March 23 FT China target of co-ordinated sanctions, Digital distrust, Can't believe the stats? Tencent and more


23 Mar

MARKETs At 1pm HK time
China sell off prompting weakness in Asian markets. China is facing increasing and co-ordinated international pressure over its stance on human rights
AUSTRALIA
ASX 200 dipped initially but then traded higher to 6,780 which it tested a few times and broke briefly above before trending lower in the PM; saw some support around yesterday’s closing level but currently -7pts (-0.1%) @ 6,746
JAPAN 
Nikkei opened higher after the futures saw a choppy pre market. It tested to 29,500 in early trades but then trended lower into lunch. PM opened in the red and is struggling to break above Monday’s close. Currently -10pts (flat) @ 29,164 Topix traded in a similar pattern currently -3pts (-0.1%) 2 1,988
S KOREA  Press reports the number of stock trading accounts has risen sharply over the past year to surpass the 40 million mark amid a buying craze by retail investors, industry data showed Tuesday.  An increase of 10m since March 2020.
Kosdaq opened higher and initially rallied to 963 before trending lower, saw some support at yesterday’s closing level but dipped into the red around 11am , found support at 952 level and now back to flat @ 955
Kospi following a similar pattern, initial high 3,059, support at 3,019 currently -10pts (-0.3%) @ 3,025.
TAIWAN 
Opened higher after good export and unemployment data and rallied in early trades to 16,352 but then reversed and trended lower with support at yesterday’s closing level it bounced but currently retesting that support -2pts (flat) @ 16,196
After Market today Industrial Production and Retail Sales
CHINA 
CSI 300 opened flat sold down 20pts and then retested Monday’s close but failed and trended lower for the rest of the morning. At lunch -73pts (-1.4%) @ 4,985. The lack of support suggests 'Team China' taking a break
HONG KONG 
Pre Market opened @ 29,008 +123pts vs +176pts ADR’s but saw initial selling, likely margin calls after two down days, to yesterdays close. A small bounce but then sold down as China tracked lower. Morning low was 28,428 but then an uptick; at lunch -340pts (-1.2%) @ 28,546.
Broad weakness with Ecommerce (had opend strongly) and Financials leading the declines with Baidu’s IPO just +0.2%. Macau arrivals in Fed -23% MoM to 427.1k -VE.
Caution also ahead of a large number of results today and for the rest of this week.
A HK spokesman referring to Chief Sec Micheal Cheung comments in the FT Monday confirmed the tax position, didn’t mentioned the judges but said Cheung did not say that the HKSAR Government was "instructed" by Chinese Central People's Government to focus on such areas as wrongly stated in the article, the spokesman stressed. He also mentioned ' On Chinese National People's Congress' decision on improving the electoral system of the Hong Kong Special Administrative Region (HKSAR), the spokesman reiterated that the HKSAR Government will fully and resolutely implement "One Country, Two Systems. Under the "One Country, Two Systems" principle, issues such as housing, land and the wealth gap that concern the wellbeing of many sectors of the Hong Kong community are squarely within the HKSAR's high degree of autonomy.'

EUROPE 
Expect markets to open lower following the lead from Asia and the mixed picture from the US overnight.
Data just from the UK; Claimant Change, Unemployment Rate, Average Earnings, CBI Industrial Trends Orders, 30yr Gilt Auction.
US Futures 
Opened Dow +38pts but have eased to +16pts, S&P was initially +0.1% now flat and NDX was flat but now -0.1%
Data due Current Account, Redbook, New Home Sales, Richmond Fed Manufacturing Index, API crude Oil Stocks
Powell Testimoney, Brainard Speech

Front Page
Netanyahu at the polls again Final campaigning before today’s election

Western sanctions on China over Uyghurs spark instant retaliation
• US, EU, UK and Canada act • Human rights abuses alleged • Blinken heads to Brussels. The joint action prompted an immediate response from China; which imposed its own travel bans on 10 EU individuals and four entities. 'This included MEPs who have criticised Beijing’s policy, such as French MEP Raphaël Glucksmann, German scholar Adrian Zenz and Swedish analyst Björn Jerdén.Beijing said that the EU measures were “based on nothing but lies and disinformation”, adding that they “severely” undermined its ties with the European bloc. David Sassoli, European parliament president, said that the counter-sanctions were “unacceptable” and would have “consequences”.’

