Day: November 17, 2021

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Bonds, Stocks, Economy: How China’s Property Woes Are Spilling Overseas

Marco Metzler of Switzerland gets 2,000 new followers a day on LinkedIn, all watching to see what will happen to his money. Metzler invested $50,000 last month in the offshore bonds of real estate developer China Evergrande Group to see if he would get any returns. The former Fitch Ratings analyst is not expecting much. He’s out to prove a point about China’s troubled property sector by chronicling the fate of his investment on social media.

“I was concerned about what was going on, and from my past I’m able to read rating reports and also to see what’s going on in the world in economics, and I felt obligated to speak out to the world and to warn about that situation,” Metzler told VOA. “We didn’t invest to get the money back, so I’m fully aware this will be lost.”

Evergrande has struggled since last year, when the Chinese government began clamping down on the country’s property sector to rein in excessive debt and cap speculation.

Towering apartment blocks today extend far into the suburbs of major Chinese cities, but many flats are unoccupied, owned instead by absentee speculators and their banks. Evergrande Group, one of China’s biggest property developers by revenue, is now selling assets and may be staring down a massive restructuring to ease debt.

Companies or governments that invest in offshore bonds, and individuals who trade stocks listed outside mainland China and its $15.42 trillion economy, are coming to terms — albeit more quietly than Metzler — with the Chinese property crisis of 2021. These troubles are threatening bond returns, lowering some stock prices and could erode at least a quarter of the world’s second largest economy.

“I don’t think anyone debates the importance of the real estate market on the Chinese economy,” said James Macdonald, head of the property services firm Savills Research in Shanghai, who estimates real estate at 25% to 30% of China’s economy.

“If we do see a significant slowdown in the real estate market, it will have an impact in terms of domestic economic growth rates, and that could have a knock-on effect in terms of global economy,” Macdonald said.

As many analysts have noted, any major economic shocks that hit China, a country closely tied to the global manufacturing supply chain, and whose massive consumer base importers and exporters rely on, are inevitably felt around the world.

Property crisis: Evergrande and beyond

Evergrande is a bellwether firm that is more than $300 billion in debt. Hong Kong-listed shares in Evergrande have tumbled since February, though the developer averted default in October by paying interest on an overseas bond.

Another Chinese development giant, Kaisa Group Holdings, faces limited funding access and uncertainty over refinancing a “significant amount” of U.S.-dollar bond payments into next year “in light of ongoing capital-market volatility,” Fitch said in an e-mailed news release last month.

Smaller property developers are likely to rattle bond markets outside China because they are “less sound” than bigger ones, said Lillian Li, a vice president-senior credit officer at the Moody’s ratings service.

“We see that the offshore bond market has actually shown larger volatility than the domestic market in front of these regulatory crackdowns, including in the property sector,” Li said.

The Hang Seng Properties Index in Hong Kong, where foreigners are allowed to trade shares of Chinese companies, has lost about 1.2% year to date.

Municipal officials in some cities capped home purchase prices in September to deter speculators, further hobbling property momentum in China. The domestic property market could shrink by half a percent in 2022, Li said. Last month, prices for new as well as resale homes fell amid a fall in construction starts.

What happens next

Evergrande has offered its investors cash payment by installments as well as putting forth actual structures as repayment assets, the state-run China Daily news website says.

Central government officials hope to contain property speculation and leave property for people to occupy, the official Xinhua News Agency reports.

About $52 billion in Chinese property bonds will mature next year and $44 billion the following year, said Henry Chin, Asia Pacific research head with the real estate services firm CBRE. Other bond issuers will default, he forecasts.

No offshore investors want the bonds now, said Liang Kuo-yuan, president of the Taipei-based Yuanta-Polaris Research Institute, though he believes Taiwanese insurers and pension funds have invested in the past.

“Taiwan’s insurers more or less will buy high-yield and high-risk investment products, because the interest rates on policies they’ve sold in the past are too high,” Liang said.

Evergrande was once seen as the epitome of a Chinese property mainland market, Liang added. China’s real estate sector, the world’s largest, grew briskly from 2010 to 2018, says investment bank J.P. Morgan.

But not all is lost, some analysts say.

Investors in private equity for distressed debt could get a lift from China’s property spillover if companies look for new ways to repay debt, said Chin of CBRE. Some stock-buying vehicles have made money, too. Shares of the TAO-Invesco China Real Estate exchange-traded fund of Chinese stocks including Evergrande, for example, has grown 65% year to date.

But back in Switzerland, Metzler wrote on LinkedIn that Evergrande had “officially defaulted on overdue interest payments” and that his current company, DMSA, would file a bankruptcy case against the group. He calls China’s property market “a first domino” in a broader financial and economic crisis.

“The old system needs to come down before a new system will be established,” he told VOA.

Source: Voice of America

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For Millions in Brazil, Rising Poverty and Fuel Prices Mean a Return to the Past

María Ribeiro da Silva, 64, spent a hot afternoon hawking a new contraption to acquaintances and friends who passed by her small grocery store on the outskirts of São Paulo, Brazil’s largest city and home to more than 12 million people.

Everyone who passed by received the same invitation from her: “Come, come and see my stove. It’s beautiful. I made it.”

Each guest received the same explanation: “I built a real wood fire oven, with a chimney and everything. No more smoke, no more heat.”

It had been almost 50 years since Ribeiro da Silva cooked with firewood. Since she arrived in São Paulo in 1974, fleeing drought, hunger and poverty in the impoverished northeast region of Brazil, she has only cooked with gas.

