I got my laptop back and a lot has happened this week in the news and on the economic front too. One key element for me was the action against Alibaba’s dominance in social media, following the recognition of it’s dominance in on-line banking; giving it a far greater insight into the citizens of China than the communist party organisation had and hence it being seen as a threat. It is likely that the other Ecommerce names will be treated in a similar fashion going forward. That is likely to stifle their innovation in my view along with their profits.
MARKETs at 3pm HK time;
Tech weak but banks seen as beneficiaries
Opened lower and sold down to 6,674 in the first hour on weaker than expected retail sales but then rebounded to almost flat at midday but then drifted lower into the close. Energy -2% and materials -1.4%, but the heavily-weighted financials subindex finished -0.31%
Pre market inflation data was in line but at lunchtime the BoJ widened the band at which it allows long-term interest rates to move around its target, as part of a raft of measures to make its ultra-easy policy more sustainable amid a prolonged battle to fire up inflation. BUT removed its explicit guidance to buy exchange-traded funds (ETF) at an annual pace of roughly 6 trillion yen ($55 billion), which gives it more room to wind back its market stimulus.
Nikkei 225 opened lower following the US sell-off. It moved slightly higher on the in-line inflation data but then drift slightly lower into lunch. Market sold down on the BoJ news but then rebounded before drifting lower to close off the day low but -425pts (-1.4%) @ 29,792
Topix open on the lows and worked higher in the morning. Choppy start to the PM after the BoJ news but then worked higher into the green and then traded around flat to close +4pts (+0.2%) @ 2,021
Inflation Rate Feb -0.4% YoY vs -0.6% Jan (F/cast was -0.4%)
Inflation Rate Feb MoM +0.1% vs +0.6% Jan (F/cast was +0.1%)
Core Inflation Rate Feb -0.4% YoY vs -0.6% Jan (F/cast was -0.5%)
Inflation Rate Ex Food and Energy Feb +0.2% YoY vs +0.1% Jan (F/cast was +0.1%)
Weakness on US inflation fears, prompting weakness in tech; especially Samsung and Hynix. But all large caps weak
Kospi opened slightly lower but sold down immediately to 3,030 then dipped to 3,022 before rebounding and trading sideways around 3,040 level to close -27pts (-0.9%) @ 3,040
Kosdaq saw a similar open, with a low of 935, but then worked better to flat at 1pm and slightly higher for the rest of the session to close +2pts (+0.2%) @ 952.
Opened lower and drifted lower for the first two hours before trading sideways with a slight lift in the last 40 minutes to close -218 (-1.3%) @ 16,070
CSI 300 opened lower with concerns over China/US relations and drifted slightly lower through the morning. PM opened lower and continued to drift, day low was 4,980 around 2:30pm with a slight uptick in the last 30 mins to close -133pts (-2.6%) @ 5,009.
HSI Pre market opened at 29,159 -247pts vs -241pts ADR’s Broad weakness following the US sell off and the frosty start to US/China talks but CK Asset +VE following earnings.Market initally traded sideways but then trended lower after 10am to trade around 29,000 into lunch.
PM opened lower and trending lower, day low 28,737 around 2:15pm since which it is working slightly higher. Currently -527pts (-1.8%) @ 28,884
Expect the markets to open lower and for the focus to be in US treasury yields. Tech to be under pressure. Premarket data a slight +VE but sentiment very much risk off ahead of the weekend.
PPI Feb +0.7% MoM vs +1.4% Jan (F/cast was +0.5%)
PPI Feb +1.9% YoY vs +0.9% Jan (F/cast was +1.8%)
Consumer Confidence Mar -16 vs -23 Feb (F/cast was -20)
Public Sector Net Borrowing Feb GBP -19.1b vs -8.75b Jan (F/cast was -20.2b)
US Futures Opened flat in Asian time but have picked up Dow +64pts S&P and NDX +0.2% I would expect cautious trading ahead of the weekend.
