☀️☕️ China: Property, Zhongzhi, More Holes

📝 Focus

• China, Property, Zhongzhi, More Holes

📊 In the Markets

• Roasting Türkiye

📖 MoneyFitt Explains

🎓️ Shadow Banking

💸 Personal Finance Corner

• Benefits of Shareholdership & Categorising Stocks in the Stock Market

📝 Focus

China: Property, Zhongzhi, More Holes

Chinese wealth management group Zhongzhi notified investors of a liquidity gap of Rmb220bn - Rmb260bn ($31bn - $36bn), with total assets of Rmb200bn compared to debts, including interest, totalling Rmb420 - Rmb460bn ($58bn - $64bn). In perspective, Country Garden and Evergrande had holes of about $200bn and $300bn, give or take about the amount Zhongzhi just announced. 

Zhongzhi, which has about a trillion yuan in assets under management, attributed the crisis to the sudden death of its founder in 2021 and emphasised his pivotal role in the company and mismanagement by his nephew, successor and scapegoat after his death. Whatever. 

As we reported almost exactly three months ago, troubles at Zhongzhi first emerged when Zhongrong International Trust Co, which is controlled by Zhongzhi, missed payments on numerous investment products in July. Zhongzhi began missing payments in August. Now audited by KPMG, a Big Four accounting firm, Zhongzhi is seeking strategic investors. Anyone? Anyone?

..... ▷ The (once?) well-connected firm diversified from timber and real estate to businesses like chipmaking and finance. 

Its financial arms include trust, asset management, insurance, futures, and wealth management. 

The company faces difficulties retrieving funds due to property-related asset issues, highlighting the high default risks associated with the trust's underlying assets. 

.... ▷ China's indebted property sector has grappled with a liquidity crisis since 2020. 

Defaults by developers have held back economic growth and affected global markets, though in recent weeks Beijing has been pressuring state banks to accelerate lending to private developers. Several big names like Country Garden, Vanke and Longfor are in the 50-developer draft “white list” of firms eligible for various financing support measures. 

Zhongzhi, operating in China's shadow banking space, directed retail investors' wealth product funds to various sectors, including real estate.

..... ▷ Zhongzhi's crisis puts the focus back on China's massive $3 trillion shadow banking 🎓 sector (often compared to the size of the entire French economy) raising contagion fears, though many China watchers anticipate (or hope) that intervention from Beijing will curb wider fallout.

Despite potential intervention, concerns persist over investors receiving full reimbursements, which will have knock-on effects on the real economy as well as the financial sector. 

🇸🇬 Singapore: Let’s Get MoneyFitt!

Plus: We Have Exciting News of a New Partnership!

📊 In the Markets

Asia-Pacific markets were firm on Wednesday, taking a lead from an upday in the US ahead of the Thanksgiving break. Japan was shut for their own Thanksgiving holiday.

Oil prices continued to slide after the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, delayed the policy-setting meeting by four days to next Thursday. Global benchmark Brent Crude traded 1.2% lower to $80.99 a barrel. 

Gold, on the other hand, rose on Thursday, making it back close to the key “psychological level” (meaning: round number) of $2,000 per ounce, as an overall weaker USD and Treasury yields remaining lower than recent peaks buoyed demand for “the yellow metal.”

In Europe, markets were mildly higher as well, on overnight US markets as well as data suggesting the eurozone was showing some signs of bottoming out… though only barely, as activity remains in contraction. S&P Global’s monthly survey of purchasing managers across the 20-country eurozone found the pace of decline of new orders and output slowing down.

Still declining… but a tiny bit less quickly in both services and manufacturing. In Europe, that qualifies as a win. (47.1 is still below the 50 mark that separates contraction from expansion, but economists were expecting worse, at 46.9.)

The blue chip UK benchmark FTSE 100 added 0.2% despite S&P Global warning of “renewed signs of sticky inflation” in the UK in November. That was supported by fresh data showing business activity unexpectedly grew (at 50.1, it was partly growing, but growth is growth, even if just off survey responses.) That makes contraction of the economy in the fourth quarter less likely (good) and therefore less likely to be able to cut interest rates (not so good.)

US markets were shut for a holiday to celebrate Thanksgiving or, to acknowledge Native American civil rights, the “National Day of Mourning” or "Native American Heritage Day."

Roasting Türkiye

On “Thanksgiving Day” and spanning Asia and Europe, Türkiye surprised economists by hiking interest rates by double the expected 2.5% rise, a 500 basis point hike raising the one-week repo rate to 40%. 

In perspective, at that rate (if it stays there), a loan would double after two years, and be more than five times as large after five. 

This is the sixth consecutive rate hike as the central bank under the well-regarded new governor, Hafize Gaye Erkan, battles inflation of more than 60% (down, though, from 80% in September 2022.)

Prior to his re-election, and while other central banks globally were busy hiking interest rates in an attempt to kill off inflation, President Recep Tayyip Erdogan was cutting rates, arguing that higher rates would cause prices to rise and lower rates (and the weaker currency that would lead to) would help Turkey export its way out of trouble. Unorthodox thinking indeed. 

His stance changed after his re-election with the appointment of a former Wall Street banker as the new central bank governor. From 8.5% in June, the main policy rate has since increased by almost 5x.