Saudi Arabia’s PIF Expands Middle East-Asia Investments, Invests $500 Million In Hong Kong Conglomerate

Economic

Summary:

The investment includes $100 million in five-year convertible debentures and $400 million in a five-year loan.

The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, has signed an agreement to invest $500 million in Hong Kong Chaoshang Group, an investment holding company. The investment includes $100 million in five-year convertible debentures and $400 million in a five-year loan.

Negotiations on the final terms of the investment will be completed within three months, according to a statement from the Hong Kong-listed company. However, the agreement is not yet legally binding.

The PIF funding is expected to boost Chaoshang Group’s liquidity and support increased investments in mining, healthcare, and other sectors. For the fiscal year ending March 31, 2024, Chaoshang Group reported an operating loss of HK$87,563,000 (around $5 million), up from HK$42 million the previous year.

PIF’s other investments in China

In November 2023, PIF was reported to be in discussions about a $250 million investment in the Chinese electric vehicle maker Human Horizons Group. A month later, the wealth fund was also said to have increased its investment to $200 million in a technology venture backed by China’s Alibaba Group.

Saudi equity ETF listed in Hong Kong

Separately, last year saw the listing of a new exchange-traded fund (ETF) tracking Saudi equities in Hong Kong, the first such product in Asia. Additionally, in May 2024, it was revealed that officials in Hong Kong were planning to set up an ETF in partnership with Saudi Arabia’s stock exchange.

Potential Saudi-Hong Kong economic agreements

Hong Kong’s deputy financial secretary, Michael Wong, stated that formal negotiations were underway for an investment promotion and protection agreement with Saudi Arabia. Wong also indicated that Hong Kong was considering establishing an economic and trade office in Riyadh.

In 2023, PIF’s assets under management (AUM) surged to SAR2.8 trillion ($746.4 billion), surpassing the SAR2.7 trillion target set for the year. Moreover, the Saudi Arabian sovereign wealth fund aims to grow its AUM to $2 trillion by 2030.

Source:Economy Middle East

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Warren Takunda

Economic

Central Bank

The Pound to Dollar exchange rate spiked above 1.28 briefly after the Bureau of Labor Statistics slashed its previous estimates for U.S. job growth in April and May by 111K and said unemployment rose to 4.1% in June.

The June non-farm payroll report fell to 206K from 272K, but this beat estimates for an outcome of 190K. However, the currency and bond market reaction suggests emphasis is falling on the revision to the previous two months and the unemployment rate.

"Traders are selling the dollar and interest rates are slumping on firming prospects for a September rate cut," says Karl Schamotta, Chief Market Strategist at Corpay.

The takeaway is that the labour market is loosening, which is consistent with softening wage growth that will weigh on inflation going forward, allowing the Federal Reserve to cut interest rates, potentially as soon as September.

Indeed, the BLS also reported average hourly earnings rose 3.9% on an annual basis, which is the lowest level in three years.

"The U.S. labour market appears to be cooling," says Richard Carter, head of fixed interest research at Quilter Cheviot. "Fed policymakers raised concerns at its latest monetary policy meeting that unemployment could rise too quickly should rates be held for too long." Pound to Dollar Briefly Breaks 1.28 on Soft U.S. Jobs Report_1

Pound to Dollar Briefly Breaks 1.28 on Soft U.S. Jobs Report_1

On Tuesday, Federal Reserve Chair Jerome Powell told a conference in Portugal that the Fed would consider cutting interest rates if the job market deteriorated.

Carter says there remains a risk that the unemployment rate could increase further from here.

"Though this is a relatively solid jobs increase, coming in slightly higher than expected, when considered alongside the downturn in earnings as well as signs of softening elsewhere in the economy, it could prove to be enough for a shift in the Federal Reserve’s stance," he says.

The U.S. job report is the latest in a series of soft economic prints. On Wednesday, the Dollar fell following the release of the ISM services sector PMI, which undershot expectations by a significant margin.

