Jan 20 FT Shipping cost rise, Evergrande repayments, Zoom lessons from China and more

20 Jan

MARKETs @ 1:30pm HK time 
Market opened higher following the rally on Wall Street but sold down though the morning and early afternoon. Currently -161pts (-0.6%) @ 28, 4771
Topix followed a similar pattern currently -11pts (-0.6%) @ 1,844
No data but covid cases continuing to rise a concern.
Nidec Corp said on Wednesday it had filed a patent infringement lawsuit against Seagate Technology LLC and its affiliates, accusing it of using Nidec hard disk drive motor designs without permission.
Kospi opened higher but sold down after the first 20 minutes to 3,080 before effectively then trading sideways around yesterday’s closing level; currently -4pts (-0.1%) @ 3,089
Kosdaq opened higher and worked higher to lunch and then traded sideways; currently +19pts (+1.9%) @ 976
Kia strong on news its looking at electric car projects with multiple firms. Tech also seeing continued interest.
Opened higher but trended lower through the day to a low of 15,750 around 1pm; currently -71pts (-0.5%) @ 15,806
Dec Export Orders data due after market (Nov was +29.7% F/cast is +25% YoY)
Opened flat but rallied to 5,496 mid morning before selling back down into lunch. PM opened higher and trading sideways; Currently flat at 5,437
Loan Prime Rates were left unchanged as expected: 1 year rate 3.85% and 5 year 4.65%
Pre market opened @ 29,794 +152pts vs -9pts ADR’s
Market initially sold down to 29,700 but then rebounded to 29,985 level which is tested several times before selling down into lunch. PM opened higher and currently +154pts (+0.5%) @ 29,784
E Commerce names strong but Telco’s weak; China Mobile announced it had 165 million 5G package customers in December 2020, representing a net addition of 17.621 million monthly, decelerating from the 18.589 million in November 2020.
Insurance weak along with MTRC after profit warning.
Expect markets to open higher following the overnight rally in US and ahead of Biden’s inauguration.
Data ahead:
EUROZONE Core Inflation Data
UK Inflation Rate, Core Inflation Rate, PPI Core Output, Retail Price Index, PPI Input, PPI Output, CBI Business Optimism and Industrial Trends Orders
US Futures 
Opened higher in Asian time but have eased back to flat. Dow flat , S&P +0.1%, NDX +0.3%

FT today has a lot of articles on the incoming Biden administration and the challenges that they face. The hope for investors is that he is more predictable and restrained than Trump and for investors that will mean not having to watch twitter for the lates policy moves.

McConnell blames Trump for mob’s deadly assault on Capitol.  • Senate leader breaks ranks • Biden to be sworn in • Pompeo accuses China of genocide

Shipping costs quadruple to record highs on China-Europe ‘bottleneck’. Looks at the rising cost of shipping from China to Europe, which has quadrupled in the last 8 weeks; mainly due to the shortage of empty containers.  The cost now is more than $9,000 for a 40foot container from around $2,000 in November.   The reason being that empty containers are in the US and Europe empty due to the slowdown in global trade. Other problems for the sector include port congestion with shipping companies charging additional fees to compensate for longer waiting times.   It notes that charges from China to Europe have been capped as Beijing asked companies in October to hold their prices.
For investors it makes shipping companies attractive as fuel costs have not risen significantly. But it does mean that consumers are likely to see high costs ahead.
Also Lex Trade/containers: the shipping forecast. Notes that higher shipping costs will add to inflation but the current bottlenecks will ease and from past experience quite quickly, not lease because of Chinese New Year.  Should be good for shipping companies who have historically destroyed shareholder value by ordering new ships; that is not currently being seen; largely because of uncertainty of emissions reduction technology.
In summary 'Competition has been dulled by an expanded system of alliances. That is a sore point for some customers, whose anger has been further fuelled by surcharges and cancelled bookings. The current disruption adds to the arguments for lessening dependence on lengthy supply chains. After the pandemic has subsided, shipping container volumes are unlikely to keep pace with economic growth.'

Evergrande eases woes by repaying bond early. Shares rallied on Tuesday as the company said it would pay HK$16.5bn (US$2.1bn) to redeem the convertible bond, which it issued in 2018 and was due in 2023.  The company also said the redemption “fully demonstrated the cash strength and sound financial management ability of the company”.The company is still the most indebted Chinese developer and last March pledged to cut borrowings by Rmb150bn a year throughout 2022.  It is also under pressure from the Beijing who are seeking to reduce the leverage within the Property sector in China.  Many remain cautious on the stock as it still has a number of other bonds maturing in the coming months.

