Optimism is on the rise, and investors are wondering if stocks are heading towards recovery territory. So, what does this mean for one industry that has largely outperformed the broader market amid the pandemic?
Just in time for summer, J.P. Morgan strategists looked at the biotech sector’s average summertime performance over the last 19 years, versus the S&P 500, to gain insights regarding what the next few months have in store for the space. Contrary to popular belief, the biotech indexes, NBI and IBB, bested the S&P 500 during the summer season in 12 out of 19 years, including 7 of the last 10.
Not to mention for the 11 years that the NBI was up going into summer, the space rounded out the year in the green 8 times. While COVID-19 could impact summer results, historically, this could bode well for the NBI, which is up 11.7% year-to-date.
Bearing this in mind, focus has narrowed in on the biotech space. That said, seasoned veterans of the Street know that these names come with a significant amount of risk due to the industry’s nature. For biotech companies, indicators like data readouts or regulatory verdicts are used to gauge the health of long-term growth narratives rather than financial results, and thus, any update can act as a catalyst capable of sending shares in either direction.
Acknowledging the risk involved, we used TipRanks’ database to take a closer look at three biotech stocks currently trading for under $5 apiece ahead of upcoming catalysts. All three tickers boast massive upside potential and have earned overwhelmingly bullish support from analysts, enough so to score a “Strong Buy” consensus rating.
SCYNEXIS, Inc. (SCYX)
Working on a cutting-edge anti-fungal asset, oral and IV ibrexafungerp (SCY-078), SCYNEXIS hopes to address the unmet medical needs of patients with difficult-to-treat and life-threatening fungal infections. With the candidate’s NDA submission slated for Q3 2020, several members of the Street believe that at $0.75 per share, investors should pull the trigger.
In a recent update, SCYX announced positive results from both the VANISH-306 trial and the FURI study, which are evaluating ibrexafungerp in vulvovaginal candidiasis (VVC) and severe fungal infections, respectively.
Marking the successful completion of the VANISH program, VANISH-306 saw the therapy demonstrate superior rates of resolution of symptoms at day 10, which was the test of cure, compared to the placebo.
Weighing in for Ladenburg, analyst Michael Higgins argues that because it has been 20 years since the only drug, Diflucan (fluconazole, “FLU”), was approved to treat VVC, the market should be very open to a new solution.
Higgins added, “In acute VVC, we believe ibrexa’s mid-70% rate of efficacy at day 25 will impress physicians when pared to FLU’s mid-50% rate (per its label)… And finally, we believe ibrexa has a key, >one-year lead, over any competitor and its one-day regimen (300mg BID) to secure its leading position among any branded competitor.”
Looking at the second interim efficacy analysis of the Phase 3 open-label FURI study, the data also impressed. In-line with the first interim readout in January 2019, 17 out of 21 additional patients, who had untreatable, refractory fungal infections, also experienced a complete or partial response, or even stable disease.
Higgins points out that two FURI abstracts will be presented at the European Congress of Clinical Microbiology and Infectious Diseases (ECCMID) conference this year. “The FURI abstracts show that Candida glabrata is the most common fungi among FURI’s refractory patients. More important, is that ibrexa successfully treated the C. glabrata infections, as this is a pathogen that is becoming more common and is currently highly resistant to azoles,” he commented.
All of this combined with its two additional studies of ibrexafungerp that could give the asset even more commercial opportunities prompted Higgins to remain squarely in the bull camp.
To this end, the analyst reiterates a Buy rating and $5 price target, indicating 575% upside potential from current levels. (To watch Higgins’ track record, click here)
Do other analysts agree with Higgins? As it turns out, they do. With 100% Street support, or 5 Buy ratings to be exact, the message is clear: SCYX is a Strong Buy. At $4.40, the average price target puts the upside potential at 494%. (See SCYNEXIS stock analysis on TipRanks)
Kadmon Holdings Inc. (KDMN)
With the goal of providing effective solutions for autoimmune, inflammatory and fibrotic diseases as well as immuno-oncology, Kadmon develops and commercializes innovative therapies. Currently going for $4.44 apiece, the analyst community thinks the share price reflects an attractive entry point.
