China braces for capital flight and debt stress as Fed tightens; There have been signs of serious stress in China’s interbank lending markets, with short-term SHIBOR rates spiking violently. Bank Everbright missed an interbank payment last week in a technical default

China braces for capital flight and debt stress as Fed tightens

China appears increasingly worried that monetary tightening by the US Federal Reserve could trigger capital flight from the People’s Republic and set off a Chinese corporate debt crisis.

There have been signs of serious stress in China’s interbank lending markets, with short-term SHIBOR rates spiking violently. Photo: Alamy

By Ambrose Evans-Pritchard

1:50PM BST 14 Jun 2013

A front-page editorial on Friday in China Securities Journal – an arm of the regulatory authorities – warned that capital inflows have slowed sharply and may have begun to reverse as investors grow wary of emerging markets. “China will face large-scale capital outflows if there is an exit from quantitative easing and the dollar strengthens.” it wrote. The journal said foreign exodus from Chinese equity funds were the highest since early 2008 in the week up to June 5, and the withdrawal Hong Kong funds were the most in a decade.

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China estimates fake trade invoicing at S$94 billion in Jan-April

China estimates fake trade invoicing at S$94 billion in Jan-April

SHANGHAI – Fake invoicing inflated China’s official import and export totals by US$75 billion (S$94 billion) in the first four months of this year, local media reported on Friday, citing an internal review by China’s commerce ministry.

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SHANGHAI – Fake invoicing inflated China’s official import and export totals by US$75 billion (S$94 billion) in the first four months of this year, local media reported on Friday, citing an internal review by China’s commerce ministry.

An alternate estimate found that actual year-on-year export growth for January to April was only about 7 per cent, while import growth was about 6 per cent, the 21st Century Business Herald reported, citing an unidentified source and an internal commerce ministry document.

The second estimate was based on excluding data from the port of Shenzhen, where much of the fraud is suspected to have occurred. Read more of this post

India is Asia’s weakest link in QE-driven rout

India is Asia’s weakest link in QE-driven rout

Thu, Jun 13 2013

By Vidya Ranganathan

SINGAPORE (Reuters) – India is emerging Asia’s canary in the ‘hot money’ mine.

As financial markets sell off on concerns over rising U.S. rates, what happens in India, an economy with slowing growth and a heavy dependence on foreign money, could well determine if this is merely a short-term rout or a full-blown crisis.

India’s rupee currency has weakened the most among emerging markets after the South African rand since May as investors flee assets most vulnerable to the end of super-loose U.S. monetary policy. Read more of this post

China Debt Sale Fails for First Time in 23 Months on Cash Crunch; The ministry’s last failed auction was in July 2011 and Shanghai index was down 23% subsequently

China Debt Sale Fails for First Time in 23 Months on Cash Crunch

China’s Finance Ministry failed to sell all of the debt offered at an auction for the first time in 23 months owing to a cash squeeze, according to two traders at finance companies that participate in the sales.

The ministry sold 9.53 billion yuan ($1.55 billion) of 273-day bills, less than the 15 billion yuan target, they said. Agricultural Development Bank of China Co. raised 11.51 billion yuan in a sale of six-month bills last week, less than its 20 billion yuan goal. The seven-day repurchase rate, which measures interbank funding availability, has more than doubled in the past month as banks hoard cash to meet quarter-end capital requirements and capital inflows ease.

“The cash crunch is curbing demand for bonds,” said Chen Ying, a fixed-income analyst at Sealand Securities Co. in Shenzhen. “The crunch may persist if the central bank doesn’t come out to inject more capital into the financial system. If it lasts longer, it may affect issuance of both government and corporate bonds.” Read more of this post

Stock Rout Threatens $10 Billion Asia IPOs as Suntory Nears

Stock Rout Threatens $10 Billion Asia IPOs as Suntory Nears

Slumping stock markets are threatening to disrupt as much as $10 billion of initial public offerings across Asia, as companies from Suntory Holdings Ltd. to Macau Legend Development Ltd. (1680) prepare listings.

Companies are gauging demand or taking orders for as much as $2.5 billion of IPOs in Southeast Asia and $2.3 billion of deals in Hong Kong, according to data compiled by Bloomberg. Suntory is seeking to raise as much as $4.7 billion this month in Japan’s largest first-time share sale since September.

