Sept 14 FT Thoughts Oracle & TikTok, Softbank, China bans German Pork and more

17 Sep

Sept 14 FT Thoughts Oracle & TikTok,  Softbank, China bans German Pork and more

MARKETs at 1:15pm HK time
Pre market Tankan Index was not as bad as forecast and improved MoM. Also helping was news of Softbank agreeing the sale of Arm to Nvidia and the potential take Saftabnk might go private; all prompting the market to open higher. It rallied to 23,550 level and then worked slight higher to 23,580 at lunch. PM the market is trading sideways Currently +0.7% Softbank is +9.6%
S KOREA Kosdaq opened higher but sold down to 887 level, bounced and worked back to the opening level and then traded sideways currently +0.6%
Kospi opened higher and has traded sideways currently +1.1%.
TAIWAN opened flat nit worked higher through the session to 12,785 level now trading sideways; currently +0.8%%
CHINA Housing Index was +4.8% announced on the open. The open was higher and market traded sideways 4,635 - 4,666 Currently +0.3%
HONG KONG Opened higher +65pts @ 24,569 vs -124pts a@ 24,378 with E Commerce and Tech firm. Saw an initial squeeze and then retested the opening level before working higher to 24,750 failed to break above retrenched to 24,630 where it found support before retesting the resistance but failed again and eased back into lunch. Current +0.6%
EUROPE Expect the markets to open higher following Asia and with US futures rallying higher having opened higher. The only data due today is Eurozone Industrial Production. Although Brexit and the rise in UK covid cases overhang the markets.
US Futures opened +130pts and have worked higher to +290pts with S&P and NDX also positive. The Nvidia deal will help sentiment although there may be concerns about Nivida supply its competitors. Data due is Consumer Inflation Expectation.
Again the rise in covid cases in 11 US states a slight -VE. But overall sentiment seems to be +VE

Whilst markets are positive they are still cautious ahead of a number of Central bank meetings later this week; FOMC, BoJ, BoE and Taiwans CRCB. Turnovers are higher than Friday but still restrained.

Oracle wins bidding war for TikTok’s US operations. Having rejected the Microsoft bid it is now looking at a “technical partnership” agreement with Oracle. It has been reported that the key algorithm will not be sold so it sounds like it will an interesting deal if it is going to satisfy Trump’s national security concerns. It notes that Larry Ellison is a Trump supporter and will be involved. But it will also have to clear existing shareholders too. For Oracle the deal would mean that ByteDance’s TikTok becomes an Oracle cloud user.
I would say the news it a slight -VE for Microsoft and Walmart who had teamed up with them but not crucial. The adaption and integration of TikTok was likely to be a long and difficult process. It will be interesting to see what Walmart does now as it seek to increase its online business and attract customers.

SoftBank executives revive talks on taking Japanese group private. As news of Arm being sold to Nvidia comes news that executives at Softbank are talking about taking the firm private; because, it is said, of the persistent discount between the equity valuation and the the value of the parts. The Nvidia deal means that Softbank is Nvidia’s largest shareholder as it adds another form to its portfolio of minority holdings.
A key change is that it now views itself as an investor and asset manager rather than a direct operator. The recent high level scrutiny of its business activities has probably also increased the appeal of being private.
If it does privatise that would be a negative to the Tokyo exchange where it holds the second highest weighting.
Shares are currently +9.6%

Nvidia seals $40bn deal for SoftBank’s Arm. The companies have agreed the deal but it is likely to see strict conditions imposed on the deal by the UK government to protect jobs in the UK

China bans German pork imports over African swine fever (ASF) case. A move that is thought to be more political than anything else. The ban comes just ahead of critical trade and investment talks between Merkel and Xi and with the presidents to the EU and EC. Seen as another ‘coercive diplomacy’ move by China; a warning to German about its exports to China. Comes as the EU tries to get China to give better access to Chinese markets. Pork exports to China account for nearly two thirds of German pork business. But is also comes at a time when China’s herds are still undersized due to ASF and its reserves of frozen pork have been depleted so this could impact on inflation within China and additional cost for individual Chinese citizens.
It shows to some extent the pressure that China is under to try and get good trade deals and resist pressure over what those in the west view as its poor record on human rights.

