Apr 8 FT Default template in China, Tencent stakesale, Bain & Hitachi Metals, CVC & Toshiba

08 Apr

MARKETs @ 1.30pm Hong Kong time
ASX 200 opened higher, worked higher to 7,102 but then drifted lower currently +60pts (+0.9%) @ 6,988
Nikkei opened lower, despite good pre market data as covid cases surge and caution ahead of earnings that lick off next week.  It sold down to 29,516 in the first hour before rallying back to test 29,650 only to ease lower into lunch.  PM open lower but retested 29,650 resistance, again eased back Currently -91pts (-0.3%) @ 29,640
Topix traded in a similar fashion, initially selling down to 1,950 and then trading sideways into lunch. PM opened lower and currently -18pts (-0.9%) @1,949
Some initial profit taking after Fed minutes and news average monthly household spending fell 2.3 percent on year in 2020 as the COVID-19 pandemic hurt private consumption but news that Fitch raised its ratings on Hyundai and Kia helped along with the positive prelim readings from LG and Samsung.
Kospi opened lower and sold down to 3,122 in first 30 mins but then rallied and worked higher to test 3,145 around midday but then reversed and currently -3pts (-0.1%) @ 3,135.
Kosdaq traded in a similar pattern but open higher, sold down to 970 then rallied to test 980 several times before easing back; currently +5pts (+0.5%) @ 979
opened lower and tested 16,750 in early trades following mixed US and concerns about increased tension with China but then worked higher initial resistance at 16,900 but then pushed through currently +101pts (+0.6%) @ 16,916
CSI300 opened lower but rallied into the green in early trades only to sell down before rallying back into the green and working slightly higher. PM has eased back currently +6pts (+0.1%) @ 5,110 Looks like Team China at work as PBOC policy and poor international relations overhang the market.
Pre mareket opened @ 28,604 -71pts vs -153pts ADR’s outworked higher through the morning to 28,962 but eased back into lunch. PM initally dipped currently +250pts (+0.9%) @ 28,923
Expect markets to open higher following a mixed Asia. Futures indicate FTSE is +21 points higher at 6,907, DAX +50 points at 15,235, CAC 40 +22 points at 6,154 and Italy’s FTSE MIB +152 points at 24,575, according to IG. PMI data will be important along the European covid data and then later US initial claims.
FT Lex’s UK stocks: happy domesticity; suggests that stocks are favourable on a relative basis but concludes 'Even liquidity is not assured at a time when financial collapses such as Archegos and Greensill are delivering small shocks to the system. Prudent investors should heed the old advice of “sell in May and go away”, even if that means a holiday cottage in Cornwall rather than a prohibited trip abroad.'
Data due
EUROZONE Construction PMI, PPI
GERMANY Factory Orders, Construction PMI
FRANCE Balance of Trade, Current Account, Construction PMI
UK Construction PMI
US Futures 
Opened in Asian time Dow +20pts,  S&P and NDX +0.1% but have worked better Dow +37pts S&P and  NDX +0.3%Data due Initial Claims, Four Week Average Claims, Continuing Claims,EIA Natural Gas Report.