On May 21, the company updated investors on its pivotal ROCKstar study of KD025 (belumosudil) in chronic graft-versus-host disease (cGHVD), releasing data from the study's primary analysis at six months post-enrollment completion. This data revealed that response rates got even deeper compared to the data from the interim analysis at two months post-enrollment completion, with ORR rates between 73-74% in the 200mg QD and BID arms, versus 64-67% as of the last update.
Commenting on the results for Cantor, analyst Eliana Merle said, “Importantly, we think the safety profile continues to look strong with no increased rate or risk of infections reported by the investigators, which we think will be a major commercial differentiator. From a stock perspective, although we think investors expected this data to be positive and for the response rates to improve with time, we think this strong update could serve as a clearing event for shares ahead of potential near-term commercial opportunity (NDA filing guided for 4Q20).”
Ahead of this key catalyst, Merle estimates that peak sales could reach $500 million, versus $700 million cap, with this large market opportunity potentially causing interest levels among market watchers to spike.
The good news kept on coming. KDMN also announced that it plans on submitting the NDA under the FDA's pilot Real-Time Oncology Review (RTOR) program. Even though Merle notes that it’s unclear exactly how this will impact review timelines, she believes it makes 2021 approval likely.
As the candidate has also received breakthrough designation, the deal is sealed for Merle. Along with a Buy rating, she reiterated a $10 price target. This target conveys her confidence in KDMN’s ability to soar 125% in the next twelve months. (To watch Merle’s track record, click here)
What does the rest of the Street think about KDMN? It turns out that other analysts also have high hopes. Only Buy ratings have been received in the last three months, 4 to be exact, so the consensus rating is a Strong Buy. More aggressive than Merle’s, the $13 average price target suggests 194% upside potential. (See Kadmon stock analysis on TipRanks)
Otonomy, Inc. (OTIC)
Primarily focused on developing treatments for disorders of the ear that disrupt hearing, balance and connection, Otonomy wants to improve the lives of people impacted by the debilitating effects of these conditions. While COVID-19 has weighed on the company, some analysts believe that at $2.56, its share price presents investors with a unique buying opportunity.
Given the significant pandemic-induced slowdowns, OTIC was forced to withdraw trial timelines. That being said, H.C. Wainwright’s Oren Livnat remains optimistic based on the strength of Otividex, its sustained exposure dexamethasone intratympanic (IT) injection for Meniere’s disease (MD).
It should be noted that the candidate previously had one positive European Phase 3 study (AVERTS-2) but failed in one U.S. Phase 3 study (AVERTS-1), with the company currently conducting a third global study. Originally, the data readout for the study was expected to come by the end of Q3, but now Livnat predicts a one-quarter delay.
“We have no reason to think the integrity of the study is compromised as the primary endpoint was always collected via daily telephone diaries (not visits), and compliance apparently remains high. We remain optimistic that the final Phase 3 will replicate successful results seen in AVERTS-2 and the earlier Phase 2b... bolstered by more careful site selection and patient screening, not advertising, and improved communication and training to limit placebo response. Assuming a manageable delay, assuming success, we project 2022 launch and peak of $300 million sales for this underserved condition with no approved therapies,” Livnat explained.
On top of this, management stated it hopes to release top-line results from the Phase 1/2 of OTO-313 (IT gacyclidine) in tinnitus and that it has resumed the enrollment for the Phase 1/2 program evaluating OTO-413 (IT BDNF) in cochlear synaptopathic speech-in-noise hearing loss.
