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27 September 2021

Market Round Up

Major markets have been crowded with gloomy news for a number of weeks now, especially in China where a potential disaster is looming in the housing market. Real estate group Evergrande is looking cornered into bankruptcy with very little room to breathe, as the Chinese real estate giant has over US$300bn debt of which US$20bn is in US dollar denominated bonds. These extreme levels of debt in one institution have exposed the fragility of Chinese economy.

Evergrande have two interest payments which were due on 23rd September, one of which it is yet to pay in its US dollar lines, putting downward pressure on international markets. As the company races against time in an attempt to meet its obligations, there are higher chances that international investors may grow increasingly frustrated encouraging foreign investors to exit the Chinese bond market all together. What’s more, Evergrande is embroiled in scrutiny over its questionable wealth management products, which were sold to meet its interest liabilities. The high yield products were on offer, most controversially to its employees, but also to external customers. There are concerns around the structure of the products, which are simply selling the company’s credit to investors in order to payback its previous debt, much like a Ponzi scheme.

In a rapidly growing online world, Digital Banks and Financial institutions are becoming a popular option for savers. The UK holds some well-known start-ups including Starling, Monzo, Wise and Revolut which will all now be targeted by much larger institutions planning to launch in the UK. JP Morgan, the US behemoth, and latest company to enter the market, is comfortably sitting on a $3tn balance sheet, giving them an unusually large helping hand. This comes despite JP Morgan’s efforts recently with a domestic brand called Finn, which lasted only a year. The failure may have provided the giant with some insight to be able to make the second attempt successful.

In Yorkshire, UK-listed furniture retailer DFS has reported record pre-tax profit in its full year results. The company reported profit before tax of £99.2m for the year ended 27 June 2021, compared to a loss of £81.2m in 2020 along with revenue growth of 9.7% to £1.06bn from £724.5m in the previous year. The strong growth experienced by the company was chiefly down to an increase in market share. As pent-up demand from ‘lockdown one’, and a shift in consumer spending to the home helped the company comfortably grow revenues. The company is also moving ahead with expansion plans, with aim of opening 20 new showrooms in coming months.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Market Round Up

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