Aug 4 FT US Stimulus, Chinese Bounceback? China & Coal, HSBC, Huawei vs TikTok and more

06 Aug

Aug 4 FT US Stimulus, Chinese Bounceback? China & Coal, HSBC, Huawei vs TikTok and more

MARKETs at 1:15pm Hong Kong time
JAPAN opened higher as Tokyo inflation data beat forecasts and market has worked higher all day Currently +1.6%   Sony results due after market
S KOREA  Pre market inflation data missed but Kosdaq opened higher and has traded sideways currently +0.6% and the Kospi also opened higher an initially rallied but drifted lower from midday currently +1.1%.
TAIWAN opened higher with some initial bargain hunting after yesterday’s weakness and has worked higher through the day currently +1.3%
CHINA opened lower and saw choppy trading morning low was 4,755 before rallying to 4,807 and then back down again. Just opened after lunch and retesting the lows Currently -0.2%
HONG KONG Opened higher +207pts @ 24,665 vs +59pts ADRs and then traded sideways into lunch which looks to continue into the PM Currently +0.8% @ 24,660Earnings at lunchtime include Lifestyle (loss),  Lee & Man (profit -20%), L&M Chemical  (profit -61%), HK Electric (Net profit +14%)
EUROPE Expect the markets to open higher with covid and earnings in focus. Eurozone PPI and the French Budget Balance the only data due.
US Futures opened flat but with Asian markets generally moving higher expect a positive open Earnings and covid in focus.  Data due includes Redbook, ISM New York, Factory Orders, IBD/TIPP Economic Optimism, Factory Orders Ex Transport, API Crude Oil Stocks.

US chief executives call for end to political deadlock on stimulus. Economy fears grow as Starbucks founder organised a letter that was signed by over 100 executives including those from Alphabet and Walmart to try and get the two sides of Congress to agree a deal. The sticking point seems to says the FT that 'Democrats want the unemployment top-up to continue all next year, while Republicans have argued that too many Americans are now earning more from benefits than they were at work.’
Business leaders are obviously worried about the impact on their businesses as a second wave of covid cases hits.

China’s factories lead Asia bounceback. Looks at the PMI data out yesterday which showed activity hit its highest level in nine years while Japan and S Korea also improve. The China notes said “Overall, flare-ups of the epidemic in some regions did not hurt the improving trend of the manufacturing economy, which continued to recover as more epidemic control measures were lifted,” said Wang Zhe, senior economist at Caixin Insight Group.
But the fact that we have seen a resurgence in the number of covid since the data should raise some concerns and it is also notable that retail sales continue to struggle which suggests that individuals are less confident about the recovery than companies.
Which could be due to the fact that some companies has cut staff to improve efficiency. The export element may also be subject to weakness as more countries see second waves.

Beijing bucks global trend of departure from coal power. 
Data shows that China has expanded its plans to build coal power stations in contrast to other nations like Vietnam (due to funding delays and local opposition) and Bangladesh (overcapacity). Whilst Europe has actually closed some coal fired stations. For many countries the fact that it is a cheap fuel makes it hard to resist which is something that will not change in the near future. It also underlines that China still runs on cheap; be it fuel or labour, a lot of industries are on tight margins and whilst it is seeking to move up the technology and added value ladders, it is not there yet. Some things are state of the art but many are not.

Far east rebuff to Putin takes on a festival air. Looks at the Khabarovsk rallies which seem to expose the weakness in president Putin’s centralised method of rule. Another example of leaderless protests. The key here is that they are peaceful but the mood is that to quite the FT “People here are different, and we don’t want to be told what to do by Moscow.”
At present Putin does not see them as a threat. They are protesting at what is seen as the political arrest of Sergei Furgal. Many will be be watching with interest; and not least China I would think bearing in mind the situation in Hong Kong. It will be interesting to see if the peaceful protests are successful and then whether they provide a template to others to follow. Peaceful protests for change.

