Mar.29 -- Nomura shares are seeing their biggest fall in more than 9 years after the company warned of a significant loss arising from transactions with a U.S. client. Bloomberg’s Adam Haigh reports on “Bloomberg Markets: Asia.”
Mar.29 -- Nomura shares are seeing their biggest fall in more than 9 years after the company warned of a significant loss arising from transactions with a U.S. client. Bloomberg’s Adam Haigh reports on “Bloomberg Markets: Asia.”
Morgan Stanley lost nearly $1 billion from the collapse of family office Archegos Capital Management, the bank said on Friday, muddying its 150% jump in first-quarter profit that was powered by a boom in trading and deal-making. Morgan Stanley was one of several banks that had exposure to Archegos, which defaulted on margin calls late last month and triggered a fire sale of stocks across Wall Street. Morgan Stanley lost $644 million by selling stocks it held related to Archegos' positions, and another $267 million trying to "derisk" them, Morgan Stanley Chief Executive James Gorman said on a call with analysts.
(Bloomberg) -- China’s economy strengthened in the first quarter of the year as consumer spending rose more than expected, putting it on course to join the U.S. as twin engines for a global recovery in 2021.Gross domestic product climbed 18.3% in the first quarter from a year earlier, largely in line with the 18.5% predicted in a Bloomberg survey of economists, though that record-breaking figure was mainly due to comparisons with a year ago when much of the economy was shut due to coronavirus. Retail sales beat expectations while industrial output growth moderated.The latest data puts China on course to grow well above its annual target of more than 6%, supporting the view that China and the U.S., where economists predict 6.2% growth, will both outperform other major nations this year. China’s recovery hasn’t yet plateaued after it became the first major economy to contain the spread of coronavirus and return to growth, with GDP rising 0.6% in the first three months of 2021 from the previous quarter.How Much of China’s GDP Was Made in America?: Daniel MossThe recovery last year was led by strong investment in real estate and infrastructure spurring demand for industrial goods, while overseas orders for medical goods and electronic devices fueled exports. Consumer spending had lagged, but the latest figures showed a turnaround. Retail sales growth was 6.3% in March when calculated on a two-year average growth basis -- which removes distortions created by last year’s lockdowns -- up sharply from the rates seen last year.“We are seeing a bit more balanced recovery in the Chinese economy,” Wang Tao, chief China economist at UBS AG, said in an interview with Bloomberg TV. “That early pickup in construction industry is going to give way to more household consumption,” she added. Consumer spending at restaurants and sales of discretionary goods such as jewelry, alcohol and tobacco led the growth of retail sales in March.The economy was also boosted by a jump in investment from overseas. Inbound investment into China rose almost 40% to $45 billion in the first three months of 2021, according to data from the Ministry of Commerce released Thursday. That was the highest for that period in comparable data back to 2002.Markets were choppy following the data release but ended the day little changed, with the benchmark CSI 300 Index paring an earlier loss of as much as 0.6% to finish up 0.35% for the day. The yield on benchmark 10-year sovereign debt fell slightly to 3.16%. The onshore yuan was unchanged on the day at 6.5226 per dollar.Broadening out the recovery remains a work in progress with growth in the first quarter still reliant on the property sector. Fixed-asset investment in real estate rose 7.6% on a two-year average growth basis and infrastructure spending increased roughly in-line with pre-pandemic rates. Quarterly steel production of 271 million tons suggests that annual output is on course to top 1 billion tons for the second year running.What Bloomberg Economics Says...The undershoot in GDP growth relative to expectations and lopsided nature of the recovery do not warrant any economy-wide shift in monetary policy, in our view.Looking forward, production is poised to start peaking, while demand should pick up further. This should add more balance in what looks to be a steady recovery ahead.Chang Shu, chief Asia economistFor full report, click hereAlthough Beijing has promised “no sharp turns” in monetary and fiscal support this year, some prominent economists have warned that premature tightening could still put the recovery at risk. The central bank has asked banks to curtail loan growth in coming months as it seeks to control credit to curb asset bubbles. Alongside the investment data, data showing home prices grew at the fastest pace in seven months in March will likely prompt more action by Chinese policy makers to rein in the sector.“Considering the robust recovery, we certainly do not expect Beijing to step up easing measures, but it is also unlikely to make a sharp shift in its policy stance,” Nomura economists led by Lu Ting wrote in a note. Authorities have learned lessons from a “forceful deleveraging campaign” in 2017-18, which led to bond defaults, a stock market selloff and weaker growth, they said.The statistics bureau said Friday inflation is expected to remain in a moderate range this year, and while rising commodity costs could boost domestic prices, there’s no basis for prices in upstream sectors to rise significantly.“The economy is far from overheating,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. “The consumer sector doesn’t have a solid basis for overheating, and I don’t think the central bank will take a faster turn for monetary policy.”Bloomberg Economics forecasts global GDP growth of 6.9% in 2021, rapid enough to bring output substantially back onto its pre-Covid path. Data released Thursday showed the U.S. economy’s comeback is firing on all cylinders, with retail sales exceeding pre-pandemic levels in all categories except restaurants. Production at U.S. factories increased in March by the most in eight months.China has rapidly accelerated its vaccination campaign over the past month in a move that should help bolster spending on services. A recovery in major economies fueled by vaccine roll-outs and the Biden administration’s massive fiscal stimulus is expected to sustain rapid growth in Chinese exports this year.Economists have upgraded their forecasts for China’s growth in recent days: Bloomberg Economics expects 9.3% expansion, ING Groep NV economist Iris Pang predicts 8.6% and Nomura sees 8.9%.