Dec 9 FT Thoughts GS Control in China, Lithium Default Averted, JD Health +VE, Lunch Updates


09 Dec

MARKETs @ 12:30 HK time
JAPAN 
Pre market Machinery Orders were much better than expected
Nikkei 225 opened higher the market rallied to 26,700 and spiked around 10am to 26,800 before easing back and trading around 26,750 into lunch. After lunch market opened higher and tested 26,800 again Currently +294pts (+1.1%) @ 26,758
Topix Opened higher and worked higher through the morning to 1,774 at lunch. PM opened above 1,775 and tested slightly higher but currently +16pts (+0.9%) @ 1,775
Data
Pre market
Machinery Orders Oct +2.8% YoY vs -11.5% Sept (F/cast was -10%)
Machinery Orders Oct +17.1% MoM vs -4.4% Sept (F/cast was +2.5%)
Due later Machine Tool Orders.
S KOREA  
Kospi opened higher as the UK starts vaccinations and on hopes for new US stimulus package. It rallied to 2,730 in early trades and has worked higher in choppy trading currently +39pts (+1.5%) @ 2,740.
Kosdaq opened higher and tested to 917 in early trades before selling down to 905 which it tested a couple of times before working higher through the session; currently +8pts (+0.9%) at 915.
May see caution into the close ahead of Futures and Options expiry tomorrow .
TAIWAN 
Opened lower but worked back to flat in early trades then tested higher in choppy trading before resting the support around yesterday’s closing prices. Around 10:15 market worked higher to 14,420 where it hit resistance and eased back to 14,385 level. Currently +34pts (+0.2%) @ 14,393
CHINA 
CSI 300 opened higher but sold down on disappointing inflation data. Then traded sideways in a tight rage into lunch. Currently -6pt (-0.1%) @ 5,003
Reuters reports that on Sunday Foreign Minister Wang Yi said in a video conference call with the US that China will be committed to the phase-one trade deal and that phase-two talks will be led by Chinese Vice Premier Liu He. According to US-China Business Council President Craig Allen.
Data
Inflation Nov -0.5% YoY vs +0.5% Oct (F/cast was +0.1%)
Inflation Nov -0.6% MoM vs -0.3% Oct (F/cast was -0.1%)
PPI Nov -1.5% vs -2.1% Oct (F/cast was -1.8%)
HONG KONG 
Pre market opened at 26,510 +206pts vs +60pts ADR’s, some initial margin call selling before working higher, resistance at 26,650 and eased to 26,600 before working slightly higher into lunch Currently +332pts (+1.3%) @ 26,636.
A broad based drive higher with Ecommerce, Financials, Autos leading the gains. EUROPE 
Expect market to open higher following Asia but upside limited by the Brexit overhang.
Data due 
GERMANY Balance of Trade, Exports, Imports, Current Account.
UK BoE FPC Record & Financial Stability Report
US Futures 
Opened slightly higher and have ticked dup slightly in Asian hours Dow +77pts, S&P +0.2% and NDX +0.16%

FT Thoughts
Goldman on course to take full control of joint venture in China. 'The US bank has signed a definitive agreement and initiated regulatory processes to acquire all of the outstanding shares in Goldman Sachs Gao Hua from Beijing Gao Hua Securities, its local partner,’   It is following UBS and JPM in doing so.  The key is that China is a very big market and the US bank I think prefer to be in full control of their operations because in the past there have been differences of opinion with local partners on how business should be done.  You only have to look at the current problems that Arm has with its local partner to realise the dangers.