With Asia’s benchmark stock index wiping out the year’s gains, some companies marketing IPOs may be forced to accept lower valuations or delay listings. Hopewell Hong Kong Properties Ltd. scrapped a $780 million offering in the city yesterday while China Harmony Auto Holding Ltd. plunged 16 percent (3836) in the worst Hong Kong debut since February 2012. Read more of this post

Korean Tiger Moms Scrimp for Tutors in Blow to Consumer Spending

Korean Tiger Moms Scrimp for Tutors in Blow to Consumer Spending

Housewife Ahn Jee Eun began looking for a job to supplement her husband’s income after the cost of sending her twin three-year-old daughters to pre-school pushed the family’s bank account into the red.

“My husband and I are spending about half of our income on education,” said Ahn, 34, who pays more than 1.7 million won ($1,500) a month on private tuition fees. “I’ve been cutting down on grocery shopping to make sure my kids socialize in good places and learn stuff they’re supposed to learn.”

Education expenses have helped push the nation’s household debt toward record levels, sapping households’ ability to spend money on other goods — private consumption fell the most last quarter since the 2009 global recession. President Park Geun Hye this week set up a task force to scale back excess high-school testing in a nation where four out of five elementary school pupils get additional private tuition. Read more of this post

Yen Slump Failing to Stem Japan’s Exodus of Factories Overseas

Yen Slump Failing to Stem Japan’s Exodus of Factories Overseas

Japanese Prime Minister Shinzo Abe promises that Abenomics will revive the nation’s industrial might. For Takumi Tanaka at auto-parts maker Uchida Co., times are worse than after the 2011 earthquake.

Tanaka, managing director of a company founded in 1955, whose 94 employees supply Honda Motor Co. (7267) with parts molds, is contending with higher costs after an 18 percent drop in the yen in the past nine months pushed up the price of imported energy and metals. At the same time, he’s under pressure from clients to build factories near their overseas plants.

“We see very little benefit” from Abenomics, Tanaka said in an interview in Miyagi Prefecture, where two of the company’s three factories are located, close to the center of the earthquake that caused Japan’s worst nuclear disaster. “Even today, we are being asked to build plants in Vietnam, Thailand and Indonesia. There is little relief that manufacturing can stay in Japan.” Read more of this post

Who wants to the last person carrying the broken record and be blamed by investors? “There is now anecdotal evidence that long-term investors have started selling.” Investors lose bet on EM local currency debt

June 13, 2013 5:10 pm

Investors lose bet on EM local currency debt

By Pan Kwan Yuk

Investors in emerging market local currency bonds are among the biggest losers from the recent sell-off in emerging market assets. The average EM local currency fund has lost 7.8 per cent since the beginning of May, according to data from Lipper. This compares with a loss of 6.1 per cent on average for EM hard currency funds and 6.7 per cent for EM equity funds. The sharp reversal in performance comes as investors have substantially increased their bets on the locally denominated EM debt this year. As the chase for yield intensified, investors have piled into the asset class – drawn by the higher yields offered by the bonds and the prospect of an added sweetener in the form of foreign exchange gains. Investors have funnelled $20.4bn into EM local debt in the year to date, compared with just $2.5bn for hard currency bonds, according to data from EPFR. The flows into EM local debt this year have already surpassed the $16.7bn the asset class attracted for the whole of 2012. But the twin attractions of local currency debt – higher bond yields and foreign exchange appreciation – have also made it more vulnerable to the recent rise in US Treasury yields. Yields on JPMorgan’s GBI-EM index, which tracks local currency debt, have risen 82 basis points, or 15.34 per cent, since May 22, when the US Federal Reserve hinted that it may start winding down its $85bn-a-month bond buying programme. Meanwhile EM currencies have suffered a sharp correction. The South African rand, Brazilian real, Philippine peso, Indian rupee, and Mexican peso are among the world’s 10 worst performing currencies since May 22 – with losses ranging from 4.3 per cent to 3.2 per cent against the dollar. Sara Zervos, head of the global debt team at Oppenheimer Funds, attributes the sharp sell-off in recent weeks to crossover money from hedge funds pulling out. “Interest rate swaps yields have been going up higher and faster than [EM local currency] bond yields,” she said. “Real money accounts tend to hold bonds. Fast money tends to hold swaps. So my sense is that the sell-off has been initiated by leveraged buyers unwinding their positions rather than real money dumping bonds.” Others think it is only a matter of time before real-money investors pull back. “In retrospect, it is quite clear that positioning in local bond markets has been excessive,” said Benoît Anne, head of EM strategy at Société Générale, in a note to clients last week. “There is now anecdotal evidence that long-term investors have started selling. That may suggest that more pain is on the way. I see little reason to be bullish on EM fixed income against this backdrop.”