Australian university in censorship spat over Hong Kong. Looks at the impact as a result of temporarily removing an article entitled “China Needs International Pressure To End Hong Kong Wrongs” from its website over the weekend after pressure from Chinese students and state media. It later reversed the decision. But the article says it highlights how Beijing seeks to interfere with free speech outside China and influence Chinese students abroad. The article was calling for a UN special envoy to monitor the decline of human rights in Hong Kong. The article notes that the university has not said why it took the article down and that the Chinese embassy in Australia declined to comment on the matter.
It does appear that free speech is under pressure from many quarters at present and that can only be to the detriment of well informed discussion on matters that will impact all our futures.

HSBC profits plunge 96% on huge loan-loss provisions. Looks at the results and the outlook. The share continue to track lower in Hong Kong trading this morning. Key in addition to the provisions was the fact that the CFO said they were expecting a much sharper V shaped recession with recovery being pushed out to 2021. It faces Covid, Brexit and an uncertain relationship with China; although I think that relationship is better than many think in the short term. Whilst the renminbi remains unconvertible then HSBC remains an important link to international finance and still has advantages over the Chinese banks. Without doubt they are catching up but in the short term the media worries seem overdone.
LEX HSBC: more steel than Flint Mr Quinn is doing well but still thinks that Standard Chartered is a better option for investors

Huawei is a prize worth defending but China can ignore the US crackdown on ByteDance. Contrasts the two companies relationship with the Chinese government. Huawei which is seen as a supporter of the government vs ByteDance which is seen as a difficult entity to control. ByteDance’s founder is not on the national political advisory body, unlike his peers at Baidu and Tencent. As Huawei products are build into national networks it is seen as a builder of long term economic relationships between China and other countries but TikTok is not viewed in the same light.
An interesting read. The key is that for some Chinese ecommerce entrepreneurs they are seeing the opportunities to get rich shrink as China tightens up domestically and international relationships sour.
Nice quote “Chinese start-up founders do not want an alliance with China’s government. They just want to create something big and make a fortune,” said the tech executive who had worked with ByteDance’s Mr Zhang. “Since the Communist party tightened its control at home over the past few years, those entrepreneurs looked to foreign markets. Now they have few places left to go.”

Microsoft faces hurdles in pursuit of TikTok. US group has just weeks to agree deal for the China video app that satisfies all sides. Whatever happens its going to be an interesting deal, not least because now Trump has said that the US treasury should get some of the sale price for having made the deal possible. Other complications are likely because TikTok seems to be so outside the normal sphere of operations for Microsoft but could open up an expand areas that it has previously lacked in.
The business unit covers the US, Canada, Australia and New Zealand and is not currently profitable and about to face new competition from Facebook’s Instagram Reels. There will also be the technical difficulties regarding the code and algorithms which it shares with its Chinese sister app Douyin.
It is an interesting article and well worth a read and watching; Microsoft’s share price was up on the news Monday.
Also read the Editorial TikTok US sale shows fracturing of the internet Forced disposal of Chinese app in America marks a turning point. Makes the point that it would be good to have global standards for privacy, data storage etc but that is unlikely to happen.
LEX Microsoft/TikTok: racing against the clock. An interesting read; it notes
'Mr Trump’s threat to close TikTok in the US is questionable pragmatically and legally.
A bid from a US stalwart such as Microsoft would give him an elegant off-ramp from brinkmanship, assuming China acquiesces. A deal would only fuel controversy about the dominance of Big Tech.
It would bolster claims that digital giants not only amplify the influence of host nations — they can also be arms of the state, even in democracies.'

