BlackRock’s Fink Expresses Concern About China’s Rising Debt
by Bei Hui
May 16, 2016 — 10:37 PM EDT Updated on May 17, 2016 — 12:18 AM EDT
BlackRock Inc.’s Laurence D. Fink, who oversees the world’s largest money manager with $4.7 trillion of client assets, said “we all have to be worried” about China’s mounting debt amid slowing growth, even as he remains bullish on the economy in the long run.
You can’t grow at 6 percent and have your balance sheets grow faster,” Fink said in a Bloomberg Television interview with Angie Lau on the sidelines of a forum in Hong Kong on Tuesday. “In the future, I would prefer seeing the economy growing 6 percent with some form of deleveraging,” he said.
China, whose surprise August yuan devaluation sent shock waves worldwide, is dividing the biggest names in finance more than any other market. While Fink said in April that investors would regret not betting on China this year because government stimulus may result in higher economic growth than many expect, billionaire investor George Soros said last month that the nation’s debt-fueled economy resembles the U.S. in 2007 and 2008, at the onset of the global financial crisis.
New credit in China increased a record 4.6 trillion yuan ($706 billion) in the first quarter, surpassing the level of 2009 during the depths of the global financial crisis. Total debt from companies, governments and households was 247 percent of gross domestic product last year, up from 164 percent in 2008, according to data compiled by Bloomberg.
Bass’s PredictionSome investors are betting the credit bubble will pop, devastating the economy. Kyle Bass, the founder of Hayman Capital Management, a Dallas-based hedge fund firm, told investors earlier this year that China’s banking system may see losses more than four times those suffered by U.S. banks in the financial crisis.
The world’s second-largest economy grew 6.7 percent in the first quarter, within a government target range, with surging credit in March shifting concern back to the durability of the recovery.
Growth in aggregate financing fell below analyst estimates last month in a Bloomberg survey, after the record flow of credit in the previous three months led policymakers to shy away from boosting growth at all costs. Commercial banks may be becoming more reluctant to lend after soured loans rose to the highest level in 11 years, with defaults spreading from small private firms to large state-owned enterprises. Nonperforming loans rose 9 percent to 1.39 trillion yuan in March from December, the fastest increase in three quarters, data from the China Banking Regulatory Commission showed this week.
Reorienting EconomyAt the forum in Hong Kong, Fink said he is very impressed with China’s leaders, especially with respect to how they’ve sought to transform the manufacturing and export-oriented economy into one that’s domestic and services-oriented. It took some developed economies 50 years to manage that, and several recessions during the process, Fink said.
“I would say the Chinese leadership has done a very good job of identifying the need to reorient their economy, much more proactive than other leaders of other countries,” Fink said.
China has had to grapple with a global and domestic economic slowdown during this transition as well as excessive leverage of many of its financial institutions, Fink said.
“They need to be more aggressive in their reforms,’’ he said, adding there are still too many state-owned companies and signs of credit explosion again in the last three or four months. “However, I’m relatively bullish on China.”
Fink said the “safest neighborhood” to invest right now is North America. Negative rates are “terrible” for Japan, which is overly reliant on monetary policy, he said.
China’s August devaluation, growth concerns and capital outflows fueled speculation of further depreciation in the first quarter, with hedge fund managers from Bill Ackman to Crispin Odey positioned for declines.
“I believe China would be very against their plan to devalue the currency,’’ Fink said on Tuesday. “Their plan is about domestic consumption, having cheaper import prices, whether it’s agriculture goods, energy goods or the important goods of what Chinese are demanding in their purchases. A devaluation would only make that more difficult.”
Fink built BlackRock from a bond shop started in a one-room office to a global money manager with much of the growth fueled by acquisitions, including the 2009 purchase of Barclays Plc’s investment unit.
http://www.bloomberg.com/news/articles/2016-05-17/blackrock-s-fink-says-we-all-have-to-worry-about-china-s-debt
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Central Bankers’ Wisdom Faulted as Gold Holdings Surge 25%
by Ranjeetha Pakiam
May 16, 2016 — 12:35 AM EDT Updated on May 16, 2016 — 11:20 AM EDT
The great gold rush of 2016 is gathering pace. Holdings in exchange-traded funds have now surged by a quarter, with investors taking advantage of lower prices over the past two weeks to enlarge stakes on rising concern about central bank policy making worldwide.
The holdings have increased to 1,822.3 metric tons, the most since December 2013, according to data compiled by Bloomberg, after bottoming at a seven-year low in January. In the past two weeks, as prices lost 1.6 percent, ETFs swelled 63.2 tons, rising every day.
Gold is the best-performing major metal this year after silver amid rising concern over negative rates in Europe and Japan and whether the Federal Reserve will be able to tighten further. Demand jumped to the second-highest level ever in the first quarter, according to the World Gold Council, and billionaire hedge fund manager Paul Singer has said gold’s rally may just be beginning. Investors are being driven to gold on a structural shift in investment demand, according to Bernard Aw, a strategist at IG Asia Pte.
“Firstly, the negative interest rate environment and quantitative-easing policies are reducing the pool of suitable investment options, and making gold less costly to hold,” Aw said by e-mail on Monday, adding that while there may be more U.S. rate hikes in the pipeline, prevailing rates remain very low. “Second, lingering fears of competitive currency devaluations and potentially fresh bouts of market volatility encourage safe-haven demand.”
Rates OutlookAfter the Fed raised rates in December, investors have been scaling back expectations of further increases amid concern about the strength of the global recovery. The chances of a hike at next month’s policy meet are just 4 percent, down from 75 percent at the start of the year, according to data compiled by Bloomberg. Higher U.S. borrowing costs typically hurt gold prices while boosting the dollar.
Bullion for immediate delivery has rallied 20 percent this year, rising to $1,303.82 an ounce on May 2, the highest price since January 2015. The metal traded 0.2 percent higher at $1,275.60 an ounce at 11:14 a.m. in New York, according to Bloomberg generic pricing.
Singer -- whose firm Elliott Management Corp. oversees about about $28 billion -- told clients last month that if investors’ confidence in central bankers’ “judgment continues to weaken, the effect on gold could be very powerful.” Stan Druckenmiller, the billionaire investor, said this month while the bull market in stocks is exhausted, gold is his largest currency allocation.
Bankers BuyingWhile central bank policies may have contributed to gold’s gains this year, some countries’ banks -- notably in China, Russia and Kazakhstan -- have also been substantial and consistent buyers. The World Gold Council estimates that nations are expected to buy 400 to 600 tons this year, compared with 566.3 tons in 2015, according to Alistair Hewitt, head of market intelligence.
Even some the of leading bullion bears have had to backpedal this year as prices advanced and expectations for U.S. rates shifted. Goldman Sachs Group Inc. and Singapore-based Oversea-Chinese Banking Corp. beefed up their price forecasts last week, though both said they maintained their bearish views.
UBS Group AG, which expects gold to drop over 12 months, has increased its short-term forecast, citing uncertainty surrounding the pace of Fed increases as well as next month’s U.K. referendum on its membership in the European Union. The upper end of its range was increased to $1,350 from $1,310, analysts at the wealth-management unit including Wayne Gordon wrote in a report dated May 14.
http://www.bloomberg.com/news/articles/2016-05-16/the-25-jump-in-gold-holdings-that-shows-angst-on-central-banks
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