Finance

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Traders work on the floor of the New York Stock Exchange (NYSE), August 17, 2022.
Brendan McDermid | Reuters

Hedge funds are getting increasingly skeptical about this big rally that broke out in the middle of a bear market.
Net short positions against the S&P 500 futures by hedge funds have reached a record $107 billion this week, according to calculations by Greg Boutle, head of U.S. equity and derivatives strategy at BNP Paribas. Shorting the S&P 500 futures is a common way to bet against the broader stock market but also could be part of a hedging strategy.

The bearish bets accumulated as the S&P 500 rallied for four straight weeks, bouncing more than 17% off its 52-week low from June 16. Economic data pointing to easing price pressures firmed the belief that Federal Reserve is getting inflation under control.
“As powerful as the market rally has been, it is being viewed with substantial skepticism,” said Mark Hackett, Nationwide’s chief of investment research.

Given the massively defensive positioning, some hedge funds have been forced to cover their short bets as stocks continued to go higher, further fueling the rally in the near term.
Since the S&P 500’s June low, short sellers ended up covering $45.5 billion of their short positions, according to S3 Partners. The largest amount of short covering in dollar terms occurred in the consumerdiscretionary and technology sectors.
“This may indicate that institutions are looking at the recent upward market movements as a ‘bear rally’ and are expecting a pullback in share prices across the broad market if the recession continues or worsens and the Fed is forced to raise rates higher or quicker than expected,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Many on Wall Street believe that signs of peaking inflation data may not be a sufficient catalyst for the rally to have any lasting power.
“We think we would need to see a larger and more persistent improvement in the macro outlook, to drive a larger scale reallocation of institutional money back into equities,” Boutle said. More

Check out the companies making headlines before the bell:
Kohl’s (KSS) – Kohl’s shares slid 7.2% in the premarket after the retailer cut its full-year forecast due to increased promotional activity and higher costs. Kohl’s most recent quarter beat Street forecasts for revenue and profit.

BJ’s Wholesale (BJ) – The warehouse retailer beat estimates by 26 cents with an adjusted quarterly profit of $1.06 per share and revenue also topped forecasts. Comparable store sales increased more than expected, and the stock rallied 5.4% in premarket trading.
Tapestry (TPR) – Tapestry moved between gains and losses in premarket action after its earnings came in above consensus despite sales that were slightly short of forecasts. The company behind luxury brands Coach and Kate Spade also raised its quarterly dividend by 20%.
Estee Lauder (EL) – Estee Lauder shares fell 1.3% in the premarket after the cosmetics maker forecast full-year sales below consensus, due to Covid-related lockdowns in China. Estee Lauder’s profit and revenue for its most recent quarter beat Wall Street estimates.
Canadian Solar (CSIQ) – The solar equipment and services company reported better-than-expected quarterly profit and solar module shipments that were at the high end of its prior forecast. Canadian Solar also raised its full-year revenue forecast, and its stock jumped 6.2% in premarket trading.
Bath & Body Works (BBWI) – Bath & Body Works reported better-than-expected quarterly profit and revenue, but gave a current-quarter forecast that was weaker than expected. The personal care products retailer also said it eliminated 130 positions as it moves to control costs and become more efficient.

Cisco Systems (CSCO) – Cisco rallied 5% in premarket trading after beating top and bottom line estimates for its latest quarter. The networking equipment maker also gave a stronger-than-expected outlook for the current quarter as supply chain issues ease.
Bed Bath & Beyond (BBBY) – Bed Bath & Beyond tumbled 14.4% in the premarket after investor Ryan Cohen filed a notice of intent to sell 7.78 million shares of the housewares retailer. Cohen’s prior purchases of call options had contributed to a buying spree in Bed Bath & Beyond, with the stock up in 15 of the past 16 sessions and increasing more than five-fold in value over that time.
Wolfspeed (WOLF) – Wolfspeed rocketed higher by 20.9% in the premarket after the semiconductor company reported a smaller-than-expected quarterly loss and revenue that beat consensus estimates. It also projected a loss for the current quarter that falls largely below what analysts had been anticipating.
DCP Midstream (DCP) – DCP Midstream added 1.7% in premarket trading after refiner Phillips 66 offered to buy the pipeline operator’s publicly held shares for $34.75 per share.

