedly attempting to assassinate him in 2020 and sending him to a remote gulag. “Make no mistake. Putin is responsible for Navalny’s death,” Biden said after the world learned of the death.

But the U.S. now believes the timing of his demise wasn’t intended by Putin.

Navalny’s allies insist that his death was orchestrated by the Kremlin. In a statement, Leonid Volkov, a longtime Navalny ally, rejected the U.S. intelligence community’s assessment as naive.

Those who assert that Putin wasn’t aware “clearly do not understand anything about how modern day Russia runs,” he said. “The idea of Putin being not informed and not approving killing Navalny is ridiculous.”

Slawomir Dębski, director of the Polish Institute of International Affairs, a Warsaw think tank close to Poland’s presidency, cast doubt on the U.S. intelligence community’s assessment. “Navalny was a high-value prisoner, politically, and everybody knew that Putin was personally invested in his fate. The chances for this kind of unintended death are low,” he said.

The U.S. assessment is based on a range of information, including some classified intelligence, and an analysis of public facts, including the timing of his death and how it overshadowed Putin’s re-election, some of the people said.

The people who spoke to The Wall Street Journal wouldn’t specify if the U.S. government had assessed how Navalny died, and the exact circumstances of his death might never be fully established. It couldn’t be determined whether intelligence agencies had developed alternative explanations for Navalny’s death.

Because he was the last opposition figure inside Russia with enough political heft to be seen as a possible leader, his death appeared to mark the culmination of a long-running Kremlin campaign to kill or force into exile any possible alternatives to Putin. Since the invasion of Ukraine, a series of other Russians have died in unusual circumstances on three continents.

Intelligence assessments are often based on a mosaic of fragmentary informational components and frequently rely on a mix of classified details and open-source, or publicly available, streams of data.

The Office of the Director of National Intelligence, which oversees U.S. intelligence agencies, declined to comment on the issue. A representative from the Russian Embassy in Washington didn’t respond to a request for comment.

Russia’s prison service said Feb. 16 that Navalny fell unconscious after a walk at the penal colony where he was serving time. The statement said that medics arrived to revive him, but that they failed and he died.

Just one week before his death, Biden and German Chancellor Olaf Scholz had discussed a potential proposal for a prisoner trade that might have freed Navalny, along with Americans being held in Russia. Those include Wall Street Journal reporter Evan Gershkovich and a former U.S. Marine, Paul Whelan, both of whom have been designated as wrongfully detained by the U.S. government, which has said it is working to negotiate their release.

In return, the Kremlin wanted Vadim Krasikov, a Russian intelligence operative convicted in Germany of murdering a Georgian dissident.

The Anti-Corruption Foundation, founded by Navalny, has said he was killed after Putin became aware of that potential prisoner swap and acted to prevent it. The group’s head of investigations, Maria Pevchikh, said the foundation had been involved in efforts to win Navalny’s freedom.

Putin said in comments in March that he had agreed to the idea of a swap between Navalny and people held in the West days before Navalny died. The Russian leader said the only condition was that he never return to Russia.

The Kremlin has denied state involvement in the death and the previous poisoning of Navalny.

Gershkovich, who was accredited as a foreign correspondent by Russia’s Foreign Ministry at the time he was detained, has been held for over a year on an FSB allegation that he engaged in espionage—an accusation the Journal, the U.S. government and he vehemently deny. On Tuesday, a Moscow court rejected an appeal against his detention, meaning he is expected to remain in prison until at least June 30.

Whelan, a corporate security executive from Novi, Mich., has been held in Russia since late 2018 on espionage charges that he, his family and the U.S. government deny. He was convicted of the charges in 2020 and sentenced to serve 16 years in a penal colony.

Navalny, who was 47 when he died and who had been in jail since 2021, was the vocal face of resistance within Russia to what he and his supporters said was Putin’s increasingly authoritarian and corrupt rule. He had been serving three prison sentences amounting to more than 30 years on charges he and his supporters said were fabricated.

Navalny was detained after returning to Russia from Germany, where he had recovered from what German doctors said was poisoning with a Soviet-era nerve agent, Novichok. The U.S. government and independent investigators blamed his poisoning on the Kremlin.

His death came months after he had skipped a series of court dates and appeared to have gone missing, only to turn up at a prison colony known as the Polar Wolf, in the remote Arctic region of Yamalo-Nenets, a bitingly cold, highly isolated and difficult area to reach.

In December, he surfaced on social media and flashed his typically acerbic humor, telling his supporters: “I am your new Santa Claus.”

Questions are swirling about succession, a possible dividend, even a breakup of the company. The case for buying the stock now.

Warren Buffett will be at center stage, as usual, during Berkshire Hathaway ’s annual meeting. But investors are increasingly looking for clues on what the company will be like when the longstanding CEO and chairman is no longer running it.

Berkshire could come under pressure to break itself up when the world’s most acclaimed investor exits the stage. It might decide to pay a dividend rather than amass cash, as it does today while Buffett, 93, waits for investing opportunities. Buffett can expect to face questions on all these topics and more at the annual meeting on May 4 in Omaha, Neb.

Charlie Munger, Warren Buffett’s longtime friend, business partner, and Berkshire vice chairman, who died last year at 99, won’t be at his side. Munger’s absence will only reinforce the obvious: Buffett’s time atop the conglomerate he built over six decades could end during the next few years. Even Buffett acknowledges as much, writing in November that he felt “good” but was “playing in extra innings.”

