Nov 19 FT China FDI, Vaccine Mkt Cap, Panasonic, Luxury, Crime pays & Mkt updates

22 Nov

Breaking news
Oxford covid vaccine works well in older adults (over 70) according to the phase two trial. Details of the phase 3 awaited.
UAE rumoured to be considering leaving OPEC +
Canada and UK close to signing new trade deal

MARKETs at 3:15pm
opened lower as Tokyo and national covid cases rises significantly; prompting an increase in the alert level and in addition to those seen globally hurting sentiment. Exporters under pressure as the Yen strengthens. But some tech names seeing interest as deals are still being done. Market traded sideways in the AM session. PM opened lower but worked back to the opening levels Closed -94pts (-0.4%) @ 25,634
Topix Opened lower and work higher to yesterdays closing level around 11am but sold down into lunch. PM opened flat but sold down to 1,710 where it found support and then rallied to close at the day high +6pts (+0.3%) @ 1,726
Kospi opened lower and saw choppy trading testing yesterday’s close but unable to break above in the first hour and then selling down to 2,530 which is tested a number of time between mid day and 2:15 but then rallied into the close to finish +2pts (+0.1%) @ 2,547
Kosdaq opened flat and traded sideways until 1pm when it started to work higher and rallied to 862 before easing back to close +8pts (+1%) @ 860
TAIWAN opened flat and saw an choppy start popping down to 13,740 before bouncing back to 13,780 but then trended lower 13,700 around mid day and then saw a small rally to 13,732 before easing back to close -51pts (-0.4%) @ 13,722
CHINA opened lower but worked higher through the day to peak at 4,940 level at 2:45pm before easing back to close +36pts (+0.7%) @ 4,928 President Xi address the APEC conference said that China would not seek to decouple from the US and remained open to more global business and integration by cutting tariffs and signing more free trade agreements.
HONG KONG Opened @ 26,460, -84pts vs -116pts ADR’s but then sold down to 26,312 level before bouncing then rebounded to 26,420 level and traded sideways in that PM. From 2pm the market traded around the upper limit of that range; currently -134pts (-0.5%) @ 26,410 level.
EUROPE Futures indicate a lower open; London’s FTSE is seen 65 points lower at 6,322, Germany’s DAX is seen 124 points lower at 13,075, France’s CAC 40 down 42 points at 5,469 and Italy’s FTSE MIB 121 points lower at 21,445, according to IG. As the market reacts to rising covid cases. Earnings from Thyssenkrupp, Royal Mail and Kingfisher in focus.
EUROZONE Current Account, Construction Output, Speech from ECB’s Lagarde
GERMANY No data due Speech from Bundesbank’s Mauderer, Buch and Wuermeling.
FRANCE No data due
UK CBI Industrial Trends Orders
US Futures Dow and S&P opened flat and NDX slight lower and have remained at those levels.
Data Philadelphia Did Manufacturing Index, Initial Claims, 4 week Ave Claims, Continuing Claims, Existing Home Sales, CB Leading Index, EIA Natural Gas Stock Change Report, Kansas Fed Manufacturing Report and 10yr TIPS Auction. Speeches from Fed's Mester.Earnings: BJ’s Wholesale, Macy’s, NetEase, Intuit, Ross Stores, Workday, Helmerich and Payne, BellRing Brands

China recovery prompts surge of foreign investment. Looks at property investment in China’s logistics business which is currently a very popular sector fro investment. FDI into China fell at the start of the year as covid hit but has seen funds return after it managed to control the virus with its lockdown. 'Last month, Zong Changqing, an official at China’s commerce ministry, said investors saw the country as a “safe harbour”.’ The FDI echoes what has been seen in the financial markets which has helped push the RMB higher too. It’s relative growth is better than is being seen in other countries. Natixis research shows Ex M&A between Hong Kong and China then most activity has been in 'real estate, information and communications technology, ecommerce and consumer industries.’ Sectors which are largely domestic demand driven. The investment comes despite the deterioration in the US/China relations. Ecommerce and logistics investment has been attractive; tapping into rising urbanisation in China. It will be interesting to see if Ecommerce continues to attract such levels of investment. Another are that I am aware has seen big investment demand is data centres which are a play on the same theme.
Natixis research also shows that outbound Chinese investment remains sluggish ever since the clamp down on the activities of HNA and Anbang.

Setback for Beijing as market cap of China vaccine makers drops. Looks in the drop in market cap for the Chinese phase companies as the western firms like Pfizer and Moderna steal the limelight. It estimates that the Chinese listed companies have lost around 11% since Pfizer announced its recent results. They are down around 33% since their peak in August.
One of the advantages the Chinese firms had was that their vaccine needed less refrigeration, but with the Moderna drug is less of an issue that the Pfizer one.

