Mar 11 FT EU-China deal detail, US/China meet, China poaches from Taiwan, Cathay Pac, Softbank and..


11 Mar

MARKETs @ 2:15pm HK time
JAPAN
In line PPI data and easing inflation fears encourage investors.
Nikkei opened flat as PPI data related but worked higher through the morning to 29,181 at lunch. PM saw an initial dip but then worked higher to test 29,255 but failed to break higher and eased back to close +175pts (+0.6%) @ 29,212
Topix traded in a similar fashion although did dip into the red in initial trading and after lunch but worked higher in the PM to close +5pts (+0.3%) @ 1,925
Data Pre market
PPI Feb -0.7% YoY vs Jan was -1.6% YoY ( F/cast was -0.8%)
PPI Feb +0.4% MoM vs +0.4% Jan (F/cast was +0.4%)
Foreign Stock Investment Yen -136.9 vs -453.8 prior revised from -454.6b
Foreign Bond Investment Yen 98.9b vs -1719.6b prior
Tomorrow pre market BSI Large Manufacturing Data.
S KOREA  
Investors encouraged by the tame US inflation data; foreigners and institutions buying with large caps in focus.
Kosdaq opened higher and worked higher to 907 but the drifted lower currently +16pts (+1.8%) @ 906
Kospi traded in a similar pattern, high so far 3,028 currently +63pts (+2.1%) @ 3,019.
TAIWAN 
Opened higher after good numbers from TSMC and other local companies and worked higher but saw resistance to 16,200 and traded sideways in the later session to close +268pts (+1.7%) @ 16,180
CHINA 
CSI 300 opened higher after the good loans data and after rallied to 5,138 in the morning session before easing back into lunch. PM initially traded sideways but now trending lower. Currently +89pts (+1.8%) @ 5,092
HONG KONG 
Pre market opened @ 28,909 +2pts vs +95pts ADRs
Rallied in early trades to 29,370, as shorts covered and investors reacted to the strong China loans data Then worked higher to test 29,400 before easing back into lunch. PM Opened lower and sold down to 29,100 before bouncing, caution as the NPC wrap ups and investors watch the closing press conference.
Renewed interest in Chinese Financials and Ecommerce although Baba weak. Broad based buying but HK Property names still seeing some pressure.
Currently +337pts (+1.1%) @ 29,237
At lunch SWIREPROPERTIES (01972.HK) announced that FY20 profit attributable to the shareholders slid 69.5% yearly to $4.096 billion. EPS equaled $0.7. Underlying profit slipped 47.5% to $12.679 billion. Second interim DPS was $0.61. Full-year DPS was $0.91.
At lunch SWIRE PACIFIC A (00019.HK) (00087.HK) announced annual result ended December 2020. The revenue declined 6.6% year on year to HK$80.032 billion. The profit swung into loss of HK$10.999 billion. LPS for "A" share and "B" share were HK$7.32 and HK$1.46. The second interim DPS for "A" share and "B" share were HK$1 and HK$0.2.
At lunch EB ENVIRONMENT (00257.HK) announced annual results ended December 2020. Net profit amounted to HK$6.016 billion, up 15.6% yearly. EPS equaled HK97.93 cents. Final DPS was HK16 cents.
At lunch GIORDANO INT'L (00709.HK) announced annual results ended December 2020. Loss was $112 million, against $230 million in profit a year ago. LPS equaled 7.1 cents. Final DPS was 6.9 cents.
EUROPE 
Expect markets to open higher following the US and Asian markets but to trade with caution ahead of the ECB press conference.
London’s FTSE is seen opening 19 points higher at 6,738, Germany’s DAX 40 points higher at 14,574, France’s CAC 40 up 16 points at 6,004 and Italy’s FTSE MIB 94 points higher at 24,009, according to IG.
Earnings due from Generali, Hugo Boss, Rolls-Royce, WPP, Morrisons and John Lewis Partnership.
Data EUROZONE ECB Interest Rate Decision, Marginal Lending Rate, Marcoeconomic Projections
US Futures
Indicating a flat open Dow +10pts S&P and NDX +0.1%
Data Initial Claims, 4 Week Average Claims, Continuing Claims, JOLTs Job Openings, EIA Natural Gas Change Report.
Earnings Ulta Beauty, Vail Resorts, DocuSign, Poshmark, Gogo, Zumiez, JD.com, WPP, Party City

