George Kalogeropoulos
George Kalogeropoulos
"The loss of bullish momentum is only short-term in nature," one chart analyst said.
Taiwan has never sought to use foreign exchange rates to gain an unfair trade advantage, the central bank said on Sunday, after the U.S. Treasury said Taiwan tripped thresholds for possible currency manipulation under a 2015 U.S. trade law. Taiwan's tech-focused exports have soared during theCOVID-19 pandemic because of global demand for laptops, tablets and other equipment to support the work-from-home boom, driving its trade surplus with the United States and jacking up the value of the Taiwan dollar.
The amount represents roughly 1.5% of his holdings.
(Bloomberg) -- The mania that drove crypto assets to records as Coinbase Global Inc. went public last week turned on itself on the weekend, sending Bitcoin tumbling the most since February.The world’s biggest cryptocurrency plunged as much as 15% on Sunday, just days after reaching a record of $64,870. It subsequently pared some of the losses and was trading at about $57,000 at around 1:25 p.m. in Tokyo Monday.Ether, the second-biggest token, dropped below $2,000 over the weekend before also paring losses. The volatility buffeted Binance Coin, XRP and Cardano too. Dogecoin -- the token started as a joke -- bucked the trend and is up 25% over 24 hours, according to CoinGecko.The weekend carnage came after a heady period for the industry that saw the value of all coins surge past $2.25 trillion amid a frenzy of demand for all things crypto in the runup to Coinbase’s direct listing on Wednesday. The largest U.S. crypto exchange ended the week valued at $68 billion, more than the owner of the New York Stock Exchange.“With hindsight it was inevitable,” Galaxy Digital founder Michael Novogratz said in a tweet Sunday. “Markets got too excited around $Coin direct listing. Basis blowing out, coins like $BSV, $XRP and $DOGE pumping. All were signs that the market got too one way.”Dogecoin, which has limited use and no fundamentals, rallied last week to be worth about $50 billion at one point before stumbling Saturday. Demand was so brisk for the token that investors trying to trade it on Robinhood crashed the site a few times Friday, the online exchange said in a blog post.There was also speculation Sunday in several online reports that the crypto plunge was related to concerns the U.S. Treasury may crack down on money laundering carried out through digital assets. The Treasury declined to comment, and its Financial Crimes Enforcement Network (FinCEN) said in an emailed response on Sunday that it “does not comment on potential investigations, including on whether or not one exists.”‘Price to Pay’“The crypto world is waking up with a bit of a sore head today,” said Antoni Trenchev, co-founder of crypto lender Nexo. “Dogecoin’s 100% Friday rally was ‘peak party,’ after the Bitcoin record and Coinbase listing earlier in the week. Euphoria was in the air. And usually in the crypto world, there’s a price to pay when that happens.”Besides the “unsubstantiated” report of a U.S. Treasury crackdown, Trenchev said factors for the declines may have included “excess leverage, Coinbase insiders dumping equity after the direct listing and a mass outage in China’s Xinjiang province hitting Bitcoin miners.”Growing mainstream acceptance of cryptocurrencies has spurred Bitcoin’s rally, as well as lifting other tokens to record highs. Bitcoin’s most ardent proponents see it as a modern-day store of value and inflation hedge, while others fear a speculative bubble is building.Interest in crypto went on the rise again after companies from PayPal to Square started enabling transactions in Bitcoin on their systems, and Wall Street firms like Morgan Stanley moved toward providing access to the tokens to some of the wealthiest clients.VolatilityThat’s despite lingering concerns over their volatility and usefulness as a method of payment. Moreover, governments are inspecting risks around the sector more closely as the investor base widens.Federal Reserve Chairman Jerome Powell last week said Bitcoin “is a little bit like gold” in that it’s more a vehicle for speculation than making payments. European Central Bank President Christine Lagarde in January took aim at Bitcoin’s role in facilitating criminal activity, saying the cryptocurrency has been enabling “funny business.”Turkey’s central bank banned the use of cryptocurrencies as a form of payment from April 30, saying the level of anonymity behind the digital tokens brings the risk of “non-recoverable” losses.(Updates prices in the second and third paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Auto industry executives are rattled by a global shortage of semiconductors which is hitting production in China, after hoping the world's biggest car market could spearhead global recovery in the sector. Automakers around the world have had to adjust assembly lines due to the shortages, caused by manufacturing delays that some semiconductor makers blame on a faster-than expected recovery from the coronavirus pandemic. Volkswagen AG, China's biggest foreign automaker which wants to sell over four million vehicles in the country, said the impact of the shortage remains unabated in the second quarter this year.
