Feb 4 FT BABA bond on, Sony +VE, Vaccinations lead, Japan Olympics no cheer, Zoombies good for now

04 Feb

MARKETs @ 2pm Hong Kong time.
Markets all opened lower most have trended lower but the Taiex is rebounded. But the with S&P looking tired and Chinese New Year approaching expect more caution from retail investors.
Nikkei 225 opened and trended lower to 28,450 before working slightly higher into lunch. PM opened about 100pts lower and still trending lower Currently -289pts (-1%) @ 28,357
Topix opened lower but rallied into the green but hit resistance at 1,875, retrenched to 1,867 before working higher into lunch. PM opened lower and drifting lower; currently -7pts (-0.4%) @ 1,864
Foreign Stock Investment Yen -187.5b vs +209.8b prior revised
Foreign Bond Investment Yen +729.6b vs 756.2b prior revised
Tomorrow we get Household spending and Foreign Exchange reserves pre market and later Leading Economic Index and Coincident Index.
Saw strong foreign and institutional selling; large caps under pressure except Hyundai and Kia on the Apple deal.
Kosdaq opened flat but sold down initially to 961 before seeing a bounce to 968. But then trended lower small support at 960 but currently -10pts (-1%) @ 961
Kospi opened slightly higher but followed a similar pattern to the Kosdaq; currently -52pts (-1.6%) @ 3,077.
Tomorrow pre market we get Current Account
Opened lower at 15,700, and sold down 15,600 before rebounding to flat and traded sideways around there for about 40 minutes but then sold back down to 15,700 (opening level) and then traded sideways to close -65pts (-0.4%) @ 15,706
Tomorrow after market we get Wholesale Price and Inflation data
CSI 300 opened lower with concerns about the PBoC draining liquidity but rallied to test as high as 5,510 in the first hour but then sold down into lunch. PM opened lower and tested down to 5,410 level but now working better. Currently -30pts (-0.6%) @ 5,456
Pre market opened @ 29,094 -214pts vs -111pts ADR’s Initially rallied to test 29,40 but then sold down into lunch at 28,882. PM opened lower but working higher; currently -246pts (-1.2%) @ 28,964.
E commerce names weak except Baba on the bond news and Chinese Financials except Ping An after earnings. Tech and Autos weak.
IPO Cardioflow was +59% at lunchtime. Sino BioPharm was initially +7% on Star market listing news but sold down through the morning to -0.8%
Expect markets to open lower with earning in focus along with the PMI data and BoE rate decision.
EUROZONE Construction PMI, ECB Economic Bulletin, Retail Sales
GERMANY Construction PMI
FRANCE Construction PMI Retail Sale
UK BoE Rate Decision
US Futures 
Opened higher Dow +66pts , S&P +0.3% and NDX +0.4%. Some good after market earnings from eBay and Paypal but QualComm sales missed but gave upbeat guidance. Initial claims in focus ahead of Friday’s payroll numbers.
Challenger Job cuts, Unit Labour costs, Non Farm Productivity, Initial Claims, 4 week Average Claims, Continuing Claims, Factory Orders, EIA Natural Gas Report.
Earnings: Merck, Bristol-Myers Squibb, Ford, Hershey, Cigna, Clorox, Yum Brands, Intercontinental Exchange, Activision Blizzard, Gilead Sciences, Snap, Pinterest, Hartford Financial, Prudential Financial

Draghi takes on ‘difficult’ task to lead Italy out of pandemic crisis
• ECB’s ex-chief accepts mandate from Italian President • Quest to forge unity coalition • Economy ravaged by virus.
Ma’s Ant Group revamped to comply with Beijing’s new online lending rules
Ant has agreed with the Chinese regulators to restructure its business. It means all units will be held in a financial holding company which will be regulated by the PBoC. Making it more of a bank than a tech company. That means it will probably need to raise capital to ensure it complies with capital adequacy rules. It may also have to beef up its risk control and governance. That is likely to impact on Alipay’s profitability; which the article notes has 700m users.
By how much is unclear because the regulator has yet to release a final version of the new rules for internet lending platforms.

Alibaba poised for $5bn bond deal despite China scrutiny. The deal now looks set to proceed after weeks of uncertainty and is reported to be seeing ’strong’ response from investors.  Obviously investors will be assessing the changing regulatory landscape in China but with the Ant deal with regulator and Jack Ma being seen in public it would appear healthy.
The bonds will have various maturities up to 40 years and there will be a 20-year “sustainability” tranche is tied to green projects.
Moody’s has already rated it A1 but cautioned the group was “heightened scrutiny by regulators with respect to perceived anti-competitive behaviour, in turn raising legal, regulatory and reputational risks”.
The key being “The motivation for a lot of issuers at the moment is to be opportunistic and take advantage of high liquidity in the market, low rates and very cheap financing,” said the banker close to the deal. “The thinking [for Alibaba] is ‘go now rather than wait to see what happens in a year’.”

Lex Sony/PS5: consolation prize. Looks at the results and sees a positive outlook'
The good news for investors is that bigger forces are playing in Sony’s favour. Unprecedented demand for video games pushed the size of the world market up by nearly a fifth last year. That should continue well into this year. Now that demand extends beyond the latest models, the console’s revenue cycle could start to stretch out beyond its typical four-year mark, boosting profits.'

Global vaccinations outpace infections. Slowing growth in cases attributed to lockdowns and social distancing.  But the key is that vaccinations are now underway in earnest.  
The example of Israel is noted where vaccinations are accredited with the reduction in cases because inoculation has been rolled out so quickly.
But the hope is that vaccinations will make a difference. But there should be a note of caution as new mutations are regularly being seen and the efficacy of the vaccines could be brought into question. So far like the flu jab adaptations can be made to ensure they remain effective. But being over 1 year since being alerted to virus and not knowing the source means there could be another virus waiting for its chance.
Read also CureVac and GSK to work together on variants jab. • Anglo-German deal worth €150m • Product using mRNA tech targeted.  
They are targeting variants of the existing covid viruses which are showing some resistance to existing vaccines. I wonder if the processes used to come up with the current vaccines would all enable a quicker time to a vaccine if a new virus emerges.

