Finance

The months ahead are set to bring more clarity on China’s economic outlook and any government support — especially for real estate.
“Probably in half a year, we are going to see the housing market stabilize,” Yao Yang, dean of the National School of Development at Peking University in Beijing, told reporters in a briefing Wednesday.
In coming weeks, China’s ruling Communist Party is also due to hold its Third Plenum, a meeting held once every five years which typically focuses on longer-term aspects of the economy.

This photo taken on September 24, 2023, shows residential buildings in Chongqing, in southwest China.
Stringer | Afp | Getty Images

BEIJING — The last three months of the year are set to bring more clarity on China’s economic outlook and any government support — especially for the critical real estate sector.
China’s rebound this year from Covid-19 has slowed since April. Then over the summer, the property slump accelerated, despite many large cities easing restrictions for buying apartments.

“Gradually, the central government is going to loosen up on the supply side, too,” Yao Yang, dean of the National School of Development at Peking University, told reporters in a briefing Wednesday.
“Probably in half a year, we are going to see the housing market stabilize,” he said, noting regulators were previously “overshooting” in their real estate crackdown.
At its peak, China’s property sector accounted for about a quarter of the economy, which means the industry’s struggles have weighed on everything from consumption to local government finances.

Yao also expects the central government to allow local governments to borrow more money to pay back their long-term debt — which he said can help the economy recover fully by the middle of next year.
In 2020, Beijing tried to rein in real estate developers’ high reliance on debt with new restrictions on financing. Covid restrictions dampened homebuyer appetite, drying up an important source of cash for developers since apartments are typically sold ahead of completion in China.

Developers delayed construction on projects, further worrying homebuyers. By late 2022, several real estate giants had defaulted on their debt. This summer, top leadership started to signal a new tone.
“The decline in the real estate sector was the result of the government’s intentional measures to correct the bubbles in the market,” Yao said. He noted that floor space sold this year will likely be more than 500 million square meters less than what it was before the crackdown — and 200 million square meters less than what’s considered acceptable for the industry.
But he and other economists mostly don’t expect real estate to return to significant growth in the future.
Dan Wang, Shanghai-based chief economist at Hang Seng China, said she expects housing market weakness will persist and prices to fall in the coming years, but not abruptly.
Her analysis found an unofficial minimum price for sales of newly built homes across China. “Some developers would say they sort of know the baseline, they cannot give a discount of 15%,” she said.
“For [the] Chinese government, they would like to see more of a controlled decline rather than a sudden adjustment,” she said, noting significant social consequences if house prices plunge, since much of household wealth is stored in housing.

The combination of these measures could allow the economy to rebound modestly from 4Q23 onward.

Morgan Stanley

This week, worries about China’s real estate sector persisted with highly indebted Evergrande running into more liquidity problems — along with reports Wednesday its chairman has been put under surveillance.
“A breakthrough on Evergrande’s restructuring, yeah it’s going to make a difference,” Clifford Lau, portfolio manager at William Blair, said in a phone interview Monday.
“But is it going to re-price the entire bond sector to high single-digit[s], to 20 cents to a dollar? I think that is a very long journey.”

Gloomy sentiment

Such headlines have weighed on sentiment, both domestically and among international investors. Some longtime China watchers, especially outside the country, have said they are confused about Beijing’s economic policies. Foreign businesses have grown pessimistic.
“When we talk about confidence, most of businesses live in today. They want to get by today. No one cares about 10 years after,” said Yao, who is also director of the China Center for Economic Research.
“So the lack of confidence is the same thing as slowing down of the Chinese economy. If the economy is slowing down, no one is going to have an optimistic view about the economy [any]where,” he said.
Yao has been a long and early proponent of handing out cash to some people in China to boost consumption. While some cities have done so, central government authorities have been hesitant, preferring to cut taxes, especially for businesses.

Policy meetings ahead

Lack of formal communication is not helping sentiment.
China’s tightly controlled system means that policy changes can typically only occur after major meetings of top leadership known as the Politburo. Those generally occur in late April and late July, and another meeting in December to discuss the year ahead.

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In the coming weeks, China’s ruling Communist Party is due to hold its Third Plenum, a meeting held once every five years which typically focuses on longer term aspects of the economy.
“A central-government-led, comprehensive plan to resolve local debt risk may be unveiled before/at the Third Plenum this fall. The combination of these measures could allow the economy to rebound modestly from 4Q23 onward,” Robin Xing, chief China economist at Morgan Stanley, and a team said in a note.
Also widely anticipated is the National Financial Work Conference, a meeting to discuss financial development and risks. It has been delayed since it was originally expected to be held last year.
The meetings are part of a structure China has had for years. What’s different is that more recently, policymakers have become less likely to make major announcements before high-level directives are clear.
The Communist Party of China is also gaining increased oversight of finance and tech with the establishment of new commissions — a reorganization process announced in March and expected to take effect by the end of the year.