"There remains a clear desire among FOMC members to deliver a cut, likely sooner rather than later, hence the ‘Fed put’ remains forceful, and flexible, in nature. This should, in turn, continue to support risk assets, with the path of least resistance for equities continuing to point to the upside," says Michael Brown, Senior Research Strategist at Pepperstone.

Currency analysts say the Dollar could come under sustained pressure once the Federal Reserve looks to be entering a sustained period of interest rate cuts.

However, complicating factors to such an assumption include the November U.S. elections. Already, we have seen markets vote that the rising odds of a Trump presidency are USD-supportive.

Source: Poundsterlinglive

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Alex

The average price of a house in the UK remained relatively flat in June. However, property values are likely to rise modestly through this year and into 2025.

House prices fell by 0.2% month-on-month or just under £500 in cash terms in June, Halifax said.

The annual rate of house price growth stood at 1.6%, and on an annual basis house prices have increased for seven months in a row.

Halifax said the UK house price in June was £288,455, edging down from £288,931 in May.

Amanda Bryden, head of mortgages, Halifax, said: “UK house prices stayed relatively flat for the third successive month in June, with the slight fall equivalent to less than £500 in cash terms.”

She continued: “This continued stability in house prices – rising by just 0.4% so far this year – reflects a market that remains subdued, though overall activity has been recovering.

“For now it’s the shortage of available properties, rather than demand from buyers, that continues to underpin higher prices.

“Mortgage affordability is still the biggest challenge facing both home buyers and those coming to the end of fixed-term deals.

“This issue is likely to be eased gradually, through a combination of lower interest rates, rising incomes, and more restrained growth in house prices.

“While in the short-term the housing market is delicately balanced and sensitive to the pace of change to base rate, based on our current expectations property prices are likely to rise modestly throughthe rest of this year and into 2025.”

In some signs of relief for borrowers, lenders including Halifax, HSBC UK, Barclays, Santander, NatWest and Yorkshire Building Society have been chopping their mortgage rates this week.

Some 1.6 million mortgages are coming off fixed rates this year, according to UK Finance.

Labour’s General Election landslide could deliver a confidence boost to the housing market, some commentators suggested.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the wealth manager, said: “A stable political environment can potentially deliver a confidence boost to the housing market, particularly one that has struggled over the past year with high borrowing costs and a dearth of available and affordable stock.

“Buying a first home, upsizing and even downsizing are all major personal finance decisions, which is why confidence in how your country is run is vitally important.

“Interest rates have remained at a 16-year high of 5.25% for almost a year causing major affordability challenges for first-time buyers and those looking to move to larger homes.

“While the combination of lower inflation and strong wage growth has offered a slight boost to housing affordability, for many the dream of home ownership is still out of reach.

“Throw in interest rate cuts, however, with the first reduction expected as early as next month on August 1, and, in turn, more competitive mortgage rates, and the market could experience a surge in demand.”

Ms Haine added: “Labour will be keen to encourage more first-time buyers to get a foot on the UK’s housing ladder, something that has become a major challenge for many young, and not so young, buyers in recent years who have struggled to find affordable homes in many parts of the country.”

Iain McKenzie, CEO of the Guild of Property Professionals, said: “Despite high interest rates and the run-up to the general election, the property market has remained resilient, which is reflected in the more optimistic house price forecasts for the remainder year.

“We are seeing confidence return to the market and expect it will continue to build momentum once the dust settles post election.”

Tom Bill, head of UK residential research at estate agent Knight Frank, said: “Stubbornly high mortgage rates and the uncertainty of a General Election means the UK housing market has not experienced a particularly strong seasonal bounce this spring.

“We expect trading volumes to increase from the autumn as a rate cut becomes imminent and relative calm returns to Westminster. A Labour victory will have little bearing on what happens in the property market in 2024 and our forecast of an average 3% UK rise is unchanged.”

Nathan Emerson, CEO of property professionals’ body Propertymark, said: “The announcement of a General Election last month may have caused movement in the housing market to slow down, but now that we know we have a new government with an overall working majority, Propertymark remains optimistic that house prices will start to rise during the summer months, a busy time for the housing market.”