For some 30,000 Berkshire shareholders expected to attend the meeting, the future will be the focus as Buffett fields questions for more than five hours in what could be his only public appearance of the year. Joining Buffett on the dais will be Vice Chairman Greg Abel, 61, likely tasked with the role of Buffett’s successor as CEO, and Vice Chairman Ajit Jain, 72, who runs the company’s insurance operations. Together they will answer questions small and large: Can the stock beat the S&P 500 index ? Why have share repurchases declined since 2021? Can the company’s new management prove anywhere as capable as Buffett? Should Berkshire break up?

But really, everyone will be focused on the same thing.

“Whether it’s said out loud or not, succession is front and center on the minds of investors,” says Cathy Seifert, a CFRA Research analyst.

There is nothing like Berkshire. It has had an extraordinary run since Buffett took control of a struggling textile maker in 1965 and turned it into the world’s largest conglomerate, with nearly 400,000 employees and U.S.-centric businesses that offer one of the best reads on the health of the economy. Some of its largest divisions are the Burlington Northern Santa Fe railroad; Berkshire Hathaway Energy, which operates a multistate electric utility business that is one of the largest producers of green power in the country; and the world’s biggest property and casualty insurer, including Geico, the No. 3 auto insurer.

There are smaller units, such as NetJets, the leader in private jet travel; Clayton Homes, the top maker of manufactured housing; Benjamin Moore paints; Dairy Queen; and one of the largest real estate brokerage businesses in the country. Then there is a $360 billion equity portfolio led by Apple, which accounts for about 40% of Berkshire’s holdings. There also is what Buffett calls a Fort Knox balance sheet, with nearly $170 billion in cash and equivalents.

Berkshire isn’t run like other conglomerates. It is unusually decentralized, with Buffett leaving key decisions at subsidiaries largely to the managers of the individual companies. He wrote in the Berkshire “Owner’s Manual” in 2017 that “we delegate almost to the point of abdication.” Berkshire has a tiny headquarters staff of 26 with no corporate counsel, investor relations, or public relations staff.

Berkshire’s unusual strategy has worked. The company is expected to generate $40 billion of after-tax operating earnings this year and has a market capitalization of $880 billion, the seventh-largest in the stock market. The company’s Class A stock has risen to over $600,000 a share from $20 (there have been no stock splits along the way) since Buffett took over in 1965, and holders who bought the now widely held Class B shares when they were created in 1996 have seen that stock rise 20-fold. It’s one of the most widely held stocks by individuals, with some three million shareholders. Probably no other company elicits the passion and loyalty of its investor base. Big institutions have never appreciated the stock as much as individuals.

But will they continue to, once Buffett is no longer running the show? So central is Buffett to Berkshire’s business that four or five people will take over the role that he maintained until 2018, when he delegated responsibility for Berkshire’s non-insurance businesses to Abel and the insurance operations to Jain.

Abel is due to become CEO, which involves overseeing Berkshire’s vast array of businesses and likely determining capital allocation, a critical role at the company that Buffett has performed so well for nearly 60 years. That means deciding whether to use earnings to repurchase stock, pay dividends, build cash, or make acquisitions. Jain is likely to remain head of the insurance business, while Buffett’s older son, Howard, 69, a farmer and philanthropist, probably will become nonexecutive chairman.

Then there are Todd Combs, 53, and Ted Weschler, 61, who now run about 10% of Berkshire’s equity investments and probably will run the entire portfolio. Berkshire doesn’t say which stocks in the equity portfolio are run by Combs and Weschler, but Berkshire watchers think that many of the smaller holdings—under $4 billion—are theirs. These include Charter Communications, DaVita, Liberty Sirius XM, Amazon.com, Snowflake, Visa, and Mastercard. Buffett hasn’t commented on their performance relative to the market since 2019—when he said they were slightly behind it since joining the company more than a decade ago. We estimate that both are probably lagging behind the market since their tenures began, given the underperformance of some of their rumored holdings in recent years.

Investment manager Bill Smead, who heads the Smead Value fund, would like to hear from Combs and Weschler. “Not introducing Todd and Ted is an unforgivable sin. If Warren dies tomorrow, they are the stockpickers, and they have never answered or been asked a question at the annual meeting.”

Combs is a key member of the Berkshire bench and could be a backup to Abel as the Buffett successor or a potential successor to Abel as CEO. Combs has a good rapport with Buffett and has experience beyond investments as CEO of Geico for past four years and as a JPMorgan Chase board member. One candidate to succeed Jain as head of the insurance operations is Joe Brandon, who runs Alleghany, an insurer that Berkshire bought in 2022.

Buffett’s three children, Howard, Susan, and Peter, will be in the mix after Buffett’s death since they will oversee a charitable trust that will hold Buffett’s now 15% economic stake in Berkshire, which has voting power of over 30% because it consists almost entirely of supervoting A shares. The Buffett stake will allow the children to wield considerable power, at least for several years, as the trust will liquidate over about a decade.

While Buffett acknowledges that he has slowed down in recent years, he looked sharp at the 2023 meeting. He talked for five hours, fortified with a Coke and peanut brittle from See’s Candies, a Berkshire company. He showed command of all things Berkshire, the economy, and financial markets, both past and present. He is the last of a breed. Three years ago, there were four Berkshire directors age 90 or over—all longtime friends of Buffett—and they all are dead: Munger, David “Sandy” Gottesman, Tom Murphy, and Walter Scott. Smead says that without the outspoken Munger to prod him, Buffett may be more restrained at this year’s meeting.

That won’t stop investors from peppering him with questions. How long do you expect to run the company? What do Berkshire’s slowing stock repurchases say about your views on the stock? Can Geico, which has slipped behind Progressive in auto insurance market share and technology, catch up? Would Berkshire walk away from its Western utilities and let them go bankrupt in the face of wildfire liabilities? Do you think it will make sense to pay a dividend once you’re gone?

Buffett says he expects tough questions. “That’s the way we like it,” he wrote earlier this year.

