Finance

Prolonged stress in China’s real estate market would negatively affect different sectors to different degrees, according to analysis by Fitch Ratings.
Their analysis identified three kinds of businesses most vulnerable to persistent troubles in Chinese real estate.
While China has not necessarily entered such a stress scenario yet, Fitch said the recent mortgage strike could diminish confidence in the property market, delaying a recovery and causing ripple effects through the domestic economy.

China’s real estate industry accounts for more than a quarter of national GDP, according to Moody’s. Pictured here is a residential complex under construction on Dec. 15, 2021, in Guizhou province.
Costfoto | Future Publishing | Getty Images

BEIJING — China’s real estate troubles could spill into other major sectors if the problems persist — and three particular businesses are most vulnerable, according to ratings agency Fitch.
Since last year, investors have worried that Chinese property developers’ financial problems could spread to the rest of the economy. In the last two months, many homebuyers’ refusal to pay their mortgages have brought developers’ problems to the forefront again — while China’s economic growth slows.

“If timely and effective policy intervention does not materialise, distress in the property market will be prolonged and have effects on various sectors in China beyond the property sector’s immediate value chain,” Fitch analysts said in a report Monday.
Under such a stress scenario, Fitch analyzed the impact over the next 12 to 24 months on more than 30 kinds of businesses and government entities. The firm found three that are most vulnerable to real estate’s troubles:
1. Asset management companies
These firms “hold a sizeable amount of assets that are backed by real estate-related collateral, making them highly exposed to prolonged property-market distress,” the report said.
2. Engineering, construction firms (non state-owned)

“The sector in general has been in difficulty since 2021. … They do not have competitive advantages in infrastructure project exposure or funding access relative to their [government-related] peers,” the report said.
3. Smaller steel producers
“Many have been operating at a loss for a few months and could face liquidity issues if China’s economy remains lacklustre, especially given the high leverage in the sector,” the report said.
Fitch said construction accounts for 55% of steel demand in China.
The slowdown in real estate has already dragged down broader economic indicators like fixed asset investment and the furniture sales component of retail sales.

Fitch believes the recent rise in the number of homebuyers suspending mortgage payments over stalled projects underlines the potential for China’s property crisis to deepen…

Fitch Ratings

Official data show residential housing sales fell by 32% in the first half of this year from a year ago, Fitch pointed out. The report cited industry research as indicating the 100 largest developers likely saw even worse performance — with sales down by 50%.

Impact on other sectors

While Fitch’s base case assumes China’s property sales will return to growth next year, the analysts warned that “deterioration in homebuyers’ confidence could stall the sales recovery momentum we saw in May and June.”

Since late June, many homebuyers have suspended mortgage payments to protest construction delays for apartments they’d already paid for, putting developers’ future sales and an important source of cash flow at risk. Developers in China typically sell homes before finishing them.
“Fitch believes the recent rise in the number of homebuyers suspending mortgage payments over stalled projects underlines the potential for China’s property crisis to deepen, as diminishing confidence could stall the sector’s recovery, which will eventually ripple through the domestic economy,” the report said.
The analysis provided by Fitch generally found that large and central government-affiliated businesses were less vulnerable to a deterioration in real estate than smaller firms or those tied to local governments.
Among banks, Fitch said small and regional banks — reflecting about 30% of banking system assets — face greater risks. But the ratings agency noted that risks for Chinese banks overall could rise if authorities significantly relax requirements for lending to troubled real estate developers.
Businesses least vulnerable to real estate’s problems were insurers, food and beverage companies, power grid operators and national oil companies, the report said.

Home prices in focus

Chinese real estate developers came under increased pressure about two years ago when Beijing started to crack down on the companies’ high reliance on debt for growth.
Numbers like vacancy rates give a sense of how large the real estate problems are.