Japanese companies think the country will suffer a fourth round of coronavirus infections, with many bracing for a further blow to business, a Reuters monthly poll showed. Japan has so far seen far fewer COVID-19 cases than many Western countries, but concerns about a new wave of infections are rising fast. A delay in vaccinations versus other Group of Seven advanced countries and a lacking sense of crisis among the public will trigger a new wave of infections, some firms wrote in the poll.
Ant Group is exploring options for founder Jack Ma to divest his stake in the financial technology giant and give up control, as meetings with Chinese regulators signalled to the company that the move could help draw a line under Beijing's scrutiny of its business, according to a source familiar with regulators' thinking and two people with close ties to the company. Reuters is for the first time reporting details of the latest round of meetings and the discussions about the future of Ma's control of Ant, exercised through a complicated structure of investment vehicles. The Wall Street Journal previously reported that Ma had offered in a November meeting with regulators to hand over parts of Ant to the Chinese government.
Asian shares hovered near 1-1/2 week highs on Monday helped by expectations monetary policy will remain accommodative the world over, while COVID-19 vaccine rollouts help ease fears of another dangerous wave of coronavirus infections. MSCI's broadest index of Asia-Pacific shares outside Japan was last at 695.59, within striking distance of Friday's high of 696.48 - a level not seen since Apr. 7. "The extremely supportive monetary and fiscal policy setting continues to provide a fertile environment for risk assets," said Rodrigo Catril, senior forex strategist at National Australia Bank.
(Bloomberg) -- China Evergrande New Energy Vehicle Group Ltd.’s expansive pop-up showroom sits at the heart of Shanghai’s National Exhibition and Convention Center. With nine models on display, it’s hard to miss. The electric car upstart has one of the biggest booths at China’s 2021 Auto Show, which starts Monday, opposite storied German automaker BMW AG. Yet its bold presence belies an uncomfortable truth -- Evergrande hasn’t sold a single car under its own brand.China’s largest property developer has an array of investments outside of real estate, from soccer clubs to retirement villages. But it’s the recent entry into electric cars that’s captured investors’ imaginations. Shareholders have pushed Evergrande NEV’s Hong Kong-listed stock up more than 1,000% over the past 12 months, allowing it to raise billions of dollars in fresh capital. It now has a market value of $87 billion, greater than Ford Motor Co. and General Motors Co.Such exuberance over an automaker that has repeatedly pushed back forecasts for when it will mass produce a car is emblematic of the froth that has been building in EVs over the past year, with investors plowing money into a rally that briefly made Elon Musk the world’s richest person and has some concerned about a bubble. Perhaps nowhere is that more evident than in China, home to the world’s biggest market for new energy cars, where a mind-boggling 400 EV manufacturers now jostle for consumers’ attention, led by a cabal of startups valued more than established auto players but which have yet to turn a profit.Evergrande NEV was a relatively late entrant to that scene.In March 2019, Hui Ka Yan, Evergrande’s chairman and one of China’s richest men, vowed to take on Musk and become the world’s biggest maker of EVs in three to five years. Tesla Inc.’s Model Y crossover had just had its global debut. In the two years since, Tesla has gained an enviable foothold in China, establishing its first factory outside the U.S. and delivering around 35,500 cars in March. Chinese rival Nio Inc. earlier this month reached a significant milestone when its 100,000th EV rolled off the production line, prompting Musk to tweet his congratulations.Despite his lofty ambitions and Evergrande NEV’s rich valuation, Hui has repeatedly pushed back car-production targets. The tycoon’s coterie of rich friends, among others, have stumped up billions, but making cars -- electric or otherwise -- is hard, and hugely capital intensive. Nio’s gross margins only flipped into positive territory in mid-2020, after years of heavy losses and a lifeline from a municipal government.Speaking on an earnings call in late March after Evergrande NEV’s full-year loss for 2020 