Mar 29 FT Thoughts Archegos exposure Nomura , CS more?, World debt crisis, China/Taiwan worries


29 Mar

MARKETs at 1:30pm Hong Kong time.
Oil fell in Asian trading as headlines say MV Ever Given has been re-floated allowing the re-opening of the Suez Canal +VE for trade but -VE for Shippers as rates now likely to fall.
Nomura -17% warned of  losses from US hedge fund (could be $2bn which could wipe out all of 2H profits) at US subsidiary.  Later so did Credit Suisse; I presume it to be Archegos Capital; watch for more banks to admit exposure (MS and GS handled the sales on Friday and UBS is said to have offered it services); the size of Nomura’s exposure is surprising.Likely to offset the good news of the Suez Canal re-opening.  
Still expecting re-positioning for end of month and quarter on Wednesday.
INDIA closed
AUSTRALIA 
Opened higher and rallied to 6,860 in early trades but then trended lower to 6,795 around lunchtime. The traded slowly better to close -25pts (-0.4%) @ 6,800
JAPAN 
Nomura -17% warned of a significant loss from unnamed US client; I would expect that to be Archegos Capital, a double hit as I saw Nomura as a good play on the Japan recovery story.
Nikkei opened higher building on Friday’s strong rebound and good data from China on Saturday. Market drifted lower initially but then rebounded to 29,500 just before lunch. PM opened lower but rallied to test 29,580 but failed to hold and retrenched to 29,500 and traded sideways. Currently +345pts (+1.2%) @ 29, 529
Topix traded in a similar pattern. Opened at the day high; 2,005 sold down to 1,990 mid morning, rebounded to 2,002 and currently +11pts (+0.5%) @1,995
Tomorrow pre market unemployment data and retail sales.
S KOREA  
Out mid morning the business survey index (BSI) of the country's top 600 companies by sales reached 106 for next month, -3.2 points MoM, the Korea Economic Research Institute (KERI) said in a statement, due to uncertainties in the electronics and auto manufacturing industries.
Pre market weakness on concerns about rising covid cases in US, third wave in Europe and locally
Kosdaq open at 957, rallied to 962 but then choppy trading sold down to 956 rallied to 959, sold down to 955 worked back to 959 and then traded sideways for a couple of hours before drifting lower; currently +0.6pt (+0.06%) @ 957
Kospi opened higher but sold down to test 3,025 a couple of times but worked back to 3,054 and then traded sideways; currently +3pts (+0.1%) @ 3,045.
TAIWAN 
opened higher on good local data and worked higher through the session to 16,520 around midday. Now drifting lower currently +160pts (+1%)@ 16,465
CHINA 
CSI 300 opened higher after good industrial profits data out Saturday but sold down to 5,010 in first 10 minutes but then worked better to test 5,808 but unable to break above despite testing several times. PM opened lower and trending lower. Currently +10pts (+0.2%) @ 5,049
HONG KONG 
Pre market opened @ 28,317 -19pts vs +288pts ADR’sSold down initially to 28,132 in the first 10 minutes but then rallied back to test 28,500 but unable to break out. PM opened flat but selling down, currently -101pts (-0.4%) @ 28,232. At lunch weakness in ECommerce names on fears of exposure to Archegos Capital. China Property and Financials mainly +VE. Tech and Resources also +VE after the strong Industrial profits number out Saturday.
IPO Bilibili slumped on its debut in Hong Kong initially falling more than 5% and was -2% at lunch.Concerns still over China’s international relations.
EUROPE 
Expect markets to open lower with covid concerns and worries about Archegos Capital as Credit Suisse warns of ‘significant’ losses from US hedge fund; which followed the warning from Nomura and suggests there could be more.
Data due UK  Nationwide Housing Prices, BoE Consumer Credit, Mortgage Lending, Mortgage Approvals, Net Lending to Individuals
US Futures 
Opened Dow -45pts, S&P and NDX both flat but have fallen in Asian trading; Dow -190pts, S&P and NDX both -VE with concerns about further selling pressure from Archegos Capital.
Data due Dallas Fed Manufacturing Index

