Finance

American multinational skincare and beauty products brand Estée Lauder’s logo seen in Hong Kong.
Budrul Chukrut | Lightrocket | Getty Images

Check out the companies making headlines before the bell Friday.
Palo Alto Networks — Shares of the cybersecurity company edged 1.8% lower in premarket trading Friday. Palo Alto Networks’ fiscal fourth-quarter earnings are expected to come out Friday afternoon. Analysts surveyed by FactSet’s StreetAccount called for $1.96 billion in revenue and earnings per share of $1.29.

Ross Stores — Shares jumped nearly 5%, a day after Ross Stores’ postmarket earnings report. The discount retailer’s earnings per share for its second quarter came in at $1.32, topping the consensus estimate of $1.16, according to Refinitiv. Its revenue was $4.93 billion, versus the $4.75 billion expected.
Alibaba, JD.com, PDD, Nio — Shares of some Chinese companies, ranging from e-commerce giants JD.com and Alibaba to electric vehicle manufacturer Nio, declined in premarket trading Friday. Alibaba was down 2.3% and PDD lost about 3.5%, while JD.com and Nio dropped 4.8% and more than 5%, respectively. The moves come as investors’ weigh China’s real estate troubles, which could, in turn, impact the country’s economic activity.
XPeng — Shares of the Chinese electric car maker were trading down 7% after the company’s earnings results Friday showed a wider-than-expected loss in the second quarter. The company reported a net loss of 2.8 billion yuan, coming out lower than the expected loss of 2.13 billion yuan. XPeng’s revenue of 5.06 billion Chinese yuan ($693.7 million) came out in line with expectations, however. Still, its revenue represented a 31% year-on-year fall.
Applied Materials — The semiconductor equipment maker gained about 2% after beating analysts’ expectations on the top and bottom lines in its fiscal third-quarter results. The company’s adjusted earnings came out to $1.90 per share, exceeding the $1.74 per share expected by analysts polled by Refinitiv. Revenue came in at $6.43 billion, also more than the anticipated $6.16 billion.
Estee Lauder — Shares of the cosmetics giant took a 4% hit after Estee Lauder reported earnings for its fiscal fourth quarter that beat on earnings and revenue, but lowered its full-year guidance. The company reported adjusted earning per share of 7 cents, while analysts surveyed by Refinitiv had forecast a loss of 4 cents per share. Revenue of $3.61 billion surpassed expectations of $3.48 billion. Estee Lauder issued weak guidance for the first quarter, however, saying it expects to lose between 31 cents per share and 21 cents per share, while analysts had expected earnings per share of 98 cents, according to FactSet. 

Keysight Technologies — The stock lost 12.3% after Keysight provided a bleak outlook for its fiscal fourth quarter. The electronic design company said it anticipates adjusted earnings of $1.83 to $1.89 per share on revenue of $1.29 billion to $1.31 billion. Analysts surveyed by FactSet expect earnings of $2 per share and revenue of $1.39 billion.
Farfetch — Shares of the e-commerce fashion company plunged more than 41% in early morning trading after reporting revenue of $572 million for the second quarter, coming out far below a Refinitiv estimate of $649 million. It also issued weaker-than-expected revenue guidance for the full year and cut its gross merchandise value outlook.
Bloomin’ Brands — Shares of the Outback Steakhouse parent company rose 6% in premarket trading after The Wall Street Journal reported that an activist investor has been buying the stock. Jeffrey Smith’s Starboard Value now owns more than 5% of Bloomin’ Brands, according to the report.
— CNBC’s Michelle Fox Theobald and Jesse Pound contributed reporting. More

New home sales for the top 100 developers in China dropped by about a third in June and July from a year ago, after double-digit growth earlier in the year, according to S&P Global Ratings.
Late Thursday, the world’s most indebted property developer Evergrande filed for bankruptcy protection in the U.S., further shaking up investor confidence.
Country Garden’s looming default is making it more difficult for property developers to raise funds, raising contagion fears in the Chinese property sector.

Aerial photo shows a rural residential area in Chengdong town of Hai ‘an City, East China’s Jiangsu Province, April 1, 2023.
Future Publishing | Future Publishing | Getty Images

China’s real estate troubles are accelerating. Prospective home buyers are holding back on making purchases, leading to weak sales that compound the urgent need for policymakers to step up support for the industry.
New home sales for the top 100 developers dropped by about a third in June and July from a year ago, after double-digit growth earlier in the year, said Edward Chan, a director at S&P Global Ratings. With most apartments in China sold before they are completed, weak new home sales will likely lead to significant cash flow issues for developers.

