To fight the coronavirus budget crisis, act like Alexander Hamilton

Some U.S. states are facing disproportionate financial challenges due to the pandemic. Plunging tax revenue, unemployment, and rising healthcare expenses, coupled with high levels of existing state debt have driven some states into acute financial distress – threatening the nation’s unity.

This is not the first time the U.S. has confronted a common, disparately borne struggle. In 1790, Alexander Hamilton spurred the federal government to take over the debt accumulated by states in the fight for independence. It was the “price of liberty.” The agreement caused controversy, particularly among the states asked to contribute more. In the event, unity prevailed, and the nation strengthened.

Today, a similar act of solidarity is needed. To be clear, we are not suggesting indebted states be bailed out, but they should not be made to pay for their pandemic-induced financial strain. Instead, the incrementalcosts states incur during recovery should be considered the “price of unity” and shared at a national level, as they were over 200 years ago.

Investors, however, seem pessimistic about U.S. unity. In fact, judging by financial market indicators, they have already chosen which states are likely to come out on top post-crisis (the likes of Texas and Florida), and which will pay most dearly (California, Connecticut, Illinois, Pennsylvania, New Jersey, and New York). This divisive verdict does not foster “a more perfect union,” which the US needs today to maintain its status as the world’s most powerful economy.

What are the markets saying?

We know which U.S. states investors are most wary of; we can see the evidence in the current, volatile prices of state-specific default insurance that we examine in our research. The trajectory of these prices, as calculated based on data from IHS Markit, predicts that, over the next five years, New Jersey, Pennsylvania, and Connecticut have a 1-in-10 chance of defaulting on their debt, and Illinois a whopping 1-in-4. These numbers are in stark contrast to the 1-in-60 risk of default recorded for Florida and Texas over the same horizon.

This is surprising. While Illinois’ protracted financial woes and pension obligations are not new, investors’ negative perception of the other five states is. In January 2020, the cost of insuring against the default of California, New York, Florida, or Texas was roughly equal. Today, default insurance for California and New York costs around four times that for Florida or Texas. 

What explains the market reaction? 

There are three reasons for such a large disparity in default perceptions across states.

First, some states have higher COVID-19 infection rates, which certainly strain a state’s finances. But, infection rates do not tell the whole story; Florida has the largest share of at-risk population, and its per capita infection rates are roughly equal to California’s, while its default risk has hardly budged since January. 

Second, all six states with the largest spikes in default risk have high debt levels and overextended budgets. In short, as we have seen with the EU, the markets believe that only the fiscally strongest states avoid default. Yet, unlike the members of the EU, each state is not a separate entity, but an integral part of the United States (whose default probability has remained low, despite unprecedented debt levels). 

Last, these six states are predominantly Democratic. While Democratic-favored policies, such as subsidized healthcare, certainly left these states with less fallback finances, Republican implications that they be left to go bankrupt after suffering a shock beyond their control seems irresponsible.

Why does debt matter?

The sting of negative market perception is felt as tax bases shrink, rainy day funds of even well-managed states run dry, and state governments are forced to turn to financial markets to borrow additional funds to meet their budget commitments.

States perceived more likely to default will pay higher interest rates on their debt, making their recovery more arduous. Raising additional debt is more difficult and expensive, as Illinois recently discovered when it committed to paying a punitive 5.85% interest on its $800 million of new debt. Had Illinois issued the same debt before the pandemic, they would have paid half as much. 

Although some may experience schadenfreude in seeing a “poorly-run” state forced to tighten its belt, it seems unjust not to aid a struggling state amid a global economic and health crisis. 

Where is the unity?

Unfortunately, withholding support seems to be exactly what some leaders favor. Senator Rick Scott (R, Fla.), in a recent Wall Street Journal op-ed, asserts that states should not be rewarded for their “poor choices”. This solution is particularly unfair to strapped cities on those states. Detroit, for example, despite having recently emerged from near-crippling municipal bankruptcy, is being bowled over again by the financial consequences of the pandemic; its recovery will almost certainly require state government aid. With no compromise in sight for easing the economic burden of the most indebted states, residents of cities like Detroit face steeper taxes, reduced efficacy of municipal services, and risk having to choose between pensions and medical coverage.