Twilight zone Pandemic debt binge creates burdened generation of ‘zombie’ companies. An issue that has been written on many times recently but one that continues to increase. It notes that
'At the end of last year, 13 per cent of companies in the Leuthold 3000 Universe index — akin to the Russell 3000 index of US companies — had staggered along for at least three years with a repayments shortfall, up from 8 per cent at the end of 2008.’ The group now estimate that number be 15% and increasing as more companies load up on debt. The concern being what happens if capital markets dry up or companies can’t pay down their debt. The only time there were more Zombie companies was just after the Dotcom bubble burst.
I think the further worry is that many of these companies are a part of large supply chains and it companies around them go bust we will see a domino effect on company failures; which as one would expect will result in a far bigger problem.

Apple showcases accessories in place of 5G iPhone. Group puts diverse portfolio on display after delay to arrival of flagship device. Looks at tomorrow’s ‘Time Flies’ product launch which will be without the new 5G iPhone and hence will feature 'the sixth iteration of the Apple Watch, a new iPad Air — and possibly over-the-ear headphones called AirPods Studio and a lost-items tracker reportedly called AirTags.'
It will give Apple the chance to demonstrate that it is not just iphone reliant. Notes that over the past 5 years iPhone revenues have dropped and wearables increased.
It also notes that there could be an announcement regarding Apple services business and the potential of launching an Apple Bundle; rumoured to be called ‘Apple One’. Interestingly Gene Munster thinks the wearables is set to dramatically increase. The wireless side of products; especially with regard to sound is also likely to be expanded. Some worry that sales will be delayed as people wait to see what the new iPhone offers before upgrading their other Apple items. But most see those as delayed not lost sales although that might mean they miss Wall Street estimates for Q4.
I think the delay could actually mean lost sales as the hype of this launch is lost when the new iPhone 12 is launched and that combined with economic uncertainty die to the lack of the US parties to agree a new stimulus plan could be bad for Apple in the short term. For the longer term I think Apple is one of the Tech firms you want in your portfolio. But I would chase at these levels. The current legal battle with Epic and the possibility of more action from the antitrust subcommittee could hurt the share price. I would look to accumulate on pull backs.

Ghosn’s right-hand man goes on trial in Japan. The trial starts tomorrow it will no doubt be closely watched for new revelations. Many of the Nissan executives have already agreed plea deals with prosecutors and so the trail will also mean the Japanese legal system is under the world's spotlight.
It could also mean more pressure for Nissan’s management.

Opinion India and China are edging towards a serious conflict The writer is director of Asia programmes at the Nitze School of Advanced International Studies. Pratap Bhanu Mehta of Ashoka University, also contributed.
Thinks the chance of a military conflict is high as the US is distracted by the election and the world by covid. It notes that both sides have moved more forces into the region not just the border.
'In the mountainous terrain, motorised and armoured units largely move along the valley floors — more difficult now due to the summer snow melt. Yet as it becomes colder and the waters ebb, these routes will become more passable and China’s phenomenal construction capability makes the possibility of a greater escalation more likely.'
The agreement at the weekend is seen as having a slim chance of lasting. China’s true motives are still unclear. President Xi has generally assertive foreign policies but a war with India does not seem to make sense. Also within China the tension with India is not getting played up. Although it could be in response to the threat of Tibet struggling for independence as global support growth against China’s human rights record.
In the past winter saw a de-escalation due to the weather but modern equipment means that is less likely, especially as the tensions rose because last winter China used the winter to expand its presence.
Neither side wants to lose face with again makes a conflict more likely.
A worrying read;
'It is no longer possible to dismiss the conflict between India and China as a skirmish. The understanding reached last week between the countries’ foreign ministers points to a pause. But it does not address the underlying issues that have pushed the countries closer to serious conflict. The American historian Barbara Tuchman is often cited as observing: “War is the unfolding of miscalculations.” Coming months might prove a test case for that hypothesis.’
For investors they have already seen the fall out of national boycotting of Chinese apps and equipment in India. But a military conflict or war would dramatically impact investors in both countries.

Opinion The next subprime crisis could be in food. Looks at how big western banks are pulling out of commodity trade finance and the impact that is likely to have on 'farmers, agricultural producers and distributors, as well as grocery chains and other small and medium-sized companies that represent crucial parts of the global food supply chain.'
Their withdrawal is could mean higher prices for food. An interesting read.

FTfm focuses on the growth of ETF’s in Asia. It also looks at the rise of Gold EFT’s but has concerns that the current rate of growth will not continue.

For Interest
FT BIG READ. ASIA-PACIFIC SOCIETY The threat to Korea’s cultural power play
Big Hit’s IPO demonstrates the appeal to investors of the leading K-pop bands. But a growing outcry over harassment threatens the country’s cultural export drive through its award winning films and music. Looks at the good and bad aspects of s Korea’s K-pop culture. A slightly worrying read.

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