Read more about China from CNBC Pro

China’s residential property vacancy rate was 12% on average across 28 major cities, according to a report last week by Beike Research Institute, a unit of Chinese real estate sales and rental giant Ke Holdings.
That’s second globally only to Japan, and higher than the U.S. vacancy rate of 11.1%, the report said.
If there are strong expectations of falling house prices, those empty apartments could exacerbate market oversupply — and the risk of greater price drops, the report said.

Limited state support

This year, many local governments started to relax homebuying restrictions in an attempt to prop up the real estate sector.
But even with the latest mortgage protests, Beijing has yet to announce large-scale support.
“Even if the authorities intervene aggressively, there’s a risk that new homebuyers will still not respond positively to this, particularly if house prices continue to fall, and overall economic outlook is clouded by global economic malaise,” Fitch Ratings said in a statement to CNBC.
Fitch emphasized it would take a series of events, rather than just one, to prompt the stress scenario laid out in the report.
The analysts said that if weak market sentiment persisted for the rest of this year, the industries analyzed could be negatively affected through next year.

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R.J. Scaringe, Rivian’s CEO, introduces the world to his company’s R1T all-electric pickup and all-electric R1S SUV at the Los Angeles Auto Show in Los Angeles, California, November 27, 2018.
Mike Blake | Reuters

Check out the companies making headlines after the bell: 
Rivian Automotive — The electric vehicle maker rose 3.1% in after-hours trading after beating revenue estimates and posting a smaller-than-expected loss in the latest quarter. Rivian reaffirmed its delivery estimates for the year but said it expects a larger loss than anticipated as it grapples with supply chain constraints.

Toast — Toast soared more than 10% in extended trading after sharing positive guidance for the current quarter and full year. Revenue for the latest quarter came in at $675 million, topping the $651 million expected by analysts surveyed by Refinitiv.
Poshmark — Poshmark slid 5.7% post-market after reporting a wider-than-expected loss in its most recent quarter. Poshmark topped revenue estimates but gave a weak revenue outlook for the current quarter.
Illumina — Illumina slumped nearly 23% post-market after the company missed top- and bottom-line estimates in the most recent quarter and issued disappointing guidance for the full year as it faces a troublesome macro environment.
Olo — Olo tumbled more than 21% in extended trading after the restaurant software company provided weak guidance for the current quarter and the full year. The company slightly beat earnings estimates but fell short of revenue expectations.

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Customers are socially distanced on rides like the Wonder Woman: Lasso of Truth at Six Flags Great Adventure in Jackson, New Jersey.
Kenneth Kiesnoski/CNBC

Check out the companies making headlines in midday trading.
Six Flags — Shares dropped 18.7% after the theme park company sharply missed second-quarter earnings expectations. Six Flags reported earnings of 53 cents per share on revenue of $435 million. Analysts surveyed by Refinitiv forecast earnings of $1.01 per share on revenue of $519 million. The theme park operator attributed the miss to weak attendance, or a 22% drop in visitors.

Walt Disney – Disney shares jumped 4.68% after the company posted better-than-expected results for the quarter on the top and bottom lines, helped by strong attendance at its theme parks and better-than-expected streaming numbers. The company also revealed a new pricing structure for its streaming service that includes an ad-supported tier.
Pharma stocks –Shares of Pfizer, GSK and Sanofi slipped 3.32%, 6.71% and 3.94% respectively as investors watched ongoing litigation around Zantac, a recalled heartburn medication. The drug was pulled from shelves in 2020 after the Food and Drug Administration found an impurity in Sanfoli’s version that could cause cancer.
Ralph Lauren – Shares of Ralph Lauren climbed 3.77%, continuing a rally that began after the company reported earnings earlier in the week that beat Wall Street’s expectations on the top and bottom lines.
Bank stocks – Shares of Goldman Sachs, Wells Fargo and JPMorgan gained more than 1% Thursday, outperforming the broader market. The stocks may have been boosted by easing concerns about a recession after a second soft inflation report in a row.
Oil stocks – Oil and energy companies led the S&P 500 on Thursday, supported by a jump in crude futures. Devon Energy jumped 7.34%, notching the best performance in the index midday.

