FT Weekend Thoughts: An Apple a day..no more, Tourists in Venice, Chinese control at home and abroad and much more.


27 Jun

This and previous notes can be found at Substack ( Asian Market Sense )
Check out ERI-C.com for  interesting research and trading analysis

After a weak in which markets remain fragile as investors try to appraise  the future policy the FT serves up a diverse range of articles I have focused on those that relate to Asia along we those that just interest me.  Feedback welcome.  Enjoy your weekend

Online
US-Taiwan talks to focus on supply chains and digital trade
Washington and Taipei seek to deepen economic ties amid China friction.
Talks to start Wednesday; the day before the 100 th Communist Party anniversary.

Print Front Page

Merkel’s push for Putin talks foiled
• EU blocks engagement bid • Chancellor’s influence wanes • Pushback from Baltic states
Worth noting the resistance by many states to the influence of Germany and France in trying to build relations with Russia. Noteable that it follows her efforts to build a trade deal with China which now also lies in tatters. It would also appear that Germay and France underestimated the reaction of the other members.
The other notable incident was the reaction to Hungary over its LGBTI+ rights. Hungary appears to be becoming increasingly isolated which may indicate as increasing resistance to China as Hungary has been instumental in undermining EU statements against China.
Macron may be correct in saying that the EU cannot remain reactive to Putin but maybe he should learn from Biden and build consensus first.
See also inside Merkel laments EU lack of ‘trust’ on Russia summit
Bloc leaders reject ‘badly prepared’ Franco-German initiative for united approach to resolving tension with Moscow. Some are saying she lacks credibilty on Russia now because of pushing though Nord Stream 2.
Also Editorial How Europe should deal with Russia’s Putin
Black Sea clash highlights the tensions with a disruptive Kremlin.
‘French president Emmanuel Macron, moreover, tried personal diplomacy with Putin in the past two years without success. Angela Merkel, the German chancellor, maintains contact with Putin, but she has long lost patience with what she sees as the Russian leader’s habitual lying.’
Highlights why a clear, uniform policy agreed by all parties is needed before engaging with Russia.

City of sighs
Tourist dollars tempt Venice
Re-opening but it relies on big Cruise Ships for most of its tourist for mass tourism.  Previously there has been resentment of the cruise ships, which undermine the hotel sector and are said to be ecologically unfriendly.  But in these tough economic times it seems most store owners would be happen to see them return.  Interesting for the place that gave us the term quaratine.   See also inside Venice braced for tourists’ return as liner sails into hot water.

Short seller who predicted Enron says Spac boom is creating ‘castles in the sky’
Comments from Jim Chanos add further questions to the recent populariity of the Spacs. He says he is betting against a number of them but hasn’t said which ones. He is joining a chorus of investors who are doubtful about both the valuations and the terms being offered. he especially warned ‘against the danger of investors being beguiled by reputations, while also warning against “smart guy syndrome” or the “celebrity patina” where high-profile names are brought in to endorse a deal.’
It will be interesting to see how they come out as the SFC starts investigting them more closely.
INSIDE

Biden soaks up bipartisan moment in sun
Infrastructure deal celebrated but bill will face resistance from progressive Democrats.
Worth a read. For all the disparagement from the Democrats and people within his own party and allowing for the fact that it is a smaller insize than originally designed the fact is he has got bipartisan agreement. That is huge. He has achieved two major positives in one go. Getting an infrastructure bill moving and bipartisan support. If he can continue to breakdown the adversailly nature of US politics then he will not only boost the US economy but also, I think re-shape the public view of politics. Showing that with compromise politicans can achieve goals for the benefit of the people rather than just score points blocking proposals for personal gain.

The online edition has Biden performs U-turn over threat on bipartisan infrastructure deal   President walks back insistence that $1tn package be tied to separate Democratic tax-and-spend plan.  I think it agains reflects his appreciation of the balancing act that is politics and his desire to implement a plan that will benefit the US economy and people, over just gaining ‘brownie’ points.

