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How China’s Property Bubble Burst Published: 29 February 2024

  • Desperate property developers in China have resorted to gifts like new cars, free parking spaces, phones, and other consumer goods to attract homebuyers and boost flagging sales. These incentives are just the tip of the iceberg in a crisis involving hundreds of billions of dollars in home builder debt, trillions in local government debt, and at least a billion empty apartments.
  • However, this wasn’t always the case. Since China’s economic liberalization in the 1970s and housing reforms in the late 1980s, locals have flocked to properties as the investment vehicle of choice over alternatives such as the stock market.
  • The property and construction boom helped fuel China’s – and the world’s – economic growth for 30 years. By some estimates, property in China was worth US$60T at its peak, making it the biggest asset class in the world. Developers like Evergrandeand Country Garden got extremely rich in the process.
  • China’s president, Xi Jinping, was against the fact that China’s real estate market was seen more as a place for speculation than for living. Government Policy began to change surrounding real estate. Namely, the “Three Red Lines” policy came into effect in 2020. This allowed the government to effectively cap the amount of debt property developers could borrow.
  • Major market movers like Evergrande and Country Garden did not meet the criteria and thus stopped getting additional funding to finish constructions that were in progress. Additionally, urbanization began to dwindle and the demand for these properties fell as China’s youth population was facing a job crisis, and once the pandemic hit China, it exacerbated conditions. This pushed the housing cost-to-income ratio to historical highs and named it one of the worst in the world. As a result, supply massively overshot demand as affordability was at a low, causing the property bubble to deflate.

(Source: CNBC)

7.0% Interest Rates Hit Weekly Mortgage Demand Hard Published: 29 February 2024

  • Total mortgage application volume fell by 5.6% last week, impacting both current homeowners and potential buyers, attributed to higher mortgage rates.
  • The average contract interest rate for 30-year fixed-rate mortgages decreased slightly to 7.04%, with points increasing slightly, but still a quarter percentage point higher than the previous year.
  • Higher rates led to a 7.0% decrease in applications for home loan refinancing compared to the previous week and a 1.0% drop compared to the same period last year.
  • Mortgage demand for purchasing homes also dropped by 5.0% for the week and was 12.0% lower than the same week in the previous year, with Chief Economist of the Mortgage Bankers Association, Mike Fratanoni, noting that the lack of existing inventory remains a primary constraint, though demand for newly built homes increased by 19.0% year over year in January.

(Source: CNBC)

Kingston Wharves Plans Further Expansion Work Published: 28 February 2024

  • Kingston Wharves Limited intends to do further expansion work at its facility located at the Port of Kingston. It plans to invest US$120Mn on the port developments over the next two to five years. This would be on top of the current US$60Mn that the company is spending on upgrades, including the redevelopment of Berth 7, which was completed last week. 
  • CEO of KWL Mark Williams says further expansion plans should optimise the use of space and will be done over the next five years. "The next phase of this terminal expansion will see us segmenting the terminal to be very well-organised and efficient."
  • He noted that the expansion will also allow for the accommodation of two to three large Panamax-sized vessels simultaneously. The Panamax size is the maximum size that can transit in the Panama Canal, these tankers range in length between 200 and 250 metres (650 and 820 feet) and have capacities of 50,000 to 80,000 dwt.
  • KWL’s stock price has increased by 22.9% since the start of the calendar year. The stock closed Tuesday’s trading session at $33.15 and currently trades at a P/E of 16.1x, which is below the Main Market Energy, Industrials and Materials Sector Average of 16.9x.
  • There are a few downside risks to consider, including the potential impact of higher inflation and geopolitical tensions affecting global supply chains. Additionally, the volume slowdown due to the restrictions in Panama may slow its growth momentum in the short-term.
  • Despite these risks, the outlook for Kingston Wharves is positive as it continues to strategically invest in both its physical and digital infrastructure. KWL is a regional leader in the industry and has the potential to reap greater and sustainable profit and long-term shareholder value through plans being executed.