Vacasa —Shares of Vacasa jumped 33.22% after the vacation rental services company boosted its full-year outlook, citing a surge in demand. The company also posted a quarterly profit, surprising Wall Street.
Warby Parker – Shares of Warby Parker surged 19.18% after reporting earnings before the bell.  The eyewear retailer, which cut its financial forecast for the year, posted a smaller-than-expected quarterly loss and sales in-line with analysts’ estimates. It also cut 63 jobs.
Bumble – Shares of the dating app dropped 8.61% after the company cut its annual revenue forecast. Bumble posted a negative impact of $9.4 million from foreign currency movements year over year. Meanwhile, its Badoo app and other revenue declined by double digits.
Cardinal Health – Shares of Cardinal Health jumped 5.18% after the company reported mixed quarterly earnings. The pharma company’s earnings beat Wall Street estimates, but revenue fell short. The company also announced its CEO Mike Kaufmann would step down Sept. 1 and be replaced by its CFO Jason Hollar.
Sonos –Shares of the maker of high-end speakers slid 24.95% after the company missed expectations on the top and bottom lines. Sonos also cut its full-year guidance amid the challenging economic backdrop and announced the upcoming departure of its current chief financial officer.
— CNBC’s Samantha Subin, Michelle Fox, Yun Li, Sarah Min and Tanaya Macheel contributed reporting

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Founders are being advised to accept valuations 50% lower than just a few months ago, according to Eugene Zhang, a veteran Silicon Valley investor, and Nichole Wischoff, a startup executive turned VC.
“The market is kind of marching together saying, `Expect a 35% to 50% valuation decrease from the last couple of years,” Wischoff said. “That’s the new normal, take it or leave it.”
Founders who have to raise money in coming months need to test existing investors’ appetite, stay close to customers and in some cases make deep job cuts, Zhang said.
Zhang believes the downcycle will likely be a protracted one, so he advises companies to accept valuation cuts, or down rounds, as they “could be the lucky ones” if the market turns even more harsh.

Eugene Zhang, founding partner of Silicon Valley VC firm TSVC Spencer Greene, general partner of TSVC
Courtesy: TSVC

Eugene Zhang, a veteran Silicon Valley investor, recalls the exact moment the market for young startups peaked this year.
The firehose of money from venture capital firms, hedge funds and wealthy families pouring into seed-stage companies was reaching absurd levels, he said. A company that helps startups raise money had an oversubscribed round at a preposterous $80 million valuation. In another case, a tiny software firm with barely $50,000 in revenue got a $35 million valuation.

But that was before the turmoil that hammered publicly traded tech giants in late 2021 began to reach the smallest and most speculative of startups. The red-hot market suddenly cooled, with investors dropping out in the middle of funding rounds, leaving founders high and dry, Zhang said.
As the balance of power in the startup world shifts back to those holding the purse strings, the industry has settled on a new math that founders need to accept, according to Zhang and others.
“The first thing you need to do is forget about your classmates at Stanford who raised money at [2021] valuations,” Zhang says to founders, he told CNBC in a recent Zoom interview.
“We tell them to just forget the past three years happened, go back to 2019 or 2018 before the pandemic,” he said.
That amounts to valuations roughly 40% to 50% off the recent peak, according to Zhang.

‘Out of control’