Data Baker Hughes Oil Rig Data
FT Front Page
Cameron lobbied for Greensill access to UK Covid loan schemes
Former PM urged bigger role for ailing group • Treasury reluctant amid eligibility fears
UK spy agencies push for curbs on Chinese ‘smart cities’ technology
Concerns Beijing could use it for espionage, surveillance or collection of sensitive data.Second time the UK security services have intervened. 'In the security, defence and diplomatic strategy published this week, Downing Street laid the groundwork for future restrictions, stating the UK would “remain open” to trade and investment from Beijing, but would protect itself from deals that would have “an adverse effect on prosperity and security”.’
The technology is already widely used in China; includes connectivity systems ranging from automated transport to traffic management and CCTV. Likely to impact Hikvision, ecommerce group Alibaba and Huawei.
The concern is ’the misuse of personal data. “Because you’ve got all this population-scale data anonymised in different ways, there’s a risk that someone could recombine them to identify . . . the types of people visiting particular buildings or accessing particular services,” a security official said.’
It is always going to be a discussion about whether the providers of the hard and software can keep access to the data. But then there is also the question about what one’s own government does with the data too! The other question is does the west have cost effective alternatives and are they looking to develop the sector?
EU threat on vaccine exports exposes risk to supply chain. (Page 2)
Brussels is warned of political damage and danger of harm to all parties.It says it is looking at all options including halting shipments to countries 'that did not show “reciprocity” by allowing supplies to reach the bloc.’
But others warn that is not a good idea as it risks upsetting others and failing to secure more supplies for Europe.
The key is that the EU’s central purchasing systems was slow to get going as happens to many things in Brussels and they are now looking for ways to get out of trouble. An interesting point is the reliance on the UK for a number of the inputs into the vaccines.
An interesting read as to how the supply chains are quite international and about where the drug companies have their plants for domestic and international supply.
EU regulator backs AstraZeneca shot. (Page 2)
European Medicines Agency, said its investigation had concluded the vaccine was “not associated” with a raised risk of blood clots noted recently by some scientists, adding that the benefits of the shot outweighed possible risks.
But it does illustrate how much we don’t know both about the virus and the vaccines. Over time everything will become clearer but for the moment they are taking the view that the benefits outweigh the risks.
China dominates worldwide wind industry (Page 3)
Record wind power installations in 2020 have secured China’s position at the top of the global industry despite waning subsidies from Beijing.
Added 52 gigawatts of new wind power added last year doubled the 2019 capacity said a report released yesterday by the Global Wind Energy Council, a Belgium-based international trade association.
But the surge reflects the last opportunity to take up government subsidies and favourable prices for onshore wind farms.
It notes 'The Chinese wind market exceeded the council’s forecasts by more than 70 per cent, elevating wind-generated power in China above the combined total for Europe, Africa, the Middle East and Latin America. That surge meant east Asia accounted for about three-fifths of global installations, up from about 50 per cent last year.’
A key point is that they are not expecting a significant drop post subsidies stating 'Top-down policies requiring wind and solar be integrated into the power grid, rather than subsidy support, would probably drive greater transition to renewables’. Something that is being driven by President Xi who on 'Monday told a meeting of senior Communist party officials that the economy needed a “new kind of electrical system centred around new energy”,’.
It also highlights that a lot of other countries also had record years; Australia, Japan, Kazakhstan and Sri Lanka. India was lowest due to regulatory difficulties.
That is good news for the likes of Weichai power and the Chinese gearbox makers, it also highlights the continued demand for aluminium and copper to connect these power sources to the grid.
Biden brings about 100-day sea change with barely a ripple. (Page 3)
Biden fulfilled his pledge to vaccinate 100m in his first 100 days, in fact he did it in 50 days. He also got his stimulus bill through.
Looks at 3 key factors
1. Luck 'The best recipe for success in a new job is to follow an underperformer. Biden also inherited a pandemic that was ripe for fixing.’ But the key was he acted and has used the power of public service to achieve the goal.
