(New York)

Investors in India have by in large part stayed away from their own high yield corporate bonds, but wary investors from China have done the opposite. India’s high yield bond issuers set a $9 billion-dollar record from international investors which tripled last year’s inflows. Many of these investors are coming from China, specifically Evergrande, whose liabilities alone double India’s entire corporate debt market. Many investors are worried that other sectors in China’s economy may come to suffer from Xi Jinping’s ‘common prosperity’. In the meantime, there are still risks to India’s debt, most notably energy prices, as India imports most of its energy. Higher energy prices increase input costs, which could cut margins.

FINSUM: Developing countries outside China are all receiving inflows in corporate and non-corporate debt investments with China’s turmoil.

Federal Reserve Bank Chairman Jerome Powell spoke last week on a panel hosted by the ECB, and relayed his frustration about the ongoing inflation pressures in the US economy. Powell said the economy’s most important concern is getting people vaccinated and containing Covid’s delta variant. Powell said the key inflationary pressures remain supply chain bottlenecks in the US economy. These supply constraints have the U.S.’s key inflationary measure (core personal consumption expenditure) elevated to its highest level in 30 years. The FOMC has raised their expectation for inflation from 3% to 3.7%, and Powell said this could continue into 2022. Powell’s Analysis was backed up by both Japan and the ECB’s respective leaders.

FINSUM: The supply shock to the economy remains as chip shortages still persist. As long as supply chains remain disrupted the unemployment/GDP and inflationary goals of the Fed will remain in conflict.

China’s giant real estate group Evergrande Real Estate Group is in hot water. While they may be China’s second-largest real estate holding company, they are the world’s most indebted as their balance sheet carries an excess of $300 billion in liabilities. Despite this, some of the most prominent investment firms such as BlackRock, UBS, and HSBC Holdings have all bought up their debt. Evergrande’s bonds are trading at 25 cents on the dollar. BlackRock, for example, has increased its holdings from 12.2 million units to 43.5 million YTD and is now nearly 1% of its portfolio. Evergrande is taking measures like discounting apartments, parking spaces, or retail property to pay back its debt as notes are beginning to reach their maturity. Many investors are expecting Chinese authorities to step in to accommodate the debt by either rolling it over or taking other measures.

FINSUM: There is certainly safer debt to hold, but many investment firms see Evergrande as a buy and a risk worth taking because it may be too big to fail.