widened by a yawning 67%, Hui said the company planned to begin trial production at the end of this year, delayed from an original timeline of last September. Deliveries aren’t expected to start until some time in 2022. Expectations for annual production capacity of 500,000 to 1 million EVs by March 2022 were also pushed back until 2025. Still, the company issued a buoyant new forecast: 5 million cars a year by 2035. For comparison, global giant Volkswagen AG delivered 3.85 million units in China in 2020.It’s not just Evergrande’s delayed production schedule that’s raising eyebrows. A closer look under the company’s hood reveals practices that have industry veterans scratching their heads: from making selling apartments part of car executives’ KPIs, to attempting a model lineup that would be ambitious for even the most established automaker.‘Weird Company’“It’s a weird company,” said Bill Russo, the founder and chief executive officer of advisory firm Automobility Ltd. in Shanghai. “They’ve poured a lot of money in that hasn’t really returned anything, plus they’re entering an industry in which they have very limited understanding. And I’m not sure they’ve got the technological edge of Nio or Xpeng,” he said, referring to the New York-listed Chinese EV makers already deploying intelligent features in their cars, like laser-based navigation.A closer look at Evergrande NEV’s operations reveals the extent of its unorthodox approach. While it’s established three production bases -- in Guangzhou, Tianjin in China’s north, and Shanghai -- the company doesn’t have a general car assembly line up and running. Equipment and machinery is still being adjusted, according to people who have seen inside the factories but don’t want to be identified discussing confidential matters.In a response to questions from Bloomberg, Evergrande NEV said it was preparing machinery for trial production, and would be able to make “one car a minute” once full production is reached.The company is targeting mass production and delivery next year of four models -- the Hengchi 5 and 6; the luxe Hengchi 1 (which will go up against Tesla’s Model S); and the Hengchi 3, according to people familiar with the matter. The company has told investors it aims to deliver 100,000 cars in 2022, one of the people said, roughly the number of units Nio, Xpeng Inc. and Li Auto Inc., the other U.S.-listed Chinese EV contender, delivered last year, combined.Its workers are also being asked to help sell real estate, the backbone of the Evergrande empire.New hires are required to undergo internal training and attend seminars that drill them on the company’s property history and have nothing to do with car making. In addition, employees from all departments, from production-line workers to back-office staff, are encouraged to promote the sale of apartments, whether through posting ads on social media or bringing relatives and friends along to sale centers to make them appear busy. Managerial-level staff even have their performance bonuses tied to such endeavors, people familiar with the measure said.Meanwhile, the ambitious targets have Evergrande NEV turning to outsourcing and skipping procedures seen as normal practice in the industry, people with knowledge of the situation say.While it’s hiring aggressively and recently scored Daniel Kirchert, a former BMW executive who co-founded EV startup Byton Ltd., the firm has contracted most of the design and R&D of its cars to overseas suppliers, some of the people said. Contracting out the majority of design and engineering work is an unusual approach for a company wanting to achieve such scale.14 Models At OnceOne of those companies is Canada’s Magna International Inc., which is leading the development of the Hengchi 1 and 3, one of the people said. Evergrande NEV has also teamed with Chinese tech giants Tencent Holdings Ltd. and Baidu Inc. to co-develop a software system for the Hengchi range. It will allow drivers to use a mobile app to instruct the car to drive via autopilot to a certain location and use artificial intelligence to switch on appliances at home while on the road, according to a statement last month.A spokesperson for Evergrande said it was working with international partners including Magna, EDAG Engineering Group AG and Austrian parts maker AVL List GmbH in developing “14 models simultaneously.” Representatives from Magna declined to comment. A Baidu spokesperson said the company had no further details to share, while a representative for Tencent said the software venture is with a related firm called Beijing Tinnove Technology Co. that operates independently. Tinnove didn’t respond to requests for comment.Rather than staggering model releases, Evergrande NEV appears to be rolling out every type of car all at once under its Hengchi brand, which sports a roaring gold lion on the badge and translates loosely to ‘unstoppable gallop.’ The nine models being launched span almost all major passenger vehicle segments from sedans to SUVS and multi-purpose vehicles. Prices will range from about 80,000 yuan ($12,000) to 600,000 yuan, although the final costs could change, a person familiar said.That’s a completely different product development strategy to EV pioneers like Tesla, which only has four models on offer. Nio and Xpeng have also chosen to focus on just a handful of marques, and even then are struggling to break into the black.“The market has proved the effectiveness of the ‘one product in vogue at one time’ strategy,” said Zhang Xiang, an automobile industry researcher at the North China University of Technology. “Evergrande is offering many products and expects a win. There’s a question mark over whether this will work.”Without any long-term carmaking nous, Evergrande has issued uncompromising directives to meet its latest production targets, according to the people. Two models, including the Hengchi 5, a compact SUV that rivals Xpeng’s G3, are targeting mass production in a little over 20 months. To hit that timing, certain industry procedures, like making mule cars, or testbed vehicles equipped with prototype components that require evaluation, may be skipped, people familiar with the situation said. Evergrande told Bloomberg it has entered a “sprint stage toward mass production.”As it is, Bloomberg could only find one instance where the Hengchi 5 has been showcased in public, in photos and grainy footage released by Evergrande in February as the cars drove around a snow-covered field in Inner Mongolia. The company’s shares surged to a record.Glossing over those steps is unusual, said Zhong Shi, a former automotive project manager turned independent analyst.“There’s a standard engineering process of product development, validation and verification, which includes several laboratory and road tests” in China and everywhere else, Zhong said. “It’s hard to compress that to shorter than three years.”While there’s no suggestion Evergrande’s approach violates any regulations, its stock-market run could be in for a reality check. After similarly hefty market gains, some EV startups in the U.S. that have yet to prove their viability as revenue-generating, profitable entities have lost their shine over the past few months amid concern about valuations and as established carmakers like VW move faster into EV fray.Read more: The End of Tesla’s Dominance May Be Closer Than It AppearsThe industry’s multi-billion dollar surge also hasn’t escaped Beijing’s attention. Evergrande NEV shares dipped lower last month after an editorial from the state-run Xinhua news agency highlighted concerns about how the EV sector is evolving. Of particular worry are companies that are shirking their responsibility to build quality cars, a blind race by local governments to attract EV projects, and high valuations by companies that have yet to deliver a single mass-produced car, according to the missive, which named Evergrande specifically in that regard. “The huge gap between production capacity and market value shows there is hype in the NEV market,” it said.Still, Evergrande NEV’s stock has gained 18% since then, buoyed by the outlook for China’s electric-car market. EVs currently account for about 5% of China’s annual car sales, BloombergNEF data show, with demand forecast to soar as the market matures and electric-car prices fall. EV sales in China may climb more than 50% this year alone, research firm Canalys said in a February report.With competition also on the rise, some outside Evergrande NEV’s loyal shareholder base remain skeptical.“The market is getting crowded but unless you have a preferred lane, there’s not much chance to win,” Automobility’s Russo said. “Maybe there’s some synergy with the property businesses but right now it’s an EV story, and a pretty expensive one.