“We think the situation is probably getting a little bit worse because of this Country Garden incident,” Chan told CNBC in a phone interview Thursday. He added he hasn’t seen any improvement in new home sales so far.
At a time when rafts of data are pointing to a rapidly slowing economy, this lack of improvement, along with Country Garden’s looming default, is making it more difficult for property developers to raise funds.
Late Thursday in the U.S., the world’s most indebted property developer Evergrande filed for bankruptcy protection, further shaking up investor confidence.
The deepening crisis of confidence is adding to pressure on the world’s second-largest economy.

The debt troubles at Country Garden and the uncertainty of government support are feeding into broader unease in the Chinese housing market.

Louise Loo
Oxford Economics

The Chinese property sector has been reeling since 2020, when Beijing cracked down on the debt levels of mainland property developers.
Years of exuberant growth led to the construction of ghost towns where supply outstripped demand as developers looked to capitalize on the desire for home ownership and property investment.
These measures, known as China’s “three red lines” policy, point to three specific balance sheet conditions developers must meet if they want to take on more debt.
The rules require developers to limit their debt in relation to the company’s cash flow, assets and capital levels, with highly indebted developer Evergrande the first headline-grabbing default in late 2021.

Country Garden’s woes

A default by Country Garden could add $9.9 billion to the year-to-date global emerging markets high-yield corporate default tally, taking the total default volume for the Chinese property sector to $17 billion to-date in 2023, JPMorgan said in a note dated Aug. 15.
The U.S. investment bank expects China property to account for nearly 40% of all emerging market default volumes in 2023.
Much of Country Garden’s problems have to do with its outsized exposure to less developed parts of China known as lower-tier cities. About 61% of developments, according to the company’s 2022 annual report, are in these lower-tiered cities, where housing supply outstrips demand.

“Country Garden sales performance has been kind of disastrous,” S&P Global’s Chan said, noting that sales in June and July dropped by about 50% year-on-year.
Chan said that lower-tier cities started to see sales weakness in May, while higher-tier cities started to see sales worsen in subsequent months.
As a result of Country Garden’s troubles, Chan said it’s “becoming more and more challenging” for China’s overall real estate sales to reach S&P’s base case of 12 trillion yuan to 13 trillion yuan this year.
“Instead of an L-shape it could be a descending staircase,” he said.
Chan said S&P’s bear case for China’s property sector is for 11 trillion yuan in sales this year, and 10 trillion yuan for 2024.
That’s still only nearly half of what the country’s real estate market sales were at its peak 2021 — at 18 trillion yuan, according to figures Chan shared.

At their mid-year economic review meeting in July, China’s top leaders vowed to “adjust and optimize policies in a timely manner” for its beleaguered property sector.
To date, they have yet to clearly demonstrate their plan to adapt to “major changes” in the demand-supply dynamics in the property market.
“The debt troubles at Country Garden and the uncertainty of government support are feeding into broader unease in the Chinese housing market,” Louise Loo, lead economist at Oxford Economics, wrote in a note dated Aug. 11.

Land sales divergence

As China’s property sector consolidates amid the debt and credit malaise, state-owned developers are better positioned to grow than non-state ones.
State-owned developers saw contracted sales grow by 48% in the first seven months of this year from a year ago, while developers that were not state-owned saw sales fall by 19%, according to data from Natixis Corporate and Investment Banking.
This is enhancing state-owned developers’ ability to buy land from local governments since robust home sales are boosting their cash flow.
“Nowadays, 87% of the land purchases are by [state-owned enterprises], so how do you expect [privately owned enterprises] to grow further?” Gary Ng, a senior economist at Natixis, said in a phone interview Tuesday.

For this year through July, 87% of land purchases by value were by state-owned developers, similar to last year, Natixis data showed. That’s up sharply from 59% in 2021, the data showed.
Ng expects state-owned developers to have greater ownership in China’s real estate market going forward. But he said that while non-state-owned developers have had leverage problems in the past, having so many state-owned developers in the industry might make it more difficult to forecast actual demand.
Still, underlying housing demand in first-tier cities remains somewhat resilient and untapped, and may be unleashed once there’s greater policy clarity.
“Timely policy in stabilizing the demand and sales in the higher-tier cities would be very important,” said Chan from S&P Global.
“If that could be achieved then over time, the stabilization could be spilled over to the lower-tier cities. But that will take an even longer time.”

