Connect with us

World

China applies its own maximum pressure policy on Pyongyang

Published

on

As the U.S.-North Korea summit looms, President Donald Trump‘s maximum pressure policy on North Korea may be working — thanks to China.

Beijing appears to have gone well beyond U.N. sanctions on its unruly neighbor, reducing its total imports from North Korea in the first two months this year by 78.5 and 86.1 percent in value — a decline that began in late 2017, according to the latest trade data from China. Its exports to the North also dropped by 33 percent to 34 percent both months.

The figures suggest that instead of being sidelined while North Korean leader Kim Jong Un made his surprising diplomatic overtures to Seoul and Washington, China’s sustained game of hardball on trade with Pyongyang going back at least five months may have been the decisive factor in forcing Kim’s hand.

Trade with China is absolutely crucial to North Korea’s survival.

It accounts for the largest share of the North’s dealings with the outside world and provides a lifeline to many of the necessities Pyongyang relies on to keep its nation fed and its economy from breaking down. Estimates vary, but it is believed that roughly half of all transactions in the North Korean economy are made in foreign currencies, with the Chinese yuan being the most common.

That gives Beijing tremendous leverage, though for political and national security reasons it has generally been reluctant to exert too much pressure on Pyongyang.

That reluctance is clearly wearing thin.

The statistics need to be taken with a dose of caution. Neither country is known for its commitment to transparency. Even so, more specific data reveal an even tougher, targeted crackdown, according to Alex Wolf, a senior emerging markets economist with Aberdeen Standard Investments:

— China’s exports of refined petroleum have collapsed over the past five months — to an annual rate of less than 4 percent of what it exported last year. With the pace on a downward trend, he believes, total exports could actually fall further.

— North Korean steel imports from China have also collapsed in 2018, and the same goes for cars. Wolf notes that it’s unclear if China is blocking such exports or North Korea simply can’t afford them. But either one, he wrote in a recent report for the company, would be a clear signal the North’s economy is “under a great deal of stress.”

“While China’s role over the past few months has often been overlooked or little understood, it appears a strategy could be emerging: China wants to play a central role in ‘resolving’ this crisis, but wants to do it on its own terms,” he wrote. “It’s increasingly clear that Chinese pressure is a driving force and China will play a central role in any future talks.”

Kim announced in his New Year’s address he would reach out to the South to ease tensions on the Korean Peninsula. He then agreed to hold a summit with South Korean President Moon Jae-in on April 27 and with Trump after that. But to the surprise of many, Kim suddenly showed up in Beijing first for a summit with President Xi Jinping last month, underscoring the continued primacy of China in North Korea’s foreign relationships.

Lu Chao, director of the Border Study Institute at the Liaoning Academy of Social Sciences, noted that China accounts for almost 80 percent of the North’s total trade, meaning the onus for implementing U.N. sanctions has been mainly borne by Beijing, whose enforcement has created “huge pressure on North Korea.”

“There is no doubt China is doing more than ever when it comes to sanctions,” he said, adding restrictions on sales of textile and seafood products to North Korea imposed by China last autumn “have dealt a huge blow to the country.”

“China has played a very important role in promoting the current change of the situation,” he said.

The decrease in trade isn’t just about politics.

China’s economy is also dealing with overproduction in many industries and its demand for North Korean imports is low. Efforts at joint development projects have languished and difficulties suffered by Chinese firms in North Korea — especially problems receiving payment — have soured enthusiasm for cross-border trade.

But the deficit presents an obvious dilemma for the Kim regime: the more it depletes its foreign reserves by buying in excess of what it sells, the less money it has to buy anything at all. Normally, that would lead to inflation — and even hyperinflation — as imported necessities become scarcer and people who can afford to do so dump their holdings in the local currency to buy safer U.S. dollars or Chinese yuan.

Georgetown University economist William Brown said he believes the North’s current account deficit has risen dramatically since the strengthening last November of sanctions on North Korean exports by China, which he said are by now “certainly biting.”