Source：msn

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ING

Economic

Weakening jobs trend accompanied by rising unemployment

The June jobs report shows non-farm payrolls rose 206k versus the 190k consensus, but there were some big downward revisions to the history with the previous two months seeing 111k fewer jobs being added than originally thought. As the chart below shows, this indicates a clear cooling in job creation with the 3-month moving average now at its weakest since January 2021. The other big story is the unemployment rate breaking above 4% to 4.1%. This was just 3.4% in April of last year and indicates that slack is forming, which is keeping a lid on wage growth. Average hourly earnings increased 0.3%MoM/3.9%YoY, the slowest rate of annual increase since 2Q 2021.

Monthly change in non-farm payrolls (000s)

Cooling US Jobs Market Keeps September Rate Cut in Play_1

Private sector job creation looks particularly weak

The details show government (+70k) and private education/healthcare services (+82k) remain the dominant areas of job creation. In fact these two sector alone account for 59% of all the jobs added since the beginning of 2023. Another important sector over the past couple of years, leisure & hospitality, was much more subdued (+7k) while retail, temporary help, professional business services and manufacturing all saw job losses. This means private payrolls increased only 136k in June versus the 160k expected.

Cumulative change in non-farm payrolls since 2023 (000s)

Cooling US Jobs Market Keeps September Rate Cut in Play_2

September rate cut chances are building

The Fed should be reasonably happy with this report in that it is consistent with their “soft landing” narrative. The economy is adding jobs, but the pace is slowing and slack is forming in the economy with a rising unemployment rate. This is prompting wage growth to cool, which should contribute to keeping inflation on the path to 2%.

The Fed doesn’t want to cause a recession if it can avoid it and would prefer to be able to move policy from restrictive territory to “slightly less” restrictive territory if the data allows. Certainly September is very much in play for a first Fed rate cut and those expectations will be boosted further if core CPI comes in at 0.2% month-on-month as expected next week. Our concern is that business surveys are pointing to intensifying weakness in the months ahead – both in terms of cooling economic activity and weaker job creation – and this may lead the Fed to cutting rates more rapidly. We look for three cuts this year versus the two cuts currently priced by markets with the Fed funds down at 4% by next summer.

Source: ING

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Samantha Luan

Economic

Bond

Turkish banks have found a roundabout way to access cheaper lira liquidity abroad, and in doing so are inflating figures for foreign purchases of lira-denominated government bonds.

Lira-denominated government debt has attracted a net $8.3 billion in overseas purchases in the past three months alone, data from the central bank shows. While some of that can be attributed to a revival of foreign interest in Turkey following a policy turnaround last year, bond traders say a sizeable proportion of the apparent inflows is actually coming from Turkish banks.

That’s because the banks have been selling or lending bonds to foreign counterparts, then buying them back via forward trades, according to traders who spoke to Bloomberg on condition of anonymity. Such transactions help the lenders to access lira liquidity at cheaper rates than they can at home.

“The appetite for Turkish bonds and currency products has indeed increased, but the actual inflows into local-currency government debt isn’t as big as it appears,” said Onur Ilgen, head of Treasury at MUFG Bank Turkey AS in Istanbul. “That’s because most of the inflows come to very short-term products amid brokered deals by foreign branches of Turkish banks.”

Turkey Bond Inflow Figures Swell With Local Banks Buying Abroad_1

Fueling the trade is an oddity of the Turkish market caused by increased foreign investor holdings of Turkish liras and Turkish restrictions on currency swaps. The combination of the two has made it cheaper at times to borrow liras abroad than to borrow them inside Turkey, with offshore overnight rates falling to as much as 20 percentage points lower than the domestic yield above 50%.

Rates Discrepancy

The discrepancy in rates gives Turkish banks an incentive to use their foreign branches to borrow liras, and then invest them in government bonds. The lenders can then sell those bonds to foreign institutions, or lend them out, transactions that are recorded by the central bank as inflows. It’s unclear how much of the $8.3 billion in inflows is due to such trades, and the central bank declined to comment on them.

