WSJ : Bridgewater’s Ray Dalio Endorses China’s ‘Common Prosperity’ Drive

Bridgewater’s Ray Dalio Endorses China’s ‘Common Prosperity’ Drive
The longtime China bull said the U.S. and other countries could benefit from a similar approach

Bridgewater Associates LP founder Ray Dalio backed China’s push for “common prosperity,” or greater equality, under President Xi Jinping and said countries such as the U.S. could benefit from a similar approach.

Beijing’s pursuit of common prosperity has been a driver behind its wide-ranging crackdowns on sectors such as e-commerce, videogames, property and after-school tutoring. The heightened regulatory pressure in turn has caused steep declines for many Chinese stocks listed in the U.S. and Hong Kong, and prompted many investors to reassess the risks and rewards of Chinese assets.

Mr. Dalio, a longtime China bull, however, has warned market watchers not to misinterpret the actions as demonstrating that Chinese leaders were “showing their true anticapitalist stripes,” and has stressed the benefits of investing in the country.

“Common prosperity is a good thing,” Mr. Dalio said in a video appearance at UBS Group AG’s Greater China Conference on Monday. “It’s another way of saying prosperity for most people.”

Mr. Dalio said his views on the topic were “pretty much aligned” with those of the Chinese leadership, and widespread opportunity would lead to a better economy and a fairer system.

“As Deng Xiaoping and others understood, it’s a cycle,” Mr. Dalio said. “First you get rich, and then you make a point of distributing those opportunities in a more equal way.” Mr. Deng, China’s former paramount leader, unleashed economic reforms from the late 1970s onward. Those changes allowed China to grow much faster than it had under former Communist Party leader Mao Zedong, who died in 1976.

“A lot of people don’t know the true thinking, even though there have been attempts to describe it, and tend to make the mistake of thinking that this is like a return to communism under Mao, rather than understanding it’s just part of the evolutionary process,” he said.

Mr. Dalio said he thought that through its own system, the U.S. “needs more common prosperity, a lot of countries do.” His presentation showed U.S. wealth and income gaps at heights last hit in the 1930s.

Ahead of the same conference, a senior banker told reporters that China was committed to welcoming global investors and to further opening up its financial markets.

Tommie Fang, UBS’s head of China global markets, said Friday that he had recently spent a week in Beijing meeting with financial regulators. Mr. Fang said he had seen “a lot of positive energy, pro-business and opening-up” attitude in his meetings with the central bank, securities, banking and foreign-exchange regulators, and leadership at the new Beijing Stock Exchange.

In late July, after a crackdown on tutoring roiled markets, the China Securities Regulatory Commission met privately with representatives of global financial institutions and tried to assuage investors’ concerns, saying China would consider the market impact before introducing future policies.

Mr. Fang, who attended the July meeting, said: “I firmly stand by the view that the policy environment in China is more stabilized and the valuations are more attractive versus the beginning of last year.”

He said Chinese regulators were “making very clear and dedicated efforts to enhance the dialogue” with their U.S. counterparts over U.S.-listed Chinese companies, which face the threat of delisting in a dispute over access to audit papers.

Mr. Dalio told conference attendees that his hedge-fund management firm had thrived since it started applying its all-weather approach, which aims to make money regardless of broader market moves, to investing in mainland China.

“We’ve been doing that for about three years onshore. That’s done very well, whether the direction of the market is up or down. I’m just thrilled to be a participant,” he said. In November, The Wall Street Journal reported that Bridgewater had raised the equivalent of $1.25 billion for its third investment fund in China, its largest to date.

Mr. Dalio advised investors to be wary of holding cash, given its drawbacks on an inflation-adjusted basis. “Stop viewing cash as a safe investment. Investors think of cash as safe because it doesn’t have much volatility. The mind-set needs to change,” he said.

FT : Crypto craze takes gaming industry by storm

The gamers getting behind crypto
Yosuke Matsuda, president of storied video game developer Square Enix, had a gift for crypto-land on New Year’s Day: a wholehearted endorsement of NFTs, the metaverse and the play-to-earn blockchain games, where playing can earn cryptocurrencies.

“From having fun, to earning, to contributing, a wide variety of motivations will inspire people to engage with games and connect with one another. It is blockchain-based tokens that will enable this.”

Square Enix is not the only gaming company hoping to get a slice of the crypto-hype. French publisher Ubisoft announced its NFT platform Quartz last year, allowing users to buy cosmetic options or “skins” for your avatar, while Electronic Arts chief executive Andrew Wilson said that “collectible digital content is going to play a meaningful part in our future”.

