Nov 17 FT Covid & Vaccines, Beijing on Tech, LG Chem, Home Depot, Mkt Updates

22 Nov

MARKETs @ 2:15pm
With many Asian Markets trading at or near multi year highs they are now struggling to move higher due to a lack of new drivers. They are also concerns over the state of the global export markets for Asia in the short term as covid cases in Europe and the US surge. US Retail Sales data tonight will be closely watched along with the Manufacturing and Industrial data.

JAPAN opened higher but sold down through the morning to just below yesterday’s close but bounce back to flat at lunchtime. PM opened higher and has worked higher currently +87pts (+0.3%) @ 25,990
Topix traded in a similar pattern +2pts (+0.1%) @ 1,734
Kospi opened slightly higher rallied to 2,553 which is tested a couple of times before selling down into the red briefly. Rallied back to 2,550 but selling down into the close, currently -5pts (-0.2%) @ 2,537
Kosdaq Opened lower and trended lower in the morning to 836, before working high back to 843. But currently trending lower to the close -9pts (+1.1%) @ 838
TAIWAN opened higher but sold down and then traded sideways currently +41pts (+0.3%) @ 13,593
CHINA opened slightly lower and sold down to 4,875 before rebounding into lunch at 4,890 PM opened lower and trending lower. Currently -17pts (-0.3%) @ 4,887
HONG KONG Opened 26,515 +133pts vs +174pts ADR’s through the morning Tech and E-commerce weak but Petro names seeing interest along with shipping names.
EUROPE Expect markets to open lower following Asian with covid still a concern and only EU construction data due to influence the market. London’s FTSE is seen opening 24 points lower at 6,406, Germany’s DAX 66 points lower at 13,101, France’s CAC 40 down 30 points at 5,453 and Italy’s FTSE MIB 101 points lower at 21,172, according to IG.
Earnings from EasyJet, Experian and Vodafone Group.
US Futures opened slightly higher but faded during Asian trading with caution ahead of the data due, the weakness in Asia and the covid surge in the US.
Data Retail Sales, Export & Import Prices, Redbook, Industrial Production, Manufacturing Production, Capacity Utilisation, Business Inventories, NAHB Housing Market Index, Foreign Bond Investment, Overall Net Capital Flows, Net Long Term TIC flows API Crude Oil Stock Change.
Speeches from Feds Bostic, Daly and Williams
Earnings: Walmart, Home Depot, Kohl’s, La-Z-Boy, Aramark

Moderna vaccine’s 94% efficacy in trials boosts hope for Covid battle. Second jab shows positive results • Fast-track approval sought • Simpler storage promised.
European and US markets rallied on the good news, especially as the storage and distribution of the Moderna vaccine is likely to be easier.
Again the stats are similar to Pfizer/BioNTech; 'Of 30,000 participants in the Moderna trials, 95 had been identified with confirmed cases of Covid-19, the company said. Among those infected, only five people had received the two-dose vaccine, known as mRNA-1273, while 90 had received a placebo.’

Comes at an important point as Asia, Europe and the US all face a surge in new covid cases; with many countries imposing new social distancing measure but there being a general aim not to shut down the whole economy.
Italy’s south hit hard by Covid and Southern Italy bears the brunt of pandemic’s economic blow
US states tighten restrictions as virus surges
Rise in cases forces outlier Sweden to toughen measures

Also see LEX Moderna/vaccines: getting warmer 'Neither jab may be widely available for months. Moderna and BioNTech-Pfizer have not indicated how long protection lasts. But every additional vaccine that works reduces the total execution risk of mass immunisation. In medicine, as in boxing, a flurry of jabs may precede a knockout.'

Japanese advised to avoid tough curbs by socialising with care The government is determined to keep the economy open inspite of the rising covid case numbers. It has been successful in living with the virus to date and is advising continuous control rather than a speedy return to normality. But the recent outbreak in Hokkaido has put the government under pressure. Its previous measure had resulted in it having a R number of almost 1 meaning cases were neither increasing or falling but that has recently changed. Hence the government has issued a list of five high risk situations to be avoided (which include parties, university dormitories and office smoking rooms). It has also requested nightlife business to close.

