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Scrapping of pandemic restrictions removes a source of uncertainty, but businesses face a long winter ahead

BEIJING—Chinese manufacturing and service-sector activity fell to their lowest levels since the initial throes of the coronavirus pandemic in early 2020, highlighting the breadth of the tumult as waves of infections roar through the world’s second-largest economy following Beijing’s abrupt decision to scrap its draconian “zero-Covid” measures.

China’s official manufacturing purchasing managers index fell to 47.0 in December, the lowest level since February 2020, when the country was first seized by the virus in the central Chinese city of Wuhan.

Far worse was the official nonmanufacturing PMI, which covers service-sector and construction activity, which plunged to 41.6 from 46.7 in November, China’s National Bureau of Statistics said Saturday. That level also marks the worst showing since the historic lows of February 2020. The 50 level on the index separates expansion from contraction.

Taken together, Saturday’s downbeat data offer a first glimpse into the economic toll from Beijing’s sudden exit from its stringent Covid curbs, which caught many off guard, and damp hopes of a rapid turnaround in the final month of the year. Economists at Citi, in a Friday note to clients, wrote that China’s gross domestic product may expand by just 1% in year-over-year terms during the fourth quarter.

China began dismantling its “zero-Covid” measures of mass testing, quarantines and lockdowns in November, and lifted most of the remaining domestic Covid measures on Dec. 7, leading to surging infections that have put the country’s thinly equipped healthcare system under strain.

Earlier this week, China took another step toward reopening its borders after three years of self-imposed isolation, announcing it will scrap all quarantine measures for inbound visitors starting next month—and sparking a scramble to snap up airline tickets.

Although the lifting of pandemic restrictions removes a source of uncertainty for the economy, Saturday’s data point to a challenging winter ahead for many businesses.

Manufacturing PMI subindexes measuring factory production, total new orders and new export orders all retreated deeper into contraction in December from the preceding month. For the services sector, meanwhile, activity shrank further, tumbling to 39.4 from 45.1 in November.

China’s factories are confronting temporary labor shortages and logistics jams that have disrupted supply chains, with many experts not expecting the nationwide surge in Covid-19 infections to peak until after the Lunar New Year holiday ends in late January.

Tesla Inc. halted production at its Shanghai plant last week, extending a planned eight-day suspension at its largest plant by car output. The electric vehicle producer faces surging Covid infections among its workers and suppliers, alongside reduced global appetite for its cars.

While many factories’ operations are being hammered by infections, some businesses have gradually begun bringing back production, though levels remain short of the period before restrictions were lifted. In the central Chinese city of Zhengzhou, home to the world’s largest assembler of Apple Inc. iPhones, the Foxconn Technology Group compound has recovered to about 70% of capacity and wait times for iPhone Pro models have shortened, according to analysts and people involved in the supply chain.

Reflecting the unevenness of the recovery across different regions of China, infections in the northern cities of Beijing and Tianjin, and the southwestern city of Chengdu, appear to have peaked, Wu Zunyou, chief epidemiologist at the Chinese Center for Disease Control and Prevention, said Thursday.

Average subway ridership in Beijing, Wuhan and the northwestern city of Xi’an each rose by 70% or more for the seven days ended Thursday when compared with the week before, according to statistics from data provider Wind. But cities in southern China, including Shanghai and Shenzhen, saw subway ridership decline over the same period by this metric.

Economists also have pointed to improvements in the volume of domestic flights and holiday bookings, as well as worsening traffic congestion in big cities, as signs of a gradual, if patchy, resumption in consumer demand and mobility since restrictions were lifted.

A gauge of activity among small and midsize businesses in China compiled by economists at Standard Chartered showed a pickup in activity among manufacturers in December, but no relief in the slide in service-sector activity. The sole exceptions to the gloom were in the hotel and restaurant industries, where activity picked up markedly as testing requirements were dropped and people began to venture out, Standard Chartered economists told clients in a Dec. 20 note.

For most of the year, China had grappled with restrictive government measures to stamp out Covid outbreaks and a protracted property slump, in addition to slowing overseas demand for Chinese-made goods.