Is organic growth enough?

It’s not clear how much more policymakers need to do for the economy, especially since there’s still modest growth.
In the long term, Yao expects China’s GDP has the potential to grow by 5.5% a year, supported by a high savings rate and the country’s leadership in new energy vehicles, renewables and advanced technology.
This month, weekly data from Nomura indicate the real estate sales slump has moderated. Retail sales also grew better-than-expected in August and industrial profits for the month surged by 17.2% from a year ago.
Bruce Pang, chief economist and head of research for Greater China at JLL, pointed out that industrial profits rose regardless of company type.
What’s needed is “policy stability, not policy overshoot,” he said in Mandarin, according to a CNBC translation.
Pang doesn’t expect major policy changes at meetings later this year, but anticipates the central bank will continue to lower interest rates and growth to pick up naturally.

Even with a number of lowered China growth forecasts this year, economists’ expectations are close to, or slightly lower than, the official target of around 5%. Nomura on Wednesday increased its full-year GDP forecast to 4.8% from 4.6%.
“I guess every couple of years, you hear these stories about something. Trust companies, shadow banking was supposed to take the country down back in 2013. Didn’t happen,” said Peter Alexander, founder of Shanghai-based consulting firm Z-Ben. He said he arrived in China in 1996, at around the Asian financial crisis.
“Somehow, someway,” he said, “policy has entered to be able to provide some form of corrective action that has stabilized, or at a minimum, postponed the supposed inevitable.” More

The Trimble logo is displayed on a smartphone.
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Check out the companies making headlines in midday trading.
Trimble — The technology services provider jumped 6.5% Thursday on the back of an announcement that AGCO Corporation will acquire an 85% stake in Trimble’s agribusiness for $2 billion in cash, as the tractor and seeding equipment firm looks to grow its precision agriculture portfolio.

DigitalBridge — Shares of the digital infrastructure company added 4.8% after JPMorgan upgraded the company to overweight from neutral. The firm said DigitalBridge is largely finished with the transformation of its business.
Jefferies Financial Group — The financial services stock rose 1.9% even though the company’s third-quarter profits were hurt by a slowdown in deal-making. After the market closed Wednesday, Jefferies posted earnings of 22 cents per share on revenue of $1.18 billion. Still, the company’s CEO expressed optimism that momentum in investment banking activity will return.
Duolingo — Shares gained 3.2% on Thursday after UBS initiated coverage of Duolingo the day prior with a buy rating, saying it’s a “best-in-class brand.”
Host Hotels & Resorts — Shares gained 3.5% after Wolfe Research initiated coverage of the real estate investment trust with an outperform rating. The firm assigned a $22 price target on the company. 
Workday — Shares plunged 8.5% a day after the cloud services company lowered its long-term subscription growth target to a range of 17% to 19%, compared to its previous target of 20%.

Accenture — Shares of the IT and consulting firm fell 4.3% Thursday after Accenture reported mixed results for its fiscal fourth quarter. The company reported $2.71 in adjusted earnings per share on $15.99 billion of revenue. Analysts were expecting $2.65 per share on $16.07 billion of revenue, according to FactSet. The company’s full-year guidance for the upcoming fiscal year for earnings and cash from operations also came in below expectations, according to StreetAccount.
Micron — The chipmaker’s shares fell 4.4% a day after Micron posted a weaker-than-expected earnings forecast. Micron estimates a fiscal first-quarter loss of $1.07 per share, while analysts polled by LSEG, formerly known as Refinitiv, expected a loss of 95 cents. For the fiscal fourth quarter, the company reported a narrower-than-expected loss as well as revenue that topped expectations.
Peloton — Peloton popped 5.4% Thursday. Peloton and Lululemon announced a five-year strategic partnership on Wednesday. As part of the deal, Peloton’s content will be available on Lululemon’s exercise app and Lululemon, in turn, will become Peloton’s primary athletic apparel partner.
CarMax — Shares fell 13.4%. The used-car retailer’s fiscal second-quarter earnings and revenue slipped from a year ago on weakening demand for used cars. The company said it earned 75 cents per share on revenue of $7.07 billion, and that it bought 14.9% fewer vehicles from consumers and dealers from the previous year as steep market depreciation hurt volume. 
Concentrix — Shares gained 6.8% a day after Concentrix said it would hike its quarterly dividend 10% to about 30 cents a share. Separately, the consumer experience tech company posted adjusted earnings of $2.71 per share on revenue of $1.63 billion, while analysts polled by FactSet had estimated Concentrix would earn $2.85 per share and revenue of $1.64 billion.
— CNBC’s Jesse Pound and Christina Cheddar-Berk contributed reporting. More