“Why is Kim venturing his offer now? My impression is he is feeling very strong pressure from China’s virtual embargo on North Korea’s exports, and what he must see as a gradual ratcheting down of needed imports, even petroleum,” Brown wrote in a recent blog post. “This is an enormous economic hit of a sort the country has never had to deal with on this scale.”

Brown believes an important indicator of the North’s economic health will be movement of the unofficial but widely used exchange rate for the North Korean currency, which has been surprisingly stable at around 8,000 to the U.S. dollar for years but should now be under intense inflationary pressure.

“China is giving us the chance, and (we should) use it cleverly to get what we want out of the nuclear program and systemic reform,” he added. “It’s not so impossible if you realize everyone, even young Kim, can benefit.”

Source link

World

Morgan Stanley had $911 million loss in Q1 tied to Archegos meltdown

Published

on

Bill Hwang in 2012

Emile Warnsteker | Bloomberg | Getty Images

Morgan Stanley posted blockbuster results for the first quarter, but a single prime brokerage client cost the firm nearly $1 billion.

In its earnings results, Morgan Stanley said Friday it had a $644 million loss from a “credit event” for that client, as well as $267 million in related trading losses.

That client was Bill Hwang’s Archegos, Morgan Stanley CEO James Gorman said during a conference call with analysts, confirming what a person with knowledge of the situation told CNBC earlier.

While Morgan Stanley was the biggest prime broker to Archegos, other banks suffered larger losses. Credit Suisse, which CNBC has reported was the No. 2 broker to Archegos, took a $4.7 billion hit to unwind the losing bets and shuffled top managers because of the meltdown. Nomura said it could face $2 billion in losses.  

During his scheduled call with analysts to discuss the quarter, Gorman said Archegos owed it $644 million after its meltdown in late March.

“We liquidated some very large single stock positions through a series of block sales culminating on Sunday night, March 28,” Gorman said. “That resulted in a net loss of $644 million which represents the amount the client owed us under the transactions that they failed to pay us.”

He added: “Subsequently, we made a management decision to completely de-risk the remaining smaller long and short positions,” Gorman said. “We decided we would be out of the risk as rapidly as possible, and in so doing, incurred an incremental loss of $267 million. I regard that decision as necessary and money well spent.”

Morgan Stanley may have been misled by the family office, CFO Jon Pruzan said during the call. The bank held collateral for Archegos based on facts that turned out to be untrue, he said.

Archegos representatives could not immediately be located for comment. Its previous communications firm said it no longer represented the family office.

At least part of the Archegos loss was driven by the fact that Morgan Stanley had been an underwriter on ViacomCBS shares the previous week, so it held off selling a block of the company’s stock until Sunday, which caused the bank to be later in selling than others, Gorman said.

During the call, an analyst asked Gorman if the episode would change the firm’s approach to risk management in the prime brokerage business.

“I think we’ll certainly be looking hard at family office-type relationships where they are very concentrated and you have multiple prime brokers and frankly, the transparency and lack of disclosure relating to those institutions is just different” from hedge funds, Gorman said. “That’s something I’m sure the SEC is going to be looking at and that’s probably good for the whole industry.”

— CNBC’s Dawn Giel contributed to this report.

Source link

Continue Reading

World

‘Roaring Kitty’ stands to rake in millions on his GameStop options bet Friday

Published

on

The Reddit logo is seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration taken January 28, 2021.

Dado Ruvic | Reuters

It could be a big payday for Keith Gill, the Reddit trading crowd’s favorite and the man who inspired the epic GameStop short squeeze.

Friday is the expiration date of Gill’s 500 call options contracts he bought at the beginning of 2021. Gill — who goes by DeepF——Value on Reddit and Roaring Kitty on YouTube — attracted an army of day traders who piled into the brick-and-mortar video game stock and call options, pushing the shares up 400% in a single week in January.