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“We’re coming to Norway,” begins an advertisement for General Motors, an American carmaker. Supposedly enraged by the Nordic nation easily surpassing America in electric vehicles (evs) per person, Will Ferrell, a comedian, sets off over land and sea to deliver the challenge to Norwegians, only to be told, after several mishaps along the way, that he has in fact arrived in Sweden.American ev policy is similarly lost. As part of President Joe Biden’s bid to decarbonise the economy, the Inflation Reduction Act (ira), a recently passed infrastructure bill, offers incentives for people to purchase evs. It comes just when other rich countries, including Britain and Germany, are about to reduce theirs, having reconsidered how best to encourage people to use green transport. The evidence suggests they are right to do so—and that Mr Biden is heading down the wrong road.America’s first problem is protectionism. The ira offers subsidies to ev buyers, including rebates of up to $7,500 for new cars and $4,000 for used ones. For a new car to qualify, though, it must meet strict requirements. Half of the components in its battery must come from America, Canada or Mexico; by 2030, all of them will have to. At present, China controls most of the supply chain.As well as irritating America’s friends—the eu and South Korea have indicated they may challenge these restrictions at the World Trade Organisation—such protectionism runs counter to the bill’s green goals. The Congressional Budget Office, which assesses the tax-and-spending implications of legislation, estimates a total outlay over the next five years of $1.8bn, or 237,000 evs if all get the full subsidy—a paltry proportion of the 15m cars that were sold in America in 2021.Although prices are falling, evs are still dearer than vehicles with internal-combustion engines. That is true even after running costs are included. According to researchers at the Dallas branch of the Federal Reserve, at the start of 2021 the median cost per mile of range was $214 for an ev, compared with $104 for a regular car.Encouraging ev purchases does not necessarily take older vehicles off the road, points out David Rapson of the University of California, Davis. Families may, for instance, buy a subsidised ev to complement another vehicle. Norway does not use subsidies; instead, it gives ev owners an exemption from the heavy taxes the country levies on internal-combustion cars. As a bonus, such taxes encourage drivers to spend less on petrol and shy away from thirstier vehicles when buying a new car.Retail-price subsidies also come with a high “deadweight” loss as many ev purchasers would have bought the car even without the discount. That is why countries with a higher proportion of ev sales than America are starting to bring their subsidy schemes to an end. Germany will start winding down its scheme from next year, before ending it altogether in 2024; Britain abolished many of its bungs earlier this year and plans to use the money to build charging infrastructure instead. Research from the World Bank suggests that Britain’s move is sensible. It calculates that on average $10,000 or so is required to encourage the purchase of an electric car. The same result could be achieved by just under $1,600 of spending on charging infrastructure. The most cost-effective means of promoting electric cars, however, come with a near-zero cost: China awards the country’s ev owners special “green” licence plates, allowing local governments to offer privileged access to parking or exemptions from congestion charges. America may want to keep foreign batteries out, but it could still welcome other countries’ ideas. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

