Sept 22 FT Thoughts Covid's back, HK Activists, HSBC, TikTok, Pork, OPEC and more

24 Sep

Sept 22 FT Thoughts Covid's back, HK Activists, HSBC, TikTok, Pork, OPEC and more

Hope you find it useful; feedback welcome Andrew SullivanOpen for jobs

MARKETs At 2pm Honk Kong time.
Closed re-opens Wednesday
S KOREA Kosdaq opened flat sold down over the morning to 838 level. In the PM has traded sideways from there; currently -2.6%
Kospi opened slightly lower but followed the same pattern as the Kosdaq; currently -2.3%.
PPI data out pre market had little impact
PPI Aug -0.5% YoY vs -0.8% Jul (F/cast was -0.7%)PPI Aug +0.5% MoM vs +0.2% Jul (F/cast was +0.3%)
TAIWAN opened lower, despite the good export data out aftermarket Monday, concerns about the tension with China worrying investors, as Taiwan said it had the right to retaliate as China said there was no 'mid line as Taiwan was part of China'. Quickly sold down to 12,650 level, bounced to 12,725. Trade sideways for a couple of hours and then trended lower into the close currently -1.2%
CHINA opened lower at 4,654 but worked higher during the morning session in choppy trading, briefly touching 4,700 before easing back into lunch flat. PM opened lower and trending lower Currently -0.3%. I would imagine team China active today as investors worry about deteriorating international relations.
HONG KONG Opened -111pts @ 23,840 vs -94pts ADR’s @ 23,856, following Monday’s 505pt fall. Initially bounced but then sold down; I think on margin call selling. Then worked higher into lunch but only managed to achieve 23,900; still 50pts shorts of Monday’s close. PM open lower and tracking lower currently -0.7%. Turnover slightly higher that we have seen for the past few days.
EUROPE Futures indicate a higher open London’s FTSE is seen opening 30 points higher at 5,826, Germany’s DAX up 101 points at 12,613, France’s CAC 40 up 36 points at 4,816 and Italy’s FTSE MIB up 125 points at 18,861, according to IG. But I think markets will struggle. Data due Eurozone Consumer Confidence (Flash). Watch for earnings from Kingfisher as others.
US Futures opened flat but have risen to +100pts with S&P and NDX higher too. US stocks have been down for 4 days so may see a bounce but the fundamentals have not changed; trade tensions and covid remain. Data due Existing Home Sales, Richmond Fed Manufacturing Index, Fed Chair Powell & Treasury Sec Mnuchin Testimony, API Crude Oil Stock Change. Nike Q1 earnings due.

Global markets rocked by fears over second wave of Covid cases; Growing concern at fresh lockdowns • Travel and leisure hit hard • Oil prices down 4%. Markets sold down heavily on Monday as a rise in new covid cases raised the concern of more lockdowns. Travel, Leisure and Hospitality groups all hit. Banks hit on concerns that more lock downs will result in more bad loans in due course; with HSBC hitting a 25 year low as news of historic handling of illicit money came to light and the threat of it being included on China’s ‘Unreliable Entity List’. UK, Spain and France all considering tougher measures. German; not currently affected warned that new infections were likely to ‘spill over’ into the country.
Interesting warning 'Iran’s supreme leader Ayatollah Ali Khamenei said an average of 150 Iranians were dying every day from Covid-19 and warned pilgrims against visiting Shia shrines in Iraq because of the risk. Health officials say Tehran is now suffering a third wave, while the situation in other cities has become critical.’ A stark contrast to the action of some Churches in S Korea.
Key is that the risk is there and will continue to overhang markets until a vaccine is available or people take social distancing and mask wearing more seriously in Western countries following the example set in Asia.

Hong Kong activists held on mainland denied access to family. Notes that they have not had contact with their families for over a month. They have not been allowed to meet the lawyers their families had hired for them and have been appointed 'government-appointed lawyers’. That especially is bringing criticism from the US and the UN’s Office for Human Rights. It will also highlight the concerns of Hong Konger’s about the new National Security Law. For some the situation confirms what they had suspected when Carrie Lam introduced the extradition law last year; was that it would allow criminal suspects to be sent to the mainland for trial.
Whilst one has to condemn the attempt to evade justice in Hong Kong, it is equally important that the Chinese legal system demonstrates ‘due process’ otherwise it exposes itself and the government as a sham.

