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Can Evergrande’s great fall in China impact Canadian stock markets?

Highlights China Evergrande Group s stocks on the Hong Stock Exchange HKEX plunged by more than 10 per cent on Monday The Chinese real estate…

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This article was originally published by Kalkine Media - Canada

Highlights

  • China Evergrande Group’s stocks on the Hong Stock Exchange (HKEX) plunged by more than 10 per cent on Monday.
  • The Chinese real estate giant is currently facing much heat due to its massive levels of debt.
  • As the rising concerns surrounding China Evergrande’s debt crisis troubled stock markets in China, Canadian and US stock futures also began the week in red. 

Stock markets around the world felt tremors as Chinese real estate giant Evergrande Group nosedived on Monday, September 20.

As China Evergrande Group’s stocks on the Hong Stock Exchange (HKEX) plunged by more than 10 per cent on Monday, the market’s benchmark Hang Seng Index dipped by over three per cent, noting its biggest decline since July this year.

Let’s take a closer look at why this property developer is crisis and how that can impact global, including Canada’s stock markets.

 

Why Evergrande Group is in trouble?

Founded in 1996, Evergrande is primarily known for its business of developing residential real estate. It is said to have constructed some 1,300 housing projects across in 280 cities in China, and plans to build another 3,000 properties in the country.

Over the years, the Shenzhen-based company expanded its operations to reach into new ventures such as electric vehicles (EV), theme parks, streaming service, and even football club of Guangzhou FC.

But with its expanding business model came a lot of debt, and that seems to have brought the enterprise to a verge of collapse.

In its attempt to buy more land to start newer projects, Evergrande had reportedly begun borrowing huge sums of money. While the company was selling off some of these newly built properties, its debt continued to mount.

Also read: Canada housing market: Can it be heading for a crash in 2021?

Then, in late 2020, Chinese authorities began closely scrutinizing its business amid its crackdown on property firms. And that’s when Evergrande’s massive debt loads came to light.

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Soon, Evergrande began losing its trust factor among lenders and buyers, bringing it closer to its collapse.

As of now, Evergrande is said to have piled up a debt of about two trillion yuan, (approximately US$ 300 billion).

Evergrande’s fall and global stock markets

As the rising concerns surrounding China Evergrande’s debt crisis troubled stock markets in China, Canadian and US stock futures also began the week in red.

The Toronto Stock Market (TSX) futures sank to a two-month low on Monday, down 1.5 per cent at 6:44AM EST. In the US, NASDAQ and S&P 500 futures were down by 1.07 per cent and 1.32 per cent, with Dow Jones futures slipping around 1.58 per cent.

Also read: Are real estate stocks a good investment in Canada?

While national factors like the federal elections in Canada and the anticipation ahead of the Federal Reserve’s September meeting in the US influenced these numbers, Evergrande’s crisis is likely to have impacted them too.

Europe, too, felt its heat as the Stoxx 600 index sank by around two per cent in the afternoon trade, with European banking stocks notably collapsing. The German Dax, on the other hand, tanked by nearly three per cent around 3PM in the afternoon.

International companies such as London-based Ashmore Group Plc, New York’s BlackRock Inc and UBS Group AG in Zurich were reportedly major holders in Evergrande, and could likely feel an impact amid this crisis.

Can Evergrande’s troubles impact Canada and its stock markets?

Evergrande is known to hold assets in North America, including the Fairmont Le Château Montebello resort in west Quebec that it purchased in 2014. Hence, there may be some effects in that area.

But in terms of stock market performance, while Canada can feel some heat along with the rest of the world, some market experts believe that a direct impact of the Evergrande crisis may not take place.

Bottom line

An important factor to note is that Evergrande’s fall from grace comes amid a real estate boom in China, one that has lasted for years. As the country grew from a primarily agrarian-based economy to a major urban centre over the past few decades, real estate became a hot bed or investment.

This quickly gave rise to a “housing bubble”, which was more of a tide that property giants like Evergrande surfed for a long time. But in the bid to pop up more properties to sell, it appears to have dug itself a big old trench of debt and trouble.

While the scenario may be different, Evergrande’s journey can serve as a cautionary tale to real estate players all around the world.




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Economics

Euro steady as PMIs

The euro is trading quietly in the Friday session. Currently, EUR/USD is trading at 1.1636, up 0.10% on the day. Manufacturing PMIs within expectations…

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The euro is trading quietly in the Friday session. Currently, EUR/USD is trading at 1.1636, up 0.10% on the day.

Manufacturing PMIs within expectations

German and eurozone Manufacturing PMIs for October continued to point to strong manufacturing activity. The German Manufacturing PMI came in at 58.2 and the eurozone release at 58.5. Both PMIs showed little movement from September, but were stronger than expected. Business activity slowed in both Germany and the eurozone, although it too remains in expansionary territory, as seen in the Services PMIs.

The PMIs may be in positive territory, but that of course is only part of the economic picture. The eurozone is clearly in a recovery phase, but growth has been affected by product shortages and supply chain disruptions. Businesses have had to deal with higher costs, which eventually make their way to the consumer and have resulted in higher inflation. The ECB has maintained that inflation is temporary, and unlike the Fed and the BoE, is not faced with surging inflation that may require interest rate hikes to wrestle under control.

At the same time, most major central banks are embarking on a tightening cycle, and the ECB may not be able to go it alone with an accommodative policy. If growth weakens and inflation gathers steam, ECB policy makers will have to consider scaling back the bank’s asset purchase programme.