FT Online Brussels seeks to win round critics of EU-China deal
Detail of agreement due to be published in face of fierce opposition from rights groups with ratification not assured
'Brussels sees it as a breakthrough that “will give European businesses a major boost” and put them on a level playing field with US rivals.’ Other are not so sure and key is the stance on human rights.
It notes 'A coalition of 36 civil society organisations, including trade unions, wrote to EU chiefs earlier this year calling for the investment agreement to be reopened to add “enforceable human rights clauses”. However, Brussels argues it has already secured unprecedented commitments.’
It concludes ‘ For MEPs, the fate of the investment treaty may lie as much in the EU and China’s actions between now and the ratification vote as in the content of the deal itself.’
Clearly it is not a given.

Front Page
Pain in Spain Party city feels Covid effect  Doctors in Madrid protested yesterday over working conditions and staff shortages yesterday. Infection rates remain high having resisted strict lockdowns and prioritised the hospitality industry, making it one of Europe’s few party towns and attracting visitors from across the continent.
Biden’s historic $1.9tn stimulus package crosses the finishing line
Narrow victory in congressional vote • Deal includes $1,400 payout for most adults. The vote was 220 for vs 211 against almost exactly along party lines.That may be significant when it comes to the mid term elections.
McKinsey partners pick Sternfels as leader to guide firm through crisesThe 51 year old from San Francisco will have the hot potato of stabilising the consultancy shaken by reputational crises that have raised questions about its culture, growth strategy and governance.

INSIDE
Russia turns to Italy for Sputnik V production (Page 2)
Moscow poised for first tie-up inside the EU as foreign demand for its vaccine soars internationally although many Russians have snubbed it in Russia.Still requires local approval.  RDIF says it has also signed deals in Germany, Spain and France but did not give details.  Along with production in India, China, S Korean and Brazil.  The vaccine has  91.6 efficacy rate disclosed a in peer  reviewed paper in the The Lancet last month.  The availability of such data and the fact that it is peer reviewed gives it a better standing that the Sinopharm vaccine that was covered yesterday in the FT article; Sinopharm faces struggle to turn Covid vaccine into a global success.
The poor take up in Russia is a slight concern but as the Bible says 'Jesus himself had pointed out that a prophet has no honour in his own country' (John 4:44).
The big thing for all the makers is getting production up to meet demand. It was announced overnight the Pfizer has approached India about production, a country that already has a lot of experience in vaccine production.

Covid pandemic delivers falling birth rates in heart of Europe (Page 3)
Drops recorded in France, Italy and Spain as fear of coronavirus deters would-be parentsIt had been expected that covid lockdowns might produce an increase in births but data is showing that in many countries birth rates are dropping. Article mentions primary data shows rates dropping in France, Italy, Spain, UK and US.
It notes 'A collapse in the number of newborns in industrialised economies following a pandemic or an economic crisis — such as the depression of the 1930s or the 1973 oil crisis — is not usually a surprise to demographers. Potential parents are typically anxious about job security and their ability to support their offspring.’ But the rates of decline this time are larger.
It also says that the Philippines has seen a rise in its birth rate but largely due to the difficulty in obtaining contraception.
The main question will be whether post pandemic the birth rates recover.In the meantime the outlook for the makers of baby equipment just got worse.