The games industry has long sought new ways to keep users paying for content. Loot boxes, which offer a random assortment of items for avatars, became endemic among mobile games in the mid-2000s and feature in popular franchises such as Team Fortress 2 and Fifa. NFT proponents argue that blockchain items could be transferable across games and further stimulate virtual economies — markets for resales of skins exist, but they are unauthorised.

Blockchain games, such as Axie Infinity, have an even better pitch: they allow players to earn in-game assets which they can convert into hard cash. Square Enix’s Matsuda differentiated between consumers who “play to have fun” and those who “play to contribute”, creating new content for the game world — and also making more money for games companies.

But when it comes to what gamers are willing to pay for, they are discerning. Loot boxes have been an ongoing source of controversy, with opponents likening the mechanics to gambling. And monetising user-generated content (UCG), which is traditionally viewed more as a passion project than corporate handiwork, has been a thorny business. PC storefront Steam’s experiment with adding premium options to its UCG workshop in April 2015 provoked a mass backlash and a u-turn by the gaming giant later that month.

While Ubisoft and others are piling in, other gaming companies have drawn a line in the sand. Steam’s owner Valve announced in October a ban on NFTs from its expansive store. The new policy appears to align with Steam’s stance prohibiting items that have real-world value on the platform. In December, GSC Game World, the developer of upcoming survival shooter game S.T.A.L.K.E.R. 2, reversed plans to offer NFTs after a vociferous backlash from fans. “The interests of our fans and players are the top priority for the team,” the developer said.

As for blockchain games, there are questions around the sustainability of their economic model. Analysts argue that they rely on new player growth to remain viable. Equally fundamental is how much entertainment they offer, says Edward Castronova, professor of media at Indiana University and one of the most respected voices on the study of virtual economies.

“If it’s not something more fun than other things, people are not going to do it,” he said, emphasising that companies cannot simply rely on telling users about how great their blockchain technology is. “You can’t just say ‘we’re excited’ and expect people to buy in.”

Castronova is not a dyed in the wool crypto-critic, adding that he sees possibilities for blockchain-based gaming to offer a genuine economic incentive — so long as they are not too onerous.

Turning games into yet more gig economy work is not as much of an innovation — see the long and dubious history of “gold mining” in games like World of Warcraft. Simply tacking “blockchain” onto that may not be the winning pitch crypto’s true believers think it is

FT : Fed will act to prevent entrenched inflation, Jay Powell to tell Senate

Fed will act to prevent entrenched inflation, Jay Powell to tell Senate
US central bank chair to pledge to use tools to curb rising prices and support economic recovery

The Federal Reserve is prepared to take action to ensure elevated inflation does not become entrenched, chair Jay Powell will reiterate to US lawmakers during his confirmation hearing on Tuesday.

In testimony to be delivered to the Senate banking committee, Powel, who was nominated by President Joe Biden in November to serve a second term leading the US central bank, will nod to the speed of the economic recovery, the strength of the labour market and the costs imposed by high inflation.

“The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation,” Powell’s prepared remarks said.

“We know that high inflation exacts a toll . . . we will use our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched.”

Powell is set to testify ahead of the latest inflation report, which on Wednesday is expected to show the consumer price index rising at an annual clip of 7 per cent, the fastest pace in four decades.

Powell underscored the importance of flexibility in the Fed’s approach and argued that monetary policy must take a “broad and forward-looking view, keeping pace with an ever-evolving economy”.

When Biden announced Powell’s renomination in November, the president made clear that containing inflation was a top priority of his administration. He added that he saw Powell and Lael Brainard, the central bank governor he tapped for the role of vice-chair, as best placed to steer the US economy towards a more robust recovery.

“I believe Jay is the right person to see us through and finish that effort while also addressing the threat [that] inflation . . . imposes [on] our families and to our economy,” Biden said at the time.

In the weeks that followed the nomination, the Fed embarked on an abrupt policy pivot, jettisoning its characterisation of inflation as “transitory” and embracing a more aggressive approach to ensure higher US consumer prices do not become rooted.

Not only did the Fed accelerate the speed at which it winds down its stimulus programme, but it prepared financial markets for the prospect of three interest rate increases this year and a move to shrink the size of its huge balance sheet at some point in 2022.

Economists expect the Fed to commence “lift-off” in March and begin reducing its portfolio of securities soon afterwards, a sequence many senior officials have since publicly backed.

