Aurelia Butler

HONG KONG (Reuters) – Hong Kong unveils its annual budget on Wednesday at a time when it faces mounting fiscal deficits and economic headwinds including a struggling Chinese economy, with markets expecting authorities to ease property curbs to boost the ailing sector.Economic growth in the global financial hub has also been hampered by geopolitical tensions between China and the United States, while capital flight turned the Hong Kong stock market into the worst performing major index last year. Accounting firms PwC and KPMG expect a budget deficit more than double what the government had initially forecast for the fiscal year ending March 31, 2024.PwC is projecting a fiscal 2023/24 consolidated budget deficit of HK$110 billion ($14.06 billion), while KPMG expects an even bigger HK$130 billion deficit, which would mark the second sizeable yearly deficit in a row. In fiscal 2022/23 Hong Kong posted a budget deficit of HK$122.3 billion after taking into account the proceeds of HK$66 billion received from issuance of green bonds.The government is expected to further relax property stamp duties as housing prices have plunged 20% since the 2021 peak, dragged down by fragile market sentiment and high interest rates. Some analysts expect a further 10% drop this year.In recent months, some observers have warned of entrenched structural problems hampering Hong Kong’s future prospects.Stephen Roach, a faculty member at Yale University and a former chair of Morgan Stanley Asia, wrote in an editorial titled “Hong Kong is Over” that various factors including worsening geopolitics and a China-imposed national security clampdown since 2020 had sapped Hong Kong’s dynamism and “shredded any remaining semblance of local political autonomy.” Hong Kong’s “free market has been shackled by the deadweight of autocracy” he added. Few observers expect Beijing to loosen its grip with a fresh round of national security legislation known as “Article 23” to be enacted within months. PROPERTY STIMULUS?Many realtors, business and political groups are calling for a full elimination of additional stamp duties including for second home buyers and non-citizens after the government’s partial easing in October largely failed to boost sentiment. They say these tightening measures, some introduced over a decade ago, are no longer appropriate.The Hong Kong government in October halved the additional stamp duty for second home buyers and non-citizens to 7.5% and a total of 15%, respectively, and allowed some home owners to sell properties after two years, decreased from three years, without incurring hefty duties. It also waive the additional taxes for foreign buyers unless they fail to gain citizenship after seven years in a bid to attract talent.JPMorgan said the majority of the investors surveyed by the investment bank expected a lowering of rates in the additional stamp duty rather than a full elimination. Even with a full removal, the bank said it might only stimulate volume in the short term, and would unlikely reverse the downtrend in home prices, as the property market is driven more by interest rates and investor confidence.Hong Kong home prices, which remain among the world’s most expensive, dropped 1.6% last month from the previous month, the ninth monthly fall in a row.($1 = 7.8233 Hong Kong dollars) (Additional reporing by Donny Kwok; Editing by Shri Navaratnam) More

NEW DELHI (Reuters) – India will conduct another survey of household consumption as well as of items and brands at retailers to obtain a comprehensive picture of domestic spending before revising the consumer price index (CPI), two government officials said.Over the weekend, the government released initial findings of the 2022/23 household consumption expenditure survey, the first in over a decade, showing the share of food in household spending had shrunk substantially.The findings could lead to a decrease in the weighting of food in the CPI, which is used by the central bank to frame monetary policy.”The government will wait for the results of the 2023/24 household consumption expenditure survey – conducted between August 2023 and July 2024 – to make changes in the CPI index,” said Pronab Sen, the head of a government panel on statistics.As incomes increase, people are spending less on cereals, and more on processed food, clothing, health services and consumer durables, he said, referring to the survey findings. Sen, India’s former chief statistician who is heading a panel to review the quality of data, said that before adding new items to the CPI index, a retail market survey would also be required to finalise “representative items and brands”. “This market survey could take 5-6 months. So realistically the change in the base year of the CPI index could happen only next year,” he said. The CPI index base year is currently 2012.The final report of the 2022/23 household survey will be released in two to three months, said Geeta Singh Rathore, director general of the National Sample Survey.”The new CPI index, whenever it is released, would be more closer to the price changes in the economy,” she said. More

(Reuters) – President Joe Biden will meet with the top Democrats and Republicans in Congress on Tuesday in a bid to head off a partial government shutdown beginning in just four days and to urge lawmakers to pass an aid package for Ukraine and Israel.The White House meeting comes almost two months since Republican House Speaker Mike Johnson and Democratic Senate Majority Leader Chuck Schumer agreed on a $1.59 trillion discretionary spending level for the fiscal year that began on Oct. 1. Despite that deal, Congress has failed to perform its basic duty of funding the government, largely due to in-fighting by Republicans who control the House of Representatives by a thin majority.“A basic, basic priority or duty of Congress is to keep the government open,” White House spokesperson Karine Jean-Pierre told reporters on Monday. “So that’s what the president wants to see. He’ll have those conversations.”The spending bill is being held up by demands from ultra-conservative Republicans in the House who want to see spending cuts and policy positions injected into how dollars are spent. A group of hard-right Republicans has brought the government to the brink of a shutdown or a partial shutdown three times in the past six months.Schumer and Johnson traded accusations in recent days over who was to blame for the stalemate. On Monday, Schumer told reporters that “Democrats are doing everything we can to avoid a shutdown.” The first batch of government funding, which includes money for agencies that oversee agriculture and transportation, will run out on Friday at midnight, while funding for some agencies including the Pentagon and the State Department will expire on March 8.The government spending package is separate from the national security aid bill that includes Ukraine and Israel funding, but Biden will make the case for both.The House is under pressure to pass the $95 billion national security package that bolsters aid for Ukraine, Israel as well as the Indo-Pacific. That legislation cleared the Senate on a 70-29 vote earlier this month, but Johnson has resisted putting up the aid bill for a vote in the House.White House has ramped up public pressure on Johnson in recent weeks as Ukraine marked the second anniversary of the Russian invasion.“What the president wants to see is we want to make sure that the national security interests of the American people gets put first and is not used as a political football,” Jean-Pierre said. “We want to make sure that gets done.” More

