Country Garden property developer’s problems again threaten China’s housing crisis

the housing crisis in China

The problems of the Chinese property market will have an impact on commodity assets. The external background before the start of trading in Russia is weakly negative. In China again reminds itself the crisis of debt burden of property developers, which will have a negative impact on a wide range of commodity assets. Oil risks to close the first week after six growth in the negative. Domestic stocks are more likely to decline on Friday before the weekend, but the ruble dynamics may make adjustments.

The Russian market was able to close trading on Thursday in positive territory. The factor of currency revaluation acted again, but there were some positive corporate events. VTB will receive a state-owned stake in USC for a period of 5 years in trust management. Raspadskaya and Gazprom Neft reported. The volume of transactions on the main section of the Moscow Exchange amounted to 76.284 billion rubles.

As a result of trading on August 10, the Moscow Exchange index – 3148.86 points (+1.59%), and the RTS index – 1017.71 points (+1.29%).

Growth leaders at 23:00 Moscow time:

VTB ao0.037.12%
TCS-gdr3 6723.92%
Novatek JSC1639.42.96%
PIK JSC835.82.65%

Decline leaders at 23:00 Moscow time:

PhosAgro JSC7499-0.64%
Yandex clA2715-0.3%

All 10 sectoral indices of the Russian market ended the day in positive territory. The most solid growth was shown by the financial sector (+2.72%) and the IT sector (+2.36%). 

The main growth in the financial sector was provided by shares of VTB (VTBR), which added more than 7%. The President of the Russian Federation approved the proposal of the government to transfer to a financial organization in trust management the state block of USC shares for a period of 5 years. 

Raspadskaya (RASP) halved its net profit in the first half of the year, EBITDA fell by 59%. “The expected significant year-over-year decline across all financial ratios is primarily due to the fall in coking coal prices, which were at unprecedented levels early last year,” said Alexey Pavlov, PHD, Head of Market Analysis at Otkritie Investments. – At the same time, the decrease in revenue was partially offset by an increase in sales to 7.4 million tons of coal products from 6.9 million tons a year earlier. However, at the FCF level, it turned out very poorly, and based on the share, Raspadskaya received only 7.2 rubles in the first half of the year. free cash flow. However, the second half of 2023, while maintaining the current situation in the coal market, promises to be more impressive. Plus, the company now has more than 40 billion rubles on its balance sheet (including a loan to affiliated structures). cash with zero debt. The re-domiciliation of Evraz (Raspadskaya’s controlling shareholder) will open up an opportunity to restore dividends, and, perhaps, to partially pay out accumulated liquidity, but there is complete uncertainty about the timing. Besides, taking into account the last wave of quotes growth, even in the optimistic scenario, a significant upside is no longer obvious here.”   

VK (VKCO) lost more than 2%. The company sold control of the Cypriot MGL Wallet for 1 million euros. Reporting also did not arouse enthusiasm in the market. Revenue in the first half of the year increased by 36% to 57.3 billion rubles. Revenue from online advertising grew by 51% to RUB 35.1 billion. EBITDA margin was 6.8%. The loss for the first half of the year decreased by 44.7 billion rubles from 53.5 billion rubles a year earlier. The results for the first half of the year cannot be called bad, but the loss in the second quarter increased compared to the first quarter.

Shares of Beluga (BELU) fell almost 0.6%. At the same time, the company reported an increase in net profit under IFRS in the first half of the year by 34.6% to 3.05 billion rubles. Revenue increased by 14% to 47.9 billion rubles. Profit before tax increased by 13% to RUB 3.3 billion.

Shares of Gazprom Neft (SIBN) finished trading up 4.66%. The company reported a decrease in profit under RAS in the first half of the year to 338.7 billion rubles from 349.3 billion rubles a year earlier, which in comparative figures is better than that of competitors. At the same time, revenue fell to 1.4 trillion rubles compared to 1.77 billion rubles a year earlier. Accordingly, earnings per share decreased to 71 rubles from 74 rubles.

The oil and gas sector rose by 1.84%. NOVATEK (NVTK) became the leader in the sectoral index. Gas prices in Europe rose unexpectedly sharply due to the reduction in LNG supplies from Australia. At the same time, NOVATEK continues to take advantage of the opportunity to sell LNG on the European market. Accordingly, it is a direct beneficiary of the current price situation.