“Allow me to explain about the theatre business,” says Philip Henslowe, the owner of the Rose theatre in “Shakespeare in Love”, a romantic comedy from 1998. “The natural condition is one of insurmountable obstacles on the road to imminent disaster.” “So what do we do?” asks his companion. “Nothing,” Henslowe replies, “strangely enough, it all turns out well.” “How?” “I don’t know. It’s a mystery.”For a similar worldview, look at your average equity investor. America’s stockmarket has spent a decade and more climbing a wall of worry. It has shrugged off the aftermath of a financial crisis, geopolitical tensions and a pandemic that shut down industries. After slumping earlier this year, it has of late it has been on a tear, war and inflation notwithstanding. Like Henslowe, investors seem preternaturally keen to believe that, despite everything, it will be all right on the night. Again like Henslowe, who must sell a threatreful of tickets to appease the debt collectors at the door, that may be because they have no choice. Stocks look risky. But the frantic sell-off in the first half of this year showed how little safety the alternatives offer.“Safe-haven” assets are what investors dive for when share prices plunge and economies founder. During a market rout, they should preserve their owners’ capital. If inflation debases an investors’ currency, havens should hold their value. They typically fall into two categories. There are physical things with limited supply, guaranteed demand or both: think of gold, or other precious metals. And then there are promises of value that investors trust to be kept come hell or high water, such as American Treasuries or inflation-proof currencies like the Japanese yen.Gold has been prized as a store of value for millennia; today its enthusiasts tout it as a hedge against geopolitical risk and the devaluation of state-administered currencies. Yet since the start of this year, war has broken out in Europe, inflation has surged—and the dollar price of gold has dropped by 3%. Lacking an income stream of its own, gold loses its lustre as real interest rates rise. Rise they have: the yield on ten-year inflation-protected Treasuries started the year at -1% and has since risen to 0.4%. Disappointed gold bugs must console themselves with the knowledge that bitcoin, a faddier supposed hedge against fiat-currency mismanagement, has halved in price over the same period.If gold can’t be trusted, how about the full faith and credit of America’s Treasury Department? In one sense, debt owed by the world’s biggest economy and the issuer of its reserve currency is a safe bet: the risk of default is extremely close to zero. But just as rising Treasury yields hit the value of other assets, so they hit the Treasuries themselves. (A fixed-coupon bond becomes worth less as the market yield goes up.) So far this year, the us Treasury Total Return index constructed by Bloomberg has fallen by 9%. Go global and the picture is similar: the ftse World Government Bond Index has shed 8%. In any case, the vast majority of bonds offer no defence against inflation, which erodes the value of their principal when it is eventually returned (inflation-protected Treasuries constitute just 8% of the market).That might lead you to a currency that has proved stubbornly resistant to inflation, and has long offered a sanctuary from turbulent markets. For years, the Japanese yen rose whenever there was a blow-up, be it the fall of Lehman Brothers or Europe’s sovereign-debt crisis. Today, Japan’s inflation rate—2.4% in the year to June, compared with 8.5% in America in July—is the stuff of other central bankers’ dreams. Yet the sanctuary doors have been blasted open. The Bank of Japan has spent the past decade purchasing huge quantities of bonds and equities in an attempt to ward off deflation. The result has been a weaker yen, and an end to its haven status. At the start of the year, a dollar would have bought you 115 yen; it now buys 135.For those who count their returns in anything other than dollars, this hints at the ultimate haven. The greenback has risen relative to almost any currency or asset you care to mention. But for dollar investors, stashing capital in cash that is being eaten away by inflation doesn’t feel like much of a strategy. Small wonder that they have turned back to the stockmarket instead. Henslowe’s blind faith is rewarded in the end: the insurmountable obstacles are overcome and his opening night ends in rapturous applause. Equity investors are hoping for the same, because they must. Break a leg.Read more from Buttonwood, our columnist on financial markets:Reminiscences of a financial columnist (Jul 30th)The Fed put morphs into a Fed call (Jul 23rd)Why markets really are less certain than they used to be (Jul 14th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Financial big shots die all the time without making a stir. Occasionally, though, the death creates ripples because their approach to life mattered as much as their returns. So it was for Rakesh Jhunjhunwala, an investor and bull of a man, who inspired generations of Indian investors. On August 16th, in an unprecedented move, the Bombay Stock Exchange transformed its old trading floor into a prayer hall for Mr Jhunjhunwala, who died two days earlier, aged 62.For hours, thousands of mourners shuffled through the once raucous room. Music played softly while a large screen mixed praise from India’s political and business grandees with the snippets of advice Mr Jhunjhunwala used to dispense on tv, to crowds at his favourite bar and to the legions who sought him out: “Always aspire, never envy”; “Growth comes with chaos, not order.”Mr Jhunjhunwala was known as India’s Warren Buffett. He began investing with just 5,000 rupees ($400) in 1985; by his death, his net worth was just shy of $6bn. His ascent mirrored India’s—he benefited both from the economic liberalisation of the 1990s and an eclectic investment style. Some of his best-known positions were held for decades and earned vast returns, notably stakes in Titan, a jewellery chain, and Lupin, a generic-drug manufacturer. He traded furiously, had a Bloomberg terminal installed in his hospital room, and would entertain visitors while at a screen and taking calls, in sharp contrast to the secrecy typical of Indian business. His biggest bet was easy for his followers to replicate: it was on India itself. He bought in when the country was in the doldrums and held on. When other successful investors moved themselves and their money to Singapore or London, he merely shifted from battered old offices spattered with betel spit a block from the exchange to nicer ones in nearby Nariman Point, where he could still stop on the way home for several pegs of whisky with friends. In his last public appearance he rolled his wheelchair up to the maiden flight of Akasa Air, an airline he founded last year because he believed India was truly taking off. In 2003 Mr Jhunjhunwala recruited Priya Singh, then a young business-school graduate, to run a startup. He offered money and advice: sell all your possessions and invest the proceeds in Indian stocks. In the days before his death, he repeated the advice with added urgency. India’s golden decade, he insisted, was just beginning. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Rarely in america’s past has an inflation rate of 8.5% felt so good. In July, for the first time since May 2020, consumer prices did not rise from one month to the next—though the year-on-year rate of increase remained high—thanks to a sharp drop in energy prices. But officials at the Federal Reserve are not celebrating. From their perspective the inflation problem remains unresolved as long as rapid growth in workers’ wages continues to power a spending boom. While that remains the case, a drop in the price of any one thing, such as oil, only leaves more room for spending on another. The Fed thus needs to weaken workers’ bargaining positions by introducing a bit of slack into the labour market. Yet what counts as slack is very much up for debate. In its broad outlines, the concept is clear enough. It represents a supply of workers in excess of labour demand: too many people chasing too little employment. Under such conditions, firms do not need to work very hard to lure or retain workers, and pay packets thus grow slowly, if at all. At present, there does not seem to be much slack about. In the three months to July the hourly wage of the typical American worker rose at an annual rate of almost 7%—nearly double the fastest pace reached in the 2010s. This, rather than dear oil or soaring rents, is what most troubles the Fed, and what it seeks to address through higher interest rates.Economists disagree, however, about how much give must be introduced into labour markets, and where. Much of the recent argument has focused on the level of job openings relative to the number of unemployed workers, a ratio that has been near its record high for most of the past year. Given that many firms are scrapping to hire from a tiny pool of available workers, it comes as little surprise that wage offers are rocketing. Yet some Fed officials argue that precisely because the number of job vacancies is so high, it may be possible to introduce slack into the labour market through reductions in the number of posted openings—without having to push millions of people out of work. In July Chris Waller, a Federal Reserve governor, and Andrew Figura, also of the Fed, published a paper making this case, noting that the relationship between vacancies and unemployment may at current levels be a very steep one, such that tapping the monetary brakes yields a little extra unemployment but a big drop in openings, which hampers workers’ ability to move to higher-paying jobs. Jerome Powell, the Fed’s chairman, has also expressed similar views.Other economists are unconvinced. A recent analysis published by Alex Domash and Larry Summers of Harvard University and Olivier Blanchard of the Peterson Institute for International Economics, a think-tank, noted that there has never before been a large drop in the number of job openings that has not coincided with a meaningful rise in unemployment. This makes sense: conditions that deter some firms from advertising for new workers may well lead other employers to lay off staff. But given that vacancies are in uncharted territory, it is hard to know whether such historical rules of thumb apply. And since March, at least, the number of job openings in America has fallen by nearly 10%, even as the unemployment rate dropped.There are other places, apart from the balance between job openings and unemployment, to look for more slack. An increase in labour supply, either through increases in average hours worked, or through the entrance of more people into the workforce, could have the effect of bringing down wage growth without unemployment having to go up. In a new paper David Blanchflower and Jackson Spurling of Dartmouth College and Alex Bryson of University College London suggest that, in the years since the global financial crisis of 2007-09, these potential sources of labour supply have been more important in shaping wage growth than either the level of unemployment or the number of job vacancies. At present, American data for both hours worked and labour-force participation seem to show room for improvement. The number of average hours worked per employee is at roughly the level of the mid-2010s, and has actually fallen since the beginning of this year; it could easily go higher. Perhaps more important, rates of labour-force participation remain subdued. Indeed, among “prime-age” adults, those 25-54-years-old, the share of the population now working is currently a little lower than it was immediately before the covid-19 pandemic, and nearly two percentage points lower than the peak reached in 2000. There are, seemingly, more hours that could be worked by more people—a situation that certainly seems to meet the definition of slack.Droops to conquerYet a lot hangs on whether those who left the workforce during the worst of the pandemic decide to return. Some people, for instance, may have retired permanently. Others might be enticed back in by heady wage growth, and could eventually add to slack. Research published last year by Bart Hobijn of Arizona State University and Aysegul Sahin of the University of Texas finds that participation tends to keep rising several months after the unemployment rate hits a bottom, which it is yet to do. If such a rise were to coincide with falling vacancies, wage growth could be checked without unemployment going up. Indeed, in the late 2010s pay stagnated amid an improving economy and falling unemployment, thanks to precisely this confluence of events. Yet a pessimist might point out that, if anything, America’s labour-force participation has been falling in recent months, rather than rising. So far at least, rapid wage growth has not proved to be very tempting. Moreover, having allowed inflation to get so far out of hand, the Fed may now feel bound to push unemployment up, rather than hoping for the emergence of less certain forms of slack. It may, in other words, be unwilling to cut optimistic interpretations any slack. ■Read more from Free Exchange, our column on economics:America v Europe: A comparison of riches leaves both sides red-faced (Aug 13th)How high property prices can damage the economy (Jul 30th)Should central banks’ inflation targets be raised? (Jul 23rd)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Investing in supertrends