Read more about China from CNBC Pro More

JD.com, Tencent and Alibaba this month reported results for the three months ended June that pointed to a steady pick-up in consumer spending that quarter, but with less clarity on whether that growth has continued.
JD’s electronics revenue rose but sales from general merchandise dropped in the quarter ended June.
Theme parks have done well as tourism has picked up domestically.

Tencent sign is seen at the World Artificial Intelligence Conference (WAIC) in Shanghai, China July 6, 2023. 
Aly Song | Reuters

BEIJING — Corporate earnings releases are picking up on a few bright spots for China’s consumer in a competitive market where people are less willing to open their wallets.
JD.com, Tencent and Alibaba this month reported results for the three months ended June that pointed to a steady pick-up in consumer spending that quarter, but with less clarity on whether that growth has continued.

Here’s where companies said they saw consumer-related growth, according to public disclosures and FactSet transcripts of earnings calls:

JD.com

Electronics and home appliance revenues rose by 11.3% to 152.13 billion yuan ($20.98 billion) in the three months ended June.
But general merchandise revenue fell by 8.6% from a year ago to 81.72 billion yuan.
Marketing revenue rose by 8.5% to 22.51 billion yuan.

Tencent

Livestreaming e-commerce saw 150% year-on-year growth in gross merchandise value in the second quarter to an unspecified number. GMV measures total sales value over a certain period of time.

On an annualized basis, that livestreaming GMV “is in the tens of billions” yuan.
WeChat Mini program e-commerce has GMV “in the trillions” of yuan on an annualized basis. GMV for physical products has exceeded 1 trillion yuan on an annualized basis.
Advertising revenue across all categories — except automotive — is up double-digits from a year ago in recent weeks. Ad sales rose by 34% to 25 billion yuan in the quarter ended June.
Overall, Tencent reported earnings for the quarter that missed expectations, but showed a third-straight quarter of revenue growth.

Alibaba

Direct China commerce sales, primarily from Tmall Supermarket and Tmall Global, grew by 21% year-on-year to 30.17 billion yuan.
The overall Taobao and Tmall Group saw revenue grow by 12% to 114.95 billion yuan.
A recovery in offline shows and the movie theater box office boosted Alibaba’s ticketing and movie studio units. Video platform Youku also saw subscription revenue rise. In all, digital media and entertainment revenue surged by 36% year-on-year to 5.38 billion yuan — and its first profitable quarter.
Local services revenue rose by 30% to 14.5 billion yuan. That was driven by orders on food delivery app Ele.me and growth in Alibaba’s map app Amap, which sells services such as ride-hailing and hotel booking.
Alibaba management did not provide much detail on the state of the consumer since the end of June.
Overall, Alibaba’s earnings soundly beat expectations for the quarter.

China consumption amid sluggish growth

Data for July have pointed to a slowdown in China’s economy, including a modest 2.5% year-on-year increase in retail sales.
Theme parks, however, have done well as tourism has picked up domestically.
Shanghai Disney saw record high revenue, operating income and margin during the latest quarter, the company said.

Read more about China from CNBC Pro

Universal Studios Beijing “enjoyed its most profitable quarter,” Comcast said. The park opened in September 2021, during the pandemic.
Listed companies don’t capture all major channels for online spending in China. ByteDance, which is not publicly listed, has become another e-commerce platform through its Douyin app, the local version of TikTok.

Consumers in China spent 1.41 trillion yuan in purchases from merchants on Douyin, up 76% from the previous year, according to The Information. ByteDance did not immediately respond to a request for comment.
ByteDance’s smaller rival Kuaishou is set to release earnings Tuesday, as are Chinese tech giant Baidu and video content platform iQiyi. E-commerce giant Pinduoduo has yet to announce when it’s scheduled to release earnings.

Other companies in China, or those with exposure to China, have showed some pockets of growth, albeit compared to a low base in 2022 when the metropolis of Shanghai was locked down for two of the three months in the second quarter.
Here’s what some have said so far:

Adidas

Revenues in Greater China grew 16% in the second quarter, reflecting double-digit sell-out growth in both wholesale and its own retail outlets.

