FT Weekend Thoughts; New covid strain, Trump & China, BoJ and Covid, Gucci on-line in China, Cyber wars,


21 Dec

On-line
UK warns of tough restrictions for months after discovery of new Covid strain
The run up to Christmas will like a lot of other things be very different this year. News today of a new covid strain being discovered in the UK will result in more covid restrictions and many countries are banning flights from the UK. 'Mr Johnson said on Saturday that the new strain of Covid-19 could be up to 70 per cent more transmissible than the previous variant.’ It doesn’t mention whether the current vaccines are effective against the new strain.

FT Weekend
Trump blacklist ups ante with China. Looks at Trump’s latest salvo aimed at China adding 60 Chinese companies on the ‘entity list’.  Key is that now is that US companies will need to obtain licences to sell equipment and technology to them.   What is interesting is the the comment from Wilbur Ross, US commerce secretary, that the move was over concerns about China’s “military-civil fusion” programme, which compels Chinese companies to provide the military with various technologies,  He also said “China’s corrupt and bullying behaviour both inside and outside its borders harms US national security interests, undermines the sovereignty of our allies and partners, and violates the human rights and dignity of ethnic and religious minority groups,” said.For investors adding SMIC will be a further hit to the company after this weeks resignation of its co-chief.

Trump China order faces Treasury backlash. The Treasury Department has evidently been seeking to dilute ban on investing in groups with military ties, prompting a ‘furious’ response from the Pentagon and State Department.  The Treasury Department has been seeking to limit the ban to the companies names and not their subsidiaries.  The reason seems to be that many of the subsidiaries are included in some of the big index providers indexes and hence index funds.  As I mentioned Friday nice quote from Roger Robinson, former National Security Council official  ‘It appears to demonstrate more interest in protecting Wall Street’s fees and Beijing’s interests than scores of millions of unwitting American retail investors and our national security’.
Regarding subsidiaries, as most analyst include the earnings impact of subsidiaries when analysing a company it seems logical to included them in the ban. So far the MSCI has said it will exclude the companies listed in the order but not subsidiaries and many investors will be waiting to see the outcome of the dispute before selling down their wider holdings.Not in the article but interesting to note that the US has had legislation requiring the Pentagon to publish a list of Chinese companies with alleged ties to the military, which was required under a two-decades old law that was not being complied with. That reflects the previous administrations desire to get along with China. The latest defence bill would also require the Pentagon to prepare an annual list. Trump has weaponised investment money now and Biden and his team will be able to use it in their negotiations with China going forward.

BoJ reviews monetary policy after Covid shock   First time since 2016 after the impact of the covid pandemic has undermined the BoJ’s current policies.  It highlights concerns over deflation and the inability of the current BoJ policies to achieve its goals. It mentions the prospect for "further effective and sustainable monetary easing”, beyond the large-scale asset purchases since 2013 and negative interest rates used since 2016.  The report is expected by March 2021. Also mentioned in the article is that the BoJ says no change to the current 'yield curve control’ policy.  
Follows this weeks announcement that it would extend its special coronavirus loan programmes by another six months to September 2021 and vary them to make them more flexible depending on market conditions. It’s also extending its cheap loans to banks on the basis that they lend to SME’s.  One wonders with so many parts of the existing monetary not up for review what the real scope for change is?


Gucci targets China’s post-Covid luxury surge. Gucci will launch two on-line stores using Alibaba’s TMall platform in China.  A sign that concerns about brand image are changing; previously on-line was seen as being beneath the top brands as it reduced their exclusivity.  But the fact that so many people, rich and poor, shop on-line has changed that  perception. It’s first on-line stores selling everything from bags to shoes launches on Monday.  The second selling beauty products is due to open in February.  A remarkable change of course having two years ago said would not deal with Alibaba or JD.Com. China is a major luxury market and with covid restrictions on traveling has spurred further growth.  The article quotes Bain research that forecasts 'sales of high-end fashion goods in the world’s most populous nation would grow by almost half this year to Rmb346bn ($52.9bn) as global travel restrictions meant shoppers bought locally instead.’  With on-line expected to be 23% to total luxury sales.
It will be interesting to see whether more luxury brands follow and what impact the has on the physical stores in the country.

