Feb 8 FT TikTok plans, Vaccine issues, US Stimulus & inflation, Samsung's Challenge

08 Feb

MARKETs @ 1pm Hong Kong time 
Nikkei 225 opened higher pre market data was in-line and market rallied initially to 29,200 level and then worked higher into lunch. PM is drifting slight lower as we await the Eco Watchers data Currently +542pts (+1.9%) @ 29,321
Topix following a similar trading pattern currently +29pts (+1.5%) @ 1,919
Current Account Dec Yen 1165.6b vs 1878.4b Nov (F/cast wa 1110b)
Bank Lending Jan 6.1% vs +6.2% Dec (F/cast was +6.1%)
After Lunch
Eco Watchers Outlook Jan 39.9 vs 37.1 Dec (F/cast was 34)
Eco Watchers Current Jan 31.2 vs 35.5 Dec (F/cast was 32).
Kosdaq opened lower and sold down to 957 in the first hour before working back to the opening level 967 but failed to break into the green and currently drifting slightly lower: -2pts (-0.2%) @ 965
Kospi followed. Similar trend but with chopper trading and did briefly break into the green. Currently -6pts (-0.2%) @ 3116.
Auto’ weak on news that Apple in talks with other manufacturers outside S Korea. Signs of foreign selling. Tech also seeing some weakness but Pharma seeing buying. I expect Retail to be sellers ahead of the shortened trading week; key will the willingness of Institutions and Foreigners to buy on weakness.
The local manufacturing domestic supply index stood at 108.3 in the October-December period, down 1.1% YoY , according to the data compiled by Statistics Korea.
Market Closed all week.
Data due Balance of Trade, Export and Import
CSI 300 opened slightly higher but drifted lower in early trades before rallying sharply into lunch Currently 76pts (+1.4%) @5,559. I would expect Team China to support the market ahead of the Chinese New Year holiday.
Opened @ 29,629 +340pts vs +122pts ADR’s much stronger than I was expecting.
Market initially worked lower to 29,470 before rallying back to 29,600 only then to sell down into lunch. Currently +192pts (+0.7%) @ 29,481.
E Commerce firm despite the new anti monopoly rules announced by State Administration for Market Regulation (SAMR). Ping An and Baba still weak. Macau names seeing interest along with Chinese infrastructure plays Sany and Zoomlion.
Expect a slightly higher open following the US. Earnings and covid in focus. German Industrial Production due pre market.
US Futures 
Opened higher in Asian time and have built on those gains; Dow +75pts (+0.3%), S&P and NDX both +0.3%
Data Consumer Inflation Expectations
Earnings: Hasbro, KKR, Loews Corp., Softbank, Dun and Bradstreet, Take Two Interactive, Nuance, Leggett and Platt, Simon Property Group

TikTok plans ecommerce push in threat to Silicon Valley
Moving into affiliate marketing and live stream shopping, also developing its self-service ad platform (in line with rivals).  The main target being young users; the company estimates that 40% of its users do not have a Facebook account and 63% are not on Twitter.   A big overhang remains how the Biden administration will view the Chinese owned app.  One thing that is clear is that the sector is in fashion after its rival  giving it a valuation of $160bn. ByteDance achieved a $180bn valuation at its last fundraising.
Seeing red Myanmar citizens brave military wrath in anti-coup protests. Thousands take to the streets despite the junta trying to quell the opposition by shutting down the internet.
Cuba relaxes private businesses ban as island reels from virus and US sanctions. Expanding the private sector only weeks after devaluing the peso and scrapping a dual currency system, the Cuban government said at the weekend that it would open up most of the economy to private businesses.

Oxford jab will be altered to tackle S Africa-tied mutation. But highlights the issue that the virus is mutating quickly and the vaccines need too as well.  The modified vaccine could be available by the autumn the question is really how many more mutations will the virus have done by then?  Key is that against the S Africa strain the Oxford/ AstraZeneca vaccine along with the Johnson & Johnson, Novavax, Moderna and BioNTech and Pfizer ones have been less effective.
It is looking more and more that this is going to be like the flu with an annual shot being selected on what is expected to be the more virulent form of the virus each year. Good for the drug companies and those that administer them.

Biden stimulus plan offers full employment by next year, says Yellen. 
The on-going debate about whether the Biden plan will trigger inflation; as suggested by Larry Summers last Thursday. Yellen thinks the biggest risk is not doing enough, that was the criticism on Larry Summer’s advice to the Obama administration.
She noted that inflation was an issue that always needed to be monitored and that it was something that had been a constant worry to her, for years. She feels they have the tools to deal with it should it become an issue.
Summers to be fair, does believe in stimulus he, I think just wants it more targeted.
Yellen’s claim of full employment by next year looks suspect after Friday’s jobs data; which was generally viewed as showing signs of losing steam. Especially as the fall in the unemployment rate was more to do with people leaving the workforce than jobs being created.
Many investors seem to be relatively unconcerned about inflation mainly I think because they have never seen it in real life. For many young fund managers is was a module in their course at university and something the ‘old folks’ talk about. That complacency could in time be their undoing. I think we are seeing signs of inflation and they are likely to increase.