Reprieve for lithium producer shines light on Beijing’s priorities. Looks at Tianqi Lithium a Shanghai listed company that is also one of the worlds largest lithium producers.  It missed a November deadline to repay China Citic Bank nearly $1.9b, which it borrowed two years ago to 'fund its $4bn purchase of a 23 per cent stake in Chilean rival Sociedad Química y Minera.’  (SQM) and now has until Dec 28.
Key points it was able to borrow so much in the first place because it was in line with Beijing’s desire to have leading or monopoly positions in commodities like lithium due to its importance in 21st century battery tech.
The purchase of the stake was controversial at the time, with opposition from within Chile. But it was made clear that if the purchase didn’t proceed Sino-Chilean relations would be ’severely impacted’.
Lithium prices at the time were $17,000 per tonne; they are now 70% down from there due to a global glut but thought to have bottomed. Although a recent FT article (Lithium market recharges as electric vehicle sales rise Dec 3) has pointed out that due to bankruptcies taking out production prices are starting to improve. But not quickly enough to help Tianqi Lithium.
So in order not to default Tianqi Lithium needs to raise money but it also wants to retain control of the lithium supplies. One option the article puts forward is to sell down it's 51% stake in Greenbushes open-pit lithium mine in southwestern Australia. But Greenbushes is 49% owned by Albemarle Corp of the US and handing over control to the US it likely to be unpalatable to Beijing.
Selling the stake to an Australian miner would therefore be better but embarrassing considering the current diplomatic state of affairs. It notes that on Monday Reuters announced that 'Australian miner IGO poised to take a minority position in a vehicle holding Tianqi Lithium’s Greenbushes stake for $1.5bn.' Which if it goes through could be enough to avoid another embarrassing default for China. It concludes by saying that if the deal completes 'China might consider thanking Australia for the favour.’
Somehow I doubt China will say thank you, but more interesting will be to see how the Australian government reacts to the potential deal. It also reveals how China has built up significant Lithium interests. It also reveals how much money Chinese banks have lent to fund Beijing’s ambition to control key resources.

JD Health shares jump 75% on debut in Hong Kong. But closed +56% and the stock is up over 7% today in early trades.  It was heavily oversubscribed and the over allotment option can still be exercised.  Online healthcare is seen as a growing and scalable business in China; especially with its ageing population and widespread adoption of online consultations this year due to covid.  Ping An Good Doctor and Alibaba’s AliHealth have also seen a huge sure in activity.   JD Healths CEO also noted that new government policies allowing insurance claims for online care and hospitals distributing medicines via the internet were other lasting changes that benefited the company.
See Lex Telemedicine/JD Health: what the doctor ordered. Notes that a lot of money that had been lined up for Ant has now found a home.  But also that 'China is a perfect test bed for digital medicine. Public healthcare is under-resourced. The private sphere lacks a US-style oligopoly. The large, ageing population is prepared to pay for the best doctors.’  
But it notes that there is room for upside for JD Health; consultations worked well as long as no physical examination is required and most are free. Drug sales are the main source of revenue which creates a conflict of interest; which could be resolved by charging for them. It notes 'Public national medical insurance cannot be used to cover fees from online consultations, absent regulatory reform. But China’s growing middle classes can be persuaded to stump up.’
A big concern for investors will be the impact of Beijing’s new antitrust regulations but they will apply equally to its competitors (the healthcare units of Alibaba, Ping An and Tencent).
It notes that at present the 'online healthcare sector is worth just $4bn within a $1tn local healthcare market, too small to inspire direct attacks. The need for medical resources during the pandemic has kept regulators friendly, for now. Companies such as JD Health can curry further official favour by helping with a push to digitise medical records.’
It concludes 'JD Health’s enterprise value of 14 times trailing sales is high. But smaller rival Alibaba Health Information Technology trades at 20 times. Medium-term prospects are good — a picture of health, even.’ Very positive I would say.

