July 22 FT Trump now worse before better, HK cases -VE, HKEX top but, Chinese spying, and more

24 Jul

July 22 FT Trump now worse before better, HK cases -VE,  HKEX top but, Chinese spying, and more

Markets at 3:30pm
Market opened lower as expected PMI data was slightly better than forecast. Covid concerns remain. Market then traded sideways/lower through the day Nikkei closed -0.6%
S KOREA Markets opened around flat. Kospi trade sideways around yesterday’s closing level and closed -0.01%. The Kosdaq initially dipped but rebounded and then traded sideways lower above yesterdays closing level. Saw a small bounce at the end to close +0.6%
TAIWAN Opened higher and traded sideways just above yesterday’s closing level to finish +0.6%
CHINA Opened lower but was driven higher through the morning to the day high 4,790 shortly before lunch. Selling pressure in the afternoon saw the CSI 300 give up most of those gains. Team China in action dispelling concerns of China being excluded from the US Swift payments system or any other troublesome issues. CSI 300 closed 0.5%
HONG KONG HSI Pre Market -60pts @ 25,575 vs -11 pts ADRs @ 25,524 With weakness in E commerce names after yesterday’s strong rally. Petrocehms firm as oil rallied. Market saw initial weakness but then rallied through the morning following China, hit resistance at 25,760 despite trying a couple of times. Sold back down to flat at lunchtime. PM saw more selling the market is trending lower. Currently -0.5% Wirth 30 mins to go.
EUROPE Expect market flat as covid dominates and Trump admits its going to get worse before gets better. No data so market focus will be results, covid and US/China relations.
US Opened flat (-6pts ) but moved higher through the day currently +128pts with the S&P and NDX moving higher too. Pre market reports from Biogen, Baker Hughes and Nasdaq. Then after the bell Microsoft, Tesla, Chipotle Mexican Grill, CSX and Las Vegas Sands report today.

Trump says coronavirus will ‘get worse before it gets better’.
A big reversal in his attitude but unlikely to be admitted. He will also resume the daily briefings on covid.
Yesterday’s meeting got the process under way and was briefer and less combative that the previous ones. Seems he has finally realised covid is important to his re-election.
He’s even backtracked on mask wearing. ‘When asked why he did not wear a mask in public more frequently, Mr Trump removed one from his pocket, saying: “I do actually do it when I need, I mean, I carry the mask.” ‘
It’s interesting that it comes as some have been outwardly hostile to Dr Fauci who has been steady in his approach which may reflect how serious the situation in the US is getting. That could put a lid on the recent recovery and that the prospects for a V shape recovery are not as good as some had thought.

Quarantine exemptions blamed for surge in Hong Kong cases Executives among those granted special treatment in bid to maintain economic growth. It included initially this in the shipping, aircrew and truck drivers but then was expanded and included business executives of large listed companies. As yet the administration has not identified which groups have been responsible. The article also notes that there may have been some complacency by the public although I think that would be reasonable if you believe that the administration has closed most of the boarders and is controlling those who travel.
Getting it back under control will now be difficult. The administration will now also face further backlash from the public over their inability to keep Hong Kong safe.
It also reflects that even whilst we are seeing progress in the development of vaccines and cures we still know very little about how this virus really spreads.
That for investors should mean showing some caution with regard to the V shaped recovery. Especially as a number of medical parties are saying that covid combined with the annual flu this year is going to put a huge strain on facilities during the annual flu season in the autumn.
Also read Hong Kong cases soar as restrictions relaxed which notes that 'a decision by American and United Airlines to cancel flights to Hong Kong over the subsequent introduction of mandatory testing of arriving crew neatly illustrated the dilemma for local authorities.’ The lack of common standards being adopted by all countries and companies.
See in the print edition
US virus testing will hit crunch point in autumn, warns lab group. Quest and LabCorp who are testing companies are currently struggling to get results out to people within a week which means that the results are almost useless because by the time the results are received the person has pasted the point of being infected. This is going the be a huge issue in the US as flu season approaches; because as the article says, you want to be able to distinguish one from the other!

Hong Kong is world’s most valuable bourse again. The stock was up 9.5% Tuesday although its dropped back today. Key driver has been the intention of some of China’s latest ecommerce companies to dual list in Hong Kong. Its also been helped by the US action to pressurise Chinese companies listed on the Nasdaq to look at alternative listings due to US government pressure. The move by Ant ticks boxes for China; it's a national champion but still needs access to offshore capital. SO listing in Shanghai and Hong Kong works. The big threat as I see it is still Trump weaponising the USD. Talk yesterday about barring China from the Swift system highlights China vulnerability on this; especially as it's focused on Hong Kong. Where China’s actions over the new security law have caused international rebuke.
So at the moment everything is roses for HK EX as it ticks the boxes for China. But the USD is the ultimate Trump card.

US accuses Chinese hackers of targeting virus research. Comes as the US says the two have been hacking for 10 years, aiming to steal trade secrets. The length of the scheme only came to light earlier this year and highlights how naive many governments and companies may have been. The article doesn’t detail how much the two manage to steal much in that time but the article says 'the two accused men were prolific hackers and had been sheltered by the Chinese government, allowing them to hack for their own benefit in return for providing services to the state when needed.’
Worth noting that neither is in custody and are thought unlikely to travel outside China. China continues to any involvement or association with such activities. US investigators recently found that the hackers were targeting companies in UK, Germany , Japan and Australia. Much of the data was aligned with China’s goals for ‘Made in China 2025’. It was military, commercial and also involved data on human rights activities and Chinese dissidents.
Being announced now as the US seeks to embarrass China over its New Security Law in Hong Kong by showing that China really doesn’t care about other people’s security only achieving its state goals….. by what ever means rather than domestic hard work.