Online 
Nomura shares plunge after fire sale of $20bn in US and Chinese stocks
Japanese bank faces $2bn profit hit after huge unwinding of Archegos Capital assets
Looks at the exposure of banks and especially Nomura, with surprise at the level of exposure.
PRINT Front Page
Deadliest day Myanmar toll stokes outrage
Inside Page 4 Myanmar suffers deadliest day since coup

Democrats confident of driving through $3tn infrastructure bill
• Package funded by tax rises • Biden rides popularity wave • Aim to pass law by autumnKey is that there is currently support within the party to pass the bill without Republican support. The final package may be set of bills to make the size acceptable and accountable. The tax rises involved are likely to be spread over 'an increase in the corporate tax rate from 21 per cent to 28 per cent, and a minimum tax on foreign income for US multinationals. It is also considering tax increases on households earning over $400,000 per year. Among those proposals are hikes in payroll taxes, an increase in the top income tax rate, and a rise in capital gains taxes for the ultra-wealthy earning more than $1m per year.’The outline of the plan is expected to be released on Wednesday.

Traders on alert for fresh sell-off after multibillion-dollar Archegos fire sale. After Friday’s US19bn sale traders are watching to see if the firm faces further margin call selling pressure.

Inside
China shifts from ships to ‘steel camels’ as Europe demand rises. (Page 2 was online Saturday)
Manufacturers turn to rail in face of shipping container shortages, high costs and delays.
Rail traffic is increasing but it cannot replaced sea freight it cites the example ‘Yangshan port near Shanghai alone processed nearly 2m twenty-foot containers in January, compared with 209,000 containers in total over January and February by rail.’
But for some it is at least a temporary alternative and will help China Railway Express, the state-backed company who certainly in the early stages was only running services because of the subsidies.

Developing world faces looming debt crisis (Page 2)
UN chief issues warning over ‘illusion’ of stability and rising wave of poverty.His concern is that developing countries will see 'a rising wave of hunger, poverty, social unrest and conflict’. ’The fact that only six countries had defaulted on their foreign debts last year — Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia — had created the “illusion” of stability and a “misperception of the seriousness of the situation”.’
It notes that many countries have shortened the duration of their debt, which makes it cheaper but also raises the pressure to repay.
He is launching a push to get more funding and for countries to pool their Special Drawing Rights through the 'IMF’s Poverty Reduction Growth Trust for low-income countries and through a new facility to be created to channel funding to vulnerable middle-income countries.’' The UN will also call for more concessionary lending through multilateral development banks, alongside measures to increase debt transparency and to ensure the participation of private sector creditors in debt relief, which previous initiatives have tried but failed to secure. It will also propose mechanisms to facilitate early debt workouts and to encourage an increase in private-sector finance through credit enhancements such as debt guarantees.’
Key I think is that it has tried before and failed, now with recovery in sight as inoculation some countries may be prepared to raise their contributions but they will still beware of how munch fiscal stimulus they are already committing to their own recovery.

Alarm rises over China’s Taiwan intentions  (Page 4 was online Saturday)
Warplane incursion adds to US concern that Beijing is considering unification
Looks at the escalation with 20 planes testing Taiwan’s air defences on Friday, just after Taiwan and the US agreed to boost co-operation between their coast guards.
'“As we prepare for a period in which Xi Jinping will likely be entering his third term, there’s concern that he sees capstone progress on Taiwan as important to his legitimacy and legacy,” the official added. “It seems that he is prepared to take more risks.”’
I think it shows the pressure that President Xi in under domestically as international relations with many countries are coming under pressure and the EU deal is put into doubt after imposing sanctions on EU officials.The article concludes
'Towards the end of the Alaska meeting, Yang told Blinken and Sullivan that he hoped to welcome them in Beijing for more discussions. According to people familiar with the situation, Blinken leaned across the table and said, “thank you”, which prompted a discussion on the Chinese side about whether the US was accepting the invitation. After the Chinese had conferred for some time, Yang asked Blinken what he meant by “thank you” and whether his reply meant the US negotiators were prepared to hold follow-on discussions in Beijing. “Thank you means thank you,” Blinken replied, signalling to Yang and Wang that the answer for now was “No”.’
In my view the key for Taiwan is for a whole host of nations to stand up in support and to recognise it for the country it is. The west has watched what happened in Hong Kong, they should not do the same over Taiwan not least because they cannot afford to lose access to the technology that comes from Taiwan.