Also exciting, Livnat highlights the fact that OTIC and its partner, Applied Genetic Technologies, presented preclinical results for their AAV-based gene therapy for congenital hearing loss associated with GJB2 deficiency, with the data demonstrating that novel capsids are generating targeted gene expression in support cells throughout the cochlea. For at least twelve-weeks after one injection, no signs of cellular toxicity were witnessed.
Based on all of the above, it’s no wonder Livnat reiterated his bullish call. Given the $8 price target, shares could skyrocket 213% in the next twelve months. (To watch Livnat’s track record, click here)
Turning now to the rest of the Street, other analysts also like what they’re seeing. 3 Buys and no Holds or Sells have been assigned in the last three months, making the consensus rating a Strong Buy. Additionally, the $8 average price target matches Livnat’s. (See Otonomy stock analysis on TipRanks)
To find good ideas for biotech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
The post 3 "Strong Buy" Biotech Stocks Under $5 With Major Catalysts Approaching appeared first on TipRanks Financial Blog.
COVID Lockdown Protests Erupt In Beijing, Xinjiang After Deadly Fire
COVID Lockdown Protests Erupt In Beijing, Xinjiang After Deadly Fire
Protests have erupted in Beijing and the far western Xinjiang region…
Protests have erupted in Beijing and the far western Xinjiang region over COVID-19 lockdowns and a deadly fire on Thursday in a high-rise building in Urumqi that killed 10 people (with some reports putting the number as high as 40).
Crowds took to the street in Urumqi, the capitol of Xinjiang, with protesters chanting "End the lockdown!" while pumping their fists in the air, following the circulation of videos of the fire on Chinese social media on Friday night.
2/ one significant trigger for the protest was a deadly fire in a resident building.— 巴丢草 Bad ї ucao (@badiucao) November 25, 2022
dozens people died due to lockdown setting stopped fire fighters and fire engines coming inside the block. pic.twitter.com/26soQld816
Protest videos show people in a plaza singing China's national anthem - particularly the line: "Rise up, those who refuse to be slaves!" Others shouted that they did not want lockdowns. In the northern Beijing district of Tiantongyuan, residents tore down signs and took to the streets.
3/ protestors from Urumqi were singing China‘s national anthem while waving a flag.— 巴丢草 Bad ї ucao (@badiucao) November 25, 2022
Quite common in China’s protest，we call it ‘举着红旗反红旗‘ wave the flag while against it.
Its a self-protraction meaning ’ i am against a policy not the nation/CCP‘. pic.twitter.com/XqworKWUnb
北京天通苑北一区— 李老师不是你老师 (@whyyoutouzhele) November 26, 2022
Reuters verified that the footage was published from Urumqi, where many of its 4 million residents have been under some of the country's longest lockdowns, barred from leaving their homes for as long as 100 days.
In the capital of Beijing 2,700 km (1,678 miles) away, some residents under lockdown staged small-scale protests or confronted their local officials over movement restrictions placed on them, with some successfully pressuring them into lifting them ahead of a schedule. -Reuters
According to an early Saturday news conference by Urumqi officials, COVID measures did not hamper escape and rescue during the fire, but Chinese social media wasn't buying it.
"The Urumqi fire got everyone in the country upset," said Beijing resident Sean Li.
【新疆的朋友私信发我的，不敢在朋友圈里发，会被派出所抓，求您推广，让大家知道，他们根本没办法逃生】 pic.twitter.com/rUV8QoEwz9— 方舟子 (@fangshimin) November 26, 2022
6/ Video of ‘anti zero-covid-lockdown protest’ from Urumqi,Xinjiang, China after 100+ days lockdown— 巴丢草 Bad ї ucao (@badiucao) November 25, 2022
Many people took videos and post on social media inside of China.
All the little screens in the video is a spark of fire and life pic.twitter.com/yUVxpduq4i
According to Reuters;
A planned lockdown for his compound "Berlin Aiyue" was called off on Friday after residents protested to their local leader and convinced him to cancel it, negotiations that were captured by a video posted on social media.
