Nov 5 FT Thoughts. Lots about Ant, CK Hutch Europe Masts, China key for BMW & Clarks. Lunch updates


09 Nov

Nov 5 FT Thoughts. Lots about Ant, CK Hutch Europe Masts, China key for BMW & Clarks. Lunch updates

MARKETs at 1:15pm HK time
JAPAN opened higher worked higher to 24,000 helped by good PMI data and then eased back into lunch. PM opened at 24,000 level and traded sideways for 30 mins then dipped to 23,940 but now working higher Currently +1.3% @ 23,995
Services PMI Oct 47.7 vs 46.9 Sept (F/cast was 46.6)
Composite PMI Oct 48.0 vs 46.6 Sept (F/cast was 46.7)
S KOREA opened higher with good Current Account data pre market
Kospi initially rallied to 2,390 level and then worked higher through the session to test 2,400; currently +1.8% @ 2,398
Kosdaq rallied to 840 and traded sideways then around 12:30pm worked higher to 843 and now trading sideways currently +1.9% @ 843
TAIWAN opened higher but initially sold down before bounding back to 12,920 but then sold down to day low 12,840 before rebounding to 12,900. Currently trading sideways +0.1% @ 12,883
CHINA opened Opened higher rallied to 4,880 but then trended lower to 4,840 before a bounce back into lunch. PM opened flat; currently +1.3% @ 4,874
HONG KONG Opened at 25,500 +614pts vs +548pts ADR’s @ 25,435 E-Commerce firm, CK Hutch +6.4% on European masts deal; broad based rebound with shorts being squeezed. Initial trended lower to 25, 350 but then worked higher hitting resistance around 25,600. PM opened lower and easing currently +2.7% @ 25,560
EUROPE Expect market to open higher with investors watching the US results which still have Biden leading but requiring 6 votes to take victory according to the FT.
BoE meeting today largely overshadowed by the US elections. UK lockdown starts today too.
Data due
EUROZONE Construction PMI, Retail Sales
GERMANY Factory Orders, Construction PMI
FRANCE Construction PMI, Retail Sales
UK Construction PMI New Car Sales, BoE Interest Rate Decision, MPC Meeting Minutes
US Futures opened +70pts with S&P and NDX also +VE but have eased back slightly to +60pts since then they have rallied currently +188pts US election still too close to call
AHEAD Challenger Job Cuts, Initial Claims, 4 wk Ave Claims, Continuing Claims, Unit Labour Costs, Non Farm Productivity, EIA Natural Gas Reports. FOMC Rate Decision.
Earnings Bristol-Myers Squibb, AstraZeneca, Booking Holdings, Square TripAdvisor, Uber. Roku, Electronic Arts, T-Mobile, AIG, Zillow, Live Nation Entertainment, EOG Resources, Tanger Factory Outlet, XPO Logistics, Cigna, Regeneron, Alibaba, General Motors, Cardinal Health, Duke Energy, Papa John’s, ArcelorMittal, Dun and Bradstreet, Murphy Oil, Cardinal Health, Sempra Energy, SeaWorld, AmerisourceBergen

US Election news dominates with the final result still too close to call last I saw was Biden needing just 6 more Electorial College votes to win; with 65 left to be announced.

