FirstFT: Fed warns of risks posed by Chinese real estate
The Federal Reserve yesterday warned that stresses in the Chinese real estate sector “posed some risk to the US financial system”, pointing to heavily indebted property companies such as Evergrande as a potential source of global contagion.
In its semi-annual Financial Stability Report, the US central bank said it was worried about China because the nation’s “business and local government debt remain large; the financial sector’s leverage is high, especially at small and medium-sized banks; and real estate valuations are stretched”.
It highlighted Evergrande Group, the heavily indebted Chinese real estate company, as a cause for concern and said there was a risk the contagion could spread beyond the country’s property sector.
But speaking at a news conference, Fed chair Jay Powell said he did not see a lot of “direct United States exposure” although he said he was worried that the turmoil could have a broader effect on global financial conditions and investor confidence.
The Financial Times reports today that global holdings of Chinese stocks and bonds have jumped by about $120bn this year as foreign investors chase returns in the country’s markets, highlighting the risk of contagion.
Meanwhile, Kaisa Group Holdings, a Chinese property developer, asked investors for more “time and patience” yesterday evening as it sold off assets to ease a liquidity crunch. Kaisa is a big borrower on international bond markets and faces about $3bn in bonds coming due in the next year.
Separately, Fed governor Randal Quarles announced yesterday he is to leave the US central bank next month. The departure of Quarles, who was appointed by former president Donald Trump in 2017, creates another opening for the Biden administration to fill amid uncertainty about the institution’s leadership.
Go deeper: In today’s Unhedged email, Robert Armstrong highlights the panic gripping China’s junk bond market.
Comment: Joe Biden should reappoint Jay Powell for a second term as the chair of the Fed, says the FT’s editorial board.
Do you think stresses in the Chinese real estate sector pose global risks? Tell me what you think at email@example.com. Thanks for reading FirstFT Americas. Here’s the rest of today’s news — Gordon.
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2. Tesla shares slide One company to miss out on the rally was Tesla. Its shares closed nearly 5 per cent lower yesterday after millions of Twitter users polled by chief executive Elon Musk concluded that he should sell 10 per cent of his stake in the electric carmaker. The share price slide wiped almost $60bn off the value of the electric carmaker.
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4. Ukrainian and Russian charged over ransomware attacks
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5. Mexico’s once roaring auto sector falls on hard times Once a magnet for billions of dollars in investments and rapid job creation, Mexican monthly auto production and sales are languishing at their lowest levels in a decade as the industry is pummelled by the pandemic and semiconductor chip shortages.
A global deal to eliminate new car emissions by 2040 is struggling to attract support from the world’s largest carmakers and governments including the US and China.
Indonesia’s venture into renewables has been short-circuited by the lack of a deal to sell its power to the state utility.
Former US president Barack Obama said young people had the “most important energy” in the climate change battle, in a rousing speech in Glasgow.
Today’s Moral Money, our sustainable finance newsletter, has five things to watch at COP26 this week. Click here to read and sign up to the newsletter, publishing every weekday during the Glasgow summit.
The day ahead
Macron to address France French president Emmanuel Macron is to address the nation about his economic reform plan and increasing infections in the coronavirus pandemic. (Reuters)
What else we’re reading
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House & Home
Take a look at these five homes for sale with literary connections. They range from a Georgian house in Berkshire where Jane Austen was a frequent guest to John Steinbeck’s cottage on Long Island.