The painful adjustment rippling though Silicon Valley is a lesson in how much luck and timing can affect the life of a startup — and the wealth of founders. For more than a decade, larger and larger sums of money have been thrown at companies across the startup spectrum, inflating the value of everything from tiny prerevenue outfits to still-private behemoths like SpaceX.
The low interest rate era following the 2008 financial crisis spawned a global search for yield, blurring the lines between various kinds of investors as they all increasingly sought returns in private companies. Growth was rewarded, even if it was unsustainable or came with poor economics, in the hopes that the next Amazon or Tesla would emerge.
The situation reached a fever pitch during the pandemic, when “tourist” investors from hedge funds, and other newcomers, piled into funding rounds backed by name-brand VCs, leaving little time for due diligence before signing a check. Companies doubled and tripled valuations in months, and unicorns became so common that the phrase became meaningless. More private U.S. companies hit at least $1 billion in valuation last year than in the previous half-decade combined.
“It was kind of out of control in the last three years,” Zhang said.
The beginning of the end of the party came in September, when shares of pandemic winners including PayPal and Block began to plunge as investors anticipated the start of Federal Reserve interest rate increases. Next hit were the valuations of pre-IPO companies, including Instacart and Klarna, which plunged by 38% and 85% respectively, before the doldrums eventually reached down to the early-stage startups.

Deep cuts

Hard as they are for founders to accept, valuation haircuts have become standard across the industry, according to Nichole Wischoff, a startup executive turned VC investor.
“Everyone’s saying the same thing: `What’s normal now is not what you saw the last two or three years,'” Wischoff said. “The market is kind of marching together saying, `Expect a 35% to 50% valuation decrease from the last couple of years. That’s the new normal, take it or leave it.'”
Beyond the headline-grabbing valuation cuts, founders are also being forced to accept more onerous terms in funding rounds, giving new investors more protections or more aggressively diluting existing shareholders.
Not everyone has accepted the new reality, according to Zhang, a former engineer who founded venture firm TSVC in 2010. The outfit made early investments in eight unicorns, including Zoom and Carta. It typically holds onto its stakes until a company IPOs, although it sold some positions in December ahead of the expected downturn.
“Some people don’t listen; some people do,” Zhang said. “We work with the people who listen, because it doesn’t matter if you raised $200 million and later on your company dies; nobody will remember you.”
Along with his partner Spencer Greene, Zhang has seen boom-and-bust cycles since before 2000, a perspective that today’s entrepreneurs lack, he said.
Founders who have to raise money in coming months need to test existing investors’ appetite, stay close to customers and in some cases make deep job cuts, he said.
“You have to take painful measures and be proactive instead of just passively assuming that money will show up someday,” Zhang said.

A good vintage?

Much depends on how long the downturn lasts. If the Fed’s inflation-fighting campaign ends sooner than expected, the money spigot could open again. But if the downturn stretches into next year and a recession strikes, more companies will be forced to raise money in a tough environment, or even sell themselves or close shop.
Zhang believes the downcycle will likely be a protracted one, so he advises that companies accept valuation cuts, or down rounds, as they “could be the lucky ones” if the market turns harsher still.
The flipside of this period is that bets made today have a better chance at becoming winners down the road, according to Greene.
“Investing in the seed stage in 2022 is actually fantastic, because valuations corrected and there’s less competition,” Greene said. “Look at Airbnb and Slack and Uber and Groupon; all these companies were formed around 2008. Downturns are the best time for new companies to start.”

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The world’s second-biggest cryptocurrency reached a price above $1,927 at around 8:20 a.m. ET Thursday, according to data from CoinMetrics.
It comes after ethereum, ether’s underlying network, successfully ran its final dry run for a key event called the “merge.”
Slated to take place in September, the merge is expected to make ethereum faster and more energy-efficient.

Omar Marques | LightRocket | Getty Images

Ether soared to a two-month high after developers successfully completed a final dress rehearsal for a pivotal upgrade expected to happen next month.
The world’s second-biggest cryptocurrency reached a price above $1,927 at around 8:20 a.m. ET Thursday, according to data from CoinMetrics. That’s its highest level since early June and a 13% jump in the last 24 hours.

