May 18 FT Thoughts HK freezes assets on suspicion, Climate, Foxconn; icars? Crypto KYC


18 May

This and previous notes can be found at Substack

Check out ERI-C.com  for your research needs

Apologies for the late arrival but had my second jab today.

Asia markets generally saw a rebound today with significant foreign buying being reported. China again the exception but this time in the red.

Australia
Market opened higher and then traded in the 7,060 - 7,080 range  and closed +42pts (+0.6%) @  7,066

Japan
Nikkei opened higher as indicated by the futures and despite the weak GDP data.  It worked higher through the morning to 28,480 level before easing back into lunch @ 28,400  PM opened slight higher and traded sideways to close +582pts (+2.1%) @ 28,407

Topix traded in a similar pattern with resistance @ 1,912 level and close +29pts (+1.5%) @ 1,908

Data
GDP Q1 Data Prelim
Growth Rate Q1 -1.3% QoQ vs +2.8% Q4 (F/cast was -1.1%)
Annualised Q1 -5.1% vs +11.6% Q4 (revised from 11.7%) (F/cast was -4.8%)
Price Index Q1 -0.2% YoY vs +0.2% Q4 (revised from +0.3%)
Capital Expenditure Q1 -1.4% QoQ vs +4.3% Q4 (Consensus was +1.1%)
External Demand Q1 -0.2% QoQ was +1.1% (Consensus was -0.2%)
Private Consumption Q1 -1.4% QoQ vs +2.2% (Consensus was -2%)
Later Tertiary Index Mar 1.1% vs +0.3% Feb (F/cast was +0.7%)

S Korea 
Kospi opened higher with good institutional buying and worked up to 3,176 by mid morning, then traded sideways for the rest of the day to close +40pts (+1.3%) @ 3,175
Kosdaq dipped to 956 initially before reversing and the worked better for the rest of the day. Saw resistance in the PM as it approached 970 and closed +7pts (+0.7%) @ 970

Taiwan 
Taiex opened higher and despite yesterday’s selling little sign of margin call selling. Market then slowly worked better through the morning with resistance approaching 16,155, eased slightly and then traded sideways to close +792pts (+5.2%) 16,146.

China 
CSI 300 opened higher and tested 5,200 in early trades but then reversed and traded down to test 5,160 level before a bounce into lunch. PMsaw initial buying but saw resistance as it approached yesterdays closing level and reversed to 5,167 before rebounding and working better currently flat at 5,185

HK 
Pre market opened 28,438 +244pts vs +137pts ADR’s
Worked higher to 28,570 and then has traded sideways, currently +382pts (+1.4%) 2 28,580.
A broad based recovery with all sectors seeing interest.

Europe
Futures point to a higher open 
FTSE +51 points higher at 7,087, DAX +80 points at 15,487, CAC 40 +39 points at 6,403 according to IG.
UK premarket data generally better than expected.
Earnings expected from Engie, Homeserve, Imperial Brands and Vodafone on Tuesday.
Data due
 
EUROZONE Balance of Trade, Employment Change, GDP Growth Rate
UK  Claimant count, Employment Change, Ave Earnings (Inc & Ex Bonus), Unemployment Rate, Labour Productivity, 20 year Gilt auction

US Futures
Opened Dow +50pts, S&P and NDX +0.1% but then eased but  have recovered now Dow +117pts S&P and NDX +VE
AHEAD Housing Starts, Building Permits, Redbook, API Crude Oil Stock Change
Earnings Walmart, Home Depot, Macy’s, Baidu, Take-Two Interactive, Trip.com, NetEase

ONLINE

Amazon in talks to buy MGM for $9bn

Approach for studio behind James Bond franchise comes on wave of consolidation in the sector

‘Invisible hand’ pulls up the handbrake on Xi’s pet project

Xiong’an was meant to house state companies and agencies but businesses have been reluctant to relocate

Covid drags down Japan’s first-quarter growth

Output in Asia’s largest rich economy dropped 1.3%, more than analysts expected. Although worth noting that Private Consumption beat expectations.



FRONT PAGE PRINT

Cyclone adds to Modi woes 

Cyclone Tauktae brought winds of more than 210km per hour to the virus-stricken region.

EU eases US trade tensions by shelving plans to increase tariffs

• Effort to end steel and aluminium stand-off • Truce ‘reboots’ transatlantic relationship.

An important move for both the EU and US and the willingness I think is in recognition of the fact Trump actions were largely to satisfy Trumps domestic agenda and that when it comes to issues like steel the bigger risk is potentially from China.