FT BIG READ. SECURITY. Cyber space’s ‘silent cold war’  Builds of this weeks stories about the attack on an IT software company (SolarWinds)  gave its perpetrators access to government and business networks around the world and again exposed the weakness of their digital defences to sophisticated hackers.  Ironic how the company has now lived up to its name.The key points seem to be that the hackers were able to get in, and stay hidden for months and are likely still lurking within the systems. Also the the hackers had the wherewithal to prioritise what they wanted. One official has suggested that the hackers conducted detailed reconnaissance.Nice quote from Dmitri Alperovitch, co-founder of security group CrowdStrike who now runs the Silverado Policy Accelerator think-tank. “It is going to take months to ascertain the full impact and actually be successful at ejecting the adversaries,” he adds. “And there’s going to be phase 2 which is understanding how we have failed to understand that this intelligence operation was taking place . . . but also [to] figure out how we’re gonna rebuild our cyber security in government.”Obviously no one has admitted responsibility but many are pointing the finger at Russia.It highlights the weakness of the current defences.  The other aspect that leaps out is the fact that it seems that they got access via ‘patches' being uploaded. As one expert says in the article the weak link is the supply chain of software suppliers. Saying that there are no software security standards.  
I mentioned writing on Friday about the fact that a lot of software is ‘copied’ which obviously provides hackers with an opportunity. But patches are written to address specific issues and then need to be downloaded.
One would assume that a security software company would writes such code from scratch on a secure internal system not ‘copy’ code but write its own. After all that is what you pay them for.
You also presume that they maintain a high level of security at their offices so that ‘intruders’ can have access. It will be interesting to know if SolarWind’s was operating a 'work from home’ policy when writing the patches! No doubt a lot of companies not affected by this incident will be asking how secure their remote systems are?
The article notes that is is not known how SolarWinds was hacked in the first place. That would seem to be a very important issue to identify.
An interesting article not least because there are calls for cyber security to now be on the G20 agenda. Russia and China are mentioned specifically; Russia for trying to gain political effect and China to technology. The worry must be if the two are now working together.

Overseas investors dash into EMs at swiftest pace since 2013. Warning over looming risks even as billions of dollars have flooded into emerging nations.  The influx of money had outweighed the exodus seen at the start of the pandemic. With inflows expected to continue in 2021.'Jacob Grapengiesser, partner at East Capital, said China and India stood out in terms of economic growth next year, while an expected resurgence in tourism would benefit Turkey, Greece, Thailand and Malaysia in particular. Rising oil prices would be positive for Russia and Brazil, which have underperformed drastically this year, he added.’But some are warning the the rush of cash and optimism could run out of steam.“This has been driven by the search for yield,” said Omotunde Lawal, head of emerging markets corporate debt at Barings. “China is recovering and people extrapolate that to the rest of EM. There is a lot of stimulus out there and EM is the natural place for yield.”
However, “reality will definitely bite next year”, she added. “People will spin it that growth is sequentially higher because it is coming from a low base. But the reality is that there won’t be a return to normal.”As always it will be a matter of good due diligence to find good investments and it will take some countries a long time to recover.

Bullish outlook across the globe sparks researchers’ warning on ‘groupthink’.  Looks at a few recent surveys all of which are indicating very high levels of bullishness on stocks and seems to underplay the challenges facing the global economy.  The concern is that investors have not adjusted enough for the already high valuations. Another risk that may have been underestimated is of inflation.  A further worry is that in forecasting post pandemic is a whole new ball game because we have never been in this position before.An interesting read.

Homes are where the heart is for US building growth. Looks at how well the housing market is doing.  Notes a “renewed appreciation for the home as a sanctuary”. Also that the work-from-home phenomenon was also enabling more buyers to live where they want rather than where their jobs previously required.  Does warn that ‘A Covid-19 relief programme that allows homeowners in financial difficulties to skip monthly payments on federally guaranteed mortgages for up to a year and make them up later is due to expire on December 31. Some 5.48 per cent of these loans are in such a programme.’ But that the rise in home prices should be that some struggling home owners will be able to sell their property and release some equity rather than go into foreclosure. Over all very upbeat which should be good news for the likes of Techtronics (669 HK) and demand for its power tools is set to remain.

Surging cloud industry spells clear skies for the big datacentre owners. Looks at the demand for data centres in Europe but it is a global trend and especially in Asia.  Hong Kong has seen a couple of recent large data centre deals recently.  The demand is high but the availability of sites is low, not least because of the power requirements, which can often take up to two years to arrange.  A sector that is expected to see continued demand.

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