“We expect the economy to continue to gain momentum in the second quarter, with a rotation in terms of the drivers of growth compared to last year,” said Louis Kuijs, head of Asia Economics at Oxford Economics Ltd. in Hong Kong. “Less generous fiscal and monetary policy will weigh on infrastructure and real estate investment, while improved profitability and confidence should buoy corporate investment and consumption.”(Updates with foreign investment data.)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) -- Natural gas is falling out of favor with emissions-wary investors and utilities at a quicker pace than coal did, catching some power generators unaware and potentially leaving them stuck with billions of dollars of assets they can’t sell.Citigroup Inc. and JPMorgan Chase & Co. are among the banks that strengthened their financing restrictions on thermal coal under pressure from shareholders wanting to avoid the fuel, and the expectation is that gas is next. Executives at some western European companies say they’re already struggling to sell gas-fired facilities.“If you find out somebody who is ready to offer a good price for our gas plants in Spain, then we are ready to sell,” said Jose Ignacio Sanchez Galan, chief executive officer at Iberdrola SA in Spain. “We are not finding people.”The cost of renewables has dropped dramatically during the past decade, making gas-fired stations less competitive.Phasing out gas in power generation is just a first step. Cutting back use of the fuel in heating, transport and industry would wreak more potential damage. Europe wants to reach net-zero emissions by 2050, which is at odds with plans to build numerous infrastructure projects, like pipelines and terminals.If these are built but no longer needed, there’s a potential 87 billion-euro ($104 billion) stranded-asset risk, according to calculations by Global Energy Monitor.In Italy there are plans to build 14 gigawatts of new gas capacity mostly to replace coal, according to Carbon Tracker Initiative Ltd.Europe’s biggest utility, Enel SpA, is a global renewables supermajor. Still, about 40% of the company’s 88 gigawatts of installed capacity is made up of coal, oil and gas, but the Italian company is planning to reduce coal generation by 74% in 2022. Although a gas phase-out is also coming down the track, it has plans to build more capacity.“The important thing is that the direction is clear, it will not change,’’ Salvatore Bernabei, head of global power generation at Enel said in an interview. “Everyone should understand that we cannot change the world in one day.’’Quicker Than CoalCoal has been slow and difficult to phase out in countries where mining provides thousands of jobs. Gas will be quicker because it doesn’t have the same tradition attached, and renewables are now a cost-effective alternative, according to Carbon Tracker.“Gas will be a repeat of coal but quicker,” said Catharina Hillenbrand von der Neyen, head of company research at the London-based firm. “When we look at power generation, you can see that going really, really quickly.”This is already happening in Britain, where it’s unlikely any further large-scale gas plants will be built without technologies that cut emissions – such as carbon capture. SSE Plc, which trades on the U.K.’s FTSE 100 Index, said it can’t see a future for new gas stations that don’t incorporate carbon capture or hydrogen.Electricite de France SA will no longer operate any fossil fuel-fired power generation in Britain after it announced the sale of its last gas-fired power station to private equity firm EIG Global Energy Partners LLC. Historically the involvement of private equity is to squeeze the asset to extract all remaining value.Investor PressureInvestors pursuing an ESG agenda will add to the pressure on companies to get out of gas. BlackRock Inc. and Vanguard Group Inc. are among 40-plus investment firms committing to cut the net emissions of their portfolios to zero by 2050.Portugal’s biggest utility, Energias de Portugal SA, said its strategy is to exit from its two remaining coal plants by 2025, shutting down one and possibly selling the other.“There is an increasing amount of funds that either don’t like it or can’t even invest in companies with coal,” Miguel Stilwell de Andrade, EDP’s chief executive officer, said in an interview.“We’re not going to wait until people tell us that gas is no longer going to be used. We’re going to make sure that we’re going to get out of there before.”There’s no point building assets now that will be of no use in a few years, said Frans Timmermans, the European Commission’s executive vice-president. Europe can skip the transition and go straight to clean assets by spending on the right projects now, he said.“We need to make the investments to create sustainable societies,” he said. “That capital, not spent well, will create stranded assets very soon, and we will put unbearable financial burden on the shoulders of our children.”U.S. TransitionIn the U.S., progress likely will be slower since there’s no federal mandate for a transition from fossil fuels to renewable power. Gas is superabundant and cheap, thanks to the country’s fracking boom, which has helped hasten the demise of coal.By 2016, gas was the country’s dominant power source."Everyone is talking about it in terms of a transition, not a cliff,” said Ryan Wobbrock, a senior credit officer at Moody's Investors Service. “At this point, it would be very difficult to completely disentangle that system.’’But now there are indications that demand in the U.S. is topping out decades ahead of schedule with cheaper renewables and net zero moving up the agenda for utilities. Renewables could become the leading power sources on U.S. grids by 2028, Morgan Stanley said last year.President Joe Biden’s $2.25 trillion infrastructure and energy plan includes incentives for renewables and a massive transmission grid build out that could speed up the transition away from fossil fuels.Progress on carbon capture technology could throw a lifeline to gas, meaning that stations could serve as backup when there’s a dearth of sun, wind or hydropower. Some energy companies are focusing on making sure that gas can keep operating, rather than ridding their portfolios of the fuels.“Getting the flexibility to deal with the variability in renewables production is really, really difficult if you don’t have any gas-fired generation,” said Benjamin Collie, a principal for commissioned projects at Aurora Energy Research Ltd. in Oxford.European Gas demand is still expected to grow by 3% this year, according to the International Energy Agency.At least in the short term. The European Investment Bank, for one, will end all financing for fossil fuels in December.“To put it mildly, gas is over,” EIB President Werner Hoyer said during a January press conference. “Without the end to the use of unabated fossil fuels, we will not be able to reach the climate targets.’’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.