Goldman Sachs has predicted subsequent rate increases in June, September and December after the March move. The bank projected the Fed to cease reinvesting the proceeds from its maturing securities in July.

Minutes from the Fed’s December policy meeting signalled a similar timeline, with the record indicating that policymakers saw interest rate increases “sooner or at a faster pace” than initial estimates as potentially warranted given the speed of the economic rebound.

New jobs data published on Friday, which showed the unemployment rate plummeted below 4 per cent despite a sharp slowdown in the pace of monthly jobs gains for December, further emboldened bets of a March rate rise.

Wage growth has also risen sharply as a record number of Americans quit their jobs. Economists said the economy was close to, if not already at, maximum employment, the second goal set forward by the Fed to gauge the appropriate time to move its main policy rate away from zero.

The first goal, for inflation to average 2 per cent over time, has been “more than met”, Fed officials have said.

Powell has previously justified the Fed’s hawkish shift despite the fact that there were still 3.6m fewer jobs than before the pandemic by arguing that stable prices were essential to a long and steady economic recovery.

In choosing Powell, a Republican who was first appointed in 2017 by former president Donald Trump, Biden rejected criticism from the progressive wing of his party about the chair’s regulatory record, which they said led to a dilution of the post-global financial crisis rules guiding the nation’s largest banking institutions.

They also took issue with Powell’s stance on issues related to climate change and called for a leader who would take a more proactive approach to considering related financial risks.

Powell is likely to face questions about the trading scandal that erupted under his watch and was reignited last week, when new disclosures from Richard Clarida, the vice-chair, indicated he was more active in financial markets than he first revealed.

Clarida, whose four-year term was set to expire at the end of the month, announced on Monday that he would step down from his position this week.

The Fed in October announced rules that significantly curtailed the transactions of senior staff, but the latest trades, which occurred around highly sensitive policy decisions in the early days of the pandemic, tarnished the central bank’s credibility.

Clarida is set to be replaced by Brainard, who will face the Senate banking committee on Thursday for her confirmation hearing.

FT : EU to block $2bn Korean shipbuilding merger between Daewoo and Hyundai

EU to block $2bn Korean shipbuilding merger between Daewoo and Hyundai
Brussels concerned about dominance of LNG carrier market as European energy prices soar

EU competition officials are preparing to block a $2bn merger between two of the world’s biggest shipbuilders in South Korea, the first time since 2019 that Brussels has decided to veto a corporate tie-up.

Officials told the Financial Times that a proposed merger between Daewoo Shipbuilding & Marine Engineering and Hyundai Heavy Industries would be stopped as anti-competitive. The decision is likely to be announced this week, said three people familiar with the matter.

The European Commission declined to comment.

The veto will be the first by the EU’s competition authorities since Brussels prevented a tie-up between India’s Tata Steel and Germany’s Thyssenkrupp more than two years ago over concerns it would drive up prices for consumers.

The latest decision comes as energy prices have soared in Europe this winter, with freight costs for liquefied natural gas in Asia rising to record levels of more than $300,000 per day on surging global demand. The two South Korean companies dominate the market for making ships that carry super-chilled LNG.

One EU official said blocking the merger would help protect European consumers from paying higher prices for LNG, which emits less carbon dioxide than coal but is still a source of greenhouse gas emissions.

Ships carrying LNG to Asia have been rerouted to Europe, where consumers are willing to pay a premium for the fuel to generate electricity. The EU is the world’s third-largest importer of LNG.

The proposed tie-up was first announced by Hyundai Heavy in 2019. Brussels had demanded that the companies provide remedies to limit concerns about preserving competition.

The South Korean shipbuilders are significant suppliers to EU companies and represent about 30 per cent of global demand for cargo vessels, according to the commission.

The two companies won new orders for 45 large LNG vessels out of the total of 75 last year, together commanding 60 per cent of the global market, according to industry tracker Clarksons Research.

The merger has been approved by regulators in Singapore, China and Kazakhstan, but it needs the green light from the EU, Japan and South Korea for the deal to be completed.

To address competition concerns, Hyundai Heavy had proposed not raising LNG vessel prices for the time being and transferring some technology to smaller domestic shipyards, according to industry officials.

But the offer fell short, said the officials, adding that Hyundai Heavy had not made a formal proposal to address the EU’s request for other remedies.

Hyundai Heavy said the EU should approve the merger unconditionally. “It is impossible to evaluate market dominance by just market share alone in the shipbuilding market and the market structure makes it difficult for a certain company to monopolise it,” the company said.

