FT Weekend China's growth a ?, About Ma and China - a must read, HK Trial results -VE and more

17 Apr

Front Page
Growth confirms China’s resilience
• First quarter shows rebound • Year since lockdown hit output • Crisis damage still evidentLooks at Friday’s data from China, key being that whilst the data was positive; it was not as good as expected and the headline numbers hide the lingering damage to the economy. Some of the high numbers are explained by the low base from when the pandemic was starting last year. Which means that the headline numbers will be less impressive as the year progresses. It makes the point that China’s recovery has been better than Europe’s and slightly better than the US’s although Biden’s stimulus plan indicates the US is catching up.It quotes Louis Kuijs, head of Asia economics at Oxford Economics, said: “The headline year-on-year data really doesn’t tell us the story of how the economy has performed in the first quarter . . . in fact that performance was a bit disappointing. The silver lining is that March was better than the first two months.”
The bigger question is with concerns over the PBOC reigning in debt, more tightening on the property sector and concerns over bond defaults how will China do this year. The tightening on the property section is particularly concerning both in terms of its impact on domestic consumption and also for local government finances, which tend to depend on land sales to make up for the short fall from Central government allocations

Voice of unity
Fightback in Myanmar
Full story on Page 4

Einhorn says absent watchdogs have allowed ‘quasi-anarchy’ on Wall Street
Prominent hedge fund manager David Einhorn has savaged US regulators for allowing “quasi-anarchy” in markets, with their inaction on issues such as the GameStop frenzy exposing small investors to harm.
More pressure for the regulator and worth noting that he was not referring to the Archego’s situation but looking as instances that impact small retail investors. The reality is that the regulators cannot effectively regulate everything, there are rules in place and whilst enforcing those they have to allocate their time and resources to the cases that they believe will do most harm.
It is always easier to pick holes than provide effective solutions.

Page 2
Russia imposes tit-for-tat US sanctions
Moscow expels diplomats but welcomes proposal for Biden-Putin summit
Russia will expel 10 US diplomats and restrict the work of those remaining in Moscow in a tit-for-tat response to sanctions imposed by President Biden on Thursday that stopped short of a dramatic escalation of measures.
The measures came as France, Germany and Ukraine called for Russia to reverse a build-up of military forces along the Ukrainian border.
Worth reading the FT’s opinion piece from Friday  'Biden will not change Putin but is right to talk to him’;  which concluded 'Where it can, the west should work with Russia. Just not on Putin’s terms.’

Disillusionment sets in for health workers
Low morale, poor pay and staff retention threaten to hinder worldwide recovery.
The pandemic has revealed and emphasized the problems about how national health services pay their nurses. The article focuses on the situation within Europe.
An interesting read, and some what worrying because it outlines how the current shortages seem only likely to get worse.

Brussels’ cheese diplomacy grates with northern Cyprus
EU efforts to use a famed Mediterranean cheese to bridge divisions on partitioned Cyprus threatens to curdle in the face of a half-century-old conflict.
An interesting read that highlights why the island has remained divided for over 50 years.

Page 3
Israel’s shadow conflict with Iran emerges into the light
Netanyahu’s mistrust of Tehran has been heightened by US progress on nuclear talks.It seems Israel has effectively admitted being responsible for last weekend’s attack that caused a blackout at Iran’s nuclear enrichment facility. It highlights the difficulty involved and the regional interests that play an important part in trying to find a solution.
An interesting read, especially because China seems to want to get closer to all the Middle Eastern countries. It seems to think that will be immune from the regional tensions, and that might be a mistake; even for the ‘Wolf Warrior’ diplomats.

German official reveals Marsalek fears
A retired senior German intelligence official told MPs he was alarmed to learn in 2018 that Jan Marsalek, former chief operating officer of disgraced payments provider Wirecard, had told people he possessed a highly classified chemical formula for novichok, the world’s deadliest nerve agent.
Worth a read; the more that comes out, the more one feels that it is being taken straight from an Ian Fleming novel.

US pledges $1.7bn to tackle Covid variants
Biden’s administration will invest $1.7bn in federal funds to tackle Covid-19 variants, as public health experts warn that new strains of the virus could drive new infections even as more Americans are vaccinated.
Money worth spending in my view, especially following comments from Fed Chair Powell that the one thing that worries him about the US recovery is the resurgence of covid in the US. So this news should be positive for investors.

