Mar 10, 2022
The Himalayas, one of the most beautiful yet fragile ecosystems in the world, is a source of water for billions of people living in South and Southeast Asia.
China is the largest refiner of the world’s lithium and currently the biggest investor in lithium mines around the globe. Chinese scientists recently discovered ‘super-large’ deposits of lithium near Mount Everest, that could potentially produce a million tons of lithium oxide, a key element in batteries powering electric vehicles.
While this discovery could provide raw material to accelerate the fast-growing Electric Vehicles (EV) and battery storage market, prospects of mining the newly found lithium deposits would be an energy- and water-intensive operation, leading to adverse environmental impacts, and raising severe concerns over the fate of freshwater resources in the Himalayas.
Feb 11, 2022
Following the Federal Reserve’s latest monetary policy meeting in January, the Fed is set to embark on its rate hike cycle with the first hike coming as soon as March to tame stubbornly high inflation. Concerns about an impending rate hike sparked volatility across assets classes, including US high-yield bonds. However, if history is a guide, US high yield performed well in the rising interest rate environment. The ICE BofA US high yield index outperformed with an average return of 16.2% during the Fed rate hike cycles since 1994 and delivered positive returns in 4 out of those 5 instances with the exception in 1999-2001, which coincided with the dot-com bubble burst.
That said, the economic background behind the rate hike cycle this time around looks different. The US inflation rate is nearly at a 40-year high of 7%, while the unemployment rate of 3.9% is just shy of the Fed's goal of maximum employment than the previous rate-hike cycles. These factors could cause the Fed to get even more aggressive. Moreover, the Fed has doubled the pace at which it is scaling back bond purchases, putting it on track to conclude the program by March 2022. It has also hinted at shrinking its balance sheet post hiking rates, with market participants expecting it to start in June 2022. Nevertheless, the corporate balance sheets had improved substantially in 2021 to weather the aftermath of monetary tightening.
Most of the companies are in the recovery or expansion phases of the credit cycle. Additionally, the high-yield index has near-zero exposure to the technology sector (highly sensitive to change in real interest rate) and short duration (around 5 years), making them stand pat against the rate hikes.
Feb 07, 2022
Last Wednesday, the European Commission proposed a highly divisive policy, calling for the energy derived from natural gas and nuclear to be labeled as “sustainable” investments if they meet certain criteria.
While admitting that the proposal was not perfect, EU Financial Services Commissioner, Mairead McGuinness, claimed it struck a balance between differing opinions.
The move has subjected the European Commission to criticism, with environmental groups and climate activists accusing the EU of “greenwashing." They claim that labeling natural gas and nuclear as green energy would slow down the adoption of renewable energy.
But proponents supporting the move counter that such incentives would aid underdeveloped countries to transition from coal to cleaner alternatives.
The decision, however, is not final. The European Parliament and council of heads have four months to consider the proposal.
Could the move hurt The Union's credibility? Was the proposal well-thought-out for an entity as influential as the EU, a beacon of climate action? Could it really accelerate the world's transition to a low-carbon future?
What do you think?
Jan 13, 2022
Money has a critical role to play in our lives. It’s a common notion that money can’t buy happiness, but not having it (or enough of it) can cause many sleepless nights. A reliable and comfortable income certainly makes life easier. It is negatively correlated with emotions like stress and is rather correlated with higher self-esteem, security, and dignity. So, yes, money can indeed buy happiness. The question is, how much money is enough? In 2010, a study published by Nobel laureates Daniel Kahneman and Angus Deaton stated that the quality of one's life increases as one earns more. However, the feeling flattens around USD 75,000 (annual income). Although, eleven years later, in 2021, a study published by Matthew Killingsworth of the University of Pennsylvania found that well-being rises with income—even beyond USD 75,000.