Although the $3 trillion coronavirus relief bill recently passed by the House ($1 trillion of which will be reserved for state and local governments) is a step in the right direction, President Trump’s veto threat suggests that the U.S. may not be quite ready to set aside their party politics. Unfortunately, such comments will only serve to deepen market concerns, making it more difficult for the overburdened states to finance themselves. 

What the U.S. needs now are the same actions it took over two centuries ago: compromise and unity. Indeed, now is not the time for them to practice political distancing – at least not in the room where it happens

Patrick Augustin is an associate professor of finance in the Desautels Faculty of Management at McGill University.

Valeri Sokolovski is an assistant professor of finance at HEC Montreal.

Marti G. Subrahmanyam is the Charles E. Merrill Professor of Finance, Economics, and International Business in the Stern School of Business at New York University.

Davide Tomio is an assistant professor of business administration in the Darden School of Business at the University of Virginia.

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Beijing promises retaliation if Trump signs sanctions bill rebuking Hong Kong law

Congress has approved a bill rebuking China over its crackdown in Hong Kong amid protests against a strict “national security” law that outlaws so-called subversive or terrorist acts, as well as collusion with foreign forces intervening in the city’s affairs.

Critics say the new law effectively ends the “one country, two systems” framework under which Hong Kong was promised a high degree of autonomy when it reverted from British to Chinese rule in 1997.

The U.S. legislation would impose sanctions on groups that undermine Hong Kong’s autonomy, including police units that have cracked down on Hong Kong protesters, as well as Chinese Communist Party officials responsible for imposing the new security law. The bill also imposes sanctions on banks that do business with entities found to violate the law.

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The Senate gave final legislative approval to the measure on Thursday, a day after the House approved it. It now goes to the White House.

Ahead of the Senate vote, Chinese foreign ministry spokesperson Zhao Lijian said no amount of pressure from external forces could “shake China’s determination and will to safeguard national sovereignty and Hong Kong’s prosperity and stability.”

He urged the U.S. to abide by international law and stop interfering in Hong Kong’s affairs, and not sign the sanction bill into law. If President Donald Trump signs the bill, “China will definitely take strong countermeasures, and all consequences will be borne by the U.S. side,” Zhao told reporters Thursday.

The White House declined to comment, but in a television interview Thursday, Vice President Mike Pence called the new Hong Kong security law a betrayal of the international agreement China signed.

“President Trump has made it clear that we’re going to be modifying our trading relationship and the trading status with regard to Hong Kong and we’re going to continue to speak out on behalf of the people of Hong Kong and on behalf of human rights of people within China,” Pence told CNBC.

Sen. Chris Van Hollen, D-Md., a co-sponsor of the Senate bill, said passage of the “Hong Kong Autonomy Act” makes it clear that the United States “will not stand by as China seeks to crush freedom, human rights and democracy in Hong Kong.”

The Chinese government “is already flagrantly using their new authorities to punish and imprison those who have stood up against the recent implementation of their sweeping national security law,” Van Hollen said. “Our legislation mandates severe consequences on those who participate in this unconscionable repression.”

Sen. Pat Toomey, R-Pa., the bill’s other lead sponsor, urged Trump to sign it into law. “With our bill, the CCP will learn there are ramifications for repressing Hong Kongers’ freedom,” Toomey said, referring to the Chinese Communist Party.

House Speaker Nancy Pelosi also praised the sanctions bill as “an urgently needed response to the cowardly Chinese government’s passage of its so-called national security law.”

Lawmakers from both parties have urged the Trump administration to take strong action in response to the crackdown by China against the former British territory, which was granted partial sovereignty under a treaty that took effect in 1997.

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Chicago orders 14-day COVID quarantine for travelers from these 15 states

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Airbnb cracks down on customers booking homes for parties

Airbnb will ban some younger U.S. guests from booking homes in their area as part of a continuing effort to crack down on unauthorized parties.