Private data indicated new-home sales continued to fall in November, the 17th consecutive month of year-over-year declines. Sales at China’s top 100 developers fell by 26% to the equivalent of about $78 billion, according to industry data provider China Real Estate Information Corp. Total sales during the first 11 months of the year fell 43% on a year-over-year basis, the data showed.

Exports, which have powered China’s growth for most of the past three years, fell at the steepest pace in more than two years in November, amid waning global demand weighed down by war in Ukraine and interest-rate increases by global central banks to tame inflation.

For the first three quarters of 2022, China’s economy grew 3%, according to official data, putting the country on track to miss by a wide margin its official growth target of around 5.5% this year. Economists now expect China to record its weakest growth in decades, excluding 2020 when the pandemic first struck.

Earlier this week, China’s statistics bureau revised the country’s economic growth for 2021 to 8.4% from the 8.1% previously reported in January, a gain set to further dwarf China’s GDP expansion this year.

In an agenda-setting policy meeting that concluded earlier this month, China’s top leadership pledged to refocus on kick-starting economic growth and reviving domestic consumption next year, striking a more pragmatic tone. He Lifeng, head of China’s top economic-planning body, is drafting a growth plan of more than 5% for next year, the Journal previously reported.

To bolster the country’s faltering economy next year, China’s finance ministry said Thursday it would increase fiscal expenditures and extend cuts in taxes and fees to support businesses. Meanwhile, the country’s central bank pledged Friday to support domestic demand and maintain effective credit growth to boost growth and employment.

“The economic recovery is still not yet solid,” the central bank said. “The pressures of shrinking demand, supply shocks and weakening expectations are still heavy.”

Over the past year, with inflation at bay, China has largely resorted to government-backed infrastructure investment to shore up its economy, and it has avoided the rate increases seen elsewhere. Beijing’s aggressive push to reopen the country has prompted global investment banks in recent weeks to raise their outlook for China’s economic growth next year. For 2023, Goldman Sachs now expects China’s economy to expand by 5.2%, from an earlier estimate of 4.8%. J.P. Morgan has lifted its forecast to 4.3% from 4.0%, while Morgan Stanley upgraded its forecast to 5.4% from 5.0%.

There ain’t gonna be no recession,” Pierre Rinfret, an economist who once advised the Nixon administration, confidently declared in December 1969. Better at attracting publicity than forecasting, he admitted his error after the economy began a downturn that very month that would last through November 1970. Not even his ungrammatical double-negative, which might be construed pedantically as a prediction of a recession, could erase that bombastic blunder.

With that in mind, there nevertheless is justification now to go against Wall Street’s consensus forecast that 2023 is certain to bring a recession. The corollary is that the Federal Reserve will reverse course, begin to ease monetary policy, and power a new bull market.

The strongest support for this scenario is the yield curve, the trace of yields on Treasury securities across maturities. Normally, investors demand a higher return for committing money for a longer period. However, as of Friday, three-month T-bills were yielding 4.420%, roughly the same as the two-year note but significantly above the benchmark 10-year note’s 3.880%.

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Investors’ willingness to accept a lower yield for a lengthier maturity implies that they expect declining long-term interest rates. This implicitly casts doubt on the Fed’s mid-December projections, which put the federal-funds target rate at a median 5.1% by the end of 2023, versus today’s 4.25%-4.50%, and above the yield curve’s current high point. Fed-funds futures see a chance of reaching the central bank’s anticipated year-end level by June, but they price in lower rates in 2023’s second half, down to 4.50%-4.75% by December, according to the CME FedWatch tool.

The rate cuts anticipated by the markets would be consistent with a recession. But some economists cast doubt on the yield curve’s seemingly straightforward message.

An inverted yield curve isn’t sufficient to signal a recession, writes Joseph Carson, former chief economist at AllianceBernstein, on his blog. Banks are lending freely while interest rates, although up from the historically low levels of a year ago, aren’t deterring borrowing by consumers or businesses.

When the yield curve inverted in previous cycles, credit growth slowed sharply, often contracting; this isn’t happening now. And, typically, the fed-funds rate tracks nominal gross-domestic-product growth, he notes. But GDP, measured in current dollars, is up twice as much as the fed-funds median of about 4.4%. The tight credit conditions that precede a recession also are absent, Carson concludes.