Companies & Markets
Citadel warns of inflation risk to bull run in US stocks
• Hedge fund flags up stimulus danger
• Possibility of ‘permanent’ change
Ken Griffin is expecting an increase in retail on-line trading as the latest stimulus cheques are sent out.
That should surely raise questions about the targeting of stimulus, which if the money is being spent on trading is failing to both in its objective and the targeting of those that ’need’ the money.He also expects retail trading to remain a powerful part of the US equity market for some time to come. I would expect it to remain so until there is a major crash that wipes out a lot of leveraged traders.
He also worries that the current US policies will result in inflation and unsettle financial markets. His bigger concern is whether the impact is temporary or permanent.
Outside of that he’s optimistic and thinks the trading boom will benefit more Americans.
He too has a doomsday play where 'accelerating inflation deepens a bond market sell-off, sends stocks tumbling and stokes unrest among investors hurt in the process.’
It mentions about Citadel’s involvement in the GameStop controversy.
Also that 'In US equities, passive funds are now roughly as large as the actively managed investment universe after a decade of rampant growth, while retail investors now account for nearly as much as all mutual and hedge fund trading combined.'
Quite staggering and hence a force to be aware of when considering trading strategies.
Not mentioned directly is the fact that whilst many American’s can use their stimulus cheques many others are reliant on them just to survive. The implication being the multiplier effect to the wealth divide that is being produced by stimulus cheques. That too could have longer lasting implications for the US economy.
Moreover it should mean that the Treasury does more work on investigating who really needed the money and what most people did with it. That will be important to know for when the next crisis comes along so that less money can be better spent.

Asia techs tap equity markets at record pace
Asia-Pacific tech groups (tech, media and telecos) have raised $47bn from equity markets in Q1 with even more fast-growing start-ups from the region set to raise more in the coming months.
'Turbocharged by digitisation during the pandemic, companies are tapping the surging public markets for financial firepower to scale up and expand their businesses. Meanwhile, venture and private equity funds are capitalising on strong demand to exit investments they have held in some cases for more than a decade.’
It mentions examples such as the listing of Coupang with Market Kurly and Krafton being talked about as potential listings. Others include; Didi Chuxing, AI group Megvii, TikTok owner ByteDance also being rumoured. What is new is companies like south-east Asian ride-hailing group Grab, Indonesian ecommerce Tokopedia, Indian food delivery app Zomato and the S. Korean payments business Kakao Bank.
Many are looking at the US as their preferred with Hong Kong also highly considered whilst others are looking at domestic markets.
It will be interesting to see how many Hong Kong attracts both as it re-positions itself as a tech listing hub and in light of the Beijing clampdown of the city and the potential of it being subject to more investment sanctions.
The article concludes 'Reflecting that demand, new Asian tech listings in Hong Kong and New York have jumped more than 60 per cent on average on their first day of trading this year.’
Whilst some have done very well on the first day it is usually better to look at the performance over the first few days as a better indicator. I would doubt any have maintained that level and am sure that a lot fell. What investors have to watch is how much control the listing entity has over where the shares are placed. Many companies, especially family ones, often allocate shares to family and friends; effectively free gifts and those people have a big incentive to lock in those initial gains. Also IPO’s that tie up huge amounts of margin finance, those are usually short term speculators using borrowed money to try and make a profit; again with a big incentive to lock in early gains.