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Billionaire hedge fund manager Bill Ackman believes long-term Treasury yields can shoot even higher in the short run on the back of stubborn inflation.
“I would not be shocked to see 30-year rates through the 5% barrier, and you could see the 10-year approach 5%,” he told CNBC’s Scott Wapner at the CNBC Delivering Alpha Investor Summit on Thursday in New York City.

The Pershing Square Capital Management CEO said he did not believe the Federal Reserve could get inflation back down to its 2% target partly due to a resurgent labor movement and high energy prices.
“Our view is that we’re in a different world,” the investor said. “You have a generation of people that are used to rates, you know, four sounding like a high interest rate. On a historical basis, it’s an extremely low rate of interest.”
The benchmark 10-year Treasury yield hit a 15-year high this week, topping 4.65%, as the Federal Reserve signaled higher interest rates for longer this month. The 30-year rate last traded around 4.71%.

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10-year Treasury yield this year

Still, Ackman said buying the 30-year Treasury bond isn’t worth locking up your money for that long with inflation eating into its return.
“We have an economy that is still strong and inflation at 3.5%, 4%, persistent,” Ackman said. “Our view is basically you’re not being paid enough to enter into a 30-year contract with this government.” More

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Brad Gerstner, Altimeter Founder and CEO, speaks at the Delivering Alpha conference in NYC, Sept. 28, 2023.
Adam Jeffery | CNBC

Altimeter Capital Chair and CEO Brad Gerstner is massively bullish on artificial intelligence, saying the power of the advanced technology could even trump the internet.
“AI is going to be bigger than the internet, bigger than mobile and bigger than cloud software,” Gerstner said at CNBC Delivering Alpha Investor Summit on Thursday in New York.

AI has been dominating headlines this year, creating a buying frenzy on Wall Street that pushed major enabler Nvidia over a $1 trillion market cap. Buzzy chatbot ChatGPT, capable of taking written inputs from users and producing a human-like response, was an instant phenomenon globally, becoming the fastest-growing software in history.
The widely followed tech investor called the rise of AI a “super-cycle” just like the dotcom boom in the late 1990s. But he cautioned that a typical characteristic of a super-cycle is conflicting sentiments and uncertainties, at least in the beginning.
“You have to get comfortable with two simultaneous but competing truths. On the one hand, we probably overestimate in the very short term, which leads to price inflation,” Gerstner said. “But much like the internet in ’98 and ’99, where there was overpricing in the short run, we dramatically underestimated the impact it was going to have over the … decade.”
Gerstner said he’s grown hopeful about the coming years as the Federal Reserve nears the end of its tightening cycle. He added that the IPO pipeline looks “chock full” for the three quarters ahead.
“I’m very optimistic over the course of the next two or three years. Why? Because we’re not going to continue to hike rates, and we’re at the beginning of one of the biggest tech booms in the history of technology,” he said.

Altimeter held Meta, Microsoft and Nvidia as some of its biggest bets at the end of the second quarter.
Don’t miss the biggest investment ideas in the business. Learn more about CNBC’s Delivering Alpha investor summit here. More

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Billionaire investor Ray Dalio is watching closely the “risky” U.S. fiscal situation.
“We’re going to have a debt crisis in this country,” the founder of hedge fund Bridgewater Associates said in an interview with CNBC’s Sara Eisen that aired Thursday. The two were speaking at a fireside chat at the Managed Funds Association. “How fast it transpires, I think, is going to be a function of that supply-demand issue, so I’m watching that very closely.”

U.S. debt levels surpassed $33 trillion for the first time this month as lawmakers negotiate a U.S. spending bill before the Oct. 1 deadline. A failure to reach an agreement could mean a government shutdown and raise the perceived risk of the country’s debt.
U.S. debt levels have ballooned in recent years, especially after a roughly 50% increase in federal spending between fiscal 2019 and fiscal 2021, according to the U.S. Department of the Treasury. Investors fear interest rates may keep rising as the U.S. fiscal situation worsens, hurting the demand for Treasurys.
Dalio is concerned there are more headwinds for the economy than just high debt levels, saying growth could fall to zero, give or take 1% or 2%.
“I think you’re going to get a meaningful slowing of the economy,” Dalio said. More

A CarMax dealership on April 11, 2023 in Santa Rosa, California.
Justin Sullivan | Getty Images

Check out the companies making headlines before the bell.
Micron — The chipmaker’s shares fell 3.4% Thursday before the bell on the back of a weaker-than-expected earnings forecast. Micron estimates a fiscal first-quarter loss of $1.07 per share, on a non-GAAP basis, while analysts polled by LSEG expected a loss of 95 cents. For the fiscal fourth quarter, the company posted a narrower-than-expected loss as well as revenue that topped expectations. 