The residents had caught wind of the plan after seeing workers putting barriers on their gates. "That tragedy could have happened to any of us," he said.
By Saturday evening, at least ten other compounds lifted lockdown before the announced end-date after residents complained, according to a Reuters tally of social media posts by residents.
This anti-lockdown protest in the suburbs of Beijing can be geolocated to the South Gate of the Tiantongyuan North #1 Community. From the inside looking out.— Nathan Ruser (@Nrg8000) November 26, 2022
At 40.0731, 116.4109https://t.co/PjkDqEeeMO https://t.co/GzGJfHp7Lk pic.twitter.com/yBzA6y8j4s
On Nov 23, when a fire broke out in #Urumqi , people’s doors were locked from outside. Fire truck couldn’t get closer either( see my previous tweet). The latest figure says 44 were burnt to death, including a 3 y/o kid. That’s one of the reasons for today’s protests. pic.twitter.com/s4E0JHk4wQ— Jennifer Zeng 曾錚 (@jenniferzeng97) November 25, 2022
US Jobs and Eurozone CPI Highlight the Week Ahead
Two high-frequency economic reports stand out in the week ahead: The US November employment report and the preliminary eurozone CPI. The Federal Reserve…
Two high-frequency economic reports stand out in the week ahead: The US November employment report and the preliminary eurozone CPI. The Federal Reserve has deftly distanced itself from any one employment report. As a result, it would take a significant miss of the median forecast (Bloomberg survey) to alter market expectations for a 50 bp hike when the FOMC meeting concludes on December 14.
Economists are looking for around a 200k increase in US non-farm payrolls after 261k in October. In the first ten months of the year, the US has created 4.07 mln jobs. This is down from 5.51 mln in the Jan-Oct period last week but a strong performance by nearly any other comparison. In the same period before the pandemic, the US created about 1.52 mln jobs. Non-farm payrolls rose by an average of 150k in 2018 and 2019. It is averaging more than twice that now.
Average hourly earnings have increased in importance now with greater sensitivity to inflation and fears among policymakers that it could get embedded into wage expectations. The year-over-year increase in average hourly earnings peaked in March (when the Fed began hiking rates) at 5.6%. It has fallen or been unchanged since and fell to 4.7% in October. Economists expect the pace to have slowed to 4.6%. The 4% rate, seen as more consistent with the Fed's goals, assumes 2% productivity, which has been difficult to sustain outside crises (around the Great Financial Crisis and Covid) since the middle of 2004.
The ECB is a different kettle of fish. Nearly all the voting members at the Fed that have spoken, including the leading hawks, seem to accept a downshifting from 75 bp to 50 bp. However, at the ECB, there appears to be a genuine debate. It hiked rates by 75 bp at the last two meetings after starting the normalization process with a half-point move in July. As a result, the month-over-month headline inflation surged by 1.2% in September and 1.5% in October. The year-over-year rate stood at 10.7% in October, 300 bp above the US. On the other hand, core inflation was 5% above a year ago in the eurozone compared with 6.3% in the US. The median forecast in Bloomberg's survey sees the headline rate easing to 10.4%, with the core rate unchanged.
This is leading some, like the Austrian central bank governor Holzmann to suggest that unless there is a sharp fall in the November report, he would be inclined to support another 75 bp hike when the ECB meets on December 15. The preliminary estimate of November CPI will be released on November 30, but the final reading will not be available until the day after the ECB's meeting. That said, revisions tend to be minor. While Holzmann is perceived to be one of the more hawkish members of the ECB, the more dovish contingent seems to be pushing for a slowing the pace to 50 bp. It is a bit too simple to make it into a North-South dispute. The ECB's chief economist, Lane, from Ireland, is in the 50-bp camp. The swaps market sees a little more than a 30% chance of a 75 bp hike next month. Countering the elevated price pressures is recognizing that the eurozone is slipping into a recession. Still, officials say it will likely be short and shallow, arguably giving them more latitude to adjust rates.
