Markets for
@business
. Back in London after 5.5 years in Hong Kong. Alum of
@LSEnews
@uniofwarwick
. Views / retweets mine. Not on Instagram. Lisboeta 🇵🇹
There are bad days in China's markets and then there are days like today. The worst stock losses since 2008 and all-time low for the offshore yuan. Foreigners sold a record $2.5b of mainland shares. A brutal rebuke of the weekend's news from Beijing.
Foxconn chaos. Workers in iPhone City clash with riot police over promised wages, unsanitary dormitories and food shortages. Conditions were made worse by a closed-loop system adopted under Covid Zero. The plant makes ~80% of the iPhone 14 models. 3/10
This is not a rant/complaint, just trying to inform others in HK. Fined HK$5,000 for briefly removing my mask after wearing it the whole time during a ~9.5km run. It’s hot today. Was struggling to breathe. Regular exercise is crucial for diabetics like me. ‘No exceptions.’
China's state council has in one move just:
*Pledged to keep capital markets stable
*Vowed to support overseas stock listings
*Said dialogue with US re ADRs is 'good'
*Promised to handle risks for property developers
*Clarified regulation of Big Tech will end 'soon'
*BOOM
Record Covid. China's daily case tally hits an all-time high and Beijing reports the first deaths in more than 6 months. Early signs of a relapse back into the strictest Covid Zero measures emerge, with areas of the capital under effective lockdown. 2/10
Mortgage payment showdown. China's property market - an industry that accounts for about a quarter of the world’s second-largest economy - is taking a very rapid turn for the worse. 2/10
Money, companies, talent want to leave. An estimated 10,000 wealthy residents are seeking to pull $48b from China this year. Stellantis is halting production of Jeeps in China. Valuations for Bytedance are down at least 25%. HK's talent pool shrinks. 10/10
Payment boycotts spread across the property market. Some suppliers refuse to make good on bank loans until real estate developers pay them. China considers a mortgage grace period for homebuyers. Henan sets up a property bailout fund. 2/10
Beyond 2023. Bloomberg Intelligence calculates the potential cost of abandoning Covid Zero: 363 million infections, 5.8 million in intensive care and almost 620,000 deaths. China's full reopening may not happen next year. 4/10
Big short. Bill Ackman and Boaz Weinstein say they're short the HKD, a trade Weinstein calls a 200-to-1 smart lottery ticket. Ackman says the 39-year old peg - which leaves Hong Kong both exposed to China's economy and Fed policy - can't last. 10/10
Cash strapped. The property crisis is squeezing income for China’s 31 provincial governments, who have little room for spending. They'll need to roll over debt instead, with over 40% of bonds maturing in the next five years - or about $2.1 trillion. 5/10
HSBC's stock is down 6% in Hong Kong today. The bank ~3 weeks ago sold an AT1 bond. Also known as CoCos, this is the type of Credit Suisse debt whose value was completely vaporized in the UBS takeover. Other bank AT1s are dropping by a record in Asia
Nervous markets. Foreign outflows from Chinese government bonds hit a record in June, the fifth straight month of selling. Bets against the currency are gathering pace. Prices on junk dollar debt are on the brink of an all-time low. 4/10
Chinese tech stocks are tracking a very similar path to the Nasdaq during the dotcom bubble. This means another leg lower may be coming. Chart by Morgan Stanley's strategy team.
This is quite a chart. People are now expected to live 2.1 years longer in China than in the US. Covid deaths have contributed to the majority of the 2019-2021 decline in life expectancy for Americans. H/t to
@hancocktom
@JDMayger
What about banks? They'd forfeit $4.6 billion of interest income if China gives homebuyers a temporary mortgage-payment holiday, Citi says. Separately, authorities say they'll repay more victims of China's biggest-ever bank scam. 3/10
Markets sink on contagion fears. Chinese bank stocks suffer their worst week since 2018. Some investment-grade property bonds trade at all-time lows. Iron ore futures drop almost 8% in a single day. 3/10
So it's now June, my final month living and working in this beautiful city. I first moved to Hong Kong in early 2017 for what was meant to be 3 months. Then a few wonderful people helped make the move permanent and the rest is history.
A bit of a different thread today... 1/6
GDP miss. China's economy expanded just 0.4% in the second quarter, vs an estimated 1.4%. Import growth slowed to 1%, reflecting weak domestic demand. Exports to the rest of the world remain an important buffer, surging 18% in June. 4/10
China is non-so-profitable. Wall Street giants including BlackRock and JPM are finding that expanding their China businesses may not bring in the big bucks after all. 9/10
This is contagion. China developers in October:
-Fantasia: Oct. 4 default. Two directors resign
-Evergrande: Oct. 11 coupon not received
-Xinyuan: will pay just 5% of Oct. 15 note
-Sinic: Won't pay principal/interest due Oct. 18
-Modern Land: asks for 3-month extension
Yields:
Alibaba lost more than half a TRILLION dollars in market value since Oct. 2020. It's now the 25th largest stock in the world, vs 6th back then.
ADRs closed at the lowest since June 2017. This is $BABA vs Nasdaq, normalized:
Macau's Covid Zero casino crash. In 2019 gambling revenue was six times that of Las Vegas. This year Vegas is ahead. Casinos account for 80% of Macau's government income and 1/3 of employment. Casinos are set to reopen this weekend, will anyone come? 9/10
Banks to the rescue. Recently enlisted to stabilize the property market, China’s mega lenders are starting to deliver. ICBC leads the pack by providing some 655b yuan in credit lines to 12 developers - Evergrande and Sunac excluded. 6/10
Ant's punishment. Chinese authorities are set to fine Jack Ma's fintech firm more than $1 billion, says Reuters. Ant's IPO was set to be the world's largest ever before Beijing cancelled it at the last minute almost exactly two years ago. 9/10
Record budget deficit. China's local governments ramp up spending to boost growth, just as tax-relief plans and falling land sales squeeze their finances. The result is a 600% surge in the overall budget shortfall vs last year. 5/10
Speaking of corporate behavior: HSBC. The bank has formed a Communist Party committee at its investment banking venture in China, the FT reports. The committees serve as unions and sometimes as a way to install party members in upper management. 7/10
All of this happened in China this week. A thread 1/10
Investors panic. Hong Kong-listed Chinese stocks have their worst reaction to any Communist Party congress since records began in 1994.
Fuel supplies. Chinese bureaucrats studying the energy outlook are proposing to end a ban on Australian coal - imposed in late 2020 after China-Australia hostilities escalated. China will want to avoid a repeat of last year's energy shortages. 8/10
Evergrande's overhaul. The developer that started it all plans to present a restructuring proposal as soon as December. One group of creditors recently requested that Evergrande's chairman inject $2 billion of his own money. 7/10
Omicron breaks through Hong Kong's strict border controls. The city bans arrivals from countries including the US, UK, Australia and shuts down bars, bans evening dining. 4/10
More money. The central bank will ramp up monetary stimulus soon. Liquidity is far from tight though, and freeing up more cash won't solve China's credit demand-side problem. Borrowing in a Covid Zero economy isn't attractive - no matter how cheaply. 8/10
China's property slump looks far worse than official data suggest. Since the peak in 2021, home prices are down at least 15% in prime areas of Shanghai and Shenzhen, and about 25% near Alibaba's HQ in Hangzhou.
A flexible growth target. Premier Li Keqiang says “China won’t roll out massive stimulus, issue an excessive amount of money or overdraw the future for an overly high growth target.” Below is what to watch on the Chinese economy this year. 5/10