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Australia’s Westpac to return $4.3 billion to investors, shares plunge on margin hit

By Paulina Duran

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Australia's Westpac to return $4.3 billion to investors, shares plunge on margin hit
© Reuters. FILE PHOTO: An office building with Westpac logo is seen amidst the easing of the coronavirus disease (COVID-19) restrictions in the Central Business District of Sydney, Australia, June 3, 2020. REUTERS/Loren Elliott

By Paulina Duran

SYDNEY (Reuters) -Westpac Banking Corp said on Monday it would return A$4.2 billion ($3.16 billion) to shareholders, but shrinking margins sent its shares plunging even as profit more than doubled with the release of funds set aside for the pandemic.

Westpac, whose home lending volumes fell in 2020, said the rebound in the Australian economy and sky-rocketing house prices had helped drive a 4% rise in its mortgage book, but at a cost of lower margins.

Net interest margin (NIM), a key measure of banking profitability that measures the difference between what banks charge for loans and what they pay out to depositors, fell 10 basis points during the second half, to 1.99%. For the full year, the NIM was 4 basis points lower to 2.04%.

Westpac shares fell over 6% in early trading, with analysts disappointed at the softer-than-expected result, cost performance and hit to margins.

Cash earnings of A$5.35 billion for the year ended September compared with the A$2.61 billion reported last year, were just shy of the consensus Refinitiv forecast of A$5.5 billion, driven by the turnaround in impairment charges.

In the second half, cash earnings fell for all units at the country’s No.3 lender. Core profit, excluding a pre-announced A$1.3 billion hit from Westpac’s institutional bank and remediation costs, was 13% lower for the year.

“Our underlying results are not where we want them to be, and we recognise we have more to do to become the high-performing company we aspire to be,” said Chief Executive Peter King. “However, we are making progress.”

The bank reiterated it is targeting a A$8 billion cost base by fiscal 2024, down from the A$11 billion it reported on Monday that excluded an A$2.3 billion one-off “notable” charge.

Westpac expects demand for housing to remain high and credit growth to expand to 6.8% in 2022, its highest in more than a decade. Home price growth would likely moderate to about 8%, King said, amid the country’s banking regulator tightening restrictions on home lending https://www.reuters.com/world/asia-pacific/australia-banking-watchdog-tightens-home-loan-requirements-2021-10-05.

Westpac plans a A$3.5 billion off-market share buyback, and declared a 60 Australian cents final dividend, totalling A$2.2 billion.

($1 = 1.3305 Australian dollars)

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Economy

World food prices chart: World food prices have plummeted

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why worldwide food prices are rising

Why are worldwide food prices rising? First, because of the current world situation. But world food prices fell sharply in July, with prices of major grains and vegetable oils dropping more than 10% in a month. 

World food prices chart

The Food Price Index was 140.9 points in July, down 8.6% from June. The drop in the index value continues for the fourth consecutive month after it reached an all-time high at the beginning of the year. Compared to July 2021, the index is up 13.1%. 

Despite the decline in high food prices, there are still many uncertainties around the world, such as high fertilizer prices, exchange rate volatility and weak global economic forecasts.

Vegetable Oil Price Index fell 19.2% in July from a month earlier, reaching its lowest level in a decade. Global cereal prices fell 11.5% for the month, still 16.6% higher than last year. Wheat prices fell the most (14.5%). 

World sugar prices over the month decreased by 3.8%; dairy products — by 2.5%, meat — by 0.5% due to weakened import demand for beef, lamb, and pork. At the same time, chicken meat rose in price due to strong demand and lower production volumes related to bird flu outbreaks. 


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Economy

Are hedge funds bad? Investors are disappointed in hedge funds

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are hedge funds bad

Are hedge funds bad? This year is sure to be one of the worst years in hedge fund history. In the first six months of 2022, funds posted losses of 5.6%, according to HFR. In July, though, they rebounded by 0.5%, but nevertheless, writes the Financial Times, the sector is well on its way to its second-lowest year in a third of a century, since 1990, when they started keeping records. The only time the hedge fund market was worse than this was during the financial crisis in 2008.

Are hedge funds losing money? 

Most of the problems are accounted for by so-called long-short-term funds, whose assets total about $1.2 trillion. The results of their activity depend directly on the securities market. In the first half of this year, these funds lost an average of 12%, according to HFR data. This category of funds earned only about 1% in July, according to JPMorgan’s John Schlegel calculations, well below the 7% rally in the stock market last month.

Among the hardest hit is the well-known Maverick Capital fund, which has been making double-digit returns to its investors for the past three years but lost 35% in January and June of this year. Similar losses have seen Skye Global, which has pleased investors with high returns over the past six years, but lost 10.4% in June alone. The fund was let down by a large stake in Amazon, which fell 36% in January-June 2022. However, in recent weeks, the retail giant has improved and cut its losses in half, to 19%. 

Already the first signs are starting to emerge that the losses are scaring investors. While they invested a total of $13.92 billion in hedge funds last year, only $440 million in the first quarter. There was a strong outflow of funds in March, and in June it exceeded $10.1 billion, according to Citco’s fund administrator. Redemptions are expected to be $7.8 billion in the third quarter and $6.4 billion at the end of the year.

Weak performance in the first half of 2022 and investor dissatisfaction, however, have not affected the sector’s confidence in its ability to raise funds. A survey of 100 hedge funds by technology company SigTech found that nearly one-in-four (23%) expect a sharp increase in investor activity in the next two years; 60% of respondents expect a slight increase in activity and only 4% believe investor activity will decline in 2023-24.



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Economy

Chinese economy 2022: China will give up first place in the list of the largest importers of raw materials

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chinese economy 2022

Chinese economy 2022 news: China’s commodity-buying companies will be adversely affected by government debt and demographic problems.

Over the next ten years, debt problems and slowing population growth may force China to cede the unofficial title of world’s largest buyer of raw materials and minerals to India. 

Chinese economy analysis — the current situation

The structural challenges will make it very difficult for Beijing to accept and implement most of the policy initiatives coming from the center. Apart from the Chinese economy, this trend will have a major negative impact on mining companies around the world, many of which are heavily dependent on demand in China. Incidentally, many such companies are located in Australia.

China will likely be replaced in the next few years by India. If UN statistics are to be believed, India could overtake China regarding population as early as this year. This will have not only psychological, but also “material consequences” for the global market of raw materials and minerals.

China has been much criticized for shifting to mindless spending to combat the economic slowdown. Lowy Institute economist Roland Raja is pessimistic about the growth prospects of the Chinese economy. Even though the Indian economy is only a small part of the Chinese economy, he sees no signs of a slowdown soon. 

China will try to be more aggressive this year in combating the economic slowdown. Beijing will invest very heavily in the extractive industries.

Moyo also believes that Beijing will no longer be able to regain the high growth rates of past years. According to her forecast, China’s economic growth will be 4% this year. Recall, the Chinese leadership set a higher target of 5.5%. Incidentally, this is the lowest growth in the Chinese economy for the past three decades. In the second quarter of this year, China’s economic growth slowed to 0.4%.



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