Anta

The Chinese sportswear company said its Anta brand retail sales value rose by high single digits in the second quarter from a year ago. Its Fila brand saw high teens growth year-over-year. The company’s Descente, Kolon Sport and other brands saw growth of 70% to 75% year-on-year.

Apple

Apple CEO Tim Cook said the iPhone maker saw “an acceleration‘’ in China, with 8% year-on-year quarterly sales growth to $15.76 billion. That’s a reversal of a 3% year-on-year drop in the prior quarter.
The company said it saw “a June quarter record in Greater China” in the wearables, home and accessories category, as overall product group saw sales increase by 2% year-on-year to $8.3 billion.

Li Ning

Starbucks

China comparable store sales increased 46%, but the average ticket size was slightly smaller, down 1%.
— CNBC’s Arjun Kharpal contributed to this report.
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC. More

A technician checks on a stack of wafers at the Applied Materials facility in Santa Clara, California.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines after hours.
Applied Materials — Applied Materials rose nearly 2% in extended trading after beating analysts’ expectations on the top and bottom lines in its fiscal third-quarter results. The semiconductor equipment maker posted adjusted earnings of $1.90 per share, greater than the $1.74 per share expected by analysts polled by Refinitiv. Revenue came in at $6.43 billion, more than the anticipated $6.16 billion.

Ross Stores — The retail stock popped 5.7% in extended trading after Ross Stores topped forecasts for its second quarter. The discount store company reported earnings of $1.32 per share, better than the $1.16 consensus estimate, per Refinitiv. It posted revenue of $4.93 billion, above the expected $4.75 billion.
Bill Holdings — Bill Holdings’ shares slid 5.4% after the online payments company reported fiscal fourth-quarter results. Bill beat analysts’ expectations on the top and bottom lines, reporting fourth-quarter adjusted earnings of 59 cents per share on revenue of $296 million. Analysts polled by Refinitiv had expected 41 cents in earnings per share on revenue of $282 million. However, Bill issued a weak first-quarter and full-year revenue outlook.
Keysight Technologies — Shares of the electronic design company dropped 7% after Keysight provided a bleak outlook for its fiscal fourth quarter. Keysight anticipates adjusted earnings of $1.83 to $1.89 per share on revenue of $1.29 billion to $1.31 billion. Analysts polled by FactSet called for earnings of $2 per share and revenue of $1.39 billion.
Farfetch — Shares plunged 33% after Farfetch posted second-quarter revenue that missed estimates. The online luxury retailer posted revenue of $572 million, lower than the consensus estimate of $649 million from Refinitiv. More

A CVS pharmacy in Bloomsburg, Pennsylvania.
Paul Weaver | LightRocket | Getty Images

Check out the companies making headlines during midday trading Thursday.
Cisco Systems — Shares of the computer networking giant added 4% after reporting earnings postmarket Wednesday that beat Wall Street’s expectations. Adjusted earnings per share for its fiscal fourth quarter came in at $1.14, topping the $1.06 expected from analysts polled by Refinitiv. Revenue was $15.2 billion, compared with the $15.05 billion expected.

Walmart — Shares of the big-box retailer fell nearly 2% even after Walmart topped estimates for the recent quarter and lifted its full-year forecast due to strong grocery and e-commerce growth. The company reported adjusted earnings of $1.84 a share, ahead of the $1.71 expected by analysts polled by Refinitiv. Revenue came in at $161.63 billion, topping an estimate of $160.27 billion.
Hawaiian Electric — The utility stock tumbled 15% and hit a new 52-week low as investors remained concerned about the company’s potential liability in Maui’s wildfires. The Wall Street Journal reported late Wednesday that Hawaiian Electric is in talks with firms that specialize in restructuring. 
CVS Health — Shares of the pharmacy giant slid more than 9% after Blue Shield of California ended its pharmacy benefits partnership with CVS Caremark and announced it will instead join forces with Mark Cuban’s Cost Plus Drugs and Amazon Pharmacy in a move to help members save on drug costs.
Coherent — The semiconductor stock gained 3.9% after a nearly 30% drop Wednesday. While Coherent beat expectations when reporting fiscal fourth-quarter earnings earlier in the week, the company’s guidance for current-quarter and full-year earnings and revenue came in below what was expected by analysts surveyed by FactSet. Investment firm Rosenblatt recently upgraded shares to buy from neutral, noting the post-earnings sell-off was “overdone” and the weak full-year guidance should be conservative.
Ball — The stock edged up 3% Thursday on news that BAE Systems is acquiring Ball’s aerospace business for $5.55 billion in cash.

