Global shares grind higher despite rising bond yields, weak data

Bitcoin hit a record high of $52,932 on Friday. Brent crude fell 1.6 percent to at $62.94 a barrel. US crude futures slipped 2.1 percent to $59.27 a barrel. (AFP)
Bitcoin hit a record high of $52,932 on Friday. Brent crude fell 1.6 percent to at $62.94 a barrel. US crude futures slipped 2.1 percent to $59.27 a barrel. (AFP)
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Updated 20 February 2021

Global shares grind higher despite rising bond yields, weak data

Global shares grind higher despite rising bond yields, weak data
  • German and British 10-year bond yields touch multi-month highs, spurred by bets of reflation in US

LONDON: Global shares edged up on Friday, reversing three days of losses, as investors clung to hopes of economic recovery ahead, while German and British 10-year bond yields touched multi-month highs, spurred by bets of reflation in the US.

The pan European index was up 0.2 percent but still set for its first weekly loss in February, as investors took solace in factory activity in February jumping to its highest in three years even as the data also showed continued pain for the bloc’s dominant service industry from measures to contain the coronavirus.

London’s FTSE index was 0.1 percent firmer. Data showed British retail sales tumbled in January.

Hermes shares jumped 5.7 percent as the Birkin bag maker said sales recovered sharply in the fourth quarter.

The MSCI world equity benchmark was 0.2 percent stronger. MSCI’s broadest index of Asia Pacific shares outside of Japan was flat.

E-mini futures for the S&P 500 were 0.3 percent firmer.

Global shares have been fueled in recent months largely by easy monetary and fiscal policies around the world and initial rollouts of COVID-19 vaccines.

“It’s kind of odd to think that only a year ago investors were worried about depression and deflation and now they are worried about overheating and inflation,” said Shane Oliver, an economist for AMP.

“The big picture backdrop of still-low underlying inflation and spare capacity in jobs markets, combined with economic and profit recovery and low interest rates, is a positive one for growth assets, particularly shares,” he said.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pickup in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under US President Joe Biden have spurred reflation trades.

Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.

German benchmark 10-year bond yields were set for their worst week since June. They were up on Friday to -0.32 percent, hitting their highest since June. British 10-year yields traded close to a 11-month top of 0.66 percent and US Treasury yields were not far from one-year highs around 1.3 percent.

Rising bond yields hurt the appeal of gold, with spot prices dropping to a seven-month low to trade at $1,772.80 per ounce.

“The reflation-narrative-driven sell-off in bond yields really has now developed a life of its own,” said James Athey, investment director at Aberdeen Standard Investments. “It is starting to move real yields higher, which is increasingly suggestive of a market which is testing central bank resolve.” Disappointing US jobless figures didn’t help investor sentiment.

An unexpected increase in the number of Americans seeking jobless benefits weighed on the outlook. The Labor Department on Thursday reported initial unemployment claims rose by 13,000 to 861,000, injecting skepticism about how quickly the US economy could rebound from the global pandemic.

Further, US housing starts fell 6.0 percent in January, the first decline in five months.

In currencies, the poor US data helped the dollar slip further and the euro rebound. The dollar slipped 0.3 percent against a basket of currencies, putting the dollar index at 90.309.

The British pound has been the standout performer in 2021, and on Friday it rose to $1.4009, a near three-year high amid Britain’s aggressive vaccination program.

Helped by a recent rally in commodity prices, the Aussie dollar rose 0.8 percent to $0.784, its highest since March 2018.

Bitcoin, which some see as a hedge against inflation, hit a record high of $52,932, gaining more than 2.6 percent on the day.

Brent crude fell 1.6 percent to at $62.94 a barrel. US crude futures slipped 2.1 percent to $59.27 a barrel.


Regulators not up to speed on banks' digital marketplaces: EU watchdog

Regulators not up to speed on banks' digital marketplaces: EU watchdog
Image: EBA
Updated 6 sec ago

Regulators not up to speed on banks' digital marketplaces: EU watchdog

Regulators not up to speed on banks' digital marketplaces: EU watchdog
  • Finance and tech companies are coming closer together as banks set up digital marketplaces for products like payments and mortgages
  • EU watchdog said reliance on digital platforms for marketing and distribution of services creates new forms of financial, operational and reputational interdependencies

Regulators have little understanding of risks from banks creating digital marketplaces with tech companies and a framework is needed to spot potential contagion if things go wrong, the European Union's banking watchdog said on Tuesday.


The European Banking Authority's warning is the latest sign that financial regulators are starting to pay more attention to Big Tech's increasing links with finance, such as in cloud computing.


Finance and tech companies are coming closer together as banks set up digital marketplaces for products like payments and mortgages, as well as other financial and non-financial services, a process which has accelerated since the pandemic began.