Turkey Bond Inflow Figures Swell With Local Banks Buying Abroad_2

Debt purchases by Turkish lenders’ branches abroad have boosted foreign-inflow figures for lira bonds, but are “not entirely overseas investments,” according to Tufan Comert, an emerging market strategist at BBVA in London.

Meanwhile foreign investors are still exhibiting caution in taking on duration in Turkish bonds, with many positions for now focused on the currency instead, either via forward contracts and the carry trade, or shorter-term debt. Bank of America strategists calculate that positioning in forwards could now exceed $20 billion.

While some big-name foreign firms, including Amundi SA, Fidelity Investments and Abrdn Plc, have turned more constructive on local-currency Turkish debt recent months, others say they’re waiting to see inflation slow considerably or bond yields rise toward more attractive levels before buying in.

Overseas investors “tend to go for the highest-yielding notes with the shortest possible duration, so the quality of the inflows doesn’t appear to be very high for the time being,” BBVA’s Comert said.

Source：Bloomberg

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Warren Takunda

Economic

Canada's economy unexpectedly lost a net 1,400 jobs in June, while the unemployment rate increased more-than-expected to a 29-month high of 6.4%, data showed on Friday.

Analysts polled by Reuters had forecast a net gain of 22,500 jobs and the unemployment rate to rise to 6.3% from 6.2% in May.

The jobless rate, on an uptrend up over the past year, has risen 1.3 percentage points since April 2023 and is now the highest since 6.5% unemployment in January 2022, Statistics Canada data showed. Excluding the coronavirus pandemic years, unemployment was last as high as 6.4% was in October 2017.

The statistics agency noted finding jobs was getting harder, citing signs including rising unemployment among youth and, more recently, core-aged men. The unemployment rate for youth rose 0.9 percentage points to 13.5%, which, outside of the pandemic, was the highest since September 2014.

The average hourly wage growth of permanent employees, however, accelerated to an annual rate of 5.6% from 5.2% in May. The pay growth rate - closely tracked by the Bank of Canada (BoC) because of its effect on inflation - was the fastest since 5.7% in December.

The growth in wages, which tends to lag adjustments in employment, can reflect a range of factors, including composition of employment and base-year effects, Statscan noted.

BoC Governor Tiff Macklem said last month that the labor market had cooled reasonably in recent months, and achieving the central bank's goal of cooling inflation did not need to involve a sharp rise in unemployment. There was even room for economic growth and jobs creation without imperiling the bank's target of 2% inflation, the governor said.

In June, jobs were shed in full-time work, while part-time positions were added in the month.

Employment in goods sector increased by a net 12,600 jobs, mostly in agriculture, while services sector lost a net 14,100 jobs, led by Transportation and warehousing and Information, culture and recreation. Overall, there were 1.4 million unemployed people in June, up 3.1% from the previous month.

The weak jobs figures could increase the likelihood of a July interest rate cut after an unexpected uptick in inflation in May brought money market bets on a second trim in two months to below 50%.

The central bank lowered its key policy rate for the first time in more than four years in June and said more cuts were likely if inflation continued to cool. The bank's next rate announcement is on July 24, roughly a week after the next inflation data is release on July 16.

Source: Reuters

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Samantha Luan

Economic

Big changes are afoot for China’s three-year-old national carbon market.

They began in January, when the certified carbon emission reductions (CCERs) — were reintroduced. The voluntary market is also preparing to expand beyond power plants into a number of primary manufacturing industries.

Then on Tuesday, the Ministry of Ecology and Environment (MEE) released draft rules tightening the carbon allowances allocated to market participants for the mandatory national Emissions Trading System (ETS), aimed at boosting market activity and promoting power generators’ green and low-carbon transition.