Zoom spy claims offer a warning for multinationals in China. Looks at the case against  Mr Jin former China-based executive for Zoom.  He was the subject of a remarkable complaint filed last month by the US Department of Justice, which is pursuing him for allegedly surveilling and disrupting certain Zoom users on behalf of Chinese police and state security agents.  It illustrates the strength or threat of China’s national security laws on individuals; to act for the Chinese communist party and possibly to steal proprietary information and  cause reputational damage for western companies.
The article notes 'As Mr Jin told his colleagues, according to the DoJ complaint, Chinese police wanted Zoom to “proactively report and give them early warning” about discussions related to “hot illegal incidents”. “They also want me,” he added, “to provide them with some detailed lists of our daily monitoring, such as Hong Kong demonstrations . . . there were some things that were difficult to determine whether they were legal or illegal, and they would help determine them.”’
As a result of Mr Jin’s liaison with the authorities the company agreed a secret rectification plan and had its suspended services restored. After that Mr Jin remained in contract with the Chinese authorities and helped them monitor and disrupt events associated with the Tiananmen Square anniversary.
The question then posed is whether other companies operating in China face the same threat or is Zoom unique?
It suggests that all companies are under a similar threat and the fact that they have been found to have done is once doe suggest that there could be a lot more instances taking place of which we are unaware.

Resignation threat shakes China’s top chipmaker. SMIC co-chief’s letter shows fragility of industry’s quest to take on overseas rivals.  Looks at last months apparent resignation by Mr
The key point is the reliance that Chinese firms have on executives and engineers poached from Taiwanese firms and the lack of home developed talent leaves its ambition to grow and develop its domestic Chip Industry.
Mr Liang is acknowledged as a senior and technologically brilliant executives within the sector but he has had frequent disagreements with co CEO Zhao Haijun. Mr Liang brief being to help SMIC catch up with tech rivals. Mr Zhao Haijun has been more focused on making SMIC profitable and hence the falling out.
The ‘resignation’ came after SMIC hired Chiang Shang-yi, his former boss at TSMC, as deputy chairman. It was the fact that after Chiang Shang-yi retired Mr Liang was passed over for his job and so he left to join Samsung before joining SMIC. It says 'People who know Mr Liang said he viewed the top job at SMIC as a chance to lead extraordinary advances in technology — an opportunity he felt he had previously been overlooked for at TSMC.’
So his resignation now, if confirmed, would suggest that goal has now been removed and that could mean more difficulties for China in its stated ambition of becoming a leader in the Chip sector; especially as a TSMC official said that '“Many Taiwanese companies, first and foremost TSMC, have [now] added legal and financial obstacles against people leaving for Chinese rivals,” he said. “It is nearly impossible that there would be another Liang Mong-song.”’
For investors SMIC (981 HK) peaked back in July 2020 at HK$44.80 and then sold down to HK$17.28 in October as the threat of US sanctions hurt the company. Since then it has worked higher and so fat this year has been rising. The wider US tech sanctions seen as giving it a local advantage. But its long term success and in many ways success for China relies on developing the technology and in China’s case technology that does not use US tech. That is a big challenge and so having the likes of Mr Liang is very important. But from the point of view of running a successful company much of what CEO Zhao Haijun has focused on brings in the short term profitability but doesn’t address the longer term goals. It is unclear as whether hiring Chiang Shang-yi as chairman means that they can do without Mr Liang, personally I would doubt it. So confirmation that Mr Liang is staying should be seen as a long term positive for the company.

Hedge fund Elliott pulls out of Hong Kong    Retreat marks one of the first by a large financial institution amid unrest in territory.  After 15 years in HK, it will relocated staff to either London or Tokyo. Saying it is due to the reduction in business rather than legal or political reasons.
The article notes that other funds are also considering moving some staff or operations out of Hong Kong too; 'citing concerns that the business environment in Hong Kong is becoming increasingly unpredictable.’
Which for some will raise concerns about Hong Kong’s future as an international financial hub.
I continue to believe that Hong Kong will remain a key hub for business with China although there are growing concerns about how Beijing may clamp down on its freedoms.