On Wednesday, ethereum ran its final dry run for the “merge,” a key event that is expected to make it faster and more energy-efficient. One of ethereum’s test networks, called Goerli, simulated a process identical to what the main network will execute in September. Testnets allow developers to experiment and make necessary adjustments before updates launch on the main blockchain.
The merge will see ether’s underlying blockchain transition from a proof-of-work system to a more efficient model called proof-of-stake. Proof-of-work consensus mechanisms depend on crypto miners to verify transactions. Proof-of-stake networks, on the other hand, require validators to hold a certain amount of tokens to participate, making them much less energy-intensive. The event, which has been delayed multiple times, is now expected to take place on Sept. 19.
Once finalized, the upgrade is expected to speed up transactions on the ethereum network and make it more energy-efficient, with backers hopeful it will address criticisms over the environmental impact of cryptocurrencies. That has led some investors to bet ether may eventually end up stealing bitcoin’s thunder. Bitcoin has lost some ground to other tokens in recent years, with its market dominance slipping below 40% from almost 70% at the beginning of 2020.

For IT specialist Kaj Burchardi, whether ethereum eventually unseats bitcoin as the crypto king is “pretty much irrelevant” since the two don’t directly compete with one another.
“The purpose of why you buy bitcoin, from a mindset perspective, and what you actually want to do with that is fundamentally different than when you use ethereum,” said Burchardi, managing director of BCG Platinion, the IT-focused division of Boston Consulting Group.

“Ethereum … is not a use case. It’s providing possibilities of implementing really good use cases like NFTs [nonfungible tokens] and banking products on a platform. Bitcoin is a use case.”
Following the success of the merge test, ether led a broad rally among digital assets Thursday, with the combined value of all cryptocurrencies climbing over $70 billion in a day to $1.2 trillion. Bitcoin was up 6% at a price of $24,507, reaching an almost two-week high, while Binance’s BNB token was 3% higher at $330.
Still, investors have soured on cryptocurrencies more generally following the catastrophic implosion of the $60 billion stablecoin terra, which sent shockwaves through the crypto market and helped trigger the collapse of investment firms Celsius, Three Arrows Capital and Voyager Digital. The entire crypto market has shed nearly $2 trillion in value since reaching a peak above $3 trillion in November.
— CNBC’s MacKenzie Sigalos contributed to this report

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Check out the companies making headlines before the bell:
Six Flags (SIX) – The theme park operator’s stock tumbled 12.8% in the premarket after its quarterly profit and revenue fell well short of Wall Street forecasts. Six Flags saw its results hit by a 22% drop in attendance, among other factors.

Canada Goose (GOOS) – The outerwear maker reported a smaller-than-expected quarterly loss, with revenue exceeding analyst forecasts. Canada Goose is the latest luxury retailer to see its high-end consumers maintain their spending levels. The stock added 2.4% in premarket trading.
Warby Parker (WRBY) – The eyewear retailer reported a smaller-than-expected quarterly loss, with sales exceeding estimates. Active customer numbers rose 8.7% from a year earlier.
Utz Brands (UTZ) – The salty snacks maker’s stock jumped 8.2% in the premarket after reporting quarterly profit and revenue that was better than expected, as well as raising its full-year sales outlook.
Cardinal Health (CAH) – Cardinal Health fell 1% in the premarket after reporting a mixed quarter, with the pharmaceutical distributor’s earnings beating Street forecasts while revenue came up short of estimates. Cardinal Health also announced that CEO Mike Kaufmann will step down on September 1, to be succeeded by Chief Financial Officer Jason Hollar.
Walt Disney (DIS) – Disney rallied 8.9% in the premarket after reporting better-than-expected quarterly earnings and announcing a December 8 launch date for an ad-supported version of its Disney+ streaming service. It also announced it would increase the price of its ad-free service to $10.99 per month from $7.99.