A paper from the San Francisco Fed (helpfully forwarded by Torsten Slok, Apollo Global Management’s chief economist) finds that an alternative measure of unemployment—which adjusts for those out of work temporarily but likely to be called back or find jobs quickly—is a more accurate short-term predictor of a downturn than the yield curve. The authors’ conclusion: “The jobless rate doesn’t currently signal an impending recession.”

Finally, bears on the economy point to the Fed’s shrinkage of its balance sheet and the corresponding decline in the money supply—portents of past economic downturns. Evercore ISI points out, however, that those measures remain elevated after their huge pandemic-related increases. The M2 money stock is over $21 trillion, versus $15 trillion before Covid-19 struck.

Despite 2022’s drops in stock, bond, and home prices, Evercore ISI says consumers’ net worth is $145 trillion, up from a prepandemic $115 trillion. And even with the widely advertised decline in average house prices, the Case-Shiller measure of about $300,000 is still way above the $230,000 prepandemic level.

For all the predictions of a recession in 2023, monetary, credit, wealth, and labor measures say otherwise. If they’re right, the Fed is likely to deliver on the rate hikes it projects, rather than the rate cuts bulls hope for.

Videogame maker Take-Two Interactive Software TTWO +2.75% is known for two things: Grand Theft Auto, and did I already say Grand Theft Auto?

The stock was down 43% in 2022, making it the group’s worst performer. Stifel analyst Drew Crum calls it a top pick for the new year, and GTA is only part of the reason. Ahead, his reasoning. Further down, bull cases on two other recent big decliners: Micron Technology MU –1.10% (MU) and Warner Bros. Discovery WBD +0.53% (WBD).

At one point in 2020, Take-Two shot from just over $100 a share to more than $200, and now it has given it all back. I pin that mostly on investors. There was a pandemic, and people did strange things. For a couple of weeks early on, I Clorox-wiped new Clorox wipe deliveries. Other people traded videogame stocks to questionable valuations.

This past November, Take-Two lowered its revenue guidance for its fiscal year through March 2023, and shares fell 14%. Management said that mobile gamers are pulling back on in-app purchases amid high inflation.

Take-Two is best known for big-budget console and personal computer titles that can sell for $60 or more. But over the past three years it went on an acquisition tear to boost exposure to fast-growing F2P or free-to-play games. Most notable of these was a $12.7 billion purchase in 2022 of Zynga, whose casual, phone-based games include FarmVille 3 and Words With Friends.

Whether the deal-making was poorly timed depends on what happens next with the economy. In high-end games, management doesn’t seem concerned. It plans to release 24 “immersive core” games from fiscal 2023 to 2025, versus just three last year. This year, fiscal 2023, it’s targeting five, leaving 19 for the following two years. Over the past three years, Take-Two’s game developer head count has shot up to 6,042 from 3,447. Its latest balance sheet shows a record sum in capitalized development costs.

In other words, Take-Two is betting big on game demand in the coming years. There are good reasons, according to Stifel’s Crum. The latest generation of game consoles is reaching a critical mass of users that should spur game purchases. Recent sales records for titles from other publishers, like Call of Duty: Modern Warfare II from Activision Blizzard ATVI –0.27% (ATVI), and God of War: Ragnarok from the gaming division of Sony (SONY), bode well for demand in a weak economy. Some publishers have pushed prices for marquee releases to $70.

Take-Two has sequels and reboots coming up for franchises that have sold well in the past, like BioShock and Max Payne. Its yearly NBA and WWE releases have become dependable moneymakers, and there’s a new deal with the NFL to take on the Madden franchise from Electronic Arts (EA). Also, Grand Theft Auto 6 is in development. There’s no release date yet, but any announcement of one could give the stock a lift.

The last full GTA release was all the way back in 2013. Company sales doubled that fiscal year, and GTA’s contribution went from 11% of total sales to 69%. Remarkably, the contribution was 31% last year, despite Take-Two’s expanding list of hits. That’s because the latest GTA release provides access to an online version with plenty of recurring revenue.