“Size of the exit”: Emerging markets are often easy to get into, but if history is any guide, when the elevator starts to go down and everyone is trying to get out, some people are going to get stuck

Still got your money in emerging markets? Here’s what to worry about—and where

By Matt Phillips @MatthewPhillips June 13, 2013

Global riptides of investment cash are a well-established threat for developing economies. On its way in, a surge in foreign investment pushes up prices of stocks, bonds and other assets. It drives down borrowing costs. It supercharges growth. But if the wave suddenly starts to recede, countries can face nasty combinations of currency collapse, banking crises and government default. This script has repeatedly played out. There was Mexico’s “tequila crisis” in 1994. The Asian crisis in 1997. The Russian devaluation of 1998. Which brings us to the current sharp selloff in a range of emerging markets. Among the countries that have been darlings of global investors in recent years, which ones are the most vulnerable to a reversal of fortunes? Here are a few ways to think about the risks. Read more of this post

Refinancings Plunge as Bond Yields Rise

June 13, 2013, 11:25 p.m. ET

Refinancings Plunge as Bond Yields Rise

By NICK TIMIRAOS and ANDREW R. JOHNSON

A surprise spike in mortgage rates threatens to halt a refinancing boom that has delivered strong profits for U.S. banks over the past two years.

The average rate on a 30-year mortgage rose to 4.15% last week, a 14-month high and up sharply from 3.59% in early May, according to the Mortgage Bankers Association. A separate survey released Thursday by Freddie Mac FMCC -5.56%said the rate this week was at 3.98%, up from 3.35% last month.

Refinancing applications last week were down 36% from the first week of May, before rates began climbing, according to the bankers association. Read more of this post

Watch out for the rate hike hit to banks

June 13, 2013 4:03 pm

Watch out for the rate hike hit to banks

By Gillian Tett

Regulators and bankers are assessing how damaging a US rate increase might be

Earlier this year, officials at America’s mighty Federal Deposit Insurance Corporation engaged in a bout of brainstorming with bank leaders about interest rate risk. The message was sobering.

Back then, in April, the FDIC did not seriously expect US rates to jump soon. Little wonder: at that stage, the 10-year yield was still below 2 per cent – and sinking – while Ben Bernanke, the US Federal Reserve chairman, seemed committed toquantitative easing. Read more of this post

US Bonds In “Panic” Mode

US Bonds In “Panic” Mode

Tyler Durden on 06/13/2013 21:40 -0400

Based on Credit-Suisse’s Panic-Euphoria model of risk appetite, US bond markets are on the verge of the short-term capitulative “Panic” mode.Each time we have reached this level of ‘selling’ in the last 6 years, Treasury yields have compressed significantly. At the same time, equity risk appetite remains bearish and US credit risk appetite has resumed its decline (but relative to Treasuries they are significantly over-sold). Not a pretty picture… Bonds hit “Panic” levels of risk appetite…

As Citi notes, Investors fear the 1994 redux trade, are looking at ways to short markets that may be vulnerable to rising rates, including credit. But in total return terms the credit space has already suffered quite dramatically. The chart below shows that the high-grade and high-yield markets are down 3.2% and 1.7%, respectively, since the Treasury backup began in early May, which is far more severe than what normally occurs when rates rise (annualized long-term average of +0.1% and +11.4%, respectively).

The number of companies tapping the bond market has collapsed as a result of rising interest rates, threatening to halt a global refinancing wave that helped companies boost earnings and strengthen balance sheets

June 13, 2013 6:26 pm

Bond sales dry up as interest rates rise

By Vivianne Rodrigues and Stephen Foley in New York

The number of companies tapping the bond market has collapsed as a result of rising interest rates, threatening to halt a global refinancing wave that helped companies boost earnings and strengthen balance sheets.

Bond investors have retrenched in the face of increasing market volatility since Fed chairman Ben Bernanke hinted on May 22 at a possible “tapering” of US quantitative easing. This has left companies unable to raise financing on previously beneficial terms. Read more of this post

Hair-Loss Drugs’ Big Growth in China; Sales of hair-loss drugs in China, where a full head of hair is linked to virility, have soared 90 percent since 2007. BaWang, Chinese maker of herbal shampoos, posted three straight years of loss

Hair-Loss Drugs’ Big Growth in China

By Daryl Loo and Lisa Pham on June 13, 2013

When Shi Yang was studying and working in France several years ago, most of his colleagues were bald—which made his own thinning pate more tolerable. But since Shi’s return to China in 2011, the 26-year-old Shanghai engineer’s hair loss has become an issue. “You will definitely stick out more back in China,” explains the bespectacled engineer, who says he has a better chance of landing a girlfriend if he has a thick thatch of hair. That’s why after raw-ginger scalp rubs and walnut snacks failed to counter his receding hairline, Shi says he’s ready to give Western drugs a try. Read more of this post