Aug 12 FT Russian Vaccine?, HK crackdown, Sanction Implications, Chinese De/Listing and more

14 Aug

Aug 12 FT  Russian Vaccine?,  HK crackdown, Sanction Implications, Chinese De/Listing and more

MARKETs at 1pm HK time
Gold remains weak and investors seem unsure over Russian vaccine claims
JAPAN opened flat effective traded sideways after a rollercoaster morning.  PM open higher and trading sideways  Currently +0.4%   Machine Tool Orders due later.
S KOREA Kosdaq opened lower and sold down 838 support level which it tested a couple of times before working back to 850 and since has traded sideways currently -1.6%
Kospi opened lower rallied before selling down to 2,394 where it found support and the bounced back to yesterday’s closing level. Then traded sideways currently flat, key is holding above 2,400 level.
TAIWAN opened lower an sold down to the day low around 10am before trading sidewise currently -0.7%
CHINA market opened lower after the poor loans data which came out after market Tuesday.  Market sold down through the morning with sentiment weak on worsening US/China relations  Currently -2.2% at lunch.
HONG KONG Pre market -22pts vs -122pts ADR’s Market saw choppy trading for the first  90 minutes trading between 24,890 and 24, 690.  After 11am with the market around 24,850 it traded sideways into lunch.
EUROPE Expect markets to open flat with concerns over US/China relations and doubts over Russia’s vaccine claims. Data due Eurozone Industrial Production and UK Trade and GDP data along with  Construction Output, Construction Orders, Industrial Production, Manufacturing Production, Business Investment, Labour Productivity, Goods Trade Balance, NIESR Monthly GDP Tracker.
US Futures opened +70pts but eased back in early trading. Expect a flat open. Data due today MBA Mortgage Applications and 30 year Mortgage Rate, Core Inflation Rate, Inflation Rate, EIA Oil Report, WASDE Report.

Russia plans mass rollout of Covid-19 vaccine within weeks. It has granted regulatory approval to a vaccine against Covid-19, with mass production and immunisation due t start shortly. But there are doubts about the vaccine not least because Russia has released very little detail about the vaccine and the trials it has undergone.There is a huge risk here as the article quotes 'Eleanor Riley, professor of immunology at Edinburgh university, said: “There is a big difference between a large vaccine trial, with careful and frequent follow-up of all vaccinated individuals, and deployment of a vaccine to the general public.”’
In response Kirill Dmitriev, head of the RDIF, said western criticisms of Russia’s vaccine were designed to “discredit and conceal the correctness” of Moscow’s research.
There have been similar ‘rushed vaccine’ which were later found have serious side effects. Time will tell.

Hong Kong braced for wider crackdown after Lai held. Arrest of media mogul stokes fears of Beijing round-up of pro-democracy activists and increases US-China tension.
Many think that this is just the start and that more people will be arrested. It notes that Mr Lai has long been a voice against Beijing’s interference in Hong Kong and it quotes from an interview he gave the FT back in April.
“The communists — for them it is [about] control, control, control. They can’t have people voicing out their dissatisfactions. They don’t want people to resist them,” he said in an interview with the FT in April. “This is the beginning of the end for HK.”
His views seem to be reflected in the reality of the postponement of the Hong Kong elections which were expected to result in the pro Beijing camp losing its engineered majority in Legco.
The article outlines the complaints that Beijing’s against Mr Lai which reflect the way that Beijing see’s not just Hong Kong and its people but the Beijing perception about the world.
Mr Lai thinks that the only way for the hope for Hong Kong is the support of International governments but to date that has proved ineffective and in reality I think only if the US threatened to exclude China from access to the US banking system would Beijing even consider a reversal. The views and desires of the people in Hong Kong mean nothing to Beijing.
It is worth noting how many people went out to buy copies of the print edition of the Apple Daily to show support and that could mean that the people of Hong Kong may still surprise.

Trump’s Hong Kong sanctions likely to hit banks harder than targeted individuals Washington takes familiar route with threat of exclusion from US financial system. The naming of 11 officials for sanctioning is more symbolic as most do not own US assets. But for the banks that they bank with it can have a a big impact. Whilst the HKMA say the sanctions have no legal basis within Hong Kong they do have a big impact for how those banks can operate in the rest of the world. The article notes that:
'But lawyers point to the fact that US banks’ foreign subsidiaries that are incorporated overseas are generally understood to be non-US entities, which could put them outside Washington’s jurisdiction.
But non-US banks are not in the clear. Transactions between non-US banks could be affected if they pass through the US financial system. International transactions, largely conducted in dollars, are often settled through correspondent banks based in the US.'
It leaves banks open to the threat of secondary sanctions; as was seen with Russia, North Korea, Iran and Hizbollah. There are also implications for US domiciled companies who are are obliged to freeze assets, including securities or bonds, owned by these people and it notes that any company more than 50 per cent owned by individuals under sanctions would be barred from the US financial system.
It illustrates this noting that Teresa Cheng HK’s Sec Justice was sanctioned, her husband is chairman of Analogue Holdings and she held a stake. On Sunday the company said she no longer held any stake and it believed sanctions did not apply to the company. Bit on Tuesday it sold a 2% stake in New York’s Transel Elevator & Electric, taking its ownership below 50 per cent!
The risk is there and the threat of it being increased is I believe growing with as the numbers of people arrested under the new security law increases.

