January 26 – February 2, 2017

There is a lot of money sloshing around between football (soccer) teams to trade players.  Chinese football club worth more than AC Milan?  Bad credit – no problem.

Headlines

FT – Rock-bottom rates squeeze German lenders 2/1. Interest rate sensitive German lenders continue to be squeezed by low-to-negative interest rates, if this keeps up, many are going to have a hard time making a profit.

NYT – Tesla Gives the California Power Grid a Battery Boost 1/30. Utility level electricity battery storage coming to a town near you.

FT – Microsoft issues biggest bond of the year in debt market boom 1/30. Microsoft just borrowed another $17bn on Monday as they and others seek to tap debt markets before pending rate increases – already $600bn has been issued in 2017.

Special Reports / Opinion Pieces

Briefs

  • Eric Platt of the Financial Times illustrated the drop in negative-yielding debt, now below $10tn.
    • “Roughly $9.6tn of bonds trade in negative territory, down from nearly $14tn four months ago and $10.7tn near the end of December, as rising inflation expectations and hopes of a rebound in economic activity propels yields higher.”
    • ft_negative-yielding-debt_1-27-17
    • “European and Japanese sovereign debt comprise the vast majority of negative-yielding securities, while some $514m of euro-denominated corporate bonds also trade with a yield below zero. That figure is down from $916m in September.”
    • “The declining value of debt trading with a negative yield also reflects a stronger US dollar, which makes foreign obligations appear smaller when converted back to the greenback.”
  • Don Weinland of the Financial Times covered the risks to Chinese banks from the One Belt, One Road initiative as reported by Fitch Ratings.
    • Fitch Ratings recently issued a report pointing to the risks that Chinese lenders are facing in funding the One Belt, One Road (Obor) initiative.  Indicating that “the investments have been driven more by China’s desire to exert global influence than focusing on real demand for infrastructure.”
    • “‘The lack of commercial imperatives behind Obor projects means that it is highly uncertain whether future project returns will be sufficient to fully cover repayments to Chinese creditors,’ Fitch said on Thursday.”
    • Why… “credit ratings for countries where China has big infrastructure plans provide a gauge for the projects’ underlying creditworthiness, Fitch said. Most of the countries are of speculative sovereign-rating grade but several, such as Laos, are not rated at all.”
    • However, to be clear it appears that only Fitch is humbugging the Obor initiative whereas the other ratings agencies are praising it, especially as the U.S. appears to be getting out of global infrastructure investment business.
  • Tom Mitchell of the Financial Times illustrated the renminbi’s retreat as an international payment currency.
    • “The Society for Worldwide Interbank Financial Telecommunication (Swift) said the value of international renminbi payments fell 29.5% compared with 2015.”
    • “The renminbi was only the sixth most used currency in 2016 despite its formal recognition in October by the International Monetary Fund as a global reserve currency, alongside the dollar, euro, yen and sterling.”
    • “The Swift rankings are the latest sign that Beijing’s global ambitions for the renminbi have been put on hold as the People’s Bank of China focuses instead on stemming both the redbacks’s fall against the dollar and steady erosion of the country’s foreign exchange reserves, which have declined 25% to $3tn since 2014.”
    • ft_currencies-used-for-international-payments_1-26-17
  • Emily Cadman, Sharon Smyth, Dingman Zhang, Prashant Gopal, and Emma Dong of Bloomberg News highlighted how China’s army of global homebuyers is suddenly short on cash.
    • “China’s escalating crackdown on capital outflows is sending shudders through property markets around the world.”
    • “Less than a month after China announced fresh curbs on overseas payments, anecdotal reports from realtors, homeowners and developers suggest the restrictions are already weighing on the world’s biggest real estate buying spree. While no one expects Chinese demand to disappear anytime soon, the clampdown is deterring first-time buyers who lack offshore assets and the expertise to skirt tighter capital controls.”
    • “Among other requirements, SAFE (State Administration of Foreign Exchange) said all buyers of foreign exchange must now sign a pledge that they won’t use their $50,000 quotas for offshore property investment. Violators will be added to a government watch list, denied access to foreign currency for three years and subject to money-laundering investigations, SAFE said.”
    • “At The Spire in London, a 67-story tower with sweeping views of the River Thames and flats starting at 595,000 pounds ($751,901), prospective buyers were caught off guard by the new rules. Less than 70% of clients who signed purchase contracts last year have made their initial payments, with the rest now facing ‘problems,’ a press official at Greenland Holdings Corp., the project’s Shanghai-based developer, said on Jan. 12.”
  • Gabriel Wildau of the Financial Times pointed to the record $33bn of foreign real estate acquisitions by Chinese in 2016.
    • Prior to the new restrictions from SAFE, “overseas investment from China in residential, commercial and industrial property totaled $33bn in 2016, up 53% from a year earlier, according to global real estate group JLL, as Chinese buyers snapped up office buildings, hotels and residential land.”
    • ft_china-outbound-re-investment_1-28-17
    • “The biggest deal of the year was Anbang Insurance Group’s $6.5bn purchase of Strategic Hotels and Resorts from private equity group Blackstone.”
    • “A survey by the Hurun Report found that property is the most popular form of overseas investment for Chinese with $1.5m or more. Of this group, 60% plan to invest in property over the next three years, implying 800,000 prospective buyers.”
    • “‘Prices in major Chinese cities have risen so fast in the past year that an overseas house seems to offer good bang for your buck,’ Rupert Hoogewerf, chairman of the Hurun Report, said in October.”
  • Kim Slowey of ConstructionDIVE reported on another record year for the construction delivery of global skyscrapers.
    • “The Council on Tall Buildings and Urban Habitat’s annual review of the world’s tall buildings – 656 feet (200 meters) or higher – found that 128 were completed in 2016, the third straight year that the number of completed skyscrapers has broken the record.”
    • “In a country-by-country breakdown, China was home to the most tall-building projects (84) in 2016, followed by the United States (7), South Korea (6), Indonesia (5), the Philippines (4) and Qatar (4).”
    • “The tallest building completed in 2016 was the 1,739-foot-high Guangzhou CTF Financial Centre in Guangzhou, China, while the tallest towers built in the U.S. were both in New York City – 30 Park Place (926 feet) and 10 Hudson Yards (879 feet).”

