Aurelia Butler

LONDON (Reuters) – Catastrophe bond funds rank among the 10 best performing credit funds this year, as the hurricanes, earthquakes and other disasters that could trigger payouts have either not happened or not been sufficiently severe.The catastrophe, or cat bonds, represent money borrowed by insurance companies from capital markets. If the insurance company needs that money because a specific event has taken place, investors might lose their initial outlay, but if the catastrophe covered by the bond does not take place, the bond retains its value.Funds from Securis Investment Partners, Schroders (LON:SDR), GAM, Franklin Templeton K2 Advisors and LGT Capital Partners have all returned over 8% so far this year, among the bond funds that research firm Kepler tracks. It did not provide a year-on-year comparison. Kepler tracks Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated like mutual funds and serve investors that want quicker, more transparent access to their money. “The fund’s performance year-to-date is mainly driven by the current attractive reinsurance rate environment following the last few loss-heavy years,” said LGT Capital Partners which oversaw one of the top performing funds. It pointed to a lack of any “major insured events”, but added the fund held a diversified set of bonds with different categories of catastrophe and from different regions.HURRICANE LOSSES AND HIGHER YIELDSLast year, losses occurred from storms such as Florida’s category five hurricane. So this year, cat bonds were issued with higher yields, thereby rewarding investors for holding them.Peak hurricane season starts around September and U.S. hurricanes are one of the most common events covered by cat bonds, according to Morningstar.In a report last week, it also said the cat bond market is worth over $40 billion, compared with the more than $133 trillion global bond market. As the planet has heated up and the number of climate events has risen, so have the insured losses from natural disasters. In the first half of 2023, insured losses hit their second-highest since 2011, at over $50 billion and severe thunderstorms accounted for 70% of that total, Swiss Re (OTC:SSREY) said in a separate report on Wednesday.But events covered by cat bonds may still not have taken place, or been severe enough to generate payouts.Another reason for the bonds’ strong performance is that many cat bonds are secured by collateral held in cash and inflation has helped to boost their value.GAM investment specialist Ralph Gasser said cat bonds were no riskier than similarly yielding bonds. “They provide a much better compensation of risk per unit of risk, which is largely a reflection of the supply/demand characteristics of the cat bond market,” Gasser said in an email to Reuters.He said cat bonds averaged a 0.9% yearly loss for the last 20 years, while global corporate high-yield bonds lost about an average of 2% yearly, in that time. Raphael Rayees, portfolio manager at Securis Investments linked the performance of their fund to trying to capture the upside of risk while reducing fund volatility. Catastrophe bonds this year and in general, have benefited from their lack of correlation to the broader financial markets, he said. Schroders declined to comment and Franklin Templeton did not immediately respond to a request for comment. More

Today’s top storiesItaly partially backtracked on surprise plans for a 40 per cent bank windfall tax after shares in the country’s biggest lenders such as Intesa Sanpaolo and UniCredit took a dive. It will now be capped at 0.1 per cent of risk-weighted assets, a fifth of the level that some analysts had earlier estimated. Analysts say Prime Minister Giorgia Meloni’s first brush with markets undermines Italy’s credibility.Amazon is being sought as an anchor investor in the upcoming initial public offering of Arm, the UK-based chip designer. SoftBank, Arm’s owner, had initially focused on other top chip companies, but has since expanded its search to heavy users of semiconductors such as Amazon and will probably include car and factory automation companies.Northern Ireland’s police chief vowed to stay on after officers were put at risk of being targeted by paramilitaries after their personal details were published accidentally online. In another data breach, the UK electoral register was revealed to have been hacked by “hostile actors”.For up-to-the-minute news updates, visit our live blogGood evening.The world’s second-largest economy has slipped into deflation, prompting calls for more stimulus measures from the government as Beijing grapples with a trade slump that is fuelling concerns about the strength of its economic recovery.Consumer prices declined in July for the first time since early 2021, according to new data this morning, falling 0.3 per cent year on year and highlighting the struggle to revive consumption after the country’s strict pandemic controls were lifted. Factory gate prices were down 4.4 per cent, while core inflation, which strips out volatile food and energy prices, was up 0.8 per cent.China over the past few years has bucked the global inflation trend of other large economies, which introduced significant stimulus packages during the pandemic, relying instead on its zero-Covid policies to get through. (You can read more in this explainer.)