NINGBO, China/BEIJING (Reuters) -Chinese automaker Geely, owner of Volvo Cars, on Thursday launched a high-end electric vehicle (EV) brand named Zeekr, targeting China's growing appetite for premium EVs that has boosted sales for Tesla and Chinese peer Nio. Parent Zhejiang Geely Holding Group and Geely Automobile said last month they would jointly invest 2 billion yuan ($306 million) in the new venture, seeking to position Zeekr as a startup under Geely group, also known overseas for its 9.7% stake in Germany's Daimler AG. The price tags for Zeekr cars will be around 300,000 yuan, and Flynn Chen, Zeekr's vice president, said the brand will explore new sales and marketing methods, including allowing customers to subscribe to car-using rights and offering a stake in the company to car buyers.
The approval comes just over two months after Canada approved its first bitcoin ETF.
An HSBC representative said the bank has “limited appetite to facilitate products or securities that derive their value from virtual currencies.”
The S&P 500 scored its second closing high this week, and the Dow surpassed its previous peak on April 9. The Nasdaq Composite finished above 14,000 for the first time since Feb. 16 and is now down less than 1% from its Feb. 12 record high ending. The S&P information technology sector also hit an all-time high.
Grab Holdings, Southeast Asia's ride-hailing to delivery giant, is considering a secondary listing in its home market of Singapore after completing a Nasdaq listing via a $40 billion SPAC merger, three sources familiar with the matter said. Listing on Singapore Exchange would enable Grab to have an investor base close to where its regional business is based, the people said, potentially offering its customers, drivers and merchant partners easier access to trade its shares.
(Bloomberg) -- Brevan Howard Asset Management is preparing to start investing in digital assets, becoming the latest money manager seeking to exploit the cryptocurrency boom.The firm led by Aron Landy will begin by investing up to 1.5% of its $5.6 billion main hedge fund in digital assets, according to a person with knowledge of the matter. The initial allocation will be overseen by Johnny Steindorff and Tucker Waterman, co-founders of crypto investment firm Distributed Global, the person said, asking not to be identified because the information is private.A spokesman for Jersey-based Brevan Howard declined to comment.The move is the latest signal that cryptocurrencies are going mainstream as Brevan Howard joins the likes of billionaire hedge fund managers Paul Tudor Jones and Marc Lasry in betting on digital assets. Only on Wednesday, crypto exchange Coinbase Global Inc. went public and hit a valuation above $112 billion.Brevan Howard’s fund will bet on the rising values of digital assets, and will focus on a wide range beyond just Bitcoin, the person said.Familiar GroundBrevan Howard is no stranger to digital assets. Co-founder Alan Howard invests his personal money into cryptocurrencies and the firm recently acquired a 25% stake in One River Asset Management, a $2.5 billion firm whose cryptocurrency funds are backed by Howard.The billionaire has been an investor in Distributed Global since early 2018, the person said. That firm also runs a crypto venture capital fund in partnership with Singapore’s Temasek Holdings Pte. All trading will take place through Elwood Asset Management, an affiliate platform started by Howard four years ago, the person said.Bitcoin has more than doubled this year, boosting the market for cryptocurrencies past $2 trillion, while the entry of big financial institutions into the space has been one of the biggest trends in the industry over the past few months. Tesla Inc. now accepts Bitcoin for its electric vehicles, and the company disclosed a $1.5 billion investment in the currency earlier this year.Both Morgan Stanley and Goldman Sachs Group Inc. have also announced plans to offer clients access to crypto investments.On its part, Brevan Howard had been developing its digital trading technologies and assessing the sector’s suitability for investors for the last few years, according to the person. It decided in the fourth quarter of last year that the industry had matured enough for it to deploy a small part of clients cash.Brevan Howard, best known for its macro trading prowess, is in expansion mode following a record year of gains. Investors who abandoned the firm amid years of mediocre returns are coming back: Assets that collapsed by over 80% from their peak to about $6 billion two years ago have since rebounded to above $13 billion.The firm’s main fund is run by a group of traders including Howard himself, Fash Golchin, Alfredo Saitta and Minal Bathwal. It gained 27.4% last year in its best annual return since 2003.(Updates with industry background in 8th 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.
Gold prices rose to a seven-week high on Friday and were on track for their best week since mid-December as retreating U.S. Treasury yields and a softer dollar bolstered the metal's appeal. Spot gold jumped 0.9% to $1,779.00 per ounce by 10:26 a.m. EDT (1426 GMT), having earlier hit its highest since Feb. 25 at $1,783.55. "We've had many investors abandon some positions because of some extreme technical selling we saw with Treasury yields and that has really provided a strong backdrop here for gold prices to continue to appreciate."
Australian shares closed near 14-month highs as upbeat economic data from the US and China supported hopes of a global economic recovery.
