July 3 FT More on HK's new law, Taiwan/Somaliland, Korean BioTech and more

09 Jul

July 3 FT More on HK's new law, Taiwan/Somaliland, Korean BioTech and more

Market opened higher, helped by good Services and Composite PMI data but drifted lower to almost flat with the normal caution ahead of the weekend
S KOREA Markets opened higher, saw some initial selling before the Kosdaq worked higher whilst the Kospi traded sideways.
TAIWAN Opened higher saw a slight dip but worked back and then sideways, The positive outlook for Tech remains a key driver
CHINA Market opened higher and the Caixin Service and Composite PMI data was better than expected which saw markets move higher but then trended lower in choppy trading, with anumber of the troughs below the opening level.
HONG KONG Pre Market +195pts (+0.8%) @ 25,319 vs -17pts ADR’s @ 25,107, after the initial short squeeze the market sold down to 25,200 level still significantly above whether the ADR’s indicates then trended higher into lunch
With turnover elevated from normal levels; especially considering that the US markets are closed and many US night traders are off, so being similar to yesterday’s levels I think shows Team China is at work. The recent norm for Friday’s has been for the market to sell down into the close as investors are cautious ahead of the weekend. It will be interesting to see if that happens today, especially with the potential for some protests over the weekend.
EUROPE I would expect to open slightly higher following the +PMI’s and moves in Asia
US Markets closed re-open Monday

Australia set to offer Hong Kong haven in response to the imposition of the new security law on Hong Kong Australia has decided to offer safe haven to HK residents; although it hasn’t set out the details yet. It’s doing so because it feels that the new law os a ‘serious breach’ o the UK-China handover agreement. The move is likely to further annoy China at a time when relations with Australia are already at a low point after Australia backed a call for an investigation into the source of covid-19. The fact that China is still resisting this does raise a number of questions regarding why it doesn’t want to show the world the truth.
The article mentions how China reacted to the UK offer to BNO passport holders of possible UK citizenship. China said that “If the British side makes unilateral changes to the relevant practice, it will breach its own position and pledges, as well as international law and basic norms.’ China seems to saying that whilst it is alright for China to make changes; it isn’t for other countries.
It illustrates the fact that for many years the International community has allowed China to play by the rules it likes and ignore those it doesn’t and the rest of the world has allowed it to do so; usually because it wanted access to China’s domestic markets. It also illustrates that the international assumption is that everyone will play by those rules and there really isn’t a mechanism to ‘force’ anyone to abide by the rules if they don’t too.

Financial hub weighs impact of security law Some businesses welcome return to normality but others fear for rights and freedoms. Another look at the new law.
It’s also interesting because the photo shows a police officer pepper spraying an individual who is clearly a press photographer. Which for many illustrates the fact the the press freedom is clearly under threat. No mentioned in the article but also under question is whether legco still has privilege or whether statements made in the chamber are subject to the new law?
Key is that whilst the law has only been in force for two days now, many are realising how far the new legislation could reach. For those that deal with Chinese government entities; does anything said in such meetings constitute a state secret? Will people avoid meetings and conferences in Hong Kong because of comments they have made in their home countries about China?
The requirement to hand over user data about third parties. The new body has the ability to freeze or delete peoples social media contact in a territory where Twitter, Facebook and Google have offices. Many worry that it will not be where your data is but how much leverage can be brought to bear.
It mentions that some think Hong Kong will remain a key hub for China because the renminbi is not fully convertible which I think is true. I also think that is why the HSI has rallied strongly; as Team China buys the market to show that the new law is good for the HSI. The problems comes when Team China isn’t there.

Opinion Hong Kong law threatens freedom of information by Victor Mallet
Notes that the freedom on information and I would add discussion, are critical in guarding the other characteristics of a free society. He notes that the law is not ‘a bolt from the blue’ he knows from personal experience after having his visa extension refused for hosting a talk by Andy Chan 'a young politician who has campaigned for the territory’s independence’ and that was at a time when it was not illegal to discuss such matters; because them 'Hong Kong’s Basic Law, the territory’s mini-constitution, guaranteed “freedom of speech, of the press and of publication; freedom of association, of assembly, of procession and of demonstration”.’. The new law purports to maintain those freedoms except with regard to freedom of speech over topics that Beijing doesn’t want even discussed. Worse is that the new law allows for secret trails and for mainland ’security agents’ to operate without accountability to the Hong Kong administration or its laws. He notes 'Its wording is so imprecise, its reach so extensive and its penalties so severe that it allows for the prosecution and imprisonment of anybody — including foreigners overseas — for crimes that are defined, prosecuted and judged by Beijing.’
He makes the point that
'The media’s job is to expose corruption and abuses of power and hold governments accountable. This law makes that job more dangerous and difficult in Hong Kong. Although Beijing’s supporters assert that the new law will be enforced with a “light touch”, such assurances are as worthless as the article in China’s own constitution that says the state “shall respect and protect human rights”. Remember Li Wenliang, the Wuhan doctor who warned in December about pneumonia cases which turned out to be early manifestations of coronavirus: he was accused of “rumour-mongering”, forced to retract, and later died of Covid-19.
Had Li been in Hong Kong at the time, his warning would have been widely publicised and may have saved us from a pandemic. The new national security law, by restricting free speech, sadly makes that outcome less likely today’