Editorial Gagging the press will suffocate Hong Kong Crackdown on media freedom threatens all businesses in the territory. Outlines how the arrest of Jimmy Lai is an indication of how Beijing intends to use the new security law. It is now apparent that this is not a mere tidying up exercise. It notes that journalists visa which used to issues as a matter of routine are not subject to special scrutiny and delays.
Hong Kong’s status as media hub with a history of robust defence of free expression was part of the mix of what made Hong Kong a great global city. Now not only the press but other organisations who previously operated freely under Hong Kong’s freedoms within China are under threat.
Businesses may in the short term continue and hope that by keeping their heads down and being compliant they can continue their business but that is fraught with risk.
Will analyst at the financial institutions still be able to comment off key topics of business or question the business interests of key member fo China’s governing elite.
Mr Lai has been changed with amongst other charges “collusion with foreign forces” which is vaguely defined and could mean just meeting a foreign diplomat or journalist but carries the potential for life in prison, with a trial carried out in secret.
Businesses are now caught between adhering to US laws or Chinese and as the US increases sanctions Hong Kong’s banks risk being excluded from the US market. But refusing to do business in Hong Kong with sanctioned officials could also lead to trouble.
The HK Exchange may see a short term benefit from Chinese companies forced to delist from the US but international investors may question the risk of investing in Hong Kong.
In summary it says
'The national security law places a cloud over the independence of all the territory’s institutions — including the regulators and the courts. The Hong Kong brand has always been bound up with the rule of law and freedom of expression. Without those freedoms, Hong Kong will be a sadly diminished place.’
I think for international investors the risk in Hong Kong is now the same as the rest of China. The additional risk of increased sanctions from the US; the nuclear option would be to ban US investors from investing Chinese stocks.

LEX Chinese US listings: cease and delist. Sets out that pushing for higher accounting standards is good but forcing companies to delist is not.
It notes this is not a corporate matter the China Securities Regulatory Commission has long limited access to America’s accounting oversight body, so affected companies tend to heavily caveat their accounts by acknowledging the US Public Company Accounting Oversight Board’s (PCAOB) “inability to inspect audit work and practices of accounting firms in China" which makes the accounts less reliable.
It views delisting as impractical saying that : 'There are 230 Chinese companies worth about $1.8tn listed in the US, reckons the Peterson Institute for International Economics. More are in the pipeline. Many are so big they feature in indices tracked by fund managers.’
Many of them are already looking as secondary Hong Kong listings which Lex presumes would enable US investors to switch their US paper of HK paper which would defeat the purpose of delisting. I have long held the view that Trump’s nuclear option would be delist Chinese companies and them ban US investment in Hong Kong. Otherwise as Lex says the process makes no sense.
Lex suggests some sort of face saving exercise like co-auditing but in the current circumstance I don’t see either side happy with compromise.
Lex also notes that with or without the PCAOB scams have occurred.

SoftBank emerges from turmoil with $12bn profit. Mr Son says the company still in crisis mode and said that the sale of Arm was being considered. It announced to set up a new $555m fund using part of Mr Son’s own money to invest in Amazon, Apple, Facebook and other established tech giants. But much of the profit comes from one off disposals or gains along with the significant market rebound.
It notes regarding the Vision Fund 'Of its 86 investments, the value of 29 of its holdings has risen while 48 others have been marked down, resulting in cumulative gross gains of $2bn since the Vision Fund was launched in May 2017.’
Also LEX SoftBank: defence mechanism Notes how Mr Son used the analogy of defence being a crucial element of any battle to select his recent struggles. Lex notes that luck does too. It looks at the results and notes that most of the gains came from one off items (including the recent market rally) and that the promised buybacks may be delayed. Also that Mr Son 'has done away with reporting operating profit, citing it as not a useful measure of his investment performance. Nor will he provide daily updates on shareholder value per share. These moves look more like rearguard actions than a battle plan.
Mr Son is right that defensive measures are needed during these times. But shareholders should ask whether they are among the foes Mr Son believes he is fighting.'

Snail mail saga adds to Toshiba’s collection of conspiracy theories. Because one investor wanted to know, why did 5m votes posted ahead of a knife-edge AGM, not arrive until after the deadline?
Looks at the recent AGM and the issues surrounding shareholder activism, the company and government response. A interesting read but one that casts Japan in a bad light. It says in summary:
'Yesterday’s complaint from the large investor may fizzle, or it may, for some, reinforce those conclusions. Toshiba’s AGM has provided a reminder of the forces that can be unleashed when pro-shareholder momentum is lost. The question is not whether Toshiba would ever rig a shareholder vote, but whether the company is merely a prominent example in a stock market that is generally rigged against shareholders.'

There is plenty of life in the US dollar yet By Dominic Bunning aa senior currency strategist HSBC He basically sets out that many of the factors that are currently being used to forecast the USD future weakness have little basis in fundamentals. The USD has been dogged by a number of factors for years and the economic conditions change so does the rhetoric. THE USD may have its issues and problems but so does every currency and whilst it may've languished recently 'there is plenty of life in the old dog yet.'

For interest
Wall Street banks jostle to join the Spac race
  Blank cheque groups account for one in five dollars raised in IPOs, up 3 times from last year.  Looks at the current popularity of Spac’s and the fact that the banks can makes good money from them.

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