Adyen — Europe’s Stripe rival Adyen lost 36% in midday trading after the company reported worse-than-expected sales and a profit drop in the first half of the year, driven by increased hiring and competition from rivals. Adyen reported 739.1 million euros in revenue between January 2023 and June 2023, which fell short of analysts’ expectations of 853.6 million euros, according to Eikon data.
Wolfspeed — Shares of the semiconductor developer dropped 16% following the company’s earnings report after the bell Wednesday. Wolfspeed posted an adjusted loss of 42 cents per share for its fiscal fourth quarter, missing expectations of a 20 cent loss per share, according to Refinitiv.
VinFast Auto — Shares of the Vietnamese electric vehicle company plunged 18% in midday trading as the stock searches for its level after its Nasdaq debut Tuesday. The stock rose more than 250% in its first trading session, after VinFast merged with a special purpose acquisition company, but retreated nearly 19% Wednesday. 
América Móvil — The Mexican telecommunications stock gained about 4% after Citi upgraded the company to buy from neutral in a Wednesday note and hiked its price target, with the new forecast implying more than 26% upside from Wednesday’s closing price. The firm expects the stock’s latest pullback, which it attributed to capital expenditures and sellers fleeing due to an August MSCI rebalance, to abate over the short term.
— CNBC’s Jesse Pound, Tanaya Macheel, Alex Harring, Samantha Subin and Michelle Fox Theobald contributed reporting. More

Walmart logo is seen near the shop in Williston, Vermont on June 19, 2023.
Jakub Porzycki | Nurphoto | Getty Images

Check out the companies making the biggest moves in premarket trading:
Walmart — Shares added as much as 1% after the big-box retailer raised its full-year forecast and reported an earnings and revenue beat. Adjusted earnings per share for the quarter was $1.84, topping the $1.17 expected from analysts polled by Refinitv. Revenue came in at $161.63 billion, versus the $160.27 expected.

Cisco Systems — The computer networking giant added 2.2% following its earnings beat postmarket Wednesday. Adjusted earnings per share for its fiscal fourth quarter came in at $1.14, topping the $1.06 expected from analysts polled by Refinitiv. Revenue was $15.2 billion, compared to the $15.05 billion expected.
Adobe — The software company added about 2% after Bank of America upgraded shares to buy from neutral. The bank said Adobe was on the verge of becoming a leader in artificial intelligence. Bank of America also upped its price target to $630 per share from $575, implying more than 22% upside from Wednesday’s close.
Hawaiian Electric — The utility company that oversees Maui Electric sank nearly 18% in premarket trading, continuing its slide over concerns of its potential liability in Maui’s wildfires. On Wednesday, the Wall Street Journal reported Hawaiian Electric is in talks with firms that specialize in restructuring. On Thursday, Bank of America lowered its price target on the stock for the second time this week, from $11 to $10.
CVS – Shares tumbled about 7% in the premarket after Blue Shield of California announced it is moving from CVS to Mark Cuban’s Cost Plus Drug Company and Amazon Pharmacy. Blue Shield of California will still use CVS Caremark for specialty drugs and to provide prescriptions for patients with complex conditions.
Wolfspeed — Shares dropped nearly 17% following the company’s earnings report after the bell Wednesday. Wolfspeed posted an adjusted earnings-per-share loss of 42 cents for its fiscal fourth quarter, missing expectations of a 20 cents loss-per-share, according to Refinitiv. However, the company’s revenue tops estimates.