Bain nears $8bn deal to buy Hitachi Metals    
Potential sale is latest sign of rising global private equity interest in Japanese groups.
The deal could also help Hitachi with its acquisition of US software engineering group GlobalLogic.'The Bain-led consortium includes Japan Industrial Partners (JIP) and Japan Industrial Solutions (JIS). JIP was set up almost 20 years ago with investments from lender Mizuho and Bain. It has been involved in the acquisition of a range of Japanese industrial gems, including Sony’s Vaio laptop business and the defence equipment subsidiary of NEC. JIS is a private equity asset manager set up in 2010 with capital from Japan’s largest megabanks.'In the vain of the CVC bid for Toshiba; Japan is seen as an acquisition rich environment.
Foreign investors face critical legal test for $82bn in China bonds
Restructuring of state-linked group could signal how Beijing plans to handle rising defaults
Looks at the case of Peking University Founder Group (PUFG) which a is subject to Beijing court-ordered restructuring of the group is expected by late April. Treatment of foreign bond holders is in focus by investors that collectively have taken on $82bn in China-issued debt backed by so-called 'keepwell deeds’. Out of concern the Beijing court will not recognise these debts, investors in PUFG’s dollar-denominated bonds have launched at least two legal challenges in Hong Kong.Concludes. 'But the process is further complicated by questions over what role the Chinese Communist party may be playing behind the scenes. There is a lack of clarity over what impact this might have on foreign bondholders. According to Cercius Group, a Montreal-headquartered consultancy specialising in elite Chinese politics, PUFG and the powerful Jiang family and its related factions have maintained their ties over several decades. “The scrutiny that has been placed on Founder Group in recent years by the party is, of course, not solely because the company’s finances are a mess, but also because of the factional affiliations of Founder Group's successive generations of senior management,” Cercius said.'An interesting read and will be case study for other companies in default.

UK advises under-30s to take alternative to AstraZeneca jab
• Abrupt shift in guidance • EU regulator sees link to blood clots • Maker defends benefits
A reminder that these vaccines have been produced in record time and that there are risks. So far the genetically engineered ones haven’t shown any side effects but it could be a matter of time. However the medical advice remains better to take the vaccine than not, but for those in the 18-29 age range even better to take one of the alternatives.
AstraZeneca’s share price was-1.2% Wednesday and has beendriting lower since 29 March.See also
Page 2 EU regulator to probe Sputnik jab trials
Agency to check whether Russian testing adhered to ‘good clinical practice’ Concerns whether test subjects were forced or coerced into the trial. Does not look the trial results.
Also India vaccine exports to restart in June if domestic infections fall. Comes as new cases in India hit 115,269 on Tuesday, accelerating after the Holi festival last week.

Dimon pictures a Goldilocks economy and backs more government spending
His annual letter to investors was upbeat 'asserting that high savings rates, stimulus programmes, a potential infrastructure package and “euphoria” over the end of the pandemic were set to turbocharge growth.’ He did caution that an oversupply of US debt could hurt Treasury prices and that the money needed to be spent wisely. He didn’t comment on the infrastructure plan but did say the US needed a competitive tax structure.
US markets continue to traded at or near highs and the FOMC minutes confirmed the accommodative policy looks set to remain in place for the foreseeable future.

Page 3
Yellen pitches increase in US business taxes as ‘mutually beneficial'
Comes as corporate America resists the proposed tax changes which would fund the new infrastructure spending.
She said “America’s corporate tax system has long been broken, so too has been the way we think about corporate taxation: tax reform is not a zero-sum game, with corporations on one side and government on the other, There are policies that are mutually beneficial. Win-win is a very overused phrase, but we have a real one in front of us now,”
The US Treasury suggested that 'the proposal aimed to increase US corporation tax to 28 per cent, and put in place a minimum tax of 15 per cent on book income on top of any company’s regular tax liability. Book income, which is the profit reported to investors, is often higher than the taxable income reported to the US tax authorities, Treasury officials said.’
The key is, I think that Yellen is right, a lot of the infrastructure spending will benefit business directly. The reality is that it will be tougher getting this through than it was the personal stimulus but I think a lot of individuals support the move, especially having seen big business making record profits throughout covid.
See also Editorial Biden’s infrastructure plan is more than that  The US president is undertaking a wide programme of reform