Page 4
Hong Kong pro-democracy leaders jailed
Nine protesters including media mogul Lai and lawyer Lee sentenced, some with custodial terms.
“Actions have consequences for everyone irrespective of who they are,” said Amanda Jane Woodcock, the district judge in the two cases, adding that those charged had made a “conscious decision” to break the law.
The article notes that Ng, 'a barrister, writer and former politician, discharged her counsel and addressed the court directly, urging the judge to consider the future of free speech and the rule of law.
“I stand [as] the law’s good servant. But the people’s first, because the law must serve the people, not the people the law,” she said, modifying a quote from Sir Thomas More.
Not quoted but she also said the law must not only be defended in courts or the legislature, but also in the streets. "When the people, in the last resort, had to give collective expression to their anguish and urge the government to respond, protected only by their expectation that the government will respect their rights, I must be prepared to stand with them, stand by them and stand up for them," she said. She was given a 12-month jail term, and be on probation for two years.

The whole affairs raises strong views from both supporters of Beijing and those that supported the defendants; 'To the dismay of court security, some of the crowd inside the chamber rose to cheer when Lai entered, while at one point scuffles broke out outside between pro-Beijing activists and supporters of the defendants.’
It is certainly an issue that despite all the heavy measures that Beijing has brought in is unlikely to disappear.
It concludes '“Justice does not have to be served by locking up two elderly people who have devoted their lives to serving the community,” Martin Lee and Ho’s counsel Graham Harris SC told the judge.’

Which rather highlights that this may not be justice but the implementation of rules designed to suppress the views of people that do not agree with Beijing.
It is worth noting that Thursday was 'National Security Education Day’ in Hong Kong which drew mixed opinions and prompted Commissioner of Police Chris Tang Ping-keung and senior minister to condemn local media outlets, for comparing children handling weapons at official events promoting the national security law to one of the most controversial episodes of the 2019 anti-government protests; the police clearance operation inside Prince Edward MTR station on August 31, 2019.

US police shooting revives anger over Floyd case
Death of a second black man near Minneapolis leads to nights of violence and fear
US policing again in the spotlight and for the wrong reasons.

Aung San Suu Kyi allies set up ‘unity government’ against junta
Aung San Suu Kyi’s supporters have unveiled a “national unity government” for Myanmar that will seek foreign aid and diplomatic recognition as they rally resistance to the military coup.Looks at the on-going situation which is becoming more complicated and entrenched.
It does note 'No country has formally recognised the junta as the legitimate government and several nations have halted aid since the coup, while big business is under pressure to pull investment from Myanmar.’

British monarchy Prince Philip’s scaled-back funeral marks shifting times for royal family
Looks at the changing circumstances for the monarchy. An interesting read but I think like so many issues it really shows that there are still very mixed views with regard to the institution that has been one of the constants in British history.

UK GOVERNMENT AND BUSINESS. How sleazy is British politics?
The country’s record on tackling corruption is good, but abuses have been hiding in plain sight. David Cameron’s lobbying for Greensill has intensified concerns over how companies argue their case.
It concludes 'One can overstate the depth of the malaise. But British politics is not as spotless as its practitioners would wish. The first step towards cleaning it up might be to take a closer look at behaviours which are, too often, in plain sight.’
An interesting read. My penny’s worth would be to pay MP’s better, but only allow then two or three terms in office. Together with having had to had a regular job for at least two years.That might keep the ideas fresh and reduce the potential for some of the ’sleaze’ but the reality is that politics everywhere is far from perfect; remember even President Xi is having to clean up the communist party.
UK MP’s should be grateful for the English legal system because in China some cadres have been given the death penalty for their ’sleazy’ activities.

Obituary. Fallen mogul who ran the world’s largest Ponzi scheme
Bernard Madoff Criminal financier 1938-2021
Some interesting quotes but a key one I think is 'His apparent extraordinary run of steady, solid returns had raised red flags for years, but many hedge funds, banks and asset managers clamoured to profit from him rather than ask questions.’
A warning for us all.

Bets on coronavirus recovery may come good
Stimulus and vaccines have helped but investors should still be wary
Says 'The virus takes advantage of our social natures to spread but markets had a different, equally human, trait in mind: ingenuity.’
But the big question remains inflation.
It concludes 'Record first-quarter growth in China, where the recovery is more advanced, has already shifted the focus to “overheating” and the prospect of rate rises. An end to the persistent “lowflation” of the decade after the financial crisis would be a far better outcome for the whole world but it might mean markets have got ahead of themselves.’
An interesting read. The future remains as murky as ever.