Three mobile aims to move beyond fourth place in 5G era
UK’s smallest network, (owned by Hong Kong’s CK Hutchison) hopes £2bn push will attract business and smart home customers. Three has done well in Italy, Austria and Ireland but struggling in the UK, where is has been for over 18 years (I still remember its Rabbit Phone concept). It attempts at M&A have been scuppered by regulators.It is now looking to redefine its position in the market.
New CEO Robert Finnegan who used to run the Irish operation has now taken over the UK. The previous chief executive and heads of commercial, strategy, technology and marketing all leaving in quick succession last year; so he has a clean sheet. But the brand was hurt initially by poor quality service and chunky handsets. It really needs to overhaul its brand image to reposition itself from being seen as a discount operator to a quality operator in order to get better paying customers.
The article ends 'In lieu of a deal, Finnegan has little choice but to force the 18-year-old company to finally grow up.’

AI chip start-up seeks to challenge Nvidia
Groq’s machine-learning niche attracts investors in $300m financing drive
'The interest in Groq underlines the high-stakes race among chipmakers hoping to power rapid developments in machine-learning applications.’ '
Its chips are geared towards so-called inference tasks, which use knowledge gained from deep learning to make predictions on new data.’ It notes that the CEO founded the team at Google that went onto develop Google’s Tensor Processing Unit, a custom machine-learning chip used in its data centres. Google has said that that chip helped the software program AlphaGo beat the legendary Go player Lee Sedol. One of Groq’s claims for its product; that it's chip was able to process one quadrillion operations per second, has fallen short of that in customer testing.
Another key point the article makes is that it shows how venture capitalist have become more comfortable about the sector having previously worried about the dominance of Intel and Nvidia . That may also reflect Intel's recent lack of focus and Nvidia’s willingness to diversify into production.
A constant reminder that tech and chips never stand still, something that China is no doubt aware of as it tries to develop its own chip making business.

Market Questions
US jobless rate set to slide as nation gets back on its feet? Will the US continue its employment rebound?   This weeks non farm payrolls is expected to show the answer is yes; especially the F&B leisure, hospitality sector. But many will be watching the wage inflation aspect closely too.
Is Japan at a turning point?  Some think Wednesday’s Tankan survey will show a move to the positive for the first time since Q4 2019, many think it will improve but remain -VE
Is the euro rally over? Considers whether  this weeks European data will support last week’s weakness in the Euro.

For Interest
Greensill’s fall leaves General Atlantic shaken
Enthusiastic backing for now-insolvent financial group hits reputation of one of America’s most revered tech investors.Another spin on the story. I’ve never met Lex Greensill but it is clear that he was able to impress those that met him.
An interesting read and a reminder of the moral of the story about the Emperors New Clothes….'You can fool some of the people …..’

FT BIG READ. MIDDLE EAST. Bitter legal battle tests Riyadh
A former top security official has been accused of masterminding a $3.5bn fraud. But is the case evidence of Saudi Arabia stamping out corruption or Crown Prince Mohammed bin Salman silencing his critics?Based on MBS’s reported track record my view would be yes. An interesting read, especially in the light of China growing interest in the region.

Editorial America’s coming showdown over taxes
Biden’s ‘build back better’ plan needs to be properly funded
Key 'Biden faces two challenges. The first is to decide how much of this would be funded by tax increases — which Treasury secretary Janet Yellen indicated last week would be needed — and spending cuts versus adding to the national debt. The second is to figure out how to get it through a 50:50 Senate, where centrist Democrats are eager to compromise with anti-tax Republicans. That could kill the fundraising elements of the bill.’
An interesting read.

Opinion Goldman Sachs was the baptism of fire I needed as a junior banker by Adam Cotterill formerly a junior investment banker at Goldman Sachs from 2018-20.
Concludes 'My advice to those 13 analysts and to other junior bankers is to remember that your seat is rented. You have a choice every day: to quit or to carry on. You can tap out at any point you so choose — down the hall are thousands of people waiting for a seat to come free.'


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