“There will be more discussion of the possibility of a dividend at some point in time,” says Ted Bridges, CEO of Bridges Trust, an Omaha investment manager. Buffett has conceded that buying public and private businesses is tough now, given higher valuations. And Berkshire handicaps itself by refusing to participate in corporate auctions. The dividend issue arouses passion among many individual Berkshire holders who don’t want them, in part for tax reasons.

An important question, asked or not, is what will happen to Berkshire shares when Buffett steps down or dies. They may take a hit of perhaps 5% to 10%, as longtime holders cash out and investors worry that the Buffett magic will disappear. Buffett, though, has said he thinks the stock will go up on the day after his death as investors anticipate a value-enhancing corporate breakup.

There’s a case to be made for a breakup. It’s the world’s biggest conglomerate at a time when conglomerates have fallen out of favor, with the likes of General Electric and United Technologies having broken up in recent years. For all of Buffett’s investment acumen and business smarts, Berkshire stock is about even with the S&P 500 as measured by total return over the past 10 years and 20 years, Bloomberg calculations show. The stock has returned 12.4% annually over the past 10 years, against 12.5% for the S&P 500. Buffett has said that Berkshire needs to top it over time or investors should consider looking elsewhere.

All the massive outperformance came in Buffett’s first 40 years at the helm, when the company was smaller and Buffett had a particularly hot investment hand, scooping up big stakes in companies like Coca-Cola and American Express at cheap prices. Size, too, is an impediment to outsize returns.

Buffett hasn’t had a lot of new winners in the past decade. The company’s largest acquisition—the 2016 purchase of Precision Castparts for $33 billion—has been a bust. Buffett has had some misses in the stock market, selling a group of financial stocks including Wells Fargo and JPMorgan Chase in 2020 and 2021 at about half their current prices. Of course, Apple has been a huge win with Berkshire’s stake, now worth over $150 billion, compared with a cost of around $30 billion. But the iPhone giant is having a rough 2024, and its stock is down more than10% year to date.

Berkshire shares look like a good bet to match or beat the S&P 500 even after Buffett leaves the scene. The stock now looks appealing, valued at 1.5 times its projected March 31 book value of nearly $400,000 per Class A share and for 22 times estimated 2024 earnings. (Berkshire is due to report its first-quarter results on May 4.) Berkshire is slightly expensive relative to its five-year average of 1.4 times book value. The stock is ahead of the market this year and over the past five years.

Book value is an old-fashioned valuation measure but is still relevant for Berkshire because of its large insurance operations—insurers still get valued on book—and because it has been a historical yardstick for the company since Buffett took over.

Buffett chooses to focus on intrinsic value but doesn’t disclose his estimate of that figure. Buffett has said that book value is a greatly understated proxy for intrinsic value, although share repurchases at current prices do reduce book value, somewhat undercutting the use of that measurement.

Post Buffett, Berkshire’s stock is likely to be supported by steady growth in its earnings and shareholder equity over time. The company appears capable of high-single-digit annual growth in book value based on $40 billion of operating income after taxes and gains in the $360 billion equity portfolio. If the stock keeps pace with the growth in book value, it could show similar share price growth.

A dividend is a good bet within a few years of Buffett’s death. Why? It will help his successor disburse some of the annual operating earnings. Another reason is that investors won’t be so tolerant of Berkshire holding so much cash—a record $168 billion at year-end 2023—without Buffett at the helm.

Christopher Bloomstran, chief investment strategist at Semper Augustus Investment Group, wrote earlier this year that Berkshire stock could generate a 10% to 11% annualized return over the next 10 years, with annual share buybacks in the 2% to 3% range—above the recent rate of 1% to 1.5%. He pegged intrinsic value at around $720,000 a share.

UBS analyst Brian Meredith is one of the few Berkshire bulls among Wall Street analysts. He recently lifted his price target to about $722,000 per Class A share from $715,000. He sees improvement at both Geico and Burlington Northern. Berkshire is one of the most defensive big stocks in the market, given its balance sheet and earnings power. A market selloff could offer opportunities for Buffett.

Buffett is firmly against a breakup. He argues the conglomerate structure has numerous attributes, including tax benefits from the ability to quickly make use of any big catastrophe losses at Berkshire’s insurance companies. Buffett has expressed confidence in the company’s future, writing last year that “Berkshire has been built to last.” And the company’s Buffett-friendly 14-member board—including two of Buffett’s kids—is well aware of his views.

“Berkshire has been run with enormous transparency, integrity, a long-term orientation, and a culture of stewardship. It is run by the greatest investor in history. That’s the present,” Chris Davis, an investment manager and Berkshire board member, told Barron’s last year. “As for the future, every activist and investment banker will argue that in a world without Warren and Charlie, Berkshire’s unorthodox structure shouldn’t persist. I think it’s worth defending.”

Whatever the questions, Berkshire shareholders will savor the annual meeting, knowing there may not be many more with Buffett at the helm. As for the stock, many may heed the advice of Munger, who said that “they should keep the faith” rather than sell after he and Buffett are gone.

JPMorgan, Walmart, and others are using the technologies to become more efficient. That should help their stocks for the long run.

It’s time for a new batch of AI winners. Artificial intelligence has been front and center for investors for more than a year, with companies building hardware and software for this new cycle of innovation enjoying stellar stock returns. The next beneficiaries: nontech companies using AI tools to become more efficient and productive.

It’s time for a new batch of AI winners. Artificial intelligence has been front and center for investors for more than a year, with companies building hardware and software for this new cycle of innovation enjoying stellar stock returns. The next beneficiaries: nontech companies using AI tools to become more efficient and productive.