Tesla supplier Panasonic plans to target Europe with Norway plant. Looking to leverage on its success the company is now trying to gain European clients and expand its small exposure there. The push comes as competitor LG Chem has been hit by problems with the batteries it supplied to GM causing fires. Panasonic will team with Norwegian oil and gas major Equinor and aluminium company Norsk Hydro for a feasibility study on expanding its battery business in Europe to be completed within six months.
The move comes as Tesla announced to make its own batteries making the move by Panasonic more important. With Europe Norway is the most advance in terms of electric vehicles and generates nearly all its electric from hydroelectric sources. It should also help cobalt and lithium suppliers as the company mentioned the study would cover the whole of the supply chain.

Luxury sales on course to shrink 22% this year. According to a study by consultancy Bain and Altagamma. It also notes that the crisis have accelerated things like online sales. But it does not expect a full recovery until mid 2022 to 2023. The events so far this year are also putting the normally important Christmas season which normally can account for up to a third of annual sales. It has also prompted firms to look at new approaches; notes that Louis Vuitton in France allows buyers to make an appointment with a sales clerk to purchase over the phone or via video chat, then offers free delivery and returns. It notes the market leaders have done better ' LVMH, Kering and Richemont, which bring many brands under one group and had already heavily invested in online selling and marketing. Smaller brands such as Salvatore Ferragamo and Tod’s that had less digital savvy and relied more on physical retail outlets have suffered.’
It notes the importance of Chinese customers for the recovery who are expected to account for almost 50% of spending on luxury goods by 2025 (it was 33% in 2019). That is prompting retailers to increase their presence in China and via online platforms like Alibaba’s T-Mall Luxury Pavilion. It also notes the recent tie up between Alibaba and Richemont to invest $1.1bn in fashion platform Farfetch to expand in ecommerce in China; which emphasises the importance of Asia and digital marketing going forward.

Pfizer vaccine trial results are even better than expected. Its efficacy rate now at 95% and says it will seek US and EU emergency approval ‘within days’. Moderna was at a similar level. Both have met the US Food and Drug Administration’s requirements.
Both of these use new drug technology which may open doors to many treatments ahead.

LEX Maersk/container shipping: cargo cult. Good results and a surprise rise in demand. Summary 'Maersk insists it will prioritise profits over market share. Moreover, it is trying to reduce its dependence on cyclical shipping by expanding its land-based logistics business as it seeks to offer a door-to-door service. Unexpectedly plentiful profits give it a $9bn war chest for acquisitions, says Jefferies. It could also return up to $5bn to shareholders, including a $1.6bn share buyback that was also announced yesterday. Shares are up 125 per cent since their March low, trading on an enterprise value-toebitda ratio of 5. Asset-light freight forwarders are valued twice as highly.
As Maersk cuts its reliance on the commodity end of the shipping business, that gap should narrow.'

For interest
Who says crime doesn't pay Investors tap convicted trader in banks fight. 'A former BNP Paribas trader who pleaded guilty to rigging foreign exchange benchmarks has been hired as a $400-an-hour consultant by investors suing banks including Barclays and UBS for alleged forex manipulation.

Lenders pay painful price for ‘cov-lite’ greed. Another article looks at how current lenders are taking advantage of the fact that previous loans were cov-lite. Cites the case of 'TriMark USA, a distributor of restaurant equipment and supplies. The private equity firm Centerbridge Partners bought TriMark in 2017 for about $1.2bn. It loaded the company up with $795m of bank debt that was then sold by the banks that underwrote it to investors. When TriMark ran into financial trouble this year because of the Covid-19 pandemic, it obtained a new $120m loan from a group of hedge funds led by Howard Marks, the savvy founder of Oaktree Capital, and by Ares Management, another clever Los Angeles-based hedge fund. In making the new loan to TriMark, Oaktree and Ares were able to “prime” the existing lenders, placing the new loan more senior to them in the capital structure and giving the new loan protections the old lenders had previously bargained away.’ Marks is quoted as saying “Capitalism without bankruptcy is like Catholicism without hell,” he wrote in April. “Markets work best when participants have a healthy fear of loss.”
It quotes other cases too.
This new move illustrates why older cov-lite loans are losing value much quicker than those older loans where the covenants still protect the lenders interests. It is the same in the mortgage market with investors preferring mortgages taken out over 10 years ago and the borrower have a lot more equity in the game to cushion the lenders and hence worth much more.

Covid jab forecast to trigger dollar plunge. Analysts see drop of up to 20% if a widely available vaccine triggers hunt for riskier bets. Especially as the Fed is expected to err on the side of caution. But the current resurgence in covid cases and the potential for more covid restrictions and lockdowns could undermine that. A weaker USD would be +VE for the US exporters and also put pressure on China and the other Asian exporters.

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