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Sun, 22nd January 2017

Anirudh Sethi Report

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Archives of “Names of large numbers” Tag

Global Debt Hits 325% Of World GDP, Rises To Record $217 Trillion

While we eagerly await the next installment of the McKinsey study on global releveraging, we noticed that in the latest report from the Institute for International Finance released on Wednesday, total debt as of Q3 2016 once again rose sharply, increasing by $11 trillion in the first 9 months of the year, hitting a new all time high of $217 trillion. As a result, late in 2016, global debt levels are now roughly 325% of the world’s gross domestic product.

In terms of composition, emerging market debt rose substantially, as government bond and syndicated loan issuance in 2016 grew to almost three times its 2015 level. And, as has traditionally been the case, China accounted for the lion’s share of the new debt, providing $710 million of the total $855 billion in new issuance during the year, the IIF reported.

Joining other prominent warnings, the IIF warned that higher borrowing costs in the wake of the U.S. presidential election and other stresses, including “an environment of subdued growth and still-weak corporate profitability, a stronger (U.S. dollar), rising sovereign bond yields, higher hedging costs, and deterioration in corporate creditworthiness” presented challenges for borrowers.

Additionally, “a shift toward more protectionist policies could also weigh on global financial flows, adding to these vulnerabilities,” the IIF warned.

“Moreover, given the importance of the City of London in debt issuance and derivatives (particularly for European and EM firms), ongoing uncertainties surrounding the timing and nature of the Brexit process could pose additional risks including a higher cost of borrowing and higher hedging costs.”

For now, however, record debt despite rising interest rates, remain staunchly bullish and the equity market’s only concern is just when will the Dow Jones finally crack 20,000. 

Sadly, since we don’t have access to the underlying data in the IIF report, we leave readers with a snapshot of just the global bond market courtesy of the latest JPM quarterly guide to markets. It provides a concise snapshot of the indebted state of the world.

Indian wealth falls 0.8% to $3 trillion in 2016: Credit Suisse

Hit by adverse currency movements, India’s household wealth has fallen by $26 billion to $3 trillion in the current year, shows the latest report by global financial services major Credit Suisse.

According to the ‘Global Wealth Report’ compiled by Credit Suisse Research Institute, wealth in the country in dollar terms went down by 0.8% ($26 billion) to $3.099 trillion in 2016 compared to last year. The report noted that while wealth has been rising in India, not everyone has shared in this growth.

“There is still considerable wealth poverty, reflected in the fact that 96% of the adult population has wealth below $10,000,” the report said. “At the other extreme, a small fraction of the population (0.3% of adults) has a net worth over $1,00,000,” it added, noting that due to India’s large population, this translates into 2.4 million people.

As per the report, the country has 2,48,000 adults in the top 1% of global wealth holders, a 0.5% share. “By our estimates, 2,260 adults have wealth over $50 million, and 1,040 have more than $100 million,” it added. Overall, the Asia Pacific region in 2016 saw wealth increase by 4.5% to nearly $80 trillion. “China and India were hit by adverse currency movements and as a result, their household wealth fell by 2.8% and 0.8% to $23 trillion and $3 trillion, respectively,” the report noted.

Among other major economies in the region, wealth in Australia remained largely unchanged (decline of 0.2%) and South Korea saw an increase of 1%. Globally, the wealth stood at $256 trillion— a rise of 1.4% from a year ago. The report noted that rise in global wealth is in line with the increase in the world’s adult population with average wealth per adult remaining constant at $52,800.

According to Credit Suisse, while developing economies are likely to outpace the developed world in terms of wealth growth, they will still only account for just under a third of growth over the next five years. “They (developing nations) currently account for around 18% of global household wealth, against just 12% in 2000,” it added.

Gundlach: “We Got The Bearish Signal; Stocks Are Going Down – You Can Feel It”

After nearly three consecutive years of inflows, an unheard of feat, Jeff Gundlach’s $61.6 billion DoubleLine Total Return Bond Fund finally experienced its first outflow since January 2014, as investors took out $33 million from the California fund. With that the streak of 33 consecutive months of inflows was broken Reuters reports.

Repeating a position he has held for several months, Gundlach told Reuters that “bonds are headed toward outflow territory … rising rates mean negative returns are developing. Even DoubleLine is having ‘day  in’ and ‘day out’ flows. It is not an inflow day every day.” Unless, of course, the market suffers a long-loverdue equity selloff, in which case the flow will be in the other direction as debt of any kind will be immediately is seen as a “flight to safety” and the cycle will begin from scratch.

According to the new bond king, a few advisers in October made allocation and model changes away from the intermediate-term sector of the bond market, resulting in a few large redemptions in the DoubleLine TRBFwhich however moved into DoubleLine’s Flexible Income, Low Duration Bond and Core Fixed Income funds.