The article also mentions that the EU also hopes to end the feud between Airbus and Boeing.


Lithuanian fintech under scrutiny over potential role in Wirecard fraud.

More on the scandal.


INSIDE

Variant found in India increases in UK

Mass immunisations sped up as areas where strain is dominant almost double. A reminder that our knowledge of the virus is still limited.


HK media group under threat after asset freeze

'John Lee, the Secretary for Security, said asset freezes were an important measure in enforcing the security law. “It is illegal activities that we are dealing with. It is not press work,” Lee said.'

The shares of Next Digital were suspended as the administration took the decision to freeze the assets of Jimmy Lai who effectively controls the company. He has been in jail for sometime for his participation in a pro democracy demonstration and yesterday pleaded guilty to taking part in another one. He also faces charges which include ‘conspiracy to collude with foreign forces under the national security law.’

But those have not been tried yet and so under the HK he is innocent until proven guilty. So, in taking action before those cases have been heard; the administration is effectively undermining the main tenent of HK law; innocent until proven guilty. John Lee said that ‘as security chief he is empowered by the national security law to freeze assets related to such activities upon reasonable suspicion.’ That is a worrying development. He also said ‘it is not an issue regarding private assets, Lee said, as there are laws defining criminal proceedings and it is completely legal for him to freeze Lai's assets.’ He did say that ‘as Lai had already been prosecuted for colluding with foreign forces under the national security law, an offense that carries a life sentence.’ Which again makes the presumption of guilt not innocence.

Not mentioned in the article but raised by the local media was whether the paper would be shut down or taken over by the Security Bureau before July 1; but he declined to comment only saying that the government will deal with organisations in accordance with the law.

Yesterday the Apple Daily in Taiwan published its last print edition and said it said it was losing money after "pro-China forces" had blocked access to advertising in Next Digital publications.

I think the move is significant not so much for the markets today but sentiment towards Hong Kong. The new precedent will be a big concern for high net worth individuals about where to keep their assets. The framing of the national security law in Hong Kong is vague and as shown now, it requires only suspicion not fact to result in the freezing of assets.

Whilst the HKMA and others say that assets are not being moved out of Hong Kong I still get the feeling that Hong Kongers are no longer repatriating overseas gains back into Hong Kong as they would have in the past. There is also more interest in off-shore investments as a way to protect assets.

I think increasingly the administration is undermining the rule of law and for investors that means that Singapore becomes the safer place to do business from.


S Korea vows ‘bold’ action on climate change

Despite statements from President Moon about the intention to be carbon neutral by 2050; actual proposals have not been forthcoming; especially with regards to coal, as coal fired power stations are still being built and account for 40% of S Korea’s electricity generation an 25% of emissions.

An interesting read and it highlights how leaders are keen to make bold statements;  leaving the practicalities of achieving them to others.  China I think could find itself in a similar position.  

Read also OPINION Beware the looming net zero car crash

By Pilita Clark She concludes

‘So what should companies do?

First, stop lobbying against tougher climate action. Delays helped to create the problem in the first place. Instead, forge industry alliances to press for wider systemic shifts, be it government support for green innovation, or policies to make existing clean technologies cheaper.

Finally, resist offsets and accept the reality of the 21st century: the imperative to cut emissions is urgent and will only grow more so in decades to come.’


EU to back African vaccine production

Pandemic highlights need to end dependency on imports, says Brussels

Aiming to build or support the development of manufacturing hubs within Africa rather than back a waiver of IP rights.

The Africa Vaccine Delivery Alliance, evidently has three locations in mind; the Institut Pasteur in Senegal, Rwanda and South Africa. Building on established infrastructure but I would imagine there will be a lot of discussion and arguing over why those locations over others.

Africa is a huge users of vaccines so developing its capability is important. A good read and underlines that until the virus in under control globally we will have a problem.

Read also

OPINION Pandemic gives Africa a chance to free itself from aid dependency  by Ayoade Alakija the co-chair of the Africa Vaccine Delivery Alliance and former chief humanitarian co-ordinator for NigeriaRead also India scientist quits Covid task force after criticising Modi  One point he made ‘“Evidence and science were selectively neglected,” said Swarup Sarkar, who sits on the Indian Council for Medical Research’s national Covid task force. “Only those messages were picked up which people in power wanted to hear.”’

That I think has been a global problem right from the start when China did not want to believe there was a problem.


COMPANIES & MARKETS
Tech tie-up Indonesia’s Gojek and Tokopedia join forces against rivals and set sights on IPO.

This makes a lot of sense when you are trying to compete in a very competitive sector but I am still not convinced the business model works unless you are the last man standing.