Turkey rebukes China ambassador in rare dispute
Tweets against policy on Uyghurs are defended by Ankara but anger Beijing
Comes as 'Meral Aksener, chair of the centre-right Good party, and Mansur Yavas, Ankara’s mayor, tweeted to mark a 1990 Uyghur uprising in Xinjiang’The Chinese embassy responded by tagging the Turkish politicians and saying it “opposes and violently condemns any sort of challenge to Chinese sovereignty and territorial integrity by any person or power”.The Chinese foreign minstry’s spokeman said '“some people in Turkey made wrong remarks on Twitter that brazenly encouraged terrorists”, adding: “The response of China’s embassy in Turkey was absolutely appropriate.”
Turkey has the largest Uyghur community many having fled the Chinese crackdown. But the Turkish government has pursued closer links with China and gets most of its covid vaccine from China.The move puts it in a delicate position as it looks to ratify an extradition agreement with China. The article quotes Cagdas Ungor a University lecturer “There is a growing gap between government policy and public opinion but economic pragmatism and other factors limit Turkey’s ability to manoeuvre.”
China maintains that there is nothing untoward happening in Xinjiang but still has not arranged access for a UN team. That would be a far better way of silencing international criticism than the current ‘wolf warrior’ diplomacy and if what China is saying it true vindiciate China and enhance its world standing.

Page 4
IMF urges tax on profits made during crisis
Fund calls for symbolic short-term levy on companies and individuals'
A temporary tax would help to reduce social inequalities that have been exacerbated by the economic and health crisis of the past year, the fund said in its twice yearly fiscal monitor yesterday. It would also reassure those worst affected that the fight against Covid-19 was a collective endeavour within societies.’
It’s a nice idea but unlikely to get any traction.

G20 extends debt relief deadline for poorer countries
Scheme has helped 46 nations defer estimated $12.5bn in repayments to lenders
Seen as a positive move but many think more needs to be done, this is just an extension to the payment period the debts still need to be repaid. The meeting did call for the 'a new $650bn allocation of the IMF’s special drawing rights, a form of reserve asset that countries can sell for cash.’It concludes '“Economic fortunes are diverging dangerously,” Kristalina Georgieva, IMF managing director said , adding that there was great uncertainty over the emergence of new strains of the virus and over shifting financial conditions, raising the risk of economic scarring and extreme poverty in the worst-affected countries.’
Everyone is aware that poorer countries are and will suffer more in the pandemic but finding ways to properly help them both cope with the pandemic and develop are fraught with complications.

US broaches boycott of Beijing Winter Olympics
Would be a protest linked to the situation in Xinjiang and one that the US is intending to discuss with others before making a decision, stressing again that the administration is keen to work with friends and allies in global policy. This new policy will put China under more pressure as it will be unable to single out countries for retribution.
It does say 'The US Olympic & Paralympic Committee on Monday said it opposed any boycott. “They have been shown to negatively impact athletes while not effectively addressing global issues,” it said. “We believe the more effective course of action is for the governments of the world and China to engage directly on human rights and geopolitical issues.” Whilst that is true S Africa only really saw change through the action of sanctions, which included being barred from international sports.
Not mentioned in the article but China’s foreign ministry warned that the world would not accept a boycott.   But it is difficult to see how you cannot accept a boycott?
For China it would also be a big financial hit, just as Japan and Japanese companies are finding out from the delay to the Summer Olympics. For China the situation would be exacerbated by the PBoC’s latest policy of limiting loan growth to flat YoY in 2021. A lot of money has already been invested so the stakes are high.

Google accused of illegal Android tracking
Austrian privacy activist Max Schrems has filed a complaint against Google in France alleging the US tech giant is illegally tracking users on Android phones because it does not have their consent.
It the latest in a series of actions against the Apple and Google about tracking. It refers to the fact that android phones generate unique advertising codes, similar to Apple’s Identifier for Advertisers (IDFA). His group has filed the action in France because 'its legal system is well suited to handling complaints under the European ePrivacy directive. Noyb also had concerns over the effectiveness of the Irish data protection authority.’
I guess most people will not worry about the tracking issue until they do something where it is used against them. For most people the convenience of having the mobile phone is paramount.

