Apr 14 FT US seeks Japan support on Taiwan, Toshiba CEO goes, Grab's Spac, China and Ecommerce and more

14 Apr

MARKETs @ 1:30 pm Hong Kong time
Opened higher and worked to 7,025 by midday helped by good consumer confidence data but then eased back below 7,000 before working higher again and currently +47pts (+0.7%)@ 7,022
Consumer Confidence Apr 118.8 vs 111.8 Mar (F/cast was 113)
Consumer Confidence Change Apr +6.2% vs +2.6% Mar (F/cast was +1%)
New Home Sales was due Mar (Feb was +22.9% (F/cast was +20%))
Nikkei opened lower as Machinery orders fell rather than grew.  The index found support around the 29,600 level bounced and has since traded sideways in a tight range 29,600/690  Currently -110pts (-0.4%) @ 29,646.  Not helped by a surge in covid cases.
Data pre market
Machinery Orders Feb -8.5% MoM vs -4.5% Jan (F/cast was +2.4%)
Machinery Orders Feb -7.1% YoY vs +1.55 Jan (F/cast was +2.1% YoY)
Pre market data was mixed but high import prices suggests margins could be under pressure. Unemployment falling however was +VE
Kospi opened flat and initially tested 3,183 but reverted and traded around flat until around 1pm when it started to work higher; currently +14pts (+0.5%) @3,183. Kosdaq opened higher tested to 1,013 initially then pulled back to flat before working higher; currently +6pts (+0.6%) @1,016
Data pre market
Export Prices Mar +5.6% YoY vs +0.6% Feb revised from +0.2%
Import Prices Mar +9% YoY vs -0.3% Feb revised from -0.8%
Unemployment Rate Mar +3.9% YoY vs +4% Feb 
Opened slightly higher but trended lower to 16,560 late morning but the reversed and worked back to flat and then ticked higher into the close Finished +41pts (+0.2%)@ 16,866 Tension with China running high but good results and increasing international support +VE
CSI300 opened higher and rallied to test 4,980 which is did a couple of times in the first hour but unable to break higher it sold down to 4,947 and then ticked up into lunch. PM has worked higher currently +37pts (+0.8%) @ 4,976.
Having trended lower so far this week looks like Team China active ahead of key data on Friday.
Pre market opened @ 28,797 +299pts vs +79pts ADR’s
Shorts squeezed but still some initial margin call selling then tested higher and traded sideways in a tight range. Ecommerce leading as firms signalled compliance with anti trust and self examination requirements, but the rally is broad based. Currently +387pts (+1.4%) @ 28,886
Expect to open flat Eurozone important but investors will be watching for the US bank earnings to gauge the prospects for US earnings.
EUROZONE Industrial Production
GERMANY No data due
FRANCE IEA Oil Market Report
UK Labour Productivity
US Futures Opened in Asian time Dow +10pts, S&P +0.03% and NDX +0.02%
AHEAD MBA Mortgage Applications and 30 yr Mortgage Rate, Import & Export Prices, EIA Oil report, Beige Book.
Earnings: JPMorgan Chase, Goldman Sachs, Wells Fargo, Bed Bath and Beyond, Infosys, First Republic Bank

IMF downgrades growth forecasts for Indonesia, Malaysia, the Philippines, Thailand and Vietnam to 4.9% in 2021, down from its previous projection of 5.2%.

Cambodia Moha Songkran 2564!  (It’s Khmer New Year)

US pushes Japan to publicly back Taiwan at Biden-Suga summit
Washington wants leaders to issue joint statement of support as it courts allies to counter ChinaAn interesting read which sets out the pros and cons on what is a very tricky issues, especially with China seeking to confront Japan on the disputed Senkaku islands
Beijing hints at truce in war on Jack Ma’s business empire
Alibaba appears to escape tough punishment while Ant Group faces more severe measures; More on the unfolding saga.
LVMH benefits from demand for luxury goods in US and China
People are still treating themselves while travel and restaurants remain largely off limits'The quarter continues trends that have taken hold in the luxury sector since last summer with China and the US leading the recovery, while Europe remains mired in crisis.'

