Feb 15 FT HK tightening on mainland money laundering, Wuhan report, US earnings recovery


15 Feb

MARKETs 
JAPAN 
Nikkei opened higher and rallied to test 30,000 after pre market preliminary GDP data was better than forecast. Market eased slightly though the morning but saw support at 29,800. Good lunchtime Industrial data saw the market rally back to 30,000 and traded around that level in the PM session; Currently +490pts (+1.7%) @ 30,011The first time the Nikkei has crossed 30k level in 30 years.
Topix followed a similar pattern; currently +18pts (+0.9%) @ 1,952
Data
Preliminary GDP data pre market
Growth Rate Q4 +3% vs +5.3% Q3 (F/cast was +2.2%)
Growth Annualised Q4 12.7% vs 22.7% Q3 revised from 22.9% (F/cast was 9%)
Capital Expenditure Q4 +4.5% vs -2.4% Q3 (F/cast was 2.5%)
Extrernal Demand Q4 +1% vs +2.6% Q3 revised from+2.7% (F/cast was +1.2%)
Private Consumption Q4 +2.2% vs 5.1% Q3 (F/cast was +1.5%)
Price Index Q4 +0.2% vs +1.2% Q3
Later
Industrial Production Dec -1% MoM vs -0.5% Nov (F/cast was -1.6%)
Industrial Production Dec -2.6% YoY vs -3.9% Nov (F/cast was -3.2%)
Capacity Utilisation Dec +0.8% vs -2.9% Nov (F/cast was -2%)
Data due Tuesday
Tertiary Industry Index.
S KOREA 
Kosdaq market re-opened higher with strong foreign and institutional buying and initially ticked higher to 970 and then worked higher through the session; currently +18pts (+1.9%) @ 983%
Kospi Opened at 3,109 and ticked up to 3, 147 in initial traded and then traded sideways ; currently +55pts (+1.8%) @ 3,155.
Data
Auto Exports +29.5% in January
Auto production +24.9% YoY and domestic sales +18.4% YoY in January,
data from the Ministry of Trade, Industry and Energy.
The first time all three gained since Sept 2020Large caps in Tech, Internet and Auto driving the market higher
Due pre market Tuesday Import and Export Prices
TAIWAN Closed re-opens Wednesday February 17
CHINA Closed re-opens Thursday February 18
HONG KONG Closed re-opens Tuesday 16
EUROPE Expect markets to open higher following the lead from Asia and US closing higher on Friday but lighter volumes could prompt more volatility.
Data due EUROZONE Balance of Trade, Industrial Production,
US Closed Monday for President Day holiday. Re-opens Tuesday

FT Front Page
Republican rifts laid bare after Senate clears Trump
• Acquittal poses electoral dilemma
• Split over future of political ‘brand’
Says he was exonerated by senate vote, but in my view having 57 members wanting to find him guilty but not achieving the 67 required is not an exoneration. Mitch McConnell saying after the vote that Trump was responsible make it clear he was guilty but got off on a technicality. But the party is now divided and that cannot be a good thing for US politics.
Read also Trump is cleared but his brand has been damaged (Page 4) Republicans still loyal but the Capitol riot will hang over any potential run for re-election
Out of this world Martian space probes shed new light on red planet. 
A photo from the UAE’s Space Agency ahead of Nasa’s probe landing on Thursday and last weeks Chinese probe Tianwen-1 which entered orbit last week and is searching for a preferred landing spot for its probe.
Hong Kong regulator turns the screws on mainlanders trying to launder cash Looks at how regulators are considering increasing scrutiny on mainlanders changing the ordinance that currently requires stricter checks on Politically Exposed Persons outside the PRC to include anyone from outside Hong Kong.  Says Beijing is concerned about illicit capital outflows and keen to curb officials and others from using Hong Kong to hide their wealth.  
President Xi has cracked down on corruption with some success but has left the country weaker because many officials are not prepared to make difficult decision for fear of being accused of corruption, whilst seemingly from the fact that the campaign is continuing the corrupt are still active.
Notes that China has appointed an anti-corruption Tsar Shi Kehui to investigate local officials The changes would bring the Hong Kong in line with the Financial Action Task Force.
PEPs are considered high risk because their positions expose them to opportunities to receive bribes.
It still remains amazing the China heralds its system as the model for the world and yet is constantly having to crack down on corruption. Whilst there is corruption in western economies it does not seem to be on the same scale as China or other within dictatorships. There would seem to be a lesson there.