2. Experience. Quotes James Carville: “The more I practise at golf, the luckier I get.” Biden has 44yrs of Washington experience; which to the public is usually a bad thing and hence not mentioned much on the campaign trail. But key for achieving results when in power and key for appointing good people into key roles; like Yellen at the Treasury and Ron Klain, the White House chief of staff. It says 'Having taken nearly every position on every issue during his long career, Biden is seen by the left as devoid of principle. But that can also be an asset. Republicans cannot paint Biden as a radical. The left has nowhere else to go.’
3. A modest ego He governs and doesn’t worry about his ‘brand’. He delegates and shows that it not all about him.
It concludes 'Through a mix of luck and experience, Biden’s opening spell has been the most accident-free of any US president in recent memory.At some point Biden will get into difficulty and may well mess up. In the meantime he is proving that you do not need to be a superstar to govern America. Indeed, it helps to be free of any obligation to play that role.’
Biden is just 50 days in and yet has achieved a lot and started a lot of projects rolling to rebuild a lot of what Trump broke. I think his demonstration of delegation is what a lot of people will be watching in comparing the US to China.
President Xi has taken more and more power to a smaller and smaller group, which may well be why the covid outbreak went unnoticed for so long? As pressures build on China from many sides the ability to multi task becomes more important with concentrated power a lot of decisions that could be taken by more junior people aren’t and that jams the decision making at the top.
Look at what happened when Beijing cracked down on violent on line games, the initial reaction was that no games got approved. That stifles growth long term.
Companies & Markets
Milestone for Japan Inc as investors back Toshiba probe
• Win for Singapore activist at EGM
• Speculation on fate of top managers
Seen as a watershed victory set to spur more shareholder activism in Japan. Puts pressure on CEO Nobuaki Kurumatani who could lose his jobs if anything untoward is found. It will also put Japan Inc on notice that shareholders are becoming more critical of managements and expect them to be far more open in their dealings with shareholders.
Whilst the proposal for an independent investigation was passed the motion from Farallon for clarification of its intentions for large-scale mergers and acquisitions and to explain what the fund deemed to be contradictions in strategy statements; was not approved.
But still another sign of change in Japan. Over the past couple of years there have been steps forward and back. This I believe is a step forward and will increase the attractiveness of investing in Japan; if it prompts other managements to change tack with regard to dealing with activist investors.
Also if it makes managements realised that they are in position for the benefit of the shareholders not the other way around.
See also LEX Toshiba: active management. 'At Toshiba, once known for innovation but now lagging behind global peers, earlier activist pressure would have been useful. Long-suffering shareholders have witnessed many governance and decision-making failures over the past decade, including an accounting scandal that led to the sale of the memory-chip business, computer-business exit and its US nuclear services business collapse.A stronger voice for shareholders should enable them to ensure these mistakes are not repeated.'
Backers pour $3.1bn into faux meat and dairy start-ups
Looks at the huge growth in investment as the sector seeks to cut down the carbon footprint of producing the food we eat. 'In Europe the sector raised a record $527m, more than quadrupling its 2019 tally. Plant-based meat, egg and dairy companies attracted the bulk of the capital, but investment targets widened to cultivated meat companies, which grow meat from animal cells, and fermentation companies, which use microorganisms taken from sources such as breast milk, air, and volcanoes to produce meat, eggs and dairy.’
Nice quotes 'Other methods of trimming agricultural emissions “are like rearranging the deck chairs”,’ “the companies innovating in alternative proteins look set to do for meat what Tesla has done for electric cars by accelerating the industry’s shift towards better, more sustainable options”.
Another ESG input no doubt but also likely to mean a substantial change in farm investment and for the likes of WH Group (288 HK). A big question is though whilst the health conscience westerners adopt the new foods the emerging rich countries favour old fashioned steaks and for many emerging nations the ecofriendly foods are just too expensive. But without doubt change is coming.
Delta Electronics slashes China headcount
A producer of power components for Apple and Tesla, has cut its headcount in China by almost half, in the biggest such move to be made public by a Taiwanese electronics company in the country. The cut is for two reasons; US/China trade war fall out and rising costs in China. Delta is seeking to cut direct labour force by 90% and has achieved 40% so far.