US and China prepare for first high-level meeting since inauguration (Page 4) Confirms the earlier rumours; with Antony Blinken, US secretary of state, and Jake Sullivan, Biden’s national security adviser, to meet Yang Jiechi, China’s top foreign policy official, and Wang Yi, its foreign minister, on March 18.
The meeting is expected toast the framework for the bilateral relationship going forward. Biden has stressed he will maintain a tough stance and hold China accountable for ‘abuses’.
Key ares being Muslim Uighurs in Xinjiang, Hong Kong and Taiwan. All area that China has said cross a red line as they are internal Chinese affairs.
I think the key is that the meeting takes place shortly after Biden has had a meeting with the Quad members; India, Japan and Australia on Friday; who have already committed to work closely together to counter China without being seen as an anti China alliance. It will also follow Blinkin and Lloyd Austin visiting Japan and S Korea at the beginning of the week.
But its close proximity to all those meetings should indicate and acknowledge that China is an important player in US Asian policy.
The post meeting sound bites are going to be key for investors as they will set the tone of the ongoing relationship. I doubt China will be prepared to offer any concessions to backing down on its practices in Xinjiang. It has said Feb 24 that it would accept a UN visit although a data has yet to be set. I doubt it will go further. Hong Kong and Taiwan again I don’t think President Xi has left himself any room to back down without a loss of face to his domestic audience.

Biden to tackle creaking infrastructure after stimulus bill (Page 4)
With the stimulus bill now passed the next major piece of legislation with be infrastructure; which is likely to see bipartisan support although that is not guaranteed.
Areas likely to be covered are bridges, roads, sewers, waterlines and broadband networks. It may also extend to Electric car charging stations, sustainable housing and access to public transport in pursuing racial harmony but those parts may be a tougher sell.
Republicans have indicted that they want to see a bill focused on roads and broadband.
The article cites a survey 'Last week, the American Civil Society of Engineers gave a “C-minus” grade to US infrastructure and said the country needed to spend $2.8tn over the next decade to update roads and railways.’
Which gives an idea on the size of the problem and the additional debt that will be needed to fund it. Some have suggested that the legislation be broken into packages with narrow focus in order to get support and more importantly enough funding.
Whilst the spending is likely to help the economic recovery it will add pressure on the USD.

Companies & Markets 
Leads with several articles dealing with the demise of Greensill
Apollo’s Greensill bid on brink of collapse highlights that the key tech behind the group, software run by Taulia  may not be part of the deal. Taulai is looking at a deal to move its clients to JP Morgan and that has scuppered the Apollo deal. Key is that Greensill relied heavily on other peoples systems rather that having anything proprietary
Also mentions that CS has suspended 3 executives related to the affair 'Michel Degen, head of asset management in Switzerland and Emea, Luc Mathys, head of fixed income in the region, and Lukas Haas, a portfolio manager for the funds, have been placed on temporary leave by the Swiss bank, according to an internal memo.’Industrials.
Funding crisis ‘Saviour of steel’ faces his greatest challenge
Notes how suppliers, politicians and unions raise alarm over Gupta’s brittle empire; especially those operations making specialist products; notes that Rolls Royce 'declined to comment in detail but said it was working with Liberty Steel and believed it had a “solution that will expedite the delivery of enough materials to support our supply chain until 2022”.’
It doesn't just impact the UK but France, US, Australia, Romania and Czech Republic.
One thing that might currently in its favour is the rise in steel prices. The expectation of increasing demand as the global economy recovers especially with demand in China rising and if Biden gets his infrastructure bill passed the US too but it will not be easy.
If GFG fails that should provide a boost to the other big steel producers.
Tokio Marine questions validity of Greensill insurance Saying its policies may not have been valid.  It also said that its remaining exposure was not large enough to warrant a revision to its previous guidance for year ending March.Noted that much of its cover for Greensill was covered by re-insurance.It has already revealed that the reason for withdrawing cover was an underwriter exceeding his risk limits.  But has declined to reveal more details.In may view a slight -VE for Tokio Marine the share price has already fallen as the news broke but it is still trading at around 6 month highs.
See also LEX Greensill/Apollo: the X factor Key 'Blow-ups such as Greensill have the socially beneficial effect of exposing the underbelly of financial services. It may be found later that Greensill played fast and loose to build an empire. Still, if the likes of Apollo and JPMorgan are stepping in, at the core of this company was something worth having.'