To be sure, the US also reports inflation. The Fed's targeted measure, the PCE deflator for October, will be released the day before the employment report. But, in this cycle, in terms of the Fed's reaction function, it seems to have been downgraded, and the thunder stolen by the CPI. Indeed, when Fed Chair Powell explained why the Fed hiked by 75 bp instead of 50 bp in June as it had led the market to believe, he cited CPI and the preliminary University of Michigan consumer inflation expectation survey (which was later revised lower). While the methodologies and basket of the PCE deflator are different than CPI, the former is expected to confirm the broad developments of the latter. A 0.3% rising in the headline PCE deflator will see the year-over-year pace slip below 6% for the first time since last November. It peaked at 7.0% in the middle of the year. The core rate is stickier and may have eased to 5% after edging up in both August and September.
The US economic calendar is packed in the days ahead. The S&P CoreLogic Case-Shiller house prices 20-city index are expected to have fallen for the third consecutive month (September). That has not happened for a decade. The FHFA house price index is broadly similar. It fell by 0.6% in July and 0.7% in August. The median forecast (Bloomberg survey) is for a 1.3% decline in September. If accurate, it would be the largest monthly decline since November 2008. The October goods trade balance and inventory are inputs into GDP forecasts. There continues to be a significant gap between the Atlanta Fed's GDPNow tracker (4.3%) and the median estimates in Bloomberg's survey (0.5%).
The JOLTS (Job Opening and Labor Turnover Survey) has become a popular metric in this cycle and has often been cited by Fed officials. It peaked in March at nearly 11.86 mln. It has erratically trended lower and stood slightly below 10.72 mln in September. It is forecast to have softened in October. The low for the year was set in August at 10.28 mln. In the three downturns since 2000, the peak in JOLTS has come well before a recession, and the bottom after the recession has ended.
While the cost-of-living squeeze is impacting consumption, the supply chains are normalizing, which is a powerful tailwind. This is at least partly the story in the auto sector. US auto sales reached 14.9 mln (SAAR) in October, the best since January and almost 15% from October 2021. In fact, in the three months through October, US auto sales are running 8.8% above the same three-month period a year ago. Still, US auto sales have averaged 13.73 mln through October, nearly 11% lower, at an annualized pace in the first ten months of 2021. Still, S&P Global Mobility analysis warns of softer November figures (14.1 mln). However, if the projection is accurate, it would be about 9.6% more than in November 2021.
There was some optimism that after the 20th Party Congress, China's Xi would have the authority and inclination to pivot on Covid, property, and foreign relations. Yet, Chinese and international medical experts have warned that China is woefully unprepared to relax its Covid policy regarding inoculation rates and medical infrastructure. The surge in cases has seen restrictions imposed on an area responsible for more than a fifth of the country's GDP. China's composite PMI has been falling since the year's peak at 54.1 in June. It fell below the 50 boom/bust level in October for the first time since May, and Q4 GDP appears to be slowing from the 3.9% quarter-over-quarter jump in Q3 after the 2.7% contraction in Q2. The world's second-largest economy may be growing around a third of the pace in Q4, with risks to the downside. The median forecast (in Bloomberg's survey) is for Q1 23 growth of 0.9%.
Aid to the property market may help stabilize the sector in the short term. Iron ore prices surged by more than 27% at the end of October through November 18 amid the optimism. However, this seemed anticipatory in nature as many of the new measures are slowly rolling out. Many observers share our doubts that the excesses of a couple of decades have been absorbed or alleviated. News that separate from the list of 16 measures to support the property market announced earlier this month, the PBOC is considering a CNY200 bln (~$28 bln) of interest-free loans to commercial banks through the end of Q1 to induce them to provide matching funds for stalled property markets, seems to be a subtle recognition that more efforts are needed. While new supply has stalled, we are concerned that the more significant issue is effective demand.