(Sources: RJR & NCBCM Research)

 

Brazil's Lula Spotlights Global South in G20 Presidency Published: 28 February 2024

  • Вrаzіlіаn Рrеѕіdеnt Luіz Іnасіо Lulа dа Ѕіlvа іѕ uѕіng hіѕ соuntrу’ѕ G20 рrеѕіdеnсу tо аmрlіfу thе vоісе оf thе Glоbаl Ѕоuth іn іntеrnаtіоnаl dесіѕіоn-mаkіng. Ніѕ vіѕіоn іnсludеѕ rеfоrmіng glоbаl gоvеrnаnсе ѕtruсturеѕ lіkе thе Unіtеd Nаtіоnѕ аnd gіvіng dеvеlоріng nаtіоnѕ grеаtеr rерrеѕеntаtіоn іn іnѕtіtutіоnѕ lіkе thе ІМF аnd Wоrld Ваnk.
  • Lula's call for reform of global governance and the updating of the eight-decades-old United Nations system was amplified at last week's meeting of G20 foreign ministers in Rio de Janeiro. Finance ministers meeting this week in Sao Paulo face further pressure as Brazil pushes for wealth redistribution to boost emerging economies.
  • However, diplomats said it would be an uphill battle to expand the U.N. Security Council, where countries with veto powers may pay lip service to the idea but have long-delayed discussions that would dilute their status. Despite the potential resistance, Brazil’s G20 leadership has already brought progress. The insistence on including the African Union as a full G20 member is a significant step.
  • Lulа’ѕ рrеѕіdеnсу еmрhаѕіzеѕ роvеrtу rеduсtіоn, аddrеѕѕіng сlіmаtе сhаngе, аnd рrоmоtіng еquіtаblе rерrеѕеntаtіоn іn glоbаl dесіѕіоn-mаkіng. Тhіѕ ѕhіft іn G20 dуnаmісѕ рlасеѕ dеvеlоріng nаtіоnѕ аt thе fоrеfrоnt оf сrаftіng есоnоmіс роlісіеѕ.
  • Bringing more developing nations to the table adds pressure on financial institutions traditionally controlled by Europe and the United States to consider proposals such as a Brazilian one to reduce countries' debts by converting them into investments.
  • At this week's G20 meeting of finance ministers and central bank governors in Sao Paulo, the Global South will lead the way in crafting the final statement, expected to mention shifting more money from advanced nations into the development of emerging economies, according to a G7 country official.

 (Sources: Reuters & Breaking Belize News)

Peru Declares Health Emergency as Dengue Outbreak 'Imminent' Published: 28 February 2024

  • Peru declared a health emergency across most of the country on Monday, February 26, as a heat wave and heavy rains have led to a spike in dengue fever cases.
  • The South American nation's death toll due to the virus has risen to 32 so far this year, Health Minister Cesar Vasquez. Notably, total cases also climbed to 31,300 in the first eight weeks of the year, Vasquez said, up from 24,981 in the first seven weeks.
  • The Peruvian government's cabinet approved the motion to declare a health emergency on Monday, Vasquez told journalists, hours after he said a dengue outbreak was "imminent”.
  • "There are 20 regions (out of 25) that will be declared in a health emergency due to dengue," Vasquez said in an earlier interview on local radio station RPP. The declaration boosts resources to health responders in the affected areas.
  • Most of the cases seen so far in Peru have been in the country's north, where hospitals are already overwhelmed. Last year, 428 people in Peru died from dengue, with 269,216 infected, according to official data.

 (Source: Reuters)

US Consumer Confidence Ebbs in February; Inflation Expectations Fall Published: 28 February 2024

  • U.S. consumer confidence retreated in February after three straight monthly increases as households worried about the labour market and the domestic political environment.
  • The Conference Board said on Tuesday that its consumer confidence index slipped to 106.7 this month from a downwardly revised 110.9 in January. Economists polled by Reuters had forecast the index little changed at 115.0 from the previously reported 114.8.
  • "February's write-in responses revealed that while overall inflation remained the main preoccupation of consumers, they are now a bit less concerned about food and gas prices, which have eased in recent months, said Dana Peterson, chief economist at The Conference Board in Washington. “They are more concerned about the labor market situation and the U.S. political environment.
  • Despite declining confidence, inflation expectations for the next 12 months fell to a nearly four-year low. Consumers' inflation expectations fell to 5.2%, the lowest level since March 2020, from 5.3% in January.

(Source: Reuters)

US Durable Goods Orders Slump; Business Investment on Equipment Appears Soft Published: 28 February 2024

  • January marked the steepest decline in U.S. durable goods orders in nearly four years. Business equipment investment showed signs of easing, indicating a loss of economic momentum at the year's outset.
  • Durable goods orders plummeted by 6.1% in January, with a significant decline in commercial aircraft bookings. Civilian aircraft orders plummeted 58.9% last month after rising 1.0% in December. Boeing reported on its website that it had received only three orders for commercial aircraft in January, sharply down from 371 in December. Overall transportation orders fell by 16.2% last month after slipping 0.6% in December.
  • Nondefense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, edged up 0.1% in January after a revised 0.6% decline in the prior month.
  • These so-called core capital goods orders were previously reported to have gained 0.2% in December, indicating a much weaker start for business equipment spending than anticipated. Nevertheless, business spending on equipment rebounded modestly in the fourth quarter after contracting in the July-September period. 
  • Importantly, though there are signs that manufacturing, which accounts for 10.3% of the U.S. economy, is stabilising after production eased in 2023 amid 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022, a full recovery is still a long way away. 