Belarus dissident transferred from prison to house arrest
Said to be as a result of a ‘plea bargain under which they had agreed to co-operate with investigators, “expose co-conspirators” and confess to protest-related charges under which they face up to 15 years in prison.’
A worrying read and shows in how Russian support has meant that west has been ineffectual in exerting pressure on President Lukashenko.

Nato chief officer warns on China military advances
Peach says alliance needs to assess further how to respond to expansion.
Key is the fact that he warns on a wide range of concerns and calls for a more assetive stance. That I think is key, for too long many countries have been passive in the face of Chinese actions and that has both emboldened China and sent it the wrong signals. Making it increasingly difficult for China internally to alter the path it has now taken.
He notes that as a leader with a moderised and enlarged military force it is to be expected that President Xi would look to deploy it. But he is also concerned about “systemic challenges” with reference to the ‘rules-based international order, perpetrating disinformation, co-operating with Russia and expanding its nuclear arsenal.’
He also drew attention to the fact that “You have these large embassy footprints now with very large defence sections, often populated by general officers. And then you simply observe, as I would observe after nearly 50 years of service, what’s it all for?”
A referece probably to the increased concerns about spying and cyber warfare.
It does suggest that there is going to be more push back to China’s ‘wolf warrior’ stratergy of the past few years.

Media. Silenced critic
Apple Daily’s demise casts long shadow over Hong Kong free press
Journalists fear escalating crackdown after closure of pro-democracy newspaper.
An interesting read. Whatever you may think about the paper and its stance the way the adminstration has actedhas far wider repercussions for Hong Kong, its National Security Law and the due process of justice in Hong Kong. Carrie Lam has said its not about clamping down on press freedom but the fact the provisions of the National Security Law have been used to close the paper before it had the opportunity to defend itself in court will trouble a lot of businesses and people.
Furthermore the action brought out ‘droves’ of people in quiet resistance to mourn the demise of the paper by buying a copy of the final edition… in the rain the symbol of good luck in China. The fact that they printed 1m copies rather than the normal 150,000 copies also highlights for all the comments that the people of Hong Kong support the adminstrations actions resentment remains.
I think that has the adminstration allowed the legal process to run it’s course then the event would have passed with less prominace but it has now raised more questions and given the pro-democracy supporters a further rallying point. Coming ahead of the 1 July party anniversary the timing could hardly have been worse. Whilst at present the normal 1 July March has been banned other groups have sought police permission for a march; but I guess they are unlikely to get permisssion. Although citing covid as the reason for banning a march is wearing thin in a city that has had 18 days of zero cases.
For investors the situation raises more questions about the ability to continue with business in Hong Kong not least because the specific charges have not been made clear. But more than that it is the fact that whilst China is a potential huge market dealing with administration that cannot tolerate criticism of its mistakes or the wrong actions of its members raises signifcant operational risk; both from China and the west sanctioning China’s actions.
It should also be remembered that yesterday the adminstration had a reshuffle that promote two hard liners into senior positions on the basis of merit. Where merit appears to be the willingness to impliement Beijings behests. New Chief Secretary John Lee Ka-chiu said “I have strengths which I think the Chief Executive considers will assist her to achieve what she wants to do in her governance in this year,” he said, adding that he had obtained a master degree in public policies and management. no doubt mentioned after concerns were raised about his lack of experience in other policy bureaus and his background as a police officer before he joined the administration.
I cannot help thinking that Michael Cheung’s demise was triggered by his admisition and then denail to the FT that Beijing intended to resolve Hong Kong’s housing situation by altering the current structure of the market. It also makes Carrie Lam’s future less certain I would venture. I doubt that these latest appointments were her idea. Hong Kong appointments are now clearly in the hands of Beijing.
Lastly spare a thought for the 800 people who no longer have a job and because the funds have been frozen by the administration will not be getting their final pay.
Online has Apple Daily’s fate speaks to Asia’s authoritarian resurgence
The clamping down on Hong Kong’s reporters signals a broader suppression of rights in the region.
Concludes ‘Hong Kong’s journalists were the keepers of China’s memory of the struggle for democracy. In autocracies around the world, journalists, by recording history and standing up to power, sustain the memory of freedom. They fire up the democratic imagination, hoping to keep the darkness at bay.’