India shows the way for English cricket
The sport’s birthplace has much to learn from its former colony
Looks at the popularity of the Twenty20 matches and the commercial profitability as stark contrast to the game in England.
A good read and illustrates the importance for survival is adaptation; it concludes 'Those who argue that true satisfaction comes from being immersed in complexities and eccentricities will still have the longer test matches. But money, the best players and the biggest audiences are all flowing to India, where the shorter form of the game rules. That is unlikely to change. Attracting a new audience to a simpler, faster version in cricket’s home nation, however, may help others rediscover the joy of England’s national game.’

Covid vaccines show government can be a force for good. by Gillian Tett
Recounts her vaccination experience and the suggests that it could result in a re-rating of government.
She concludes 'Yet now New Yorkers are being vaccinated in their thousands, it’s no surprise that many of the restaurants that survived the pandemic are heavily booked, friends are planning vacations, dinner parties are taking place again and everyone is discussing looming cultural events. Nor that when I hailed an Uber to go home, I saw that the fare had doubled. “Yikes!” I thought. I hadn’t seen such surge pricing for a year. But I happily paid up: Uber drivers need all the help they can get. And in 2021, even surge pricing seems like a sign of hope.’
A good read, and likely to be an experience that is repeated across the world and the fare rise suggests inflation too.

What the Afghanistan withdrawal means to those who served there. By Andrew Exum a former deputy assistant secretary of defence, led US military units in Afghanistan
A good read, best summary 'As for us veterans, we are left with the memories of a hard-fought conflict in which we won little but lost much.’
Gives an interesting insight into Biden and how his approach. Makes the very good point that 'military officers do not start or end wars in the US; elected civilian leaders do.’
Doesn't say it but equally they are the only ones that can end them too. I think Biden’s take and action are correct.
The next interesting event will be to see whether China in its new guise moves its troops into Afghanistan as has been talked about. Looking to succeed where Russia, the UK and the US had failed. The temptation of such a propaganda victory may been too much for President Xi, especially when so much else is not going well (India, Taiwan, South China Sea). Plus it has small border with Xinjiang (46 miles) to give it legitimacy.

Person in the News. 
A director capturing life on the edge
The force behind ‘Nomadland’ is winning awards and looking forward to super heroes, writes Emma Jacobs
Looks at Chinese born Chloé Zhao and the expectation that she may win an Oscar for her film Nomadland. 'The film also features Zhao’s directorial trademark: non-professional actors alongside seasoned stars such as McDormand. Time spent with those outside the Hollywood bubble leads to fresh stories which she then scripts and films. This naturalistic style is also evident in her portrayal of expansive landscapes. Large amounts of her time are spent figuring out the best time of day and weather in which to film.’
Not mentioned in the article is the fact that despite her being likely to win an Oscars they will not be shown in Hong Kong this year. It could be because the film 'Do Not Split’; a 35 minute documentary on Hong Kong’s pro-democracy protests which has been nominated. Although some say it is because Chloe Zhao, who was born in Beijing but moved abroad as a teenager (she studied in the UK) has been in past media interviews critical of China.

The original old master is an auction-house trick by John Gapper
Looks at the age old question of whether an original painting was in fact painted by the master or not. An interesting read and for many millennials and GenX explains a little of why they like NFT’s …. because the authenticity is assured.

Companies & Markets
Cameron pitched Greensill’s services to German official
• Call sought entry for group to civil service • Scrutiny of ex-UK premier grows

Morgan Stanley suffers $911m Archegos knock
'The setback was a blemish on the bank’s record set of first-quarter earnings, which were driven by a surge in deal-making, trading and income from wealth management.’
Nice to note '“We are never happy taking a loss, but we have to deal with the facts in reality and get it done,” Gorman said on a call with analysts. “We even took the extra bit to clear it up by quarter end — we didn’t want it lingering.”
Which he also described as ‘…a very idiosyncratic event.”’
It concludes with a nice quote “Such a shame we have to talk about” Archegos, in light of the record results from most other business lines, said Evercore analyst Glenn Schorr. He titled his note: “Other than that, it was a great quarter, Mrs Lincoln.”