HSBC shares hit 25-year low after transfer allegations. Looks at the allegations that surfaced yesterday about historic money transfers of illicit money by HSBC, Standard Chartered and a number of other banks. Key I think is that these were historic actions and most of them were reported although there should be questions about why they were allowed to continue?

More worrying for HSBC and Standard Chartered is the fact that they could be added to China’s ‘Unreliable Entity List’ and whether that would mean that they would have to cease their Hong Kong banking activities? I actually doubt China would go that far but it should be a concern for investors. Does the share price properly reflect the risk. Even a curtailment of their activities in China would be significant; especially as HSBC is trying to expand its Wealth Management business on the mainland as outline in the HSBC fund chief reshapes business for the Covid era article yesterday.
See Also LEX HSBC: time warped 'Businesses that are political shuttlecocks are not good investments. Unpredictable policy shifts set share prices rather than strategy or economics. Bosses once teased the UK with suggestions HSBC might move headquarters to Hong Kong. It now seems equally unpopular in both places.'

TikTok deal threatened by ownership confusion The already complicated deal risks unravelling over who actually controls the company. Trump is stressing it must be US controlled. ByteDance saying it will be a subsidiary and that even after an IPO it would keep 80% ownership. Oracle is saying that 'ByteDance would have “no ownership in TikTok Global” and shares in the new entity “will be distributed to their owners”, with Americans becoming be the majority holders.’
I suspect that the negotiations will be draw out and the the company will be allowed to operate in the meantime but the uncertainty will mean that rival platforms are likely to benefit. Other Chinese platforms will be watching events carefully and not doubt set up similar structures once an acceptable structure is agreed by all parties. No doubt another good day for the lawyers.
See LEX TikTok Global: victory gap. 'The clear winner is ByteDance. It has avoided a US ban while keeping control of TikTok and its famed algorithm. TikTok’s mooted valuation could lift that of ByteDance. The experience of the group is an invitation to fellow Chinese apps: come to America, upset the locals and bag a valuation upgrade.'

China pork reserves run low after swine flu hits supply and sends prices soaring Likely to be a big issue for China, and it notes that in China the level of pork reserves is a state secret but using data from 'Enodo Economics, a UK-based consultancy focused on China, who estimates that reserves fell by about 452,000 tonnes between September 2019 and August this year.’ It estimates it has less than 100,000 tonnes left.
The reason being the African Swine Fever; that decimated its swine herds and the cost of trying to rebuild them commercially, especially as many were small holders; whose herds are prone to disease spread, rather than large modern commercial herds. Another issue was also the reluctance often of local governments in China to pay compensation or the right level of compensation which again has hampered the herd rebuilding process. A sign of the strain that China’s local government finances are under.
So despite using its frozen reserves pork prices continue to rise; 'spot wholesale prices are still more than double their pre-swine fever levels at Rmb47.61 ($7) per kilogramme. The cost to consumers rose more than 50 per cent in August from a year earlier, according to official data.’ The ability to hold pork reserves was, in the past more about keeping prices stable than providing alternative sources when supply was low.
Part of the problem of course it the rise in wealth in China meaning people want to eat pork and that is probably partly behind President Xi’s call not to waste food recently.
It has meant that China has been forced to import more pork, which makes the decision to ban German pork imports seem like a political move. As the article notes with regard to importing Canadian meat last year 'a foreign ministry official warned it was not a sign of thawing relations.’
For investors it means pork prices are likely to remain high for a while as China imports more, whilst it tries to rebuild its swine herds. This is one more issue for the government that is already under pressure. This is very much in focus of ordinary people in China and so is likely to be high on the governments agenda.
It also leads in well to the next article.

Green campaigners seek to inspire investor stampede away from meat. Shareholders are starting to take note of warnings about the risks facing emissions-heavy agribusinesses.
Worth reading because this I think will be a move that will affect both commercial farming businesses (meat and dairy sectors) and could even impact ordinary farms. Even as the world becomes richer and seeks more meat the reality is that it is not a healthy option. To be kinder to the environment we are going to have to be more healthy. The meat substitutes or synthetic producers are likely to become more prominent. I think we are going to see more dietary supplements being used as people seek a healthier lifestyle. Personally I already use them, although I haven’t cut meat out altogether, but I am involved in a business that uses natural suppliants to ensure a perfectly balanced diet of protein, carbs, fats, and nutrients in combination. Let me know if you want details.

