FT Weekend; Nikkei, Autos, Aussie Trades, Alibaba and the outlook for Biden


11 Nov

FT Weekend; Nikkei, Autos, Aussie Trades, Alibaba and the outlook for Biden

Sunday morning Biden was named as the 46 American President elect. There is a lot in the FT Weekend which went to press ahead of the result.  Much of the paper’s content is on the assumption he would win.  For trading on Monday I think markets will open higher on the news especially as it seems that the Senate remains under Republican control.

Before looking at all the Presidential election stories I want to focus on the non election news which I believe is interesting.

Front page Nikkei catches spirit of the times as blue-chip index soars to 29-year high. It notes that the market has been driven to the highs by retail investors moving into blue chip stocks like Sony, Softbank (reports Monday) and Fast Retailing. It notes the broader Topix which has also climbed but is still below its February level. The Nikkei is still 50% below its all time high (39,000), which many attribute to the lack of foreign investors in the recent rally.
A recent Finance Ministry report shows that foreign investors were net sellers of about $2bn for the week ending October 31.
It is interesting to note after the Berkshire Hathaway results that Buffett has recently invested in the Japanese market. Softbank reports Monday and will be closely watched. But Nintendo raising its guidance along with the Auto makers the outlook is looking good. Japan also has robotics companies which are doing well due to covid and ageing populations. Along with other leaders like Daiken the air conditioner maker whose products are likely to be in more demand due to covid. I think the outlook for Japanese companies is improving and with Biden in the White House there are likely to be less trade tensions than before. +VE outlook for Japan

Toyota chief confident of beating Tesla. Bets that hybrid cars will, in the long run, be more popular than just electric. But Toyota’s CEO noted that they could learn much from Tesla’s business model. Toyota has outperformed its rivals during the covid pandemic and has now doubled its profit guidance and pointed to its range of vehicles as being key to long term success. The new guidance was inline with analysts expectations. In part because energy conditions vary from country to country. Key for the last quarter was the rebound of sales in North America (+61% YoY) and China (+33% YoY).
Honda also doubled its guidance and ride its dividend forecast too.
See also Lex Toyota: beholden to Beijing. With increasing sales in China the company will be reliant on Beijing’s policies on subsidies and market access. Not least the fact that Beijing cut subsidies for electric cars using foreign batteries back in 2016; which sets a worrying precedent. Which means investors have to factor in the Chinese policy risk with regard to the potential returns. +VE short term for the Automakers but with longer term concerns

Australia calls on exporters to cut reliance on China trade. In the light of the deteriorating relations with China the Australian government is recommending companies seek out new markets outside China. It notes how Chinese authorities are making things hard for Australian exporters; such as the A$2m worth of rock lobster lost at Shanghai Airport when local officials orders a series of new health and safety tests. Coal exporters also complain of new delays. China denies its a co-ordinated action but in a command state economy it is difficult to believe such actions are by chance. Also with the China Daily publishing an editorial 'warning Australia that it would “pay tremendously for its misjudgement” in colluding with Washington in trying to contain China.’ But the heart of the matter is probably Australia’s push to have an inquiry into the source of the covid-19 outbreak.
China says it wants to take its place as a world leader but its refusal, even now, to agree to a full investigation undermines its credibility to be a world leader. -VE for sentiment on China and will put some Australian firms under pressure in the short as finding new markets; especially when sales people cannot travel is going to be an issue.

WhatsApp gains green light for payments service in India. Comes after some long delays and is a significant move forward which will put pressure on current market leader PhonePe owned by Walmart, Google Pay and Paytm (backed by Softbank and Alibaba). It will also benefit JioMart Reliance’s e-commerce grocery retailer.

Farfetch grabs support from big rivals. Looks at the investment by Alibaba and Richmond into the group; with an option to increase their stake later. 'Farfetch will help fashion and upmarket brands launch their own online stores on Alibaba’s Tmall Luxury Pavilion and Tmall Global.’ The move is taken to show the importance of Asia in terms of global sales (especially China) and digital selling. Artemis has also invested, separately in Farfetch; so now the group has backing from Alibaba, Tencent, Kering and Richmonte. +VE cross read for firms targeting Chinese luxury consumers

Denmark sounds virus alarm and prepares to cull 17m mink. Discovery heightens concerns about resistance and poses threat to fur industry. Looks at a potential new strain of the virus which has been found in mink. Underlines how little we really know about the covid virus still. The drastic action is a sign of how worried authorities are still and I think that is a good think until we have a better understanding. Read also Editorial Mink cull highlights the unknowns of Covid-19. -VE for sentiment

Ocado’s claim to be a lifesaver delivers aid to tech critics Makes an interesting point, that automation and technology can save lives. Comes as the group is facing legal action from AutoStore which claims it has violated its robot patents. It responded by saying that halting construction of Kroger robot warehouses could cost American lives. In making such as argument it could mean that the tech sector could see more regulation ahead. It could result in private companies which provide essential public services being regulated as utilities; which could mean government standards and price controls. In the past big tech has wanted to avoid the label or at least the regulation. That could be changing. In a way it is similar to the Ant Group that was able to operate and disrupt banking in China because it wasn’t tied to the banking regulations. Slight -VE for tech in the longer term

Alibaba founder loses magic touch with China’s power elite. More on Jack Ma’s fall from grace in China and the implication that no businessman in China will be allowed to threaten the state. Notes how Jack Ma was the public face of Alibaba but relied heavily on his partner Joe Tsai. They seem to have underestimated the vested interests of the establishment and banks as they sought to disrupt the existing systems. A warning for business people and investors to never under estimate what the Chinese Leadership is capable of!