China accused of poaching chip talent
'Taiwan has accused one of China’s biggest crypto companies of illegally running two research centres on the island, as it investigates a novel scheme to poach the country’s brightest chip designers.’
Focuses on Beijing-based Bitmain, which designs computers to “mine” bitcoin and other cryptocurrencies, saying that it used two companies registered in Taiwan to recruit “several hundred R&D staff in the course of three years”. The Chinese company has been accused of “severely threatening the development of our semiconductor industry”.
It has also lead to the investigation of other Chinese companies in Taiwan.
The basis seems to be that they set up. Taiwanese companies using China friendly executives to carry out R&D into AI chips and then seek to poach staff from other Taiwanese firms with the tech making its way back to China.
Taiwan bars Chinese involvement in certain sectors and has struct screening to try and prevent it. But China is trying to build up its chip sector but clearly lacks the skill sets required and hence its need to try and poach staff.
Additionally China views Taiwan as being one of its Territories despite a clear vote against closer ties with China in the last election. Again as I have mentioned before China’s need of the tech that Taiwan controls could push it to invade the country and the world, which also relies on the tech that Taiwan controls needs to stand up and support Taiwan.
Recognising it as the independent country it is, dismissing China claims and being prepared to accept China’s displeasure in doing so.

LEX Cathay Pacific: aerodynamic drag  Looks at the latest results thinks the current share prices fails to reflect the reality and concludes 'It trades significantly higher than during the much shorter and less financially damaging Sars outbreak on an enterprise value to trailing ebitda basis. This is unrealistic. Investors should take profits.’
Worth a read, I agree with the view; stock trading at HK$7.41 likely to encounter resistance at HK$8.00, vs the low of HK$5.07 in 2020, the 2021 low was around HK$6.00. Sell and look to buyback around HK$6.00 or lower.

Jobandtalent raises €183m to drive expansion
The Spanish online agency for temporary staff, has raised €183m in new funding from investors including SoftBank’s Vision Fund (Euro 100m) as the pandemic powers demand for workers in logistics and ecommerce businesses.It says its use of algorithms to match workers to prospective employers means it is able to operate more efficiently than traditional staffing agencies such as Adecco, Randstad or Manpower. It operates in six European markets as well as Mexico and Colombia, and plans to expand into the US using the new funds.
Another big investment by Softbank into a disrupter.
The logistics and ecommerce space is seeing growing demand. The article on the Coupang IPO in the FT yesterday and other recent articles about workers at Amazon and other distribution centres have revealed that worker turnover can be high, which is good to the providers of staff. But it may lead to new regulation that removes that volatility.

Adidas targets growth through selling direct Good results and a vow to doubt the payouts to investors by focusing on its own online and physical stores.  
Good news for the makers of its shoes in Asia like Yue Yuen (551 HK) who reported yesterday that net consolidated operating revenue (i.e. equal to the total sales less sales discount and sales return) of the Company for February at USD755 million, up approximately 77% yearly. Yue Yuen shares rose this morning and the stock is trading at a one year high at HK$20 still well below the 2018 high of HK$35.55

Retail investors’ failure to vote poses logistical threat for Spac acquisitions
Worth a read because these new vehicles, especially those with heavy retail participation are facing a key problem in getting deals done. That is getting the retail investors to actually vote on the acquisition; especially if they require 65% approval.
Key quote “In the old days the large US brokerages would just vote the shares,” said Drew Goldman, global head of investment banking coverage at Deutsche Bank. “Now you have people who are sophisticated enough to open up an online trading account but do not realise that in order to get a deal done you have to vote.”
Highlights recent cases were the lack of shareholder voting has delayed and deal and sent the share price lower. Which would seem to highlight a benefit of being in a SPAC with a high institutional element.
'One sponsor of multiple Spacs said: “When you’re talking about hundreds of thousands of individual investors, you don’t have the time to chase them down and have somebody explain it to them.”’

Stampede for Silicon Valley start-ups sees VCs pile in. IF you ever wanted a sign that the pandemic was ending then this would be it.  Firms that have put off deal making for months and been unable to carry out due diligence are out in force.
'Venture capitalists are investing at the fastest pace in more than a decade, in a flurry of dealmaking that has intensified competition for stakes in young tech companies while increasing concerns about inflated valuations.'
Worth a read.