Japan, the world's third-largest economy, unexpectedly contracted (-1.2% annualized rate) in Q3 but appears to be rebounding, likely aided by the new support measures (JPY39 trillion or ~$275 bln). Japan reports October employment figures. The unemployment rate has been 2.5%-2.6% since March. Japan has been successful in boosting the labor force participation rate. It was at 61.8% in early 2020 before Covid and has been at 62.9%-63.0% for four months through September. This is the highest since at least 2001. Retail sales, reported in terms of value (nominal prices), rose 1.3% and 1.5% in August and September, respectively. Another strong report would not be surprising. Government travel subsidies were widened in October.
Japanese businesses were pessimistic about the outlook for industrial output in October. They anticipate a 0.4% decline after production fell 1.6% in September. The auto sector is a source of pessimism. Supply chain disruptions were cited for the dour outlooks of Toyota and Honda. Foreign demand is weakening, and Japanese exports are slowing. Japan's preliminary November manufacturing PMI slipped below the 50 boom/bust level to 49.4, its lowest in two years.
Australia reported October retail sales and some housing data, but the newly introduced monthly CPI may have the most significance. The market is not sure that the Reserve Bank of Australia will hike rates at the December 6 meeting. The futures market has a little better than a 60% chance of a quarter-point hike. The cash rate is at 2.85%. In September, CPI made a new cyclical high of 7.3%. The trimmed mean measure stood at 5.4%, which was also a new high. We would subjectively put the odds higher than the market for a quarter-point hike. The next RBA meeting is on February 9, which seems too long for Governor Lowe to make good on his anti-inflation commitment.
Canada reports Q3 GDP and the November jobs. The Canadian economy is downshifting after enjoying 3.1% and 3.3% annual growth rates in Q1 and Q2, respectively. The pace is likely to be a little less than half in Q3 and appears to be slowing down more here in Q4. The median forecast (Bloomberg's survey) is for the Canadian economy contract in the first two quarters of next year. Canada created an impressive 119k full-time positions in October. Adjusted for the size of the economy, this would be as if the US created 1.3 mln jobs. In four of the past five quarters, Canadian job growth has been concentrated in one month. As one would expect, the following month has been a marked slowdown, and twice there were outright declines in full-time positions. After hiking by 100 bp in July, the Bank of Canada slowed its pace to 75 bp in September and 50 bp in October. The central bank meets on December 7, and the swaps market seems comfortable with a quarter-point hike.
Lastly, we turn to the Taiwanese local elections on November 26. The key is the mayoral contest in Taipei. It is seen as the most likely path of the presidency when Tsai-Ing's term ends in 2024. The great-grandson of Chiang Kai-shek is the candidate for the KMT, which wants closer ties to Beijing but rejects claims it is "pro-China." The DPP candidate is the health minister and architect of the country's Covid policy. The Deputy Mayor of Taipei is running as an independent candidate, but it looks like a two-person contest. Despite the US and Chinese defense officials agreeing to improve their practically non-existent dialogue, there is unlikely to be a meeting of the minds about Taiwan. Changes in the constellation of domestic political forces within Taiwan seem to be the most likely component that may change what appears to be an inexorable deteriorating situation. Both Beijing and Washington have good reason to believe the other is trying to change the status quo.
Disclaimerrecession unemployment pandemic subsidies fomc fed federal reserve congress governor recession gdp unemployment japan canada china
China’s Housing Crisis: What Investors Need to Know
China’s economy has grown from near irrelevance to the second largest in the world in less than half a century. Perhaps more incredible than its meteoric…
China’s economy has grown from near irrelevance to the second largest in the world in less than half a century. Perhaps more incredible than its meteoric rise is the fact that it’s done so without any kind of significant economic contraction. Nearly fifty years of consistently positive GDP growth is practically sorcery in the eyes of the west, as our more democratized and less managed economies seldom manage to go a single decade without at least some kind of bust, let alone five.