China’s fastest growing e-scooter brand gains 400% on social distancing boom. Nui Technology is looking to expand into Europe and the US as covid and social distancing drives its share price, up 400% since March. A big increase in sales in Q3 as it promotes its scooters (Electric bikes and mopeds) as more efficient and greener than electric cars. It also uses lithium-ion batteries instead of cheaper lead acid ones which some of its rivals use, a wise move as that technology becomes the industry standard.

On the US Election
Biden pledges to ‘restore soul of America’ in bipartisan victory speech

Biden is awarded the Presidency with 290 electoral votes vs 214 to Trump with 39 still to be awarded. Biden says he will put covid and unity at the forefront of his agenda. While Trump is still refusing to concede and saying that he will pursue a number of legal claims although that would still not give him a victory. Control of the Senate is not yet clear but it will be closer than the election was.
Many business leaders are calling on Trump to over power peacefully and earlier Chinese academics were warning that if Trump lost he might look to sabotage US/China relations. (Editorial Biden’s sternest tests still lie ahead of him also notes that possibility not only on international relations but undermining the government structure by firing officials)
Whilst we did not see the ‘blue wave’ that many had predicted and the ‘reflation trade’ associated with that was being unwind last week, some sectors will continue to attract attention. Renewable energy being one with the Oil majors being under pressure. For many other sectors the impact will be less unless the Democrats can get control of the senate and a number of articles look at that. See Wall St traders learn to love a constrained Biden presidency Initial shock gives way to patience and a rethink in tense week for fund managers.
Lex Biden/volatility: nixing the Vix essentially Markets may not welcome Mr Biden’s policies. Nor do they fear them. In the same vein Investors embrace the prospect of a divided Washington

The action by Facebook and Twitter who increased measures to contain misleading information much of it from the Trump camp over voting irregularities and warnings on posts by political candidates is seen as prudent in the face of growing concerns. Whereas Google's You Tube has come under increasing criticism for not responding to the spread of misinformation. See Under the hood Facebook and peers rally on prospect of US political gridlock. Tech sector enjoys strongest weekly gain since mid-April as potential for divided government reduces threat of regulatory and tax shake-up.

The Print Edition was published ahead of Biden being awarded the Presidential victory and a lot of the articles are written with that in mind but most assumed Biden would win. With many looking at where Trump lost support and the divisions that have been created across America.
A number of the articles also note how team Trump seems to have lost the support of many of the senior members of the GOP over the past week. Many because of Trump’s own actions like claiming victory and making allegations over the vote counting without evidence.

No doubt in the months to come the GOP will be reviewing its leadership. Trump has said he may seek re-election in 2024. That would be an interesting move and only the second time in US history. It always presumes that a number of the legal actions being brought against Trump such as his tax affairs don’t result in him being disqualified from running.

FT BIG READ. US ELECTION. American gridlock: ‘Biden will have one hand tied behind his back from the start’ Joe Biden may now be within touching distance of the presidency but in office he would likely face a hostile Republican Senate. That would dramatically curtail the ambitions he has for domestic policy.
A good read; outlining some of the issues that may limit Biden’s presidency but does make the point that his long standing relationship with Mitch McConnell and his ability to work across party lines could be significant. That along with trying to get a couple of Republican’s to defect in the Senate! See also Regulatory musical chairs in focus for big banks if Biden prevails which makes the point that some of Biden’s key appointees face the prospect of being shut out by Mitch McConnell if the Democrats don’t control the senate, especially with regard to the Treasury with the implications for the banks. In the same view US states to face further funding squeeze as Republican Senate limits tax rises.

Opinion A fickle America cannot lead the world Another good article on the difference that Biden will make relative to how Trump acted. But makes the point that whilst Biden will give the predictability that American presidents were know for; he cannot assure America’s allies that future presidents will.

Opinion Why pollsters so often seem to get it wrong. The huge win suggested for Biden did not materialise — but we shouldn’t expect certainty. Looks at the problems with sampling and then the adjustments made to try get to the ‘right’ answer.
'Fisher was quite right to highlight the need to think about the future. We must, after all, weigh up our chances and make our decisions. But, as his contemporary John Maynard Keynes famously remarked, sometimes “we simply do not know”. And since Fisher was eventually ruined, while Keynes died a millionaire, a little agnosticism comes in very handy.'
I think we need to remember that in looking at polls we are trying to guess what the result will be, we and markets hate uncertainty but the truth is that it will always be with us and the polls are not going to change that.

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