It reflects a wider trend but few Taiwanese companies make it public for fear of upsetting Beijing; I guess if you are cutting 90% little downside.
Delta is moving 'production of its telecom power equipment to Thailand and Taiwan in 2019 after the US imposed a 25 per cent import tax on such goods made in China as part of the trade war.’
It is also setting up in India ‘to make photovoltaic inverters and industrial automation equipment for the local market and IT and communications gear for export.’
Delta said that rising wages were a major problem in China, prompting it to automate more; 'On its most advanced production line in the eastern Chinese city of Suzhou, near-complete automation has cut the headcount from 42 to three.’
But it also said ‘other products, such as mass-market computer components, continued to be made in the country.’ ie low value added.
Highlights a growing problem for China, whilst it has a declining birthrate it still needs jobs and increasingly better paid ones for its university graduates. Rising wages are a big driver to automation and China is a leader but that means few jobs. As other nations have found, it needs to grow its service sector. President Xi seemed to support this a few years ago but much turned out to be lip service. Jobs were mentioned at the NPC again this year as the problem becomes more significant post pandemic.
FT BIG READ. CHINA. Beijing’s war on the credit boom
The campaign led by vice-premier Liu He against uncontrolled lending is designed to reduce risk in the financial system. But it could strangle the private sector and dent long-term economic growth.
An interesting read but it does seem that the fundamental problem is that the SOE Banks lend as directed by the government and despite the importance of small private companies they are not getting loans. So the banks and other financial bodies try and find ways to meet the demand. It’s been shadow banking, off balance sheet introductions, P2P, wealth management products and most recently Ant financing.
It cites the case of 'Fincera was the largest P2P platform in central Hebei province, an industrial powerhouse with a population of 75m people. In July 2018, Hebei officials ordered by Beijing to investigate the sector said they had found no irregularities at the platform. “That made us feel really comfortable,” says one retail investor whose family invested almost Rmb10m in Fincera. “The government said ‘calm down, Fincera is legal’.”’ But then a year later shut it down, despite nothing being wrong.
It mentions that Lui He said in May 2018 '“It is necessary to establish good standards of behaviour, psychological guidance and supervision, so that society understands borrowed money must be repaid, investment entails risk and those who do evil things will have to pay a price.” In the case of Fincere everything seems to have been above board, borrowers were repaying and new loans were being made at reasonable rates to good businesses that couldn’t get credit elsewhere.
It sounds very much like the top echelons are out of touch with the reality on the ground.
It concludes by quoting an investor in Fincere '“It was my family’s savings,” says the investor, who asked not to be named and now cannot get her money back. She fears she will have to sell her home: “We have become economic refugees.”
Such pain, however, is unlikely to deter Liu and his lieutenants from carrying on their crusade. “We will continue to see a sustained focus on risk,” says Prof Prasad. “Even when they manage to control one aspect of leverage in the economy, it just pops up somewhere else. It’s a never-ending battle.”’
Contrast that with Powell going out to meet the ordinary community and get their views.
Key is that Chinese investors largely don’t trust the banks having been burnt before. They are looking for yield and they largely understand risk. Ant bridged a gap it understood a lot of the risks because it had peoples historical lending/spending data and could match lenders and borrowers. The large banks deal with the large SOE’s as directed by Government, they don’t seem to have a good understanding of SME’s because they don’t deal with them.
The problem is that Beijing knows the SOE banks and understands how they work and how they can be controlled. But they don’t fully understand small finance and SME’s. Until they do the Chinese economy can never attain its potential.
Markets Insight Now is the time to devise a new monetary order. By Chris Watling founder and chief executive of Longview Economics
Sets out the back ground to the current system and the problems that have developed since the current system lost the ‘anchor’ of gold. It demise has been 'aided and abetted by global regulators and central banks that have largely ignored monetary targets and money supply growth.’