Brands buy from group in Uighur dispute Esquel denies allegations linking its subsidiary to forced labour in Xinjiang. The article looks at how a number of US brands have been caught up in the US sanctions. It follows work from Australia on the issue too. Key is the Chinese practice of using forced labour often of ‘criminals’.
Esquel says it allegations are false. But it will all come down to the definition of forced labour. Another move designed to illustrate the vagaries of the Chinese system and the grey areas in its legal system.
Read also Pompeo urges London to join ‘broad alliance’ against China. The focus at present is related to the oppression of Uighurs not Hong Kong at this stage. The US is seeking allies in its approach to China and it will be interesting to watch and see of this is a real change in US policy. The article notes that at this stage sanctions were not discussed but that it was about getting every country including China to act within ‘... an International system in ways that are appropriate and consistent with the international order.”’
It does note that Pompeo and Johnson discussed Huawei and Hong Kong too but those are more difficult issues to address at present. But investors should be aware that they are another overhang for the markets. It seems that the current US approach is to maintain a constant drip feed of issues to keep the Chinese administration under pressure.

Alibaba aims to extend reach of streaming model. Division that targets global shoppers looks to sign 100,000 content creators by April. Livestreaming a mix of marketing and entertainment popular in Asia. Rather like QVC but done by influencers. Its success has helped fend off moves by Pinduoduo to eat into its market share. It is also hoping that it will help its struggling Lazada platform too. The question is where the model will work outside China where is has been so popular. The article notes that 'AliExpress’s livestreamers fall short of the glitz and panache that influencers bring to Instagram, YouTube, or Alibaba’s Taobao feeds.’
It’s rolling out in Europe too.
It's following Amazon and in China; ByteDance’s Douyin and Tencent’s Kuaishou. In China it runs on a commission model but elsewhere the model varies. One issue is language in China everything can be done in one language but outside China then it becomes more of an issue.
It will be interesting to see whether the appeal of live-streaming continues once covid lockdowns are eased. Like many things I suspect that it too will find a niche.

Virus-led sugar merger shows Japan Inc how to bury old rivalries looks at the talks that could see Mitsui Sugar and Dai-Nippon Meiji Sugar merge along with Nippon Beet Sugar Manufacturing that would see an unprecedented group with a sector that for so long has been heavily protected. It could also herald changes in other sectors that might end Japan’s well know ‘vested interests’ which have for so long stifled consolidation in Japan. It will be watched closely by investors coming as it does just after the Line/Z Holdings deal hits the headlines as minatory shareholders complain their interests are not being protected. There are other deals out there being undertaken but historic resistance will be difficult overcome in my view, even with the current pressure. A change in management attitude though would be extremely positive for Japan Inc.

Australia and China share ‘knowledge boom’. Looks at how well things have been going recently in the field of research. With China being the country that Australia is most actively engaged with. This is despite concerns from Canberra about espionage, hacking and theft by foreign parties; especially China. Much of it has happened over the past year as the US has de-coupled from China. But the article notes that in many fields China has become ‘a hub of global knowledge creation’
Canberra has been more active in monitoring links of late.
I think that once again you see the care with which China needs to act. It has threatened Australia over the Covid-19 investigation but China remain reliant on Australia for Iron ore and other products, not least access to research co-operations if it is to continue to develop.

Silver surges to 6-year high as buyers bet on crucial role in ‘green recovery’. It has recovered more than 70% from its March low and out pacing gold. Key being that silver has a lot more industrial uses than gold. Both metals are said to have further run. I prefer gold because I’m thinking we are going to get inflation sooner rather than later due to the amount of stimulus, I’m watching for an increase in the velocity of money too. Both metals have become more popular due to the availability of ETF’s which has made buying them easier. The miners are still an option but ETF’s appeal to momentum players. It is quite likely that we see Platinum also having a run shortly.

LEX Asian techs/Hong Kong: taking sides. Looks at Naver’s decision to quit HK, which it sees as a good move. I’d agree. Makes the point that the ire of Beijing is negligible relative to the potential gains in the US market.

For Interest
‘Blank-cheque’ hotshot thrives in crisis year. Looks at the rise of SPAC shell ventures. Special purpose acquisition companies. The latest craze on Wall Street as a credible alternative to a an IPO.
Nice quote '“Spacs are a good idea but the terms have historically been very investor-unfriendly and too promoter-friendly,” according to one sponsor who has previously launched a vehicle. “It’s a structure that has a chequered reputation because the underwriting fees are enormous, the promoters can end up with a lot of stock and it used to have a bad record.”’
Worth a read.

FT BIG READ. US ECONOMY The long route to a full recovery Is America’s rebound already over? A rise in coronavirus cases in many of the country’s biggest states is damaging consumer confidence and raising the stakes in talks over another federal stimulus package. Another article the reveals that whilst Wall Street may be rebounding Main Street isn’t and the prospect is for more of Main Street to fail.
It shows the importance that the next round of Government stimulus is targeted in the right space.

Opinion The mysterious death of the market rentier (a person living on income from property or investments). An interesting read.
Looks at a recent paper by 'economists Joseph Kopecky and Alan Taylor in a recent paper called “The Murder-Suicide of the Rentier”. It tries to untangle why risk-free interest rates have collapsed during the past couple of decades, and finds an answer with important implications for both the economy and the returns that stock market investors can expect in the years to come.’
A play on the Keynesian comment, who predicted, in 1936, the “euthanasia of the rentier” 'As technology advanced, populations declined and the capital stock grew larger, Keynes imagined that interest rates would dwindle to the point where rentiers — traditional coupon-clipping investors, living off interest in their country homes — could no longer survive.’

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