Gundlach remains skeptical on rates, and in what was – how should one put it – a humblebrag, the bond manager indirectly accused himself of causing his fund’s first outflow in just under three years:  “I have been vocally bearish on Treasuries for months, and, being one of the most influential in the industry, it should not be a surprise that investor behavior is influenced by me,” Gundlach said modestly.

“Lastly, we have had terrific performance in DBLTX since rates bottomed: we are up in a meaningfully down market.”

While the TRBF saw modest redemptions, other of the firm’s investment vehicles continued to soak up cash with the $7.7 billion DoubleLine Core Fixed Income Fund enjoying inflows of $166.5 million in October, bringing its year-to-date net inflows to $2.1 billion. DoubleLine’s largest equities mutual fund, the $1.4 billion DoubleLine Shiller Enhanced CAPE fund, had net inflows of $77.3 million in October, bringing the year-to-date net inflows to $671.9 million and doubling its assets from year-end 2015.

Brickwork Ratings downgrades Tata Steel, cites heigtened management risk

Citing “heightened management risk” following the ouster of Cyrus Mistry as Chairman of Tata Sons, Brickwork Ratings has revised outlook of Tata Steel to negative while as revised the ratings of its NCDs worth Rs 6,500 crore.
“Essentially the Rating reflects heightened management risk and the current stage of lack of clarity at group level management that may impact strategic decision making at Tata Steel Ltd,” Brickwork said.
 
The revised rating however continues to place the company in the ‘high degree of safety’ category with regard to the services to debt.

“Brickwork Ratings revises rating to ‘BWR AA’ (BWR Double A) with Negative Outlook from BWR AA+ (BWR Double A Plus), (Outlook: Stable) for unsecured the Non-Convertible Debenture (NCDs) Issues of Rs 4,000 crore,” said a regulatory filing issued by Tata Steel.

Brickwork Ratings also revises rating to ‘BWR AA-‘ (BWR Double A Minus) Outlook: Negative from BWR AA (Outlook: Stable) for the unsecured subordinated perpetual Debt Issues of Rs 2,500 crore of Tata Steel Ltd, it added.’
 

“China’s Debt Has Grown $4.5 Trillion In Past 12 Months, More Than The US, Japan And Europe Combined”

While concerns about China’s debt load, capital flows, and depreciating currency have been pushed to the backburner in recent months, perhaps facilitated by a welcome rebound in global inflation – perceived by markets and global central bankers that monetary policy is finally working –  it is worth a quick reminder of how we got here.

First, a quick trip through memory lane to remind us how much has changed in just the past year.

In a note by Morgan Stanley’s Chetan Ahya released on Sunday, the strategist reminds us that a little more than a year ago, the global economy was facing intense disinflationary pressures. Global commodity prices were declining significantly and the slowdown in China and other major commodity-producing EMs had led to some concerns that it could pull developed markets into recession and drag inflation down along with it. At the same time, in China, producer prices fell by almost 6%Y and the regime change in its currency management approach meant that China was no longer absorbing disinflationary pressures from abroad.

And while this seems like a distant memory today, thanks to China which has played a pivotal role in driving the global inflation cycle – this time on the upside – as the cyclical recovery has both lifted China’s own inflation and transmitted it globally, here is how this happened: the recovery in China has been driven by yet another round of debt indulgence. Debt in China has grown by US$4.5 trillion over the past 12 months, by far the highest amount of debt creation globally as compared to US$2.2 trillion in the US, US$870 billion in Japan and US$550 billion in the euro area. Indeed, China on its own has added more debt than the US, Japan and the euro area combined.

While we have shown the IIF’s forecast of Chinese debt countless times in recent months, here it is once again to put China’s unprecedented debt expansion in context:

Tata group could see Rs 1,18,000 crore in writedowns: Cyrus Misry

Group companies in the salt-to-software Tata Sonsconglomerate faces potential writedowns to the tune of close to $18 billion (about Rs 1,18,000 crore) due to investments in unprofitable businesses, according to an internal letter that ousted Chairman Cyrus Mistry sent to the company’s board.

Mistry was shunted out of the company on Monday by the Tata Sons board for reasons not officially made public by the group, however, sources told Reuters that Mistry had lost favor with family patriarch Ratan Tata and the powerful trusts, which own two-thirds of the group.

 Mistry said in the letter that Indian Hotels Co, passenger-vehicle operations of Tata Motors Ltd, the loss-making European steel operations of Tata Steel, its telecom venture and the Mundra ultra mega power plant of Tata Power are “legacy hotspots” of the company.