GameStop — The meme stock rallied nearly 8% after the company named billionaire activist investor Ryan Cohen as the company’s CEO effective immediately. The move comes three months after prior CEO Matthew Furlong was fired.
Duolingo — Shares gained more than 2% in the premarket. UBS initiated coverage of Duolingo on Wednesday with a buy rating, saying it’s a “best-in-class brand.”
CarMax — Shares fell nearly 12% as fiscal second-quarter earnings fell from a year-ago on weakening demand for used cars. The company said it earned 75 cents per share on revenue of $7.07 billion. CarMax said it bought 14.9% fewer vehicles from consumers and dealers from the previous year as steep market depreciation hurt volume. 
Workday — The cloud services company tumbled more than 11% after it lowered its long-term subscription growth target to a range of 17% to 19%, compared with its previous target of 20%.
Peloton — Shares popped nearly 14% in premarket trading Thursday after Peloton and Lululemon announced a five-year strategic partnership on Wednesday. According to the deal, Peloton’s content will be available on Lululemon’s exercise app and Lululemon, in turn, will become Peloton’s primary athletic apparel partner.

DigitalBridge — Shares of the digital infrastructure company jumped 7.7% after JPMorgan upgraded the company to overweight from neutral. The firm said DigitalBridge is largely finished with the transformation of its business.
Concentrix — Shares declined 5.1% after the company’s third-quarter earnings report missed on both the top and bottom lines. Concentrix posted adjusted earnings of $2.71 per share on revenue of $1.63 billion. Analysts polled by FactSet had estimated Concentrix would earn $2.85 per share and revenue of $1.64 billion. The company’s fourth-quarter earnings forecast of $3.03 to $3.15 per share also fell below analyst forecasts of $3.33 per share, according to FactSet.
— CNBC’s Sarah Min and Pia Singth contributed reporting. More

Foreign visitors have come flooding back to Japan since it reopened to travel in late 2022, making up for three years’ absence during the covid-19 pandemic. The weakness of the yen has produced some bargains for these recent arrivals. For the first time in a much longer period, investors are similarly excited about the bargains to be found in Japanese stockmarkets. Unfortunately, much like the travellers who zip through Tokyo in go-karts dressed as Mario and Luigi, many now risk going overboard in their newfound enthusiasm.From January to August foreigners bought ¥6.1trn-worth ($40bn-worth) of Japanese stocks, which represents the largest nominal inflow during the same timeframe since 2013. According to a survey by Bank of America, more fund managers are now overweight the country’s shares (ie, investing more than they usually would) than at any time in almost five years. The return of investors to Japan’s markets has been driven by optimism about reforms to corporate governance, with companies increasingly subject to investor activism and therefore returning cash. High-profile winning bets on Japan’s trading companies by Warren Buffett, a famous investor, have provided a boost. So has the fact that Japanese stocks have returned 13% this year, in dollar terms, compared with a 10% rise globally.All this optimism will soon be put to the test. After all, it is not just prospects for corporate-governance reform that have fuelled the rise in Japanese stocks; it is also the astoundingly cheap yen, and that may not last. The currency trades at ¥149 to the dollar, its weakest in three decades—down by 23% since the end of 2021. Japanese exporters, which face domestic costs but make much of their revenue overseas, have benefited enormously from this state of affairs.The yen’s weakness has been caused by huge differences in interest rates, with capital flows moving to higher-yielding assets. Unlike almost every other central bank, the Bank of Japan (boj) has refused to raise rates: its short-term interest rate remains at -0.1%. Yet observers increasingly expect the boj to shift, abandoning its cap on ten-year government-bond yields and raising rates for the first time since 2007. Japan’s “core core” inflation, which strips out fresh food and energy prices, sits at 4.3%, far above the central bank’s target. Even a small rate rise would squeeze the government, which last year had net debts equivalent to 163% of Japan’s gdp, twice the rich-world average.Some had thought that a virtuous cycle of mild inflation and stronger wage growth might finally be returning to Japan after decades of torpor, which would have made higher rates and a stronger yen less bothersome. But after months of waiting there is little evidence that pay really is rising. Employee earnings have dropped 2% in real terms in the past year and by 8% in the past decade. The ratio of job vacancies to applicants, which reached around 1.6 in 2018 and 2019, is now at 1.3, and falling rather than rising. Thus if the boj is dragged into tighter policy, it will not be by a budding recovery. Rather, it will be because of external pressure. With oil prices hovering above $90 per barrel, inflation in energy imports will filter through to other prices over time.Even if the boj does manage to stick to its guns, the gulf between American and Japanese interest rates looks unlikely to widen much, since the Federal Reserve has paused its rate rises. The transitory effects of the weaker yen will therefore begin to ebb for Japanese companies. A fall in the yen will boost earnings once, as foreign revenues are magnified in yen terms relative to the previous year. However, unless the yen continues falling, the support is a one-off. If the American economy weakens and investors come to expect interest-rate cuts, the yen will almost certainly surge against the dollar, weakening overseas earnings in the opposite way.Reforms to Japanese corporate governance are not to be sniffed at, and some beaten-down companies still present opportunities. Yet these bright spots will not be enough to overwhelm the macroeconomic gloom that is now enveloping Japan. Global investors sometimes seem capable of holding only one narrative in mind when it comes to the country: Japan is either a stagnant mess, with little hope of rescue, or is on the verge of an epoch-defining revival. This dichotomy does not apply today. The overwhelmingly positive trend in Japan’s corporate governance must be set against the trickier situation it is facing in the currency markets.■Read more from Buttonwood, our columnist on financial markets: How to avoid a common investment mistake (Sep 21)Why diamonds are losing their allure (Sep 13th)Should you fix your mortgage for ever? (Sep 7th)Also: How the Buttonwood column got its name More