Credit that to CEO Strauss Zelnick, who has presided over an 833% return for Take-Two over the past decade, even with the recent decline. Free cash flow for the company is likely to turn slightly negative for the fiscal year on a surge in spending, but Wall Street puts it at $1.7 billion, or 10% of the current market value, within three years. That’s a lot of speculative free cash, which, combined with the anticipatory rumor foreshadowing on the new GTA release date, leaves me fully pre-convinced that shares have bottomed.

Here are two more of Wall Street’s buy-the-dip recommendations. Micron Technology was down 46% in 2022. Timothy Arcuri at UBS says to buy. The semiconductor industry has swung from fierce demand and short supply to bloated supply and iffy demand. Micron, a memory specialist, has slashed spending and output. Running below capacity will cut into margins.

Last fiscal year, Micron generated more than $3 billion in free cash. This year, it’s expected to burn more than $2 billion. Investors are left questioning whether the industry has moved beyond the boom and bust cycles of past decades.

Arcuri says this is all about Covid and shortage fears. “This drove customers to stockpile components that they could get their hands on and we now know that memory, with just about the shortest lead time in semis, was the poster child for stockpiling,” he wrote in a recent note.

But inventory digestion for memory could be relatively quick, too, Arcuri notes. He’s projecting $4.2 billion in free cash by fiscal 2024, rising to $6.7 billion the following year. If he’s right, the larger number works out to 12% of the current stock-market value.

On to streaming. Subscriber growth has fizzled, and companies have been spending lavishly on content, so investors have turned nervous. Warner Bros. Discovery was down 60% in 2022. Surveys show that subscribers are shifting to cheaper ad-supported plans where they’re offered. That could set up nicely for Warner, according to Matthew Harrigan at Benchmark.

Warner will combine its HBO Max and Discovery+ platforms into a service that aims to generate $1 billion in yearly earnings by 2025. An ad-supported tier could bring down churn, in Harrigan’s view. And Warner has been slashing spending even on its key superhero properties.

The upside: free cash flow for the company is pegged at $26 billion cumulatively over the next four years, which is $3 billion more than Warner’s market value. The downside: no Wonder Woman 3 with Gal Gadot. But if the lasso of truth compelled me, I’d call Warner the most appealing stock of the bunch.

A new year comes in the wake of a major winter storm, but there’s already an activist situation simmering around a company built on summer fun.

Investment firm Land & Buildings unveiled a 3% stake in Six Flags Entertainment SIX +0.74% (ticker: SIX) in late December, and is pushing the theme-park operator to sell and lease back its real estate portfolio. Land & Buildings is the second activist to target Six Flags; H Partners Management won a seat on the board in January 2020 and agreed in November 2022 to lift its Six Flags stake to 19.9%.

It’s no wonder that Six Flags once again garnered interest from an activist investor. The stock lost nearly half of its market value in 2022, and the company is in the midst of a challenging turnaround. It’s now raising prices so that the parks will no longer be used as what CEO Selim Bassoul once referred to as “cheap daycare centers.”

“We concur with some points...but may differ on the critical priorities for generating potential upside,” wrote Jefferies analyst David Katz in a recent note. More attention, he added, “should push the shares higher.” Katz rates Six Flags stock a Hold with a $24 price target.

Land & Buildings argued in a December presentation that separating Six Flags’ real estate from the operating company could add $11 to the share price.

Six Flags acknowledged Land & Buildings’ presentation in a statement, and said it has had conversations with the firm. Six Flags added that it’s “encouraged” by the progress made by its strategic plan that’s already in place.

Investors, not to mention 1.4 billion Chinese, are getting a serious case of watch-what-you-wish-for since Xi Jinping’s government abruptly ditched its “zero-Covid” policy three weeks ago.

The iShares MSCI ChinaMCHI –1.84% exchange-traded fund (ticker: MCHI) is about even since Beijing’s Dec. 7 U-turn, as markets weigh what could be 250 million new Covid-19 cases against a “reopening” that would ignite the Chinese consumer.