Black quits leadership posts at Apollo following furore over his ties to EpsteinHe was investigated but cleared of ‘any criminal activity or had any knowledge of allegations that Epstein was running an international sex trafficking ring.’  Yet has remained under personal pressure and cited personal health as the reason for leaving but noted that he is still the largest shareholder and hopes to return.I don’t have any great insight into what he did but having been cleared after an investigation his crime seems to have been poor judgement, something most people as some stage have experienced.  But in today’s world judgement by social media seems to have more impact than legal facts which is a worry.See also LEX Apollo: Black cloud lifted 'For now, Apollo does not earn the benefit of the doubt from this crowd. To be fair, Apollo wants to evolve into a better version of itself. Black has left open the possibility he may return eventually. If Rowan does his job well Apollo will be a better business by then — and valued accordingly.'

Inside Page 4
EU considers sustainable label for gas
Critics fear move paves way for ‘greenwashing’ of fossil fuel technology. Looks at the green labelling system the EU is looking to introduce to help investors put their money into clean energy. Many are concerned that it is engaged in ‘green-washing’ instead of producing a' science-based criteria on what should count as truly sustainable economic activity’.
The big worry is that its 'taxonomy’s criteria would create a de facto blacklist of activities that are still needed to help bring down emissions in many economic sectors.’
Additionally some think it is being turned into a “political bargaining tool instead of a science-based golden standard for green finance”.

It’s big business and getting it right is important but at the initial stages having a flexible framework might be more important than nailing everything down to start with. It is likely that over time technology could introduce new methods of doing things which will reduce emissions. The key is not to strangle those technologies before they have even started by having an absolute list.It also illustrates how difficult ESG implementation is going to be.

Canada envoys refused entry to Beijing spy trial
China will come under more criticism over the trial of Michael Kovrig, a former Canadian diplomat and an adviser for International Crisis Group, a non-governmental organisation. He together with Michael Spavor, 'a Canadian businessman, who organised trips to North Korea, have been held for more than two years in apparent retaliation for the arrest of Huawei executive Meng Wanzhou in Vancouver.’
The diplomats were denied access on the grounds that the trial touched on issues of national security. That will raise some concerns for those working in Hong Kong which now has a similar National Security Law.
'“We are very troubled by the lack of access and the lack of transparency in the legal process,” Jim Nickel, deputy head of mission at the Canadian embassy in Beijing, told reporters.’
That could become a common refrain depending on how Beijing enforces the law in Hong Kong.
He went on “China needs to understand that it is not just about two Canadians. It is about respect for the rule of law and relationships with a broad range of western countries,”
I think most western people would agree with Canada that the case is China employing “coercive diplomacy” and that the detentions are “arbitrary” and “hostage diplomacy”. China’s denial of access supports that view.
It is reported that 'Kovrig and Spavor have been held in separate detention centres with limited consular access. Former detainees at similar facilities have described crammed cells shared with one or more people where lights are kept on at all hours, and strictly rationed time for sleep, exercise and reading.'

By comparison the detention of Meng, Huawei’s chief financial officer and the daughter of Ren Zhengfei has been given full press, consular and legal access. She lives in a multimillion-dollar Vancouver home, moves around the city with only light electronic surveillance and is able to communicated with family and friends as the legal process runs its course.
China’s actions in this and other similar ones undermine it claims that its style of government is better than the wests.
For investors it again raises the concerns about key staff travelling to China and now also Hong Kong. That over time is likely to undermine the potential for China and stifle some growth and whilst it may not be many cases in an increasing competitive world that could make a long term difference.

Lack of jabs puts crew and global trade at risk
Key being that the situation was getting better until the virus started to mutate. Additional the fact that there is no universally accepted jab is causing problems. 'China, for example, eased border rules this week for those that have received a Chinese vaccine, while the UAE has required some seafarers to receive a vaccine not on the WHO’s emergency use list to continue working.’The situation is being made worse by the economic recovery which is stimulating a demand for goods whilst there is a limited availability of containers in the areas where demand is high.
A further complication is that 'Seafarers from developed countries may receive coronavirus jabs in national rollouts but supply chains rely on crew from the Philippines, Indonesia and India, where vaccination will proceed slowly. The industry is lobbying for crew to be prioritised but success is not guaranteed.’