(Source: Reuters)

Wigton Extends Power Purchase Agreement with JPS by 3 Years Published: 27 February 2024

  • Wigton Windfarm Limited has advised that entered into an Addendum to the Power Interchange Agreement in respect of Wigton Phase I with the Jamaica Public Service Company Limited on February 16, 2024, to extend the period of operation of the plant for another three (3) years starting April 1, 2024.
  • The extension of the period of operation of Wigton Phase I will allow for the continued generation of energy from the plant by means of the existing equipment. It will also allow more time for stakeholder engagements on the repowering exercise to install newer and more efficient equipment to continue.
  • After rising 25.4% in 2023, Wigton’s stock price has appreciated a further 40.5% since the start of 2024 and closed Monday’s trading session at $1.11 per share. At this price, the stock trades at a P/E of 38.3x, which is above the Main Market Energy, Industrials and Materials Sector of 16.9x.

(Sources: JSE & NCBCM Research)

BOJ Releases Statement on the Revised Impact of JUTC Fare Reduction on Inflation Published: 27 February 2024

  • The Bank of Jamaica (BOJ), in a statement released on February 23, noted that upon review, it recognised that it had overestimated the impact of the reduction in JUTC fares on inflation and that it took full responsibility and apologised for the error.
  • In early November 2023, the BOJ shared its concern about projected inflation with the Minister of Finance and the Public Service, Hon. Nigel Clarke, highlighting that inflation was projected to rise above the target range over an extended period, driven largely by the public passenger vehicle (PPV) fare increases announced by the Government on October 10, 2023, which would take effect in October 2023 (19%) and April 2024 (16%).
  • It also shared with the Minister at that time an estimate of the cumulative impact of the increases in PPV fares as contributing approximately two percentage points to annual inflation and advised the Minister of its estimate of required reductions in JUTC fares to cushion the impact of the announced PPV fare increases.
  • Subsequently, on 21 November 2023, the Minister announced in Parliament the temporary two-phase reduction in JUTC fares to support BOJ’s inflation targeting mandate. However, Governor Byles noted that the BOJ had overestimated the effect of the fare reduction, which had an offsetting impact of only 0.2%.
  • Jamaica’s higher-than-targeted headline inflation of 7.4% in January 2024, which exceeded the Bank’s target of 4.0% to 6.0%, contributed to the Monetary Policy Committee’s (MPC) decision to maintain the policy interest rate at 7.0%.
  • As a result of the above-noted price shocks, inflation is now projected to track above the Bank’s target range between the March 2024 and June 2025 quarters.

(Source: BOJ)

Dominican Government Reports 4.7% Decrease in Monetary Poverty in 2023 Published: 27 February 2024

  • The Ministry of Economy, Planning, and Development (MEPyD) reported that monetary poverty decreased by 4.7% in 2023. In the Dominican Republic, the official measure of poverty has been monetary poverty, which considers only household income. In this sense, households defined as poor under this methodology are those that are below the poverty line in the country (RD 7,645.3 – 2023 poverty line per person).
  • According to the 2023 Bulletin of Official Monetary Poverty Statistics in the Dominican Republic, in 2023, national monetary poverty significantly decreased from 27.7% in 2022 to 23.0% in 2023, indicating positive progress in improving the general economic conditions of the population compared to 2022.
  • The publication stated that the decrease in general poverty in the country was mainly female and rural. Poverty in rural areas decreased from 30.9% to 24.6%; meanwhile, poverty in urban areas decreased from 27.0% in 2022 to 22.7% in 2023. The percentage of women in monetary poverty decreased 5.3 percentage points to 24.1% in 2023, whereas the reduction for men was 4.0 percentage points, from 25.8% in 2022 to 21.8% in 2023. Extreme poverty also improved 0.6 percentage points from 3.8% in 2022 to 3.2% in 2023.
  • The main determinants for the decline in poverty were said to be the control of inflation, along with the increase in employment and labour income favoured by a notable generation of more formal jobs.
  • Notably, in 2023, the nominal per capita household income reached RD15,906 pesos (approximately US$270.65), representing an increase of 16.2% when compared to 2022. Likewise, the real per capita household income increased by 11.7% compared to 2022.
  • This improvement in household income translates to a higher standard of living for locals, supported by the likelihood for greater consumption and the ability for locals to effectively meet basic needs.

(Source: The Dominican Republic’s Ministry of Economy, Planning, and Development)