On line
The Big Read Ant Group. ‘The party is pushing back’:
why Beijing reined in Jack Ma and Ant.
It starts by setting out that Jack Ma back in 2004 had hopes then of becoming China’s largest bank and if the IPO hadn’t been pulled, today his Ant Group would have been.
So why pull the IPO that would have shown how good Chinese Fintech was and give investors confidence that China and Hong Kong could do without the US markets?
Much of it seems to be about political power, status and rivalry to the Xi cult. Much of it is attributed to Jack Ma’s speech last week attacking the established banking system both in China and the West. He described the existing system as ‘pawn shop mentality’. But Financial stability is a keystone of President Xi’s establishment. Jack Ma wanted to disrupt that using Ant’s financial knowledge of clients spending habits to be able to lend to those without establish collateral. He claimed that innovated companies and people are often shunned by China’s financial groups. That is largely correct the big SOE banks focus on the big SOE companies.
It is thought Jack Ma made those statement knowing that the regulators were already drafting rules to curb Ant Group’s business model. Ant Group says not so and that it made full disclosures in its prospectus.
The key point being the amount of capital fintech’s need to hold in reserve vs the loans they grant. The new rules would significantly increase the amount of capital Ant needed to hold; some estimate an extra $20bn vs and IPO raising $37bn.
Other points of contention being the fact that what started as a payment company was now taking market share from ICBC and CCB in the lucrative area of business loans.
Also customer data, which has been the basis for its loan decision making process. It and Tencent have been guarded about sharing the information with the government and PBoC. The article notes 'Guo Wuping, a senior official at the People’s Bank of China, lashed out in the official media this week at “fintech companies abusing their hegemonic position”. He added that such companies should be using people’s data to benefit the people, rather than use it to further the interests of their companies. ‘
I presume by benefit of the people he means the party, because it would seen in granting these people loans Ant is actually helping the ordinary citizens. But in an increasingly controlling state; having that financial information and the ability to grant loans is seen as a political threat.
What next for Ant? Another IPO in the short term unlikely, the new regulations when published are likely to place new hurdles and the valuation may not be so attractive. Public statements of contrition and sidelining of key people also likely.
Wider lessons are that businesses should keep within the status quo and remain subserant to the party. It is also notable that it appears to be another example of President Xi not being willing to listen to anything critical of his way of thinking. That should be a warning flag for businesses. In Ant China could have had a world leader but now its been reined in but its model is being copied in the the US and it could be that Silicon Vally now develops the Ant model and trumpets its success. Global banks will also realise that they have to be aware of the disruption that is coming to their core business.
Also read in print edition Beijing shelved $37bn Ant IPO to ‘maintain stable markets’
Editorial Ant’s failed IPO points to wider clash on fintech. Next US administration must tackle regulation of start-up sector, where the new fintech charter 'in essence, give fin-techs one set of national regulations while excluding them from the most burdensome ones linked to deposit-taking. There are important repercussions both for the Federal Reserve, as well as state regulators, to consider. Another issue is whether the charter would enable large technology groups to enter the financial system by the back door.’
Opinion Ant’s rocky road holds lessons for business in a digital age. A good look at how the company grew.
It grew from recognising that there was a trust issue between buyers and sellers on its platform. So it solved the issue by holding money in escrow until orders were delivered and created Yu’e Bao. It then grew into a consumer to business company.
2. It is easy to build from scratch than repurposed the old. China and Asia lead in digital payments because they don’t have the legacy issue. Ant built what customers wanted. Suggests that Ant is a Techfin rather than the other way around. Which is why the regulators have difficulty because they are used to banks, loans and balances sheets. Ant’s prospectus had 60 pages of risks; Covid-19 pandemic, the global economic slowdown, US-China tensions, cyber crime and regulatory risks. BUT the first was 'whether Ant can continue to maintain the trust of consumers and innovate successfully’. Regulation could harm that, often regulators that don’t understand the business do more harm than good in the end; just look at Mifid; is the end user now really in a better position?
3. Tech and in fact all companies need a political and social licence to operate no matter how big they become. Regulators in the US and Europe are now sprinting to catch up with runaway tech giants. China’s rulers have always kept their internet platform companies under far tighter control and have now given Ant a further tug on the leash.’
'In creating such a successful company, Ant may have been built back to front and upside down. Yet, in spite of its impressive flexibility, it can never wriggle out of China’s political straitjacket. Ant has now promised to “embrace regulation”.'

PRINT Edition
CK Hutchison nears €10bn towers sale.
Spain’s Cellnex in talks to buy Three owner’s masts in six European countries. Seen as a good move as the masts currently attract higher valuations than the core business. Some are selling the assets others are considering spin off’s in order to retain control of the assets. But either way the resulting capital will help in reducing debt or assisting in the development of 5G networks. Cellnex shares were up on the news and CK Hutch shares are +8.8% at present.

Clarks shoe brand agrees £100m sale of majority stake to HK buyout group. With LionRock Capital set to become its largest shareholder, with the aim to help “grow the Clarks brand globally and most notably in China and across the rest of Asia Pacific”.

BMW profits jump 10% after China rebound spurs record deliveries. A key part being sales in China +31% in the quarter. The company however remained cautious with regard to the full year prospects. It also stressed its push into battery powered vehicles.

Surge in demand for outdoor heaters raises pressure on supply chain. China manufacturers bolster capacity as restaurants, pubs and households snap up units. As covid restricts indoor socialising people are looking to meet outside and in colder climates that is driving the demand. It does note that the heaters are not environmental friendly (France is banning them from the spring) but for most that doesn’t seem to enter into the equation.
Good for Chinese manufacturers although shipping remains an issue; but the demand is such that some are prepared to airfreight them despite rates having trebled due to the lack of flights.

Ethical investment is about morals not markets. Looks at some questionable ‘green’ investments. As people focus more of ESG this will no doubt become more contentious. An interesting read.

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