(Reuters) – A hawkish Federal Reserve is narrowing the window on trades that some U.S. regional banks have been hoping to use to reduce their commercial real estate exposure, investors, analysts and lawyers said.Banks, particularly small regional and community banks, have looked to trim their outsized exposure to CRE on rising default risks after a post-pandemic social behavior change led to an increase in office vacancies and sharp drop in property valuations. The rise in U.S. rates over the last few years has left their fixed rate ‘back-book’ loans mispriced compared to current market rates, said Sam Graziano, managing director at Chatham Financial. So inability to shed the exposure could expose them to losses and weaken their balance sheets.Since the bank collapses last March, some regional lenders have sold billions of dollars of loans to private investors to reduce risk and shore up liquidity. Some have also bought insurance against risk of loss on loan pools from investors to free up precious capital. Nine investors, analysts and lawyers involved in such trades said while banks are still looking to reduce their exposure to CRE through such deals, investors are less keen to buy such assets off them.The waning interest follows a recent reversal in investor expectations that the Fed would aggressively cut rates this year. Fed funds futures traders were mostly betting for a first rate cut to occur in June, later than previous March expectations. They were pricing for about 80 basis points of cuts this year, down from nearly double that earlier this year.As a result, the risk of defaults in corners of the CRE market such as offices and multifamily homes has increased. Property valuations, particularly those of office buildings, have dropped nearly 25-30% from their 2019 peaks, when many of the loans that are maturing this year were originated, according to Matt Reidy, director of CRE Economic Analysis at Moody’s Analytics. Investors said they are either going to stay away from some CRE assets or demand to be paid a lot of money to take them on. “We don’t intend to take on higher risk entailed in CRE portfolios whose loss probability cannot be modeled easily as consumer or corporate loans,” said Jason Walker, chief investment officer of asset backed securities at alternative credit firm CQS. CQS has invested $1.7 billion in risk transfer transactions, a trade that involves essentially selling insurance to the bank against losses from a portfolio of loans.Another investor, who has been involved in selling insurance on banks’ loan portfolios but requested anonymity to talk about deals, said regional banks may have to pay investors high double-digits in yield for insurance on CRE loans, compared with high single-digits on consumer and corporate loans.CRE WOESThe lack of investor interest can make it harder for banks to sort through the CRE sector’s woes. The banking sector as a whole faces $441 billion of CRE loans maturing this year, according to Moody’s (NYSE:MCO) Analytics, which expects the share of troubled loans to increase. A preview of the dangers lurking in banks’ books came earlier this year, when worries about New York Community Bancorp (NYSE:NYCB)’s exposure to the New York multi-family property market hit stocks across the sector, prompting checks by regulators and ratings agencies.Losses could pile up on bank books as borrowers struggle to refinance old loans at new, higher interest rates, making some properties unprofitable. Losses are also likely to add up in loans packaged into securities. Moody’s Reidy said roughly 75%-80% of the maturing office loans included in securitized pools this year could have issues with timely payoff, leading to more charge-offs and delinquencies.”We expect more workouts and extensions by banks to delay losses this year,” Reidy said.STRUCTURAL PROBLEMSBanks are trying to get some trades done, nevertheless. Matt Bisanz, partner of Mayer Brown’s financial services regulatory practice, said his firm was “working on multiple deals right now for regional banks” to sell the risk of losses on several asset classes, including performing CRE loan portfolios.“We could see risk transfer trades on CRE loans in the second quarter,” he said. Whether they succeed remains to be seen. Any headway could help calm market nerves, but if it comes at heavy pricing discounts, it could also spook investors.David Meneret, founder and CIO of credit hedge fund Mill Hill Capital who is short-selling some regional banks’ bonds because of their CRE exposure said the problem was more structural.”Losses need to be taken (by banks), they will be taken and it will take years,” he said. More

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Qatar Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani announced the launch of the fund, which Qatar Investment Authority (QIA) said in a statement would only invest in venture capital funds. It would not invest in private equity or debt.The so-called venture capital “Fund of Funds” would aim to yield market level commercial returns for the sovereign wealth fund in addition to developing Qatar’s venture capital sector.It would also aim to attract international venture capital firms and entrepreneurs to Qatar and other Gulf Arab states to develop Qatar’s start-up sector, QIA said.”QIA is launching this program to help ensure that innovative businesses can readily access capital and support from VC funds, enabling them to scale operations and expand market presence in Qatar, across the GCC, and ultimately onto the international stage,” QIA Chief Executive Mansoor Ebrahim Al-Mahmoud said in the statement.QIA has accelerated investments in technology in recent years. Sheikh Mohammed made the announcement as he opened the Qatar Web Summit, the first Middle East edition of one of the world’s largest tech conferences. More