Apr 7 FT IMF more +VE, International Tax, Grab & Spac, Chinese PE, Softbank robotics, Value back

07 Apr

MARKETs @ 1:45pm Hong Kong time. 
Markets generally encouraged by the IMF raising forecasts but China remains weak on PBOC tightening and deteriorating international relations. 
Pre market Constuction Index beat F/casts, PMI’s Services & Composite data improved MoM but missed F/casts, ASX 200 opened higher and rose to 6,933 in the morning before selling down into lunch. PM it worked its way back to close +40pts (+0.6%) @ 6,926
Constuction Index Mar 61.8 vs 57.4 Feb (F/cast was58)
Services PMI Mar 55.5 vs 53.4 Feb (F/cast was 56.2)
Composite PMI Mar 55.5 vs 53.7 Feb (F/cast was 56.2)
Nikkei opened higher and worked up to 29,870 in the am session but sold down to 29,520 level around 10:45am before bouncing back to flat at lunch. Opened higher but drifting lower  Currently +32pts (+0.1%) @ 29,730
Topix traded in a similar pattern currently +11pts (+0.5%) @ 1,965
Foreign Exchange Reserves Mar $1368.5b vs 1379.4b Feb
Due Leading Economic Index and Coincident Index
Kospi opened higher and worked to 3,146 around 10am before selling down to flat at 12 noon. Then worked slowly higher; currently +7pts (+0.3%) @ 3,136
Kosdaq opened higher worked to test 974 in early trades, then traded sideways (974/972)Currently +3pts (+0.4%) @ 972
Current Account Feb $8.03b vs $7.06b Jan (F/cast was $6.9b)
opened higher and tested to 16,816 in early trades but then sold down to flat, bounced but then sold down to 16,715 before working higher currently +76pts (+0.5%) @ 16,815
CSI300 opened lower and sold down 5,065 but 11am before a small bounce into lunch. PM opened at a similar level and trading sideways currently -60pts (-1.2%) @ 5,081
Due after market Foreign Exchange Reserves
Pre mareket opened @29,101 +163pts vs +69pts ADR’s but then sold down as investors reacted to the PBOC’s tightening of lending to Property Company’s and its impact on banks and other sectors of the economy. Financials and Ecommerce weak, Shipping companies firm along with some tech, domestic consumption names and Pharma.
Market sold down to 28,700 in the first hour before a small bounce into lunch. PM opened lower but bounced to 28,800 but then eased currently -215pts (-0.8%) @ 28,724
Expect market to mixed following the US overnight and the mixed handover from Asia; key will be the PMI data due today.
Futures indicate FTSE +13 points higher at 6,833, Germany’s DAX-22 points at 15,201, CAC 40 -8 points at 6,125 and FTSE MIB -45 points at 24,448, according to IG.
EUROZONE Services and Composite PMI
GERMANY Services and Composite PMI
FRANCE Services and Composite PMI
UK Services and Composite PMI
US Futures 
Opened in Asian time slightly higher Dow +27pts  S&P +0.05% NDX +0.04% and have worked slight higher Dow +51pts, S&P +0.13% and NDX+0.2%.  FOMC minutes in focus tonight.
Data due MBA Mortgage Applications and 30 yr Mortgage Rate, Balance of Trade, Export, Imports, EIA Oil Report, FOMC Minutes, Consumer Credit Change.

Covid clouds Peru’s election. 
Calls for Sunday’s general election to be postponed due to covid.
See also page 5 Peruvians head to polls yet again as Covid ragesMany voters unsure of which presidential candidate to pick in fifth election in five years

Credit Suisse fires top executives over $4.7bn Archegos fiasco losses
• Seven senior staff axed • Dividend cut and buyback suspended • Two probes launched'In a staff memo, the lender also announced a string of departures from the markets unit, including the heads of equities trading, prime service risk, credit risk, counterparty credit risk management and counterparty hedge fund risk.The moves follow similar departures in the asset management business last month tied to the Greensill funds.’
See also LEX Credit Suisse/Archegos: prime stumbler.  Calls for regulators to investigate the prime broking industry,  in theory PB’s hedge all exposures but hedges are rarely perfect and traders looking for addition profit can abuse the system.It concludes 'Thomas Gottstein has been chief executive for just over a year. He should be able to hang on — provided he tightens and centralises risk controls. A thinning out of underlings associated with Archegos and Greensill must continue. Target CET1 should rise to a safer 13 per cent. Credit Suisse will need a spotless record for years to lose its share price discount.'