Inside 
Denmark to upgrade Arctic surveillance (Page 2)
Drone and radar booster reflects concern about Russian military activity. It says 'It’s not about escalating conflicts. This is about the risk we see in the future if we don’t have the capabilities, if we don’t see what is happening.’Norway is also re-opening a submarine base in its far north.
Key is that the artic is of increasing interest due to the its potentially rich resources and strategic importance. Coming at a time when many are expecting that we could see another Commodities super cycle that means there is potential money at stake.

Draghi mollifies lawmakers with diverse cabinet (Page 2)
Premier secures mandate to tackle health and economic emergency. Looks at the cabinet which many view as a good mix of technocrats and political appointees. He will no doubt be using all the skills that made him a successful head of the ECB in trying to guide Italy out of its current problems and that should be positive to the health of the European Union as a whole.

US voices concerns on Wuhan report (Page 4)
China urged to give WHO data from early days of Coronavirus outbreak. WHO says it’s extremely unlikely that the virus leaked from a Chinese lab; a theory Trump was pushing.
But the US is concerned that China will not release data related to another outbreak in another part of China that pre dated Wuhan. Although not a wide spread cluster. The revelation that there was an earlier incident inside China dramatically undermines China’s claim that the virus started outside China.
On the positive front the head of the mission said that whilst still along way from understanding the origin they had a better insight into different wild animal products as a potential start for further studies.
Still China blamed the US for the lack of co-operation. But in my view that fact that it happened in China and China has taken over 12 months before allowing a team from the WHO to inspect is inexcusable. The fact that is has also taken action against countries that were pushing for such an inspection is all deplorable and not the action of a country that aspires to be seen as a world leader.

Companies & Markets
Right direction US earnings season shows corporate rebound and boosts recovery hopes
Analysis of data from Refinitiv shows how companies are returning to revenue and profit growth after 3 quarters of contraction; which is quicker than had been expected. It is based on the 70% of companies that have reported and estimates for those yet to report.It broadly supports the rally being seen in US equities and the increased flow of funds into the markets. But as always the key is in the detail.

Porsche rules out building China factory (Companies & Markets)
Decision to keep German construction cachet despite higher costs and the fact that China is its largest market. Banking on the ‘quality and premium’ of being produced in Europe. In stark contrast to Audi, BMW and Mercedes. Daimler last year made a decision to move production to China to save money on labour costs.
But it makes the point that the size of Porsche at present means it is too small to justify setting up production in China; it sold 272,000 cars last year with nearly 90,000 of those in China.

Homeworking sparks red flag alerts over market abuse.  Sets out that Fund Management firms are continuing to see elevated levels of suspicious events whereas the Banks has seen such activity fall.  Shows how difficult it is to control when staff work from home with concerns about home privacy.  I would expect a number of new businesses to develop to provide banks and fund managers with the tools to meet these concerns.  It is likely that for staff working from home it will be a trade off.  For the benefit of working from home accepting a higher level or security/intrusion.

Asian authorities attempt to slam brakes on predatory online lenders (Companies & Markets)
Efforts to police upsurge in illegal apps and websites likened to Whac-A-Mole.
Looks at how many unlicensed operators illegal provide loans and prey on customers that don’t have bank accounts and have limited financial literacy especially in India and Indonesia. It notes they 'harvesting data from phones, used for example to embarrass debtors by calling family members.’
Google faced criticism in India and is removing non compliers. The India police have taken up investigations and arrests. Indonesia has stepped up efforts too but higher regulations could hurt legitimate lenders too.
It notes though that in India the system and regulation are not clearly defined, as was the case in China that allowed Ant and Tencent to grow their businesses so quickly. What is clear is that there is huge demand for the service; especially during the current pandemic.
Interestingly many are following the crackdown in China, when in 2018 it suspended new licences for P2P lending and recently has increased control over Ant and others. As a result of that many of the Chinese operators looked to exploit markets elsewhere. Indonesian said in 2018 that 227 unlicensed P2P lenders originated from China. India says a similar thing.
It would suggest that greater co-operation is required but with current tensions between China and a number of other countries that is unlikely.

Market Questions for the week ahead
Can the pound maintain its rally?  
Key will be inflation and retail sales data on Wednesday. Expected to show the UK avoided double dip recession but still a need for caution. Concerns that the struggling Service sector could prompt more accommodation from the Bank of England another worry. On the positive side the vaccine roll out has been going well and could mean a swifter recovery.
How worried are Fed policymakers about inflation?
FOMC minutes should give some insight on Wednesday but so far most speeches have sen the threat as contained. Some outside the Fed like Larry Summers have been more concerned.
Is the US oil crash over?
Many think the fundamentals have now changed and a new cyclical bull run could be starting. The cutting of capex over the recent months has prompted some to raise concerns that companies will be unable to meet demand as the recovery takes place; even as crude remains available from OPEC and Shale.