FT BIG READ. REAL ESTATE
Pandemic cements the housing gap
When the Covid lockdown began, many politicians thought it would be a great leveller. Instead, a surge in house prices around the world is reinforcing inequalities and causing a new headache for central banks.
Worth a read “People didn’t expect this to play out how it did. No one clocked until a few months in that there are clear winners and losers,” says James Pomeroy, an economist at HSBC. Now, the sharp rise in house prices represents “a huge challenge — a problem in terms of financial stability but a huge socio-economic problem too”.
‘You could throw a dart at a map and it wouldn’t matter where it landed because the housing market there is probably hot’
Interesting to watch how the US housing market will respond to the lifting of laws at the end of June that prevent evictions that have been in force during covid.

MARKETS
Do not blame private equity for fund managers missing out  By Merryn Somerset Webb   editor-in-chief of MoneyWeek
An interesting look at the Morrisons potential Private Equity deal and private equity in general. One key point she make is that there is no reason that ordinary fund managers cannot push public companies to carry out the sort of actions that private equity would carry out following an acquisiton. The key is that actually they should be more proactive in encouraging managements to be better stewards of their businesses.
Two other points come out, the amount of cash that is out there in private equity funds looking for a home. Also in the search for performance or yield funds are having to consider riskier business models. That will continue until central banks allow cash to be priced properly by the markets.

Ecocide could transform the climate change fight  
An interesting idea to put ‘ecocide as “unlawful or wanton acts” committed in the knowledge that there is a high chance they could cause “severe and either widespread or long-term damage to the environment”.’ on a par with war crimes in peacetime as a way of making CEO’s more responsible.

Companies & Markets
Tide turns for Japan activism as investors oust Toshiba chair

• Nagayama loses vote • Focus on governance flaws • Claim of Tokyo collusion
It will be interesting to see how or whether this changes corporate Japan and if it prompts more than lip service from the government. PM Suga has been implicated in the independent report together with senior civil servants and so it will be interesting to see if there is further fall-out.
I think is should send a clear signal to both government and mangements that real change has to take place in Japan. PM Abe said change was going to happen but this seems to suggest it was lip service only.
Having worked for a Japanese firm I have some understanding of the issues and the unwillingness of managements to change. Hopefully this could be a wake up call to senior managers to at least be open to listening to new ideas.
One report I read said it was right not to reappoint the Chairman but that the wrong man was being punished, although he did endorse the internal report.

Corporate person in the news
Tech tycoon proves astute in managing ties with Beijing
Looks at Pony Ma and his relationship with Beijing.  A good read key being low profile and willingness to comply with government plans and proposals.  Mentions ‘The group handles requests from various branches of government for censorship and surveillance on its messaging platforms. In January 2020, WeChat censored hundreds of new keywords related to the government’s handling of Covid. The information it has handed over has led to arrests and punishments, notably of a man who was jailed for calling Xi Jinping a “steamed bun”.’
Sounds like is the type of business Beijing want in HongKong rather than the Apple Daily or even the Ant/Alibaba type.

The online edition has China tech listings drop sharply as Beijing cracks down on sector  Growing regulatory pressure helps to drive down value of listings globally by 60%.  The new stance being seen by Beijing puts valuing new listing in a quandary.

