If you were only to read one thing…
Bloomberg – Panic Roils China’s Peer-to-Peer Lenders – Jun Luo, Alfred Liu, and Crystal Tse 7/16
- “China’s savers are rushing to pull money from peer-to-peer lending platforms, accelerating a contraction of the $195 billion industry and testing the government’s ability to maintain calm as it cracks down on risky shadow-banking activities.”
- “In some cases, savers are turning up at the offices of P2P operators to demand repayment, spooked by reports of defaults, sudden closures and frozen funds. At least 57 platforms have failed in the past two weeks, adding to 80 cases in June, the biggest monthly tally in two years, according to Shanghai-based Yingcan Group. The researcher defines failed platforms as those that have halted operations, come under police investigation, missed investor payments, moved into other businesses, or had operators flee with client money.”
- “’Investors have lost confidence in the smaller platforms, because they have no idea if those companies will survive,’ said Dexter Hsu, a Taipei-based analyst at Macquarie Capital. Only a handful of the 2,000 or so remaining firms are likely to endure, he said.”
- “China’s P2P industry, the world’s largest, is one of the riskiest and least-regulated slices of the nation’s sprawling shadow-banking system. A government clampdown has weighed on P2P platforms for two years, but the pressure intensified in recent months after China’s credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products.“
- “The shakeout has cast doubt on the listing plans of several P2P lenders and underscores the delicate balancing act faced by China’s government as it tries to reduce moral hazard in the financial system without triggering a crisis. While there’s little sign that the P2P turmoil has spread to systemically important wealth-management products issued by banks, much of China’s $10 trillion shadow-lending system faces the same headwinds of rising defaults, slowing economic growth and official calls to end to implicit guarantees on risky investments.”
- “China’s P2P platforms have about 50 million registered users and 1.3 trillion yuan ($195 billion) of outstanding loans, most of which have short maturities. Normally, savers have to wait for loans facilitated by the platforms to mature before getting their money back. But some are now trying to exit early by selling their rights to others at a discount, or by going to the platform’s offices to demand repayment.”
- “The turmoil is also hurting companies and individuals who have relied on P2P platforms for financing. They include cash-strapped small businesses seeking working capital, individuals without a credit history, and, more recently, leveraged stock market investors and home buyers in need of down-payments.”
- “Some P2P platforms were also raising funds illegally for their own use, while others were running Ponzi schemes that collapsed when the flow of new money halted, regulators have said. That helps explain why authorities have so far been steadfast in cracking down.”
- “Last month, China Banking and Insurance Regulatory Commission Chairman Guo Shuqing warned that any savings or investment product with promised returns of more than 8% is likely to be ‘very dangerous’ and that investors should be prepared to lose all their money if advertised returns exceed 10%. The average yield on P2P loans was 10.2% in the first half, official figures show. Reported default rates vary from zero on the best platforms to 35% on the worst, according to National Internet Finance Association of China.”
Markets / Economy
WSJ – Daily Shot: Gold 7/17
WSJ – Daily Shot: Silver 7/17
WSJ – Daily Shot: NASDAQ Composite Index 7/17
Real Estate
- “Online retailers typically benefit from lower overhead than their store-based counterparts, but in the U.K. that advantage is bigger than just about anywhere. The country has the developed world’s highest commercial property taxes, and in many areas those levies have jumped even as store sales decline, because land values have risen since the financial crisis. Last year, Tesco paid £700 million in property taxes, and J Sainsbury Plc, the No. 2 chain, paid £550 million. Amazon’s bill: £14 million.”
Economist – Big corporates’ quest to be hip is helping WeWork 7/12
- “Research suggests that employees are happier in co-working environments like those run by WeWork. But the firm’s real genius is that it is also far cheaper for their employers. Property experts estimate that firms typically spend anywhere between $16,000 and $25,000 per employee on rent, security, technology and related office expenses. Mr Neumann insists they can get all of that from WeWork starting at $8,000 per worker. Efficient use of space is one reason. Ron Zappile of Colliers, a property-services firm, reckons that typical corporate offices use some 185 square feet (17 square meters) per employee. WeWork members get by on 50 square feet per head.”
- “WeWork has more than 250,000 members from a range of industries (see chart) and expects to double revenues this year for the ninth straight year. Last year it made $886m in revenue, 93% of which came from memberships.”
- But…”WeWork’s net losses also roughly doubled, however, from $430m in 2016 to $884m last year. As with many fast-moving startups, it explains its lack of profitability by pointing to big investments. It will open 15 new offices a month worldwide for the foreseeable future. Its bonds issued in April were rated as junk.”
- “…the most important source of stability may well be a shift in its customers, from startups to big firms. A few years ago, WeWork’s business was comprised almost entirely of small fry. In the year to September the enterprise segment (firms with over 1,000 staff) grew by around 370%. As of June, big firms accounted for about a quarter of its membership and revenues. More than 1,000 companies now take anything from one to 12,000 desks. In June, Facebook asked WeWork for an entire building for several thousand workers.”
- “The average enterprise lease is close to two years and many new ones are three to five years long. Whereas big firms, used to conventional office leases of 10-20 years, see WeWork’s contracts as flexible, the firm itself sees them as commitments that will help it weather a downturn.”
Cryptocurrency / ICOs
WSJ – Daily Shot: Barchart – Bitcoin 7/17
Tech
China
FT – China money market funds’ rush into bank credit worries investors – Don Weinland 7/16
- “Investors have warned of growing systemic risks in China’s $1.09tn money market fund industry, as funds buy up bank credit despite a surge in bad debt this year.”
- “Comparably high yields and low risk at Chinese money market funds in recent years have made the industry a favorite among retail investors in the country. Assets under management have grown from Rmb600bn at the end of 2012 to an estimated Rmb7.3tn ($1.09bn) in March, making it the second-largest market in the world after the US.”
- “But in recent months China’s central bank has tightened monetary policy and access to credit, forcing down the funds’ once-attractive yields. At the biggest funds, average returns have dropped to an annualized to 3.7% from about 4.5% at the start of the year.”
- “In response, funds have rushed into bank credit, such as negotiable certificates of deposit, as a means to boost returns and continue attracting retail investments.”
- “Investors are now warning that the push into bank credit comes just as regulators are forcing banks to recognize vast amounts of bad debts that were once hidden off their balance sheets, leading to greatly increased risk for the investments. Falling credit ratings at banks could force money market funds to exit their investments, something that could lead to a shock through the massive fund industry.”
- “Ant Financial’s Yu’e Bao, with about $200bn under management, is the world’s largest money market fund. Last month it reduced the amount of money investors could withdraw within one day to Rmb10,000 ($1,498) per investor from Rmb50,000. About Rmb200bn flowed out of the fund between April and June. The company declined to comment.”
- “The risks at the funds are centered around their source of high-yielding investments: credit from hundreds of small banks with weakening balance sheets.”
FT – China closes a fifth of foreign university partnerships – Emily Feng 7/17
FT – Hong Kong tightens screws on pro-independence party – Ben Bland 7/17
- “The Hong Kong government is considering banning a pro-independence political party on unprecedented ‘national security’ grounds, a move decried by activists as the latest violation of the city’s promised freedoms and rights.”
India
NYT – In India, Summer Heat May Soon Be Literally Unbearable – Somini Sengupta 7/17
Other Interesting Links
Maps on the Web: Reddit – White Americans by State 2017 7/4