Party opposed to rare earths project wins poll
Greenland voters have rejected a government that backed a rare earths mining project, handing victory to an opposition left-green party for the second time since the island gained home rule from Denmark in 1979.The election was called due to a political split 'over the Kvanefjeld mining project in the south, where there are large deposits of rare earths, used in smartphones, wind turbines and fighter jets, but also radioactive uranium.’ The Inuit Ataqatigiit (IA) party was opposed to the mining of uranium but is open to other types of mining and oil exploration as means to finance its independence from Denmark.
Kvanefjeld is owned by Australia’s Greenland Minerals, in which the Chinese rare earths producer Shenghe Resources is the largest shareholder, and so the result is a slight -VE both for Shenghe Resources and China as it jostles with the US and Russia amid a geopolitical tussle for control or influence over the future of the Arctic and the natural resources that are believed to be present there.
A key point is that Mute Egede leader of IA stressed “It will be difficult. Our main message is that we don’t want to see more militarisation in the Arctic.”

Companies & Markets
CVC looks to take Toshiba private with $20bn offer
• Bid fight looms with KKR and others
• Biggest Japan buyout deal in prospect
The news saw Toshiba shares rally 18% Wednesday, taking it to December 2016 levels where it was before the series of events that have plagued the company started (profit padding, almost bankrupt and most recently seeking to influence the annual shareholder vote).Taking it private would alleviate it from the pressure of activist shareholders but I would expect some of the changes those activists are seeking would take place. It also highlights that firms like Bain and KKR see Japan as the most ‘target rich’ of markets.
The article notes that 'CVC is no stranger to Toshiba. Ex-banker Kurumatani was president of the European fund’s Japanese arm before taking the helm at Toshiba. Yoshiaki Fujimori, an adviser to CVC in Japan, is a member of the Japanese group’s board.’
Toshiba’s involvement in Japan’s nuclear power industry means that a takeover would require government approval.
See also Tokyo Notebook. 
A Toshiba delisting would shame the exchange. Basically because the exchange did little to punish Toshiba wrong doing despite having the means to do so.  It concludes 'If Toshiba delists, the message will be that governance issues, corporate realignments and potential scandal are all best handled out of the glare of investor scrutiny.The TSE’s placations of Toshiba were based around an unspoken pact that neither it, nor the company, nor Japan in general could possibly afford for such a cornerstone corporate name to be unlisted. If Toshiba breaks its side of that bargain, the TSE will have allowed its credibility to be undermined by a company that, at certain times, offered grounds to heed old adages.’
Also LEX CVC/Toshiba: acid test of good intentions
Thinks CVC’s bid opportunistic and for CEO Nobuaki Kurumatani opportune; as way to escape the spot light on his bad deeds. But it will not be easy. But does highlights the breakup value is where the value is and that is true of other Japanese companies too; notes 'Toshiba holds a 40 per cent stake in Kioxia, a chip group. That alone could be worth a big chunk of Toshiba’s market capitalisation. Bullish analysts suggest Kioxia might be valued at more than $36bn in its expected listing.’
It concludes 'A buyout and break-up would be difficult. Japanese takeover law is unfriendly to acquirers. Sensitive tech like chips and nuclear power means a foreign purchase would need government approval. For Tokyo, CVC’s interest in Toshiba is bittersweet. Ministers have seen activists as a force for good in improving shareholder returns, but activism can trigger break-up bids that irk some voters. CVC’s approach has potential to stand as a test case of Japan’s priorities.'

Tencent’s biggest backer to offload 2% stakeholding
Prosus, the Dutch-listed international arm of Naspers that holds the Tencent stake, said yesterday that cash from the sale will “increase its financial flexibility to invest in growth” in an emerging-market internet empire that extends across Indian online payments, South American food delivery and Russian social media. 'The offering to institutional investors, made just after a three-year lock-up expired on a first sale of shares in 2018, is “understood and supported by Tencent”, said Prosus, which pledged to avoid selling for another three years.’ It will still hold 29% of Tencent, and its holding still dwarfts Naspers $100m market capitalisation which is why it was restructured into Prosus. The block was placed at prices of $575-595 per share, representing a 5.5-8.7% discount to the closing price $629.5 today, to cash in up to roughly $114.175 billion, according to sales prospectus. Today Tencent is -0.9% @ 623.50. It’s recent highs in January and February were around the HK$775 level.