It isn’t just the Nvidias and Microsofts of the world talking about AI these days. Mentions of the term on U.S. large- and mid-cap company earnings calls are up some 75% so far this year, compared with the same period last year, according to a search of transcripts on AlphaSense. Those firms hailed from 44 industries, including media, retail, banking, aerospace, and oil and gas.

Sure, talk is cheap, and these days most AI mentions are either anecdotal or aspirational—with little impact on earnings. But as with every transformative technology, AI will, over time, be adopted by a much wider universe of companies.

The inventors and manufacturers of early steam engines weren’t the only beneficiaries of that technology; factory, railroad, and ship operators quickly used it to power their businesses and machinery. Ditto for later technologies like electricity, telephones, computers, and the internet. The rewards from each new innovation eventually shifted from enablers, who created and commercialized it, to adopters, who implemented it.

In the AI era, the enablers are the companies focused on building the software models—firms like OpenAI, Microsoft, Alphabet’s Google, and a litany of others. The enablers are also the designers and manufacturers of cutting-edge hardware used in the data centers powering AI—think Nvidia, Advanced Micro Devices, Super Micro Computer, and Taiwan Semiconductor Manufacturing—and the cloud-computing giants that operate the infrastructure, like Amazon.com, Microsoft, and Oracle.

The enablers’ AI potential and early successes are no secret to investors: Shares of Microsoft, Alphabet, and Amazon are up 70% or more since the start of last year; Nvidia’s have surged 465%. A group of enabler stocks with material AI businesses assembled by Morgan Stanley strategists returned an average of 111% in 2023, versus a mere 6% return by a collection of adopter stocks.

A late-2023 Morgan Stanley survey of chief investment officers found that a plurality expected their firms’ first AI-enabled projects to be up and running in the second half of 2024. Enablers’ fate is inherently linked to adopters, which are their ultimate customers, after all.

That dynamic won’t flip overnight, but adopters able to demonstrate progress on AI initiatives will increasingly get credit from investors in the form of higher earnings multiples, says Edward Stanley, Morgan Stanley’s head of thematic research in Europe. Those multiples will be justified by wider profit margins and faster earnings growth.

“AI is benefiting companies at different rates,” says Patrick Kelly, a portfolio manager at growth-oriented investment shop Alger. “Some are already seeing big benefits—some will see it play out over the next several years.”

The earliest wave of AI adoption is already visible in a variety of internet businesses across social media, entertainment, and gaming. Take Meta Platforms, which has rolled out a flurry of consumer- and advertiser-facing AI tools in recent months. Facebook, Instagram, and WhatsApp users can access Meta’s AI chatbot directly in the apps, which may increase engagement, the company says. But the real benefit to Meta comes from behind-the-scenes advances to its ad-targeting models, which analyze vast amounts of data to present paid content to interested users.

An AI-powered boost is also appearing at other players in digital advertising, such as Trade Desk and AppLovin, says Kelly, who manages the newly launched Alger AI Enablers & Adopters mutual fund and exchange-traded fund. Online sports-betting firm DraftKings is another early AI adopter, using the technology to set odds for individual bets and ever-more-complex multiple bets within single games.

AI is increasingly augmenting and replacing rote customer-service tasks—a win-win for companies and consumers. Buy-now-pay-later provider Klarna said in late February that its customer-service chatbot, powered by OpenAI’s models, had 2.3 million conversations in the previous month—doing the work of 700 full-time agents with greater accuracy and cutting the average time to resolution from 11 to two minutes. The privately held company estimates that employing the AI assistant will save $40 million a year.

Other industries will take longer to realize the impact of AI, but the productivity boost is coming. Financial-services firms are automating more back-office compliance functions, as well as complex underwriting processes, despite the regulated industry’s aversion to risk. JPMorgan Chase has a $15 billion annual technology investment budget, 2,000 AI and machine-learning experts on staff, and a newly created position of chief data & analytics officer reporting to CEO Jamie Dimon.

“We have been actively using predictive AI and ML for years—and now have over 400 use cases in production in areas such as marketing, fraud, and risk—and they are increasingly driving real business value across our businesses and functions,” wrote Dimon in his annual letter earlier this month.

There’s similar efficiency-boosting potential in healthcare. Insurer UnitedHealth Group is starting to use AI in everything from streamlining administrative functions like processing claims to providing medical insights based on its massive database of prescription and medical records.

Retailer Walmart has a generative AI search in its app—type in “Help me plan a birthday party,” for example, rather than separately shopping for balloons, candles, and other supplies. It’s also employing AI to optimize inventory for anticipated demand based on Walmart’s tremendous amount of data on consumers.

AI is finding its way into nuts-and-bolts businesses, from the factory floor to the oilfield. Baker Hughes has a partnership with C3.ai, using AI analytics to boost productivity of existing oil-and-gas wells, drill more efficiently, and better predict maintenance needs.

Give them a little more time and the adopters could soon start shining like the enablers.

Emerging market bonds have sold off over the past two weeks, ever since Federal Reserve Chairman Jerome Powell signaled a hawkish shift on U.S. interest rates.

But the average spread for emerging market hard currency sovereign paper over U.S. Treasuries remains near its postpandemic low, around 3.4 percentage points, says Sergey Goncharov, head of Americas fixed income at Vontobel Asset Management. That’s down from 460 basis points five months ago—a powerful rally in fixed-income terms. (A basis point is 1/100th of a percentage point.)

There are two ways to look at this steady performance: Emerging market bonds remain fully priced and vulnerable to further global shocks, or emerging market economies are stable by historical standards, and that 340 extra basis points of yield is worth the risk. “The market is divided between spread sellers and yield buyers,” says Edward Al-Hussainy, senior currency analyst at Columbia Threadneedle Investments.

