China’s great wall of debt
Trumpian tweets naturally attract global attention, but there is another, possibly even bigger problem than the uS president’s social media outbursts on trade, and that is the ballooning debt levels in China.
The issue was highlighted by Bank of England deputy governor Sir Jon Cunliffe in a speech on financial stability.
Following the credit crisis, the Chinese economy was on steroids – and private debt has built up to record levels, from 115pc of national income a decade ago, to 203pc.
The Bank has warned that the rate of growth in debt levels has passed the points where other economies have come to grief, including the uS sub-prime crisis, the asian debacle of the late 1990s and the Japanese asset bubble of the Eighties and nineties.
if the Chinese debt bubble does burst, its biggest impact will be in that country itself, which is still not deeply connected to the global financial system. But it would be transmitted more widely through other asian economies and through bond markets and indirect bank exposures.
The knock on-effects for the rest of the world would be severe. There is more to worry about in China than trade talks and Huawei.
Miserable now
CommiSEry. Definition: an irritating neologism in the ads for online estate agency purplebricks for the horror supposedly felt when someone realises they have paid commission to a conventional estate agent.
it also sounds an apt description for the unhappiness fund manager neil Woodford must be sharing with the Bruce brothers, michael and Kenny, who founded the company. all three, along with old mutual, another big investment firm, are major shareholders and have seen the value of stakes plunge nearly 70pc in the past year.
The misery is not equally distributed, however. The Bruces were the major beneficiaries of a £25m sale last year at 360p a share to German publishing group axel Springer, which must be spitting tacks now, as it also subscribed to around £100m of new shares.
Fortunately for them, the Bruces managed to crystallise millions of pounds of gains at a price unlikely to be seen again any time soon, though they are of course heavy losers on their remaining holdings.
purplebricks’ proposition, that house-sellers pay a low fee up-front instead of commission, sounds tempting but isn’t in all markets. in fairness, the idea probably is effective for easy-to- sell properties in a decent market because not much effort is required to find a buyer.
it is likely to fall down, however, for homes that are harder to shift. These are situations where traditional estate agents earn their salt by working to get a sale.
The uK is sluggish due to punitive stamp duty at the upper end and a lack of confidence because of Brexit, not an environment in which purplebricks is likely to flourish. There have been warning signs all was not well.
The site gets poor ratings in online reviews and the company has had run-ins with advertising watchdogs over complaints it did not make clear it charges extra for viewings, and that fees are paid up front.
Executives have also tried to expand too fast, too soon, in the uS and in australia.
The business model always looked off-key, as did the slightly mean spirit behind its ads, which peddled schadenfreude and smugness. it’s almost enough to make you feel some empathy with traditional estate agents. almost.
Doorstep fight
THE hostile bid by nSF for provident Financial is becoming chaotic and ill-tempered. First, provvy had to put out a statement clarifying that when it talked about its future returns, these were not forecasts but merely targets.
With a trio of expensive advisers on fees of around £20m, elementary misunderstandings like that should not get through.
Then fund manager Kevin murphy of Schroders said he would not back the bid because the deadline is before the Competition and markets authority issues a ruling.
a very fair point, particularly considering the Cma’s tough line on Sainsbury-asda. murphy also took a pop at investors who have shares in both businesses, like the beleaguered neil Woodford, who was not having a good day at the office yesterday, for trying to impose their interests.
as the heavy hitters slug it out, it is being forgotten that both these companies charge exorbitant rates to poor and vulnerable borrowers. if the energy spent attacking each other were devoted to helping customers then everyone, except the City slickers, would be better off.