For investors it suggests that there are good returns to be made in the shipping sector but most shipping companies have seen their share prices rising since last March and many peaked in January of this year. Although they continue to trade around the highs. The likelihood is that share prices will drop as normality returns and containers start becoming more available and more ships are brought back into service, HHM said on Monday that it was deployed two additional ships to cope with soaring freight costs amid the new coronavirus pandemic. HMM will operate two additional 16,000 twenty-foot-equivalent unit (TEU) ships, according to the Ministry of Oceans and Fisheries. The launch came around a month earlier than the original schedule of April. Others are likely to follow. There could be short opportunities in the sector therefore.

Skewed stats Pandemic data cloud economic picture
Collecting data during the pandemic is difficult and hence the reliability of the data is being questioned. Nigel Pain of the OECD said with all economic data, the motto now is “handle with care”.
Looks at the PMI data, European data is due out Wednesday. It has been seen as a reliable indicator of trends, the headline data seeks to 'measure whether economic activity has strengthened or weakened since the previous month, a feature that should give very low results when Covid-19 restrictions are imposed, followed by very high ones when recoveries start as the economic swings are much larger than usual.’ But it says 'Whether it was because companies were reporting their level of output rather than the change from the previous month, the figures had become extremely difficult to interpret and did not reflect the changes happening in economies,’ That then will skew other forecasts.
Quotes 'Chris Williamson, chief economist of IHS Markit, which produces PMIs for most large economies, accepted the indicators struggled to capture fully the extreme swings in pandemic output, but said they were still useful and had captured “the turning points” in growth.’
That could prompt a move to real time data but even that has its limitations
'The OECD recently noted that the relationship between one of the most closely watched new indicators — Google’s movement data — and economic performance had changed during the final three quarters of 2020.
Its latest economic outlook noted a shift in the relationship between mobility and movements in gross domestic product as people adapted to lockdowns — causing many forecasts based on these data to be too pessimistic.’It looks at other areas such as Unemployment, Inflation and GDP with again the data not fully reflecting reality.'

For investors that means having to handle any data with care and try and find cross reference points. Anecdotal evidence will be useful too. I think the area of most concern is going to be inflation and judging if that will be temporary as the Fed would have us believe or permanent as many others suggest. The big issue is not having seen inflation for so many years will we recognise it? Companies in the past put the cost of goods up, more recently they have changed the size of the packet and kept the price the same.

Companies & Markets
Climate strategy. Net zero promises dismissed as hot air
Investor alliance says only a handful of top emitters have set meaningful goals
'The deluge of corporate climate pledges has yet to translate to action, according to Climate Action 100+. Only a handful of the 159 companies responsible for more than 80 per cent of industrial emissions had set adequate targets, it said.’
Interestingly Berkshire Hathaway who recent urged shareholders ‘to reject a call for greater climate-related disclosures, saying it did not believe an analysis of its risks was “necessary”’ comes out badly because it holds Petrochina and SAIC Motor.
The topic is going to become more prominent but addressing the issues will take longer. It remains to be seen how ordinary investors will really react; especially ETF holders. If they decide it is an issue then the managers are going to have exert pressure for change and that could be crucial.

Wall Street divided after scrutinising bitcoin’s role in portfolios
Diverging views but more it does appear that more banks are accepting it as an alternative. A good summary ‘She (Lisa Shalett, CIO and head of the global investment office at Morgan Stanley Wealth Management) said the evolving regulatory framework, improving liquidity conditions and growing interest from institutional investors have created conditions for cryptocurrencies to become part of mainstream institutional portfolios, similar to how gold markets emerged 45 years ago.’
Interesting also because yesterday Powell said cryptocurrencies are primarily “a speculative asset.”  Also that the Fed was in no hurry to develop a central bank digital currency.  CNBC has more detail https://www.cnbc.com/2021/03/22/cryptocurrencies-are-not-useful-stores-of-value-says-feds-powell.html 

I think the for many people crypto is a asset class but for the establishment it is difficult to break with the consensus thinking. Similarly with the adoption of blockchain. The pandemic has highlighted the need to faster methods to transfer money and alternatives to signing paper documents. The CNBC article does note that the Fed is looking at an alternate payment method and doing wider research into digital currencies but mainly on the hypothetical rather than practical.