First EU-based Chinese university to open in Hungary.  A sign of deepening ties between the two. The govt will donate ' €2.2m to Shanghai-based Fudan University for its new Budapest campus, which the authorities said would start operating in 2024.’Comes 18 months after the Central European University, founded by the billionaire philanthropist George Soros was forced into exile.  Seen as good for Fudan University but some worry that it undermines Hungary’s own education system and could lead to a brain drain.For investors the strengthening links with China may be seen as a worry and potentially a decisive influence within the EU.

Yellen vows to take hard line on currency manipulation. Looks at comments made at her Senate confirmation hearing.  A broad warning to the US’s trading partners. Although she also said the US would not look to weaken the US dollar for its own advantage.  She also said that the Biden administration would “take on China’s abusive, unfair and illegal practices” saying that she would use the full array of tools at its disposal.  She mentioned specifically ' China “erecting trade barriers and giving illegal subsidies to corporations”, as well as “stealing intellectual property” and its “global labour and environmental standards”.’
For investors it seems confirm that the hard line taken by Trump will be continued with one major difference being that she spoke about the “need to work with allies” in dealing with China.She also mention that regarding the stimulus package Biden announced '“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden,”
Ms Yellen said. “But right now, with interest rates at historic lows, the smartest thing we can do is act big.”’ That was taken as a positive by the markets and I could hint at further stimulus if needed.

Court strikes out pro-coal rule touted by president. 'A US court tossed out one of President Donald Trump’s signature efforts to roll back environmental regulations just a day before he leaves office, scrapping a rule meant to prop up the ailing coal industry.’Effectively it gives the Biden administration a clean sheet on policy going forward.  For the coal sector and those running coal fired power stations it is another -VE.

Pompeo accuses China of genocide against Uighurs. In one of his final statements in office Mr Pompeo said: “I believe this genocide is ongoing, and that we are witnessing the systematic attempt to destroy Uighurs by the Chinese party-state.”  He went to call on other global powers to join with the US in seeking to bring those involved to account.  This will no doubt be another item on the Biden administrations agenda as it takes office.  It will be interesting to see how the administration works will so many issues that are adversarial which still wanting to work positively with China on climate control.

Lighthizer says top WTO candidate has no experience in trade Another parting shot but an important one.  Lighthizer is a long time critic of the WTO but his comments against Ms Okonjo-Iweala, a former Nigerian finance minister are in the hope that the Biden administration will continue oppose the her and support South Korea’s Yoo Myung-hee for the post.  Investors will also be watching closely to see how Biden’s team deal with the WTO as in the past the Democrats have also been critical of it appellate body; viewing its rulings not only as an infringement on sovereignty but also as failing to deal with China’s trade practices.’  Key will be whether they work with the organisation, especially in the area of appointing judges to the appellate body so that it can get on with sorting out the large number of back cases.

Goldman chief warns Spac boom will run out of steam. Speaking at the post results call. He doubted they could maintain their current pace and believed the space to be evolving.  He noted that “The ecosystem is not without flaws, I think the incentive system is still evolving. One of the things we’re watching very, very closely is the incentives for the sponsors and also the incentives of somebody that’s selling”.Outside of that the bank had a strong quarter but traders sold the news with the stock trading lower yesterday after the results.  
See also LEX Goldman/BofA: haves and have nots Notes The gulf between standalone investment banks and those with heavy exposure to consumer lending will continue to widen in 2021. It expects 'Banks with large main street operations will struggle to keep up with focused Wall Street rivals this year.'

IEA warns renewed Covid lockdowns will depress global crude demand. Saying demand in 2021 will be lower than previous forecasts had indicated by 600,000 barrel as day in Q1 and 300,000 in the full year.  Overall its forecast for 2021 still shows rising demand although it does not expect demand to get back to pre pandemic levels until 2022 at the earliest.

For Interest
FT BIG READ POLITICS Biden aims for big, early victories
Having won by projecting an image of competence and renewal, the new president has a narrow window to get things done. But his ‘New Deal-scale’ ambitions could be held back by a toxic political climate. An interesting read.
Bondholders will suffer with higher inflation ahead. By Jeremy Siegel. Set out why he thinks inflation is coming back in 2021 and that is will be higher than the Fed or others are forecasting and that will be bad for bond holders.
QuantumScape pushed to prove its solid-state battery goes the distance. Silicon Valley start-up soared after breakthrough claims in the field of solid state batteries but doubters say real test concerns scale.  An interesting read; key being getting scale from the current lab prototype.

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