Read also Life on the edge US corporate bonds grow more susceptible to a sudden rise in rates. Looks at how companies have been issuing longer duration bonds whilst interest rates are low.  But that means they are likely to come under pressure if Treasury yields rise as investors rotate into higher yielding Govt bonds.

Also see Is inflation returning in the US? Which looks at the the potential for the US CPI data which is due out on Wednesday.  Many expect inflation to pick up but few expect the Fed to start tapering before early 2022.

The Market Questions. Week Ahead section also has short pieces on Draghi sends ripple of reassurance through Italian debt and
How strong is China’s recovery?  On China, again Wednesday we are due CPI data; data likley to suggests that Chinese consumers remain cautious about spending after the recent new wave of covid cases.  Also hurting confidence is China’s international relations; primarily with the US but also others.  
Another key factor for China has been the impact of African Swire Fever on pork prices.
The data should give an insight into PBoC policy which is unclear at present. It’s committed to support the economy but draining liquidity from the system and publicly stated that it is concerned about asset bubbles.
I still think there are a lot of unanswered questions. China’s lack of data on the recent covid outbreak is a worry. It’s exports have held up well but mainly due to Covid related medical goods and stay at home electronics. As the vaccination rolls outs occur those will decrease and the question will be how quickly will its traditional exports demand resume and how will the pandemic have altered the current supply chains. Bad debts and defaults I think are likely to put the PBoC ’s policies under more strain too.
Outside of the fundamentals Chinese markets are trading higher in part because of the rise in demand for mutual fund products within China. Which could be fuelling more problems ahead.
There are good opportunities in China but good duel diligence is required.

FT Big Read Samsung’s biggest challenge: ‘The Lee family has to reform’ Even in prison, Lee Jae-yong has the weight of a nation on his shoulders, with big questions for the flagship electronics business.
I wrote this yesterday in the FT weekend blog.
The current legal problems all stem from trying to keep the business in the control of the family. The company is seen by the older generations as a a national treasure whilst the younger generation see it as associated with cronyism. The reality is that both are true to some extent.
The article shows how being in jail will only be an inconvenience for the Lee Jae-yong; which dose raise the question about whether the system should be changed. That is why the share price has not reacted to the news of his returning to jail.
Mr Lee has said he will not pass the company management to his children which is not surprising since most of the mechanisms for doing so have been barred.
The article also looks at the wider Samsun businesses and the significant challenges to faces.
On phones how Samsung has yet to make the in-roads into getting customers to pay for its services in the way that Apple does. It is trying to grow that side of the business and is also looking to try and boost its links with Microsoft and Google to make Samsung appliances more attractive.
On chips with its competition with TSMC. Its telecoms unit in building 5G networks, where it is benefiting from Huawei being squeezed by the US. It alohas its memory chip and electronic display businesses but they have less entry barriers for new comers.
The company has many issues to face and this episode have used up valuable time.
There is a chance he could received a pardon although President Moon already said he would end presidential pardons for chaebol leaders, but Lee could be released on parole.
But there are other outstanding issues still be be resolved. A US$10bn in inheritance tax due from his father’s death. It is unlikely to be raised via dividends and so the sale of some business units is expected. He is also being investigated for his part in a #3.9b accounting fraud.
An interesting read. Samsung has a lot of potential but also problems; as does S Korea in reforming the wider Chaebol culture. It is similar to reorganising Japan Inc. In both cases there is tremendous potential but a lot of ingrained resistance.
Read also Tokyo Olympics chief ’s moment of national sexist shame  Looks at the outrage at comments by Yoshiro Mori, an 83-year old former prime minister, which many think reflect an unwieldiness to change from the establishment in Japan.  
'Some find it shameful that Japan appears to reward men such as Mori despite their attitudes; others that Japan’s power structures are unable to get rid of such people when they overstep the line and cannot jettison the attitudes themselves. Many, led by Japanese media, highlighted the way in which the story was immediately seized upon by international news organisations, and were embarrassed that Japan, in this instance, appeared represented by the reprehensible.This public reaction may be both heartfelt and acute. But Mori may ultimately avoid the resignation that many think he owes Japan’s female population because the shame, now nationalised, does not appear to be something he feels personally. The problem, then, is less the embarrassment but rather the underlying condition of sexist discrimination, entrenched by deference and enshrined by longevity, that this moment of national ignominy exposed.’

