Continued sell-offs as more negative news emerge around the property sector - a sector which once accounted for c.25% of China's GDP before it was battered by government crackdown and collapse in home sales over the past couple of years
Dalian Wanda bond uncertainty saga: Over the past week, there were huge concerns over whether Wanda Commercial would be able to repay a $400m bond that matures on Sunday. This sparked volatile trading in the Asian high-yield bond markets - indicating how fearful and emotional the market was at that point.
Credit agencies sounded default warnings on Wanda: S&P lowered its rating on Wanda Commercial's debts to "speculative grade" CCC. Moody's cut it to Caa1, which is one notch on the rating ladder above S&P's score. But it also cut Wanda Commercial Properties HK to an even lower Caa3.
Wanda met bond repayment, but saga not over: While Wanda Commercial has made the repayment on Saturday, the saga is not over. Its next deadline will be a 3.5b yuan onshore bond due on July 29. The next debt maturity offshore is in January 2024 for a $600m bond.
Significance of Wanda's repayment difficulties: Wanda's repayment difficulties caused unease among investors as it stood out as one of the few private developers that successfully navigated the property downturn over the last 3 years. Additionally, it achieved a remarkable feat by issuing two bond tranches earlier this year in a market that rarely saw such issuances.
Even state-backed builders are defaulting: Last week, the trustee for Greenland Holdings, a state-backed developer, declared that the developer had defaulted on dollar bonds amounting to $432m. Additionally, this week, Sino-Ocean Group put forth a proposal to extend the repayment schedule for a 2b yuan onshore bond that was originally due on August 2.
Evergrande Losses: China Evergrande Group, one of the world's most-indebted developer, disclosed its long-overdue financial results, indicating combined losses exceeding $81b over a span of 2 years.
Food supplies are threatened as Russia is blocking Ukraine's export of grain through the Black Sea
Russia ends a critical grain-shipping deal with Ukraine: Throughout the week, Russia has been launching attacks on Ukraine's port cities following its withdrawal from a yearlong agreement that facilitated the safe transportation of grain from Ukraine through the Black Sea by cargo ships
Russia's demands: Russia asserted that the deal was biased in favor of Ukraine, but it expressed readiness to reconsider its position if global leaders fulfill a specific list of demands aimed at easing significant economic sanctions.
Resulting in price to rise considerably: Ukraine is a major global provider of wheat, corn, and oilseeds—especially to countries in Africa and the Middle East—so grain prices have risen considerably over concerns of possible shortages.
Alternatives?: Ukraine can still transport grain through the EU using road and rail routes, which is why traders believe that there won't be a global grain shortage. However, these alternate routes are more costly, and the countries that heavily depend on Ukrainian grain might opt to turn to Russia instead, given that Russia holds the position of the world's leading wheat exporter
There are bright spots (like AI) even amidst bearish investor sentiments in general. Going forward, we will likely see investors focusing more on earnings rather than just growth during the periods of easy money
Nasdaq IPO riding on the recent AI hype: Oddity Tech, the Israeli beauty and wellness company utilizing AI for cosmetics development, made its debut on the Nasdaq (Ticker: ODD) on Wednesday. After pricing its IPO at $35 per share on Tuesday night, the direct-to-consumer platform responsible for the Il Makiage and Spoiled Child brands witnessed its stock closing at $47.53 per share (i.e. c.35% rise). This comes despite a global slowdown in IPOs and M&As as investors are generally more cautious amidst the current global macroeconomic climate.
Focus is now on earnings: Unlike other recent IPOs, Oddity is already profitable at IPO. It chalked up net income of $19.6m in the quarter through 31-Mar, up from $3m in the year prior. Companies were able to raise significant capital without being profitable during the period of easy money 2 years ago when interest rates were low. Not any more as investors now focus more on earnings away from just growth.
Why do we see capital drying up in falling markets?: Incentive to invest is low in a falling market since investors expect valuation to fall in the future, and will hence rather adopt a wait and see approach and invest later on. Existing investors also need to focus more on re-investing in existing portfolio companies to ensure they remain resilient amidst poor macro conditions.