Ball — The stock popped 3% in premarket trading after BAE Systems announced it was buying Ball’s aerospace business for $5.55 billion in cash.
VinFast Auto — Shares of the electric vehicle start-up fell nearly 5% in premarket trading as VinFast’s stock searches for its level after debuting earlier this week. The stock rose more than 250% on Tuesday in the first session after VinFast merged with a special purpose acquisition company, but shares retreated nearly 19% on Wednesday.
— CNBC’s Alex Harring, Jesse Pound and Michael Bloom contributed reporting. More

A typical economist does not have all that much in common with a typical protester in a failing dictatorship. Dismal scientists favour cautious lessons, carefully crafted and suitably caveated, backed by decades of data and rigorous modelling. Protesters need electrifying arguments and gargantuan promises about just how good life will be as soon as their aims are achieved, since that is how you recruit people to a cause. But the two groups share at least one trait. They both tend to be ardent democrats.Democratic institutions are good for economic growth. That is one of the few things on which, after decades of probing the link between politics and prosperity, economists agree. Dictators may be able to control the state, its resources and much of society. But countries that have long-established elections and associated institutions also tend to have trustworthy governments, competent finance ministers and reliable legal systems. In a paper published in 2019, Daron Acemoglu of the Massachusetts Institute of Technology and co-authors split countries into dictatorships and democracies. They found that 25 years after making a permanent switch from the former camp to the latter, a country’s gdp was one-fifth higher than it would otherwise have been.The problem is that making the switch takes longer and is more expensive than often assumed. Look beyond Mr Acemoglu’s black-and-white division. Allow some countries to be more democratic than others—after all, it makes little sense to put a centuries-old democracy in the same category as one finding its feet—and a different picture emerges. In a study published last year, Nauro Campos of University College London and co-authors found that regimes face problems while trying to get rid of autocratic tendencies. On average, countries lose 20% of gdp per person in the 25 years after escaping dictatorship relative to their previous growth path, in part because many struggle with the transition to democracy. Today there are more such inbetween regimes than ever (87, according to the Economist Intelligence Unit, our sister outfit). Reliable institutions are a prerequisite for development, but democratic ones take a long time to build. Countries do not finish one day under a military dictator and start the next with a fully formed supreme court. Civil services that know when to leave the private sector be, legal systems that protect property rights, and thriving charities and universities take decades to develop. Investors take even longer to be convinced. Democracies spend more on health and education, which pays off, but only after decades.More immediately, overhauling politics shakes the economy. Few autocrats are sensible technocrats, but they stick around, while democratic progress comes in fits and starts, occasionally kicking into reverse. Countries often need several new leaders and constitutions before reform sticks. There is always a risk that a democratic experiment will end in a coup, war or uprising. For businesses, making big bets on stability is often too much of a gamble. Local ones do not want to get close to politicians and anger those who will be next in charge. Foreign creditors want to lend to a government that will still be around to pay them back. Elections also carry costs. Autocrats fix them, which is complicated and expensive. But winning one—the task ahead of a politician in a newly democratic country—is often more expensive still. After all, influencing through persuasion (with, say, promises of shiny new sports stadiums) soaks up more money than repression. A party-run media empire will be able to spend billions of dollars. Vote-winning welfare promises will be even pricier. New democrats also tend to rely on networks of crony-capitalist allies to campaign, protect and fund them. These networks can be more sprawling than the ones that kept their predecessors in power. Neither the powerful top brass, such as generals or businessfolk, nor the voters they bring in, will be particularly keen on a pay cut.Few candidates are really rich themselves, meaning payments often come from the state once candidates are in office. Fiscal balances fall foul of corruption, as inner circles siphon cash. The possibility of losing the next election sometimes adds urgency to such activities, rather than discouraging them. Worse, new presidents sometimes choose to, in effect, rent out parts of the government. Rather than dissolve state-run companies, they like to use board positions as rewards and dish out licences for national monopolies. The civil service changes hands. Flagship investments—planned for elsewhere—migrate to supportive regions. There is no money, expertise or time left to worry about growth. Stuff the ballot boxesAs costly as change is, the circumstances that provoke it are scarcely better. Mr Acemoglu finds that gdp per person tends to stop growing in the five years before a country becomes a democracy. Suharto, a former dictator in Indonesia, resigned in 1998, a year after the Asian financial crisis began. In 2011 Egypt’s Tahrir Square was filled with protesters demanding “Bread, Dignity and Freedom”. Today, once again, Egypt is brimming with political protest after years of crisis. So are Sri Lanka and Pakistan. There is nothing more likely to push politicians towards reform, or populations towards protest, than inflation, joblessness and falling living standards. All too often, autocrats are to blame for these problems in the first place. But swapping leaders or holding an election will not immediately fix decades of economic mismanagement. The difficulties of democratisation may also help explain why so many countries are stuck somewhere short of full democracy. Although a popular vote offers sizeable economic benefits, they take time to emerge, while the costs are more immediate. People who are no more able to make ends meet after overthrowing an autocrat, despite the grand promises they were sold by popular leaders, are more likely to turn their back on reform altogether. The path to democracy is fraught. That is why history is littered with failed experiments. ■Read more from Free exchange, our column on economics:Elon Musk’s plans could hinder Twitternomics (Aug 7th)Deflation is curbing China’s economic rise (Jul 27th)Why people struggle to understand climate risk (Jul 13th) More