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Today’s data follows yesterday’s trade stats showing the country’s exports experienced their worst fall since the start of the pandemic with a 14.5 per cent year-on-year drop in dollar terms. Imports fell 12.4 per cent.The flagging demand for exports was highlighted by survey data last week showing Chinese manufacturing activity contracting for a fourth consecutive month. The sector, one of the main drivers of economic growth during the pandemic, is facing some of its strongest challenges for years as falling demand takes its toll.The disappointing run of data puts more pressure on the country’s economists who have been told by authorities not to be negative, making the job of parsing China’s often opaque official statistics even more difficult at a time when its recovery is seen as crucial for global growth, highlighted in today’s fall in oil prices on the deflation news. And while the west may have recalibrated its policies towards China, from “decoupling” to “de-risking,” political tensions are still running high. Chinese deal activity in the US is at its lowest level in 17 years while demand is growing for investment products that exclude China.There are still reasons to be positive about the country’s long-term economic future. It has cornered the market for green tech and is a leader in the electric vehicle boom, notwithstanding Beijing’s recent throttling back on issuance of production licences.The focus now shifts back to policymakers and a potential new stimulus package to revive growth. Asia editor Robin Harding, pointing to China’s position as one of the least indebted in the world, says there is one obvious way to secure the country’s economic future: it needs to start spending.Need to know: UK and Europe economyUK lenders Nationwide, HSBC and TSB cut mortgage rates for the second time in three weeks as competition in the home loan market increased after better than expected inflation data.Huw Pill, Bank of England chief economist, warned that high food prices could be here to stay and would still be rising much faster at the end of the year than overall inflation. UK consumer spending slowed in July as wet weather hit demand for summer clothing. Investor expectations of eurozone inflation have hit a 13-year high, suggesting a lack of confidence in the European Central Bank’s plan to get back to its 2 per cent target. The ECB said its press conferences, a vital tool for guiding investors’ expectations, affected financial markets more than those of the US Federal Reserve.Need to know: Global economyThe World Bank said it would freeze new lending to Uganda in response to an LGBT+ crackdown that has introduced some of the most punitive anti-gay bills in the world. Analysts say other institutions could follow suit.Orange juice futures have surged to a new all time-high as hurricanes and an incurable disease devastate citrus crops in the US. Overall orange juice production is the lowest in “over 100 years”, according to a trade association.A Big Read series examines how the shift to renewables is transforming the economics and geopolitics of energy. The first part looks at the new commodity superpowers that produce the metals central to the green transition. The second details how China has come to dominate the clean tech market, presenting a huge threat to western manufacturing but also giving it significant geopolitical leverage.

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Another FT deep dive looks at the challenges facing the wind farm industry as the long-held assumption of falling costs goes into reverse, putting pressure on governments to respond. Turbine maker Vestas today warned of supply chain problems.Need to know: businessThe FT revealed that Google and Universal Music are in talks to license artists’ melodies and voices for songs generated by artificial intelligence. The rise of generative AI has led to a surge in “deepfake” songs that can convincingly mimic established artists, often without their consent.Tui, the world’s biggest tour operator, forecasts a strong summer despite wildfires in southern Europe (and suggested taking more holidays in Belgium). It recorded its first profitable third quarter since the pandemic, with demand and prices rising. Cathay Pacific reported its biggest first-half profit since 2010 even though the Hong Kong flag carrier is only operating at half of its pre-pandemic passenger capacity.The indirect costs for companies of Russia’s war on Ukraine from soaring energy and raw material prices or supply chain disruptions will be long-lasting, says international business editor Peggy Hollinger, but could help drive efficiency and competitiveness. Russian companies are turning to Hong Kong for dispute arbitration services as sanctions lock them out of western courts. The UK yesterday unveiled 25 new sanctions targeting Russia’s access to foreign military supplies.Taiwan’s TSMC, the world’s largest contract chipmaker, is to go ahead with a €10bn plant in Germany alongside car parts supplier Bosch and chipmakers Infineon and NXB. Half the cost of the project is being subsidised by the German government. The World of WorkInnovation without investment in people to put it into use won’t be enough to boost productivity, writes columnist Sarah O’Connor in praise of the “techies” who make companies more efficient.Ping-pong tables and beer on tap are out and privacy is in. The Working It podcast discusses the future of co-working with the head of global design and development at WeWork. And finally, guess which company has joined the ranks of businesses ordering their employees back to the office. Yes, that’s right — it’s Zoom.Some good newsOnce on the brink of extinction, there are now more golden lion tamarin monkeys in the Brazilian rainforest than at any time since efforts to save the species started in the 1970s, according to a survey.