Goldman bought £75m of Deliveroo shares to lift price on market debut
'The purchase by Deliveroo’s underwriters equates to nearly a quarter of the value of shares traded during its first two days as a public company last week, according to Bloomberg data.’
'The £75m of shares bought by Goldman, when used with the “overallotment” reserved to stabilise the IPO, meant the bank should have booked a profit from Deliveroo’s declining share price. This is because brokers sell more stock than their allotments at the issue price and then cover their orders either by exercising the overallotment option or, if the shares fall, by buying in the market at a lower price. The difference between the 390p issue price and whatever Goldman paid in the market equates to the profit booked on the trade.
But these profits will be surrendered to Deliveroo, as part of an agreement between the pair not disclosed in its IPO prospectus, people with direct knowledge of the matter said. Goldman and Deliveroo declined to comment.’
Deliveroo closed Tuesday -0.7% @ 280p that is 4p below where it closed on the first day of trading. Today is the first day of trading for the 70,000 retail clients who took shares in the IPO.

Page 2
Kremlin critic Navalny seriously ill in prison, says lawyer
It will be interesting to see whether the authorities relent and allow him the medical attention he is seeking. 'Police later detained Anastasia Vasileva, Navalny’s doctor and the head of his Doctors’ Alliance trade union, three other supporters and journalists from CNN and the EU funded Belarusian news channel Belsat.’

Pandemic helps reverse southern Italian brain drain
City lockdowns and shift to remote working prompt move back to the region
An interesting read but how permanent the situation becomes will depend on attitudes once the pandemic is contained. It will also require increased spending on infrastructure to provide the support services required.

Page 3
IMF sounds optimistic note for advanced nations
Vaccines and rises in public spending lauded but emerging economies’ outlook is less rosy.
The global recovery it expects two years of rapid growth (this and next year) and it has revised down its expectations of global contraction. It’s report suggests that the post pandemic landscape will be very different from the post 2008/9 financial crisis, with advanced economies having little scarring. It sees growth in the US without inflationary pressures. BUT for some countries and social groups the economic pain will be harder than for others. Europe was seen as a laggard but expected to have caught up by 2024. Emerging economies ex China are likely to take longer, especially those will limited access to vaccines and a dependancy on tourism. Adding to their plight was the interruption to schooling which would have a severe future toll.
It concludes 'Gopinath (the fund’s chief economist) said there was little cause for immediate concern about unprecedented levels of fiscal stimulus on both sides of the Atlantic driving a rise in inflation, because global forces were likely to keep a lid on price rises and there was no sign yet that central banks or governments would lose control.’
A quite upbeat report which largely assumes that the virus can be contained by the inoculation programmes and that we do not get any major variants. But the specifics at ground level are likely to be tougher as businesses rebuild.
See also Editorial The uneven road to coronavirus recoveryIMF says stimulus has limited medium-term impact in rich countries

International corporate tax deal edges closer
More countries join Yellen’s call for international taxation of multinational companies. Previously stagnant talks at the OECD are being revitalised due largely by the change of administration in the US which seemingly less concerned about being able to solely tax its tech giants.Biden wants to raise the corporate tax rate to 28% with a minimum global rate of 21% levied on anything made in a country with a lower rate. Key is that would force some tax havens or those will low corporate tax rates to raise their rates to that minimum level.
Key for the US is a global deal to stop US companies moving their domicile to avoid the US rules.
Willingness to allow other countries to tax US firms is the key difference between Biden and Trump and that difference makes a deal more likely.A slight -VE for US multinationals, especially the ecommerce names, as this would probably mean that pay more taxes in countries where they generate sales.