FT : Companies raise $100bn on global debt market in brisk start to 2022

Companies raise $100bn on global debt market in brisk start to 2022
Corporate executives seek to secure cheap borrowing ahead of expected rate rises

Companies raised more than $100bn on the bond market in the first week of this year as finance chiefs kicked off an effort to lock in low borrowing costs before benchmark interest rates start to climb.

Global corporate bond issuance reached $101bn in the year to January 7, with US deals reaching a record pace. The global haul trailed only a blockbuster $118bn start to 2021, which was the highest on Refinitiv records going back 19 years.

The corporate bond market typically revs up at the start of the year after a sleepy period around the holidays in late December. But the rush of new deals offers an early glimpse at the barrage of issuance expected early this year, as companies look to tap debt markets before major central banks begin raising short-term interest rates, something that increases the cost of borrowing across the economy.

“It was obviously very active out of the gates,” said Dan Mead, head of investment-grade syndicate at Bank of America. “There is an expectation among our issuers that rates are likely going to continue to trend higher from here. They will try to take advantage of the market now while there are favourable conditions to lock in those rates.”


Deals have been dominated by banks and other financial issuers, especially foreign institutions raising funds in US markets. A host of blue-chip names such as insurer MetLife and heavy machinery maker Caterpillar have also sold new bonds.

Highlighting the easy access to financing across corporate America, cruise operator Royal Caribbean launched one of the first deals in the lower-rated junk bond market, with a $1bn issue last Tuesday.

Even pandemic-stricken cinema chain and darling of the Reddit trading community AMC Entertainment declared its intention to test investor appetite for risky debt. In a tweet, chief executive Adam Aron said he hoped to refinance pricey debt assumed in the past two years, pushing out maturities and easing up terms.

The breakneck pace continued on Monday, with a raft of new debt scheduled ahead of what is expected to be a slightly slower period during the corporate earnings season that unofficially begins on Friday.

However, bankers and analysts said challenging market conditions in the early days of 2022 may present a hiccup to issuers’ plans. Debt and equity markets have sustained a bout of volatility since last Wednesday, when the Federal Reserve firmed up signals that interest rates could rise sooner and faster than investors generally expected. The tech-heavy Nasdaq Composite has slipped about 8 per cent from its November high, while yields on US government bonds have shot higher.

The moves contributed to a contrasting start for new equity issuance, which slid to just over $7bn in the first week of 2022, down from north of $22bn in the same period the previous year. Additional share sales from companies that are already publicly listed dominated, and even that new business more than halved from 2021. Still, overall issuance remains elevated by historic standards, with 2021 an anomaly in the traditionally slower first days back for equity issuance following a new year.

The effect of choppy markets was also noticeable in debt markets. Investors pulled some orders for new bond deals last Wednesday, the day the Fed released the minutes from its December meeting, bankers said.

“It’s been a solid start to the year, but it’s indicative of a financing environment that will be a little more difficult to navigate than we saw in 2021,” said Jonny Fine, head of investment-grade debt issuance at Goldman Sachs.


The push higher in Treasury yields translates to higher borrowing costs for corporations, weighing on the value of existing bonds that offer investors a lower rate of interest. At the same time, this has encouraged companies to come to market quickly before borrowing costs jump.

Already this year, the average yield on investment-grade bonds has risen from 2.36 per cent to 2.55 per cent, according to an index run by Ice Data Services.

In US stock markets, it was biotechnology companies — seen to be less sensitive to the broader market — that led the few public listings to begin trading. But volatility stemming from the re-evaluation of monetary policy was still evident as Vigil Neuroscience slid from its list price of $14 to $11.41 and Amylyx Pharmaceuticals dropped from $21 to $16.72. 

The tepid response to new listings in the US may be tested again this week, with private equity group TPG and HR software company Justworks potentially beginning trading, as investors grapple with the heightened attention across capital markets that is now given to perceived shifts in the Fed’s thinking.

“A lot of clients are very focused on the macro picture and what might happen to inflation rather than corporate fundamentals,” said Brad Elliott, a credit strategist at Barclays. “The focus has pretty much shifted to what the Fed is going to do.”

