TheChek News Flow

Worldwide ad spending excluding U.S. political campaigns will reach $936 billion next year, GroupM said in a new forecast

The growth in global ad spending is poised to slow in 2024 to 5.3%, excluding U.S. political advertising, according to a new forecast from media investment group GroupM.

That would mark a deceleration from the 5.8% increase that GroupM anticipates for this year, the forecast said.

GroupM, part of advertising holding giant WPP, said growth might be adversely affected next year by potential factors such as high interest rates’ effect on consumer and business spending. It also said that a spate of China-based companies, which have spent heavily to acquire international consumers, might become less of a force for advertising growth in 2024 as U.S. household savings ebb and Europe potentially sees economic contraction.

Global ad spending excluding political activity is expected to reach $889 billion this year and $936 billion in 2024, according to the forecast. Despite fears about economic uncertainty in 2023, GroupM’s new forecast for this year is just 0.1 percentage points lower than a previous prediction for 2023 issued in December 2022.

“We’ve been through quite a bit of volatility over the last five years or so,” said Kate Scott-Dawkins, president of business intelligence at GroupM and author of the report. “We had been expecting more of a deceleration out in the future. I think we’re looking now at innovation through AI and digitalization of these channels—that has pushed us to expect a bit more stable, rather than more sharply decelerating, growth out over the next five years.”

Another closely watched forecast also suggested a slowdown in ad growth was approaching. Excluding cyclical events such as political elections and sports, global advertising spending in 2024 is poised to grow 5.8%, down from an expected 6.5% in 2023, according to Magna, a media investment firm that is part of Interpublic Group’s Mediabrands and conducts industry research.

Including cyclical events, however, Magna expects ad spending growth to rise to 7.2% next year from 5.5% in 2023, driven by economic stabilization, lower inflation, digital innovation and the return of those major cyclical events.

Most advertising growth is landing in the hands of major digital players, according to the GroupM forecast. The top five global sellers of ads, according to GroupM— Alibaba, Amazon.com, Bytedance, Meta Platforms and Alphabet’s Google—increased their ad revenue 25.4% on a compound annual basis from 2016 to 2022, beating the 9.3% pace of the total advertising market. That growth has come as advertisers sought out those players’ artificial intelligence tools, their ability to target messages to specific users and their self-service ad-buying platforms.

By 2028, spending on digital advertising will be larger than spending on the entire advertising industry in 2022, GroupM said.

“We seem to have reached a significant inflection point in the realization that linear TV is well and truly in decline, growth in advertising is dominated by a handful of large media and commerce companies, and the economics of this industry are predicated on this new world order, where large advertisers and agencies make up a minority of revenue for some of their largest partners,” the report said.

Signs of indigestion in China’s money markets are an ominous sign—particularly given shadow-bank troubles and enormous government debt

Plumbing is something most of us take for granted—until there’s a problem, at which point things can get messy fast. Likewise for the “plumbing” of modern financial systems: the money markets, where banks and other financial institutions make short-term loans to each other.

So given the strains China’s economy is already laboring under—including a slow-motion property sector implosion and the “serious” insolvency of Zhongzhi Enterprise Group, a large asset manager, in its own words—it isn’t a great sign that China’s money markets have recently been throwing off little blips of distress too.

There is little sign of an immediate crisis such as the one that erupted in the wake of regulators’ sudden takeover of Baoshang Bank, a midsize lender, in 2019. But unusual rate movements in recent weeks—and, reportedly, actions by authorities behind the scenes to strong-arm lenders—are still worrying. For one, they come in the wake of a big rebound in short-term interbank lending, particularly to nonbank borrowers—a category which includes funds, asset managers and “shadow banking” trusts such as the one owned by Zhongzhi that defaulted on its obligations in August.

Climbing rates after a period of rapidly rising borrowing is always a potentially combustible situation—especially when the real economy is already struggling.

China’s money-market rates often spike at month-end, but the last day of October saw overnight rates briefly rise as high as 50%: a high driven by a scramble for cash by some nonbank financial institutions, according to state media. Both benchmark interbank rates and rates for negotiable certificates of deposit, an important funding instrument for small banks, have marched higher since mid-August. Cash injections by the central bank through its medium-term lending facility have increased—with the outstanding balances rising by 600 billion yuan, equivalent to $84 billion, in November, the most since 2016. And in mid-November regulators asked some lenders to cap rates on an interbank debt instrument, according to Reuters.

The unease appears to be partly the result of massive new debt issuance by the government itself, which is making life difficult for some other borrowers: official government bond debt rose by 3.7 trillion yuan from end-July to end-October, according to figures from data provider CEIC. That was the largest three-month increase since at least early 2016.

