FT WEEKEND HK more arrests ? US the Trump dilemma. Jack Ma's disappearance and more


11 Jan

FRONT PAGE

Democrats raise efforts to force ‘unstable’ Trump from office  Pelosi says she has concerns over nuclear codes as Trump is viewed as unstable.  
She has set out an ultimatum Trump that he should resign immediately or face impeachment following his incitement of his supporters to storm the Capitol Building last week; which resulted in 5 deaths. There had been calls to removed him by invoking the 25th amendment but those have since been rescinded, since that would require Mike Pence’s support which has not been forthcoming. The call to impeach could proceed and as the Republicans no longer control would likely succeed. The question is really about does it need to happen; many think so.

Swiss stocks to resume London trade in first divergence from EU standards.  With Brussels not granting the UK equivalence its estimated that Euro 6.5bn worth of trades have gone to other European bourses.  It is impossible to imagine how the UK standards could have changed so much in just a few days since the Brexit deal came into force.  Of course they haven’t it is just the ‘politics’ of the breakup. The resumption of trading Swiss stocks will not make up for the lost trades but it does set the course for future business.  The fact that Brussel fell out with Switzerland back in 2019 was over trade negotiations too. The UK will no doubt look for more opportunities ahead, whilst it appears that Brussels will remain introverted.

INSIDE
Hong Kong activists braced for more raids.  Opposition purge threatens to fuel tension between Beijing, Washington and Biden.  
Looks last weeks raids, which whilst being prosecuted under the new National Security Law refer to events that took place last year before the HK administration decided to delay the Hong Kong elections. It was clear after the round of voting that despite the system being stacked in favour of the Pro Beijing parties there was a real chance that the people of Hong Kong would vote against the pro Beijing parties and that they could win a majority in Legco; which would have probably resulted in Carrie Lam having to resign and anyone that Beijing subsequently installed. All they needed to do with a majority in the Legco was to pass bills that would then be presented to Carrie Lam to enact into law. She would feel unable to do so but the mechanism only allows for her to refuse a certain number of times before she would have to resign.
Amongst those detained was John Clancey a US human rights lawyer, which has no doubt brought more poignancy to the events as far as the US is concerned as well as the wider Hong Kong legal community. The scope of these detentions is less high profile and seems to be aimed at trying to dismantle to structure of the pro democracy party and other groups that are not pro Beijing, in Hong Kong.
The moves are seen as a breaking of Beijing’s commitment to maintain the freedoms that were enshrined in the Hong Kong handover agreement. The widespread natures of the action has left many more organisations concerned about the outlook. Beijing’s biggest problem is likely to be the fact that there is probably a majority of Hong Kong people who given the choice would prefer the pre national Security Law status quo. Whilst some people are able to relocate the majority of Hong Kong people don’t have that option but that doesn’t mean they support the government. So that bubbling resent will always be there. It also has the problem of persuading the international community that Hong Kong is still a ‘safe place’ to do business and that China itself can be trusted.
Worth also noting that after the paper went to Press Sec of State Pompeo announced that the US would be lifting its self-imposed restrictions on its relationship with Taiwan. A move that could pave the way to Taiwan establishing new diplomatic relations with more countries. Sec of State Pompeo said the US had made these restrictions to appease the Communist regime. Implying that as Beijing had taken advantage of the situation; so the US would not be bound by them either. China says that the US is playing with fire. I think it will be important now for other countries to also recognise Taiwan in order to make it very clear that military action against Taiwan in internationally unacceptable.

Editorial An indomitable bull market hides risks. The rise in stocks depends both on cheap money and a swift recovery.
Makes the point that at some point one of those two elements is going to be severely tested. Key for the bull market is the 'in large part to the extraordinary monetary policies unleashed by central banks, optimism that the combinations of Covid-19 vaccines and continued stimulus will boost growth.’ It notes ‘frothiness’ in the markets as demonstrated by Spacs, Bitcoin, Elon Miusk becoming the worlds richest man (on paper at least). The reflation trade now that the Democrats have control of both houses and the presidency; which saw the T10 traded at 1.199%. The roll out of vaccinations who should also help the rebound.
But for all the positive assumptions there could still be flaws; new mutant strains continue to be evolve and US politics may not run as smoothly as many hope.
Read also Democratic party win in Georgia race fuels hedge funds’ reflation trade bets


Why a fresh approach to China tech is needed
Nothing Trump did made the world’s data safer from Chinese spying. Yuan Yang on how Biden might reach out to allies to make a difference. Key being holding China accountable on the matter of human rights.

What we can read into Jack Ma’s disappearance by Leo Lewis. Notes three things about Jack Ma’s now infamous speech last October.
1. He read from a script (something he has rarely done).
2. The subsequent fall in share price means that the 20 minute speech cost $12.8bn for every 60 seconds of oratory
3. October 24 was the last time he was seen in public.
He then questions whether the isolation is self imposed or forced. But says it does high light that Beijing is demonstrating that no one (except possibly President Xi) is untouchable.
He wonders is Mr Ma fate will be similar to Mikhail Khodorkovsky in 2003?He notes that Alibaba’s share price has been hurt by the events and its future is less assured than it was. Additionally that China’s tech sector is not as resilient as some had previously thought and that there are questions over the status of private companies in China. The fact that Beijing is censoring the probe into Ant Group is adding fuel to the speculation that bad things lie ahead.
Makes the point that Jack Ma broke the fundamental rule you can make money in China but don’t challenge the establishment. Something that he knew well. Which makes the whole incident even more remarkable. Some think that have got IPO permission and allocated shares to banks etc he felt insulated.
He concludes 'But the aberrant nature of the speech may hold the key to salvation. Mr Khodorkovsky was actually mounting a challenge to Mr Putin. For all his criticism of the regulators, and the speech’s revolutionary tone, Mr Ma is not attempting something similar with Mr Xi. It is possible that Mr Ma can use this phase of invisibility to carry out a delicate rebuilding exercise. Framing the speech as a moment of madness may provide him with the first step.’