The San Francisco-based home sharing company said U.S. guests under age 25 with fewer than three positive Airbnb reviews won’t be allowed to book entire homes close to where they live. Airbnb wouldn’t reveal how it defines what is “close.”

Those guests will still be allowed to book entire homes elsewhere, and they will be allowed to book hotel rooms or private rooms within homes, the company said.

Guests under 25 with at least three positive Airbnb reviews and no negative reviews won’t be subject to the restrictions.

Airbnb began stepping up efforts to ban “party houses” last November after five people were shot and killed during an unauthorized party at an Airbnb rental in Orinda, California. At the time, Airbnb set up a rapid response team to deal with complaints from neighbors and started screening “high risk” bookings, such as reservations at a large home for one night.

Earlier this year, Airbnb piloted its new policy for younger guests in Canada. The company said the policy has led to a “meaningful drop” in unauthorized house parties.

In a message to hosts, the company said reducing unauthorized parties is even more of a priority right now as states try to avoid coronavirus outbreaks.

“With public health mandates in place throughout the country, we’re taking actions to support safe and responsible travel in the United States,” the company said.

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The Wing brought together powerful women. Now some of them are demanding big changes from the company

The Wing raised more than $100 million in venture capital funding, reached a valuation of $200 million, and signed names like Serena Williams and Megan Rapinoe as investors—all on the promise of bringing together powerful women to create something bigger than themselves. That pledge, it turns out, may be company leadership’s downfall. 

A coalition of about 750 current and former Wing members, who paid up to $2,700 a year for access to the women’s co-working space with a dozen locations across the country and abroad, convened via Slack last month to discuss the treatment of Black and brown staffers who worked in Wing locations. On Wednesday, a group of 41 of those current and former members sent a letter to the four-year-old startup’s board of directors demanding the resignation of recently ousted CEO Audrey Gelman from the company’s board of directors, the departure of her co-founder Lauren Kassan as chief operating officer, and a complete revamp of the Wing’s way of doing business. (In addition to the 41 signers, the organizers say there is broader support for their missive, noting that they asked anyone who did not support the letter to leave the Slack chat; those 750 remain active in the channel.)

The letter, which organizers shared with Fortune, asks the Wing, currently run by an “Office of the CEO” consisting of Kassan and executives Celestine Maddy and Ashley Peterson, to meet the demands outlined in the letter by July 17. (The author of this article was a member of the Wing between March 2018 and March 2019.)

“We are always happy to have a conversation with our members about how we can reimagine the Wing’s post-COVID future and work together toward our shared goal of creating an inclusive community that lifts up all women,” the Wing said in a statement to Fortune. “We appreciate the passion our members have about the Wing community and hope to be able to constructively work with them.”

The members came together last month after Gelman resigned as chief executive. Weeks earlier the New York Times had published a report that described Wing employees—particularly the Black and brown women who work in hourly front desk, kitchen, and cleaning jobs—as being routinely mistreated by management and members. One former space staffer described in the Times article being treated as “the help” by white members. (In response, a Wing spokesperson told the Times that the company “maintained employment best practices.”) Such behavior would be unacceptable at any company, but the allegations had a special sting at the Wing, which built its brand around the language of feminism and equality. Were the women of color who worked for the company excluded from its professed mission?

‘What the Wing was designed to do’

Gelman’s resignation on June 11—spurred in part by the digital walkout of 67 Wing headquarters staffers—lit a fire under members of the co-working company. “I was embarrassed to be a member,” said Bianca Maxwell, a startup founder who joined the Wing in Boston last year and created the Slack channel for fellow members to congregate and discuss the stories they were hearing about workers’ experiences. “To read stories of what young women had to endure behind the scenes while the rest of us were sitting on pink couches—it was upsetting and made me feel complicit,” she says.