For sri lanka’s politicians September 27th was meant to be the light at the end of the tunnel. After more than a year of economic free fall—in which the former president fled protests, gdp shrank by 9% and billions of dollars of arrears piled up—the imf was in town, ready to release $330m from a bail-out agreed in March. There was even talk that the country’s creditors would reach a deal to cut back its debts.Yet the fund’s officials flew back from Colombo without releasing a dollar. The problem was two-fold: Sri Lanka’s tiny tax take and China, which is the country’s biggest creditor. The imf cannot lend more unless Sri Lanka restructures its debts, since the country owes so much elsewhere that officials cannot otherwise be sure they will get their money back. Therefore by refusing to take a haircut on its debts, China is holding up Sri Lanka’s restructuring—as it is in other indebted countries, too.image: The EconomistOn the same day that the imf officials departed, Bloomberg, a news service, reported that other national creditors, led by India, were working on a deal, and that it would not include China. They may end up insisting that Sri Lanka suspends repayments to China or forces it onto a comparable deal. Either would be almost impossible to enforce. Creditors usually only agree to something because everyone agrees to the same terms. Even creditors at war with one another usually manage to hash out a deal. The decision to proceed without China reveals the extent of the breakdown in sovereign-debt negotiations.It was hoped that a recent deal in Zambia, to which China signed up, would provide a template. But the solution was unique to the structure of Zambian debt, which allowed creditors to relabel some Chinese lending as private rather than public. And China only agreed to much of the compromise, which includes low interest rates and slower repayment, on the condition that it could back out if Zambia’s economy picked up. At a recent g20 summit, where the agenda ranged from cryptocurrencies to global tax, officials observed that debt restructuring was the issue on which the least progress had been made.Worse, middle-income countries like Sri Lanka cannot even get into the process through which Zambia secured its deal. The Common Framework, a g20 mechanism for creditors, only applies to poor countries. Middle-income ones must negotiate with China alone. Chinese officials refuse even to sit on a committee with the rest of Sri Lanka’s national creditors. Many economies near default today, from Egypt to Pakistan, are also too rich to qualify.Sri Lanka’s situation also exposes a worrying new fault line. Some think that China was put off joining Sri Lanka’s creditor committee because India was a co-chair. After all, it was willing to participate in Zambia’s committee, which it jointly led with France. Such tensions will only become more of a problem, since India’s lending is growing. Bradley Parks of William & Mary, an American university, suspects that India’s officials have decided to lend to countries already indebted to China to counter their rival’s influence. Future standoffs are therefore likely to be in places where both countries are big creditors.This week’s check-up was the first by the imf in a defaulting country in the Asia-Pacific region since the financial crisis there more than 20 years ago, when it doled out $35bn to Indonesia, South Korea and Thailand, and was so busy that South Koreans called events “The imf Crisis”. Then the fund was in the thick of things—now it can do little but sit and watch. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More