Warner seals Tencent deal on China streaming
Highlights the importance of the Chinese market to artists and suggests that Tencent streaming services is a leader having secured deals previously with Universal Music and Sony Music.
Tencent has also been instrumental on clamping down on the rampant piracy in China to improved the market; where it owns the 'top-three streaming platforms QQ Music, KuGou and Kuo.' They were said in November to have 52m paying subscribers.

TECHNOLOGY
As digital trade grows, so does distrust of China
Looks at the increasing collection of personal data by smart devices and the difference in how governments/big tech companies handle the data.
'Some see a future in which the use of technology, and the data it collects, is balkanised between strategic allies and adversaries. If this vision is realised, it would signal the demise of the technoglobalism that has underpinned international technology co-operation since the cold war ended in the early 1990s.’
Key recent events;
'UK, intelligence agencies are pushing for new curbs on local authorities’ use of Chinese “smart cities” technology over concerns Beijing could use it for espionage, surveillance or collection of sensitive data.'''
'Japan, the government is scaling back its use of a popular messaging app, Line, after its operator acknowledged that employees of an affiliate in China had been able to view Japanese users’ personal information. The data included names, phone numbers, identification numbers and some messages.’
'China’s concerns over data security have also come to the fore. Elon Musk, Tesla chief executive, denied last week that his company’s cars could be used to spy following reports that the Chinese military has banned Teslas from its facilities.’
'Another affront to trust is that promises made in earnest today can become false tomorrow. For example, Apple is expected in the coming weeks to roll out changes to its iPhones to give users more assurance on privacy. But some of China’s biggest technology companies, including ByteDance and Tencent, are testing a tool to bypass Apple’s new privacy rules and continue tracking iPhone users without their consent.’
So the big question is how do Western Governments and companies maintain trading relationships and project consumer data. The US has show which way its going with its entity list.
It concludes 'Mikko Huotari, executive director of Merics, a Berlin-based think-tank, sees the likelihood of different levels of restriction in Europe for different technologies. But in general, he says, Europe’s orientation towards Chinese technology is shifting in a fundamental way. “We will move from export controls of our technology to China towards debates about import controls of Chinese technology to Europe.”'

For Interest
A one page advert by the Japan Dealers Securities Association giving a summary of their February webinar on Building a Financial Hub in the post Covid world.  An interesting read concludes by saying you have to go to Japan to see the change. Which will be difficult currently.

Boardroom warrior miscalculates court’s tolerance for poison pill Looks at the recent Delaware Court decision.'Poison pills seek to thwart hostile parties who threaten to buy a large stake in a company. Cogut was a lawyer in the 1980s just as the poison pills were developed. As director of Williams, he had suggested the company adopt the scheme the court has now swatted away.
According to one law firm, the ruling is the first instance in two decades that the Delaware court has rejected a poison pill, a potential shift in the seemingly settled law regarding the corporate defence mechanism. The central role of a legal luminary, Cogut, has only added to the drama.’
An interesting read about the introduction and development and current status.

Minimum-volatility strategy was too much of a free lunch
'When Wells Fargo hired Fischer Black and Myron Scholes in the late 1960s to advise on its plans for the first index fund, the economists made a curious discovery. The internal argument they triggered echoes in the investment industry today.’
A interesting read about “minimum volatility” strategies; which recently have not been living up to expectations.
"One of the reasons Wells Fargo never followed through on the idea proposed by Black and Scholes was that Bill Fouse, one of its executives at the time and a pioneering quant in his own right, argued that simply buying low-volatility stocks would erode the benefits of diversification: steadier securities tend to be found in certain stable industries. In short, he applied some common sense to what the data indicated.’
It concludes 'However, the broader more intractable problem may simply be that the min-vol anomaly identified by Scholes and Black — greater and steadier returns — was too much of a free lunch to last for ever, and has gone the way of the dodo.'

FT BIG READ. INVESTMENT. The new Berkshire Hathaway?
The $30bn merger of the private equity firm and the insurer makes Marc Rowan’s Apollo a financial powerhouse, with Athene its principal source of funding. But some still doubt the logic of the tie-up.

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