Page 4
Pakistan opens talks to ease India tension
Negotiations facilitated by UAE include possible moratorium on Kashmir
Both have good reason to make a peace deal as their economies need reviving and Modi has the added pressure of conflict on his border with China.
A deal would also redefine the risk map for Asia in downgrading this potential flashpoint.But it will not be easy, in the past talks have been upset by terrorist actions in both countries and the issue of Kashmir is not going to be easily resolved. But the use of back channels to get talks started shows a willingness on both sides is encouraging.
For China it could be a negative as it has been giving Pakistan significant support as part of the Belt and Road Initiative. If Pakistan moves closer to the west that would be further loss of face for President Xi.

N Korea’s withdrawal from games dashes detente hopes
Citing concerns over Covid and dashing hopes that a joint team with S Korea could help in resolving issues between the two parts of Korea and the international community.It notes 'Analysts said a change in North Korea’s stance was unlikely in the near future, as the pandemic, coupled with sanctions, flood damage and Kim’s economic policies, had aggravated its economic woes.’

Companies & Markets 
French and Italian banks revive ‘doom loop’ worries
• Record exposure to sovereign debt
• Fears over monetary union faultline
The ‘doom loop’ is the vicious circle between private sector lenders and governments where they weaken each other and ultimately threatened the existence of the single currency zone.
It was first highlighted in the EU’s during the sovereign debt crisis 10 years ago. 'Banking regulations treat sovereign debt as a risk-free investment for banks, allowing them to allocate zero capital against such assets. By borrowing money from the ECB as cheaply as minus 1 per cent, there is an easy “carry trade” for banks to make money from buying government bonds.'
An interesting read

Bon voyage Paris puts aboard up to €4bn of state aid to stabilise Air France-KLM
Further aid to try and navigate the airline through the covid crisis. Could mean its stake in the company rises to 29.9%. Worth noting the aid only benefits the French element of the partnership. Holland is not participating.As part of the deal Air France has to give up 18 take-off slots (down from the 24 originally sought), France agreed to work out an exit strategy within 12 months and until the recapitalisation was redeemed, Air France was banned from paying dividends and making share buybacks. There are also limits on pay and bonuses.
It underlines how much pressure most airlines are under, the exception being the US airlines where there is a higher reliance on domestic travel and hence less covid disruption with regard to quarantine.
Also worth noting that Australia and New Zealand have agreed a travel bubble which will be +VE to Qantas and Air NewZealand.

Singapore’s Grab to list in biggest Spac merger
Grab, south-east Asia’s most valuable start-up, is set for the largest merger between a private business and one of Altimeter Capital’s special purpose acquisition vehicles as soon as this week. The deal could value the SoftBank-backed technology group at about $35bn
.A test case for an Asian Unicom going public and if approved it would be biggest deal globally.
An interesting read that explains much of the process and will be an interesting case to watch.

Tech eases plight of the needy in region hit hard by pandemic
Looks at how Latin America in addition to being hither by covid has also seen a boom in tech helping the economies to be more competitive and helping people.
Focusing on fintechs providing bill payments and money transfers at cheaper rates than the banks along with edtech and health tech. That extends to solar powered lap tops
.'Overall, though, there is a sense that, for all the horrors of coronavirus, the tech sector’s development will be remembered in Latin America as a positive gain.’
See also Brazil Notebook Love affair with tech leaves opening for data theft by Bryan Harris

Pandemic has led to surge in French cyber attacks, says Thales chief
Hackers are taking advantage of the pandemic to cause more chaos and profit from it, seen in a fourfold jump in cyberattacks.
Thales said its rapid response team had seen an almost doubling of incidents. They attributed part of it to home working that increased the opportunity for hackers. It notes that State lead hacking had also increased.
As I wrote the other day top US cyber people are considering retaliatory attacks on some state lead hacking countries in order to make it clear that such action would have consequences. At present there is no real punishment for such actions.
For Thales which is involved in aerospace, transport and digital security, it reported like-for-like revenues down 10% and operating profit -33% YoY in 2020. For it the rise in prominence of digital could be an important driver.