Markets Insight Inflation at risk of overshooting Fed comfort zone by Chetan Ahya chief economist at Morgan Stanley.
Outlines how, with likely return of inflation and the Fed being prepared to allow it to exceed its 2% target for a while, that it is now more likely that inflation will also exceed the over 2% level the Fed says it is prepared to accept.
Key being the speed of the recovery we are currently seeing is in excess of the levels he was expecting. As demand surges so will inflationary pressures but will they be temporary or more permanent?
He thinks more permanent because of the change in fiscal policy with its expansionary aims. Typically the inflationary pressure would be met with monetary tightening, the the Fed is on a new path, with 'flexible average inflation targeting’ coupled with maximum employment; a high-pressure economy; which has pros and cons. A big con being sustained higher prices.
He says the most likely outcome is a moderate overshoot on inflation but the risk of higher than that should not be ruled out.
1. Households are estimated to have excess savings in the region of $2.1tn including the latest stimulus package. With inoculations rolling out households may feel more confident about spending causing a surge in demand.
2. Assessing the US unemployment rate that would trigger inflation. 'Economists term this the natural rate of unemployment.’
The pandemic triggered restructuring and this time that has been rapid. At the same time policy makers are trying to get unemployment down at an equally rapid rate; likely to result in higher wages to attract staff and hence inflation.
As the Fed said recently we are not close to achieving the goals yet and hence it can remain accommodative on rates. It has said rate rises will be gradual and late and forewarned. But the Fed could be wrong and goals get achieved faster than expected, in my view especially if expectations start running ahead. That will then present a challenge 'When it does, markets will reassess the path of monetary policy but will probably face less pushback from the Fed, leading to more volatility.’
He concludes 'If inflation and inflation expectations overshoot significantly, most Fed officials and watchers say it can act quickly to nip it in the bud. While this may be true, at that point rate rises will not be gradual. Recent market moves may feel disruptive to some but we see the risk of a truly disruptive shift should the overshoot in inflation indeed overshoot.’
A good piece and sets out the case well but what if in the next 6 to 9 months the crisis isn’t just inflation? I do believe investors need to prepare for inflation but also to be aware of other risks such as the ending of foreclosure and eviction provisions which could hurt the CBS sector

OPINION Stores still matter when it comes to online groceries 
Key being that online shopping reveals more about individuals tastes but in store shopping gives them more satisfaction and is better business for the site operator as servicing on-line orders is expensive in what is already a low margin business. 'Bain estimates companies that use staff to fill online orders in a store and deliver them lose between 10 and 15 per cent on every order, depending on the delivery fees. Even a highly automated central warehouse sucks out 7 per cent of revenue.’
So smaller fulfillment centres attached to existing stores make sense; which is what Freshippo in China does, it 'builds physical grocery stores that are optimised for delivery. Its owner, Alibaba, doubled its physical store footprint last autumn by taking control of Sun Art Retail. In the US, Walmart is testing ways to use its stores to compete better with Amazon.'
Conclusion 'Here lies the opportunity. Online shopping generates far more specific data about who is buying what than loyalty cards. This can be used to reshape supplier relationships and improve stock management for stores as well as warehouses. Neil Saunders of research firm GlobalData estimates that 20 per cent of items generate 80 per cent of sales. Localised data could save space and cut food waste, making it easier to earn rebates, promote items and offer samples. That could be a real reason to bust out the champagne.’
A good read more orientated to Europe and US but China is also following some of those trends especially in the more modern cities and centres of high it has a lot.