Japan to ban cheering at Covid-era Olympics. As Tokyo commits that the Olympics will take place, they are looking a show to make it as safe as possible.  So far 'Constant testing for Covid-19, 14 days of restricted movement and a ban on cheering await participants at the Tokyo Olympics’  according to the first ‘playbook' that has been released. The potential for infringement looks huge and that would likely tarnish the event.
To me it is amazing that they are insisting the event goes ahead. Obviously the costs of cancelling would be huge, not just for the government, but the sponsors and insurers too. But with so much uncertainty and with a lack of domestic support you do have to wonder whether it would not have been better to cancel.

Zombie companies will do less damage if they stay alive longer. Looks at how the extraordinary measures during the pandemic have meant that bankruptcy rates have fallen. It notes that usually when GDP falls bankruptcies usually rise.  The main reason being that the stimulus measures have made cash available that has kept unviable firms going and also because GDP isn’t falling because of a direct economic problem but due to covid.  
But it notes that this is only a time delay and in fact could have a bigger than normal impact as the economy recovers and the support programmes are wound back. Some sectors are not going to recover as quickly as others. It mentions travel, entertainment, retail and hospitality. It is also likely to hurt lower skilled workers more too and those who lose their jobs may also find their skill sets become less relevant the longer they are out of work.
The question for politicians is when to roll back the support. Most politicians would say never as they want to lose votes but there has to come a time. That then leads a more bankruptcies and potentially bigger ones as there is likely to be a domino effect in some sectors. The biggest risk then comes to the banks who in the last round of results were writing back provisions because things were not looking so bad. Whilst they have been stress tested and are unlikely to fail there must be an increased expectation of earnings being hit. The timing of which is likely to be a few months after the support is removed.
The airline sector could be the test case as US airlines warned yesterday that they may have to furlough more workers (13,000) when the Federal support programmes end in March.
In summary it says 'As a result “the recovery is not going to be quite as easy as some people think”, said Ms Dynan. “There is a sense in which we are putting off decisions that need to be made — but we are doing the right thing for now.”’

For investors it is not just the obvious hit to the banking sector to worry about. It will be a matter of trying to look at the supply chains and possible weak links. For some businesses that in previous years have spun off various processes but continued to use the product or service it could mean buying that business back or looking for alternative sources. Both of which could hurt a companies bottom line.
It is also worrying to think that with the US mid terms now two years away some politicians will want to have the programmes running for significantly longer. But at some point the US and other countries are going to have to wind the programmes back. Hopefully in the meantime they will have put in place retraining and job skill training programmes to help those affected. That should be good news for skills training businesses.

High-yield bond issuers seek their happy ever after by Ellen Carr of Weaver Barksdale
Looks at whether bond issuers will see a happy ever after marriage or need marriage counselling in a few years. Compares and contrasts Macy’s with Royal Caribbean Lines.Key is when or if will cashflows return to normal and what happens to the additional debt that many have also taken on. An interesting read and to an extent compliments the article on Zombie companies.

Western leaders need to talk to Myanmar’s generals. By Gwen Robinson Nikkei Asia’s editor-at-large, is a senior fellow at Chulalongkorn University’s Institute of Security and International Studies.The arrest of Aung San Suu Kyi has restored her status within Myanmar and internationally. Key being the fact that it was her that got sanctions lifted and foreign investment started.  Interestingly the young population which is now more sophisticated than back in the 5 or 10 years ago is now more angry and determined raising the potential for a bloodbath.  It also notes that the country is still a tinderbox and could explode like a nuclear bomb; it says quoting a seasoned observer.   Medics and civil servants have resigned and at nights the sound of people banging pots rings out as part of the protests.In the 1990 sanctions wrought havoc on the country and its people.  Talk of sanctions targeting military linked companies would be difficult as they are so deeply intertwined.  Not mentioned by a recent study for Kirin beer by one of the accountancy firms was unable to categorically set out beneficial ownership.  The Generals have been learning too.  Also many worry about pushing Myanmar closer to China, Gen Min Aung Hlaing the military leader was in Beijing only a couple of weeks ago so one would expect he has already sounded out support against sanctions.  So what next; mediation Japan has built strong relationships with the military,  and from the fact that over 107 S Korean companies have offices in Myanmar Mr Moon may be an option. A third could be the Association of Southeast Asian Nations.
It sums up by saying 'Liaising with the junta will be distasteful. But time is short. Civil disobedience is gaining momentum and the military is as ruthless as ever. Rather than stand aside, the first aims of the international community should be to deflect violence and seek the release of Aung San Suu Kyi and other detainees. These are the bare prerequisites for broader progress.’
I had the pleasure of visiting Myanmar about 15 years ago when Aung San Suu Kyi was still under house arrest. I toured around the country for about 3 weeks and could see the devastating effects in some places of the junta’s control. The advances since sanctions have been lifted are significant and the fact that the population is angry is testament to the changes that have been effective. From my experience it is a beautiful country with people keen to see advances. It remains up to the world leaders to step up and protect the people. Business with plants in the country should also be looking to exert pressure where they can.

For Interest FT BIG READ. LEX IN-DEPTH. Pricing pollution
Putting a high cost on emissions, such as $100 a tonne of carbon dioxide, will supercharge investment in greener technologies — but could cripple businesses that cannot adapt or secure government support.

* The email will not be published on the website.