A smooth and “complete decentralization” of Web3 is not yet a reality, said Randi Zuckerberg, the founder and CEO of Zuckerberg Media and the sister of Meta CEO Mark Zuckerberg.
“In order to really unlock the potential [of Web3], we’re going to need to figure out a system where there’s interoperability,” she added.
“There needs to be more protections for consumers … I think we will wind up [with] web 2.7, where there is some centralization, keeping people safe, but the ability to port your assets with you to any site,” she said.

“We’re really just scratching the surface of what we’re going to see [in the metaverse],” said Randi Zuckerberg, the founder and CEO of Zuckerberg Media.
Wildpixel | Istock | Getty Images

A smooth and “complete decentralization” of Web3 is not yet a reality, said Randi Zuckerberg, referring to a system in which users rather than companies have ownership of services and data.
The sister of Meta CEO Mark Zuckerberg was speaking at the Global Supertrends Conference 2022 on Wednesday.

The Web3 is a hypothetical, future version of the internet based on blockchain technology — an “ideal utopia,” said Zuckerberg.
“But … that’s not what’s happening. What’s happening in reality, is chaos.”

The founder and CEO of Zuckerberg Media, a production company and marketing consultancy, added, “You’re the only one watching your own back and your own assets, people are spending time protecting themselves by setting up so many different wallets and protecting their identity and that’s not contributing to development in the area.”
Zuckerberg, who was an early employee at Meta — formerly known as Facebook — explained that various metaverses are now acting as “their own walled garden,” in which users are unable to use their assets across platforms.
The metaverse can be loosely defined as a virtual world where people live, work and play. With cryptocurrency, users can buy and develop virtual land or dress their own avatars.

“Right now, I’m on Decentraland, my son is on Roblox, my other son is on Fortnite. That’s great — we’re all in the metaverse. [But] we have no interaction with one another,” she said.
“In order to really unlock the potential [of Web3], we’re going to need to figure out a system where there’s interoperability. What you have goes with you wherever you are, [and] we’re not there yet,” Zuckerberg added.

Going mainstream

However, according to Zuckerberg, that’s easier said than done because no company running a metaverse right now wants to give up control or “share that ownership.”
“That’s why it’s not we’re not seeing that kind of consumer mainstream adoption yet because there needs to be a world where you leave the house with one wallet. And you need to see that same behavior online also.”
She added that Web3 needs experts who have been involved in the global banking system and Web2 — the internet that we know today — to lend a “protective layer.”

The need for such experts is all the more important because it has been “too easy” for users to be scammed or lose all their assets in Web3, said Zuckerberg.
“There needs to be more protections for consumers … I think we will wind up [with] web 2.7, where there is some centralization, keeping people safe, but the ability to port your assets with you to any site.”
Another thing that needs to be improved in Web3 is user-friendliness, she added.
“It should not take 45 steps to set up a cryptocurrency wallet, buy a currency and enter the metaverse. It needs to [be] one-stop, beginner-friendly.”

Sectors with opportunities

The metaverse may still be in its infancy, but Zuckerberg pointed out that sectors like real estate will be “extremely valuable.”
“Wherever there’s scarcity … there’s value. I think the big question will just be, is there scarcity in the metaverse and if there is, there will be value in real estate there,” she added.
According to data from MetaMetrics Solutions, real estate sales in the metaverse surpassed $500 million in 2021 and could double in 2022.
Zuckerberg said that education and training will be another “huge area” for opportunities and revenue.
“Especially in this new age where workers are remote, it is very difficult to upskill remote workers … I think training in the metaverse, education in an interactive way, is going to become crucial for every business that has a remote work,” she added.
“We’re really just scratching the surface of what we’re going to see.” More

Developer cash flows through July are down 24% year-on-year on an annualized basis, according to Oxford Economics’ lead economist, Tommy Wu.
That’s a sharp slowdown from growth for nearly every year since at least 2009, the data showed.
Recent homebuyers’ refusal to pay mortgages has worsened real estate developers’ funding situation.
Despite multiple reports of government plans to keep developers funded, the central government has yet to officially announce broader support for real estate.