(Bloomberg) -- It’s been 11 weeks since Lai Xiaomin, the man once known as the God of Wealth, was executed on a cold Friday morning in the Chinese city of Tianjin.But his shadow still hangs over one of the most dramatic corruption stories ever to come out of China – a tale that has now set nerves on edge around the financial world.At its center is China Huarong Asset Management Co., the state financial company that Lai lorded over until getting ensnared in a sweeping crackdown on corruption by China’s leader, Xi Jinping.From Hong Kong to London to New York, questions burn. Will the Chinese government stand behind $23.2 billion that Lai borrowed on overseas markets -- or will international bond investors have to swallow losses? Are key state-owned enterprises like Huarong still too big to fail, as global finance has long assumed – or will these companies be allowed to stumble, just like anyone else?The answers will have huge implications for China and markets across Asia. Should Huarong fail to pay back its debts in full, the development would cast doubt over a core tenet of Chinese investment: the assumed government backing for important state-owned enterprises, or SOEs.“A default at a central state-owned company like Huarong is unprecedented,” said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group. Should one occur, he said, it would mark “a watershed moment” for Chinese and Asian credit markets.Not since the Asian financial crisis of the late 1990s has the issue weighed so heavily. Huarong bonds -- among the most widely held SOE debt worldwide -- recently fell to a record low of about 52 cents on the dollar. That’s not the pennies on a dollar normally associated with deeply troubled companies elsewhere, but it’s practically unheard of for an SOE.Fears of a near-term default eased on Thursday after the company was said to have prepared funds for full repayment of a S$600 million ($450 million) offshore bond due April 27. Huarong plans to pay on the due date, according to a person familiar with the matter, who asked not to be named discussing private information.That’s a drop in the ocean and won’t remove investor concerns. All told, Huarong owes bondholders at home and abroad the equivalent of $42 billion. Some $17.1 billion of that falls due by the end of 2022, according to Bloomberg-compiled data.Bad BankIt wasn’t supposed to be this way. Huarong was created in the aftermath of the ‘90s Asian collapse to avert another crisis, not cause one. The idea was to contain a swelling wave of bad loans threatening Chinese banks. Huarong was to serve as a “bad bank,” a safe repository for the billions in souring loans made to state companies.Along with three other bad banks, Huarong swapped delinquent debts for stakes in hundreds of big SOEs and, in the process, helped turn around chronic money-losers like the giant China Petroleum & Chemical Corp.After Lai took over in 2012, Huarong reached for more, pushing into investment banking, trusts, real estate and positioning itself as a key player in China’s $54 trillion financial industry.Before long, global banks came knocking. In 2013, for instance, Shane Zhang, co-head of Asia-Pacific investment banking at Morgan Stanley, met with Lai. Zhang said his company was “very optimistic” about the future of Huarong, according to a statement posted on Huarong’s website at the time.Before Huarong went public in Hong Kong in 2015, it sold a $2.4 billion stake to a group of investors including Warburg Pincus, Goldman Sachs Group Inc., and Malaysia’s sovereign wealth fund. BlackRock Inc. and Vanguard Group acquired lots of stock too, according to data compiled by Bloomberg. The stock has collapsed 67% since its listing.Lai had no trouble financing his grand ambitions. A big reason: Everyone thought Beijing would always stand behind a key company like Huarong. It easily borrowed money in the offshore market at rates as low as 2.1%. It borrowed still more in the domestic interbank market. Along the way Lai transformed Huarong into a powerful shadow lender, extending credit to companies that banks turned away.The truth was darker. Lai, a former senior official at the nation’s banking regulator, doled out loans with little oversight from his board or risk management committee.One Huarong credit officer said Lai personally called the shots on most of the offshore corporate loans underwritten by her division.Money also flowed to projects disguised as parts of China’s push to build railroads, ports and more around the world – the so-called Belt and Road Initiative, according to an executive at a state bank. Huarong didn’t immediately reply to questions on its lending practices.Given Lai’s fate, both people spoke on the condition of anonymity.Huarong snapped up more than half of the 510 billion yuan in distressed debts disposed of by Chinese banks in 2016. At its peak, Lai’s sprawling empire had almost 200 units at home and abroad. He boasted in 2017 that Huarong, having reached the Hong Kong stock exchange, would soon go public in mainland China, too.The IPO never happened. Lai was arrested in 2018 and subsequently confessed to a range of economic crimes in a state TV show. He spoke of trunk-loads of cash being spirited into a Beijing apartment he’d dubbed “the supermarket.” Authorities said they discovered 200 million yuan there. Expensive real estate, luxury watches, art, gold – the list of Lai’s treasure ran on.This past January, Lai was found guilty by the Secondary Intermediate People’s Court in Tianjin of accepting of $277 million in bribes between 2008 and 2018. He was put to death three weeks later – a rare use of capital punishment for economic crimes. Some took the execution as a message from China’s leader, Xi Jinping: my crackdown on corruption will roll on.At Huarong, the bottom has fallen out. Net income plummeted 95% from 2017 to 2019, to 1.4 billion yuan, and then sank 92% during the first half of 2020. Assets have shriveled by 165 billion yuan.The company on April 1 announced that it would delay its 2020 results, saying its auditor needed more time. The influential Caixin magazine this week openly speculated about Huarong’s fate, including the possibility of bankruptcy. Its credit outlook was put on review for a potential downgrade by all three top rating firms.According to people familiar with the matter, Huarong has proposed a sweeping restructuring. The plan would involve offloading its money-losing, non-core businesses. Huarong is still trying to get a handle on what those businesses might be worth. The proposal, which the government would have to approve, helps