But jumpy money markets also come on top of an enormous rebound in short-term money market borrowing through bond repurchase agreements, or repos, since mid-2021—primarily by nonbank financial institutions. On net, such borrowing by nonbank financial institutions, excluding brokerages and insurers, has roughly tripled to around 150 trillion yuan on a quarterly basis since mid-2021, central bank data shows. Moreover, if some of that cash has been used for leveraged bets on bonds to juice returns, then the recent rebound in Chinese rates could be squeezing some borrowers too.

The falling U.S. dollar—and slower capital outflows—could take off some of the pressure in the weeks ahead. But China now finds itself balancing enormous new government obligations, which the bond market needs to finance, against highly leveraged nonbank financial institutions, some of which probably still have significant exposure to the nation’s teetering real-estate sector. No wonder money markets are twitchy.

Puzzle: find Black’s hidden win

Hans Niemann, the most controversial player in international chess, is competing in England at the London Classic, this week. The US 20-year-old made headlines last year when the world No1 Magnus Carlsen refused to play him. He later launched a $100mn lawsuit against Carlsen and others. Niemann has been in constant action since their out-of-court settlement three months ago.

Last week in Zagreb, the American scored a career-best result, winning first prize by a three-point margin over his nearest rival. His 8/9 total was assessed as a performance rating of 2946, the highest of 2023 and not far off the top three in modern tournaments: Fabiano Caruana at St Louis 2014, Magnus Carlsen at Pearl Springs 2008, and Anatoly Karpov at Linares 1994.

The magnitude of his achievement was not lost on Niemann, who posted a message on X comparing himself to Bobby Fischer (who also won at Zagreb, in 1970) and quoting Friedrich Nietzsche.  

There were sceptics. Ivan Sokolov, a former Yugoslav and Netherlands champion, who coached the young Uzbek team to gold at the 2022 Chennai Olympiad, took to X after his defeat and posted: “It is hard to fight 98 accuracy. There are (apart from delay) no anti-cheating measures. Not even a scan.”

A more balanced view came from the former British champion and chess author, Jacob Aagaard, who wrote that Niemann had made some errors but “no gross blunders. These are the types of mistakes that get you into trouble at 2750. He is a 2700 player, facing 2600 average and having a good run”.

One day after Zagreb, Niemann began play at the London Classic, which continues all this week (2.15pm start, live coverage and commentary on the website). Fatigue was an obvious danger, and the American drew his first three games. The Classic has full anti-cheating measures in place, including body scans and checks on the toilet area.

The four English players have had mixed results. At 52, Michael Adams is the oldest in the field, but the eight-time British and reigning World Over-50 champion has been in fine form, sharing the lead with India’s Dommaraju Gukesh. 

Shreyas Royal, at 14 by far the youngest player, is aiming for his second grandmaster norm (of three needed for the title) and scored in mature style in the third round against Iran’s No2, Amin Tabatabaei.

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Offshore creditors have shown little enthusiasm for the group’s debt restructuring proposals, and one cannot blame them

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An abrupt turn of events has bought yet more time for China Evergrande Group. A Hong Kong judge has postponed a court hearing into a liquidation petition until January. That gives the embattled property developer longer to finalise a debt restructuring plan.

Offshore creditors, such as petitioner Top Shine Global, may not realise quite how much power they now wield over China’s property and banking sector. 

Evergrande is the world’s most indebted developer. It has been working for about two years on a debt restructuring it hopes will stave off liquidation. Fresh breathing space lifted battered shares more than 9 per cent on Monday.

Offshore creditors have shown little enthusiasm for the debt restructuring proposals. One cannot blame them. A brutal haircut is a likely outcome. Beyond that, prospects for the developer look bleak.

The payouts from a court-approved liquidation are hardly appealing either. Analysts anticipate a recovery rate of below 5 per cent. Evergrande has more than $300bn in liabilities.

For Beijing however, getting offshore creditors to agree to a restructuring is of paramount importance.

The biggest risk comes from an estimated 1.5mn homebuyers that have already paid Evergrande for unfinished homes. These dwellings are estimated to have an original value of $90bn. Beijing may have to cope with social discontent if Evergrande is liquidated and the projects cannot be completed.

A restructuring would also alleviate pressure to support state-owned banks. Their returns are eroding amid slowing economic growth and a falling property market.

The impact on lenders is growing. Banks do not just have direct exposure through mortgages and loans to developers. They are also exposed to the country’s shadow banks. These non-bank financial institutions often lend to higher-risk industries such as real estate. The financings are frequently through wealth management products that are held off balance sheet.

Zhongzhi, one of the biggest shadow banks, may have a shortfall of $36bn. It has warned that it is “severely insolvent”.

The liquidation of Evergrande would set a dangerous precedent for struggling peers. Evergrande had always been outlier. But a domino standing at the extreme end of a line tumbles most peers through indirect impacts. Foreign investors have yet to comprehend the full extent of that danger.