Sod’s law, the axiom that if something can go wrong then it will, is about as British as it gets. But traders around the world have their own version: that markets will move in whatever direction causes the most pain to the most people. This year, they have been vindicated by a soaring stockmarket that few saw coming, in which the biggest winners have been the shares that were already eye-wateringly expensive to begin with. In April fund managers told Bank of America’s monthly survey that “long big tech” was the most faddish trade going, making it an obvious one for the professionals to avoid. Over the next few months shares in the biggest big tech firms duly left the rest of the market in the dust.Other than simply pay up and pray for the run to keep going, what is a value-conscious investor to do? The pluckiest option—calling the market’s bluff and betting on a crash—has left many of the hedge funds that tried it running for cover. In June and July, say Goldman Sachs’s brokers, such funds abandoned their positions at the fastest pace in years. Those looking on may not thrill at the prospect of recreating their experience. But if you don’t think stocks can rise much more yet can’t stomach the risk of shorting them, logic dictates a third option. You can try to profit from them not moving much at all.A growing number of investors are doing just this—or, in industry jargon, selling volatility. The trade-du-jour is the “buy-write” exchange-traded fund (etf), a formerly obscure category that is now hoovering up capital. Since the start of 2023, buy-write etfs have seen their assets balloon by 60%, to nearly $60bn.In practice, such investors are buying baskets of stocks while selling (or “writing”) call options on them. These are contracts that give the buyer the right (though not the obligation) to buy the stocks for a set price (or “strike price”) in the future. Usually the strike price is set “at the money”, or at whatever level the stocks are trading when the option is written. If they then rise in price, the buyer will exercise the option to purchase them at the below-market value. Conversely, if they fall, the buyer will let the option expire unused, not wanting to pay above-market value for the stocks.The original investor, who sold the call option and bought stocks, is betting that share prices stay precisely where they were. That way, they get to pocket the option price (“premium”) without having to sell the stocks for less than they are worth. If prices instead increase, the option seller still keeps the premium, but must forgo all the share-price growth and sell the stocks for their original value. If they fall, the investor takes the hit as the option will not be exercised, meaning they will keep the shares and their losses. This is at least cushioned by the premium they received in the first place.To those marketing them, buy-write etfs are more than just a punt on placidity. Global X, a firm that offers 12 such funds, lists their primary goal as “current income”. Viewed in this light they might appear like a dream come true, because regularly selling options can generate a chunky income stream. One of the more popular vehicles is the Global X Nasdaq 100 Covered Call etf, with assets worth $8.2bn. Averaged over the year to June, each month it has collected option premiums worth 3% of assets and made distributions worth 1% to investors. Even in a world of rising interest rates, that is not to be sniffed at. Ten-year Treasuries, by comparison, yield 4.2% a year.Readers who do not believe in free lunches may sense a rather large catch coming. Yet it is not the familiar one applying to bets against market turbulence, which is that years of steady profits can be followed by a sudden, unexpected shock and a total wipeout. A buy-write etf may well fall in value, but in this respect it is no riskier than a corresponding “vanilla” fund that just owns the underlying stocks.The real hitch is that while such etfs offer equity-like potential losses, their profits can never exceed the monthly income from selling options. Those profits thus resemble the fixed-income stream generated by a bond. They also up-end the logic for buying stocks in the first place: that a higher risk of losses, compared with bonds, is worth the shot at wild, uncapped returns. The nightmare scenario is that stocks go on a blistering bull run that buy-write investors miss out on, followed by a plunge that hurts them almost as much as everyone else. This year has already had the bull run. If Sod’s law continues to hold, buy-writers should watch out.■Read more from Buttonwood, our columnist on financial markets:In defence of credit-rating agencies (Aug 10th)Meet America’s disguised property investors (Aug 3rd)Investors are seized by optimism. Can the bull market last? (Jul 25th)Also: How the Buttonwood column got its name More