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Having rebounded from its worst month since 2019, China’s yuan is facing a new wave of selling pressure as hundreds of companies prepare to exchange the currency to pay dividends.Chinese firms listed in Hong Kong are expected to pay nearly $68 billion in dividends this year, which would be nearly 17% higher than 2020’s amount. That means they’ll step up swapping the yuan for the city’s dollars in coming months.This comes after the yuan rebounded about 0.4% from March’s 1.3% drop, when risk assets were sold off due to a spike in Treasury yields. The payout season, which starts to gather steam this month and is expected to peak in August, will further suppress the currency, in addition to strength in the dollar and a narrowing yield premium over the rest of the world. On top of that, uncertainty over China-U.S. tensions is continuing to hurt sentiment.“Dividend outflows add pressure on the yuan, against the background of brewing U.S.-China tensions.,” said Trang Thuy Le, Asia currency strategist at Macquarie Capital Ltd. in Hong Kong, adding that discussions on the Federal Reserve starting to taper policy could strengthen the greenback in the fourth quarter. “The dollar-yuan rate should largely mirror that path.”More than 400 companies will hand out $65 billion of dividends from April to September alone, with the payment reaching a peak in August at $21 billion, according to data compiled by Bloomberg.Firms are paying more to shareholders in part because they have excess idle cash as they refrain from expansion, and also as they hope to retain investors.To be sure, it’s unlikely the dividend season would lead to any dramatic slide in the currency. That’s because not all of the companies need to sell the yuan in the spot market for the Hong Kong dollar, which they may already own and can be used for dividend payments. Also, the People’s Bank of China won’t likely allow any sharp depreciation, as that may hinder its push to attract foreign inflows and promote the yuan’s global usage.Also, the dollar remains the biggest driver of yuan moves nowadays. Even though banks helped clients sell the currency during last year’s payout season, it gained during the summer amid drops in the greenback.A beneficiary of the move, of course, is the Hong Kong dollar. The currency, which this month fell to a one-year low, will see stronger demand in the coming months. It inched higher to 7.77 per dollar Monday while the onshore yuan fell 0.1% to 6.5256.The largest single sum of dividend payment will hit on Aug. 5, when China Construction Bank Corp. hands $12 billion to its shareholders. And on May 20, China Mobile Ltd. will give out $4.6 billion.(Adds Monday prices in 3rd, 9th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
MELBOURNE (Reuters) -Australian lithium miner Orocobre Ltd is buying smaller domestic peer Galaxy Resources for $1.4 billion to create the world's fifth most valuable producer of the key raw material for electric vehicle batteries. The all-stock deal for A$1.78 billion ($1.38 billion)announced on Monday, which will also establish Australia's most valuable lithium miner with a A$4 billion market capitalisation, comes as demand for the material is booming amid a jump in global sales of electric vehicles. The new entity will have hard rock, brine, and chemicals assets across Australia, Argentina, Canada and Japan, and will be able to accelerate development and sell into global markets.
Bitcoin was last trading down 10% at $53,991 as of 1320 GMT, a whopping $12,000 below record highs set on Wednesday. Data website CoinMarketCap cited https://coinmarketcap.com/headlines/news/chinas-xinjiang-blackout-and-bitcoin-hashrate-correction-caused-btc-price-crasha blackout in China’s Xinjiang region, which reportedly powers a lot of bitcoin mining, for the selloff. Luke Sully, CEO at digital asset treasury specialist Ledgermatic, said in an email that people "may have sold on the news of the power outage in China and not the impact it actually had on the network".
Rates have dropped, but experts warn that the downward trend isn't likely to last.
Asian shares hovered near 1-1/2 week highs on Monday helped by expectations monetary policy will remain accommodative the world over, while COVID-19 vaccine rollouts help ease fears of another dangerous wave of coronavirus infections. MSCI's broadest index of Asia-Pacific shares outside Japan was last at 695.59, within striking distance of Friday's high of 696.48 - a level not seen since Apr. 7. "The extremely supportive monetary and fiscal policy setting continues to provide a fertile environment for risk assets," said Rodrigo Catril, senior forex strategist at National Australia Bank.