Minnesota hit by more unrest
A second night of protests in Brooklyn Center, Minnesota, after Sunday’s shooting by police of Daunte Wright. Tension in the Minneapolis-St Paul metro area was already high in the midst of Derek Chauvin’s murder trial over the death of George Floyd — a killing that sparked worldwide protests against racial injustice.
See Page 3 Minneapolis braced for more unrest after police shooting for more on the story

J&J halts vaccine rollout in Europe as US agencies review blood clots
• Six cases raise alarm • Fresh setback for EU campaign • Biden team bullish on targets
Similar to the issue with the Astra-Zeneca shot. But the Whitehouse was still confident of hitting its target of 200m vaccinated in Biden’s first 100 days.

Toshiba chief to quit after CVC’s $20bn buyout offer triggers boardroom coup. 
A surprise, as Nobuaki Kurumatani had managed to survive a crucial shareholder vote, albeit under dubious circumstances. It confirms, as was mentioned yesterday, that there was a boardroom fight taking place. The fact that some shareholders were disappointed with the CVC offer, an offer which, based on Nobuaki Kurumatani past actions may have been arranged using his past associations with CVC to help fend off activist shareholders.
The fact that KKR have also prepared a bid, with Brookfield also said to be interested would have complicated the issue, especially as the offer by CVC was outside their normal remit and would have been subject to intense scrutiny.It also I think reveals that the old guard of Japanese management is still ingrained in some firms. They will tolerate a lot as long as they feel it is in the best interest of the company but bringing a company’s reputation into question is still taboo. The questions over the background to the earlier shareholder AGM voting would have been a big embarrassment. The fact that Kurumatani quit before the board meeting suggests that he realised that there was no way back.

Page 2 Looks at mainly European issues
Europe’s economy adapts to lockdown life
Data raise fresh hopes of recovery for business and households despite curbs

French business struggles to clear Brexit hurdles
Companies across Channel from UK face red tape, delays, customs checks and extra costs.Seems the EU is suffering as much as the UK from Brussel’s policies.

Polish health system reels from third wave of coronavirus

Biden seeks meeting with Putin in effort to improve relationsNo specifc timetable but a proposal to meet in a third country.  Biden’s diplomacy skills coming to the fore but also aware of the increased tension in Ukraine currently.

Page 3 Syrian crisis cracks bedrock of support from Alawi minority
Sanctions and Covid strain loyalty of sect that staffs regime’s secret police and army

US consumer prices edge higher than forecast
I guess it depends on whose forecasts you were using, the inflation data was inline with the data from Trading Economics, which I usually refer to.
But the important point is that it isn’t showing a significantly stronger than anyone was expected. The Fed is still maintaining that any inflation will be temporary and that it will allow the economy to run how. I still believe they are focused on wage inflation rather than CPI; which they can tolerate as long as it is accompanied with growth.My concern is that the Fed and Treasury both believe that should inflation take hold that they have the tools to control it. The T10 eased to 1.66% from 1.68% reflecting the markets appreciation that for the moment inflation is not the major issue.

Japan to release tainted water from Fukushima plant into sea
A very controversial decision; 'condemned by environmentalists, fishermen and neighbouring countries.’ It still has to be finally approved by the Nuclear authorities but the government decision was the key. The issue is that they have run out of storage space and say that ‘there was no risk to human health and that operating nuclear plants around the world release similar water every day.’
They say the release will exceed safety standards and note 'The contaminated water has been treated with an elaborate filtration system to remove most of the radioactive material. But there is no practical way to filter out tritium, a radioactive isotope of hydrogen and the lightest element in the periodic table.’ Its half-life is 12.3 years.
It says they considered 'evaporating the water into the atmosphere or injecting it into underground reservoirs. But experts argued that diluting the water and slowly releasing it into the ocean was the only viable choice.’
But many think they are choosing the cheapest option.
China and S Korea have lodged diplomatic protests and local fisherman are worried about some countries banning the import of Japanese fish.
Personally I think the decisions is wrong if only because even diluting the contaminated water the reality is that we don’t know what the impact on marine life is going to be and the oceans are already under huge pressure from the impact of waste materials.It will be interesting to see how ESG investors react to Tokyo Electric and others involved in the process.