Biden signals return to multilateral approach. Democrat moves to re-engage with allies but tariffs and China policies expected to stay. Whilst he will look to re-engage with the likes of the WTO and WHO it is expected that Biden will also look to seek reforms to those organisations probably by working with them rather than Trumps more combative style. But on the issue of tariff most expect those to stay in place and only slowly be removed. Interestingly Hank Poulson was saying that with regard to tariffs on China they should only be removed if the US gets something in exchange. I suspect that maybe adopted World wide. Additionally on China Biden is expected to take a more multilateral approach on pressing for reform which will make it much harder to China to use its current ‘Wolf Warrior’ diplomacy tactics against individual countries that it feels are exerting unfair leverage or as in the case of Australia seeking an independent inquiry into the source of covid an issue where the results were likely to be too sensitive for Beijing.

Beijing seeks to tear down Big Tech’s barriers. The hands off approach of the last 10 years has come to an end. Previously allowed to grow without interference Beijing is no longer happy with the way they are behaving. The article suggests the change was brought about by the market dominance of Alibaba since it now accounts for 75% of China’s online sales and almost 20% of total sales. Plus its recent move in ‘bricks and mortar’ shops too.
The article notes that the new proposals are very comprehensive; covering data usage, pricing, promotions and subsidies. Of particular concern are the entry barriers that the two dominant players have erected. Such as not allowing links that would take users to their competitors web site. Equally you can’t use the Tencent’s payment systems on Alibaba’s platform and vice versa. JD.Com in which Tencent has a stake does not accept the Alipay.
Also the amount of data that they are able collect means they can tailor offers to specific users. Notes an experiment seeking a hotel room using three different phone but the same room and site got three different prices. Another issue will be the subsidies that the likes of Pinduoduo uses to attract business.
Also the practice of making business choose which one of the two dominant players. Alibaba is facing a law suit after a merchant claimed that business was diverted away from it products because it failed to show ‘loyalty’ to the company; restaurants and other businesses have reported similar problems. None of the main players seems to blame free.
The new rules also allow for competition reviews. Many of the existing businesses are structured as ‘variable interest entities’ (VIE) which allows them to be listed overseas but maintaining crucial licences for doing business in China. These have never been approved by Beijing. It allowed the tech companies to avoid filing certain transactions that may have led to competition concerns; like Alibaba’s takeover of; in the future all acquisitions will have to be submitted for approval.
The landscape is changing significantly and it will be interesting to see it newcomers are able to come in and challenge the dominant position of the key players; it may be too late for that. I also think that much of the push back against the tech firms is because to their unwillingness to share the consumer data that they collect with the government and PBoC. President Xi is very aware that data is power and he certainly doesn't want anyone knowing more about what Chinese people get up than the state.
It is also interesting to note that Jack Ma was able to use the structure of the company in 2011 to justify joining out Alipay into the entity under his control. I guess such actions in the futures are going to be far more complicated. Which means that for investors it is not all bad news.

LG Chem hit by GM recall in wake of car fires. It is the second recall and will doubts about the reliability of the LG Chem batteries; which could be good news for its competitor Panasonic and the other S Korean makers Samsung SDI and SK Innovation. The fires were in GM Bolt vehicles after 5 reported cases of fires. Other EV car manufacturers including Ford, BMW and Hyundai have seen recalls due to fire risks. The fires seem to occur when the batteries are fully charged and as a temporary measure GM has introduced a software patch to limit to battery charge to 90%. Hyundai which has had similar problems but this batteries were made at a different plant; which suggests its something wrong with the design rather than the assembly. The bigger issue is the damage to reputation; coming as the battery unit is due to be spun off into its own entity in December.
Worth noting that BMW and Ford have had similar issues with batteries made by Samsung SDI.