explain why the company delayed its 2020 results, the people said.Company executives have been meeting with peers at state banks to assuage their concerns over the past two weeks, a Huarong official said.The Chinese finance ministry has raised another possibility: transferring its stake in Huarong to a unit of the nation’s sovereign wealth fund that could then sort out the assorted debt problems. Regulators have held several meetings to discuss the company’s plight, according to people familiar with the matter.In an emailed response to questions from Bloomberg, Huarong said it has “adequate liquidity” and plans to announce the expected date of its 2020 earnings release after consulting with auditors. China’s banking and insurance regulator didn’t immediately respond to a request seeking comment on Huarong’s situation.News the company aims to repay a note due this month helped its bonds rebound from record lows on Thursday. It’s not just about cost of funding though, said Thu Ha Chow, a portfolio manager at Loomis Sayles Investments Asia in Singapore. For Huarong to access the market it will need “a clear and definitive commitment,” from China’s finance ministry toward the offshore debt or clarity on a restructuring, she said.One thing is sure: Huarong is part of a much bigger problem in China. State-owned enterprises are shouldering the equivalent of $4.1 trillion in debt, and a growing number of them are struggling to keep current with creditors. In all, SOEs reneged on a record 79.5 billion yuan of local bonds in 2020, lifting their share of onshore payment failures to 57% from just 8.5% a year earlier, according to Fitch Ratings. The figure jumped to 72% in the first quarter of 2021.The shockwaves from Huarong and these broader debt problems have only begun to reverberate through Chinese finance. Dismantling all or part of Lai’s old empire would show Beijing is willing to accept short-term pain to instill financial discipline among state-owned enterprises.The irony is that Huarong was supposed to fix China’s big debt problem, not cause a new one.“Allowing a state-owned financial institution that undertook the task of resolving troubles of China’s financial system to fail is the worst way to handle risks,” said Feng Jianlin, a Beijing-based chief analyst at research institute FOST. “The authorities must consider the massive risk spillover effects.”(Updates with Loomis Sayles comment in final section)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) -- After a historic antitrust crackdown on China’s biggest tech companies last week, investors are betting there is more pain ahead.GAM Investments, BNP Paribas Asset Management and JP Morgan Asset Management Inc. see more regulatory tightening in China’s clampdown on monopolistic practices, putting pressure on the country’s leading internet stocks over the next few months. The Hang Seng Tech Index, where many Chinese tech giants are listed, has already lost about a quarter of its value from a rout that began mid-February.The shockwaves from Beijing’s bid to quell abuses of information and market dominance among industry leaders have left global investors pondering the prospects of China’s internet firms. The antitrust crackdown has exacerbated a global tech selloff sparked by rising bond yields, as traders forecast tighter liquidity conditions at home and abroad and lower company valuations.“Regulations for China internet companies, especially the big ones, will continue to tighten in 2021,” said Marcella Chow, global market strategist at JP Morgan Asset. “This uncertainty may act as a cap for some companies temporarily.”China slapped a record $2.8 billion fine on Alibaba Group Holding Ltd. after a four-month long investigation into the e-commerce giant’s market practices, then ordered an overhaul of Ant Group Co. Over the past week, more than 30 tech giants issued pledges to obey antitrust laws after Beijing gave them a month to conduct reviews and comply with government guidelines.READ: Jack Ma’s Double-Whammy Marks the End of China Tech’s Golden AgeAlibaba shares have slumped 23% in Hong Kong from a peak in October. Food delivery platform Meituan and tech giant Tencent Holdings Ltd., which have been on analyst radars for regulatory probes, are down 36% and 18%, respectively, from their peaks earlier this year. By contrast, the Nasdaq 100 index is up more than 8% this year despite entering a technical correction in March.Looking ahead, China’s tech companies are likely to move far more cautiously on acquisitions, over-compensate on getting signoffs from Beijing, and levy lower fees on the domestic internet traffic they dominate. This coincides with some facing delisting threats and sales curbs in the U.S., and others reverberating from a selloff sparked by Archegos Capital Management.Valuations too are serving as a deterrent for investors. Even after its decline, the Hang Seng Tech Index is trading at about 38 times its 12-month earnings estimates versus the 29 times multiple of its American counterpart.“We have already applied a valuations discount to the whole Chinese internet sector to factor in higher regulation risks,” said Jian Shi Cortesi, a Zurich-based fund manager at GAM. The $132 billion asset manager has reduced its exposure to the sector in the past few months amid high valuations, she added.Keep the FaithThat said, Beijing has moved far faster with its antitrust reforms than the U.S. and Europe have in similar efforts. The landmark case against Microsoft Corp.’s alleged software monopoly took more than half a decade of back-and-forth before settling in 2004. Current hearings involving U.S. tech titans from Google to Facebook Inc. span several fronts, multiple cases and plaintiffs, and may not see the inside of a courtroom for years to come.In contrast, Beijing regulators torpedoed Ant’s IPO the month after Ma’s infamous speech, published new rules shortly after intended to curb monopolistic practices across its internet landscape, then launched its probe into Alibaba on Christmas Eve.“Clarity reduces uncertainty, so this is a positive,” said Joshua Crabb, a portfolio manager at Robeco in Hong Kong.That has helped give investors more optimism for the long term. Money managers see the potential for tech companies to boost earnings as digital technologies catch on for everything from e-commerce and entertainment to social media, a trend that has been accelerated by the pandemic.Meanwhile, mainland traders have kept the faith. They still hold about 6.5% stake in Tencent, the highest in at least three years, according to calculations by Bloomberg based on exchange data.