Opinion Taiwan war games raise risk of US-China conflict  by Diana Choyleva chief economist at Enodo Economics
Looks at the recent events around Taiwan; with China simulating an attack on a US aircraft carrier which illustrates how misunderstandings could escalate with devastating consequences. Outlines how the team at Enodo Economics think the chances of avoiding conflict over Taiwan have fallen dramatically. Beijing has built up its military in order to stop Taiwan declaring independence and President Xi is increasingly confident that he can deliver Taiwan back to China. The hope that Taiwan could have followed the Hong Kong ‘one country two systems’ have been dashed by China’s actions.
More worryingly the 'token international pushback’ on China’s action may lead President Xi to believe he can act on Taiwan will equal impunity.
All that said Taiwan is no easy target, an amphibious assault is extremely difficult but again he may feel the prize is worth the risk; to go down in history as the President that won Taiwan back. The recently increased activity also make the potential for a ‘accident’ more likely and that accident to be misinterpreted as a deliberate act and lead to a further escalation.
Historically the US used ’strategic ambiguity’ over whether they would come to Taiwan’s aid. But Trump went further and declassified papers to show a further extent of support. Biden looks to progress those steps and invited Taiwan’s representative to his inauguration. It sets out that Biden will probably not want to provoke Xi over the issue but he could include Taiwan in the ’summit for democracy’ due in his first year. That would enrage Xi who would probably feel forced to respond.
Summarises with 'But the risks involved are not just a matter of logical calculation. As the Greek historian and general Thucidydes observed, the drivers of war are fear, honour and advantage — and all of them are escalating.’
An interesting piece but I think two other factors should be mentioned.
Firstly the people of Taiwan made it clear in the last election that they do not want to be joined with China. It should be their views first and foremost that the rest of the world looks to support.
Secondly the fact that Taiwan holds the technology that Chinese so desperately needs to secure its ambition of top dog. Its the same technology that the US currently controls largely through patents and IP and has used recently to keep China in check. If Taiwan were to return to China all that would go with it. I do not think the US or many other nations would want that so they have to make that very clear to China so that there is no misunderstanding. If governments fail to do that they only have themselves to blame if an invasion takes place.

For Interest 
Hedge fund Marshall Wace seeks venture capital deals
• Managers perceive gap in market
• Firm to raise $400m for new fund
Looking for new sources of income and feelings that late stage venture capital is a prime area. Normally funds buy pre IPO and then sell them out at IPO. They are looking at being late stage but pre IPO and then holding after listing. That they hope will make them more attractive to the pre IPO companies that they are intending to buy into. The fund will be subject to look in funds for a number of years and invest in companies that are anywhere from 24 months to six months pre IPO with a focus on biotech, medical tech and life sciences.
In a way it summaries the problems with trying to value a company for IPO and the recent trend of seeing significant mis valuations as in Kuaishou which saw its shares rise 1.6x on debuting in Hong Kong, meaning that the company sold itself way too cheap. By staying in longer the potential to make more returns even if the IPO price its wrong is better.

DE Shaw and Two Sigma hit by Reddit trade turmoil. Notes how the largely computer driven funds have had a bad time during the pandemic and lost out to those driven by human traders.  Also funds that use computers to spot tiny mispricings across a huge number of stocks have also suffered.As ever it would appear that too much reliance on technology is as bad as too little.

Guest spots by tech titans turbocharge Clubhouse rankings. App likened to Snap for its early growth and LinkedIn for its professional crowd.  Looks at the new popular app that is currently by invitation only.  But it is getting some good reviews.  Another article this morning was pointing out that many Chinese people are paying money for entry as currently the app is not subject to censorship in China; but it is likely to only be a matter of time.  The FT weekend also had a review of the app, key being the audio format and the moderators.  It has had some criticism over content but it is in its early days.One comment was that Clubhouse was filling the void left due to a lack of conference, other feel it may a fad for entertainment starved professionals.    From the reviews it seems the interaction and use of audio is what sets it apart.I would love to hear feed back from anyone who is a member already?

Oil losses leave sector braced for megamergers. Supermajors look to increase scale in a ‘last man standing’ strategy as they are backed deeper into an economic corner.  
Great quote from Lou Noto Mobile’s CEO back in the late 1990’s '“We need to face some facts,” he said as he announced his company’s takeover. “The world has changed, the easy things are behind us. The easy oil, the easy cost savings, they’re done. So all of us are now looking for some way to make a jump.’
What was true then is even truer today after two major price crashes in the past 5 years. I think the issue is even more dire because for years they have been putting off a change. Whilst publicity saying they were looking at alternatives and green they were spending vast amounts of money lobbying for fossil fuels to remain the mainstay. That reluctance to change has left them woefully behind the curve. An interest read but underlines why these companies no longer command the valuations they once did.

Mongolia seeks Rio backing to quit Oyu Tolgoi. Key here is that the government is mindful that its actions here could influence future foreign investment ; so rather than act unilaterally it is trying to get co-operation from Rio Tinto.  The problem is that it is an important project for Rio Tinto and it is already over budget and behind schedule.  How the situation will be watched very carefully.

* The email will not be published on the website.