Some more updates on the little Chinese financial crisis roiling its bond and equity markets. Analysts had hoped that yesterday would being relief form the PBOC, no such luck:
- Stocks fell as the PBOC withdrew liquidity as for a fourth straight month:
- Funding costs in the junk bond market will keep rising, noted ANZ.
Meanwhile, directly pertaining to Huarong:
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- It has committed to paying a Singapore bond before month-end.
- But it is running out of cash fast and $74bn is still set for repayment or refinance this year.
- Some bonds fell to 45% on the dollar yesterday.
- The market is still waiting for earnings due at the end of March.
As said yesterday and summed up today by Capital Economics:
Investors had previously shrugged off governance problems at Huarong, China’s largest distressed debt manager. The assumption had always been that the firm’s ties to the Ministry of Finance would insulate creditors from any solvency issues. But talk of a financial restructuring has called this into question and the price of Huarong’s bonds have plunged lately.
This is part of a broader campaign to improve the pricing of credit risk. A State Council directive published this week also called for a reduction in state support to local government financing vehicles, where defaults are still comparatively rare.
These developments should be positive for credit allocation in the long-run. But in the short-run they add to financial stability risks and, even if these remain contained, will weigh on economic activity.
Especially and deliberately upon construction activity.