Aug 5 FT TikTok, Chinese Entrepreneurs, Aircons, Tokyo Olympics, Gold & Bonds

07 Aug

Aug 5 FT  TikTok, Chinese Entrepreneurs, Aircons, Tokyo Olympics, Gold & Bonds

MARKETs At 12:45pm HK Time
opened lower despite the PMI data being better than forecast. Market tended lower through the morning but re-opened higher after lunch but still in the red; trading sideways Currently -0.1%
S KOREA markets opened higher, Foreign Exchange Reserves beat forecasts. Markets worked high through the session, retail sentiment still +VE. Kosdaq currently +1% and the Kospi +1.1%.
TAIWAN opened higher having broken above the technical 12,700 level Tuesday. Did trade down to 12,740 mid morning but since then has worked higher +VE sentiment on Tech currently +0.7%
CHINA opened lower ahead of Caixin PMI data which missed and market sold down to day low around 10am. Since then has worked higher and just broke back into the green ahead of lunch Currently +0.2%
HONG KONG Opened +83pts @ 25,029 vs +60pts ADR’s at 25,006 despite the weak PMI reading. Initially sold down into the red but then rallied back ahead of the Caixin data, Sold down to morning low (24,868) after the data but then worked higher through the morning to 25,120 around 11:30am before drifting lower into lunch.
EUROPE Markets likely to open flat ahead of earnings. Services and PMI data duelling with Retail Sales for Eurozone and France
US Futures opened flat. Expect caution ahead of the ADP employment number also PMI and ISM data.

EARNINGS CVS Health, Humana Moderna, Wayfair, New York Times, Sempra Energy, Square, Zynga, Fitbit, AmerisourceBergen, Capri Holdings, BorgWarner, Regeneron Pharmaceuticals, Humana, Allianz, Cedar Fair, Tanger Factory Outlet, Marathon Oil, Etsy, Olin, Iamgold, Noble Corp, Wendy’s, CF Industries, CenturyLink, Varian Medical, Copa Holdings, American Water Works

Just a comment on US markets. Earnings season continues but has done well again albeit from low expectations. Markets have rallied strongly from March but the upside seems to be flagging and we may see a small (circa 10% max) short term correction in the near future; likely to be lead by the FAANG’s who now represent 20% of the S&P. If we do it is likely to be short-lived with many investors still cashed up. Key will be to focus on good companies with strong balance sheets.

FT print
Investors move behind Microsoft as TikTok defends sale of US arm.
ByteDance said it has ‘no choice’ as backers see deal as ‘only solution’.
Zhang Yiming, chief executive of ByteDance, owner of TikTok said “was not their purpose — it’s even something they [the US ] didn’t want to see — the real purpose was to completely ban [TikTok]”.
The deal hinges on Microsoft being seen as a safe pair of hands and once they have the code they can certify it and peoples data is safe.
Trumps move has seen some on Wall Street to advise the government against “expropriating” assets under the guise of national security. Also being debated was Trump’s call that some of the price be paid to the Treasury. Most view that as unlikely as it has no legal basis. The article also notes that China warned that other countries could follow the same the basis as the US to invoke similar measures against companies. Although I would think that using the premise of access to peoples personal data limits the number of cases as western firms already have strict rules in place. But it does high light the different view to personal data that countries have.

Chinese entrepreneurs ‘sacrifice everything’ to stay ahead of US. Contrasts the attitude of Chinese tech entrepreneurs to those in the west. It suggests that the Chinese ones are ahead not just because foreign competition has been kept out but because the Chinese are more ruthless. It’s an interesting read because I am sure an element of that is true but it is that ruthlessness in the west that is putting the position of Amazon, Apple, Facebook and Alphabet under the spotlight. It is also true that navigating the Chinese political system is also uniquely difficult. There is great competition in China just as there is in the West. The fact that China has been closed to foreign competition has without doubt helped that market leaders in China. One possible difference that I see is that the likes of Tencent partner with a lot of the app designers rather than compete or buy them out which maybe leads to more successful apps rather than the concentration seen in the West. But in both China and the West it is every app’s intention to own the customer base. In the West there are more rules now in how much data you can ‘own’ from users. Even China knows that and has tried to limit Alibaba and Tencent’s ownership of data and the government want to be able to access that too.
In my view entrepreneurs are motivated people; some by money, some by other motives but whatever it is; they are driven. Nearly all start in their home markets because that’s where they identify the niche that sparked the idea in the first place. Surviving competition, regulation etc, etc is difficult the world over.
Also read FT BIG READ. TECHNOLOGY Tech cold war comes to India. Chinese groups have invested heavily in the Indian tech sector. But as political tensions between New Delhi and Beijing increase, American companies and investors believe they have an opportunity.
Chinese tech companies were successful in India but that landscape has now changed. But then they started they can with deep pockets and knowledge about how to scale fast and penetrate deep. That it seems is the real key to success in the tech world.