Chinese private equity groups seek record fund raisings as international investors pile in
Looks at the launch of a number of Chinese investment funds as investors seek to increase their exposure to the country.
Boyu, co-led by the grandson of former Chinese president Jiang Zemin, which is targeting a new $6bn fund.
Primavera, run by Fred Hu, the former chair for greater China at Goldman Sachs, is raising a new fund of up to $5bn.Both funds were investors in Ant Group and other Chinese tech start ups and are backed by 'large US, Canadian and Middle East pension plans, endowment funds and sovereign wealth funds,'
FountainVest Partners, which targets China deals and is led by former Goldman Sachs banker Frank Tang, is seeking to raise $3.5bn
Other recent raisings that are more regionally focused include
Baring Private Equity Asia last month opened a new fund seeking $8.5bn
Hillhouse Capital, raising what would be Asia’s largest US dollar fund targeting $13bn.
KKR announce, yesterday, that it had raised $15bn for its fourth Asia Pacific fund — a record for a fund in the region — exceeding its $12.5bn target.
Investor interest on the back of its already strong recovery although there are concerns over high valuations with markets trading near five year highs. But the Private Equity sector is growing fast in China especially USD funds building on the successes of recent years and the growth of Chinese leadership in tech and tech healthcare. Money coming from US and Middle East especially. Those areas are still the main focus despite the recent increased scrutiny and regulation of the sector
The rise in private equity comes as most Asian funds have seen a decline of new inflows.
I think the current focus comes after last years strong performance when a lot of international money was underweight China and more focused on protecting existing investments. The mood has now changed and people are again looking for opportunities. But some long time investors are looking for the next ‘China’ having risen the rising wave of the last few years. Looking at other regional markets especially those that will benefit from supply chain reorganisation. But few will abandon China completely due to its leadership in tech for banking (despite the crackdown post Ant Group’s IPO) and online health. Plus with a growing middle class the potential remains good.

SoftBank invests $2.8bn in robotics group AutoStore
Taking a 40% stake in the Norwegian warehouse automation group, buying the stake from 'US private equity group Thomas H Lee Partners and Sweden’s EQT in a deal valuing AutoStore at $7.7bn.’In a statement Softbank said “We view AutoStore as a foundational technology that enables rapid and cost-effective logistics for companies around the globe,”
'Founded in 1996, AutoStore is known for “cube storage automation”, a technology that allows robots to maximise space in warehouses. It has 20,000 robots deployed across 35 countries with a client base that includes German conglomerate Siemens, Japan’s Panasonic and US retailer Best Buy.'
See also LEX SoftBank/AutoStore: logistic logic  Opens with 'SoftBank’s Pepper robot may be famous but it adds little to the bottom line. Until now, chief executive Masayoshi Son’s interest in robot-enabled tech has not been his most profitable. That may now change.’   But AutoStore has many rivals (Japanese Daifuku and Honeywell Automation India, Honeywell Intelligrated and Murata Machinery). AutoStore is also in dispute with Ocado over IP theft.  It concludes 'Then there are SoftBank’s own bets on US warehouse robotics company Berkshire Grey and Indian logistics start-up Delhivery. Its focus on near-term profitability may be new, but its habit of investing in rivals for the same prize appears harder to break.’  

Investors reap huge rewards from Covid-crisis bonds
Those that gambled on debt of pandemic-hobbled groups have made outsized returns.A look at the amazing returns that have a been achieved from being prepared to invest when the future was uncertain.
'“It is astonishing,” said Shannon Ward, a portfolio manager at Capital Group, an asset manager that invested in multiple bonds issued at the time and owns nearly 10 per cent of the Carnival bond, according to recent regulatory disclosures. “Back then, in April last year, there were a whole lot of questions about how these companies could make it. Issuing bonds into that uncertainty, you had to put a hefty coupon on it. It was a very difficult time.”’
Now many companies are restructuring to take advantage of a better outlook and lower rates.
It concludes 'Investors warn that, with so much positive expectation built into the market, the risk for disappointment — which translates to prices falling — is high.“The question mark is what comes after the euphoria of fiscal stimulus wears off,” said Smith (director of US high yield at AllianceBernstein).’
An interesting read.