The assumed impossibility of eternally uninterrupted economic growth has raised more and more eyebrows and elicited more and more dire predictions about China’s economy as time has passed. Surely the ruling Chinese Communist Party can’t stave off the fundamental economic forces indefinitely. Surely the other shoe is going to drop soon, and all will be right with the world.
It has to. Right?
We’re supposed to be living in a post-Soviet world. A world where the question of managed versus free economies is long-settled fact. But if the CCP is able to keep China’s economy—an economy encompassing the interests of over a billion people—from experiencing so much as a recession, that settled fact starts to look more like an open question with each passing quarter.
The current situation facing China’s real estate market is the latest and perhaps most convincing sign that China has finally reached a tipping point. A generation’s worth of breakneck growth, urbanization, and unintended consequences may be coming to a head.
China’s housing market is currently the biggest asset class in the world, with a notional value of nearly $60 trillion, more than the entire capitalization of the stock market. About one third of China’s economic activity involves the real estate sector (compared to 15 to 18% of the American economy), a staggering figure that becomes even more so when combined with the fact that housing accounts for about 70% of Chinese household wealth.
The reasons for the outsized role that housing and real estate play in China’s economy are complex and numerous, though they all trace their roots back to the CCP.
The current real estate crisis began shortly after China relaxed its rules on private home sales back in 1998. This change in policy roughly coincided with the explosive economic growth that’s characterized much of the past decades, much of which relied on the importation of cheap labor from the Chinese countryside into rapidly growing metro areas. Over 480 million Chinese moved from the country to the city in pursuit of better economic opportunities, and real estate developers were only too happy to provide the accommodations that the newly urbanized Chinese both needed and could suddenly afford.
Real estate developers and construction firms weren’t the only ones to profit from the unprecedented mass urbanization. Regional governments—many of which relied heavily on land sales for revenue—encouraged as much development as possible, and the seemingly endless demand for housing gave yield-starved Chinese investors a place to park their capital. Developers soon found themselves unable to keep up with the pace of demand and began to take on massive amounts of debt, much of it in dollar-denominated offshore bonds, and even started selling properties in developments that hadn’t even begun construction.
China’s government took notice of all this rampant speculation and took what it saw as reasonable steps to mitigate the threat of the collapse of the real estate market. It imposed new financing restrictions for developers based on their liabilities, debt, and cash holdings, as well as imposed new rules for banks to limit the amount of mortgage lending. Some developers, including the giant China Evergrande Group, were pushed into default by these new restrictions and were forced to put ongoing projects on hold while they sorted out their balance sheets.
Quirks in China’s real estate system meant that the newly paused or canceled projects were more than just the developers’ problems. Chinese homebuyers who had gotten mortgages and purchased unbuilt properties suddenly found themselves on the hook for properties that may never be completed, and many were understandably upset. More and more people began to protest the situation by refusing to pay their mortgages until upwards of $295 billion worth of loans were affected before the CCP started interfering with data collection on the subject. So far China’s government has been unsuccessful in trying to get the situation under control, though they are stepping up support for distressed developers and providing some special loans to help ensure certain projects are completed.
How Will China’s Housing Collapse Affect the World?
The current crisis has severe implications for the wider China economy, some of which are already being felt. S&P Global Ratings has claimed that around 20% of the Chinese developers it rates are at risk of going under, and that falling land sales have impacted local governmental revenues to the point that 30% of local governments may have to cut spending by the end of the year. Nonperforming real estate loans held by state-owned banks increased by a full 1% in 2021, a figure that is sure to grow as more recent data is made available. There is every reason to believe that the real estate market will suffer in the short to medium-term.