Thinks it is time for a new system, with widespread debt cancellation, especially government debt held by central banks. Notes that a lot of factor and normalisations will have to occur, parts of the system will need to be recapitalised, pensions provided for etc etc.
Then the parties need to find a new ‘anchor’ 'whether it’s tying each other’s currencies together, tying them to a central electronic currency or maybe electronic special drawing rights, the international reserve asset created by the IMF.'
Concludes 'Growth should then become less reliant on debt creation and more reliant on gains from productivity, global trade and innovation. In that environment, income inequality should recede as the gains from productivity growth become more widely shared.
The main reason that many western economies are now overly reliant on consumption, debt and house prices is because of the set-up of the domestic and international monetary and financial architecture. A Great Reset offers therefore opportunity to restore (some semblance of) economic fairness in western, and other, economies.’
Nice thought but I doubt the rich and influential will be interested. Too many people like the system just the way it is.
Helping hand Facebook unveils wristband controller for new augmented reality system'
Facebook has unveiled its vision for a wristband that will control its forthcoming augmented-reality glasses, marking the latest step in the social media group’s bid to take on Apple in the next generation of computing.’
A look at what the future may hold.
News publishers should take a leaf from Netflix’s digital playbook
Key here being how much to charge for subscriptions. Netflix’s boss thinks they are charging too much. Illustrates the point by saying 'About $27 in the US, for example, buys monthly digital access to Netflix, Disney Plus, and Spotify’s library of 70m recorded songs. For that sum, it is possible to subscribe to one of these news sites: the New York Times, the Boston Globe, the Los Angeles Times or The Times, the UK publication. But not more than one.’
It notes that some specialist titles can charge more like Bloomberg and the FT.
Also makes the point that Netflix ploughed money 'into technology and the quality of content, while adopting aggressive pricing to build a mass audience around the world.’
News is different, it is more local and or specialised; which allows Bloomberg, FT, etc to charge more but doesn’t apply to sectors. You can’t really pay to provide better news. You can only report what it there; making it up is what Netflix already does in its programming.
The recent changes in Australia have given some insight into what is news worth but as is often the case, the reporters, the aggregators and the web distributors all have a different view on what the news is worth and of how much they are the ones that add the value.
A number of articles on Greensill and how Credit Suisse is still trying to resolve the details and exposure for clients. In addition to the front page headline
Credit Suisse acts to curb Greensill fallout
Swiss lender to separate operations and suspend bonuses as probe begins
Credit Suisse will overhaul its asset management business and suspend bonuses for some senior executives, as the bank races to contain the damage from the collapse of supply chain finance company Greensill Capital.
Swiss bank’s funds missed cash injection from SoftBank
Credit Suisse’s controversial funds tied to Greensill Capital failed to receive an emergency injection from SoftBank late last year, deepening the problems now facing the Swiss bank’s clients.
Carriers must tighten rules on emissions, says Iata chief
Global airlines must adopt tougher rules on reducing carbon emissions once flying restarts after the coronavirus crisis, the head of the industry’s trade body has warned.An interesting read; 'it one of the hardest sectors to decarbonise, despite only contributing 2-3 per cent of emissions.’
Airlines rush to tap demand for flight ‘reopening trade’
IAG and Sun Country among those raising funds as rotation from Covid winners begins'The fundraisings come as investors seek to tap into the “reopening trade” in which companies that lagged behind during the height of the pandemic are likely to lead the way as countries lift curbs on social activity.’
Smiley faces lead to frowns under Singapore’s protest laws
In Singapore it’s illegal to hold a solo protest, except in Hong Lim Park. But two recent cases are testing the public’s long held belief in order over freedom. 'this is clearly a case of regulatory overkill,” adds George, who says the men’s actions did not “even cause inconvenience, let alone disruption, to people going about their daily lives”.
Concludes 'The implications of a generational shift in politics for freedom of speech in Singapore are unclear. But for now, holding up signs with smiley faces in public is no laughing matter.’
An interesting comparison to Hong Kong’s law but key difference is next year they will have free elections where it is possible that the The People’s Action party (in power since 1959) might lose.