July 28 FT USD weakness, HK Banks sanctions hit, Tech fizzle? Evergrande and more

30 Jul

July 28 FT USD weakness, HK Banks sanctions hit, Tech fizzle?  Evergrande and more

MARKETs at 1:45pm HK time
JAPAN opened flat an initial worked better. Around midday is sold back to flat and current ly trading around yesterday’s close. Currently -0.1%
S KOREA Market opened higher and initially rallied but then trended lower from around 11am Kosdaq currently +0.4% having bounced of flat and the Kospi +1.4% which is starting to trend higher again.
TAIWAN Market opened higher but traded lower and now trading around flat currently -0.3%
CHINA Market opened higher but initially sold down, then bounced back then sold down into lunch. PM trending lower again Currently +0.5%
HONG KONG Opened higher but trended lower through the the morning and into the afternoon. Currently +0.4%
EUROPE I would expect Europe to open flat again with investors watching US/China tensions, new Covid cases and earnings.
US Futures opened flat. Another big day for earnings and investors will be watching covid cases. Gold expected to continue to rally and traders to be cautious as the FOMC two day meeting starts.

Xinjiang reported 57 new Covid-19 cases Xinjiang Monday
, its highest one-day tally since an outbreak was reported there two weeks ago. A separate outbreak in the north-east province of Liaoning also grew with a further 6 cases of Covid-19,
Beijing says it has one new case linked to the Dalian outbreak.
It really is quite amazing how few cases there are in China when the rest of the world is seeing such a dramatic up tick in new cases.

Dollar hits two-year low as gold soars on fears over virus-hit US.
As Gold prices rose rising questions over the US recovery. Which comes as the FOMC begins its two day meeting today. The lack of political consensus is a major stumbling point for the parties, no doubt made worse by it being an election year. It quotes Kit Juckes, foreign exchange strategist at Société Générale, who said: “The thing that’s changed in the last few days is that it’s not just gold that has gone up against the dollar, but almost everything. That’s partly driven by a sense that the US is having a harder time controlling the virus than others, which will see the US economy underperform.”
The reality seems to be that having aggressively eased at the start of the pandemic and pumped dollars into the system it put downward pressure on the dollar. With the recovery now faltering that is adding to the pressure on the US. Investors will be catching tomorrows press conference closely to guage the reaction and intentions of the Fed going forward.

Foreign banks refuse accounts of senior Hong Kong officials. As part of the US sanctions HK officials are finding that International banks are no longer able to accept their business and that their accounts are being closed. It notes that the official said that US banks and HSBC were declining to do business with him and others due to the Hong Kong Autonomy Act. At the same Timothy banks are pushing regulators to determine is closing an persons account under the HK Autonomy Act would constitute a violation of the new security law.

Hong Kong tech index falls short of wowing investors and fizzles on debut. Looks at the less than impressive start for Hong Kong’s Tech board on a day when the wider market saw significant selling pressure due to the deteriorating US/China relations and Covid. It probably also reflected the caution about investing in Hong Kong when US there is still potential for more US sanctions. But the promotion of Tech in Hong Kong will see the further demise of Property, Telcos and Finance as the drivers for the Hang Seng. The Tech is Chinese and it is too early to say whether it will gain enough prominence to become a global tech hub but it further cements Hong Kong’s place a the preferred listing venue for Chinese tech companies who need international finance. In the next few weeks watch for derivative products to become available too which will help. I still think there is the potential for the US to restrict US investors investing in Chinese Tech companies and until that overhang is removed there will be caution.

AstraZeneca agrees $6bn Daiichi deal UK group pays Japanese peer to develop potential breast cancer treatment. As ever the devil will be in the detail but the deal appears to allow to Daiichi to use the money saved to be invested in other drugs and for Astra to get the clinical data it requires. It seems to make sense that there should be more co-operation between drug companies in the future but ownership of the data etc will always be a sticking point.

Network trailblazers look to usurp Huawei. Open-source movement gears up to challenge grip of big equipment vendors.
Looks at the growth of ‘OpenRAN’ which is on the verge of launching a national 5G network without Huawei, Ericsson and Nokia.
RAN is Japan’s first new mobile radio access network for more than a decade being developed by Rakuten and it intends to upgrade it to 5G speeds in October. The development is being watched closely, to see if the open source network can work at scale. Traditional networks use proprietary hardware and software from the tradition vendors. OpenRAN is seeking to change that and Rakuten is not the only player out there investigating the concept.
Key it that it opens the playing filed to a lot more entrants to compete.
Detractors say it lacks scale and risks being over hyped. It is early days and it does need more investment; whether it gets it or not remains to be seen but it could be revolutionary. However as one person cautioned; it is low margin, difficult and with little risk capital.

Industry needs a rare earths supply chain outside China. China accounts for 80% of the globally mined supply of rare earths and an even higher amount of the powerful rare earth magnets. As such the US, Europe and Australia are now looking at establishing their own supply chain; which is focusing on Australia and Lynas Corp. But there are another 15 rare earth mineral projects that are struggling to get funding with private investors reluctant to get involved because of the barriers to entry. Namely the process to separate them from the dirt into the constituent parts which involves technical and environmental challenges. At a time when China’s dominance allows it to control prices.
So this week the Pentagon decided to provide funding to Lynas and US based MP Materials to develop processes to break the Chinese monopoly.
Whilst a good start there is a long way to go and further industry co-operation will be required, with western companies focusing they purchasing power on the new non Chinese companies. This is an area China has made its own and now the rest of the world needs to compete. It will take time and commitment but with the Pentagon behind it, it's got a good start.

LEX China property/ Evergrande: disconsulate. Looks at how office vacancies in China have risen to their highest in 10 years in Q2 according to CBRE. Even before covid overcapacity was evident. Covid has made it worse and US companies are delaying lease renewals as China/US relations get worse. That is spooking some foreign investors; debt financings are getting harder; funds raised by the sector fell 10% earlier this year.
Chinese developers look resilient; the housing market is buoyant and buyers enter lotteries for the chance to buy units. Evergrande the biggest raised tis annual sales target and its shares have double from their March low. BUT its looking to sell 200 properties including offices to reduce debt; which will be tough. Even if it sold all its commercial properties at current prices that would cover around 10% of its 2019 debt according to the article. Its debt to equity is currently 230%.
Evergrande has defied prophecies of its demise before. The nature of home building and pre-sales keeps the cashflow working but at some point it could stumble!

Store closures and travel curbs hit LVMH. 1H Operating profit -68%, even after cutting spending onshore leases, hiring and advertising. It was worst than expected. DFS was hit hard. They cut costs but didn't want to cut too far because they want to be ready for the recovery when it comes. It also notes that the ultra wealthy have continued to spend and do not tend the trade down when crisis hits; although it would appear that a number of their clients have judging from the results!

Pandemic sparks race to launch contactless touch screens for cars, shops and elevators. With concerns over touching services firms are looking at the alternatives. An interesting read.

OPINION Genocide or not, the Uighurs need urgent international support. Spends some of the article looking at the creation the word Genocide by Raphael Lemkin; He amalgamated the Greek word genos (tribe or race) and the Latin word cide (killing), to create it and then spent his efforts getting it recognised in the post WWII trials and elsewhere. The key point I think he’s trying to make is that wherever there is the potential of genocide taking place the world needs to act against it. The trouble is that it is not easy. It is amazing that the in today’s world of Facebook and TikTok it is still difficult to mobilise people into action against things like genocide but easy to get thousands of people to watch a swimming pool being cleaned! Something is clearly amiss and those carrying out atrocities are happy about that.

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