TheChek News Flow

Deflation proves persistent in December despite policymakers’ efforts to stimulate growth

China’s consumer prices remained in deflationary territory for the third consecutive month in December, adding pressure on policymakers to restore confidence in the world’s second-largest economy.

The country’s consumer price index fell 0.3 per cent year on year last month, according to official statistics released on Friday. Producer prices dropped by 2.7 per cent.

Both measures fell slightly less than forecast, and marked a marginal improvement from November, when consumer prices declined 0.5 per cent and producer prices slid 3 per cent.

China’s economy fell into deflation in July and prices have since been flat or fallen in every month except August, adding another challenge for policymakers as they contend with weakened trade, fragile consumer sentiment and a rolling slowdown in the property sector in the wake of three years of strict anti-pandemic policies.

Beijing has undertaken a series of piecemeal stimulus measures, including loosening critical lending rates and stepping up access to credit in strategic sectors, in particular in the property sector, which typically accounts for more than a quarter of economic activity.

Officials are expected to target gross domestic product growth of about 5 per cent in 2024, similar to the 2023 mark, which was the lowest in decades.

“Fiscal and monetary policies started to move in the right direction in Q4 2023, but it takes time for these policies to be transmitted to the economy,” said Zhiwei Zhang, chief economic at Pinpoint Asset Management. “It is also unclear if these policies are strong enough to offset the deflationary pressure in the economy.”

Full-year inflation for 2023 was slightly positive at 0.2 per cent, but fell far short of an official upper target of 3 per cent. The producer price index, which reflects factory gate prices and is strongly affected by global costs of raw materials and commodities, has declined every month since October 2022.

Trade data released on Friday showed China’s exports climbed 2.3 per cent in December from a year earlier in dollar terms, exceeding forecasts and building on an expansion in November that reversed six months of declines.

Imports for December edged up 0.2 per cent, beating expectations of a decline and reversing November’s contraction.

But exports fell 4.6 per cent for 2023, the first full-year decline since 2016, as higher global inflation dented demand for Chinese goods. Full-year imports declined 5.5 per cent, the first fall since 2020.

China’s trade surplus came in at $823bn in 2023, down from last year’s record figure of $878bn.

Analysts at Capital Economics noted that the December exports growth was partly due to “exporters slashing prices to gain market share”, which ate into already low industrial profits.

“Without the support of price cuts, exporters will find it more difficult to shake off the post-pandemic pullback in global goods demand,” they wrote in a note.

The People’s Bank of China is expected on Monday to cut its medium-term lending facility — a policy tool that allows it to inject liquidity into the financial system — for the first time since August. A poll of Bloomberg economists anticipates a 0.1 percentage point cut, to 2.4 per cent.

Policymakers have also sought to reduce restrictions on home purchases in major cities and have moved quickly to address any signs of spillover risks after a wave of property developer defaults since late 2021, including Country Garden, the country’s largest private developer, last year.

Zhongzhi, a shadow banking conglomerate that controls various investment companies, declared bankruptcy last week, six months after missed payments came to light.

China’s CPI has in recent months been affected by volatile prices of pork, the largest item in the consumer basket of goods. Core inflation, which strips out energy and food, expanded 0.6 per cent in December, flat from the month before, while services inflation rose 1 per cent year on year.

At the end of October last year, BlackRock said it valued Byju’s shares at about $209.6 apiece, down from the peak of $4,660 in 2022. The asset manager, like other mutual fund investors, makes multiple disclosures about its portfolio in a year, but doesn’t explain its rationale behind any valuation adjustments. Its new valuation adjustment hasn’t been previously reported.

BlackRock, which owns less than 1% of Byju’s, didn’t immediately respond to a request for comment Thursday. Byju’s declined to comment.

This isn’t the first time BlackRock has cut the worth of its holding in Byju’s — and BlackRock isn’t the only investor that has severely downgraded how they value Byju’s, but the new adjustment is by far the most drastic. Prosus, which owns about 9% in Byju’s, said late last year that it valued Byju’s at “sub $3 billion.” At $22 billion, Byju’s ranked as India’s most valuable startup.