Analysts generally expect state-owned enterprises will perform better than non-state-owned developers in the latest real estate slump. Pictured here in Guangxi, China, on Aug. 15, 2022, is a real estate complex developed by state-owned conglomerate Poly Group.
Future Publishing | Future Publishing | Getty Images

BEIJING — Chinese property developers’ cash flows — a sign of the companies’ ability to stay afloat — shrank this year after steady growth over the last decade, according to Oxford Economics.
Developer cash flows through July are down 24% year-on-year on an annualized basis, according to analysis from the firm’s lead economist, Tommy Wu.

That’s a sharp slowdown from growth for nearly every year since at least 2009, the data showed. Total funding as of July was 15.22 trillion yuan ($2.27 trillion) on an annualized basis, versus 20.11 trillion yuan in 2021.
The drop comes as credit demand in China missed expectations in July, and property developers’ struggles drag on.
About two years ago, Beijing started to crack down on developers’ high reliance on debt for growth. Notably, Evergrande defaulted late last year. Other developers like Shimao have also defaulted, despite appearing to have healthier balance sheets.
While investors have turned cautious on Chinese property companies, developers now face the risk of losing another important source of cash flow: homebuyer pre-payments.

Homes are typically sold ahead of completion in China. But since late June, some homebuyers have protested apartment construction delays by halting mortgage payments.

“The crux of the problem is that property developers have insufficient cash flows – whether because of debt-servicing costs, low housing sales, or misuse of funds – to continue with projects,” Wu said in a report last week.
“Resolving this problem will rebuild homebuyers’ confidence in developers, which will help support housing sales and, in turn, improve developers’ financial health.”
More than $2 billion in high-yield property developer debt is due in September — that’s more than two times that of August, according to Morgan Stanley’s analysis as of Aug. 10.
About a quarter of homebuyers who bought property ahead of their completion are inclined to stop their mortgage payments if construction is suspended, the U.S. investment bank said in an Aug. 15 report, citing a proprietary AlphaWise Consumer Survey.
Not only does real estate account for the bulk of household wealth in China, but analysts estimate property and industries related to real estate account for more than a quarter of China’s GDP. The real estate slump has contributed to an overall slowdown in economic growth this year.

In an effort to support growth, the People’s Bank of China has cut rates, including an unexpected cut on Monday of 10 basis points to some one-year interest rates for institutions, known as the medium-term lending facility.
While the PBOC may hope the cut could ease some of homebuyers’ burden and help developers get loans, the problem isn’t just about funding, said Bruce Pang, chief economist and head of research for Greater China at JLL.
He noted how developers have found it harder to obtain funding on their own, and have had to rely more on pre-sales to homebuyers. But people are increasingly cautious about buying new homes due to their expectations for future employment and returns on existing investment products, he added.
Despite multiple reports of government plans to keep developers funded, the central government has yet to officially announce broader support for real estate. A readout of a high-level government meeting last month said local governments are responsible for delivering completed houses.
Among three major sources of developer funding, advance payments and deposits have fallen the most this year, down by 34%, according to Wu’s analysis.
Credit as a source of funding dropped by 22%, while self-raised capital, including stocks and bonds, was down by 17%, the annualized data showed.

Investors turn away from China property

Investment funds have largely stayed away from Chinese property developers, reducing a potential source of funding.
“What has been worrying has been the lack of willingness and speed by top policymakers in resolving real estate developer’s funding issues,” Carol Lye, assistant portfolio manager at Brandywine Global, said in an emailed response to CNBC.
Lye said the investment management firm’s allocation to China real estate is low, and that Brandywine holds “high quality real estate bonds that have been given preference in terms of government support.”
Some investors have even turned to companies in other parts of Asia.
“We’ve exited almost all of our holdings in China residential. It’s more a wait-and-see game in terms of getting back exposure,” said Xin Yan Low, Singapore-based portfolio manager for Asia property equities at Janus Henderson. She declined to share a timeframe of those sales.
“There are still many alternatives in the region, especially with reopening now, Singapore, Australia, basically back to full reopening, fundamentals are strong,” she said.
Top holdings in her co-managed Horizon Asia-Pacific Property Income Fund include Japan Metropolitan Fund Invest, Mapletree Logistics Trust and Hang Lung Properties.

Read more about China from CNBC Pro

Morningstar’s Patrick Ge said in a report this month that some funds have turned away from China property to other Asia high-yield sectors, such as Indian renewable energy companies and Indonesian property.
Overall, the report said money invested in China property funds dropped by 59% over six months.
But the report said investment giant BlackRock was among firms buying China real estate bonds — including those of Shimao.
The asset manager did not respond to a CNBC request for comment.
— CNBC’s Michael Bloom contributed to this report.

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