(Bloomberg) -- The unprecedented oil inventory glut that amassed during the coronavirus pandemic is almost gone, underpinning a price recovery that’s rescuing producers but vexing consumers.Barely a fifth of the surplus that flooded into the storage tanks of developed economies when oil demand crashed last year remained as of February, according to the International Energy Agency. Since then, the lingering remnants have been whittled away as supplies hoarded at sea plunge and a key depot in South Africa is depleted.The re-balancing comes as OPEC and its allies keep vast swathes of production off-line and a tentative economic recovery rekindles global fuel demand. It’s propping international crude prices near $67 a barrel, a boon for producers yet an increasing concern for motorists and governments wary of inflation.“Commercial oil inventories across the OECD are already back down to their five-year average,” said Ed Morse, head of commodities research at Citigroup Inc. “What’s left of the surplus is almost entirely concentrated in China, which has been building a permanent petroleum reserve.”The process isn’t quite complete. A considerable overhang appears to remain off the coast of China’s Shandong province, though this may have accumulated to feed new refineries, according to consultants IHS Markit Ltd.Working off the remainder of the global excess may take some more time, as OPEC+ is reviving some halted supplies and new virus outbreaks in India and Brazil threaten demand.Still, the end of the glut at least appears to be in sight.Oil inventories in developed economies stood just 57 million barrels above their 2015-2019 average as of February, down from a peak of 249 million in July, the IEA estimates.It’s a stark turnaround from a year ago, when lockdowns crushed world fuel demand by 20% and trading giant Gunvor Group Ltd. fretted that storage space for oil would soon run out.Stockpile SlumpIn the U.S., the inventory pile-up has effectively cleared already.Total stockpiles of crude and products subsided in late February to 1.28 billion barrels -- a level seen before coronavirus erupted -- and continue to hover there, according to the Energy Information Administration. Last week, stockpiles in the East Coast fell to their lowest in at least 30 years.“We’re starting to see refinery runs pick up in the U.S., which will be good for potential crude stock draws,” said Mercedes McKay, a senior analyst at consultants FGE.There have also been declines inside the nation’s Strategic Petroleum Reserve, the warren of salt caverns used to store oil for emergency use. Traders and oil companies were allowed to temporarily park oversupply there by former President Trump, and in recent months have quietly removed about 21 million barrels from the location, according to people familiar with the matter.The oil surplus that gathered on the world’s seas is also diminishing. Ships were turned into makeshift floating depots when onshore facilities grew scarce last year, but the volumes have plunged, according to IHS Markit Ltd.They’ve tumbled about by 27% in the past two weeks to 50.7 million barrels, the lowest in a year, IHS analysts Yen Ling Song and Fotios Katsoulas estimate.A particularly vivid symbol is the draining of crude storage tanks at the logistically-critical Saldanha Bay hub on the west coast of South Africa. It’s a popular location for traders, allowing them the flexibility to quickly send cargoes to different geographical markets.Inventories at the terminal are set to fall to 24.5 million barrels, the lowest in a year, according to ship tracking data monitored by Bloomberg.For the 23-nation OPEC+ coalition led by Saudi Arabia and Russia, the decline is a vindication of the bold strategy they adopted a year ago. The alliance slashed output by 10 million barrels a day last April -- roughly 10% of global supplies -- and is now in the process of carefully restoring some of the halted barrels.The Organization of Petroleum Exporting Countries has consistently said its key objective is to normalize swollen inventories, though it’s unclear whether the cartel will open the taps once that’s achieved. In the past, the lure of high prices has prompted the group to keep production tight even after reaching its stockpile target.Mixed BlessingTo consuming nations the great de-stocking is less of a blessing. Drivers in California are already reckoning with paying almost $4 for a gallon of gasoline, data from the AAA auto club shows. India, a major importer, has complained about the financial pain of resurgent prices.For better or worse, the re-balancing should continue. As demand picks up further, global inventories will decline at a rate of 2.2 million barrels a day in the second half, propelling Brent crude to $74 a barrel or even higher, Citigroup predicts.“Gasoline sales are ripping in the U.S.,” said Morse. “Demand across all products will hit record levels in the third quarter, pushed up by demand for transport fuels and petrochemical feed-stocks.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The cost of renewable energy is plunging, but there are still sound reasons to encourage its adoption through subsidies.
The big up move for the week was fueled by positive oil demand growth outlooks by both the IEA and OPEC and a bigger-than-expected draw from the EIA.
A policy shift by China's government is ratcheting up pressure on automakers to hasten development of green vehicles or pay rivals such as Tesla Inc and Chinese startups for green credits. Regulators are putting more teeth on a system of tradable green car credits to wean the industry off a decade-long policy of subsidies which has helped create some of the biggest companies in the industry. The system gives automakers credits for selling electric or fuel-efficient vehicles that can offset penalties on their more carbon-intensive models.