An interesting read.

See also LEX Gojek/Tokopedia: superapp happy

Concludes ‘This is a story investors should buy into during market dips. GoTo’s mooted float is unlikely to be that opportunity. Merger benefits will be in the price.’


FT BIG READ. MANUFACTURING

From iPhones to electric vehicles

Foxconn made its name assembling Apple’s smartphones and other devices. Now it is taking what it has learnt and is spearheading an assault on the auto industry, aiming to have its first car on the road in 2023.

A very good read, the historic barriers to entry in the Auto sector are being dismantled as people turn to EV’s it will be all about tech. They will also benefit from not have legacy the only disadvantage they will have the I can see is the battery; which is a crucial element. Battery weights at this stage are prohibitive to being shipped long distances but with green or brownfield sites that can be managed.

The fact that Foxconn it leading the charge; should as the article notes make it easier for Apple to enter the space.

A good read.


JD.com’s logistics arm seeks to raise up to $3.4bn in HK listing

Pushing ahead despite the disappointing listing of SF Holding, which has depressed the expected pricing by about 25%. The company along with others is also under increasing scrutiny from Chinese authorities. Despite all that they are progressing with the IPO.

That to me suggests an urgency in wanting to list and raises the question of why. The recovery in China has been good but data this week I think confirmed the patchy nature of it and with concerns about further tightening from the PBoC along with credit defaults in China, companies are looking to try and take advantage of the current window of opportunity.

I like the sector and believe that it needs better co-ordination. There are a lot of single van operators with little co-ordination and in the absence of a freight app I think larger logistics operators should be able to command good rates but because of all those single operators it will remain a tough business.


Central banks seek out riskier assets for reserves to counter yield drought
Worth a  read because it shows how everyone is seeking better returns and hence looking at riskier ventures to generate returns.

‘The annual poll of 78 reserve managers with a combined $6.4tn of assets found that the reduction in yields has presented the greatest challenge to these investors over the past year.’

‘Just over half of survey respondents were considering investing in new asset classes while 44 per cent said they might add new currencies to their holdings.’


Markets Insight

Time to dispel myths behind the equity bubble  By John Hussman ; a philanthropist, investor and economist

Well worth reading; a stark warning in today’s world. He concludes with a quote from Graham and Dodd commenting about what happen during the 1929 extreme and its aftermarth ‘ “It was only necessary to buy ‘good’ stocks, regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic.”’

The fact that momentum tech has seen a slight pull back recently suggests that some people still appreciate what value is.


Ex-Northill team reunites at Alderwood Capital to buy stakes in boutique firms

Worth a read; Jon Little is reuniting his old team to do what they have successfully done before. What I find interesting is their focus which is within Fund management and their aim to supply ‘“succession capital”, where a mature business is going through a generational change, and “acceleration capital” to help a business scale up. And there is what Alderwood calls “liberation capital” — to buy out a division from a larger business.’

The succession capital is interesting because in Asia there are a lot of family businesses, not necessarily in fund management but in a vairety of other sectors where the children have no interest leaving the parents or a parent difficult options. There are also some cases of no family to pass onto. Also being Asia there a are a number where the children are fighting for control. But in Hong Kong and China there are good opportunities for investors willing to work with small existing managements in the same way the Jon Little is seeking to do in the fund management sector.

AT&T spins off WarnerMedia into merger with Discovery

• Bid to catch streaming leader Netflix

• Deal is a retreat for telecoms group

Looks like a good deal for AT&T reduces its debt and Discovery gets a great portfolio albeit initially heavily leveraged.

Say on Climate faces first big test as investor votes begin

Resolutions on boards’ green strategies are set to shake up annual meetings season

An interesting read about shareholder vote pressure and why some are not supporting the activist groups but targeting directors. Worth a read because until boards become much more ESG aware there are going to be activists.


Crypto. Volatility

Musk-led price swings in bitcoin prompt investor caution

Fund managers raise doubts over the viability of digital currencies as an asset class.

Amongst the detractors mentioned in the article are; UBS Wealth Management, Pimco, T Rowe Price and Glenmede Investment Management. It mentions Musk’s Saturday Night Live appearance but many have been wary for much longer and this is their latest rallying point.

Rob Sharps of T Rowe makes the good point ‘the mandates we manage for clients are not well suited for investing in cryptocurrencies,’

That is the key. Know your client.

Worth a read, because like it or not crypto is here for the time being and it is impacting where people put their money. So fund managers need to be aware that if investors are putting money into crypto; is it new money or are they selling something else? How does it impact where the rest of the money goes.


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