OPINION UK’s policy on China is full of contradictions
The problem of trying to design a policy that is acceptable to those who want a hardline stance against “Made in China 2025” and those that see China as a business opportunity and then there’s the human rights and Hong Kong.
Worth a read it concludes
'This Janus-faced approach is prudent, but it is hard to see how it is sustainable. The barriers to Chinese investment and the new narrative of Global Britain set the UK up as a player in the battle to contain China. This is where the conflicting diplomatic and economic tramlines collide.
The UK is endeavouring to maintain a strategy of conflicting priorities, still being open for Chinese business while weaving a story which places it at the epicentre of the fight for the liberal order. Either the narrative is less than billed or one of these two policy goals is going to have to give.'

FOR INTEREST
Bricks and clicks Lego aims to build on digital success after fastest growth in five years. (Companies & Markets Section)The toy maker reported record growth rates as it focuses on digital capabilities.  It 'launched its latest mash-up of the physical and digital via a partnership with Universal Music that allows children to use augmented reality to make music videos for popular songs.’The key is that the company is aware of the need to stay relevant and avoid complacency; something a lot of companies should remember.  More important in times of crisis than ever.

Deep focus on ESG risk is the way to avoid Nordic noir scenarios
Looks at how some Nordic companies have become involved in troubling events overseas. Quotes Anna Romberg, former head of the anti-corruption programme at Swedish telecoms operator Telia and co-founder of the Nordic Business Ethics Network, thinks there could be. She says much of it has to do with how Nordic countries have high levels of trust while many of the countries that the companies have difficulties in do not.She says: “Sometimes, Nordic people are called naive. I wouldn’t say that. But there’s a lack of understanding of how blessed we are. We have an independent, free press, strong trust. We don’t realise that that context doesn’t exist when we go abroad. You can’t go into a highly corrupt country and just trust people blindly.”
Looks at cases involving Telia (bribery), Hydro (toxic waste) and Telenor (telos in Myanmar)Concludes 'Nordic groups need to understand and integrate ESG risks fully in their decision-making, Romberg says. Otherwise, more Nordic companies could suffer uncomfortable incidents abroad'

Europe carmakers wary of hydrogen ‘hype cycle’
Road taken contrasts with Asian rivals as strict Brussels emissions rules drive investment into battery technology.Looks at the problems and issues around hydrogen and the fact that the European car makers do not believe it can work. That despite France and Germany pledging a combined €16bn to hydrogen power generation technologies, the largest direct public investment in the field by EU countries.An interesting read but suggests that the lack of commitment and infrastructure makes it a no go.

FT BIG READ. FUND MANAGEMENT On guard against greenwashing
With its sustainable finance disclosure regulations, the EU is leading the way in policing what can be considered an ESG fund. The rules could become the global standard and drive investment into the sector.
Concludes 'In many cases, asset managers have little choice but to embrace ESG if they want to remain competitive: a report by Moody’s in February predicted that ESG will be the main driver of the industry’s organic growth in assets under management in 2021.
DWS’s Woehrmann says investing has changed for good, because people want to ensure their money is doing no harm. “It is not only the outperformance [that is driving demand for ESG]. It is part of the zeitgeist”.
As for Fondita’s Björksten, he is hopeful the new EU rules will introduce much more rigour into the industry. “The authorities have done a really great job in reducing greenwashing,” he says.’

Worth also reading Market Thinking’s  'Climate Change Changing Narratives..’
Published yesterday
https://market-thinking.com/2021/03/changing-narratives/

EDITORIAL Biden’s stimulus will affect the whole world
Poorer countries will find it hardest to adjust to higher interest rates
Key point in its conclusion 'If the OECD is right about the impact of Biden’s stimulus programme — and there is good reason to think it will be — then a stronger US economy will help to drive a global recovery. It would be even better if the world no longer had to rely on just one source for stimulus and other rich countries were similarly ambitious.'

OPINION There is a way to keep Britain at the top of global finance by Andrew Large former deputy governor of the Bank of EnglandHe starts 'Having spent my professional life in global capital markets, regulation and financial policy, I am dismayed by the lack of strategic thinking about the future of the UK as a financial centre. Given the populist rancour of the Brexit debate, neglect of the City was perhaps inevitable. But to avoid irreparable damage to such a significant part of our economy, the UK needs a realistic strategy.’ Worth a read.

Comments
* The email will not be published on the website.