Taiwan and Somaliland risk China’s ire with links. Looks at how the two linking up. China will be upset because it does not recognise Taiwan for the independent country that it is and continues to assert that Taiwan is just a province of China that should be under Chinese control. Additionally because it means that despite all its efforts in trying to build up its presence Africa not everyone is believing that China is the best way to go.
I still think the Chinese threat to take Taiwan by force is real and may have been brought forward by China’s decision to implement a national security law on China. I think that the international community has to make very clear that its stands and recognises Taiwan as an independent country.

Delistings threaten Singapore exchange’s challenge to HK was in my note yesterday. But that basically Singapore doesn’t have the linkage to China that Hong Kong does. I think that whilst Singapore could become a regional HQ hub for many companies but few with look to transfer their listing to Singapore. Hong Kong is largely about Chinese companies looking for international capital. For them Hong Kong is the place to list, especially now as China has tightened its control over the city. For non-Chinese companies listed in Hong Kong there is little incentive to move either. As long as investors still recognise Hong Kong as an accessible and honest market why move.

Soaring South Korean biotech IPO fuels concerns of bubble in sector. Notes that yesterday’s debut by biotechnology group SK Biopharmaceuticals saw the sock rise 30%; which is the maximum allowed under the exchange rules. The sector has seen significant interest since the regulator banned short selling of the sector in March. Since then it notes 'Shares in Samsung Biologics, Celltrion and Celltrion Healthcare have doubled or tripled and now trade at eye-watering valuations. The market capitalisation of the trio has surpassed $100bn following the rally.’ Trading now at around 80x the next 12 months earnings; valuations look overdone and many expect a sharp correction at anytime but I would guess especially if the short selling ban is lifted. The sector seems to be in the focus on retail investors who are hoping that one of these companies will discover a vaccine or cure for covid-19.
The ban was brought in in response to the large amount of short selling that was occurring as many questioned its valuations back then!

For interest
Investors have every right to be nervous about US election.
Looks at how the polls have reverse position from the begining of the year when the stage look set for Trump to be re-elected. Now that looks a lot less certain. It is also possible that the Democrats could win control of both chambers as well. Historically a Democrat victory is less conducive to equity markets but it could be the forthcoming election could be more about a 'crisis that tests US democracy itself, such as Mr Trump losing but refusing to step down, or grimmer scenarios of civil unrest.’ That really would upset investors.

FT BIG READ. MARKETS The death of a day trader The suicide of Alex Kearns — who thought he had lost heavily on an options bet — has triggered calls for reform of the online brokerages that have attracted millions of new investors since the pandemic struck. Looks at the rise of day traders and the fact that many inexperienced people are engaging in day trading which has taken on the mantle of a game. A worrying read.
The impact should not be underestimated as one fund manager notes in popular retail names like Tesla one have to take into account what retail investors are thinking. That has long been the case in Asia, where a large percentage of people have stock investments and trade them because there were no government pension systems. Part of the reason insurance companies are doing so well in China is people looking for structure saving and pension products that reduce the need to play the markets.
Central dealers in Asia have long needed to be aware of the retail impact. These are not generally people who read 40 page research reports on companies but react to what they hear or read in the press. Some years ago I remember Hutch and Cheung Kong seeing a big ‘flash’ sell down as a result of a local paper saying that Li ka-shing had been taken to hospital.
Some interesting observations from the article.
'Study after study demonstrates that the overwhelming majority of day traders end up losing money. An examination of retail investors in Brazil between 2013 and 2015 found that 97 per cent of those that traded for at least 300 days lost all the money they had put up. Only 1.1 per cent made more than the Brazilian minimum wage.’
It also notes that 'Research by neuroscientist Hans Breiter shows the same part of the brain activated by drugs like cocaine is also triggered when a person anticipates a financial gain. That has been supercharged in the new era of online trading platforms.'
The increased prominence on Tik Tok, You tube and other social of ‘How easy' it is to make money day trading and trading Forex is staggering. Often those engaged in the trading are using options and other derivatives; which can maximise the gains but equally amplify the loses.
If it really were the easy everyone would be doing it, and would have done so for years. The recent sell off which put some many at home with time on their hands may also be partly to blame because most equities have trended higher. Going forward it is less certain.
The clear message is that just because it's easy to open an account it doesn’t mean it easy to make money. The guys operating the sites are probably the only ones really making money.

Investors are too complacent about emerging market risks. Looks at the debt issues associated with emerging markets 'Given such challenges, the issue is how EMs will continue to be able to service their debts. Central bank liquidity papered over the first sudden stop in EM capital flows. But that may not be enough, or last long enough, for subsequent stops. EMs remain in the eye of the storm, and both investors and the IMF need to be ready for the inevitable next wave of volatility.'

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