>>> US Close Dow -0.45% S&P -0.14% Nasdaq +0.05% Russell -0.40% VIX 19.40 +3.41%

Closing Stock Market Summary

The S&P 500 (-0.1%) declined for the fifth straight session on Monday, but it only lost 0.1% after being down 2.0% intraday. The Nasdaq Composite (+0.1%) eked out a gain after being down 2.7% intraday, while the Dow Jones Industrial Average (-0.5%) and Russell 2000 (-0.4%) also closed well off session lows. 

The intraday weakness was attributed to persisting concerns about rising rates and the Fed's agenda for policy normalization. The 10-yr yield hit 1.81% intraday before ending the session at 1.77%, or one basis point above Friday's settlement. The 2-yr yield rose three basis points to 0.90%. 

Investors started to buy the dip soon after it looked like the 10-yr yield peaked for the day, finding a good excuse to buy into an oversold condition. The Nasdaq, for instance, was down 8.2% in less than five sessions and had fallen below its 200-day moving average (14690). 

The S&P 500 couldn't reclaim its 50-day moving average (4676), though, as eight of its 11 sectors still closed lower. The industrials (-1.2%) and materials (-1.0%) sectors declined at least 1.0%, while the health care sector advanced 1.0%.

Evidently, cyclical stocks were lumped into the selling activity today. Besides downside momentum, risk sentiment in the space was pressured by a report from the Washington Post indicating that Senator Manchin (D-WV) is no longer interested in passing any legislation resembling the Build Back Better Act.

In the health care space, Pfizer (PFE 56.24, +0.52, +0.9%) told CNBC that a COVID-19 vaccine for the Omicron variant will be ready in March, and Moderna (MRNA 233.70, +19.84, +9.3%) provided an upbeat sales forecast for COVID-19 vaccines in 2022. 

Separately, shares of Take-Two Interactive (TTWO 142.99, -21.61, -13.1%) dropped 13% on concerns that it overpaid for its acquisition of Zynga (ZYNG 8.44, +2.44, +40.7%). The cash-and-stock transaction at $9.86 per Zynga share gave the company a total enterprise value of approximately $12.7 billion.

The U.S. Dollar Index increased 0.3% to 95.97. WTI crude futures declined 1.1%, or $0.83, to $78.11/bbl.

Monday's economic data was limited to Wholesale Inventories, which increased 1.4% m/m in November (consensus 1.2%) following a revised 2.5% increase (from 1.2%) in October. Looking ahead, investors will receive the NFIB Small Business Optimism Index for December on Tuesday. 

  • Dow Jones Industrial Average -0.7% YTD
  • S&P 500 -2.0% YTD
  • Russell 2000 -3.3% YTD
  • Nasdaq Composite -4.5% YTD

>>> US After Hours Summary: Lots of guidance after the close, mostly good: NARI

After Hours Summary: Lots of guidance after the close, mostly good: NARI +10.3%, ANF +7%, PI +4.2%, ILMN +2.5%; although BIG -5.8% guided lower; INTC +2.5% higher as it snaps up rival CFO

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: ACCD +11.5%, NARI +10.3%, ANF +7%, PI +4.2%, ILMN +2.5% (also announces multiple new partnerships), TAK +0.4%

Companies trading higher in after hours in reaction to news: ALGM +7% (names new CEO), BCAB +3.1% (BCAB announces clinical collaboration with BMY), INTC +2.5% (names new CFO, comes over from Micron), QSI +2.4% (provides commercial update), FTI +1.8% (announces sale of stake in Technip Energies), STAG +0.5% (names new CEO, effective July 1; also names new CFO), MDT +0.4% (receives regulatory approval in Japan for launch of Micra AV Transcatheter Pacing System), RNG +0.3% (names new COO), AAPL +0.2% (has had serious talks about carrying MLB games next season, according to NY Post), AMK +0.1% (reports highlights for December), CNS +0.1% (reports December AUM), PFE +0.1% (awarded $440 mln Army contract modification)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: BIG -5.8% (guides JanQ EPS below consensus, cites softening of traffic), MU -1.1% (reaffirms Q2 guidance; also CFO resigns to join Intel), NTUS -0.5%, BARK -0.4% (also names new CEO)

Companies trading lower in after hours in reaction to news: IMNM -13.8% (provides update on IMM-BCP-01; receives clinical hold letter from FDA), RIVN -5% (produced more than 1,000 vehicles in 2021, according to WSJ), MTDR -4.3% (announces planned retirement of CFO), NTST -2.8% (stock offering), OR -1% (provides preliminary deliveries update for Q4), NDAQ -0.6% (reports December 2021 metrics), EFC -0.1% (strategic partnership with Sheridan Capital)