Opec keeps strategy under wraps in crude stumble Europe lockdowns and rising cases in big consumers such as India worry cartel delegates. Basically Saudi Arabia’s energy minister is not saying what they might do and that leaves the market traders guessing. Key though is that oil demand, due to covid has dropped significantly more than the production cuts we have already seen and the recovery in demand is slower than many expected. The potential for more locks downs will further delay the recovery.
It notes that China has slowed its purchases and there is an increase in oil being stored at sea. But it also notes that demand from Asian for Middle Eastern oil is rising but probably not enough to off-set the declines in western demand.
Other wild cards mentioned include the return of Libyan production, the US election, and the global recovery.

Editorial Japan’s premier needs a message and a vision. Yoshihide Suga must find a way to emerge from Shinzo Abe’s shadow.
Notes that 'Underlying everything Mr Abe did was a simple message of optimism and national revival. The Japanese people responded to that and it carried him through scandals and policy errors that might have brought another government down.’
It sets out the Mr Suga will have to not only continue Abe’s policies but he needs a similar message and vision to carry the people with him. He has the advantage of a background that most Japanese can identify with. He has signalled reform is the priority but he also needs to show how that will lead to overcoming deflation and spurring income growth. He will also need to have vision to continue what Abe started internationally. He will also have to change as it notes 'As chief cabinet secretary, his job was to crack heads together behind the scenes and stonewall any inconvenient questions. As prime minister, he needs to motivate an administration to follow him, while persuading the Japanese public to share in his goals.’
It concludes it will not be easy.
I think that Mr Suga has a good chance; he seems to have recognised his own shortcomings and said he will retain Mr Abe to help on the international side. He has the popular support. I hope he succeeds.

Opinion Beware the long arms of US and Chinese law. By Gideon Rachman
Looks at how the US has used extraterritoriality with the US dollar and how China is now also using it though its national security law which it says is applicable even to those outside China and applies to foreigners speaking out against China.
It notes that western universities are taking the threat seriously; 'Patricia Thornton, who teaches Chinese politics at Oxford university, recently tweeted: “My students will be submitting and presenting work anonymously”, as protection against the law. Professors at US universities have announced similar moves.’
A key point is that many western academics are now refusing to travel to China and I would guess even Hong Kong, for fear of falling fowl of the National Security Law. That in my view will be bad for Hong Kong and China.
It notes that whilst Beijing may have started with free speech it is unlikely to end there; as seen in the ‘Unreliable Entity List’
Key though is that this is the weapon of the super powers only, other nations must rely on the WTO, UN and other such organisations and hope that the superpowers recognise the decisions.
He concludes with a quote 'In that situation, our world will look increasingly look like the one described by the Greek historian, Thucydides, in which, “The strong do what they will and the weak suffer what they must.”’
Sad but true and the worse for it.

For Interest
Airbus banks on hydrogen as future fuel.
Looks at Airbus’s hopes for a carbon-free plane by 2035, with demonstration models by 2025. Worth a read.
The reason I think that is it so interesting is that if we have hydrogen fuelled aircraft its going be a big boost to having hydrogen powered cars. Currently they lag behind EV’s but that could change.

FT BIG READ. TESLA. Tesla looks to stay in front
Boosted by a powerful rally in its shares, Elon Musk’s company has seen its rivals’ electric vehicles sputter. But as it prepares to unveil its latest battery advances, can it retain its technology edge? An interesting read; unlike last year the company has no cash concerns this year. Its core technology is still ahead of the competition. But it still doesn’t have a fully autonomous vehicle. It will be interesting to see what it announces.

Opinion American justice will miss Ginsburg’s passion for reasoned argument.
Well worth a read. Key for me
'In recent years, she advised young people to “fight for the things that you care about, but do it in a way that will lead others to join you”. It was in this spirit that she lived her life, believing that reasoned argument would lead to justice under the law.
In this polarised moment, that spirit of believing that reasonable people can seek to persuade one another, and that the law, properly interpreted, will allow all Americans to have a seat at the table, seems in danger of being lost. It needs fierce defenders more than ever.’

For conspiracy theorists Opinion The rise of the foreign funds distorting western politics
Set out how it is being done, an interesting read.

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