A golden lion tamarin in the Atlantic Forest region of Silva Jardim, Rio de Janeiro state in Brazil © AP More

HONG KONG (Reuters) – News that big developer Country Garden was not able to make $22 million in bond payments is an alarm call for China’s government that more private property companies are close to a tipping point if financial support doesn’t materialise soon.As Country Garden was the largest developer in the country before this year, industry executives and analysts told Reuters its missed payments this week could prod regulators into rolling out stronger aid measures, but they had little faith such steps would turn the debt-laden sector around any time soon.Country Garden told Reuters on Tuesday it was not able to make $22.5 million in coupon payments due on Aug. 6 on two, dollar-denominated bonds, though both have 30-day grace periods. China’s property sector, which accounts for a quarter of the economy, has already seen a string of debt defaults by cash-squeezed developers since late 2021, with China Evergrande Group, the world’s most indebted property developer, at the centre of the crisis.Contagion fears in the market re-surfaced last month when four high-profile developers signalled liquidity stress amid slumping home sales nation-wide.Problems are even spreading at state-backed developers, which are seen as having better access to cheap funding and are more likely to benefit from government support. State-backed Sino-Ocean Group is seeking to extend some offshore bond payments, while Greenland Holdings defaulted on an amortization payment.A unit of Dalian Wanda Group, the largest commercial property developer in the country, has also missed a dollar coupon payment, though Greenland and the Dalian Wanda unit managed to make the payments later, avoiding official defaults.Country Garden’s missed payments have triggered a sell-off in shares and bonds across the sector and fears of more contagion, analysts at HSBC said in a research note.”However, we caution that it’s possible this accelerates the roll out of a policy package to support the housing market.”China’s Politburo, a top decision-making body of the ruling Communist Party, pledged in late July to adjust property policies in a timely manner, while omitting the often-repeated phrase used by officials that “houses are for living in, not for speculation”, fuelling speculation more stimulus was on the way.”IT’S HARD TO SEE THE LIGHT”In its statement on Tuesday, Country Garden said “it’s hard to see the dawn light”, with its usable cash having declined and showing “periodic liquidity stress” due to a deterioration in sales, a difficult refinancing environment and the impact of various regulations on funding sources.While some market participants are hoping Country Garden could make the latest coupon payments within the grace period, its massive upcoming bond payment schedule will still be a huge hurdle to overcome.In September alone, Country Garden has a 5.8 billion yuan ($804.72 million) onshore bond maturing and a 48 million yuan coupon due, as well as put options on a further 3.4 billion yuan of paper.Offshore, it has coupon payments totalling $58 million due next month, according to JP Morgan.The investment bank said Country Garden’s home sales could slump more than 80% in the rest of this year compared to the four-year average, as reports of financial distress scare away potential homebuyers. “Arguably, the (Country Garden) contagion impact will be not as big as when Evergrande defaulted, because 40% of the market by 2021 sales has already defaulted,” JP Morgan analysts said in a research report. Executives of developers, both healthier ones and some of those who have defaulted, told Reuters a default by Country Garden would have limited impact on the wider sector, as bank lending and liquidity are already very tight.One executive, however, is worried homebuyers would steer clear of private developers and local governments might tighten their access to funding even further to ensure they complete homes that have already been sold. The executive declined to be identified because he was not authorized to speak to media.Reuters reported last week that some cities have made it harder for developers to access funds from property sales held in escrow accounts, raising risks the cash-strapped companies will be squeezed even more. Reviving home sales is key to a recovery, developers said, but buyer sentiment is at the lowest level they have ever seen due to the poor outlook for both the sector and the broader economy, which tipped into deflation in July.With fewer visitors to showrooms, the developers expected sales would remain weak in August and September. “There is oversupply and inventories, we need to digest such inventories,” said a policy adviser, who declined to be identified as he was not authorized to speak to the media. “It’s difficult given that the population structure has changed and people are unwilling to buy homes after the COVID (pandemic).” Morgan Stanley (NYSE:MS) analyst Stephen Cheung said in a note that Country Garden’s sales are unlikely to show meaningful improvement in the near term even with policy easing, given weak consumer confidence and the company’s large exposure to less popular low-tier cities.Country Garden declined to comment on the investment bank reports.JP Morgan noted that if Country Garden still defaulted after policies aiming at boosting liquidity for developers, it would show that “there is no guarantee of survival”.”This raises the question of whether government support will ever be sufficient to prevent another large-scale default.”($1 = 7.2075 Chinese yuan renminbi) More