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Australia's financial regulator is set to phase out contingent convertible securities (AT1 bonds) following their failure during the Credit Suisse crisis. The Australian Prudential Regulation Authority plans to replace these with more reliable capital forms by January 2027, aiming to simplify the capital framework for banks. Feedback indicated broad support for the move, highlighting AT1s' ineffectiveness in stabilizing banks during financial stress.
Hedge funds have ramped up short positions against the Australian dollar, driven by weak growth data that heighten expectations for policy easing. In the week ending December 3, leveraged funds increased their bearish bets to the highest level since September, while institutional asset managers expressed their most pessimistic outlook in a month.
Australia's banking regulator, APRA, is set to phase out Additional Tier 1 (AT1) bonds by 2025, following concerns over their effectiveness after the Credit Suisse collapse. The move aims to replace AT1 with more reliable capital forms that better absorb losses during financial stress. While feedback on the proposal has been largely supportive, some investors worry about losing access to AT1 as an investment option.
Central banks across Australia, Canada, Brazil, and the euro zone are poised to make final adjustments to interest rates ahead of Donald Trump's inauguration as president. His return raises concerns about potential global trade disruptions, including the possibility of new tariffs.
The Asia Pacific real estate market shows resilience amid a gradual economic slowdown, with GDP growth projected at 3.9% for 2024 and 2025. While office cap rates have seen minimal expansion, investor interest remains strong due to robust rental outlooks, particularly in Australia and South Korea, despite mixed leasing activity and rising vacancy rates in logistics. Geopolitical risks, particularly from potential US tariffs on China, pose challenges, but some APAC countries may benefit from supply chain adjustments.
The Asia Pacific economy is projected to grow 3.9% in 2024 and 2025, despite a gradual slowdown and potential risks from geopolitical shifts, particularly a looming US tariff threat on China. While leasing activity showed mixed results, with stable retail performance and rising vacancy rates in logistics, capital markets are beginning to recover, particularly in Australia and South Korea, despite a significant decline in Japan. Cap rates are stabilizing in most regions, signaling the potential end of the cap rate upcycle.
All three major US stock indices reached record highs, with the Dow Jones surpassing 45,000, buoyed by positive remarks from Fed Chair Powell on economic resilience and inflation progress. Meanwhile, the ASX 200 also hit a new peak, though momentum waned after Australia's Q3 GDP growth slowed to 0.8%, the weakest since the 1990s recession. Key economic indicators are set for release next week, including the RBA's interest rate decision and US CPI data.
IG
Iluka Resources Ltd. shares fell by up to 10% following a warning from Morgan Stanley regarding the Eneabba rare earths project, which faces economic and execution risks despite securing A$400 million in funding from the Australian government. Analysts expressed concerns that the project's net-profit value could be negative based on current commodity prices.
Asia-Pacific markets are poised for a higher open, diverging from Wall Street's decline, as investors digest Japan's household spending data. In October, spending rose 2.9% month-on-month, surpassing expectations, while year-over-year spending fell 1.3%, also better than anticipated. Japan's Nikkei 225 futures indicate a positive start, while Australia's S&P/ASX 200 opened lower.
UBS downgraded GQG Partners from "Buy" to "Neutral," slashing its price target by 30% to AUD2.30 due to anticipated AUD600mn losses in funds under management following the Adani Group's indictment. Despite a strong financial record and diversification into private markets, GQG faces risks from concentrated investments in Adani, which have already led to a 20% drop in share price. The firm plans to expand geographically and has initiated a AUD100mn share buy-back to bolster investor confidence.
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