Pros in the space are splitting the difference by shifting toward solid credits from the likes of Mexico, Indonesia, and Saudi Arabia, away from higher-yielding names. “We are not chasing risk in our portfolios,” says Samy Muaddi, portfolio manager for emerging market bonds at T. Rowe Price.

Expectations that the Fed will stay higher for longer have undercut one driver for emerging market bonds: anticipation of interest-rate cuts in countries that tightened faster and more aggressively than the U.S. in 2022-23. These bets focused on Brazil, Mexico, and other Latin American sovereigns.

“We have parted ways with the LatAm rate cutters after a massive run in the bonds,” says Michael Kelly, head of PineBridge Investments’ multi-asset strategy.

Another driver was policy reform in countries that were either in or threatened with credit default, from Argentina and Nigeria to Egypt and Turkey. This year’s unlikely fixed-income stars are Argentina and Ecuador, where new presidents promising fiscal stringency have returned up to 80% for bondholders, Goncharov says.

Further gains look tougher to come by. “Nothing is dirt cheap anymore,” he says. “High-yield spreads have tightened from 1,000 to 600 basis points.”

Emerging markets, with their enormous diversity, remain fertile ground for bond pickers. Another 2024 macro story—rising commodity prices—is creating value in the debt of oil exporters like Colombia and Nigeria, says Eric Fine, head of emerging markets active debt at VanEck. Nigerian dollar bonds maturing in 2028 are yielding around 9% annually. Three-year paper from Mexican state oil producer Pemex pays 9.5%.

PineBridge’s Kelly sees bargains in Asian high-yield corporate debt. The travails of Chinese property developers are obscuring value elsewhere, he argues. For instance, Indian utilities, which are borrowing heavily to power the new great growth economy.

“You’re getting high-single/low-double digit yields on credits,” he says. Kelly also likes debt from casinos in China’s Macau, whose postpandemic recovery is gathering momentum.

One national restructuring story that may still have legs is Pakistan, Vontobel’s Goncharov adds. The International Monetary Fund OK’d a $1.1 billion aid tranche for the country last month, citing “prudent policy management and resumption of inflows.” Eurobonds maturing in 2027 yield north of 11%.

Clearly, these perceived bargains fall into the idiosyncratic category. The big story on emerging markets is that they aren’t the big story anymore as sources of world financial risk. The IMF recently named four countries that “critically need to take policy action to address imbalances”—the U.S., China, the United Kingdom, and Italy.

If those supertankers flounder, no one will escape the waves, though.

Lithium prices may be bottoming after an 80% tumble. That’s good news for Albemarle.

Albemarle has a lithium problem. The metal, a key ingredient of electric vehicles, has plunged in price as electric-vehicle sales growth has slowed. Lithium prices are down more than 80% since peaking in 2022. And Albemarle, based in Charlotte, N.C., happens to be the world’s largest producer of the stuff.

But now, lithium prices show signs of stabilizing. If that holds, Albemarle’s battered stock could soon get a nice lift.

When the EV boom was in full force in 2022, lithium was trading at nearly $60,000 a metric ton. But as investors came to realize that growth would be slower than car makers had predicted, prices started falling. By December, they had dropped to just $9,000 a metric ton. (A metric ton is slightly larger than a U.S. ton.) Adding to the problem: Lithium miners, betting that demand was only going to increase, built new mines that are now starting to ramp up, adding more supply at a moment of uncertain demand. No wonder Albemarle’s stock has fallen 67% since peaking in late 2022.

Things may start looking up. Lithium prices have risen 15% this year, topping $11,000 for the first time since December 2023. They could keep rising as Albemarle and other producers put a lid on additional expansions. In one notable move, Albemarle has delayed volume increases planned for its plant in Richburg, S.C. At the same time, any improvements in China’s economy could lift demand for lithium.

In all, KeyBanc Capital Markets analyst Aleksey Yefremov forecasts a lithium price of about $21,000 by 2026. And if shortages develop, which could happen in 2026, prices could shoot even higher.

“We believe lithium pricing has bottomed,” writes BofA Securities analyst Steve Byrne, who recently upgraded Albemarle to Buy from Neutral. The average Wall Street price target for the stock is $144, up from $114 now, and bulls see it going as high as $190, according to FactSet.

Albemarle produces hundreds of thousands of tons of the metal each year in countries like Australia, Chile, and the U.S. That lithium is used by chemical makers and EV manufacturers to make consumer electronics and EV batteries. The swoon in lithium prices, though, has hammered Albemarle’s business. Analysts expect sales to drop 39%, to $5.9 billion, this year, while earnings drop 80%, to $4.45 per share.

With the recent firming of lithium prices, analysts are looking more kindly at next year’s earnings. Albemarle’s sales are expected to hit $6.93 billion in 2025. With selling prices rising and production costs holding about even, earnings could nearly double, to more than $8 per share. Any further jump in lithium price would only accelerate the gains.

Of course, Albemarle needs to get through the current electric-vehicle malaise. Demand for EVs is still growing—it’s just the pace of that growth that has needed a reset. In 2022, EV sales increased by 58%, according to the International Energy Agency, but that slowed to just 31% last year. Markets are trying to figure out how much of the growth slowdown is a result of broader weakness in consumer spending versus industry-specific problems, but it’s likely that at least some of the issue is a function of the global economy.

There are less than 100 million EVs on the road today, according to Vista Global, versus more than a billion total vehicles, which means there is plenty of opportunity ahead for EVs. Electric-vehicle sales should grow by just over 16% annually from the end of this year through 2030, according to exchange-traded fund provider GlobalX. That’s what Albemarle expects, too.

