FT Weekend: Arm China, What to watch in China's Monday data, Vaccine rollout and more


18 Jan

On Line 
Arm China chief makes $179m gain on stake in chip company’s customer Allen Wu is fighting accusations of conflicts of interest at Chinese joint venture.Having disregarded a 7-1 vote by Arm China’s board to remove him he is still Arm China’s legal representative and holds the company’s official stamp, making it difficult to dislodge him under the Chinese legal system.  He also has control of the company’s bank account, which he is using to pay his legal bills in fighting the majority shareholders (Arm and Hopu Investments).  
The article also notes that Arm China has not been remitting the licensing fees to the UK parent on time.The article highlights the potential risks for investors when Chinese partners go rogue and refuse to accept the norms of business. A slight negative for Softbank which is trying to sell Arm to Nvidia. It also is a reminder as to why the rule of law and judiciary independence is so important for Hong Kong as a gateway for investment into China.

Five things to watch for as China reports fourth-quarter GDP  
Data to be published on Monday will be watched carefully to see whether the recovery continued to accelerate in Q4? Although the latest outbreak of covid coming ahead of the Chinese Lunar new year holiday could put the recovery in jeopardy, but for many China is it seen as better positioned than Europe or the US. The article looks at five areas
GDP Growth Rate  It contracted in Q1 2020 but showed growth in Q2 and Q3 and is expected to have continued to accelerate in Q4; with the expectation that the growth will continue this year too.
Risk-on or risk-off?  Vice Premier Lui He has launched a number fo campaigns to try and stamp risky financial activities; recently focusing on the bond and fintech companies. SO far Beijing has been very restrained in the stimulus that is used to restart the economy.
Property lending curbs Property is a key sector for the Chinese economy but Guo Shuqing, head of China’s banking regulator has stated that lenders exposure was ‘the biggest grey rhino’. That has lead to the the Beijing imposing lending caps on banks lending to developers and home buyers; meaning in many cases the banks will have to reduce their existing lending; over the next four years.
Regions’ fiscal strains. The headline numbers can be misleading as some regions do much better than others which only becomes apparent when individual regions report but the recent bond defaults do highlight that some regions are not in a position to support their locals SOE’s, such as in Liaoning province and central Henan.
Surging exports  China has benefited from a surge in demand for medical equipment and computer related goods making up for the lack of domestic demand.  Last week’s data showed Dec Exports were +18.1% YoY (although there is likely to be an element of front loading ahead of Chinese New Year.
In addition to the GDP growth data we also get Fixed Assert Investment (YTD), Industrial Production Dec, Retail Sales Dec, Unemployment Rate Dec, Industrial Capacity Utilisation Dec and could get FDI data.
Retail sales I still think is a key measure of ordinary peoples confidence in the recovery. The unemployment data is of less use because it only reflects part of the true picture. In China you can only register unemployed in your home city and so the data fails to reflect the plight on many migrant workers.

Rollout of China’s Sinovac vaccine in Hong Kong under threat Beijing-backed jab faces greater scrutiny after Brazil trial confusion.  Presenting the HK administration with another issue, that of convincing the public of the reliability of the Chinese vaccine and the general transparency of data on Chinese vaccines.  Originally it had been hoped that the vaccine would be available by the end of January but as yet the company has not submitted any paperwork to the administration.  The article notes that ‘Sinovac has been criticised for not releasing enough underlying data to explain varying results for interim phase 3 tests of its CoronaVac vaccine. Efficacy rates for trials in Brazil were lowered to 50.4 per cent, only just above the World Health Organization’s recommended 50 per cent cut-off and far lower than originally indicated.’
Interestingly Sinovac said ‘the different efficacy rates were “objective” results from running multiple independent trials. It also said the 50 per cent figure stemmed from a low threshold for inclusion of cases among Brazilian volunteers, as well as the decision to test only medical workers with a higher risk of transmission than the general population.’
The article notes that a survey of Hong Kong residents showed only a 37% acceptance of vaccines, well below the level needed for heard immunity but that reflects the scandals related to drugs and food related products over the past few years, and is. Image that China may struggle to dispel.

Wuhan is at the heart of a battle over the roots of coronavirus Rival narratives about the origin of the pandemic compete in the Chinese city where it began a year ago.  Looks at a number of theories that are circulating as to how the virus started.  The fact that there hasn’t been an open and widespread investigation only adds to the misinformation circulating.  It also notes that many are less interested in how it started as to how the government is going to deal with the legacy that remains.  It also suggests that there is still a lot of anger about how the party has dealt with the whole situation.

Nissan’s future is on trial alongside Carlos Ghosn lieutenant. Criminal proceedings against Greg Kelly raise questions about governance and the alliance with Renault.  An interesting read.  It not only reveals the disfunction of Nissan but also how many of it  executives knew about the scheme.  It also raises the questions about how the prosecution works in Japan which I think still makes some investors wary of corporate Japan. The article also makes the point that the trial highlights how in describing Ghosn as a corporate tyrant it is making clear that that is the sort of leader Nissan needed and maybe still needs today in order to be as successful as he made it.

FT Weekend Print
Front Page
EU alarm at Pfizer vaccine delay. • Extra regulatory approvals required • Entire bloc and UK affected • Death toll tops 2m
Untangling the start of Covid. Looks at the arrival of the WHO team in Wuhan to try and shed light on the outbreak
James Murdoch blasts ‘toxic’ US media and news outlets that ‘propagate lies’

Inside 
Wuhan is at the heart of a battle over the roots of coronavirus Rival narratives about the origin of the pandemic compete in the Chinese city where it began a year ago.  Looks at a number of theories that are circulating as to how the virus started.  The fact that there hasn’t been an open and widespread investigation only adds to the misinformation circulating.  It also notes that many are less interested in how it started as to how the government is going to deal with the legacy that remains.  It also suggests that there is still a lot of anger about how the party has dealt with the whole situation.

Biden’s blue wave stimulus shakes up global investing  Democratic party wins boost everything from copper to small-caps but Treasuries slide.  Notes that the rotation that was expected around the time of the election is now starting to take place, which is positive for small, value and international stocks.

Xiaomi sinks as US adds it to China military blacklist. The stock that had benefitted from Huawei’s demise now suffers the same fate. Key shareholders included BlackRock, Vanguard, Fidelity and State Street.

Jenga towers of credit world rely on Fed support.  According to Matt Mish of UBS’s credit strategy team the current state of the market is similar to a Jenga Tower with key support blocks being removed which could led to wobbles .  An interesting read and focuses on the removal of Fed functions.  It notes that at present is the starting to come up in conversations but hasn’t actually become an issue that is prompting clients to take action.  But as is so often the case it in Jenga, it only takes one piece to be removed for the whole tower to come down, as it is not always clear which piece that will be but as more pieces are removed the end result becomes clear.

Tech stock boom has echoes of the dotcom bubble. And interesting read about the similarities and differences.'Investment manias powered by cheap money typically end when financial conditions become tighter via higher interest rates.’'The ideal rate scenario for tech is if the Fed tolerates a slow rise in 10-year yields as the economy rebounds. The aim would be to let the air out of the more speculative areas, while strong earnings for other tech companies limits selling pressure elsewhere.
“Bursting the mania in areas of tech while keeping the stock market largely intact would be a perfect scenario for the Fed,” said Dhaval Joshi, chief strategist at BCA Research. “But controlled outcomes are usually very difficult to achieve when markets are fragile.”'

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