Those pink couches were a hallmark of the Wing’s feminist brand identity, which was on display in everything from its events with leaders like Hillary Clinton to its phone booths emblazoned with the names of fictional heroines (Hermione Granger and Ms. Frizzle) to a trademark phrase highlighted on $17.50 Wing keychains: “Girls doing whatever the f*** they want.” 

The Wing members who came together to draft a list of demands for company leadership work across law, communications, journalism, and other fields. “That’s what the Wing was designed to do—connect members of different experiences, different skill sets, and different professional backgrounds,” says Jenina Nuñez, a Chicago PR professional and member involved in the effort.

The same qualities that attracted these women to the Wing—their principles, their ambition, and their desire for community—have spurred the members into action. The signatories say they couldn’t sit idly by while the Wing fell short of what they had been told was its mission. “Me being a young, Black woman who’s a paying member of a space that has harmed who could pretty much be my little sisters—why wouldn’t I advocate for them?” Maxwell says. 

The Wing estimates its current membership at 10,000, in which case a coalition of 750 people would represent about 7.5% of total members. It’s clear, however, that not all members are on board with this effort. After Gelman’s resignation and reporting about problems at the Wing, some members posted on the community’s app that they would keep their membership “no matter what,” Maxwell said.

Making demands

In their letter, members make demands about current Wing leadership. Not only do they want Gelman’s resignation from the board, but they demand that she sell her 10% equity stake in the company (“We don’t want to make Audrey richer,” Maxwell says. “I don’t think anyone I worked with would step foot back in the Wing if Audrey was still on the board.”). They also want Gelman’s co-founder Kassan, director of community Frenchie Ferenczi, and Peterson, who is senior vice president of operations, to resign. (The Wing declined to comment on the demands or allegations addressed to specific executives). 

The members’ demands go beyond company leadership. The letter also asks that any LGBTQ members or members of color who request refunds be granted them. And because some of the incidents of racism or other disrespectful behavior toward Wing staff—including one high-profile racist incident in West Hollywood in 2019—came from paying members, the signatories want the company to impose an anti-racism code of conduct that all members would be required to follow. (The Wing introduced a new “culture code” last week, including mission statements like, “We are building a legacy that our great-grandchildren will be proud of.”)

The letter signers say they seek to amplify demands already made by staff who worked in Wing spaces, some of whom have shared their experiences through an Instagram account called Flew the Coup. Those demands include closing what they say is a racial pay gap among staffers, improving employee health insurance, providing hiring preference for departed staff as the company reopens and rebuilds, and issuing a public apology. (The Wing says it did apologize to space staffers “for not internalizing our mission of intersectional feminism” in an email sent to members and employees last week. The company declined to comment the allegations of a pay disparity.)

But the members are also looking to the future. They want Gelman’s board seat to be filled by a person of color or an LGBTQ director. They want the next CEO, COO, and VP of People of the Wing to be external candidates—untied to the mess inside the company—and for at least two of those roles to be filled by LGBTQ people or people of color. 

The path forward

Ultimately, the letter writers want the Wing to do something they say it has so far failed to accomplish: develop a financial model for how to run a feminist business. Under their proposed model, the highest paid non-exempt salaried employee could not exceed two times the salary of the lowest-paid salaried employee. 

This demand gets at the core tension between the Wing’s stated mission and its status as a venture-backed startup. With investors including Kleiner Perkins and Sequoia Capital, Gelman and Kassan sought fast growth and a financial return for their backers. Some of the former staffers said in anonymous testimonials that complaints about their treatment by members or duties outside their job descriptions were ignored while headquarters employees were overwhelmed by demanding launch schedules. 

“Capitalism and feminism are strange bedfellows,” says Thy Bui, a Los Angeles Wing member, signatory, and employment litigator who reviewed the letter before it was sent to the company.  “[The Wing] isn’t going to be a mass profit machine if they implement the ideas outlined in the letter. … It’s a path that will take a lot of patience.” 

The Wing itself acknowledged that same unease in an email sent to members and employees last week. “We need to reinvent the business in a way that reconciles the real tension between intersectional feminism and capitalism,” the company wrote. “We fundamentally believe in the Wing’s mission even if we haven’t yet achieved it.”