The valuation markdown is a stunning reversal in fortune for Byju’s, once the poster child of the Indian startup ecosystem. The startup, which spent more than $2.5 billion in 2021 and 2022 acquiring over half a dozen firms globally, was once showered a valuation as high as $50 billion by marquee investment bankers, TechCrunch earlier reported.

Byju’s has been backed by over a dozen movers and shakers in the industry, from Peak XV Partners to Lightspeed, UBS, and Chan Zuckerberg Initiative. The startup, which gained initial popularity in India because its tutors used intuitive ways — tackling complex concepts using real-life objects such as pizza and cake — has raised over $5 billion in equity and debt in the past decade.

Byju’s was preparing to go public in early 2022 through a SPAC deal that would have valued the company at up to $40 billion. However, Russia’s invasion of Ukraine in February sent markets downward, forcing Byju’s to put its IPO plans on hold, according to a source familiar with the matter. As market conditions worsened, so too did the business outlook for Byju’s. The company began facing mounting pressure from investors to address issues that it had previously left unresolved.

Byju’s today is reeling from a series of challenges: It’s struggling to raise capital, make payroll, and pay off its billion-plus debt. It missed its revenue target for the financial year ending in March 2022, the startup disclosed in a much-delayed account last month.

Byju’s CFO Ajay Goel left the startup in less than seven months to return to Vedanta in late October, following high-profile and abrupt departures of auditor Deloitte and three of Byju’s key board members in June. Prosus publicly slammed the Bengaluru-headquartered startup in July for not evolving sufficiently and disregarding the investor’s advice and recommendations despite repeated attempts.k cuts Byju’s valuation by 95% to $1 billion

Swiss pharma giant had been expected to clinch a deal for the heart-drug developer as soon as this week

Novartis NOVN -0.25%decrease; red down pointing triangle has backed away from its pursuit of Cytokinetics CYTK -22.31%decrease; red down pointing triangle, putting a damper on the prospects of a deal for the promising heart-drug developer.

The Swiss drug giant had been closing in on a purchase of South San Francisco-based Cytokinetics, with an agreement expected as soon as this week, The Wall Street Journal reported Monday. But Novartis, which had been pursuing the biotech for several months, backed away sometime in the past day or two, according to the people.

After jumping on the Journal report, Cytokinetics shares have been falling as the days ticked by without an announcement, on fears there wouldn’t be a deal. Its market value now stands at just above $8 billion.

Cytokinetics has been running a sale process, and it is possible Novartis or another suitor could re-emerge or the company could pursue another type of deal like a capital raise.

Cytokinetics is focused on so-called muscle activators and inhibitors as potential treatments for people with debilitating diseases in which muscle performance is compromised, according to its website.

The company’s shares soared last month on the back of successful data for its experimental heart drug that treats hypertrophic cardiomyopathy, the most common genetic heart disease, which can lead to blood clots, strokes and, in rare cases, death.

Cytokinetics reported that the drug worked safely shortly before the new year, sending its stock up more than 60% that day.

Truist analysts forecast the Cytokinetics drug would generate up to $3.6 billion in sales by 2032.

Cytokinetics shares had been buoyed in recent weeks by reports of a possible sale of the company.

Novartis, one of the world’s biggest pharmaceutical companies by sales, faces declining revenue later this decade after several products lose patent protection, including heart drug Entresto, which accounted for $4.6 billion of Novartis’s $50.5 billion global sales in 2022.

Its shares have been rising lately, thanks in part to positive study results for drugs including Kisqali for breast cancer and the rollout of cancer radiotherapy Pluvicto.

Cytokinetics’ cardiomyopathy therapy could complement drugs like the cholesterol treatment called Leqvio that Novartis acquired as part of a nearly $10 billion deal for the Medicines Company in 2020.

But Novartis Chief Executive Vasant Narasimhan said in an interview on CNBC on Tuesday that “Our overall M&A strategy…is really to focus on sub-$5 billion assets.”