Demand for lithium industrywide should grow at roughly the same rate, to 3.3 million metric tons by 2030. That’s why analysts expect Albemarle’s sales will top $10 billion by 2028. While consensus estimates don’t go beyond that year, KeyBanc analyst Yefremov’s forecasts do, because “my framework is this market is going to grow,” he says. Assuming the same growth rate through 2030, sales would reach over $14 billion, while earnings would reach about $28 a share.

That type of growth has yet to be reflected in the stock. The company’s enterprise value, or market value plus net debt, stands at about 13.4 times the next 12 months’ expected earnings before interest, taxes, depreciation, and amortization, or Ebitda—well below its five-year average of over 18 times.

This stock could soon be recharged and ready to roll.

Visitors to Dubai’s Mall of the Emirates’ famous artificial ski slope last week found it dark and deserted. Even though the shopping centre itself was filled with the usual tourists, the silent snow dome suggested all was not well, after a deluge in the metropolis disrupted the power to chill the slope.

Several days after the United Arab Emirates was drenched by historically intense rainfall, many streets surrounding the pristine mall were covered by water.

Abandoned cars, including a Porsche Carrera, littered nearby roads. Local residents, whose buildings still had no power or running water, crouched by the mall’s power sockets and washed in its public toilets.

The disruption in the wake of the dramatic storm, which caused flash flooding across the oil-exporting country, brought home the growing threat of intensifying weather events to the desert nation’s infrastructure.

Many services have returned to normal. But water was still standing in some areas more than a week after the storm and the UAE issued health advice about the stagnant pools, which have turned foul smelling. Dubai’s rulers have pledged to spend Dh2bn ($545mn) on patching up damage.

“Traditionally Dubai and the UAE have not had to worry about getting too much rain, so it hasn’t been part of their planning calculus,” said an expert on climate resilience and urban environments who works with Middle East governments. “That will have to change”.

“You would not think, being here, setting up a store, you have to think: waterproofing,” said Somia Anwar, co-owner of Bookends, a used books seller. As water gushed into their basement-level shop last week, “I felt like I was in the Titanic”. After the water was pumped out, Anwar had to dispose of 10,000 books spoiled by sewage water, which was not covered by insurance.

Scientists said heavy rainfall in years when the naturally occurring El Niño pattern warms the Pacific Ocean had become anywhere from 10 per cent to 40 per cent more severe, in a rapid study by the World Weather Attribution group.

While the researchers could not precisely determine how much of the increase in such wet weather was due to human-caused climate change, they found that warming caused by burning fossil fuels was the most likely explanation.

Not only does climate change mean the UAE has to contend with ever hotter summers as temperatures reach beyond 50C, it also faces the wetter weather fuelled by global warming.

Although the sudden rainfall was the heaviest since records began 75 years ago, according to meteorological authorities, it was just the most recent deluge. Inundation has become frequent enough that Dubai’s transport authority opened a flood management control centre in January. 

“They are not rare events for the Middle East,” said Suzanne Gray, professor of meteorology and Reading University in the UK, who identified the tempest as being caused by an amalgamation of several high level thunderstorms, called a mesoscale convective system, typically hundreds of kilometres wide.

Scientists said that cloud seeding, a technique used by the UAE to help stimulate rain, was not to blame.

“We know that man-made climate increases extreme rainfall — this is well understood physics as warm air holds more water,” said John Marsham, Met Office joint chair at the University of Leeds. “Any possible effect of any cloud seeding in these circumstances would be tiny.”

With the UAE hosting the COP28 climate summit last year, awareness has grown about climate change dangers. The country has an adaptation plan, and Dubai was the first to apply for a UN scheme to become a “City Resilience Hub” in 2020. 

UAE capital Abu Dhabi weathered the latest storm better than the larger glitzy trading and financial hub of Dubai. The futuristic city is the UAE’s biggest by population and the location of the world’s second busiest airport, which was forced to cancel more than 1,000 flights, leaving passengers stranded for days.

“The infrastructure was built before these weather changes happened,” said an insurance executive, who said it was too early to estimate overall damage costs. “In certain instances, the quality of construction by the developers was not good enough.”

Sprawling Dubai was especially vulnerable to flooding because it was relatively flat, covered in impermeable concrete and asphalt surfaces, and its desert sands lacked the ability to grow vegetation that could absorb floodwater, said a Dubai-based town planning specialist. 

Underlying those drainage problems is a groundwater table already oversaturated by irrigation and pipe leakage, a common issue in the Gulf. “The cities are really floating,” said Hrvoje Cindrić, Middle East planning lead at international engineering firm Buro Happold. 

When Dubai floods, he added, “the water has got nowhere to go”.

Dubai officials over the years have considered comprehensive drainage systems but carried out limited works because of the high costs involved versus the perceived relatively low risk. 

Upgrades to the network have included a 10km drainage tunnel under southern Dubai, opened ahead of Expo 2020, to serve the huge exhibition facilities, which was also the site of the UN climate summit, and the airport. 

“You wouldn’t engineer for the worst possible scenario . . . it’s prohibitively expensive,” said Huda Shaka, a chartered urban planner based in Dubai. But following the storm, “it’s not just a theoretical scenario. It has happened, and the costs are real.”

In the wake of the floods, Sheikh Hamdan bin Mohammed al-Maktoum, the crown prince, approved a Dh66bn upgrade to the drain network. Tenders were first issued last year for the project, though bids were not received until February. 

The announcement came after the UAE president Sheikh Mohammed bin Zayed al-Nahyan ordered officials to monitor the nation’s infrastructure and “limit the damage caused,” according to the state news agency. 

Town planning experts say Dubai could adopt “sponge city” principles, making detailed flooding plans and allotting areas with permeable surfaces for better drainage. Given the damage sustained by many buildings, “there may be a need for tougher building codes,” said a former Emirati official. 