Big as that number is, this moment is bigger still for China. Its shambolic recent management of Covid underlines deeper structural weaknesses in Beijing’s form of government and social organization.

First, there’s its secrecy obsession. China was forced into zero-Covid because it never publicly ran proper clinical trials for its domestically produced Sinovac vaccine. No one knew, or knows, how well it really works. Now Beijing is running the biggest clinical trial in history on its entire population. Estimates of new Covid cases in December range from that 250 million, reportedly leaked from a closed-door meeting, to an official figure around 63,000. Quite a disparity.

Throw in foolish national pride. China refused to import superior mRNA vaccines from the West, though it could certainly have afforded them.

Second, Potemkin development. Covid’s ravages will be amplified by a healthcare system that is strangely underfunded for a burgeoning economic power that has famously built the world’s best airports, trains, and so on. Grandiose infrastructure, you might guess, offers more boondoggle opportunities for officials, and a glossier national image.

Bureaucratic incentives also helped drive China’s gargantuan property bubble. In the absence of property taxes, local governments have lived mostly by selling public land to developers. The price of land in China has increased 80-fold since 2004, estimates Arthur Budaghyan, chief emerging market strategist at BCA Research.

That’s left a double-barreled mess of overindebted builders and unaffordable prices for starter families in major cities. An announced $256 billion bailout will keep some developers out of bankruptcy, but will barely affect the underlying structural tangle.

Most important, the unfolding Covid debacle could cost China’s mandarins their aura of invincible competence domestically, puncturing the international belief that the country will inevitably surge to equality with the U.S. It’s early to say that this is China’s Japan 1991 moment, when property prices went into a 17-year tailspin and the much bemoaned “Japanese threat” evaporated. At best, Chinese families will think twice before prepaying their life’s savings for an apartment that, experience now shows, might never be built.

Investors betting on a Chinese equity rebound, like the one U.S. stocks had in 2020, might want to look at their charts again. The S&P 500SPX –0.25% lost 30% in five weeks after Covid became a thing in February of that year. It didn’t regain its starting point until August.

Chinese stocks offer a much better valuation story. They’re trading at seven-year lows, even after a fourth-quarter rally. And the masters of Beijing have great achievements to boast of: the largest and fastest march out of poverty, and into industrial/technical dominance, the world has ever seen.

They may catch a break by unleashing their pandemic when the less lethal Omicron virus is prevalent. It could all blow over by the spring, with liberated shoppers, tourists, and home buyers emptying their hitherto zipped-up wallets. But that’s tough to bet on right now.

“Reopening won’t be a straight line,” Budaghyan says. “The next few months will see a lot of volatility.”

Information provider RELX has been busy transforming itself from an old school publishing empire into a tech giant.

The owner of diverse businesses, including The Lancet medical journal and Comic Con comic book festival, is digitizing its academic journals and publications, giving lawyers and doctors more data-crunching analytical tools.

Barron’s last recommended RELX stock (tickers: REL and REL.UK) in March 2019, when the share price was at 16.57 pounds sterling ($19.80), saying “the upside seems worth it.” The shares have increased 39% to £23.11 but could have still further to go.

One of the most exciting growth stories is in the company’s cash-generative but non-core events business. While it only accounts for 10% of sales in the first half of the year, demand for face-to-face shows is robust. The business is in even better shape than in pre-Covid times because of a focus on the strongest performing shows, while about 10% of the weakest events have been axed. It is also expanding into online events, which have lower costs.

Covid-19 forced almost all conferences to be canceled, but the events division has enjoyed a strong recovery and is back to around 80% of prepandemic levels. RELX, formerly known as Reed Elsevier, also thrives in recessionary times because it has shifted away from hard-hit advertising to a subscription model.

Konrad Zomer, an analyst at French-German broker Oddo, forecasts the events business will see revenue of €1.365 billion ($1.46 billion) in 2024, an 8% increase from 2019’s €1.269 billion. He noted that most events between August and October—important months in the event calendar—went ahead according to plan.

Zomer predicts the shares will increase about 23% to £28.73 because the company remains on track to achieve above-average revenue and earnings growth in both 2022 and 2023.