Graphics

WSJ – Daily Shot: FRED Average Sales Price for New Homes Sold in US 01/26

wsj_daily-shot_fred-avg-sales-price-of-new-homes-in-us_1-26-17

WSJ – Trump Orders Wall at Mexican Border – Laura Meckler 1/25

wsj_apprehensions-of-illegal-immigrants-along-us-sw-border_1-24-17

FT – HK renminbi deposits fall at record pace in December – Hudson Lockett 1/27

ft_hong-kong-renminbi-deposits_1-27-17

WSJ – Daily Shot: Cost of Borrowing – Pan Europe 01/29

wsj_daily-shot_cost-of-borrowing-in-europe_1-29-17

MarketWatch – The most corrupt countries in the world – Shawn Langlois 1/28

marketwatch_global-corruption-perceptions-index-2016_1-28-17

FT – US universities’ endowments shrink as investments lose money – Stephen Foley 1/30

ft_us-university-endowment-returns_1-30-17

WSJ – Daily Shot: Japan 10yr Government Bond Yield 02/01

wsj_daily-shot_japan-10yr-govt-bond-yield_2-1-17

It’s a mad, mad, mad, Maduro world – Venezuela’s leaders ignore reality – 1/26

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Featured

*Note: bold emphasis is mine, italic sections are from the articles.

China spree pushes football transfer spending to record $4.8bn. Murad Ahmed. Financial Times. 26 Jan. 2017.

What happens when Xi Jinping decrees that he wants China to become a great football nation… entrepreneurs and politicians do their best to oblige.

“Chinese football clubs splashed out more than $450m in transfer fees (the fee one club pays to another club to poach talent) last year, a spree that helped global spending on the acquisition of players reach a record high.”

“According to Fifa’s Transfer Matching System, an arm of the sport’s world governing body, the total spent on transfer fees worldwide hit $4.8bn in 2016, a 14.3% increase compared with the year before.”

“Among the recent deals, Shanghai SIPG bought Brazilian midfielder Oscar from Chelsea for $63m.”

Granted, Chinese authorities have caught on to the reality that a lot of cash is leaving China in pursuit of football clubs, talent and media rights.  Hence, “Chinese sporting authorities have sought to crack down on spending on players,… with efforts such as cutting the number of foreign footballers allowed to play in each match from four to three per team.”

Regardless, the transfer fees paid by China are still behind that of England, Germany, Spain, and Italy – especially the English clubs that “spent $1.37bn on transfer fees in 2016, an 8.7% increase on the year. This included the world-record signing of Paul Pogba worth up to 110m, by Manchester United from Italy’s Juventus last August.”