Page 4 Iran raises stakes with uranium move
Enrichment plans put efforts to revive nuclear accord in jeopardy

Ukraine and west try to guess Putin’s appetite for conflict
Ukraine and its western allies are once again trying to work out whether Vladimir Putin means war.  Read also in Companies & Markets Rouble sinks as Ukraine tension adds to jitters A slide of 3% in past month shows geopolitics overshadowing robust economic forecasts

Fears grow for Czech public broadcaster
Critics say appointments to governing body threaten network’s independence

Brussels defence chief warns of hit to security
The EU’s defence chief has warned that the pandemic has weakened the ability of militaries to respond to security threats, calling for a greater focus on technology and expanding international maritime co-operation.

Australia Post’s ex-chief accuses PM of sexismThe former chief executive of Australia’s postal service has accused the country’s prime minister of forcing her out of her job in the latest sexism scandal to rock the government.

Companies & Markets
Black attended meeting of top brass at Apollo after quitting
• Ex-chief present days after resigning
• Gathering restyled as ‘informational’
Lingering damage as the company tries to put all associations with the late sex offender Jeffrey Epstein behind it.
It is an unfortunate reflection of the media’s influence on business because Leon Black was cleared by an investigation of any impropriety and yet has still been pushed out ‘for the good of firm’. But you have to wonder if, suddenly, the firm that he helped built, can really do without his skills. I guess it reflects the moral hypocrisy that businesses adopt these days. Gone is 'innocent until proven guilty' and remember he was cleared. A shame really and a poor reflection on business and society.

Hitching a ride Singapore’s Grab to pick up $4.5bn with US listing in biggest Spac merger
Grab, south-east Asia’s most valuable start-up, has agreed to the largest-ever merger with a special purpose acquisition company, raising $4.5bn in cash to go public in a US deal that will value its shares at close to $40bn.
Follows a number of recent articles about the possibility of a Spac listing.  The timing is opportune ahead of recent concerns by the regulators. The company is well liked but yet to be profitable but has been helped by the pandemic.  Investors mentioned BlackRock, T Rowe Price, Fidelity, Janus Henderson, Abu Dhabi’s Mubadala, Singapore’s Temasek, 'a number of wealthy Indonesian family offices’, SoftBank and  Uber (who received a stake when it Grab its SE Asia operations) LEX Grab: seizing the day. Starts 'Grab is often referred to as south-east Asia’s answer to Uber, the US ride-hailing app. In reality, the Singapore-based start-up is Uber, DoorDash and Ant Financial all rolled into one.Its superapp status in the region, along with the abundance of blank-cheque money sloshing about, have helped Grab secure a punchy valuation despite hefty losses.’
This deal will inject more cash that could help it win its battle with rival Gojek; with whom it did have merger talks which would have created an extremely powerful regional internet company and reduced cash burn. But it didn’t happen. So the Spac listing may be the answer.
It concludes 'The price is steep but the growth story is appealing. Opportunities of this size are rare.’
Of course if Gojek can raise more cash the story may not be quite so appealing. A deal would be the best, as was done with Uber.

Virgin Atlantic fears long-term fall in business travellers
Key “Will business travel return in the same way? No, I don’t think so. But do I think there will be a return to business travel? Absolutely,” said the CEO.
Virgin Atlantic expects corporate travel to be 20% lower in the next two years vs pre pandemic.
Personally I think a lot of business people will be keen to get back travelling and make up for lost opportunities.
The more interesting question is how are the airlines going to charge?
Will they price attractively to encourage customers to return or aggressively to make up for lost revenue and to pay off debt? Or could we see new pricing plans more closely linked to actual demand.
Of course for international flights a lot will depend on where you are traveling between. Business travellers from Taiwan are likely to be more cautious because Taiwan contained the virus better than most. Travellers from Europe and the US who have come through a severe outbreak are likely to have an attitude that they can survive anywhere. With tourism the decision is increasingly likely to be affected by things like how the destination country has coped with the vaccine.
Even then it is difficult because headline numbers regarding the virus rarely tell the whole story.
Personally. I’m looking forward to travelling again. I think inoculations and an increase in pre flight testing will help along with the fact that most people are aware of the personal measures they need to take for the benefit of everyone.