HSBC nears painful sale of ‘fallen angel’ French retail bank
An example of how much banking has changed since 2000 when HSBC bought Crédit Commercial de France. Makes the point that what’s being sold is very different to what was bought and that HSBC group have had some benefits and is keeping the attractive private banks and asset management operation.
An interesting read.

Bearish calls under pressure after dollar’s buoyant run
Trading index records best performance in nearly three years despite analyst forecasts
Most analysts evidently expected that this year the USD would weaken in the light of US government and FOMC policy. But its strengthened wrong footing those that had gone underweight, them covering such positions has added further support to the USD.It has gained against the Yen, Euro and renminibi.
The move has almost meant that for some international investors US Treasuries are very attractive, the Japanese especially.An interesting read and some analysts are sticking to their bearish calls whilst others think the US economy’s robust recovery will continue and that will make the USD attractive and strong.

US investors warned to rein in Fed rate rise bets 
A strong recovery both economically and in the labour market is prompting some to think the Fed will tighten sooner not later.
An interesting read and clearly there is a lot of uncertainty, key I think is the investors keep alert to what the Fed speakers are saying. The Fed does not want to scare the markets or generate tantrums. It has said it will keep the market informed in good time before any change in policy and a willingness to let the economy run hot. I believe they are focused on wage inflation and hence will to except overruns in other areas before tightening.

Amundi nears deal to buy Lyxor for €825m in swansong for Perrier as chief
It has entered exclusive talks to buy Lyxor from Société Générale in a cash deal worth €825m that will better equip it compete against aggressive US rivals that are expanding in Europe. A good move for Amundi in my view and one that will give incoming CEO Valerie Baudson a good platform to work from as she has to compete the competition.

FT BIG READ. LEX IN-DEPTH. A solid case for next-generation batteries
Solid-state batteries are safer and use fewer raw materials than lithium-ion cells. As increased investment lowers their cost, are they the answer to technology’s power problem — and a threat to Tesla’s dominance?
Explains how they work and what the key issues are. An interesting read but in short whilst solid-state batteries have a lot of advantages there are still issues to overcome. That said they said the same about Electric cars and now look where we are.

OPINION Biden must summon the courage to reverse course on China by Kishore Mahbubani, a distinguished fellow at the National University of Singapore, is author of ‘Has China Won?’
Compares the US’s Cold War with Russia to the current situation with China.
‘China’s analysis would match that of George Kennan, the US master strategist. Kennan wisely predicted that the cold war would be determined by Washington’s ability “to create among the peoples of the world generally the impression of a country which knows what it wants, which is coping successfully with the problem of its internal life and with the responsibilities of a world power”. Here’s the shocking comparison. Vis-à-vis the Soviet Union, the US was ahead on all three counts. Vis-à-vis China, it is not.’
In his view 'China still faces many internal problems. Success is not guaranteed. Yet against the backdrop of a century or more of humiliation and suffering, the lives of the Chinese people have never been better. Hence, the US cold war strategy will not work.’
He thinks Biden’s continuing of Trump’s policies is a mistake and Biden should either pause or walk back some of the Trump policies.He says 'The Chinese people can see that their government has protected them well in the Covid-19 emergency. Meanwhile, the Trump administration floundered’.
Which is true in part but China’s control of the narrative suffocates any knowledge of what people really think.
He also says 'most Chinese thought that their policymakers won the public argument in Alaska. So too, did many other Asians.’ I would question that.
He concludes 'Ending the trade war with China would boost economic growth in the US, helping Biden in the 2022 midterm elections. And most of the world would cheer if the Biden administration pressed the pause button, especially while Covid-19 is still raging.’
The key point I think he misses is that Biden’s approach to China is radically different from Trump’s in that it isn’t the US verse China but the US with friends and allies; and so far Biden is finding more and more friends coming out of the woodwork. Biden had the ability to roll back Trump’s measures but only if and when China is prepared to commit to the global rules based system on all issues; not just the ones that suit China.

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