“I spent my childhood using firewood. We didn’t have gas. We didn’t have the money to have a real stove. But since I arrived in Sao Paulo … wood was in the past,” she told VOA.

But with the Brazilian economy worsening, and the devastating effects of the COVID-19 pandemic on the poorest parts of the population, firewood has become the only option for millions of families like Ribeiro da Silvas’.

It was a slow and gradual process for Ribeiro da Silva. First, firewood was only used in extreme cases when the gas ran out and there was not enough money to replace it. But when she lost her job as a cleaner at a company in downtown São Paulo six months ago, firewood became the primary fuel to cook food.

“Now, I only use the gas stove for simple things like making coffee or heating the food I cooked on firewood. I don’t have any more money to buy gas. The price is too high. It’s impossible,” she said.

Skyrocketing fuel prices

According to data from the Brazilian Institute of Geography and Statistics, at least 25% of the Brazilian population is using wood as their primary cooking source.

This was before the onset of the COVID-19 pandemic.

“Due to the pandemic, the Brazilian Statistical Institute stopped carrying out quarterly in-person surveys, so we don’t have data for 2020 and 2021,” said Adriana Gioda, a professor in the department of chemistry at Pontifical Catholic University of Rio de Janeiro and a leading researcher on firewood consumption by Brazilian families.

“But since 2016, when the federal government cut subsidies for residential gas and tied the fuel price policy to the international prices, there has been a steady growth in the use of firewood to make food,” she told VOA.

Fuel prices have been rising steadily over the past five years but have skyrocketed since President Jair Bolsonaro took office in 2019. He promised not to interfere with the country’s state oil company and allow fuel prices to follow the international market.

This year alone, the price of residential gas rose by an average of 35%. Liquefied petroleum gas is the primary fuel for food production in Brazil, and its cost is linked directly to the price of the oil barrels.

‘Back in time’

“In the interior of Brazil, in rural and more isolated areas, using firewood is a tradition. But what impressed us most is that the use of wood is advancing precisely in the most urban areas, in large Brazilian cities, such as Rio de Janeiro and São Paulo,” Gioda said.

And it is rising in areas such as Jardim Marajoara, a poor neighborhood of migrants from the northeast region of Brazil on Sao Paulo’s outskirts, where Ribeiro da Silva lives. It is in these regions that the poorest and those most affected by the economic crisis are concentrated.

Juarez Viana, a bus driver who also lost his job during the pandemic, has turned to firewood to cook. He, like Ribeiro da Silva, lives in a suburb of São Paulo that is sprawling into the last green areas of the city. Once a week, he crosses the street and enters a small forest to fetch wood.

“It’s hard work, and it seems like I’ve gone back in time,” said Viana, who is also a migrant from the Brazilian northeast. At 49, he remembers cooking with wood as a child. “But it’s worth it. We do not have more money to buy gas. The price is out of control. I’ve never seen anything like this.”

“We are going back in time, going back at least half a century,” said pulmonologist Elie Fiss, a research director at Hospital Alemão Oswaldo Cruz. “Since the 1960s, we no longer saw respiratory problems related to the use of firewood for cooking. But with so many people going back to the firewood, this is a problem that will soon return to hospitals.”

Source: Voice of America

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US Reportedly Negotiating Deal with Pfizer to Purchase 10 Million Doses of Experimental COVID-19 Pill

News outlets say the administration of U.S. President Joe Biden is planning to spend $5 billion to purchase Pfizer’s new experimental antiviral pill designed to treat COVID-19, enough to cover 10 million courses of treatment.

The revelation comes a day after the U.S. drugmaker announced it had signed a deal with Geneva-based Medicines Patent Pool, a United Nations-backed public health group, to authorize generic drugmakers to produce its experimental COVID-19 pill for 95 countries.

The deal will make the pill available for low- and middle-income countries comprising about 53% of the world’s population.

Pfizer says its new pill, called Paxlovid, reduces the risks of hospitalization and death by nearly 90% in people with mild to moderate coronavirus cases. Independent experts recommended ending Pfizer’s study because of its encouraging results.

Tuesday’s agreement between Pfizer and the Medicines Patent Pool coincided with Pfizer’s application to the U.S. Food and Drug Administration to authorize use of the drug on an emergency basis.

“It’s quite significant that we will be able to provide access to a drug that appears to be effective and has just been developed, to more than 4 billion people,” said the Medicines Patent Pool’s Esteban Burrone.

Yuanqiong Hu, a senior legal policy adviser at Doctors Without Borders, said the organization is disappointed the agreement does not make the pill available to all countries.

“The world knows by now that access to COVID-19 medical tools needs to be guaranteed for everyone, everywhere, if we really want to control this pandemic,” she said.

Pfizer will not receive payments on sales in low-income countries, where fewer than 1% of its COVID-19 vaccine doses have been provided. It also will waive royalties on sales in all countries covered by the deal while COVID-19 remains a public health emergency.

The Medicines Patent Pool announced in October that another U.S. drugmaker, Merck, agreed to allow other companies to make its COVID-19 pill available in 105 poorer countries.

Merck says its antiviral pill reduces the risk of severe illness from COVID-19 by half when administered soon after the appearance of the first symptoms.

The Biden administration has pledged to spend about $2.2 billion to purchase about 3.1 million doses of Merck’s pill once it has been approved for use by the Food and Drug Administration. An FDA advisory panel will meet on November 30 to discuss Merck’s COVID-19 pill. British drug regulators granted authorization for Merck’s pill earlier this month.

Despite decisions by Pfizer and Merck to share their COVID-19 drug patents, Pfizer and other vaccine-makers have refused to release their vaccine formulas for broader production.

Source: Voice of America