The changes come as the European Union moves to implement the world’s first tax on carbon-intensive imports, which include steel, cement and aluminum, beginning in 2026. This “carbon tariff” under the Carbon Border Adjustment Mechanism (CBAM) is intended to mitigate the competitive advantages of nations that do not price externalities like carbon pollution into their manufacturing sectors.

“After the expansion of China’s carbon market, Chinese enterprises and the EU have a basis for dialogue, and will be able to show that exporting companies have already paid the carbon cost within China,” said Zhang Xiliang, who heads the technical expert group for the overall design of China’s national emissions trading scheme.

Meanwhile at home, the market has been contending with companies hoarding carbon permits in anticipation of tightening allocations, leading to very low liquidity in the carbon market.

In 2023, when China’s carbon market covered a massive 5.1 billion tons of carbon dioxide — or 40% of the nation’s total emissions — that same market saw only 212 million tons of carbon quotas traded. In contrast, the EU carbon market, covering only about 1.1 billion tons of emissions, had a trading volume of approximately 9.1 billion tons, according to data from the London Stock Exchange Group.

Some insiders say the expansion of the Chinese carbon market will increase its trading volume, as the market will attract a wider array of participants, incorporating entities with diverse compliance requirements, emission reduction technologies, and cost structures. This increased diversity is likely to improve the market’s resource allocation mechanism, leading to more cost-effective emissions reductions across society.

Policy gets teeth

China’s historically flat carbon prices surged more than 30% in the two months after the 2024 Spring Festival, breaking the symbolic 100 yuan-per-ton mark ($13.76 per ton). By May 8, the carbon price had doubled from its inception price in July 2021 to 101.09 yuan per ton, marking the eighth consecutive day of elevated prices. Prices for the majority of June slipped below the threshold and hovered above 90 yuan per ton.

China’s Push to Expand Its Carbon Market_1

Although initially driven by mandatory compliance requirements, the recent spike in carbon prices reflects broader market dynamics. Companies have been rushing to meet emission targets at the end of compliance periods. This urgency, coupled with concerns over short-term quota shortages and stricter emissions management practices, has influenced pricing trends.

Several factors have led to heightened caution for emissions-controlled companies — that is, those subject to the policy — in selling their surplus quotas. The first is that as of May 1, the policy has teeth. That’s when the “Interim Regulation on Carbon Emission Trading Management,” took effect, introducing severe penalties for non-compliance.

Companies that fail to meet their obligations on time face fines between five and ten times the market average transaction price from the month before the payment deadline. For instance, a company with a compliance shortfall of 100,000 tons, at a carbon price of approximately 70 yuan per ton, could incur a minimum fine of 35 million yuan, compared with the relatively lenient previous fine of up to 30,000 yuan. It’s no wonder firms are storing their quotas for the future, rather than selling now, at a discount on what they are eventually expected to be worth, one analyst at an international research institute told Caixin.

Secondly, previous expectations of tighter quota allocations for emissions-controlled companies have heightened the perceived value of these assets, as the national carbon market has now entered its third compliance cycle, the analyst said.

Historical adjustments of the benchmark for allocating carbon emission allowances indicate a significant reduction during the transition between compliance periods. Compared to the first compliance period, the benchmark values for power generation units in the second compliance period were lowered between about 6.5% and 18.41%.

The first cycle spanned from 2019 to 2020, with compliance completed by the end of 2021, while the second cycle covered 2021 and 2022, with compliance due by the end of 2023.

The MEE’s draft rules, which are out for public feedback until July 10, required market participants to now report compliance annually from biennially, a move that was widely expected by industry insiders.

In order to boost trading activity, participants will also face restrictions on carrying over unused permits and certain limits on borrowing allowances from future years, according to the MEE.

“Companies won’t be able to keep holding onto their remaining quotas,” said a person with knowledge of the policymaking process. This means that the quotas previously hoarded by emissions-controlled companies and not traded will lose their value after a set period, potentially releasing more supply.

Finally, there is a shift from entirely free to partially paid quota allocations on the horizon. This shift is likely to put even more pressure on quotas.