This means customers can make payments or buy things using their mobile phone which links directly to their bank account. This so-called platformisation helps banks to cut costs and reach a wider range of customers, and includes partnerships with tech groups.


Apple Pay, for example, allows banks' debit and credit card holders to set up an Apple wallet to make payments. Google and Citi have teamed up to enable users of the Google Pay app to open an account with Citi.


But the EU watchdog said reliance on digital platforms for marketing and distribution of services creates new forms of financial, operational and reputational interdependencies.


The trend is posing "some challenges" for regulators in monitoring market developments and any risks from these interdependencies, the watchdog said.


"Indeed, it appears that the vast majority of competent authorities currently have a limited understanding of platform-based business models," EBA said.


EBA said it proposes to develop a framework next year to collect information about dependencies among banks on digital platforms, and create indicators to assess potential concentration, contagion and systemic risks.

But it said new legislation is not needed at this stage.


The watchdog called on the EU to update guidance on when a digital activity should be considered a crossborder provision of services and therefore come under EU and national laws that require information to be reported to regulators to improve visibility.


EBA said a small number of banks say they had encountered some issues in accessing digital platforms on terms they considered fair.


Crypto rise falters on fears of Evergrande contagion

Crypto rise falters on fears of Evergrande contagion
Updated 1 min 19 sec ago

Crypto rise falters on fears of Evergrande contagion

Crypto rise falters on fears of Evergrande contagion

Global investors are turning their eyes to Evergrande Group, China's second-largest property developer by sales, for fear of a possible credit contagion.

Cryptocurrency prices rebounded from a one-and-a-half month low on Tuesday despite heavy selling linked to loan default concerns by property developer China Evergrande.

Global markets started the week with concerns that Evergrande's problems could lead to repercussions on the Chinese and global economies, leading to a sell-off in riskier assets.

On Monday, many people woke up to the news of China's Evergrande Group losing a significant amount of its market capitalization as the company's shares plunged to an 11-year low. The Hang Seng Tech Index also plunged in value on Monday morning as the news roiled markets.

Evergrande's losses could cause a domino effect like the collapse of Lehman Brothers during the 2008 financial crisis.

"We can't take a very positive view just yet until we get through the next few days," said Matthew Dibb, chief operating officer at crypto index fund provider Singapore-based Stack Funds.

"This is purely sentiment-driven right now, and it's actually been off very low liquidity," he said, adding that it would be better to wait on the sidelines as crypto markets will continue to be affected by the contagion.

Bitcoin traded around $43,000, recovering from its low to $4,0192. It hit a four-month high of $52,000 on September 6, while the value of smaller rival Ether rose 1 percent to $3,055 after falling below $3,000 for the first time since early August.


Kuwait Touristic to increase capital to $996m in bid to boost tourism

Kuwait Touristic to increase capital to $996m in bid to boost tourism
Kuwait Towers against the skyscrapers of Kuwait City during sunset. (Shutterstock)
Updated 21 September 2021

Kuwait Touristic to increase capital to $996m in bid to boost tourism

Kuwait Touristic to increase capital to $996m in bid to boost tourism

Kuwait Touristic Enterprises plans to increase its capital by 250 million dinars ($831.39 million) to 300 million, as it looks to reinvigorate tourism in the oil-rich country, its chief executive said.

A unit of Gulf country's Kuwait Investment Authority sovereign wealth fund, the company plans to borrow 50 million dinars from local banks to finance part of its projects, CEO Abdelwahab Almarzooq told a news conference.

"Our vision is to bring back the golden age of tourism in Kuwait," he said, adding that the company plans to execute 95 initiatives and projects costing 380 million dinars over 10 years.

 


Evergrande's debt struggle rattles investors

Evergrande's debt struggle rattles investors
China Evergrande Group icon on office building wall. Image Shutterstock
Updated 21 September 2021

Evergrande's debt struggle rattles investors

Evergrande's debt struggle rattles investors
  • Some commentators suggest Evergrande might become China’s “Lehman moment,” referring to the failure of Wall Street bank Lehman Brothers, a forerunner to the 2008 crisis
  • Evergrande’s Hong Kong-traded shares have fallen 85 percent since early 2021

Global investors are watching nervously as one of China’s biggest real estate developers struggles to avoid defaulting on tens of billions of dollars of debt, fueling fears of possible wider shock waves for the financial system.


Chinese regulators have yet to say what they might do about Evergrande Group. Economists expect Beijing to intervene if Evergrande and lenders can’t agree on how to handle its debts. But any official resolution is expected to involve losses for banks and bondholders.


The government “doesn’t want to be seen as engineering a bailout” but is likely to organize a debt restructuring to “reduce systemic risk and contain economic disruption,” Tommy Wu of Oxford Economics said in a report.