The members sent their letter to the company’s board of directors and to investors, who include Sequoia Capital’s Jess Lee, Google Ventures’ Jessica Verilli, Upfront Ventures’ Kara Nortman, and names from Hollywood, sports, and politics including Williams, Rapinoe, Valerie Jarrett, Kerry Washington, and Alex Morgan. Many of these investors, the members speculate, put their money behind the Wing for the same reason members did: they believed in its mission of “professional, civic, social, and economic advancement of women through community.” 

They’re hopeful these influential figures will listen and take action. “I would hope they would say, what can we as decision-makers and leaders do to make sure this doesn’t happen again?” says Maxwell. “They can make sure the company is living out its mission statement and isn’t just pink walls and couches.”

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30-year mortgage rates just hit record lows

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Long-term U.S. mortgage rates fell this week with the benchmark 30-year home loan hitting its lowest level ever.

Mortgage buyer Freddie Mac reported Thursday that the average rate on the key 30-year fixed-rate mortgage fell to 3.07%, down from last week’s 3.13%. For the second week in a row, it is the lowest level since Freddie began tracking average rates in 1971. A year ago, the rate stood at 3.75%.

The average rate on the 15-year fixed-rate mortgage also fell slightly to 2.56% from 2.59% last week, but it is down from 3.18% a year ago.

The historically low interest rates come as the U.S. housing market appears to be rebounding somewhat from a coronavirus-caused spring freeze. Sales of new homes rose a surprisingly strong 16.6% in May as major parts of the country reopened, though sales of existing homes struggled through the month with a 9.7% decline.

A report on pending home sales last week offered some optimism, with the number of Americans signing contracts to purchase homes jumping 44.3% in May after a record-breaking April decline. Those contract signings are a barometer of finalized purchases over the next two months.

The impact of the coronavirus pandemic sidelined both buyers and sellers in March and April, so there remains a tight supply of homes available for sale, running up against high demand.

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U.S. unemployment rate fell in June to 11.1% as employers bring back more workers

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The unemployment rate dropped from 13.3% in May to 11.1% in June. That’s the second straight month of a pick-up in hirings after the jobless rate topped out at 14.7% in April—the highest level since 1940.

The U.S. Bureau of Labor Statistics (BLS) jobs report finds the U.S. economy added 4.8 million jobs in June, following adding 2.5 million net jobs in May. Economists projected 3 million jobs would be added in June, so the data is better than expected.

The June jobs numbers also show the economic slump is still hitting some communities harder than others. The jobless rate among white workers is 10.1%, compared with 13.8% for Asian workers, 14.5% for Hispanic workers, and 15.4% among Black workers. Among adult men the rate is 10.2%, compared to 11.2% among adult women.

A second straight month of an improving labor market signals employers are rehiring, and the economy has moved from contraction to recovery. But that rebound is about to be tested by spiking COVID-19 cases in many states and a wave of re-closing orders.

“The real risk now is we start backsliding and start contracting again,” said Mark Zandi, chief economist at Moody’s Analytics. The resurgence of the virus, he says, is already decreasing some economic activity in Texas and Florida.

This official unemployment rate of 11.1% is likely undercounting the actual level of joblessness from June. The BLS defines the unemployed as people without jobs who are also looking for new positions. Some laid-off workers may be waiting it out before starting their job search given the deadliness of the virus.

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Australia keeps its borders closed—except for one group

While Australia’s borders remain firmly closed to overseas visitors, the government plans to make a notable exception as it races to save its fourth-biggest export: Education.

In time for the new semester, authorities are working on a plan to allow 350 international students to be flown into Canberra, the nation’s capital, later this month to resume classes. Under a trial program that could be rolled out nationally, the universities and territory government will foot the bill for their two-week mandatory quarantine in hotels.

It’s a sign of just how reliant Australia’s higher education sector has become on overseas students, who make up roughly a quarter of all enrollments — the second-highest ratio in the world after Luxembourg — and 40% of student revenues due to the higher fees they are charged.