“Post this round of regulation scrutiny, we believe the Chinese internet industry will resume healthy growth,” GAM’s Cortesi said.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) -- Taiwan Semiconductor Manufacturing Co. warned that a global shortage of semiconductors across industries from automaking to consumer electronics may extend into 2022, prompting the linchpin chipmaker to lift targets on spending and growth for this year.The world’s largest contract chipmaker said Thursday that its auto industry clients can expect chip shortages to begin easing next quarter, alleviating some of the supply disruptions that have forced the likes of General Motors Co. and Ford Motor Co. to curtail production. But overall deficits of critical semiconductors will last throughout 2021 and potentially into next year, Chief Executive Officer C.C. Wei told analysts on a conference call.TSMC now expects investments of about $30 billion on capacity expansions and upgrades this year, up from a previous forecast for as much as $28 billion, Chief Financial Officer Wendell Huang said. It foresees sales in the June quarter at a better-than-projected $12.9 billion to $13.2 billion, driving full-year revenue growth of 20% in dollar terms -- ahead of the “mid-teens” growth predicted in January.But the increased spending means its target for gross margins this quarter came in below expectations at 49.5% to 51.5%, spurring concerns about the longer-term impact on profitability. TSMC’s shares slipped 1.8% in Taipei on Friday, their biggest intraday loss in about three weeks.“The capex boost is a mixed bag with better long-term growth but lower margins,” Morgan Stanley analysts wrote.What Bloomberg Intelligence SaysLarge depreciation costs from new 5-nm production equipment may lower gross margin by 2%, while slower-than-expected production efficiency improvement implies that gross margin will continue to contract, possibly to under 50% in 2Q.- Charles Shum and Simon Chan, analystsClick here for the research.TSMC joins a growing number of industry giants from Continental AG to Renesas Electronics Corp. and Foxconn Technology Group that warned of longer-than-anticipated deficits thanks to unprecedented demand for everything from cars to game consoles and mobile devices. While Taiwan’s largest chipmaker has kept its fabs running at “over 100% utilization,” the firm doesn’t have enough capacity to satisfy all its customers and it has pledged to invest $100 billion over the next three years to expand.“We see the demand continue to be high,” Wei said. “In 2023, I hope we can offer more capacity to support our customers. At that time, we’ll start to see the supply chain tightness release a little bit.”Read more: See How a Chip Shortage Snarled Everything From Phones to CarsSemiconductor shortages are cascading through the global economy. Automakers like Ford, Nissan Motor Co.and Volkswagen AG have already scaled back production, leading to estimates for more than $60 billion in lost revenue for the industry this year. The situation is likely get worse before it gets better: a rare winter storm in Texas knocked out swaths of U.S. production, while a fire at a key Japan factory will shut the facility for a month. Rival chipmaker Samsung Electronics Co. warned of a “serious imbalance” in the industry.With major American carmakers and other gadget suppliers facing a prolonged shortage of chips, U.S. President Joe Biden has proposed $50 billion to bolster semiconductor research and manufacturing at home. The initiative could aid TSMC’s plan to build a cutting-edge fab in Arizona this year that could cost $12 billion.TSMC is “happy” to support chip manufacturing in the U.S., though research and development and the majority of production will continue to remain in Taiwan, executives said on Thursday. They reiterated that construction of their plant in Arizona will begin this year.Read more: Why Shortages of a $1 Chip Sparked Crisis in Global EconomyNet income for the January-March period climbed 19% to NT$139.7 billion ($4.9 billion), beating the average analyst estimate, buoyed by demand for high-performance computing (HPC) equipment and a milder seasonal effect on smartphone demand. Gross margin for the quarter eased to 52.4% from 54% in the three months prior, due in part to relatively lower levels of utilization and exchange-rate fluctuations. First-quarter revenue rose 17% to NT$362.4 billion, according to a company statement last week.The company said Thursday it now expects to be able to achieve the higher end of its compound annual growth rate target of 10% to 15% for the five years to 2025, citing its investment spending plans.“TSMC’s statement that the chip crunch may spill into 2022 will smooth over concerns that chip demand may fall on overbooking later this year and further boost investors’ confidence in the overall semiconductor demand in the long run,” said Elsa Cheng, an analyst at GF Securities.Shares of TSMC have more than doubled over the past year.TSMC’s most-advanced technologies continued to account for nearly half of revenue in the March quarter, with 5-nanometer and 7-nanometer processes contributing 14% and 35% of sales, respectively. By business segment, its smartphone business amounted for about 45% of revenue, while HPC increased to more than a third, reflecting sustained demand for devices and internet servers even as economies start to emerge from the pandemic.“We are seeing stronger engagement with more customers on 5-nm and 3-nm, in fact the engagement is so strong that we have to really prepare the capacity for it,” Wei said. Smartphones and HPC will be the main drivers for demand of 5-nm, which will contribute around 20% of wafer revenue this year.TSMC Is On Fire. Just Beware of the Flames: Tim Culpan(Updates with share action from the fourth 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.
Grab Holdings, Southeast Asia's ride-hailing to delivery giant, is considering a secondary listing in its home market of Singapore after completing a Nasdaq listing via a $40 billion SPAC merger, three sources familiar with the matter said. Listing on Singapore Exchange would enable Grab to have an investor base close to where its regional business is based, the people said, potentially offering its customers, drivers and merchant partners easier access to trade its shares. Grab, a household name across Southeast Asia, is in the early stages of considering a secondary listing in the city-state, said the sources, who declined to be identified as they were not authorised to speak about the matter.