Private equity targets Japanese assets under Covid’s long shadow
Looks at how due to covid PE firms are expecting more property deals to present themselves because covid has radically impacted the railways and the property portfolios they hold. But it goes further.
Japanese banks last year were encouraged to support businesses and the presumption was that the pandemic would be relatively short-lived but with Japan seeing a new surge in cases and with less than 100 days before the Olympics the base case has changed.
PE believes that the Banks are nervous about their current accommodation of corporate clients and that the banks will put pressure on clients to sell assets and pay down debt; thus given the PE firms opportunities to acquire once in a lifetime real estate assets.
It quotes Jefferies analyst Hideyasu Ban; 'The code to look out for in coming months, says Ban, is Japanese banks talking about increasing their emphasis on “financial consultancy” services to corporate clients. These are the routes through which the banks will raise pressure on companies to restructure with asset sales.’
It is a interesting and reasonable assumption but even with the current pandemic Japanese companies are for the most part well cashed up. They also are aware of the value of those prime pieces of real estate, especial those around the rail links. Furthermore in Japan although work from home has been recommended the size of apartments does not usually make it a viable option which is why so many offices remain open and the rail services well used. I think you may see a few deals of a peripheral nature but it will take a lot longer for them to think about selling the core assets.

China tech confronted with antitrust ultimatum
Looks at the impact from the record fine on Alibaba and the implications for the rest of the sector.
'The regulators said they looked on China’s online “platform economies” positively, but wanted to use the “cautionary case of Alibaba” to warn others.’
It notes 'Alibaba and Ant’s competitors, by contrast, have been given the one-month amnesty to conduct “comprehensive self-inspections” of their operations and “completely rectify” any problems, following which they would need to publicly promise to abide by the rules and “accept society’s supervision”.After the month-long penalty-free period, the regulator said it would conduct its own inspections and “severely punish” companies not in compliance. Representatives from the market regulators’ local offices in cities across the country also attended the meeting.’
This is likely to mean the Chinese Ecommerce companies come into closer alinement with Western ones as Beijing claims down on some of the factors that allowed them to become so successful so quickly. The bigger question is whether it will curtail their innovation going forward; I have a feeling it will; as companies become more concerned about avoid fines from Beijing they are likely to be more reserved about launching new projects.

Credit Suisse’s $1.2bn Gupta exposure
Lender discloses extent of assets in suspended supply-chain funds
More on the Greensill saga.

Security experts warn over bugs in popular software tools
Millions of “internet of things” devices using software from groups including Siemens and Microsoft contain security flaws that could be used to compromise government servers or hospitals, research has found.
An interesting read and makes sense as a lot of the simple connection devices and systems where designed when the internet was new and hackers were hardly considered. It is really only in the last 10 years that hacking has become more prevalent. Undertaking a complete IT review is increasingly likely to be something we all have to do more of, both at work and home, especially if you are allowed to work from home.
It focuses on Siemans and Microsoft but it affects everyone.
It concludes 'Etalle said the flaws “stand out” in particular as they impact IT as well as operational technology, the computerised systems used to control industrial operations. Fixing software issues in the latter is typically far harder than the former, as doing so can be costly and disruptive to critical operations.’

Efforts to cut emissions fall far short
No sector is cutting emissions fast enough to meet 2050 net zero targets, with some big companies increasing carbon intensities since the Paris accord, according to a climate action investor group.
Looks at the just released Transition Pathway Initiative (TPI) report. TPI is backed by more than 100 investors that manage nearly $25tn in assets.
'Catherine Ogden, manager of sustainability and responsible investment at Legal & General Investment Management, said the report provided “both comfort and concern.”
The rise in the number of companies that had set “credible” net zero targets to 35 from last year’s 14 meant “the ranks of corporate climate leaders are swelling”, she said.’

Danes charge six with dividend tax fraud
Danish prosecutors have charged three US nationals and three British citizens with defrauding Denmark by $175m in the latest action in a sprawling European investigation into dividend tax fraud. It revolves around 'hundreds of fictitious share trades through a German bank in 2014 and 2015 to reclaim dividend tax that had never been paid.’