“RELX has a subscription-based recurring revenue business model, is already highly digitized, has a strong market position and track record, and generates significant free cash flow (conversion close to 100%),” he wrote in a recent note.

Two of RELX’s business divisions are based in the U.S., along with a large chunk of the earnings, which means a 10% stronger dollar versus sterling adds some 7% to 9% to adjusted earnings per share, Zomer estimates.

The core business is its online legal and medical analytics business, which provides legal and medical insights. This helps clients by telling them, for instance, which judges are more likely to rule in their favor. The offerings help combat fraud and money laundering. The medical data can show which research areas receive the most funding.

Growth in the division has typically been around 1% to 2% but increased to 3% in 2021, says Sarah Simon, an analyst at Berenberg. “Management has attributed this to higher adoption of analytics, which are sold on a subscription basis, so the revenue is likely to recur,” she wrote in a note.

RELX has a market value of £43.6 billion. It fetches a multiple of 20.1 times this year’s expected earnings and is valued in line with its peers.

For the six months ended June 30, RELX posted profit before tax of £998 million, up from £825 million for the year-ago period. Revenue was £4 billion, up from £3.4 billion.

Full-year growth rates in revenue and adjusted operating profit are expected to remain “above historical trends,” CEO Erik Engstrom said when earnings were released. “Momentum remains strong across the group,’’ the company said in an October update.

After trillions of dollars in losses, and waves of corporate bankruptcies and fraud, crypto is looking like an increasingly toxic asset class. Fidelity Investments is betting that it has a future and wants to be in the thick of it.

Over the past year, Fidelity steadily expanded its crypto products. The privately held mutual fund and brokerage giant launched a service to offer BitcoinBTCUSD –0.13% in 401(k) plans that it administers. It upgraded its platform for institutional clients, adding real-time settlement and Ethereum trading. As of late October, Fidelity said it planned to have 500 people working in its Digital Assets business by the end of March 2023. Its website lists 28 open positions with “digital assets” in the job description.

The team-building may help Fidelity achieve another goal: bringing crypto to its 40 million individual investors. The company in November opened a wait list for customers to trade Bitcoin and EtherETHEUR –0.31% commission-free, starting “with as little as $1.”

Fidelity’s timing, of course, couldn’t be worse. Crypto has spent the past year going from a technology of the future to a bubble of epic proportions. More than $2 trillion in token market value has been lost as prices crashed. Bankruptcies of crypto companies have spread far and wide. Just days after Fidelity opened its wait list for trading, FTX went down as perhaps the biggest corporate fraud since Enron. FTX’s founder, Sam Bankman-Fried, faces decades in prison if convicted of the criminal charges arrayed against him. He says he didn’t knowingly commit any crimes.

The industry is trying to fend off the perception that it has proved to be good for one thing only: scams. Lawmakers are calling for stiff consumer protections. The Securities and Exchange Commission is vowing to bring more actions against crypto firms caught violating financial industry rules.

Why, then, is Fidelity wading into this mess? It certainly doesn’t need a boost from crypto. The company reported revenue of $24 billion in 2021 with operating income of $8.1 billion. It oversaw $9.6 trillion in assets, including $3.6 trillion under management, as of Sept. 30. No other firm runs a bigger retirement business, administering 40.7 million savings accounts such as 401(k)s. And there is no bigger player in actively managed funds—Fidelity’s core business since it was founded by CEO Abby Johnson’s grandfather in 1946.

Fidelity declined interview requests. “A meaningful portion of Fidelity customers are already interested in and own crypto,” a spokeswoman said in a statement, adding that Fidelity is providing them with tools to “support their choice.”

What’s clear is that Fidelity has both the financial incentives and means to give crypto a shot. It also seems to be building the business to hedge against missing a financial trend—a longstanding fear for a firm that came late to major innovations like exchange-traded funds. “ETFs were one train they missed. Perhaps they said they don’t want to miss this one,” says Jeff DeMaso, a financial advisor near Boston and a longtime Fidelity observer.

For a company of Fidelity’s size, crypto isn’t likely to add much revenue. But Fidelity tends to press into new areas gradually and persistently. And it could benefit from the washout in the industry—it’s one of the few reputable firms that investors might trust to hold and trade crypto.