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But the extraordinary steps to help the A$38 billion ($26 billion) export industry recover from the coronavirus lockdown may not be enough to guarantee its long-term future.

Australia has fallen behind the U.S., U.K. and France in the highly competitive market by opening fewer offshore campuses. And with 37% of its international students at universities coming from China in 2019, it serves as a warning to other nations of the perils of growing too dependent on a single market.

Relations with Beijing are in the deep freeze after Prime Minister Scott Morrison led calls for an inquiry into the source of the Covid-19 outbreak. China has since warned its citizens they face the risk of racist attacks in Australia if they study or holiday there.

“It’s a really risky situation for Australia’s universities because we’re dealing with two very major events” with the virus and increasing diplomatic tensions, said Angela Lehmann, education analyst at the Lygon Group, a Melbourne-based consultancy. “We are on a precipice at the moment.”

It may be several months before the impact of China’s warning shows up in enrollment numbers, which had already been plateauing for the past three years. But a recent survey conducted by the state-run Global Times was ominous. More than 80% of respondents said they would “definitely or somewhat consider” bilateral relations when choosing their study and travel destinations.

The education sector’s most pressing concern is to get as many overseas students as possible into Australia in time for the July semester.

“We don’t have a one year problem — we have a two-, three-, four-year problem,” if students are unable to return to Australia and the delays drag out across their degrees, said Catriona Jackson, chief executive of Universities Australia, the peak body for the sector. The group forecasts lost revenue of as much as A$16 billion by 2023.

The clock is ticking before the semester begins on July 27. From a pool of thousands, the two universities participating in the pilot program must whittle the list of students down to 350 through an online application process. Those chosen will have to make their own way to a departure city, presumably somewhere in Asia, that’s not yet been named for a chartered flight to Australia, before completing the mandatory two-week quarantine.

The program could yet come adrift if final approval isn’t granted by the federal government. Morrison insists that states and territories that have closed their borders must first reopen to ensure domestic students from other parts of the country can return to class before international students are allowed in. That may scupper South Australia’s own plan to fly in international students, after it backflipped on a decision to lift border restrictions.

Higher education is a fiercely competitive global industry and the battle to lure overseas students begins long before they graduate high school.

The U.S., Canada and the U.K. have been proactive in rolling out their curricula in international schools in countries such as China, effectively paving a pathway to their universities, according to Phil Honeywood, chief executive of the International Education Association of Australia, an organization that aims to boost Australia’s standing in the global market.

Over the past six years, he said, the number of such schools in China has ballooned to 500 from 150 and of those, only 39 teach an Australian final year matriculation certificate.

American and British universities are also the most active in opening overseas university campuses. Along with France and Russia, the nations accounted for nearly two thirds of the world’s 294 transnational campuses, while Australia had just 19, according to data supplied by the Cross-Border Education Research Team. With many international borders closed, having an in-country presence is even more important.

“It’s been easier for Australian universities to rely on recruiting students to come and study in Australia,” said Honeywood. “Clearly they need to be looking at offshore delivery.”

While Australia has six universities in the top 100 of the Times Higher Education World University Rankings, the sector isn’t considered as prestigious as Ivy League colleges in the U.S., or leading institutions in the U.K.

The importance of the sector to the Australian economy is clear. As an export, education ranks only behind iron ore, coal and natural gas.

A 2018 London Economics report showed that every A$1 spent on research at Australia’s Group of Eight Universities produced almost A$10 back in benefits to the private sector and the wider economy.

The fees paid by overseas students help prop up “a lot of the fundamental research” in Australian universities, said Michael Spence, vice chancellor of the University of Sydney, where nearly a quarter of the entire student cohort come from China. “The current situation has revealed how vulnerable to shock the system is.”

The University of Sydney has enough cash reserves and borrowing capacity and is undertaking significant savings measures including reducing capital expenditure, said Spence. As it stands, many institutions have slashed subject offerings while others have axed hundreds of staff.