GameStop closed at $156.44 a share on Thursday, up 730% for the year. Assuming Gill still holds the contracts and sells them Friday, at a $12 strike price, he will make more than $7 million on his position (The options cost the buyer $10,000 in total.)

It’s unclear if Gill has already closed his position at a profit. His last update on Reddit’s r/WallStreetBets forum was on April 1, which showed 500 outstanding call options in a position worth more than $8 million at the time. (The post was not independently verified by CNBC so we are assuming that it is his actual account.)

Gill has also been holding 100,000 shares of GameStop, which he bought earlier this year at around $27 apiece, according to the screenshots he posts on Reddit. As of April 1, the stake gained more than $16 million. It wasn’t clear if he sold the shares this month.

The investor was a former marketer for Massachusetts Mutual Life Insurance. Through YouTube videos and Reddit posts, Gill encouraged a band of retail traders to squeeze out short selling hedge funds in GameStop.

The action got so wild at one point that brokerages including Robinhood had to restrict trading in the stock as it blew up their clearinghouse margin. The mania also led to a series of congressional hearings featuring Gill around brokers’ practice, and gamifying retail trading.

Gill owned 10,000 shares of GameStop at the end of 2020 and increased his holding to 50,000 shares in January and to 100,000 in mid-February. Judging from the updates he posted on Reddit, he never sold his GameStop stakes amid the monstrous short squeeze or in the aftermath.

The GameStop story is still far from over. Besides the scrutiny the saga brought on around retail trading, the company itself is in the middle of a transformation, hoping to capitalize on the massive rally in the stock price.

GameStop announced a $1 billion stock sale at the beginning of April to accelerate its e-commerce transition led by activist investor and board member Ryan Cohen, who is Chewy’s co-founder. The company also hired former Amazon and Google executive Jenna Owens as its new chief operating officer.

Enjoyed this article?
For exclusive stock picks, investment ideas and CNBC global livestream
Sign up for CNBC Pro
Start your free trial now

Source link

Continue Reading

World

Danish energy giant Orsted pivots to onshore wind in $684 million deal

Published

on

Closeup of a wind turbine nacelle on blue sky.

lupmotion | iStock | Getty Images

Orsted said Friday it had reached an agreement with Brookfield Renewable to purchase a 100% equity interest in the latter’s Irish and U.K. onshore wind business, Brookfield Renewable Ireland.

Orsted said the deal would see it enter Europe’s onshore market. In 2014 the company, which was then known as DONG Energy, divested its last activities in onshore wind to focus on the offshore sector.

According to Orsted, the agreement has an enterprise valuation of 571 million euros ($684 million), although this figure is subject to adjustments. The deal is slated to close in the second quarter of 2021.

Brookfield Renewable Ireland, or BRI, is headquartered in the Irish city of Cork and specializes in the development and operation of onshore wind farms.

Orsted described BRI as having “an attractive portfolio” which includes 389 megawatts (MW) in operation and under construction as well as a development pipeline of over 1 gigawatt (GW).

“In the US, we’ve built a strong onshore business with 4 GW in operation and under construction,” Orsted CEO, Mads Nipper, said in a statement.

“The European market for onshore wind power is expected to grow significantly in the coming years,” Nipper added.

He went on to state his firm’s acquisition of BRI would provide it with “a strong platform that expands our presence in onshore renewables to Europe.”

Europe is home to a well-developed wind energy industry. According to figures from WindEurope, 2020 saw 14.7 GW of wind energy capacity installed there.

The industry body says 80% of these installations were in the onshore sector, with total onshore capacity amounting to 194 GW.

In the U.S., onshore capacity stands at more than 122 GW, according to the American Clean Power Association. China, a dominant force in wind energy, boasts over 278 GW of onshore capacity, the Global Wind Energy Council says.

Capacity refers to the maximum amount that installations can produce, not what they are necessarily generating.

Source link

Continue Reading

Trending