“Now the cost of mitigating [extreme weather] becomes not unreasonable,” said urban planner Shaka, adding: “sometimes it takes an extreme event for action to happen.”

The bank had some of the same problems of the ones that failed in 2023.

Regulators are set to seize the troubled Philadelphia bank Republic First Bancorp FRBK -60.00%decrease; red down pointing triangle and are near a deal to sell it to another lender, the fourth high-profile bank failure since last Spring.

The failure and deal could be announced as soon as Friday, people familiar with the matter said. The identity of the expected buyer couldn’t be learned, and it is still possible the deal could collapse.

Republic First faced some of the same problems as the three regional banks that failed last year: paper losses on bonds that lost value as interest rates rose and high proportions of uninsured deposits that can quickly flee.

Regulators had been prepared to seize Republic First late last year, people familiar with the matter said, before the bank announced it had reached a deal with investors to shore up its balance sheet. After that deal collapsed this March, the Federal Deposit Insurance Corp. resumed efforts to seize and sell the bank.

Republic First operated branches in Pennsylvania, New Jersey and New York under the name Republic Bank. It had around $6 billion in total assets at the end of 2023.

People familiar with the matter said several banks had been exploring making offers. The most interested were expected to be midsize banks with established beachheads in or near Republic First’s network of branches that dot the Philadelphia suburbs and stretch across the Delaware River into western New Jersey. The lender’s relatively small footprint didn’t move the needle enough for larger regional banks, including PNC Financial Services Group and Citizens Financial, the people said.

This bank failure is distinct from the ones that had set off a monthslong crisis in 2023.

Republic First is much smaller than Silicon Valley Bank, Signature Bank and the similarly named First Republic, which had between roughly $100 and $200 billion in assets each. Since there is expected to be a buyer, the government likely won’t be left with the decision over whether to backstop deposits over the FDIC limit of $250,000, as it did with SVB and Signature. The long drawn-out failure also gave depositors more time to prepare, as compared with the rapid collapses of last year.

A relatively orderly deal should prevent the failure from sparking a wider crisis in confidence.

But regional banks are still on shaky ground. Two years of higher rates have forced them to pay more interest on deposits, which has increasingly eaten into profits. It will be harder for them to absorb the costs of potentially stricter regulatory requirements and technology updates, compared with megabanks like JPMorgan Chase. And some hold high concentrations of loans on offices and other commercial real estate that are under pressure.

A larger regional bank, New York Community Bancorp, fanned concerns about commercial real estate earlier this year after it revealed problems in its multifamily loan book. Those loans are concentrated in a niche area of the market: rent-stabilized buildings in New York that have dropped in value. NYCB got a rescue infusion from investors in March.

Republic First had for months struggled to stay afloat. Around half of its deposits were uninsured at the end of 2023, according to FDIC data.

Its total equity, or assets minus liabilities, was $96 million at the end of 2023, according to FDIC filings. That excluded $262 million of unrealized losses on bonds that it labeled “held to maturity,” which means the losses hadn’t counted on its balance sheet.

Its stock, which was delisted from Nasdaq in August, had been near zero. And it was in a proxy fight with an investor group led by George Norcross III, Philip Norcross and Gregory Braca.

In October, the Norcross group agreed to a deal to inject $35 million as the bank sought additional investors. Republic First disclosed in February that it dismissed its auditor, Crowe, which had flagged “material weaknesses” in bank controls at the end of 2022.

The investor group terminated the agreement last month because Republic First didn’t complete its 2022 annual securities filing with regulators or schedule a required shareholder meeting.

The stock on Friday traded at around 1 cent.

Some Trump advisers argue that the president should be consulted on interest-rate decisions

WASHINGTON—Donald Trump’s allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term, in the midst of a deepening divide among his advisers over how aggressively to challenge the central bank’s authority.

Former Trump administration officials and other supporters of the presumptive GOP nominee have in recent months discussed a range of proposals, from incremental policy changes to a long-shot assertion that the president himself should play a role in setting interest rates. A small group of the former president’s allies—whose work is so secretive that even some prominent former Trump economic aides weren’t aware of it—has produced a roughly 10-page document outlining a policy vision for the central bank, according to people familiar with the matter.

The group of Trump allies argues that he should be consulted on interest-rate decisions, and the draft document recommends subjecting Fed regulations to White House review and more forcefully using the Treasury Department as a check on the central bank. The group also contends that Trump, if he returns to the White House, would have the authority to oust Jerome Powell as Fed chair before his four-year term ends in 2026, the people familiar with the matter said, though Powell would likely remain on the Fed’s board of governors.

It couldn’t be determined whether Trump is aware of or signed off on the effort, but some people close to the discussions believe the work has received the blessing of the former president.

“Let us be very specific here: unless a message is coming directly from President Trump or an authorized member of his campaign team, no aspect of future presidential staffing or policy announcements should be deemed official,” Trump senior advisers Susie Wiles and Chris LaCivita said in a statement.

Trump, who often tells advisers that he loves low interest rates and expressed frustration that he couldn’t influence them as president, hasn’t yet decided exactly how he would approach the Fed in a second term, people close to him said. He is focused foremost on the coming election, his continuing legal troubles and his search for a running mate. But he has had informal discussions with advisers about possible candidates to lead the central bank, and he has asked associates whether they would be interested in the job, the people said. Trump has repeatedly complained—in public and in private—about Powell, continuing a yearslong campaign to discredit the man he picked to lead the Fed.