Babcock to slash jobs as it takes £1.7bn hit
Looks at the recent trials for the company
Also Lex Babcock: rearguard action A generally positive view.

Test of crypto faith as Coinbase platform stages historic listing
Volatile transactional revenues in lightly regulated markets make for a valuation challengeCompany lists today on the Nasdaq; looks at how it has got to where it is now and where it might go in the future.Key points; as a company its difficult to value because it wears different hats.Its expensive to trade through and not the best for liquidity but it is reliable and has worked closely with the regulator and so dodged issues that have impacted its competitors.It is seeking institutional investors to give it more stability.Worth a read

Silicon Valley talent shelters from Covid in Taiwan
Foreign business founders aid effort to build a dynamic software start-up sectorLooks at Taiwan’s success at attracting talent for its tech start sector and using that to help local companies to go global. The lower costs in Taiwan compared to the US mean people are prepared to try ventures that would be too costly in the US thus creating a dynamic spirit.
But it concludes that whilst many came to escape covid; 'Start-ups are concerned that the wave of foreign talent could recede as quickly as it came. “We are all working against an invisible deadline,” Bach said. “Once vaccines become prevalent, most of the founders will leave. And we need to plant enough seeds before then to effect sustainable change.”’
Also Taiwan dollar slides under threat of manipulator tag by USTaiwan’s dollar has fallen sharply on growing expectations that the US will brand it a currency manipulator, despite the two strengthening ties in the face of an increasingly aggressive China.Biden administration expected to add country to name-and-shame list despite strengthening ties. Another delicate position for Biden to use his skills to resolve with the minimum of damage to their mutual interests.
Concludes ‘ Taiwan’s central bank declined to comment on the country’s foreign exchange policy. Even if the US does brand Taiwan a currency manipulator, some analysts believed Washington was unlikely to follow through with tariffs given the delicate nature of regional geopolitics. “It’s not just economics when it comes to Taiwan, it’s always politics,” said ING’s Pang.'
An interesting read

Huarong bonds tumble to record low following execution of former boss
The prices of bonds issued by China’s largest manager of distressed debt tumbled to record lows as global investor fears mounted over its financial health following the execution of its former chair for bribery.
Whilst there are obvious concerns it notes 'The group is majority-owned by China’s finance ministry. S&P believes there is a “very high likelihood” Huarong has benefited from “extraordinary government support”, which has helped it borrow at low yields on international markets. In 2015, it launched an initial public offering in Hong Kong after strategic investments by foreign investors including Warburg Pincus and Goldman Sachs.’
Bond defaults remain a closely watched issue as the Beijing tries to balance investors owning the risk and loses from investing and being able to attract foreign capital for its companies. There is no easy answer.

Activist fund Petrus starts proxy fight at Aareal
The London-based activist hedge fund Petrus Advisers has launched a proxy fight at Germany’s Aareal Bank by nominating three executives to the real estate lender’s supervisory board.

United Airlines taps investors for $9bn to repay some government bailout funds
Whist it is only repaying a small part it does show that the government’s action in supporting the airlines when they needed it was useful and that now they can raise funds from other sources they will be able to repay the government.

Private lenders face threat of EM debt traps by Mohamed El-Erian
It became clear last week that private lenders to some of the most vulnerable developing countries do not share the sense of urgency about the risk of sovereign debt traps that is felt in governments and multilateral institutions.Lays out '5 main factors beyond complacency are in play here that explain the relaxed attitude of private lenders.’
He concludes 'The official sector needs to maintain existing liquidity support, expand debt maturity extensions and bolster the common framework by adding sticks to what has been a carrot-based approach to securing restructuring agreements.
Private creditors must better differentiate and actively manage their risk-taking in EMs lest a generalised and passive approach end up unnecessarily undermining the asset class as a whole.
Building back a stronger, fairer and more sustainable global economy requires more refined involvement from both public and private creditors.’

