🏦 China's $18 trillion problem
Bitcoin's weekend crash causes crypto chaos, China's bond market faces record defaults, and the latest update on PhonePe-Indus OS deal.
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There’s so much to cover today so let’s get started.
First up,
Market Snapshot 📈
Sensex: 50,651.90 (+0.22%) ↑
Nifty 50: 15,197.70 (+0.15%) ↑
Dow Jones: 34,207.84 (+0.36%) ↑
Nasdaq 100: 13,411.74 (-0.61%) ↓
Bitcoin: $37,254.15
Top Stories 📰
1. Keeping up with China's bond market 🧐
The world's second-largest bond market is in trouble.
China, which has an $18.1 trillion domestic bond market, faces record defaults as borrowers relied on financial support and bailouts amid the coronavirus pandemic. While policymakers limited delinquencies for much of 2020, they picked up again at the end of the year, which has caused analysts to raise concerns about the overall health of China’s bond market.
Some stats that matter -
China has 84.7 billion yuan of onshore corporate default corporate bonds in 2021.
The total value of offshore corporate bond defaults this year stood at $3.7 billion.
How did we get here? Unsustainable debt levels, crackdown of unregulated lending, reckless credit rating by local agencies, and failure of state-backed AMCs to control debt are the reasons for China's declining bond market. One such company, Huarong Asset Management Co. — set up in 1999 to clean up bad debts within China's banking system, now looks to settle $41 billion borrowed on the bond market.
What else is happening? Amid the growing debt crisis, asset bubbles are forming in China as prices of homes and commodities continue to surge, prompting officials to revive its efforts to introduce a national property tax.
Why it matters? China's tolerance of defaulting borrowers has left some to speculate that Beijing is intentionally letting weaker firms fail in hopes that it would bolster competition and allow investors to price risk accurately in the long run, which will ultimately help improve the country's debt markets.
2. Deal or no deal? 💰
What could've been a simple, uncomplicated acquisition has now turned into a legal battle involving three firms.
PhonePe, which was in talks to acquire Indus OS for $60 million five days ago, has dragged two of Indus OS' investors — Affle Global and Ventureast — to Singapore's Supreme Court after Affle filed an arbitration case against Indus OS this month.
According to court filings, Affle — which owns a 20% stake in Indus OS — appealed to its right of first refusal (ROFR) against the sale of Indus OS founder's stake to PhonePe. ROFR is a contractual right that allows parties to enter into a business transaction with a person/company before anyone else can.
Responding to the news, PhonePe said that both firms "have deliberately and wilfully colluded to act in bad faith and violate the legal provisions of the term sheet which they are both signatories to," adding that the legal hurdles won't impact their acquisition plans.
PhonePe sued Ventureast as Affle was in talks to buy the investment firm’s stake in Indus OS that would grant Affle increased voting rights.
Why it matters? The deal would mark PhonePe's second acquisition since its purchase of point-of-sale startup Zopper in 2018. The acquisition would allow India’s second-largest fintech to bring a wide range of apps on its platform through in-app integrations. Currently, Indus OS hosts over 400,000 apps and serves more than 100 million Indian users.
3. No respite for crypto 😫
It's been a baaad weekend for cryptocurrencies...especially Bitcoin.
The world's largest cryptocurrency saw a 12% drop to $32,632. That's a 50% drop from its peak in April at $64,829.14. Meanwhile, Ether and Dogecoin both slumped 18% and 16%, respectively.
Later, Bitcoin jumped over 8% to move above $38,000 when Tesla CEO Elon Musk tweeted his support for crypto in a battle against fiat currencies.
The recent drop highlights the irrational fear among crypto hodlers and the intensifying regulation in the digital asset sector, which has seen a $748 billion loss in the last seven days alone.
Fear and Greed Index, a popular scale representing anxieties in the crypto market, was at 14 — indicating extreme fear. China's recent crackdown on crypto mining operators and its ban on financial institutions over accepting cryptocurrencies further intensified the digital token's downfall. For context, China's virtual currency mining operations account for over 70% of the world's crypto supply.
US Treasury Department also announced its plan to enforce anti-money-laundering rules, further requesting all crypto transactions over $10,000 be reported to the government.
The crypto crash saw a ripple effect in the stock market as Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index witnessed choppy trades.
Why it matters? Due to their decentralized nature, cryptocurrencies are prone to volatility since they're held by relatively few people who can magnify price swings during low-volume periods. Moreover, unlike traditional assets, they can be traded around the clock on different platforms that operate under different standards, which further fuels the volatility.
Top Reads 📑
Jack Ma to step down as president of Hupan University, an elite business academy he co-founded in 2015.
Aerion Supersonic, an aircraft maker planning to make silent and fast business jets, is shutting operations as it failed to raise capital.
Air India data breach: Hackers access personal details of over 4.5 million passengers.
Wuhan lab researchers sought hospital care shortly before the COVID-19 outbreak was reported: Report
States likely to seek a five-year extension on revenue beyond 2022 at the GST Council meeting this week.
Tweet Of The Day 🌟
Cicadas are having a big once-in-a-cicada-lifetime party and we're all invited!
Well, that's all from us. Until next time 👋
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