In the US, positive data on Thursday, led by Initial Unemployment Claims, provided the dollar with a boost and also raised speculation about a Fed taper, which is widely expected before the end of the year. The dollar index continues to trade in a range between 93.50 and 94.00 and is at 93.69 in Europe. A drop below 93.50 could see the index fall to the 0.93 line.

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EUR/USD Technical

  • EUR/USD is testing resistance at 1.1640. Above, we find resistance at 1.1682
  • On the downside, there are support levels at 1.1541 and 1.484





Author: Kenny Fisher

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Economics

TSX in green as IT & industrials gain, commodities down

On Thursday October 21 the TSX Composite Index grew for the 12th consecutive day of trading increasing by 24 20 points to 21 212 39 an increase of…

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On Thursday, October 21, the TSX Composite Index grew for the 12th consecutive day of trading, increasing by 24.20 points to 21,212.39, an increase of 0.11 per cent. The index has a YTD return of 21.68 per cent and a one-year return of 30.3 per cent.

Thursday saw the IT and industrial sectors both grow 1.2 per cent. Base metals, however, fell 2.9 per cent.

One-year price chart (October 21). Analysis by Kalkine Group

Volume active

The most traded stock was Suncor Energy Inc with seven million shares exchanging hands. It was followed by Baytex Energy Corp where 5.68 million shares exchanged hands, and Cenovus Energy Inc with 4.7 million shares exchanging hands.

Movers and laggards

Wall Street update

The TSX Composite Index isn’t the only one currently in the all-time high club. It was joined Thursday by the S&P 500 gained 0.3 per cent or 13.59 points to reach its all-time high of 4,549.78. The major indices fell on market open and stayed low but rallied from late afternoon toward close.

The Dow fell 6.26 points or 0.02 per cent to 35,603.08 points and the Nasdaq was up 94.02 points or 0.62 per cent to 15,215.70 points.

Commodity update

Gold fell 0.17 per cent and traded at US$ 1,781.90. Brent oil fell 1.41 per cent to US$ 84.61/bbl, while crude oil gained 1.63 per cent to US$ 82.50/bbl.

Currency news

The loonie fell against the US dollar on October 21, while USD/CAD ended in the green at 1.2364, up 0.37 per cent.

The US Dollar Index was better off against the basket of major currencies Thursday and ended at 93.74, up 0.19 per cent.

Money market

Thursday’s trade saw the US 10-year bond yield grow 2.14 per cent and end at 1.696.

The Canada 10-year bond yield grew 3.9 per cent on October 21 and ended at 1.706.






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Energy & Critical Metals

IRENA: Energy Transition to Create 25 Million Green Jobs by 2030

IRENA has said that the global economy will create more green jobs than lost during the pandemic by accelerating investments in renewable energy to meet…

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The International Renewable Energy Agency (IRENA) predicts that some 25 million new green jobs will be created by 2030, surpassing the 7 million lost due to the pandemic.

However, governments will need to accelerate investments in renewable energy in line with sustainability targets set under the Paris Agreements.

In its new Renewable Energy and Jobs Annual review 2021, complied in partnership with the International Labour Organisation, IRENA predicts that some 5 million workers who lost their positions as a result of the pandemic will find new jobs in the same occupation in another industry.

Following the 1.5ºC pathway will result in the creation of some 38 million new positions within the renewables sector and 43 million by 2050, according to IRENA. Of these, the solar segment will account for a lion’s share with 19.9 million, followed by the bio-energy sector which is anticipated to create 13.7 million new positions.

IRENA found that despite the negative impacts of the pandemic in 2020, the number of jobs within the renewable energy sector increased to 12 million in 2020 up from 11.5 million in 2019. China and the solar industry accounted for a majority share of the new jobs created in 2020.

China accounted for 39% of the total jobs in the renewables sector in 2020 whilst the solar segment reached 2 million jobs. The hydropower sector stood at number three with 3 million positions and the wind sector at number four with 1,254 jobs.

However, during the launch of the report, Francesco La Camera, director-general of IRENA, highlighted the need for governments to introduce policies that encourage renewable energy investments in a just and inclusive manner. He emphasized the need for the inclusion of women and underrepresented communities in decision making and job creation and placement.

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La Camera, said in 2020 “women accounted for one-third of all jobs, better than the conventional sector but not enough. The energy transition needs to be an achievable one, just and inclusive.”

“For it to be successful, the energy transition needs to tap a diverse of talent and gender.”

La Camera urged governments and energy stakeholders to invest more in educating women with STEM skills and ensure their job training and placement is a key focus.

He reiterated: “Renewable energy’s ability to create jobs and meet climate goals is beyond doubt. With COP26 in front of us, governments must raise their ambition to reach net zero. The only path forward is to increase investments in a just and inclusive transition, reaping the full socioeconomic benefits along the way.”

Martha E. Newton, deputy director-general of policy at the International Labour Organisation, added: Going beyond the number of jobs is critical to achieve the social-economic benefits of renewables, freedom, equity and security.

“A wide range of policies are required to ensure social protection, workers rights, inclusion to support female participation in the energy transition”

Other key findings of the study include:

  • COVID-19 caused delays and supply chain disruptions and impacted jobs differently in various countries and end-use.
  • Liquid biofuels employment decreased as demand for transport fuels fell.
  • Off-grid solar lighting sales suffered, but companies were able to limit job losses.
  • Women suffered more from the pandemic because they tend to work in sectors more vulnerable to economic shocks.

Read the full report here.

The post Energy transition to create 25 million green jobs by 2030 – IRENA appeared first on Power Engineering International.

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