Competitors include companies like Coinbase Global (ticker: COIN) and Robinhood Markets (HOOD). Those firms primarily focus on retail traders, though Coinbase is courting the institutional market. Fidelity’s reputation for institutional safety could help it win some market share, DeMaso says, noting that the company’s “name and reputation may ease concerns for investors and advisors.”

Commission-free trading would undercut Coinbase’s upfront fees, putting Fidelity in the same competitive landscape as trading apps like PayPal Holdings ’ (PYPL) Venmo and Block ’s (SQ) Cash App.

“Regarding Coinbase, I think Fidelity definitely brings more competition in an already bad environment,” says Mizuho Securities analyst Dan Dolev. “For Robinhood, crypto is only one part of the business, plus the users are different—younger, etc.—so there’s no material impact.”

Fidelity is also trying to drum up business in crypto ETFs. Like other fund sponsors, Fidelity has tried to persuade the SEC to approve a spot-market-based Bitcoin ETF. The SEC rejected Fidelity’s application in 2022 and has shown no sign that it will approve one. It has launched a few crypto-related ETFs, including Fidelity Crypto Industry & Digital Payments (FDIG), though they have failed to catch on; the ETF has just $18 million in assets. By comparison, ProShares Bitcoin StrategyBITO +0.77% (BITO), an ETF owning Bitcoin futures contracts, holds $578 million in assets.

While Fidelity isn’t taking much financial risk with these initiatives, it is running regulatory risks. The Department of Labor has cautioned 401(k) sponsors against offering crypto. A DOL official expressed “grave concerns” about Fidelity’s plan, according to The Wall Street Journal.

Other brokerages remain on the sidelines. Charles Schwab (SCHW), while offering a crypto-themed ETF and Bitcoin futures trading, hasn’t announced plans for direct trading of digital assets. Interactive Brokers Group (IBKR) offers crypto trading through financial-technology firm Paxos, but it’s not a priority for the brokerage firm, says Steve Sanders, an executive vice president of marketing there.

For now, Fidelity’s biggest gamble may be putting its reputation on the line while it tries to build a crypto business. “The question is: Will some of the tar and feathers of crypto stick to Fidelity’s reputation?” says Jim Lowell, the retired editor of the Fidelity Investor newsletter. “Time will tell if it will work.”

Senator Jean Paul Prates promises changes to fuel pricing policy at Brazilian state-controlled oil producer

Brazil’s next president Luiz Inácio Lula da Silva has nominated for chief executive of Petrobras a close political ally, who promised an overhaul of how the state-controlled oil and gas company charges for fuel.

Senator Jean Paul Prates, who advised Lula on energy matters and is a member of his Workers’ party, was named as the incoming leftwing administration’s preferred candidate to run the $66bn-valued group.

He said the Petrobras practice of moving domestic fuel prices in line with international dollarised rates — denounced by Lula on the campaign trail — was to be altered. This was not “to traumatise investors or investment returns”, Prates told local reporters in the capital Brasília on Friday. “It will be changed because the country’s policy will be changed.”

New price guidelines would be formulated by a “government consortium”, including ministries and Petrobras, he added.

The market-based system that Latin America’s largest hydrocarbon producer follows for petrol, diesel and cooking gas prices has been controversial in recent times. Opponents say it passes volatility on to consumers and feeds inflation.

It was criticised by outgoing rightwing president Jair Bolsonaro, who fired three Petrobras chief executives within the space of two years over fuel price hikes.

But private sector investors, who hold just under two-thirds of the company’s equity, fear that any divergence from the current policy could prove financially harmful to Petrobras.

Under the last government led by the Workers’ party, or PT, the Rio de Janeiro-headquartered group incurred billions of dollars of losses after being forced to offer subsidies.

“To remove the dollarisation of fuel prices in my view is very difficult. It is an international commodity and the [Brazilian] real component of the price is very small,” said Marcelo de Assis, at the consultancy Wood Mackenzie.

