Chinese regulators tell Evergrande to avoid a near-term default. India plans a military overhaul. China wants to remake Macau. Here’s what you need to know today.
Chinese regulators told Evergrande to avoid a near-term default on dollar bonds, and to focus on completing unfinished projects and repaying individual investors. The developer has an $83.5 million coupon due Thursday, with a 30-day grace period to make the payment. Its EV unit has missed salary payments to some employees and has fallen behind on paying several suppliers for factory equipment. Meanwhile, European bankers have spent the past few days reassuring investors, clients and regulators about any fallout from the indebted developer. Still in the dark about the Evergrande crisis? Here’s why everyone is talking about it.
Asian stocks look set for a steady open after U.S. shares rallied and sovereign bond yields surged on economic optimism and easing fears of contagion from the Evergrande crisis. Futures rose in Japan, were little changed in Australia and dipped in Hong Kong. The S&P 500 posted its biggest two-day gain since July, as investors embraced the view that a looming reduction in Federal Reserve stimulus affirms the recovery from the pandemic. The prospect of tighter monetary policy spurred a global selloff in bonds, the dollar and yen declined, oil advanced and gold retreated.
The Biden administration is considering invoking a Cold War-era national security law to force companies in the semiconductor supply chain to provide information on inventory and sales of chips, Commerce Secretary Gina Raimondo said. The goal is to alleviate bottlenecks that have idled U.S. car production and caused shortages of consumer electronics and to identify possible hoarding. Previously, many companies have refused to hand over business data to the government. The production act gives the president broad authority to direct industrial production in crises. Here’s all you need to know about the global chip crisis. Meanwhile, the European Commission confirmed that the inaugural meeting of a new trade council with the U.S. will go ahead as planned after France sought to have it postponed
India’s long-delayed plans to overhaul its military are getting a new life as Prime Minister Narendra Modi’s government moves closer to the U.S. and its allies, which are strengthening defense cooperation against China. Modi, who will attend a meeting of Quad leaders at the White House Friday along with Australia’s Scott Morrison and Japan’s Yoshihide Suga, is taking steps to undertake the biggest reorganization of India’s military since independence in 1947. The moves to integrate the army, air force and navy come as the U.S. and U.K. work with Australia to put more nuclear-powered submarines in Asia-Pacific waters.
China’s crackdown on Macau’s gambling industry came as a shock to many, triggering a record selloff in casino shares. But to long-term observers it was just the latest move in China’s grand plan to transform the $24 billion economy. Now, the government wants to see the former Portuguese colony drop its decades-long identity as a casino Mecca to become a global leisure and tourism hub — think sports stadiums, convention centers and traditional Chinese medicine parks, instead of yet more baccarat tables.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here’s what Cormac’s interested in today
The rising wall of worry in global markets — from the Evergrande debt crisis to the Fed's plans for tapering — seems almost specifically designed to target emerging-market stocks and investors are reacting accordingly. Hedge funds are growing increasingly bearish with leveraged fund positions on futures linked to the MSCI Emerging Markets Index flipping net short for the first time in more than a year, according to the latest data from the Commodity Futures Trading Commission. And data from Bank of America this week showed long-only funds have been reducing their active exposure to EM all year, with recent outflows concentrated in China.
Investors have legitimate fears about the impact a restructuring of a firm with about 2 trillion yuan in assets — equivalent to 2% of China’s gross domestic product — would have on the world's second-largest economy, which is already slowing. They also remember the 2013 tantrum, when the EM stocks gauge fell 14% in the month after then-Fed Chair Ben Bernanke’s taper comments. Before this week's volatility, the index had underperformed its developed-markets peer by about 16 percentage points so far in 2021. That's a lot to claw back with just over three months left in the year.
- Cormac Mullen is a markets reporter and editor for Bloomberg News in Tokyo.
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