Several people who have spoken with Trump about the Fed said he appears to want someone in charge of the institution who will, in effect, treat the president as an ex officio member of the central bank’s rate-setting committee. Under such an approach, the chair would regularly seek Trump’s views on interest-rate policy and then negotiate with the committee to steer policy on the president’s behalf. Some of the former president’s advisers have discussed requiring that candidates for Fed chair privately agree to consult informally with Trump on the central bank’s decisions, the people familiar with the matter said. Others have made the case that Trump himself could sit on the Fed’s board of governors on an acting basis, an option that several people close to the former president described as far-fetched.

The discussions have alarmed some Trump advisers with more-traditional views of the role of the Fed, as well as Republican lawmakers. They worry that chiseling away at unwritten norms around keeping politics at arm’s length from Fed decisions could backfire, particularly if political interference leads investors to conclude that the central bank is willing to tolerate higher inflation. That could raise long-term interest rates, including rates on mortgages, credit cards and auto debt, when the U.S. government has to roll over trillions of dollars in debt annually. One former Trump administration official described the prospect of Trump’s influencing interest rates as a “horrifying thought.”

“Given their charge, their independence is critical to doing it in an unbiased, nonpolitical way,” said Sen. Kevin Cramer (R., N.D.), who said he would oppose efforts by any president to challenge the Fed’s autonomy. “There’s a reason that there’s not just one decision maker—that there are safeguards built into a board of governors.”

Sen. Thom Tillis (R., N.C.) said he, too, wouldn’t condone efforts by a president, including Trump, to interfere with monetary policy. “I have to think about the Fed for the next 50 years, not the next four, and independence is important,” he said.

Any effort by Trump to exert control over the Fed would face significant institutional hurdles. Even if a court upheld an effort to demote Powell as chair, Trump would likely need to elevate one of the Fed’s other six governors to the position because there are no vacancies on the central bank’s board. Two of those governors were installed by Trump.

A Fed appointment is akin to putting a jurist on the Supreme Court: Once someone is installed, it is difficult to force him or her out. Supreme Court justices have a lifetime appointment, and Fed governors have 14-year terms to provide a degree of independence from politics.

Lawyers who have studied the issue believe the president lacks the power to fire Fed governors over a policy dispute. Whether the president has the authority to demote the chair and replace him or her with a sitting governor isn’t clear. When he was in office, Trump privately contemplated dismissing Powell but never did so, in part because his advisers told him he didn’t have the authority.

After the publication of this article online, analysts said they thought several of the boldest proposals were legally dubious but could still roil bond and currency markets if the White House attempted them. “The market would react very badly to any effort to tame the Fed, and we think this would cause the administration to back off,” said Krishna Guha, vice chairman at Evercore ISI, in a note to clients Friday.

In a second term, Trump would face two differences from his first term on Fed policy.

First, the central bank’s seven-person board isn’t scheduled to have any vacancies until January 2026. In his first year as president, Trump had the opportunity to fill four vacancies on the Fed’s board, plus a fifth when Chairwoman Janet Yellen departed in 2018.

Second, inflation is a more serious concern. In 2017, Fed officials were gently raising interest rates from very low levels. Inflation only briefly edged up to the Fed’s 2% target, and inflation-adjusted interest rates were above zero for only a few months. By contrast, the Fed lifted rates last year to the highest level since 2001 and has held them there to combat inflation that soared to a four-decade high in 2022 and is still running above the Fed’s target.

The Fed has a mandate to keep inflation low and labor markets healthy. Presidents have the ability to influence the Fed through their appointments, but that authority can be limited because of the checks and balances built into the central-bank system.

Interest-rate policy is decided by the Federal Open Market Committee, which includes seven members of the Washington-based board of governors, who are appointed by the president and confirmed by the Senate, and 12 presidents of regional Fed banks, who are appointed by those banks’ private boards. The governors and the New York Fed president have a permanent vote, and four reserve bank presidents rotate onto the committee for one year at a time.

Some Trump advisers want the president to make a sustained effort to remake the central bank by encouraging closer ties between the administration and the Fed’s board. They think the central bank and its backers in Washington and on Wall Street have made a fetish of the Fed’s operational autonomy, sometimes referred to as its independence, to a degree that isn’t supported by constitutional law and isn’t good for the economy.

The draft document written by the group of Trump advisers would, among other matters, roll back some of the Fed’s autonomy in regulatory policy by subjecting the agency to the review process applied to other executive-branch agencies within the Office of Management and Budget when issuing new regulations or rules. It would also call for a more muscular role for the Treasury Department in overseeing any emergency lending programs that are done jointly with the Fed.

Installing a loyalist at the Fed could be difficult because the central bank’s leaders have been haunted by the example of Arthur Burns, who headed the central bank from 1970 to 1978. Burns was a highly credentialed economist, but he is remembered for failing to corral the runaway inflation that ended only after Paul Volcker put the economy through two painful recessions in the early 1980s.

In addition to other missteps, Burns was regarded by historians (and some former colleagues) as being overly preoccupied with currying favor with the president. Since then, central bankers have fought to preserve their political autonomy.

In 2017, Trump’s advisers persuaded him to elevate Powell, at the time a Fed governor, to lead the central bank, in part because they feared Trump would retain Yellen, a Democrat who is currently the Treasury secretary. The silver-haired Powell, who was a private-equity investor after serving in the administration of President George H.W. Bush, had publicly supported Yellen’s policy of keeping interest rates at very low levels.

Whatever illusions Trump enjoyed about Powell’s pliability were dashed in 2018, when the Fed continued to lift interest rates. Trump began an unusual campaign of publicly browbeating Powell, first for raising rates and later for not lowering them enough.

Powell publicly resisted such pressure. “We’re human. We’ll make mistakes—I hope not frequently,” Powell said in 2019. “But we won’t make mistakes of integrity or character.”