(Bloomberg) -- After two weeks of relentless losses, China Huarong Asset Management Co. bondholders are finally finding reasons for optimism.Huarong bonds jumped after China’s financial regulator said on Friday that the bad-debt manager was operating normally and had ample liquidity, its first official comments since the company jolted Asian credit markets by missing a deadline to report earnings on March 31. While the regulator’s statement was hardly a full-throated pledge of government support, it was enough to cement a rally in Huarong bonds from record lows and ease fears of contagion. The gains continued on Monday.One of the state-owned company’s dollar bonds -- a 3.375% note maturing in May 2022 -- climbed to about 85 cents after trading at 65 cents on Wednesday, according to prices compiled by Bloomberg.The rebound suggests investors have become less concerned about extreme scenarios like bankruptcy. Yet questions remain about the extent of Beijing’s support as Huarong tries to overhaul its business.The company, controlled by China’s Ministry of Finance, has been mired in scandal since its former chairman Lai Xiaomin was accused of bribery in 2018 and executed earlier this year. Under Lai, Huarong moved beyond its original mandate of helping banks dispose of bad debt, raising billions of dollars from offshore bondholders and expanding into everything from trust companies to securities trading and illiquid investments.If China decides to impose losses on Huarong bondholders in a debt restructuring, it would be the nation’s most consequential credit event since the late 1990s and the clearest sign yet that Beijing is serious about reducing moral hazard in its $54 trillion financial industry. But if Huarong continues to meet its obligations, the company’s bonds could end up delivering a windfall to investors who bought after prices plunged this month.“The fact that a regulator finally said something should give the market some confidence,” said David Loevinger, a former China specialist at the U.S. Treasury and now a managing director at TCW Group Inc. in Los Angeles. “The amazing thing is like many investors, if you asked me a month ago, what is the risk of Huarong restructuring its debt, I would have said close to zero. Even though I still think it’s unlikely, the risk is no longer zero.”In a statement late Friday, Huarong said it will accelerate disposal of existing risks and keep focusing on its main business of non-performing loans. Huarong said it’s working on its full-year earnings report with its auditor and will disclose it at an appropriate time.Investors will be keeping a close eye on the company’s near-term debt payments for any signs of stress.Huarong’s onshore securities unit has wired funds to repay a local bond due April 18, people familiar with the matter said on Friday. Reports that Huarong has prepared funds to pay a S$600 million ($450 million) bond due April 27 helped trigger the rally in its offshore debt from record lows on Thursday.The comments from China’s regulator on Friday suggest the worst of the Huarong crisis is likely over, according to Yong Zhu, who manages about $6 billion at DuPont Capital Management in Wilmington, Delaware.“The statement from the China Banking and Insurance Regulatory Commission is a clear indication that the policy of the Chinese government is to support Huarong and avoid near term default,” said Zhu, who doesn’t own the bonds.Credit-default swaps on China Huarong International Holdings Ltd., an offshore unit of Huarong, tumbled to 956 basis points on Friday from a record 1,466 basis points, according to ICE Data Services.What Bloomberg Intelligence says“The Chinese government still operates in an opaque manner. So until something is officially announced, things are still in play. It’s either a bailout or a big haircut. People are sensitive to any news.”-- Dan Wang, credit analyst a Bloomberg Intelligence.If Huarong were to restructure with offshore bondholders taking a hit, investors would reassess the credit risk of other Chinese companies that use a similar funding mechanism, said Nick Smallwood, an emerging-market debt strategist at M&G Investments. That would make future borrowing more costly and difficult to come by, Smallwood said.“I think there is an expectation that Huarong will not default and that it is a structurally important credit, resulting in a higher likelihood of government support,” said Steven Oh, head of fixed income at Pinebridge Investments.Chinese policy makers will have to weigh the broader market implications as they decide how to proceed, according to TCW’s Loevinger.“Clearly, the direction of the policy is they want to send a signal that creditors have to pay more attention to credit risks and they have to stop expecting bailouts,” Loevinger said. “They want to kill the chicken to scare monkeys. But having Huarong default would be killing the tiger. Obviously, it’s a much bigger systemic risk.”(Updates with Monday trading from second paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The Business NZ PMI came in at 63.6, up 9.4 points from February, and the highest monthly result since the survey began in 2002.