China aims to level field of digital pay The People’s Bank of China is hoping its new digital currency which it is trailing in several cities will reduce the dominance of Alibaba and Tencent in digital payments. In Q1Alibaba controlled 55.4% on the Chinese mobile payment market. The new currency is coming as ANT Group is looking to dual list in Shanghai and Hong Kong. It seems that Beijing is concerned about the strength and dominance of the private sector in this area and notably over the information it generates about individuals; for example being able to give a better credit insight than the governments system. Key is that the new digital currency will only be a small part of the payment network it is the technology behind the payments systems that have be key and I think it will continue to be so.
What the digital currency could do is help with cross boarder payments and help with the internationalisation of the renminbi or at least provide an alternative to the US payments systems. Worth a read

Tanking up 7-Eleven owner to buy Speedway fuel retail business from Marathon for $21bn. Seems to make sense for 7-Eleven to seek news markets outside Japan although the initial price surpassed the market and 7-Eleven shares sold off on the news yesterday. Execution remains key but longer term I think it makes sense.
LEX Seven & i/Speedway: pumped up. Is wary of the deal. 'Unimpressed investors rightly sent the share price lower yesterday. Marathon’s deal makers came out on top in this negotiation.'

SocGen falls to surprise quarterly loss as equities arm feels pressure. More pressure on the management as it takes more provisions against potential bad loans. The company renewed it pledge to cut risk and strip costs from its equity trading division and said it would reduce the risk profile on equity and structured products in order to decrease sensitivity to markets. It reveals that Soc Gen is still a major derivatives player rather than straight equity. Compared to the US banks which saw good returns from their traders. As ever with derivatives they are great when they work but the downside for failure can be crippling. Worth noting that the fixed income trading saw good growth.

For Interest
Fatigue plagues thousands suffering post-coronavirus symptoms Long-term problems have become mired in controversy over causes and treatment. Another article that shows how little we know about covid-19 and how different it is from previous viruses we have known. It will be interesting to see over time whether the vaccine and cure when discovered can also treat the after effects of the virus. It also suggests that the virus has a far greater impact on weakening our bodies than other diseases.
Also read Opinion We must not wait idly for an elusive Covid-19 vaccine. Stresses the need to find practical ways of dealing with Covid-19 before a vaccine in that replace lockdowns. Notes that one size will not fit all but that it is needed before the next pandemic post covid-19. 'a package of behavioural and drug-based interventions will have saved many lives and will strengthen our preparedness for the next crisis, Pandemic X, which will surely come.’ Worth a read

Spacs thrive but investors should beware meagre information. Looks the historic dangers of Special purpose acquisition companies (Spacs) and how some of the new ones have sought to address those issues. Key summary 'But at a time when stock markets are booming and companies, rattled by the pandemic, should be turning to equity markets for capital, it is hardly a ringing endorsement of efficient markets that such a cumbersome invention as the Spac is the thing that is thriving in lieu of IPOs.’

US seeks to close chip production gap Nation leads world in semiconductor design and equipment but accounts for just 12% of supply.
Increased concerns as the relations with China worsen. It notes regarding TSMC;
At the centre is Taiwan’s TSMC, a “foundry”, or pure manufacturing company, which makes chips for US groups such as Nvidia, Qualcomm and AMD.
“Taiwan’s ‘silicon shield’ makes it the 51st [US] state,” said Mr Hutcheson, referring to the theory that the country’s leadership in chip technology is its best defence against aggression from China. “The US needs to protect Taiwan — it can’t afford to lose it to China.”
Hence the shock last week that Intel was a year behind schedule regarding the next generations of chips and the needs to outsource to TSMC the world leader.
An interesting read and worth noting that if the US is behind think how much further China is behind and desperate for the technology that is so expensive and difficult to master. This is likely to be the key battle ground between the US and China in the future because as Hawei is finding out without chips everything stops.

Alt data industry balloons as hedge funds seek Covid edge. Everything from social media to R number is being tracked, but some question the value. Notes the increased use in such data that can often give a quicker insight than government data and it also highlights that some government data is no longer as useful as it used to be. But it also notes the other side of the coin. To quote
'Anthony Lawler, head of GAM Systematic, said his firm used alternative data but such information had not been behind his funds’ gains last year, nor had it driven markets this year.
“Daily credit card data or footfall data didn’t lead the recovery in [stock] prices. What led the recovery was investor sentiment, animal spirits and a belief in a better future,” he said. “For none of that could you use innovative photographic, credit card or shipping data. We remain of the view that alternative data is creating value for the data providers, but not yet the investors.”’
An interesting read.

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