GE boss Culp faces investor revolt over $47m bonus plan
General Electric is heading for a showdown over a $47m bonus for chief executive Larry Culp, after the two largest shareholder advisers recommended investors vote against the pay package in protest at the decision to relax his performance targets.
Highlights how executive pay is clearly in the spotlight as far as investors are concern. In this case it is about the goals '“The lowering of goals without adjusting the payout opportunity is viewed as problematic,” ISS said’

Chewy thrives in pandemic but should be wary of pet shops’ personal touch
The online supplies site uses data and remote healthcare in bid to beat retail store revival.
'Over the past year, a record 4m American households acquired their first pet, according to estimates from research group Packaged Facts.’
Key behind the success though is the use of tech and data 'the company is looking to capitalise on the accelerated rollout of its pet healthcare service Connect With a Vet, which has hosted more than 30,000 remote consultations since October, while fending off the threat of Amazon and the reemergence of bricks-and-mortar stores.
Crucial to that initiative is Chewy’s data-driven recommendation engine, which is powered in part by the creation of “pet profiles” for which users upload information about their animals, such as breed and date of birth.’
Interestingly 'Almost 70 per cent of Chewy’s total sales come via its Auto-ship programme, where customers sign up for regular deliveries of food or other essentials, often at a discount.’ That is sticky business.
But some think there is still a threat from retail stores where you can 'have your pet groomed, or get trained, is something that the online folks largely can’t compete with,” said Steve King, chief executive of the American Pet Products Association. “[And] you’re more likely to identify a new product that meets a particular need by going into your local pet store and getting some advice.”
An interesting cross read to China where pets are sometimes more preferable than a spouse or kids and the sector has seen similar explosive growth.

Coinbase market success does not erase crypto risks. 
Looks at some of the implications of the listing this week.
Says 'One day, Coinbase thinks that it could be at the heart of a new, decentralised online financial system. For now, it has to accept that its fortunes are entwined with bitcoin, the world’s biggest cryptocurrency.’
Worth a read; it concludes 'But investors in both bitcoin and Coinbase must still reconcile themselves to the environmental damage caused by crypto miners, the fact that the US will never allow a digital currency to challenge the dollar and the threat of prices falling. All three pose hefty obstacles to mainstream acceptance that Coinbase’s public listing cannot resolve’
Also read Coinbase stock debut rekindles memories of web breakthrough
Listing of crypto exchange heightens Wall St debate over future of digital currencies. It focuses on the crypto but most people are focusing on the potential for Digital currencies and whilst the Fed seems to be nonchalant about them; the fact that China is working hard on its offering I would expect them to be exploring the potential.
See also Turkey bans digital money payments for goods and services
Turkey has barred the use of cryptocurrencies to purchase goods and services in an effort to protect consumers against volatility and illegal activity, threatening a boom in the country’s fast-growing digital money markets.

Gung-ho entrepreneurs defy airline crisis
Sharply lower costs appear to offer start-ups a large opportunity but competition from legacy carriers is not going away.
Key 'However, sharply lower costs have raised hopes that now is a once-in-a-lifetime moment to launch an airline.With thousands of pilots and cabin crew laid off and competing for jobs, entrepreneurs hope to keep a lid on wages, while costs to lease planes have fallen about 30 per cent because of an oversupply of aircraft parked up on tarmac, according to Helene Spro, a director at credit rating agency Scope Ratings.
Jonathan Ayache, a former Uber executive and chief executive of Lift in South Africa, said costs had been “at an all-time low”.’
Good news for new entrants and a nightmare of legacy operators.But concludes 'Critically, even in aviation’s boom times, no carrier has made a success of the low-fare model, advocated by Tore Larsen and Judge, on long-haul routes, although both argue that an extremely disciplined and cautious approach meant this time could be different.Their biggest test is yet to come as they will need to spend on staff, aircraft maintenance and marketing for ticket sales ahead of flight launches, which could burn through cash and jeopardise their businesses before the first plane has taken off.
“Once you start pressing the button for marketing and fuel and you don’t fill that plane up, you are going to drown . . . it will be the biggest decision to make in my life,” Judge said.’
Worth a read. I think legacy airlines still face huge problems because of their historic costs and fleets. It is similar the banks with bricks and mortar branches vs new fintechs.