Sonos (SONO) – Sonos skidded 17.6% in the premarket after its breakeven quarter surprised analysts, who were expecting a profit. Revenue was also well below Wall Street forecasts, with the company cutting its full-year forecast in the face of economic challenges. The maker of high-end speakers also announced the departure of CFO Brittany Bagley as of September 1.
Bumble (BMBL) – Bumble tumbled 8.9% in premarket trading after the dating service operator cut its annual revenue forecast. Bumble is facing stiff competition from rivals such as Tinder parent Match Group (MTCH), and its Badoo dating app – which is popular in Western Europe – has been hurt by the war in Ukraine.
Vacasa (VCSA) – Vacasa soared 24.7% in premarket action after the provider of vacation rental services raised its full-year outlook amid a surge in demand. Vacasa also reported a surprise quarterly profit.
Vizio (VZIO) – Vizio gained 2% in premarket trading after the maker of smart TVs and other consumer entertainment equipment reported a surprise profit for its latest quarter, with average revenue per user up 54% from a year earlier.

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To napoleon, they were “treasonous”; to Tom Farley, a former boss of the New York Stock Exchange, “icky and un-American”. Short-sellers, who bet against the stockmarket, have always been unpopular—and essential. Today’s big names rose to fame by exposing corporate wrongdoing and irrational exuberance. Michael Lewis’s “The Big Short”, a popular account of the global financial crisis of 2007-09, puts the “misfits, renegades and visionaries” who bet against overvalued mortgage-backed debt at the centre of the story.On the face of it this year ought to be a glorious period for short-sellers. Markets have plunged on fears of persistent inflation. Sagging growth makes it more likely that securities will fall in price rather than be buoyed by a rising tide. Higher interest rates and tighter credit conditions make it harder for poorly performing or outright fraudulent firms to stagger on by loading up on debt. Despite a recent uptick, the s&p 500 index of large American stocks is down by 12%. But the “short-bias index” of hedge funds that specialise in short-selling constructed by hfr, a research firm, has not risen by anywhere near enough to make up for years of poor performance in more difficult conditions (see chart). Short-sellers are understandably gloomy. Andrew Left, an outspoken activist short-seller, said in 2021 that his firm would stop publishing “short reports” on companies it thought were overvalued, after 20 years of doing so. Bill Ackman of Pershing Square, who during the financial crisis ran high-profile positions against Fannie Mae and Freddie Mac, two American government-sponsored mortgage-finance firms, announced earlier this year that his hedge fund was quitting the business of activist short-selling. In recent weeks Carson Block, who burst onto the scene in 2011 with a bet against Sino-Forest, a Chinese forestry firm that was felled amid a fraud scandal, publicly wondered whether it was time to throw in the towel. What explains the malaise? Some technological changes should have helped short-sellers. The proliferation of alternative data sources and open-source intelligence ought to make it easier than ever to unearth corporate malfeasance. Earlier this year, intelligence agencies and newspapers alike used satellite imagery to follow the build-up of Russian troops on Ukraine’s borders. The same methods could find companies hiding stalled operations, says Dan Nord of Maxar Technologies, a firm that uses satellites to photograph 4m square kilometres of the Earth every day. Whereas distant supply-chain snarls, mothballed mines and shuttered ports would once have been brushed over in company filings, today they can be identified with ever-increasing precision.Yet other changes have made the lives of short-sellers harder. Thirteen years of almost relentlessly buoyant equity markets, pumped up by low interest rates and a flood of quantitative easing, have left those betting on falling prices bloodied and bruised. Between the start of 2009 and the end of 2021, the s&p 500 quintupled, while hfr’s short-bias index dropped by 85%. Kynikos Capital (since renamed Chanos & Co, after its founder Jim, who predicted the downfall of Enron) managed $7bn at its peak in 2008; today that has fallen to around $500m. Muddy Waters, Mr Block’s outfit, has assets of around $200m.When compared with the tens of billions managed by traditional “long” funds, that leaves little scope for chunky management fees. And even if a bet is successful, the potential return is capped while the potential loss is not: a stock’s price cannot fall below zero, but it can rise indefinitely. “I can make good money on our short calls,” says Mr Block, “but it’s hardly life-changing money.”The final, euphoric phase of the recent bull market was accompanied by a stampede of retail investors into “meme stocks”, sometimes motivated by a desire to drive up the price and give short-sellers a bloody