Still it seems that the Spaniards have the best farming system (or acquirers of talent from an investment standpoint) in that they “were the largest seller of players, receiving $554.5m in transfer fees last year, more than the $508.7m they spent on players.”

ft_football-transfer-fees_1-26-17

Chinese football club is worth more than AC Milan. Ben Bland and Murad Ahmed. Financial Times. 26 Jan. 2017.

More to the story about football in China.

“A football club in the Chinese Super League has been sold to a local property developer at an equity valuation of more than $800m, suggesting it is worth more than European giants such as AC Milan and Atletico Madrid.”

“The high price put on Beijing Guoan, the top team in the capital, underlines the investment surge in football in China, despite recent efforts by the government to crack down on what it called ‘irrational’ spending on foreign players.”

“Sinobo Land, a little-known property developer, is buying 64% of the club for Rmb3.6bn from current owner Citic, a state-owned investment group, giving it a valuation of Rmb5.6bn ($807m).”

“Football industry analysts said that the premium paid for the club, which finished fifth in last season’s CSL, could not be justified based on its sporting performance or immediate commercial prospects.”

However, the team is in Beijing, regularly attracts 40,000 attendees to each match, and President Xi Jinping has aspirations for China to host a World Cup and win.  So maybe it’s not too far of a stretch.

I suppose it’s less ostentatious than paying $400m for a 13% stake in Manchester City (Li Ruigang in 2015).

Risky corporate borrowers make hay as yields slide. Eric Platt and Joe Rennison. Financial Times. 26 Jan. 2017.

“The combination of rebounding commodity prices and hopes for faster US economic growth under Donald Trump is helping some of the riskiest corporate borrowers secure cheaper financing and underlines investors’ growing stomach for risk.”

“An expanding list of companies with a triple-C rating – deep within speculative territory – have been able to lock in borrowing costs below 7%, as yields have fallen over the past 10 months.”

“Investors’ appetite for the lowest rated segments of the corporate debt market touched a fresh peak on Wednesday, when a triple-C rated company came close to selling bonds with a yield of just 6%. Last February, triple-C paper traded with a yield of 18.57%, according to Bloomberg Barclays Indices. That figure has nearly halved to 9.36% today.”

ft_us-corporate-junk-bond-rally_1-26-17

“‘It seems there is insatiable demand for yield,’ said Kevin Lorenz, a high-yield portfolio manager with TIAA CREF. ‘Triple-Cs are routinely pricing at 7% or less. The compensation you get paid to take risk is getting narrower and narrower, much like in 1997-98 and 2004-2006.'”

ft_us-high-yield-debt-market-surge_1-26-17

“High-yield groups have raised $25bn in the US so far this year – up more than fivefold from 2016 – including $3.4bn from triple-C rated issuers, according to Dealogic. It marks the greatest haul from triple-C groups at the start of a year since 2011.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bisnow – How Stadium Development is Killing Loyalty in American Sports 2/1

Economist – India flirts with a UBI 2/2

Economist – How to get rich in America 2/2

FT – Shark antibodies join battle against Alzheimer’s 1/25

FT – German bond yields hit year-high in broad sell-off 1/26

FT – China spells out curbs on capital outflows 1/27

FT – Sleepy Saudi sovereign wealth fund wakes and shakes global finance 1/28

FT – Asia borrowing binge hits record high in January 1/29

FT – Bonds start year at breakneck pace, but higher rates loom 1/29

FT – Fitbit: huffing and puffing 1/30

FT – Renminbi internationalization remains elusive 1/30

FT – Are tougher times for Wall Street’s ‘Flash Boys’ here to stay? 1/30

FT – Chinese billionaire abducted from Hong Kong 1/31

FT – Xiao Jianhua, student leader who became an abducted tycoon 1/31

FT – Derivatives ‘Big Bang’ catches market off guard 2/1

FT – US university endowment woes put spotlight on hedge funds 2/1

FT – Chinese defaults: failing better 2/1

NYT – A Costly Drug, Missing a Dose of Disclosure 1/27

NYT – In America’s Heartland, Discussing Climate Change Without Saying ‘Climate Change’ 1/28

NYT – For Couriers, China’s E-Commerce Boom Can Be a Tough Road 1/31

WSJ – India’s Growth Doesn’t Have a Story 1/26

WSJ – Accused Ponzi Schemer Not Sleeping Easy 1/27

WSJ – Here’s What Can Drive the Economy Higher 1/27

WSJ – Suburban Offices Woo Millennials With Food, Fitness and Fun 1/29

WSJ – The Coming Squeeze on Profit Margins 1/30
WSJ – Young People Lose Confidence In Their Prospects as Homeowners 2/1

 

 

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