Dollar bond slump

Five Things - Asia
Bloomberg

Bond issuance is sliding in China, equity markets are set for small gains at the start of trading on Friday and investors in India should gear up for lower returns. Here are some of the things people in markets are talking about today.

Issuance Slumps

Sales of dollar bonds by Chinese property developers this month have plunged to the lowest level since May, underscoring renewed concerns about the debt-laden sector. Offerings from the mostly high-yield borrowers have reached about $3 billion in September, almost 50% lower than last month's total, according to Bloomberg-compiled data. The decline is a marked contrast to the sales boom by Chinese investment-grade borrowers, and highlights the credit risks in the country's highly leveraged real estate sector. China last month took a fresh step to curb debt growth among builders amid signs policy makers sought to refocus on risk prevention after a strong housing market recovery.

Market Open 

Asian stocks looked set for tentative gains after a volatile U.S. session as investors weighed the chances of a new stimulus package against an uptick in global coronavirus cases. The dollar slipped. Futures in Japan, Hong Kong and Australia pointed to a modest rise. S&P 500 contracts climbed. Earlier, the benchmark pared most of an earlier rally as optimism faded that Congress would reach a spending deal with the White House. Sentiment had pushed shares higher on news that Treasury Secretary Steven Mnuchin and the Democratic House leader were open to fresh talks. But a report that Speaker Nancy Pelosi's fresh overture deviated only slightly from previous offers sparked concern that the two sides would remain far apart. Treasuries were little changed.

Virus Trends 

As the likelihood of additional federal stimulus fades, U.S. stock investors are returning their focus to the coronavirus pandemic and not liking what they see. High-frequency data that tracks economic activity shows a slowdown in the recovery from the height of the lockdowns, with Americans again cutting back on flights and going out to eat less often. Public-transit use also remains low, while jobless claims are stubbornly elevated. Meanwhile, the prospects for a vaccine in the next few months have also waned. That's sending investors fleeing from risk assets, with stocks on pace for their fourth weekly decline. 

Lower Returns 

India is likely to see a slower pace of economic growth over the next few years, which means stock investors should expect lower returns, according to analysts at asset manager Quantum Advisors. The country's $2 trillion stock market has rebounded more than 40% from a March bottom, joining a global rally in defiance of a bleak economic outlook. But whether it can deliver the 12-15% annual return frequently touted by local asset managers in the long term depends on how fast India's economy will grow, Arvind Chari, head of fixed income and alternative investments at Mumbai-based Quantum, said in a note.

First Choice 

Democratic presidential nominee Joe Biden's search for a Treasury Secretary is widely seen as focusing on Lael Brainard of the Federal Reserve, a choice that would keep both Wall Street and progressives in line. The more provocative choice of Senator Elizabeth Warren hasn't been ruled out but is far less likely, and other possible names are being discussed for the top finance job if Biden wins November's election, according to nine people familiar with the candidates and Biden's thinking.

What We've Been Reading

This is what's caught our eye over the past 24 hours:

And finally, here's what Adam's interested in this morning

The dollar's reversal in September is one big theme of the month for markets. The strength comes after five months of declines for the Bloomberg Dollar Spot Index. But some large investors expect the greenback to resume its weakness and are positioned accordingly.

I spoke to Aviva Investors' Liam Spillane earlier this week and his emerging-market portfolios are playing this expected dollar softness through long positions in China's yuan and the Mexican peso. 

His thesis on China is partly due to the market underappreciating the scale and pace of the economic recovery in Asia's largest economy. He also expects flow into Chinese bonds to continue to lend support to the currency. This week has thrown up a couple of weaker-than-expected daily currency fixings, raising the volume on speculation that the yuan may be running too hot for the authorities to be comfortable with. Thursday's slightly stronger fix helped ease this concern. The path of the yuan will be a key trend to monitor through the end of this year.  

Adam Haigh is an editor covering global markets for Bloomberg News in Sydney.   

 

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