nose. Even though interest in meme stocks has slumped along with the market this year, their rise led some short-sellers to decide “this was never going to work again,” says Mr Chanos. “They thought if those stocks could trade there, any stock could trade anywhere.”At the same time, regulators and enforcement agencies that once used short reports as starting points for criminal investigations are increasingly investigating the short-sellers themselves. A report in 2016 accusing Wirecard, a German fintech star, of fraud and corruption resulted in a four-year investigation by Bavarian state prosecutors and the German financial regulator into the shorts who wrote it. (Wirecard collapsed into insolvency in June 2020.) A recent flurry of subpoenas from America’s Justice Department to short-sellers—including Mr Block’s firm—has left many feeling as if they, rather than the fraudulent companies they try to uncover, are the enemy. Some fear that short-selling is just a fundamentally bad business, in which many of those involved are motivated more by the thrill of the chase than the opportunity for outsized profits. When you publish flattering research on companies, says one hedge-fund manager, “generally people like you, because generally people are long. Everyone hates you when you’re short.” That hostility translates into an unwillingness to listen to even the most well-argued short case, making it difficult to realise profits from the position. It has a much darker side, too. Mr Left decided his firm would stop publishing short reports after retail traders on social-media platforms shared his personal information online and sent threatening texts to his children. Warren Buffett, notes an industry veteran, shorted stocks early in his career: “He doesn’t talk about it now.” ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Europe is facing an enormous energy-price shock. But not all Europeans are set to see the same hit to their living standards. According to estimates by the imf, the burden for the average family in Finland will be equivalent to an additional 4% of household spending. The picture is considerably grimmer a two-hour ferry ride across the Baltic Sea. In Estonia households face a hit of around 20%.Between these two countries lie most of the continent’s economies (see chart). On average, Europeans spend a tenth of their incomes on energy. Richer families tend to have bigger houses and cars, but the increase in energy costs that results from this is generally not as big as the difference in incomes. That leaves poorer households spending more of their budgets on energy. The same pattern holds between countries as within them. Europe’s poorer former-communist east is more vulnerable to higher prices than its rich Nordic north. Dependence on natural gas is another important factor in assessing vulnerability. Wholesale prices have doubled since Russia’s invasion of Ukraine. Coal prices are also up, but by a slightly more manageable 60%. Meanwhile, the price of renewables is unchanged. Thanks to a mostly unified market for natural gas European countries face similar wholesale prices: power generators that use gas in Bulgaria, on the continent’s eastern flank, pay roughly the same as those in Ireland, on its western one. Yet countries differ in their dependence on the stuff. Less than 3% of Sweden’s energy comes from natural gas, with hydroelectricity, wind and nuclear providing the bulk of it. Swedish homes are heated using communal systems, often fuelled by wood chips, or through heat pumps attached to the electricity grid. That puts the average increase in household spending at around 5% of budgets, compared with 10% in Britain, which depends on natural gas.The pass-through from wholesale to retail prices also differs. In many countries, utilities buy gas on long-term contracts and hedge their exposure to wholesale price increases. Different market structures then mean prices pass to consumers at different frequencies. In Spain, for instance, consumer tariffs are typically updated every month (though it has capped gas costs for power generators). In Poland they are adjusted only twice a year.Elsewhere, governments have frozen costs. In France, where Électricité de France (edf), a state-owned utility, dominates the market, the government has capped price rises at 4%. Most of the country’s electricity usually comes from nuclear power, but long-delayed maintenance means it is now being imported from neighbours, where it is often generated by burning gas. The government absorbs the costs through its ownership of edf.Capping price rises reduces the incentive for households to cut their energy use. It also disproportionately helps the rich. A far better option is to target support at the neediest. Yet, according to calculations by the European Central Bank, only 12% of eu states’ spending on measures to limit the impact of higher energy prices has been targeted in such a manner. An unevenly distributed energy shock requires more redistribution in response. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More