Harvard professor Kenneth Rogoff estimates that a drop of 20% in real estate-related investments could cut 5 to 10% out of China’s GDP, and that the subsequent drops in real estate and construction employment could create significant instability in China’s job market. Or, more broadly: “On the medium term, China faces a multitude of challenges, ranging from extremely adverse demographics to slowing productivity…Until now, the housing boom has been sustained by a broad economic boom that now faces steep headwinds.”
The intentionally opaque workings of China’s government make it difficult to predict exactly how the current crisis will play out. It is, however, possible to extrapolate the kind of impact the crisis may have on the global economy if China’s real estate market continues to deteriorate. The first and most obvious consequence of a serious slowdown in China’s economy will be felt by companies with significant exposure to China. Firms like Wynn Resorts, Apple, Tesla, and Disney would all suffer from the ensuing loss of revenue from China’s market, as would firms like Qorvo, Boeing, Caterpillar, and any other firms that rely on supplies from or sales to China.
In terms of Chinese companies, the ratings agency Fitch identified three main sectors that would be most vulnerable to a slowdown in the real estate market: Asset management companies, engineering and construction firms, and steel producers. Fitch also believes that small and regional banks would be most vulnerable to continuing difficulties—particularly if the trend of homebuyers refusing to make mortgage payments on properties that may not ever be built continues—though this may have little impact on the global economy beyond the consequences of a slowdown in China’s economy at large.
As dire as things may seem, however, it is important to remember that China’s government is acutely aware of the risks its economy faces from the current crisis. Pundits, analysts, and observers alike have been warning about an imminent collapse in China for years now, yet the closest we’ve seen was a self-imposed downturn that resulted from the government’s draconian attempts to eradicate COVID-19 within their borders. There is little reason to assume that China’s government’s control over their economy has slipped to any significant degree. Anathema as it may seem to western sensibilities, China’s government still possesses the tools, the will, and the monopoly on violence it needs to prevent the real estate market from destroying their economy as a whole.
The best response, for now, is to maintain the course. It may be a good idea to close positions concerning firms with significant exposure to China’s economy, but treat all other investments the same way you would when facing any other kind of economic headwinds. If the economies of Europe and the United States made it through the 2008 housing crisis, chances are China’s economy will weather this storm as well.
The post China’s Housing Crisis: What Investors Need to Know appeared first on Wall Street Survivor.recession default covid-19 economic growth bonds home sales real estate mortgages housing market gdp europe china
China’s Housing Crisis: What Investors Need to Know
The Vaccinated Now Account For A Majority Of COVID Deaths
COVID Lockdown Protests Erupt In Beijing, Xinjiang After Deadly Fire
Should you buy the euro amid ECB’s Schnabel keeping a hawkish rhetoric?
Clothes Pile Up At Bangladesh Warehouses As Western Imports Collapse
Canadian HCPs given digital era empowerment recommendations
US Jobs and Eurozone CPI Highlight the Week Ahead
mRNA can deliver universal flu vaccine, say US researchers
Anti-Lockdown Stanford Professor: “Academic Freedom Is Dead”
25+ stock market statistics 2022
Uncategorized9 hours ago
Energy is the master resource but it could be Bitcoin that reigns supreme
Spread & Containment4 hours ago
License Plates Could Be Printed On McDonald’s Bags To Stop Littering
Spread & Containment11 hours ago
COVID Lockdown Protests Erupt In Beijing, Xinjiang After Deadly Fire
Uncategorized14 hours ago
Schedule for Week of November 27, 2022
Uncategorized16 hours ago
Bitcoin new ‘worst case scenario’ puts BTC bear market bottom near $6K
Government15 hours ago
US Jobs and Eurozone CPI Highlight the Week Ahead
Uncategorized15 hours ago
Bitcoin’s new ‘worst case scenario’ puts BTC bear market bottom near $6K
Government9 hours ago
‘Forgetful’ Fauci Could Not Recall Key Details Of COVID Crisis Response During Deposition: Louisiana AG