“A realistic assessment of the fair value (of) these businesses could potentially result in a write down over time of about Rs118,000 crores ($18 billion),” said Mistry in an e-mail seen by Reuters.

A spokesman for Tata Sons declined to comment. A spokeswoman for Cyrus Mistry declined to comment.

Bharti Airtel’s debt to rise by $2 billion on spectrum buys: Moody’s

Telecom major Bharti Airtel’s debt will increase by $2 billion (over Rs 13,300 crore) due to the recent spectrum purchase but cash flows from operations and monetisation activities are likely to reduce this level in next 6-12 months, Moody’s Investors Service said today.

Bharti Airtel, India’s largest mobile operator with over 257 million subscribers, won 173.8 Mhz of airwaves for Rs 14,244 crore in the just-concluded spectrum auction.

It acquired mobile airwaves in 1800MHz, 2100MHz and 2300MHz bands and now has 4G and 3G spectrum in all circles.

“Although Bharti’s debt levels will rise by around $2 billion in conjunction with the funding of its spectrum wins, this amount can be accommodated in the rating for a short time, as cash flow from operations and proceeds from monetisation activities are expected to reduce debt levels considerably within the next 6-12 months,” Annalisa DiChiara, Moody’s Vice President and Senior Credit Officer said.

Moody’s expects Bharti to go for deferred payment option, which will minimise upfront cash outflow and stretch out payments over a 12-year period. This allows Bharti to make upfront payments of 50 per cent (about Rs 7,100 crore), which Moody’s expects “will be largely debt-financed”.

Mumbai wealthiest city in India with total wealth of $820 bn

Image result for MUMBAI TUMBLRIndia’s financial capital Mumbai, home to 45,000 millionaires and 28 billionaires, is the wealthiest city in the country with total wealth of USD 820 billion, says a report. According to New World Wealth, Mumbai is followed by Delhi and Bengaluru at the second and third place respectively. While Delhi, home to 22,000 millionaires and 18 billionaires has total wealth of USD 450 billion, Bengaluru boasts of a total wealth of USD 320 billion. The city is home to 7,500 millionaires and 8 billionaires.

Total wealth refers to the private wealth held by all individuals.

The report defines ‘wealth’ as the net assets of a person. It includes all their assets (property, cash, equity, business interests) less any liabilities. The report excludes government funds from its figures.

As per the report, the total wealth held in the country amounts to USD 5.6 trillion (as of June 2016). The country is home to 264,000 millionaires and 95 billionaires in total. Other emerging cities in the country include, Surat, Ahmadabad, Visakhapatnam, Goa, Chandigarh, Jaipur and Vadodara, the report said.

Corporate China faces earnings headwinds

Listed Chinese companies logged a decrease in combined January-June net profit due to an economic slowdown and efforts to address industrial overcapacity and bad debts, on the heels of the first full-year decline in seven years in 2015.

Comparable year-earlier data was available for 2,928 enterprises on the Shanghai and Shenzhen bourses. They logged a combined profit of 1.38 trillion yuan ($206 billion) for the half, down 5%, financial data from Shanghai DZH shows. The decline reaches double digits if banks are excluded.

 The government’s structural reform efforts dealt a blow to resource-related businesses. Net results worsened at 36 of 58 such concerns among the listed companies. Twenty-four, or about 40%, bled red ink.

Henan Province coal producer Henan Dayou Energy reported a nearly 1 billion yuan net loss, having reportedly held down production volumes in compliance with government instructions.

Machinery builders were hit by slowing growth in capital investment. Zoomlion Heavy Industry Science and Technology ended the half 800 million yuan in the red. A year earlier, the construction machinery maker had sustained its first net loss since its 2000 listing.

Multiple FBI Criminal Probes of Clinton Foundation Despite Obama, DOJ Objections

Multiple investigations by FBI and the US Attorney’s Office are underway involving potential corruption charges against the Clinton Foundation, according to a former senior law enforcement official.

A set of investigations into Clinton Foundation have been initiated by a joint effort of Federal Bureau of Investigation and various US Attorneys Offices. The investigations include potential corruption charges, according to the former official who has direct knowledge of the activities.

The involvement of the US Attorney Office is a major departure from other centralized FBI investigations. Previously, FBI performed such investigations on its own.

Now, the New-York based probe is led by Preet Bharara, the U.S. attorney for the Southern District of New York, who is famous for his prosecutorial aggressiveness, which has led to a large number of convictions of banks, hedge funds and Wall Street insiders.

According to Bharara’s official biography, he “has applied renewed focus on large-scale, sophisticated financial frauds by creating two new units — the Complex Frauds Unit and the complementary Civil Frauds Unit.”