(Bloomberg) -- Turkey’s central bank left its benchmark interest rate unchanged but removed a pledge to deliver additional tightening in the first monetary policy meeting under its newly appointed governor.The Monetary Policy Committee held its key rate at 19% Thursday, in line with the forecasts of most analysts in a Bloomberg survey.While the decision matched market expectations, the bank’s omission of an earlier pledge to keep monetary policy tight and even deliver additional rate hikes if needed weighed on the lira. The currency reversed earlier gains and was trading 0.5% lower at 8.1226 per dollar at 3:01 p.m. in Istanbul.Abandoning the earlier hawkish language, the monetary authority said it “has decided to maintain the tight monetary policy stance by keeping the policy rate unchanged.”Balancing ActFew minutes of volatility in the currency immediately after Thursday’s decision highlights the challenge facing Governor Sahap Kavcioglu, who was installed after President Recep Tayyip Erdogan abruptly fired his predecessor following a bigger-than-expected rate increase.Many investors perceive the new governor to be under pressure to reduce borrowing costs to boost growth. Although Kavcigolu has said he would not rush to loosen the stance he inherited, the changes in the rates decision prompted further speculation that rate cuts might be imminent.“The language also suggests that they are looking for opportunities to lower interest rates,” said William Jackson, chief emerging markets economist at Capital Economics. He also noted there were “reassuring” comments by the bank in the rest of the decision.Jackson’s Capital Economics and HSBC Bank were the only dissenters in the Bloomberg survey, predicting the meeting would deliver a reduction of 200 and 50 basis points, respectively.In a written interview with Bloomberg after his appointment last month, Kavcioglu said markets shouldn’t view a rate cut at the April 15 Monetary Policy Committee meeting as a given, easing some concerns among investors.Turkey raised its benchmark by 200 basis points on March 18, at Naci Agbal’s final rate-setting meeting as governor, elevating the key rate adjusted for inflation to one of the world’s highest. A professor of banking, Kavcioglu was among the critics of that move, saying it could damage economic growth.Last week, Erdogan said the government was determined to both reduce inflation and cut interest rates to single digits, prompting a slide in the lira. The currency has weakened more than 10% against the dollar since the unexpected appointment of Kavcioglu. Foreign investors sold a net $1.2 billion in Turkish equities and similar amount of government bonds and the benchmark Borsa Istanbul 100 Index slid 8% during the same period.Inflation accelerated to an annual 16.2% through March, up from 15.6% the previous month because of a global oil rally and weaker currency, leaving the new central bank chief little room to enact the interest-rate cuts that would mollify Erdogan, who holds the unorthodox view that high interest rates cause inflation.(Updates with more details from the central bank statement, analyst comments.)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) -- Alcoa Corp. gained the most in more than two years after reporting first-quarter earnings that beat analysts’ expectations, with aluminum prices surging and the company projecting further strength as economies reopen.Shares in the biggest U.S. maker of the metal climbed as much as 9.7% to the highest since November 2018. The stock gained 8.4% to $35.59 at 3:44 p.m. in New York.Alcoa was already on a roll before reporting earnings late Thursday, with shares jumping six-fold from a pandemic low last year. Aluminum demand is rising just as China, the largest producer of the metal, pushes to cut carbon emissions, spurring expectations the Asian nation will curb supply expansions. Alcoa told analysts Thursday it will continue to focus on paying down net debt with cash on hand, and that it expects to get within its target range this year.“With pricing tailwinds continuing, we expect Alcoa’s results to improve further,” David Gagliano, an analyst at BMO Capital Markets, said in a note to clients. “Alcoa is rapidly approaching the high end of its net debt target range, in turn opening the door for possible shareholder returns later in 2021 in our view.”The Pittsburgh-based company said in its earnings statement that it expects a strong 2021 based on continued economic recovery and increased demand for aluminum in all end markets. Alcoa Chief Executive Officer Roy Harvey said last month that China is taking meaningful steps to rein in production, calling it a “game-changer” for the industry after years of gluts.Benchmark aluminum prices surged 25% from the end of September through March, marking the biggest gain over that period since 2006.Alcoa reported earnings before interest, taxes, depreciation, and amortization of $521 million, topping the $450.8 million average of six analysts’ estimates compiled by Bloomberg and the highest since 2018. Sales rose to $2.87 billion, compared with the $2.62 billion analysts had forecast.(Updates with share price movement and analyst comment)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) -- Not even a week’s worth of evidence that the U.S. economy is roaring back from the pandemic has been able to derail the concerted rally sweeping stocks and bonds.The S&P 500 Index gained alongside 30-year Treasury bonds for a fourth straight week, the longest in-tandem rally since August 2008, according to data compiled by Bloomberg. The Nasdaq 100 Index also rose for a fourth week, two months after a spike in rates sent high-valuation tech shares spiraling as investors priced in an economic boom.It was anything but guaranteed that blowout data would juice demand for both assets, particularly after the March selloff that sent rates to multiyear highs. Instead, when retail sales and jobless claims shattered forecasts, benchmark 10-year Treasuries rallied the most since August. Breakeven inflation rates barely budged, clearing the way for investors to rediscover their affinity for megacap tech stocks.That Treasuries took the data in stride suggests investors may be pricing in a more “normalized” growth environment ahead, according to John Hancock Investment Management’s Emily Roland. That’s different from prior expectations for a supercharged economic boom that some feared would spark runaway inflation that would dent demand for long-term bonds and threaten corporate profits.