Asia (Page 18 Editorial page)There’s a bad smell to Japan’s corporate governance reform by Leo Lewis
Starts by saying that Mori’s resignation was in the context of a Japanese proverb “A lid has been placed on the thing that stinks.”
He notes that Mori’s comments reflected the establishment view that continues to fester especially in business.
'But its source — a mix of ingrained gender inequality, invisible networks that support the incompetent, excessive deference to authority, opaque habits of governance and other stabilisers of the unacceptable — continues to fester, untreated in the pot.'
That he says is an issue for the upcoming plan to revise the listing requirements and streamline the TSE into three segments; a “premium” board, a “growth” board for start-ups and a “standard” one for everything else.
Looks at how many of the original high intentions have been lost or watered down with many viewing it as a lost opportunity.
He concludes by saying 'According to the latest survey by the Asian Corporate Governance Association, Japan’s previous improvements means it now ranks an underwhelming fifth in Asia, with Malaysia. Japan may well struggle to rise further until everyone is brave enough to lift the lid.'

For Interest 
Perseverance rover readies to search for signs of life on Mars (Page 3)
Nasa lander will deploy technology to test rotorcraft and make oxygen. Looks at the lander and the tests it is hoped that a successful landing will allow it to carry out.

Heineken takes off the beer goggles (Companies & Markets)
New chief is targeting women and the youth market with range of less traditional tipples.Looks at the changes and aspirations of the company.

Opinion Bitcoin’s rise reflects US decline by Rana ForooharAn interesting read as Bitcoin approaches US$50,000 level.  Compares it with the gold priced in Weimar marks from work done by Tree Rings, analyst Luke Gromen.  His conclusion was that 'Bitcoin isn’t so much a bubble as “the last functioning fire alarm” warning us of some very big geopolitical changes ahead.’That could be true; an interesting read she concluded by saying ‘the bitcoin boom may best be viewed as a canary in the coal mine.’

The ticking time bomb inside the new world of work. Looks at the work of Nicholas Bloom, an award-winning British economist at Stanford University whose research on working from home began years before the pandemic.
Key working from home here to stay
Problems include worst case is half of a team of people in the office and half at home.People at home will also miss the post meeting huddles. So people should be all in on some days or all at home.
Staying at home risks missing promotion for lack of ‘managerial capital’.
If allowed to choose some groups such as single parents would seek to work from home more than others; the lack of promotion could lead to lawsuits against their employers. So managers should set the rules and ensure everyone is on an equally basis.
But that is likely to upset those that don’t want to work from home at all. To me it also raises the problem of whole teams being infected when the aid was to make sure that didn’t happen.
Also his work notes that some workers have no choice like delivery drivers. Some companies will pay them more other will not. Lower skilled workers have been hardest hit but still have little bargaining power and few perks.
She concludes 'For those of us who end up at a company with stricter than expected rules on when we can and cannot work outside the office, that might be worth bearing in mind.’
A good read I think some sectors will quickly return to the office, especially once the mass vaccinations have been rolled out. Different countries will react differently I think places like Hong Kong will see a return to the old ways whereas places like Silicon Vally change.
A key element will be the development of good managers that can really manage the circumstances.
Worth also reading Gen Z deserves more support and fewer archaic management practices from employers by  Elizabeth Uviebinene author of the forthcoming ‘The Reset: Ideas to Change How We Work and Live’
Also Authentic’ leaders who lack adaptability, empathy and kindness are sure to fail by the FT’s Andrew Hill
And I would suggest my piece from the FT Weekend I sent out yesterday
KPMG’s UK chair quits after criticising staff for ‘moaning’ about the pandemic
Bill Michael has been forced to quit as chairman of KPMG UK days after telling staff to “stop moaning” about their work conditions during the pandemic.
'Michael split opinion within the firm, winning loyalty among many for his no-nonsense approach and strong-handed leadership after a series of accounting scandals and ahead of sweeping audit reform in the UK. But these qualities also led to criticism from staff who saw his approach as old-fashioned and abrasive — and out of step with efforts being made within the City to create a more inclusive environment.’
A reflection of changing attitudes and the right style at the right time. Demonstrated the need for managers to adapt the circumstances. Good managers know that.
When I started officer training in the Royal Navy we were taught that good leadership recognised that there was always a balance between the three main areas of work; the task, the team and the individual. It was illustrated in three circles

When everything is going well you are in the white zone, where they equally intersect and have equal importance. But there are times when the task or the team or the individual may be more important than the whole and a vast range of stages in between. Managers need to recognise the situation and adapt to the most important needs. It is all the more important when times are difficult.

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