Duty-free Hainan sales ‘on fire’ as wealthy Chinese splash out
High-end western brands bet on Asian shoppers staying at home beyond the pandemic
Starts with 'When poets, literati and courtiers fell out of favour with China’s emperors, they were banished to the island of Hainan to fend for themselves among wild jungles and indigenous tribes.’
That has changed. The island is now a duty free shopping hub; whose success has been amplified by the travel restrictions of covid. Even post covid the Chinese are expected to buy luxury at home; largely due to China tightening up on the payment of duty on its brought abroad and then brought back to China. An useful read and reminder that there is still lot of cash in China. 'UBS analyst Chen Xin said Hainan’s duty-free sales more than doubled in 2020 from the previous year to Rmb30bn, and she forecast a compound annual growth rate of 40 per cent from 2019-25. Further underpinning this growth were policy changes intended to build up duty-free shopping on the island.
Last year, the Chinese government tripled the amount that consumers could buy annually duty free in Hainan to Rmb100,000 and scrapped a cap of Rmb8,000 for a single item.’
It does note that 'But some luxury brands were wary of betting too much on Hainan, given that they could sell there via wholesale agreements only with state-backed companies and cannot open their own stores. That gives brands less control over pricing and customer experience.Others worry that the island risks being abused by daigou.
“We believe the development of Hainan is positive but we must remain careful and work together to ensure that it does not become a hub for the grey market in China,” said Jean Jacques Guiony, chief financial officer of LVMH, the world’s biggest luxury group.
“If consumers travel to Hainan and come to our boutiques, then we are ready to serve them. But if it is to buy in bulk and then resell to intermediaries, then no.”’
Illustrates how difficult it can be for brands to control their products in China.
Not mentioned in the article but interestingly Hainan is also the Chinese navy’s nuclear submarine fleet base; appropriately it is mainly underground but it also has two 950m piers which could accommodate the Chinese new aircraft carriers.

Russian bonds’ alluring yields encourage western investors to shrug off sanctions
The Biden administration’s sanctions against Moscow sparked a brief wobble in Russia’s financial markets on Thursday but foreign analysts and investors expect the country to dodge more lasting damage.
A reminder of how the weaponising of investment is something that investors have to consider these days in their appraisals.

General Electric court victory deals blow to UK tax authority in $1bn case
General Electric has won a crucial legal victory in its fight with the UK tax authority, which had accused it of “fraudulently” underpaying $1bn in taxes.
An interesting read from a technical point of view.'The case stems from a deal reached in 2005 between GE and HMRC in which the company persuaded the tax authority to approve a tax deduction on a transaction.
This allowed the US group to circulate billions of dollars between the US, UK and Australia without falling foul of recently enacted anti-arbitrage tax laws.’
It could still go to appeal.

Regulation gaps are exploited in arbitrage economy. By John Plender
A good read about how firms find the cracks to try and dress up their businesses.
Starts 'Deliveroo, Greensill, Coin-base, Archegos. Apart from their common proclivity to dominate the headlines, these high- and low-flying outfits are an exceptionally disparate bunch. Yet one thing they have in common is a dependence on regulatory arbitrage to attempt to extract value — successfully or otherwise — from pedestrian core businesses in which fancy technology plays a purely ancillary role.’
Concludes 'Regulatory arbitrage was, after all, a key instigator of the great financial crisis of 2007-08 as banks economised on capital by shovelling assets off-balance sheet or into trading accounts with lighter capital requirements than for bank lending.
Meantime, it is curious that investors are prepared to put such tech-frothy valuations on companies that are more about regulatory arbitrage than life enhancing innovation.When political climates change, regulation changes. In a post-Trump world it will be about more regulation, not less’

The days of easy money look to be over in US mortgage banking boom
A good read, with interest rates more likely to rise in the future and the cost of building homes already rising the outlook is tough.
Worth noting 'While there is a structural demand for housing in the US, costs are rising for would-be homeowners.For example, an index of the price of lumber is nearly four times’ last year’s low. Builders are pressed to find skilled construction workers. Planning restrictions choke new homebuilding that would increase supply to damp price rises.’
Another indication in my view that inflation is already with us.

LEX Quant funds: gauged against the machine.    Gives a positive outlook for Man Group
Concludes 'Hedge funds have had their best first quarter since 2006. Within that universe, quant funds are doing better than before. Many of them, like AHL, are momentum followers. These typically benefit from long, sustained rises or falls in markets. Gently rising markets amid economic recovery should be good for Man.’
LEX Earnings beats: try again. Starts 'Investors are picking over first-quarter results for signs of economic recovery and proof that record market highs can continue.’
Concludes 'Living up to the expectation implicit in such valuations is becoming increasingly hard.’

The Chinese billionaire who got too big
The Alibaba founder was flying high until he criticised the government of Xi Jinping — and then disappeared from public view. Ryan McMorrow and Sun Yu report on his fall
A very interesting read both about the man and some of the experiences that shaped him. It seems to suggest as I have, that the personal cult of Ma was and maybe is seen as a threat by the party and I would imagine President Xi.

For interest
The benefit of doubt
Computers can drive our cars and beat us at chess. But what they lack is our ability to know when we don’t know.

* The email will not be published on the website.