Still, Australia has a compelling advantage over global competitors, according to Honeywood — its success to date in containing the coronavirus to just over 7,500 cases and 104 deaths.

Provided the pandemic eases, Australia’s academic year beginning in February should also give it an edge over Northern Hemisphere institutions that typically begin in August or September, with students keen to get their studies underway.

If Australia can “provide a more comprehensive narrative about our genuine care for international students’ welfare, then we’ll be better placed against many other” countries, Honeywood said. “If we move quickly.”

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Hong Kong stocks surge in first trading under new security law—with a boost from mainland buyers

Stocks in Hong Kong rose on their first trading day since new national security laws were imposed on the city, amid signs mainland Chinese buying was behind some of the gains.

The Hang Seng Index added as much as 1.7%, led by property companies, and the city’s currency was near the strongest it’s allowed to trade. Stock volume was about 50% higher than the 30-day average at this time of day, which is unusual for the first session of the third quarter.

The positive reaction in stocks divided analysts and traders. Some said the gains reflected investor expectation that the legislation will deter protesters, which could help bring stability to the city’s streets and in turn encourage consumption. The analysts pointed to gains in local landlords like New World Development Co. — which owns hotels and shopping malls — as well as railway operator MTR Corp. as evidence.

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“Though there were protests yesterday, the number of people that took to the streets was much fewer, and severity of the clashes was far less than some of the violence we saw last year,” said Raymond Cheng, property analyst at CGS-CIMB Securities. “That’s reassuring for business.”

Others pointed to the guiding hand of the state, citing the Communist Party’s history in ensuring market stability around key anniversaries and politically-sensitive events. One Hong Kong-based trader, who declined to be identified discussing client flows, said he handled several buy orders on behalf of a state-backed Chinese fund. Mainland-based buyers had snapped up about HK$2 billion ($258 million) worth of Hong Kong stocks within the first hour of trading.

The city’s financial markets have been resilient to the crackdown, although no one had seen the contents of the legislation until Tuesday evening. While the Hang Seng Index sank the most in five years the day after the planned law became public knowledge, the benchmark took less than two weeks to recover from that shock. The gauge is at a higher level than where it was before China’s move to crack down on dissent in the city was first reported, with cheap valuations and steady inflows from mainland-based investors supporting local financial markets.

The Hong Kong dollar is also showing few signs of stress — trading near the strong end of its trading band against the greenback. Its 12-month forward points have dropped since spiking to the highest level since 1999 in May, showing demand to speculate against the currency is also waning.

There are clear signs that Beijing intends to prop up Hong Kong’s financial system through inflows and a flood of stock listings by mainland companies. Whether that support will be enough to maintain (or replace) the confidence of the global business community will need to be seen.

Drawn from mainland China’s system of governance, the laws complicate the city’s reputation as a place with a robust rule of law. They will also likely ignite concern about capital flight, especially after Boris Johnson’s government said it will allow millions of Hong Kong citizens to move to the U.K.

Investor confidence remains muted. The Hang Seng is in a bear market even as stocks in the U.S. and a benchmark of Asian shares recovered. Hong Kong equities lost almost 7% in May, the biggest drop relative to the MSCI All-Country World Index since the Asian financial crisis in 1998. That made the Hang Seng so cheap it still trades below book value, meaning traders are pricing firms’ assets at less than their stated worth.

Hong Kong’s economic outlook is clouded. The coronavirus pandemic has halted the daily influx of mostly mainland Chinese shoppers, hurting retail sales. The city’s wider economy contracted 8.9% in the first quarter from year-ago levels, suffering its worst quarter on record and extending the first recession in a decade.

With the new laws creating doubt over what could land people in trouble, global businesses will need to reassess Hong Kong’s attractiveness as a financial center. Further retaliation by the U.S. could also place the city even more firmly on the frontline of a battle between Beijing and Washington. All of which makes investing in Hong Kong assets a gamble on an increasingly uncertain future.

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Facebook admits another blunder with user data

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