Tokyo Olympics chief rebuffs doubters Chief executive is adamant games will take place but admits costs must be cut. Wants to deliver the games with or without covid being present. The article notes the one year delay creates additional problems not least that of keeping staff on for an extra year. It also notes the delay has meant increased government influence rather than it just being the responsibility of the city of Tokyo. But cost cutting and control are key along with additional sponsorship and funding. Going ahead will be tough for all concerned. Should a vaccine and cure be found in the meantime then the outlook will be much brighter in the meantime concerns will remain.

N Korea increases illegal coal exports as worst slump looms. Using images from the group 38 North it seems that the coal export trade is increasing with most expected to be going to China. The money raised is through to be going to the nuclear arms programme rather than being spent on the North Korean people. The news does put China in a difficult position of sanction busting and adherence to international standards. Whilst most understand China’s want for North Korea to be a buffer the hardship being felt by its people does raise concerns about whether the cost justifies the means.

Gold hits $2,000 as buyers seek crisis haven. Hitting a new high on Tuesday; the article looks at the background to this year’s moves. With many expecting it to benefit further if inflation returns to the US; although the bond market is indicating that inflation prospects are low. The allure of Gold has risen as some government bonds are now offering negative interest rates.
It notes that despite the recent rise gold is still an under owned asset relative to stocks and bonds; with most investors having under 3% of their assets in the metal vs 6.2% in the 1980’s.
I think inflation is coming and that it makes sense to have gold. One key reasoning that during the GFC when the Fed made a lot of money available, that money went to the banks and not direct to individuals. This time around it is not just the Fed making money available to the banks, a lot of that money is going to companies and individuals. Add to that the money that is going direct from the government to individuals and the scenario becomes a very different one to that during the GFC and hence I think the potential for inflation is dramatically increased.

LEX China air conditioners: uncool. Looks at how Gree Electric Appliances and rival Midea. Sales in China have been dropping partly due to stores having been shut and partly over fears that they spread covid. Gree expects 1H 2020 to show a 50% decline.
It notes that foreign buyers however have bought into Midea up to the foreign ownship limit. But local investors have been less optimistic and Gree’s shares are -16% YTD
Whilst there is a good story behind aircon units in China, growing middle class and improving living standards (Chinese demand was 40%of global demand) but Lex sees aircons as unsexy like washing machines which squeeze margins especially with the requirement to make units more efficient (another reason to defer purchases). It notes that Gree and Midea look pricy trading at 15x forward earnings a 50% premium to Whirlpool. Basically -VE
It’s also interesting that Diaken in Japan share are trading just below its year high. It has made a push into improving the filtration and new air circulation of its models. LG and Samsung have also made improvements to their designs in response to Covid. Maybe its time the Chinese followed suit. In the meantime I still like Daiken trading near a five year high but showing good innovation and cost control.

For Interest
Bonds set for rockier road when fiscal support tails off. Looks at how well credit markets are doing despite the gloomy GDP data coming out. Notes how central banks have helped but that key is government fiscal policy; including relief on tax and interest, but the most important wage support.
It notes the plunge in USD and surge in gold which may indicate investors are questioning the value of cash. Plus the potential for inflation although bond markets point seem to be indicating that and many investors are ignoring to too. (I still think its coming).
It worries about fiscal policy fatigue and what happens if the fiscal supports are taken away.
Worth a read. Key point is that to quote 'So for credit markets, it will probably get harder from here. Currency and commodity markets are showing that massive monetary and fiscal efforts are not cost-free.’
Read also Google parent secures knockdown borrowing costs in $10bn bond sale
And the Editorial How to adapt furlough schemes for phase two Emergency measures to support jobs are set to be here for the long term

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