FT BIG READ. US GAMBLING. Paying for the pandemic
State legislators are legalising online sports betting as part of their efforts to plug holes in their budgets, while operators and sports leagues seek new revenues. But a spike in addiction could lead to a backlash.
An interesting read and one wonders what the difference is between on line gambling and trading for many? Will the rise in availability of on-line gambling impact on-line investing. Time will tell but it’s an interesting read.

Editorial China’s high stakes engagement with Iran
A strategic partnership deal will raise alarm in Washington
Thinks the recent deal is 's perilous for both sides — and could be a new source of instability just as America is poised to end its “forever wars” in the region.’A good read; notes that the Iranian regime saw domestic opposition to the deal. Plus 'Beijing’s tendency to underdeliver on promised infrastructure projects and Chinese infringement on sovereignty in other silk road countries also pose risks for Iran’s leaders.’
For China it is trying to be friends with everyone; 'On the same trip that took him to Tehran last month, Chinese foreign minister Wang Yi visited Iran’s arch-enemy Saudi Arabia, as well as Turkey, the United Arab Emirates, Oman and Bahrain. Much deeper Chinese ties with Iran will cause consternation in Israel, Saudi Arabia and other countries in the region and could suck Beijing into conflicts it neither wants nor understands. A Chinese offer to host direct talks between Israel and the Palestinians looks provocative at best and naive at worst.'
It sees one of the key issues being 'China’s leaders have already made clear they believe the US-led west is in terminal decline, while China is on an inexorable path to “great rejuvenation”. The prospect of an axis of authoritarian countries — possibly including Russia — united in their antipathy towards America and the west is the stuff of nightmares in Washington and Europe. Intentionally or not, President Xi Jinping is constantly contributing to that impression with actions such as the Iran agreement and when he commands his diplomats to “dare and draw their dazzling swords” and the military to “fight and win wars”.’
There are other factors like oil supply routes; Beijing wants not only to ensure free supplies of oil free from US disruption but also the potential disrupt US supplies from the Middle East.
It notes 'Some within the senior ranks of the Chinese Communist party grumble this posturing could spur conflict with the US long before China can win.’
It concludes 'The Biden administration should resist overreacting to the prospect of an authoritarian alliance. In some ways, Iran’s deal with Beijing looks like attention seeking from Tehran, when all it really wants is a return to warming relations with the west.Indirect talks between Washington and Tehran in Vienna last week were a good start. Rejoining the Iran nuclear deal under acceptable terms should be a priority. But the Sino-Iranian agreement is a timely reminder for America that the end of its longest wars will not — and should not — mean the end of its involvement in the region.’

The US is too changed since the cold war to repeat it. By Janan Ganesh
Looks at why the US should not embark on a Cold War with China, which includes in his view trying to contain China. He worries that 'US Republicans of some rank talk up the “free world”. If the cold war trope was just a bad historical fit, it would be a merely academic irritant. But the risk is that it is also self-fulfilling. The US might talk itself into a posture that ignores how much its own society has changed.’
An interesting read but I think there is an understanding that a ‘Cold War’ is not practical option and is not being pursued. The US is aware of how interlinked trade is but it is still trying to pressurise China to accept the West’s rules based system and to get China to abide by all those international institutions; to respect its neighbours rights, human rights, the independence of Taiwan etc. Whether it is successful remains to be seem. China believes itself to be in the ascendancy and that it should be free from Western constraints. What the world needs is respect and consideration …on both sides.

Don’t get your flapper glad rags out just yet. By Megan Greene a senior fellow at Harvard KennedySchool
Looks at the re-opening post inoculation.
It concludes'Digitisation and automation may kick off a productivity boom, but this could sap economic growth. Large, superstar companies probably had the easiest access to capital for the shift. If so, market concentration will rise further, weakening competition and worker power and exacerbating inequality.
Automation also replaces some of the low-wage, low-hour workers hit hardest by the pandemic. People at the bottom of the pay scale have a greater marginal propensity to consume than those at the top, so this hits demand.
So, let us toast the reopening of the world and hope for a boom to follow. But it’s worth noting that the Roaring Twenties were followed by the Depression. Policymakers and corporate leaders must remember that parties and hangovers often go together.’
Worth a read.

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