“It’s almost as if it just can’t get any better than this, because at the same time you have inflationary pressures that are remaining contained,” Roland, the firm’s co-chief investment strategist, said on Bloomberg Television. “Awesome economic data, inflationary pressures remain contained, and you’re seeing this nice favorable reaction from the stock market.”The S&P 500 rose 1.4% in the five days to end at a record. The Dow Jones Industrial Average added 1.2% and the Nasdaq 100 gained 1.4%. Both closed at all-time highs. Ten-year Treasury yields hovered near 1.6%, 17 basis points below the late-March peak.The revival in megacap tech shares has come at the expense of one of 2021’s highest conviction trades: the rotation into industries that will benefit most from the economic revival. A flurry of vaccine breakthroughs in early November sent billions flowing into financials and industrials -- some of the heaviest weightings in value benchmarks.However, after markets mobilized to rapidly reprice the growth environment, that momentum is faltering. While the Russell 1000 Value Index is still outperforming the Nasdaq 100 by 5.9% year-to-date, the tech benchmark is leading by 3.2% over the past month.It’s the same story on a sector level. Year-to-date, energy and financials are well ahead of the pack with gains of 28% and 20%, respectively. Those same groups are bringing up the rear over the past month, while tech jockeys with utilities and makers of non-essential consumer goods for the top spot.Whether cyclical shares are at an inflection point or simply hitting an air pocket remains to be seen. In the eyes of National Securities Corp.’s Arthur Hogan, the shifting stock leadership has more to do with the rotation trade getting stretched than it has to do with any fundamental economic news.“We’re seeing a rotation back into old-school technology stocks that have earnings and out of some of those economically sensitive areas,” said Hogan, chief market strategist at National Securities Corp. “We had a very extended rotation from out typical growth, call it, and into more economically sensitive cyclical, and with that getting extended, I certainly think that’s causing a bit of rotation into things that had been ignored for a bit.”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) -- Bank of America Corp.’s traders and investment bankers joined their Wall Street rivals in capitalizing on the stock market’s wild ride this year, but that wasn’t enough to satisfy investors also looking for more lending activity.Shares fell as much as 4.2% Thursday -- their biggest intraday decline in five months -- after the company reported a decline in loan balances and its executives said higher costs from the pandemic would persist for longer than expected.“Like all banks, BofA is waiting for loan growth, which was weak this quarter,” said Alison Williams, a Bloomberg Intelligence analyst. “Higher expenses are likely a disappointment.”The company’s stock slid even after it reported a 17% surge in revenue from sales and trading in the first quarter, a bigger jump than expected, while equity underwriting fees more than tripled. The results echo blockbuster profits at JPMorgan Chase & Co. and Goldman Sachs Group Inc., which benefited from increased trading amid stock-market volatility and a flurry of activity by blank-check companies.As the Covid-19 pandemic drags on, U.S. banking giants have remained resilient. Their Wall Street operations picked up the slack for other divisions, bringing in deal fees and activity from clients who were reacting to financial-market gyrations. Main Street units fared worse, as millions of Americans lost their jobs and businesses were shuttered. But there are some indications that consumers are starting to spend again as the vaccine rollout and stimulus efforts help the economic revival pick up steam.“We see an accelerating recovery” that has “gained momentum and continues to be supported by fiscal monetary policies,” Chief Executive Officer Brian Moynihan told analysts on a conference call. “We remain highly focused on capturing loan growth as the economy expands and continues to recover.”Bank of America’s fixed-income traders delivered a 22% climb in revenue, while its stock desks saw a 10% increase. The overall jump didn’t reach the blowout numbers that JPMorgan and Goldman Sachs announced Wednesday, but the bank’s total haul of $5.1 billion beat analysts’ $4.37 billion forecast.Investment-banking fees climbed more than 60% to a record $2.25 billion, led by a surge in equity-underwriting fees to $900 million.The bank’s net interest income, or revenue from customer loan payments minus what the company pays depositors, decreased 16% to $10.2 billion. Loans in the consumer banking unit dropped 8%.“We believe 4Q 2021 NII could rise as much as $1 billion from this quarter’s level,” Chief Financial Officer Paul Donofrio told analysts.Noninterest expenses rose 15% to $15.5 billion, driven by costs linked to the coronavirus, compensation changes and charges for shrinking the bank’s real estate footprint.“Obviously we’re sitting here in the middle of a pandemic with a lot of Covid expenses that have been a little more sticky than we had all hoped, but they’re going to come out -- there’s no question about that,” said Donofrio, who fielded several analyst questions about costs during the earnings call.The bank joined rivals in releasing reserves as the worst-case pandemic scenarios didn’t play out. It released $2.7 billion from its stockpile last quarter after stashing away more than $11 billion last year to cover loans likely to sour. Reserves will probably decline in coming quarters as the economy gets back on track and uncertainty eases, Donofrio told reporters on an earlier conference call.Client balances in the Merrill Lynch Wealth Management business surged 32% to a record $2.9 trillion, while assets under management jumped 36% to $1.1 trillion.Also in the first-quarter results:Net income rose to $8.05 billion from $4.01 billion a year earlier. It exceeded the $6.25 billion estimate of 13 analysts. Per-share earnings of 86 cents beat analysts’ 66-cent forecast.Total revenue increased slightly to $22.8 billion.Bank of America also said Thursday that it plans to boost its capital returns once restrictions from the Federal Reserve are lifted. The bank’s board authorized $25 billion of stock buybacks over time.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.
Gold is rallying because U.S. Treasury yields are trading lower, despite strong weekly jobless claims and booming monthly retail sales data.