Japan unveils third stimulus of the year to bounce back from Covid  Key is that it is not just about fighting covid but also investment in new digital and green technology.  It comes also as Japan is seeing a surge in covid cases and research links to spread with the government’s  ‘Go travel’ campaign.
'The total package includes a further ¥1.7tn in local government spending, ¥7.7tn in borrowing for infrastructure investment and ¥33.6tn in loans and guarantees for a total of ¥73.6tn.’
The article estimates that about 50% of the funds will 'go towards “post-corona” investments, including billions of dollars to promote the rollout of hydrogen for shipping, fuel cell vehicles and power storage.’ Around a third will go towards fighting covid and paying for the national vaccinations programme.
In contrast to the earlier packages which targeted direct support for people and businesses this is more focused on investment for the future. The immediate impact is more psychological for investors but it does show the governments focus on the longer term changes that Japan needs to make.

‘Airbus for hydrogen’ seeks to cut low-carbon costs. Orsted and peers team up to boost output of sustainable fuel and help it replace diesel.  
The airbus reference being to the European alliance to create a world class aircraft manufacturer that could scale production and protect European jobs. An interesting read as the group aim to 'avoid doing what we did with solar and wind subsidies in Europe, where a few countries paid all the subsidies and then all the manufacturing went offshore,” he said.’
More interesting is that the group includes China’s Envision; showing how China is keen to be involved in all forms of new energy.

EU pledges to bring in recycling targets for battery makers. Looking to introduce the regulations in 2030; key is cracking down on hazardous materials and having ambitious but realistic recycling targets.  Notes that growth in batteries means a growth in the demand for cobalt, nickel and manganese.  It also notes that the commission is seeking to encourage more re-use of items elements like lithium than new mining.  It also mentions the phasing out of single use batteries (used in remotes etc) but without a target date at the moment.

For Interest Opinion Friedman was wrong on the corporation. The free market doctrine that has guided us for 50 years now needs re-evaluation.  
Martin Wolf looks at the ebook published by the University of Chicago's Booth School of Business 'Milton Friedman 50 Years Later,’  which contains many diverse views.
Martin Wolf notes 'In an excellent concluding article, Luigi Zingales, who promoted the debate, tries to give a balanced assessment. Yet, in my view, his analysis is devastating. He asks a simple question: “Under what conditions is it socially efficient for managers to focus only on maximising shareholder value?”’
Zingales gives three conditions
“First, companies should operate in a competitive environment, which I will define as firms being both price- and rule-takers. Second, there should not be externalities (or the government should be able to address perfectly these externalities through regulation and taxation). Third, contracts are complete, in the sense that we can specify in a contract all relevant contingencies at no cost.” None of which, Wolf notes, holds. He goes onto explain how corporations exploit those conditions. He also refers to some other parts of the ebook too. Like the fact that corporations have political and civil rights but not the obligations, noting how drug dealers go to jail but no one from Purdue Pharma, who pleaded guilty to criminal charges over its painkiller OxyContin which addicted a huge number of people, went to jail.He concludes by saying 'There are many arguments to be had over how corporations should change. But the biggest issue by far is how to create good rules of the game on competition, labour, the environment, taxation and so forth. Friedman assumed either that none of this mattered or that a working democracy would survive prolonged attack by people who thought as he did. Neither assumption proved correct. The challenge is to create good rules of the game, via politics. Today, we cannot.'
One would hope that with the rise of ESG maybe we can. An interesting read

Opinion No easy cure for Trump’s ‘paranoid style’.   A good read about how Trump has managed to spin the story of an election that has been stolen from him; without providing any facts.  The key is that one again this is about Trump.
The article looks at previous paranoid era’s in American history.
But it notes that: 'To be sure, Mr Trump will have to move out of the White House on January 20. But he is giving clear hints he plans to run again in 2024. Even if he does not, it will be in his interests to keep everyone guessing. That will maximise his leverage over the Republican party and his ability to add to the more than $200m he has raised for himself and the party since November 3.’
I suspect for Trump it will be all about the money. Not mentioned in the article but many are wondering how Trump will fare after the White House without being able to claim Presidential Immunity. His tax affairs are likely to remain of great interest to a great number of people along with his business interests as the US enters the post pandemic phase.

Comments
* The email will not be published on the website.