“Considering that we import more or less 30 per cent of our refined oil products in Brazil, which have a very strong dollar component, you cannot switch this overnight.”

Lula, who previously ruled Brazil between 2003 and 2010 and will be inaugurated again on Sunday, has also called for Petrobras to invest more in refining capacity and play a greater role in the clean energy transition.

The company has in recent years doubled down on its main activity of pumping deepwater crude, selling off non-core assets such as fertiliser plants and petrol stations to reduce debt.

“We need to think about the future and invest in the energy transition to meet the needs of the country, the planet and society, as well as the long-term interests of its shareholders,” Prates wrote on Twitter on Friday.

The 54-year-old politician is also an economist and lawyer, whose resume lists almost four decades of experience advising public-private ventures in oil, gas, biofuels and renewable energy.

Petrobras said it had not yet received formal notice of the nomination, adding that the final appointment depended on board approval.

São Paulo-listed preferred stock in Petrobras fell 1.2 per cent on Friday. It has slumped about a quarter since Lula’s narrow election victory over Bolsonaro in October.

The couple’s fashion brand slashed losses, but will require further support from shareholders

David and Victoria Beckham paid themselves £8.1mn from their business empire after an increase in revenues and profits driven by a string of commercial deals.

Beckham Brand Holdings, which includes their branding and fashion companies, reported net profits of £19.1mn on revenues of £34.3mn in 2021, up from £11.6mn and £11.4mn respectively the year before. Profit had exceeded revenue the previous year because of investment income generated largely from partnerships that is booked separately from revenue. The group paid £6.3mn in dividends to the celebrity couple during the period, plus a further £1.8mn more recently.

The holding company’s accounts covered the managing and licensing the David Beckham business and brand, its investment in Victoria Beckham’s lossmaking fashion and beauty business, and a stake in the Major League Soccer franchise Inter Miami.

The combination of revenue growth across the pair’s businesses and narrowing losses at Victoria Beckham Holding — co-owned by the couple and private equity firm NEO Investment Partners — shows how two of the world’s most famous people have navigated the coronavirus pandemic. Accounts for the year ending December 2021 are due to be published at Companies House.

Separately, the fashion and beauty group’s annual revenues grew by 13 per cent to £40.9mn and it slashed net losses from £8.6mn to £5.8mn. Despite the increase in sales and a reduction of day-to-day costs, the accounts warned that “further support will be required from its shareholders”. Chief executive Marie Leblanc said the business was set to report stronger figures for 2022.

“We have entered a new chapter and our energy is focused on accelerating growth and taking the brand to its full potential,” she said.

Meanwhile, David Beckham’s commercial and sponsorship ventures posted revenues of £34mn, up from £11.4mn in 2020, while net profits increased to £19.6mn from £10.6mn. The BBH revenues closely resemble DV Ventures’ own because the Victoria Beckham business was treated as “an associate” in the accounts for the holding company.

Despite ending his playing career more than nine years ago, the footballer was one of the faces of the Fifa World Cup, selected as an ambassador by host Qatar. The 2021 numbers do not include the Qatar deal, according to a person close to the Beckhams. Although the ex-England captain came under fire for aligning himself with a country associated with human rights violations, Beckham won plaudits in the UK for queueing with members of the general public to pay respects to the late Queen Elizabeth II when she was lying in state.

His earnings power is also the product of longstanding partnerships with sportswear maker Adidas, luxury watch brand Tudor and drinks group Diageo’s Haig Club whiskey, as well as more recent deals with Italian carmaker Maserati and video game maker EA Sports. In February, US group Authentic Brands, which owns sportswear maker Reebok, entered a strategic partnership with DB Ventures to co-own and manage Beckham’s global brand.

Beckham, who negotiated an option to buy a Major League Soccer franchise when he played in the US, co-owns Florida-based football club Inter Miami. The FT reported in November that Beckham was open to holding talks with potential bidders about a possible sale of his former club, Manchester United.

The ultimate shareholder of Beckham Brand Holdings is David Beckham through his Footwork Productions entity. However, a business reorganisation, including the Authentic Brands deal, means that BBH no longer holds direct investments in DB Ventures or Victoria Beckham Holdings.