LEX Nissan/Mitsubishi: it’s not me, it’s you. Looks at the rumour that Nissan will sell down its stake in Mitsubishi which LEX thinks makes a lot of sense; because Mitsubishi is focused on the smaller SE Asian market and adds little value to Nissan.

House move Home Depot pays $9bn for building materials wholesaler HD Supply.  Home Depot buying back the division it sold off 13 year ago. Notes that Home Depot is maxed out in terms of store locations and so is looking for a new driver. When is was sold the unit, activists argued was ‘was delivering weaker than required returns and was distracting Home Depot managers from consumer markets.’ The unit it is now buying is a slimmed down version having disposed of its
construction and industrial business. Meaning the new unit should compliment Home Depot current business of 'maintenance, repair and operations market’. The article does mention that 'There had been signs of underinvestment in HD Supply’s business, giving Home Depot the opportunity for improvement,’
Home Depot is due to report today and is expected to have done well during the Pandemic. Watch Techtronics (669 HK) as beneficiary of both the acquisition and the the results.
It is interesting that it needed HD Supply to be sold off for the required changes in its business model to be made. It suggests that the management was at fault rather than the business. The activists 13 years ago got the business sold off one wonders if actually just apply better management would have been a better long term solution for shareholders?

Prospect of end to pandemic spurs ‘value’ investing shift. Moderna trial hastens rotation from ‘growth’ picks but some expect trend to be shortlived. Looks at whether value stocks will see a renaissance now that we have a covid vaccines. It think the key is that some ‘value’ plays will obviously see renewed interest especially as most the market thinks that the ‘growth’ stocks and in particular the US Tech names have overstretched valuations. But the pandemic has without doubt changed parts of the investment landscape and vaccines are not going to see an return to the previous norms. As the article says 'Historically, investors divided it up into discrete industries, such as energy, banks, retailing or technology. Increasingly, however, they look at it through the prism of “factors”, quantitative measures of a stock’s characteristics that financial academics have discovered tend to lead to above-market gains in the long run.’ The other issue for value stocks is that the outlook is far from clear; especially with regard to inflation and interest rates.
One that is for certain is that analysts and investors will be looking carefully at the fundamentals.

For interest
Apple accused of iPhone privacy breach

Activist Max Schrem’s files complaint with German and Spanish data protection bodies. Saying that 'the unique tracking code generated by each iPhone, called Identifier for Advertisers, or IDFA, lets Apple and all iPhone app developers see how users behave without their knowledge or agreement.’
Interestingly the complaint is filed under the EU e-Privacy directive, rather than the General Data Protection Regulation which means Apple can be fined by national data regulators without reference to the EU Data protection authorities; if it is found to have breeched the rules.
The big tech firms are facing tougher scrutiny on all sides and it is only likely to become more intense in the months ahead.

Opinion Biden’s flawed plan for world leadership by Gideon Rachman. Key points are that whilst Biden may want the US to assume the leadership of the world on things like climate change; many things have changed in the past four years. Other nations will insist that other forums are the place and that no one nation should have the right to the lead the discussion.
The key point I think is the final paragraph
'Mr Biden will find it hard to persuade Americans that the US can benefit from international engagement, without automatically taking the leadership role. But, on the plus side, America will no longer be actively destroying global institutions. That is reason enough for huge relief.’

Opinion The bank dividend ban has failed and should be lifted. By Simon Samuels a banking consultant at VeritumPartners. Summary 'The dividend ban has failed. It has rationed, not increased, banks’ access to capital; it will damage valuations for a long time; it has raised questions over regulators’ ability to regulate; and it has unhealthily undermined the relationships between banks and their regulators. Like the British government trying to rid Delhi of cobras, those in charge may inadvertently have made things worse.'

FT BIG READ. CORONAVIRUS. New York and the mass transit crisis
Public transport revenues in leading cities have been hit hard by the pandemic, amid fears that some commuters — now comfortable with working from home — may never return to the buses and trains. The same is likely to be true of many similar public transport systems. Although I do think that when widespread vaccinations have taken place we we will see a migration back to office working in major city centres.

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