The ruble tried to strengthen in the first half of the day, but by the evening the falling oil price became a negative factor for it. After six weeks of growth, the asset may move to a correction. At the same time, the suspension of the purchase of foreign currency within the framework of the budget rule from August 10 does not yet have any effect on the dynamics of trading.  

As of Moscow time:

USD/RUB – 97,46 (+0,26%),

EUR/RUB – 107,55 (+0,86%),

CNY/RUB – 13,465 (+0,25%).

Consumer inflation in the US is in no hurry to slow down. American indices ended Thursday’s trading uncertainly. The report on consumer inflation left a mixed impression. On the one hand, Core CPI reduced its annual growth rate to 4.7% from 4.8% in June, but overall CPI accelerated growth to 3.2% from 3.0% in June. Both indicators were slightly better than expected. The initial reaction of the market was positive, but sales dominated during the day and there was almost nothing left of this positive. Initial jobless claims rose to 248,000 last week from 227,000 a week earlier.

San Francisco Fed President Mary Daly commented on consumer inflation data. According to her, the data came out in line with expectations, but this does not mean that the Fed has no work left. It is also too early to talk about an increase, or a pause at the next meeting. In addition, the Fed is very far from discussing a rate cut, and the conversation about this can only begin in 2024. She also emphasized the dependence of the Fed’s actions on statistics and the main attention in the dynamics of inflation will be paid to the prices of services and rent. It is noteworthy that inflation statistics and Daly’s far from “hawkish” statements could not stop the growth of Treasury yields. For 10-year securities, it rose to 4.084%.

Disney (DIS) stock jumped almost 5%. The company reported better than expected on earnings, but worse on revenue. In addition, the past quarter saw a decrease in the number of subscribers, but also a decrease in the cost of creating content. On the positive side, Disney+ will start cracking down on sharing, as well as raising the cost of ad-free plans. The fashion industry is organizing another giant after Tapestry (TPR) agreed to buy Capri Holdings (CPRI) for $8.5 billion. The synergy between the two companies should help it compete with European leaders LVMH and Kering. Tapestry lost more than 16%, but Capri shareholders became more than 55% richer. Illumina (ILMN) reported better-than-expected earnings but warned of difficulties in the second half. Alibaba (BABA) shares rose 4.3% in the US after reporting,

Динамика по секторам: Communication Services +0,43%, Consumer Discretionary +0,28%, Materials +0,10%, Financials +0,08%, Energy +0,08%, Technology +0,01%, Health -0,04%, Consumer Staples -0,20%, Industrials -0,28%, Real Estate -0,31%, Utilities -0,32%. 

As a result of trading:

DJIA – 35176,15 п. (+0,15%),

S&P 500 – 4468.83  п . (+0.03%),

NASDAQ Composite – 13737.99  п . (+0.12%).

The troubles of the developer Country Garden again threaten the housing crisis in China. Asian markets were mostly traded in the red. The Japanese market was closed due to the Mountain Day holiday. In China, the market was under pressure. Shares of the largest private developer Country Garden fell to their historical low. The company forecasts losses in the first half of the year in the amount of $7.6 billion. At the same time, a consultant from China International Capital Corporation has already been hired to prepare a restructuring plan. Falling securities in Hong Kong exceeded 14% in trading on Friday. Meanwhile, exchanges in Shanghai and Shenzhen have announced they are working to reduce fees for investors who participate in trading in order to ensure higher market liquidity. On the positive side, we note the growth of Alibaba shares in Hong Kong by more than 2% as a reaction to strong reporting. However, this did not help the technology companies sector, which was losing more than 1%.

As of 8:25 Moscow time:

Hang Seng – 19150.59 п. (-0.51%),

Shanghai Composite – 3216,63 п. (-1,17%).

Oil risks closing the first week in the red after six weeks of growth. The past week has been quite nervous for oil, which may lead to the first losses after six weeks of growth. However, OPEC maintained its forecast for demand growth of 2.44 million bpd this year and 2.25 million bpd in 2024. The structure of backwardation in oil futures also remains evidence of the continued deficit. October Brent is $0.59 more than November, $1.09 more than December and $1.48 more than January. Accordingly, even a slight correction is not yet a risk for oil, but may become the basis for a new increase in quotations.

As of 8:45 Moscow time:

Brent – $86,25 (-0,17%),

WTI – $82,68 (-0,17%),

Aluminum – $2198 (-0.29%),

Gold – $1947.2 (+0.03%),

Nickel – $20,595 (+0.96%).

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