Economy

Pimco Warms Toward China Bonds on Weak Economy, Monetary Easing

Published

1 year ago

July 30, 2023

(Bloomberg) — Bearishness among foreign investors toward China’s bonds is easing after last year’s rout, with Pacific Investment Management Co. becoming the latest to warm up to the debt.

“We have turned neutral on China bonds for a number of weeks now, compared with an underweight bias at the beginning of the year,” said Stephen Chang, a portfolio manager at Pimco. “Data continue to show the Chinese economy losing momentum and the current monetary policy justifies a more neutral stance for us on duration.” Easing depreciation pressure on the yuan is also supportive, he added.

After a record exodus last year, global funds have started returning to Chinese bonds since May as bets for US interest rates to soon peak and Beijing’s monetary easing boost demand. But optimism has yet to fully take hold, with pricey valuations, a wide US-China yield gap and uncertainties over the yuan’s outlook deterring some investors.

It may take some time for sentiment toward China’s economy to recover completely, even after the Politburo, the country’s top decision-making body, adopted a supportive stance toward the private sector and housing market at its latest meeting, Chang said.

“It’s a matter of where those policies will come through — not only in terms of the exact measures, but also in terms of the timing of when they might become helpful,” he said. “While there is that desire to support growth for it to go back up as the Politburo signaled, the type of measures might be more difficult to implement this time around.”

The probability is also low for a meaningful rebound in Chinese property bonds. “Many Chinese developers will be facing maturity coming through in the next 6 to 12 months and their ability to meet timely payment of those bonds remains vulnerable,” Chang said.

Pimco is holding more of a neutral view on developers’ dollar notes, until industry support measures lead to a pickup in actual home purchases that would improve companies’ cash flows and credit profiles, he said.

While China’s economic fundamentals and policy direction bode well for its local-currency debt, the nation’s sovereign bonds remain expensive on a valuation basis, reducing its appeal relative to other government bond markets, according to Chang.

China’s yield curve is likely to steepen as potential further easing measures pressure the front end while extra bond supply points to lower conviction on longer tenors, he said.

The 10-year government bond yield has fallen since February and touched the lowest in almost a year this month.

Here are some other takeaways from the interview:

There may be quite incremental and modest rate cuts in China in terms of scope, but at least the direction is that the central bank will keep monetary policy accommodative
If the yuan were to stabilize and maybe even turn around from the recent depreciation, that may be a potential supportive factor for allocation to China bonds. The recent yuan fixings indicate that the PBOC may not want to see additional weakness. The CFETS Index for the currency may stabilize at current levels after the pullback this year
In Asia, Pimco is overweight South Korea due to the country’s preemptive rate hikes and stabilizing inflation; underweight Malaysia where rate hikes have been slow compared to other economies

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

21 hours ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

5 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

6 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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