Evergrande is the biggest casualty yet from the ruling Communist Party’s effort to rein in surging debt levels Beijing sees as a possible threat to the economy.


Investors are watching how the developer headquartered in the southern city of Shenzhen near Hong Kong handles an interest payment due Thursday on one of its bonds.


Evergrande Group, founded in 1996, is one of China’s biggest builders of apartments, office towers and shopping malls and one of its biggest private sector conglomerates.


The company says it has more than 200,000 employees and supports 3.8 million jobs in construction and other industries. Evergrande says it has 1,300 projects in 280 cities and assets worth 2.3 trillion yuan ($350 billion).


Evergrande’s founder, Xu Jiayin, was China’s richest entrepreneur in 2017 with a net worth of $43 billion, according to the Hurun Report, which follows China’s wealthy. He has tumbled down the list as internet industries boomed but still ranked as China’s richest real estate developer last year.

He also topped Hurun’s 2020 list of philanthropists, giving away an estimated 2.8 billion yuan ($420 million).


Evergrande has branched out into electric vehicles, theme park development, health clinics, mineral water and other businesses.

Evergrande’s Hong Kong-traded shares have fallen 85 percent since early 2021. Its bonds are trading at an equally deep discount.


As of June 30, Evergrande reported 2 trillion yuan ($310 billion) of outstanding debts to bondholders, banks, construction contractors and other creditors.


Of that debt, 240 billion yuan ($37.3 billion) was due within a year, down 28.5 percent from the end of 2020 but nearly triple Evergrande's 86.8 billion yuan ($13.5 billion) in cash holdings, according to a company financial report.


In early 2021, Evergrande forecast its total annual transaction volume would surpass 2 trillion yuan ($310 billion). It reported a $1.4 billion first-half profit but says sales are weakening because news of its cash crunch is making would-be buyers nervous.

Evergrande was caught out by new limits regulators imposed on real estate-related borrowing as part of the Communist Party's marathon campaign to reduce reliance on debt.


Economists have been warning China’s rising debt is a potential threat for more than a decade. The ruling party has made reducing such financial risks a priority since 2018.

But total corporate, government and household borrowing rose to nearly 300 percent of economic output last year from 270 percent in 2018. Unusually high for a middle-income country.


News reports indicate Evergrande borrowed everywhere it could, including by requiring employees of its construction contractors to buy its debt.


In 2017, state-owned China Citic Bank in Shenzhen agreed to lend 40 billion yuan ($6.2 billion) for an Evergrande project only after its executives agreed to invest at least 3 million yuan ($465,000) each, according to the business news magazine Caixin.


The Communist Party has cracked down on debt as it tries to nurture self-sustaining economic growth based on domestic consumption instead of trade and debt-supported investment.


It allowed China's first corporate debt default since the 1949 revolution in 2014 as part of efforts to force borrowers and lenders to be more disciplined.

Until then, the government had intervened to bail out insolvent borrowers to avoid spooking financial markets. Beijing has gradually allowed more defaults, but none by a debtor as big as Evergrande.

Some commentators suggest Evergrande might become China’s “Lehman moment,” referring to the failure of Wall Street bank Lehman Brothers, a forerunner to the 2008 crisis. But economists say the risk of wider financial market contagion is low.


“A managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence,” said MacAdam of Capital Economics.


In the unlikely event of an outright default, China’s banking system has an annual profit of 1.9 trillion yuan and reserves of 5.4 trillion yuan against bad loans, “which could easily absorb the loss,” Larry Hu and Xinyu Ji of Macquarie Group said in a report.

WHAT NEXT?


Investors are waiting to see what Chinese regulators might do, but analysts say they appear to be focused on protecting home buyers by ensuring apartments already paid for are completed.


The government has injected money into other insolvent Chinese companies, but economists say Beijing appears determined to avoid doing that with Evergrande.


In a letter Tuesday to employees, Xu expressed confidence the company will survive.

 


“Evergrande will surely get out of the darkest moment as soon as possible,” Xu said in the letter marking the traditional Mid-Autumn Festival.


Natural Gas Distribution to start trading on Nomu on Sept. 22

Natural Gas Distribution to start trading on Nomu on Sept. 22
Updated 21 September 2021

Natural Gas Distribution to start trading on Nomu on Sept. 22

Natural Gas Distribution to start trading on Nomu on Sept. 22

RIYADH: Natural Gas Distribution Co’s listing and trading shares on Parallel Market Nomu will start as of Wednesday, September 22, as a direct listing, according to a bourse filing.

Daily price fluctuation limits will be +/- 30 percent and static price fluctuation limits will be  +/- 10 percent, Tadawul said.

The natural gas producer set the benchmark price for its initial public offering in the parallel market at SAR 13, Argaam earlier reported.