Top brands left shaken by awakening of China rivals
Marketing and supply-chain advances threaten groups from Chanel to Nestlé.
An interesting read which shows that local brands are gaining market share over foreign brands. It suggests that this is because of the better marketing (the use of influencers) of local brands giving more trust in the products. Historically local brands have not had the prestige or trust of consumers.
What will be interesting to watch is whether the dominance can be continued outside of the special shopping events and without the presence of influencers. More importantly I think is whether they manage to maintain their attractiveness when the recovery in China is more established across all sectors of society. The current predominance could just reflect Chinese consumers being cautious with the purse strings. Still an interesting read.

Tesla supplier Panasonic jettisons its $3.6bn stake
Looks at this weeks news which came as a supprise but was well received. The article mentions how the company is looking to try and broaden its horizons to futher than just Tesla.
See LEX Panasonic/Tesla: stake out ‘Panasonic claims the share sale will not change its relationship as Tesla’s business partner. But that clearly has already changed. Carmakers know that batteries are central to lowering the cost of electric cars. In-house production is an irreversible trend. Panasonic needed to diversify away from its reliance on Tesla. Thanks to Tesla’s astonishing share price rise it now has more capital to do so.’

The Long View
Mid-year milestone revitalises debate on value vs growth By Michael Mackenzie
Reflects on the first half of 2021 and the issues currently weighing on investors minds as they look to the second half; essentially growth, value or quality?
He concludes by quoting Tony DeSpirito CIO US fundamental active equity at BlackRock; ‘Once the economy shifts into a mid-cycle phase, history shows that quality shares start outperforming. DeSpirito argues a more normal pace of economic growth should prompt a more cautious approach from investors as the risks around “taxes, inflation and the timing of a Fed policy shift” become clearer.
He identifies healthcare and financial companies with strong balance sheets as having the ability to compound their earnings over time.
“As a long-term investor, owning quality will pay off,” he said.’I think for long term investor owning quality stocks nearly always pays off.

LEX  Nike: jump to it  Reviews the good  results which reflect the move to more direct selling.  Notes the impact of the Xinjiang linked boycott in China but expects that to be short lived.  Concludes ‘Despite a progressive dividend policy, the yield of under 1 per cent  hardly allures. But shareholders do appear to approve of Nike’s strong  brand recognition plus its new business model. The focus on selling  directly to the consumer means that it can command a full price for its  shares as well as for its sneakers.’
It will be interesting to see whether the Xinjiang issue is short lived, especially in the light of the more nationalistic and protectionist attitude being shown by China in the run up to the party anniversary. The big question is really whether there is likely to be a change in attitdue after the party. I doubt it, Xi has made some big promises to the people of China and is under increasing pressure to perform just as the US gathers allies to rebutt those ambitions and promises.

Between chaos and control
As the Chinese Communist party marks its centenary, James Kynge reflects on the upheavals he has witnessed in a country whose leaders are still struggling to reconcile economic growth with political stability
Great read. Liked the quote ‘“If the reforms are too fast, there is chaos. If the reforms are too slow, there is stagnation,” Cao said;’ A good description of the dilemna that China tries to cope with.
It also looks at the how and why Deng sought to protect the party from dictatorship and how Xi has rolled many of those back.
It concludes by noting that much of this has impacted the Chinese intellectual elite who have been silenced by Xi.
‘For much of the CCP’s history, power struggles among its elite had little impact on the outside world. But now China is the world’s biggest trading nation, a crucial source of investment and technology as well as home to about a fifth of humanity. Future episodes of the type of disorderly change that has so often sullied the annals of CCP history could plunge the wider world into crisis.’

An interesting insight; reflecting on how much potential there is in China under the right structure.


For Interest
Lunch with the FT Edward Bonham Carter
‘Cryptocurrency isn’t a canary’
He is a gently rebellious outsider of British finance. Over sashimi in Mayfair, the veteran fund manager talks to
Patrick Jenkins about navigating today’s hot markets, his famous family — and why he thinks UK stocks are due for a bounce.

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