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If you were to read only one thing…
WSJ – Chinese Banks Face Up to Funding Squeeze – Anjani Trivedi 6/5
- “Household deposits—long the backbone of China’s economy, funding inexorable loan growth—are fleeing: Around 1.2 trillion yuan ($176 billion) left the banking system last month. Meanwhile, growth in corporate deposits has slowed, reducing the rise in deposits overall to a crawl.”
- “The exodus is proving a double whammy for China’s banks. Not only are they losing a stable source of funding, they are also bearing the brunt of higher costs to raise cash as financial conditions tighten.”
- “Much of the money pulled out of conventional deposits is being invested in the rapidly multiplying population of investment funds, which offer higher rates. Yu’e Bao, run by Alibaba-backed Ant Financial, has become one of the world’s biggest money-market funds—with $165 billion under management—offering investors a 7-day annualized rate of over 4%.”
- “Ironically, it and other funds are achieving such returns by investing in financing tools issued by banks. When China liberalized deposit rates in 2015, banks started churning out new investment products, including so-called negotiable certificates of deposit. Issuance of these short-term products in April totaled $180 billion, up 60% from a year earlier. Their relatively high rates—up to 4% or 5%—have made them attractive to money-market funds like Yu’e Bao.”
- “But the upshot for banks is that stable deposits on which they pay just 1.5%—the benchmark rate—are being converted into flighty funds on which they must pay up to 5%. And even this source of funding may dry up. Last month, Yu’e Bao capped the size of new investments, likely under pressure from regulators alarmed at its rapid growth.”
Perspective
FT – Beer sales slide as global alcohol consumption falls – Scheherazade Daneshkhu 6/3
- “The global market for alcoholic drinks contracted 1.3% last year, which was steeper than the average fall of 0.3% in the previous five years, according to figures from the International Wine and Spirits Research, the London-based industry group.”
- “Alexander Smith, editor of IWSR magazine, said the drop was surprising given an improving global economy and the usually close correlation between global growth rates and drinking alcohol.”
- “Global gross domestic product rose 3.1% last year, according to the International Monetary Fund, which forecasts a further improvement to 3.6% this year.”
- “Beer sales fell 1.8%, compared with a five-year average decline of 0.6%. This was mainly because of weakness in China, the world’s biggest beer market by volumes, though sales in other large beer markets, such as Brazil and Russia which have both been in recession, were down.”
- “In the US, ‘2017 is shaping up to be the worst year for beer volumes since 2009, when total industry volumes were down 2%’, according to Trevor Stirling, analyst at Bernstein.”
- However, “the IWSR said it expected the alcohol industry to return to growth this year, predicting a rise in consumption of 0.8% until 2021, driven by whisky.”
Worthy Insights / Opinion Pieces / Advice
The Irrelevant Investor – Satisfaction Yield – Michael Batnick 6/6
- “The utilitarian benefit of two investments are identical when they yield an identical return, but the satisfaction yield, reflecting expressive and emotional benefits, varies by the paths of identical returns.”
- “The fact that the return of principal under different scenarios can evoke such different emotions tells us a lot about why investor behavior is the most important factor in determining success or failure.”
Real Estate
WSJ – Daily Shot: Wells Fargo – Origin of Foreign Capital buying US Real Estate 6/5
Bloomberg – Americans Are Pouring Money Into Their Homes Like It’s the 1990s – Vince Golle 6/6
Energy
- “The Marcellus Shale formation has added lots of supply to a major power grid, but demand is growing slowly.”
NYT – The Biggest, Strangest ‘Batteries’ – Diane Cardwell and Andrew Roberts 6/3
Africa
NYT – Nigeria’s Afrobeats Music Scene Is Booming, but Profits Go to Pirates – Dionne Searcey 6/3
- “Artists across the world battle illegal sales of their work. But Nigeria’s piracy problem is so ingrained that music thieves worry about rip-offs of their rip-offs, slapping warning labels on pirated CDs to insist that ‘lending is not allowed.'”
Canada
FT – Toronto house price fall signals market is cooling – Ben McLannahan 6/5
- “According to sales data released on Monday by the Toronto Real Estate Board, the average sale price for all home types in the Greater Toronto Area was C$863,910 ($640,674) in May, a drop of 6.2% from C$920,791 in April. The number of home sales fell by 12% over the month, while listings were up 19%.”
- “Talk of tackling rapid price appreciation appears to have ‘changed market psychology’, said Jean-François Perrault, chief economist at Scotiabank in Toronto. ‘The benefits of holding on to a property, if you’re a speculator, have probably peaked. I think we’re moving to a healthier market.’”
- A change from one month to the next does not make a trend. Keep your eye on this.
China
Economist – A provincial shuffle shows the power of China’s president 5/27
WSJ – Here’s How a Chinese Tech Firm Borrowed $2.1 Billion in a Hurry – Ryan McMorrow 6/3
- “LeEco, a catchall name for a variety of businesses controlled by the internet tycoon Jia Yueting, poses little threat by itself to China’s financial system. But a review of the company’s finances shows the extent of the opaque ways Chinese firms can use to raise money — and how failures could ripple through the system.”
FT – China’s new graduates hit by falling wages – Tom Hancock 6/4
India
FT – India Inc walks a banking tightrope – Simon Mundy and Amy Kazmin 6/4
- “A wave of defaults by struggling infrastructure companies, and others that borrowed heavily during much of the past decade, has left India’s public-sector banks saddled with a huge and growing bad loan burden that represents one of the most serious long-term threats to the country’s economic growth.”
- “Even after the 1990s liberalization that allowed the entry of new private-sector banks, the state-owned lenders still hold more than two-thirds of banking sector assets. Impaired loans now account for 17.8% of assets, and well over 20% at several banks. As these banks now reel under the weight of $186bn in stressed assets, loan growth in the country has fallen dramatically, to 5.1% in the financial year ending in March — the slowest pace for 63 years — while corporate investment fell in three out of four quarters last year.”
South America
Economist – Bello: Argentina’s new, honest inflation statistics 5/25
- “The end of bogus accounting.”
Other Links
BBC – How air conditioning changed the world – Tim Harford 6/5