So, how much is enough? The truth is, money itself falls short. It is not the end-all-be-all for happiness. Killingsworth's study also found that people who equated money with success reported being less happy than those who didn't. That's because high income comes with tradeoffs. High earners report a heightened sense of achievement, but they are also more stressed. And lonely. Instead, here's the secret to happiness: money, yes, but also the right mix of good social relationships, exercise, and a sense of purpose. In fact, people who have a job they love and which gives them a sense of purpose report greater happiness—regardless of the money they earn.
Dec 17, 2021
The world is racing against time to achieve the ambitious goal of attaining carbon neutrality by 2050. While solar and wind power have emerged as solid pillars in the transition away from fossil fuels, they are far from perfect. The world is increasingly looking for more efficient and sustainable options. So, what could be the solution? The answer is Green Hydrogen, which can emerge as a quick enabler toward a greener world.
Hydrogen gas (aka Grey Hydrogen) is widely used in various industrial applications. It is primarily produced using steam methane reforming, which uses natural gas and releases carbon dioxide and carbon monoxide. That is anything but eco-friendly. On the other hand, Green Hydrogen is produced using a simple, eco-friendly electrolysis process that leaves behind oxygen as its only by-product. It enables decarbonization and can significantly reduce our dependency on fossil fuels.
It is estimated that the production process would offset c.20% of the CO2 emitted per annum in producing Grey Hydrogen. It gets better. Green Hydrogen can be used in transportation, electricity generation, heat generation, infrastructure, energy storage, and much more. Accordingly, the demand for Green Hydrogen is expected to reach 500mn tons by 2050, making up for ~20% of the global energy demand.
However, the biggest impediment in its widespread adoption is its cost (USD 3-7 per kg, vs c.USD2.0 per kg for Grey Hydrogen). But like any other innovative technology, as it scales, it will become more affordable (estimated cost USD 1.4-2.4 per kg by 2030) provided we make a collective effort and ensure financial commitments from key stakeholders.
Dec 10, 2021
Chinese property developer Kaisa Group Holdings has become another victim of China’s deleveraging campaign under the “three red lines” rule. Yes, it, too, has failed to service its bond.
The much-criticized policy has shaken the foundation of the Chinese real estate sector, which, along with related industries, contributes c.30% to China’s GDP. After 20 years of rapid growth, the Chinese real estate sector is worth more than $50tn, or ~2x the US property market. In a previous SGA Beat, Will the New Chinese Real Estate Policy Backfire?, we highlighted the policy's possible implications on China’s real estate sector. Subsequently, we covered Evergrande's crisis in a much-shared blog. https://us.sganalytics.com/blog/chinas-perfect-storm-will-evergrande-swim-or-sink
China's Evergrande averted technical default by paying the interest at the fag-end of the grace period till last month. However, the tightening of the financial condition following the Evergrande crisis has led to several developers such as China Fortune Land Development (CFLD), Sunshine 100, Sichuan Languang, Sinic Holdings, and Fantasia Holdings Group, etc., failing to service debt, and leading to a default scenario. Now the likes of Kaisa, having a cash-to-short-term debt ratio of more than 1.5x, have come under pressure. Falling property prices and sales amid a sector rout have deteriorated liquidity and pushed the cash-to-short-term debt ratio lower. As more developers come under stress, the government looks prepared to support the sector rather than allowing more players to default. That said, a few companies still look vulnerable.
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The Himalayas, one of the most beautiful yet fragile ecosystems in the world, is a source of water for billions of people living in South and Southeast Asia.
China is the largest refiner of the world’s lithium and currently the biggest investor in lithium mines around the globe. Chinese scientists recently discovered ‘super-large’ deposits of lithium near Mount Everest, that could potentially produce a million tons of lithium oxide, a key element in batteries powering electric vehicles.
While this discovery could provide raw material to accelerate the fast-growing Electric Vehicles (EV) and battery storage market, prospects of mining the newly found lithium deposits would be an energy- and water-intensive operation, leading to adverse environmental impacts, and raising severe concerns over the fate of freshwater resources in the Himalayas.