I am not sure we can learn anything from his disappearance per se. As with most things in China only time will tell. It reminds us that not crossing the establishment is key. I still think that whilst Jack ma was not a threat to President Xi, the data that Alibaba and Ant had built up on individuals was seen as very valuable. The PBOC had been trying to get Alibaba and Tencent to share such data but they had been reluctant.
It may have been a combination of miscalculations but the result is a fall from grace which can be terminal in China.

Chip scarcity forces carmakers to slam brakes on production. • Parts makers pressed • ‘Extreme’ supply volatility • Foundries overbooked.  
Auto’s are taking second place to tech companies. The thing is that it is impacting the whole sector rather than specific companies. It also reflects the ramp up in EV’s. Many are estimating that the carmakers could see output reduced by 10% -20%.
Autos in Europe were down on Friday and that it likely to extend to Asia on Monday.

Trump’s China rules stir confusion among traders. NYSE’s U-turns on guidance reflect broader bafflement on avoiding fines from next week.  Key in that Trump has managed to weaponise investment money; which is something I was writing about last year.  
The key going forward is that Biden and his team now have this weapons (executive orders) in their arsenal for dealing with China and an ideal of how effective they can be. How they use them we will only know in due course.
It mentions that Trump’s actions might prompt some Chinese firms to consider delisting from American exchanges. I think that very unlikely, mainly because the US has the most liquidity. It also has a large number of understanding institutional investors with staying power; something that is lacking in China, were retail still makes up the majority of investors and hence one sees more volatility.

Bridgewater’s Dalio says China strongly placed to become world financial centre.  He expects the succession to continue; just as the Dutch conceded to the Brits and they in turn to the US.  He concedes that it is less developed but thinks it is on course to challenge for the top spot.
It may well in time but I doubt that will happen until the currency becomes fully convertible and the whole market accessible. Something that is unlikely in the short term.
Furthermore the undermining of the Hong Kong handover agreement and concerns over legal contracts in China will also hamper its ability to become a top financial centre; to say nothing of political changes; as seen in this weekend’s new laws to protect Chinese companies from foreign sanctions but which could actually cause more liabilities.
All that said I do agree with Mr Dalio that China does have good investments and the world in underinvested but often because some sectors are still off limits.

Capitol siege prosecutors face big conundrum over Trump. Free speech protections and a possible self-pardon make legal action difficult.  Trump is under scrutiny for his part in events and will increase the pressure on the Biden administration to investigate Trump after he has left office.  It increases the debate about whether Trump could pardon himself and whilst many think it legally dubious, I doubt that would stop Trump!  The whole affair shows how Trump has managed to undermine the normal practices of American politics.
Also read Business leaders rue ‘Faustian’ pact Price of backing president’s tax cuts proves too much for even most stalwart supporters
FT BIG READ. US POLITICS ‘A coup d’état attempted by Trump’
The riot at the Capitol followed years of escalating rightwing violence and an obsession with overturning the election result, with the Republican party now divided between nativists and traditional conservatives.

Editorial Biden must first repair democracy at home. America’s fate also hinges on Republicans changing their ways
Opinion Trump’s weaponised lies blew up in his face
'As calls for impeachment rose, Mr Trump appeared on Thursday night, with all the authenticity of a hostage video, to denounce the marauders. Never mind that he had embraced them the day before as “special”.
This condemnation may inch towards reality but also proposes a fresh lie, namely that Mr Trump has all along been a guardian of the democracy he has violated over and again. Yeah, right. The stain on his time in office is deep and indelible. As Thomas Jefferson wrote in another context “Truth is great and will prevail if left to herself.”'

Sex slavery ruling risks Tokyo-Seoul crisis. Looks at how the issue remains divisive between the two nations.  The amount involved is just US$1,099,200; $91,600 each to 12 former sex slaves.  Of which seven have already died.  But for Japan it seems to be the principle and for S Korea is the public opinion with President Moon saying he would not interfere with the judiciary.  
For investors it remains a reminder that there are still a lot of post war issues that simmer in Asia and that they should not be underestimated even today; so many years after the event and after various rounds of compensation being paid.

For Interest 
Direct indexing allows investors to pick and mix.   Looks at how clients can customise their investment in a cheap way that will make such products available to ordinary retail investors.   Still in their early stages but I can imagine these will be popular with a number of retail clients although ETF’s are still likely to predominate.

Time’s up for Euronet ATM earner when EU examines money-for-nothing deals   Need to read if you are going on holiday in Europe.

Investors look past Capitol chaos to year of opportunity. Looks at the prospects for the “dogs of the Dow” — investing in the 10 companies that have the highest dividend yields in the Dow Jones Industrial Average at the start of January. The higher yields represent a lower valuation for the companies.

Has Nike’s magic worn off?
The sportswear giant’s daring ads promote diversity and inclusion, but a new generation of employees say it is losing touch with customers — and failing to practise what it preaches. Sara Germano reports

The final summit. One for mountaineers, an interesting read.
Pakistan | Multiple teams of climbers are poised to reach for the last great prize in high-altitude mountaineering — a winter ascent of K2, the so-called ‘Savage Mountain’. Simon Usborne reports

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