Aug 21 FT Alibaba good but, Genting, Huawei, Mengniu, German Zombies, Chinese Flooding

25 Aug

Aug 21 FT Alibaba good but, Genting, Huawei, Mengniu, German Zombies, Chinese Flooding

MARKETs at 11:15am HK time
opened higher as inflation data came in higher than forecast and initially rallied to 23,130 level but then trended lower as the Flash PMI data came out and was lower than expected. The trend lower continued into lunch Currently +0.3%
S KOREA opened higher but sold down initially as pre market PPI was lower than expected and covid concerns remain elevated.
Kosdaq opened at 801 and found support around the 780 level, small bounce and now trading sideways; currently -0.3%
Kospi opened higher at 2,306 and ticked higher but then also sold down with support at 2,280 level. Small bounced and currently trading sideways +1%.
TAIWAN opened higher and has trended higher through the session. Good export data out after market Thursday helping; currently +1.8%
CHINA opened higher at 4,720 level and has effectively traded sideways Currently +1.3%%
HONG KONG Opened +216pts @ 25,007 vs +58pts ADRs (24,849) E Commerce +VE except Alibaba, Financials +VE too. Initially traded sideways but now working higher; currently +1.1%. Earnings remain in focus watch lunchtime releases.
EUROPE Expect markets to open higher following Asia and the US. PMI flash data for Eurozone, Germany, France and UK. We also get UK Retail Sales and Public sector borrowing data.
US Futures opened +32pts but have climbed to +100pts. S&P and NDX also higher. Data due tonight Flash PMI data, Existing Home Sales, Baker Hughes Total Rig Count

Alibaba beats revenue expectations despite threats. Results out yesterday beat most forecasts. It said that it was monitoring the US government policies. It has halted operations in India of its popular UC Browser app and other innovation initiatives. But is says it is still selling to be a global company. Within China it is facing competition from Pinduoduo (reports today) and JD.Com.
It noted that revenue from adverts merchants buy to promoted their products was +23% YoY with commissions on sales +17%. But its cloud business continues to grow +59% YoY and the unit that holds online grocer Tmall Supermarket and Freshippo supermarkets reported 80% growth.
Despite all the good news the shares ended lower in the US overnight and the shares opened lower in HK but are trending higher.
LEX Alibaba: diverging mirror. At one point investors hoped that Alibaba would be the next Amazon, that hasn’t happened. It’s expansion in the US has always been limited although under the current Trump crack down that might now be a blessing. But it could still be impacted on Alipay and Cloud services. Currently its domestic business is doing well. In summary says LEX 'The background noise has started to be priced into Alibaba shares, which have gained less than a fifth this year and have underperformed local and global peers. In 2020, Amazon has risen 72 per cent. Alibaba’s chances of ever catching up now look impossible.'

Stormy waters Cruise ship operator Genting Hong Kong halts payments on $3.4bn debt
The company has halted payments on almost $3.4bn of debt saying is was seeing to restructure its debt. Early this month it issued a profit warning. At its core business of cruises has been hit badly by covid. On a larger scale a number of the Genting group businesses are under pressure. It is unlikely to be the only company that will be forced into a dramatic restructuring of its debts due due to covid.

Huawei workers fear for their jobs as US turns screws Effort to refocus on domestic arena prompts departures, redundancies and transfers. All this is because of the initial sanctions and is being exacerbated by the recent increased sanctions which many think could be a death sentence for the company. It is difficult to see how the company can survive with chips which are essential to almost everything that it is involved with.

Three Gorges dam reaches highest level. Heavy rains in China are threatening its flood defence systems. The Yangtze River has swollen to record levels bring disruption to farming including pig herding which is still trying to recovery from ASF, even some factories have had to cease operations due to flooding. All of which is in due course going to impact the national recovery.

Kim concedes Pyongyang’s failures on 5-year plan. Having admitted that he has called for a new 5 year plan to be drafted and called on officials to “overcome shortcomings and take rectification measures at the double”.
The reality is that whilst it is under heavy sanctions the chances of really being able to get the country back on track are limited.

Australia set to bar China dairy deal in souring of trade links. Blocking China Mengniu Dairy’s proposed A$600m takeover of of the Lion Dairy brands owned by Japan’s Kirin Holdings, as diplomatic and trade tensions rise. It illustrates how relations how soured because last year Australia approved China Mengniu’s acquisition of Bellamy’s an Australian company. The difference is that Lion Brands is already foreign owned.

Spectre of zombie companies haunts Germany. Politicians are split on whether to extend an insolvency waiver for businesses hit by outbreak. The problem is distinguishing companies that are just having problems because of Covid and those whose business model was unviable covid or no covid. The problem is made worse because its an election year and non of the parties wants to see companies folded unemployment rise because the current subsidies and grants are removed. But allowing flawed companies to remain in business undermines general business confidence because counterparts are uncertain about the ability of the other party to pay. In my view it also destroys good businesses. The zombie ones tend to set rates just to survive rather than to be able to make a proper profit. That means that good companies have to lower their prices to compete and hence it creates are downward spiral in which no one wins.
It’s is effectively the same problem as seen in many SOE’s in China they dominate but are not profitable and often prevent good companies from growing.
It’s rather like the joke; 'never argue with an idiot, they bring you down to their level and then beat you with experience’
Read also Nations ponder how to end job protection. Policies must balance worker support against restructuring labour market. The issues are closely linked as temporary lays become permanent because the companies go bankrupt. It rightly notes that regarding the German 'Kurzarbeit was not designed for this, she said. “It was designed for very qualified permanent workers in the manufacturing sector where it is difficult for firms to hire replacements and more efficient to ride out a one- to two-month period.”’
The essential aspect is going to be not just ending job protection but using the opportunity to retrain people in the skills that are going to required by companies operating in the post crisis world. Another element that needs to be considered is the low paid jobs which were amongst the first to go and how to retrain those people to be able to find better lasting employment.
Also read US recovery fears grow as unemployed claims top 1m. Thursdays initial claims number was higher than expected although the four week average continues to fall. It also underlines the need for the parties to agree a new stimulus package
This is going to be a big issue for a long time as the global economy struggles to get back to a normal level. For me it also suggests that whilst the markets are expecting a V shaped recovery the evidence on Main Street is not so reassuring.

For interest
Nvidia flexes its muscles as the new king of the chip industry
. Looks at the implications for Nvidia if it buys ARM from Softbank. Read also Nvidia sets stage for data centre war with Intel

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