Maverick among funds riding value-stocks rally
Back in October we were writing about the demise of the value fund as some long term value lovers 'threw in the towel’ like AJO Partners and yet now those value plays are the darlings of the market. In addition to Maverick it mentions Sydney-based Platinum Asset Management and New York-based Axonic Capital.
It concludes 'However, some managers now question whether recent gains mean the rally in value stocks has run its course, at least for now.
Maverick expects the rally has come to an end and that big tech stocks with stable growth look attractively valued again, said a person familiar with its positioning.’
I think that few expect the big tech stocks to dramatically under perform but that they are unlikely to continue to produce the same performance that was seen last year and so a rebalance is required. It is also worth noting that we haven’t seen a significant reweighing of equities vs bonds in portfolios again suggesting a new regime is in place.

Clearing system faces rivalry from blockchain technology
'Credit Suisse and broker Instinet said yesterday that they had settled privately negotiated stocks deals on a blockchain for the first time, speeding up the completion of share trades to just a few hours compared with the current system of two days.The deals bypassed the clearing infrastructure of the Depository Trust and Clearing Corporation, which clears and settles all US equities transactions, and were handled by Paxos Trust Company — a specialist in cryptocurrency technology and custody services.’
Another example of where blockchain can speed up currently clumbersome systems.
The article notes that a quicker system also lowers the amount of collateral needed in the clearing system.
For me the next stage would be to see blockchain used in the order placing systems to prevent over selling or illegal short selling by being able to ‘check’ the client does have the shares.

Threshold high for any further Fed intervention
Looks at what it would take for the Fed to act. It notes the Fed is currently happy sitting on the sidelines. An interesting read but for me I think the Fed is looking at wage inflation and until that starts moving it will be happy to wait on the sidelines.Does mention that the Fed may be currently occupied in trying to work out exactly how it will go about extracting itself from a market in which it has become so embedded.

For interest Griffin hails Citadel’s fitness to defy crisis
Founder says US hedge fund is better placed than rivals after ‘firing on all cylinders’ to return from brink of collapse.Insight into the firm and its success.Nice quote 'Jack Woodruff, who left Citadel in 2019 to set up his own hedge fund, describes Griffin as “tough, but fair” and the firm as Darwinian: “If you do well you’re rewarded, and if you don’t, you’re fired. It’s not a political place at all. It is capitalism in its purest form.”’
It concludes 'Nonetheless, in a veiled barb at many of his competitors, Citadel’s founder is vehement that he will not compromise on returns just to amass a bigger war chest. Instead, the hedge fund is investing in areas such as machine learning, corporate bond trading and better data to steadily expand the productive capacity of its various strategies over time.“We’re always trying to improve our ability to predict tomorrow, next week, next month, next quarter and next year,” said Griffin. “[But] I would rather engage in the pursuit of excellence than the pursuit of assets.”’
A good read.

FT BIG READ. AMERICAN POLITICS. Is New York turning on the rich?
In a city renowned for its ability to attract talent, progressives want the wealthiest residents to pay more tax. But some are threatening to leave for Florida, fraying the ties between business and labour leaders.

Central banks must not target house prices By Robin Harding
'The worldwide fall in interest rates over the past two decades has caused a runaway boom in house prices. Therefore, it makes sense to raise interest rates so houses become affordable again. The first of these statements is almost certainly true — but the second does not follow. It would in fact be a disastrous mistake.’
It concludes
'Fundamentally, all of these policy ideas — higher interest rates, taxes, or restrictions of various kinds — are about reducing demand for housing. But how does suppressing demand for something people want make us better off? When demand for something rises, the only sane, logical, sustainable, free market response is to make more of it.The politics may be uglier than blaming central banks, but for New Zealand and other countries wrestling with expensive housing, there is only one real answer: tackle nimbyism, cut planning regulations and let people build more houses.'

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