“The initial ratio of the paid quota allocation may be low, but even if it’s just 1%, we should start trying and plan to gradually increase it,” said Zhang, who is also director of the Institute of Energy, Environment and Economy at Tsinghua University. The mechanism might be implemented as soon as next year, he said.

In the current EU Emissions Trading System, all of the carbon quotas for the power industry are allocated for a fee through auctions. “The EU’s electricity and carbon markets are mature, allowing power companies to pass on the cost of carbon prices through electricity pricing. However, China’s end-user electricity prices are controlled, and any increase in the proportion of paid allocations must be coordinated with the push for electricity reforms,” said Zhang.

As China transitions from restricting energy consumption to restricting carbon emissions, “the scarcity of carbon emission resources will continue to rise, and carbon prices are expected to steadily rise,” Zhang said.

Market expands

The electrolytic aluminum, cement and steel industries are expected to join the carbon market in 2025, making them among the first tier of industries to do so outside the power industry, a representative from the Beijing Green Exchange told Caixin.

The second tier is expected to include the chemicals and civil aviation industries, expected by 2026, while the petrochemicals and paper industries will make up the third tier, expected to be included by 2030, the person said.

China’s Push to Expand Its Carbon Market_2

In March and April, the MEE sought public opinion on the rules for greenhouse gas emissions accounting and reporting for aluminum smelters and cement-clinker makers, signaling the government’s clear intention to expand the carbon market.

The aluminum and cement industries, responsible for about 4.5% and 10% of China’s total carbon emissions, have simpler production processes that facilitate more reliable emissions data.

In that regard they are very different from steel production, which involves long and intricate processes that make emissions accounting tricky. Steelmaking, which contributes some 15% of China’s total carbon emissions, is only surpassed in its toll by the coal-dominated power sector.

“The steel industry faces significant pressure entering the carbon market due to its complex processes. The interplay of energy and heat flows among various stages makes accurately accounting for carbon emissions from each facility a considerable challenge,” said Lu Shize, the deputy director of the climate change department at the MEE, during the 2024 Steel Industry High-Quality Development Conference in late March.

Lu said steel companies will be required to submit production data and emissions data to the ministry for monthly certification from the second half of 2024, serving as a crucial basis for annual carbon emissions. The ministry is currently organizing carbon emissions accounting and verification guidelines for the steel industry, including various technical preparations for quota allocation. These preparations have been nearly a year in the making, and the documents are almost ready, Lu said.

Some leading steel companies have already started preparing for carbon trading, becoming major purchasers of fossil fuel alternatives such as wind, solar, hydro and nuclear. In 2024, iron and steel manufacturing conglomerate HBIS Group Co. Ltd. led a group purchase of 840 million kilowatt-hours (kWh) of fossil fuel alternatives, accounting for 20% of all companies’ total purchase. Baoshan Iron & Steel Co. Ltd. has set an even higher target for such purchases in 2024, aiming for 1.4 billion kWh, a 36% increase from 1.03 billion kWh in 2023.

Better than the power industry, industries like steel and cement can pass costs to consumers. However, facing weak demand and overcapacity in the real estate downturn, these industries might ultimately bear the added compliance costs themselves in the long run.

Meng Bingzhan, a deputy general manager at SinoCarbon Innovation & Investment Co. Ltd., said the financial impact of joining the carbon market will vary among firms. Financially robust companies can leverage their carbon reduction initiatives for cost benefits, whereas smaller firms will struggle with the associated expenses.

For example, Huaxin Cement Co. Ltd. , a leading cement manufacturer, has planned investments totaling 340 million yuan for its Wuxue, Hubei province factory from 2021 to 2030 as part of its carbon reduction strategy. But the cement industry’s declining profitability, driven in part by the implosion of the real estate sector, will limit the ability of smaller companies to make similar investments. These firms, often operating with outdated equipment, face higher costs to upgrade to low-carbon production.

That’s why many observers expect the carbon market could precipitate a string of mergers and restructurings in high-emission industries like steel and cement.