July 30 FT Suing the Police in China, US Blacklists, China markets different this time? and more

03 Aug

July 30 FT Suing the Police in China, US Blacklists, China markets different this time? and more

MARKETs at HK lunchtime
JAPAN opened slightly higher, Retail sales were better than forecast but the market has drifted lower. Currently -0.1%
S KOREA opened higher but drifted lower, tested flat and then bounced before trading sideways; Solid earnings from Samsung Operating profit +23% on strong chip sales. Kosdaq currently +0.4% and the Kospi +0.1%.Samsung results https://news.samsung.com/global/samsung-electronics-announces-second-quarter-2020-results
TAIWAN opened much higher, saw some initial selling but now trending higher on good earnings especially in the Tech sector currently +1.2% CHINA opened slightly higher but has seen choppy sideways trading Currently at lunch -0.1%
HONG KONG Opened higher and tested 25k in early trades, then sold down 24,920 support level before working higher to almost 25,200 before easing back into lunch.  At lunch +1.1%
EUROPE  Expect markets to open higher after the FOMC decision and moves in Asia but covid concerns and earnings still overhang the markets.
US Futures opened flat expect upside after some good earnings but today is another big day for tech so initial upside limited.  Rising covid cases still a concern likely to limit upside.

On Line
How safe is air travel during coronavirus pandemic? Aviation industry battles to restore confidence that flying is not as risky as it may seem. Looks at the pro’s and con’s. Key is that there is not much real data but some good indicators. But I don’t think its going to make much difference in the foreseeable future. Worth a read.

A cold war does not answer China’s challenge Guarding the west’s interests and values should not mean an ideological confrontation with Beijing. Notes that comparing the current crisis to the soviet stand off is not that useful.

In Print
Xi critic sues police after university sacking
. Notes how Xu Zhangrun, the former constitutional law professor at Beijing’s elite Tsinghua University, who was detained by police in early July and held for a week on charges of “soliciting prostitution” before being released is to sue the Qingyang district public security bureau in Chengdu who brought the charges. His legal team Mo Shaoping and Shang Baojun are among China’s best-known rights lawyers and previously defended Nobel Peace Prize-winning dissident Liu Xiaobo. He is protesting his innocence and wants the charges rescinded and to get his position back at the university. The article mentioned that many former students sent him money on hearing that he had been fired but he didn’t take the money saying he would work to earn a living.
It is notable that in the past he has focused on trying to hold China’s leaders accountable for “extrajudicial acts that betray the transformation of China into becoming a modern constitutional nation”.
It will be worth watching, not least because such a case is so unusual and now it is in the public domain. For many it highlights the opaque way in which justice can work in China. It also reveals that there are many Chinese who are passionate about their love of China but disagree with the way the current regime is pursuing the goal of making their country great.

FedEx pilots seek to halt Hong Kong flights. Cargo company air crew claim city’s quarantine rules put them at risk. The union is referring to an incident where three of its pilots who tested positive but showed no symptoms where put into a Government hospital for 10 days. Another union Alpa said that several pilots who tested negative but who had been in close proximity with infected people were also put into government camps. This was before the latest clampdown. Now aircrew have to provide proof of a negative coronavirus test taken up to 48 hours prior to boarding a flight to Hong Kong, or be tested on arrival.
Alpa said their concern was that the flight crews were quarantined in conditions that involved up to five patients per room with one shared bathroom, and that the government camps provided “very sparse provisions”.
In Singapore aircrew have to remain in the designated accommodation at all times, on eFedEx pilot was given a four week sentence for going out to buy medicines.
IATA has said it does not support general testing for aircrew as a pre-requisite for flying.
It would appear to me that testing before travelling would make sense, especially for a group that is travelling so regularly. But equally quarantine ought to be in isolation otherwise it would appear to me the risk of cross infection is raised.
We still have a lot to learn about the virus.

US blacklisting fails to derail ambitions of China AI start-ups Megvii and SenseTime. The blacklisting was in connection with the “repression, mass arbitrary detention and high-technology surveillance” in the western Chinese region of Xinjiang. Initially the blacklisting impacted them and their ability to source components from US suppliers but not they see to how found alternatives. Megvii’s has backing from Macquarie and the Abu Dhabi Investment Authority said it has no revenue from projects in Xinjiang in 1H 2019.
The article says that the companies have many contacts within China. For investors it will be a matter of ensuring that that companies revenue is coming from where they say it is and no doubt the US authorities will be watching as closely as the Megvii’s facial recognition does.

China’s rally can avoid the boom and bust of 2015. By Diana Choyleva chief economist at Enodo Economics in London.
She sets out that margin financing is well below the 2015 levels and at historically low levels.
The authorities are focused on reducing risk in the financial system. So they don’t mind new money being attracted to the stock market as long as it reflects an increased risk appetite and not borrowed cash. She notes that Beijing is likely to encourage new money in especially as 'debt-for-equity swaps have emerged as the preferred method to clean up bad loans.’
She also notes that President Xi is determined to halt property inflation making homes to be lived in not as investments only. He sees property as widening the divide between rich and poor and so is trying to address that. She notes that during the pandemic there has been no easing of property curbs as part of the stimulus efforts. The hope being, that people are not tempted to put their savings into property. Although I would note that developers are still running 'lucky draws' for the chance to buy units at a lot of the new projects! She does note that she isn’t expecting a great rotation from property to equity.
A third difference she notes is that China is now part of the MSCI and more open to international money which should bring better governance, risk assessment and professionalism (in time). It is still very much a retail market but it is changing. She doesn’t think that the ’national team’ has been active but I do.
Overall she is right that changes have taken place since 2015 and most are for the better but with so much retail money driven by press reports and tabloid type research there are also still a lot of risks.
The poor performance on the New Third Board Select on Monday shows how retail still expects IPO’s to always go up regardless of fundamentals and that is they don’t the ‘faith’ in the market could be lost.
A good read.

LEX Nomura: beginner’s luck Its new CEO in his first quarter has seen results beat forecasts, obviously thanks to his predecessors and market circumstances has as volatility increasing clients need to rebalance portfolios. Now the question is what to do next. Mr Okuda therefore has a conundrum ahead of him. Nomura must implement cost cuts in excess of the continuing ¥140bn restructuring plan while simultaneously sustaining growth overseas. Lex remains sceptical about the outlook.

Covid crisis drives hard bargain for retail leases Commercial property landlords under pressure to link tenants’ rents to how much turnover their businesses generate.
Historically commercial property has played a part in a lot of UK institutional portfolio’s. Owning freeholds that were capable of giving good income with upward only rent reviews and historically 25 year leases. Over the years the structure has changed, along with the lease terms. The current situation will mean that asset allocators will be reviewing again the asset allocation to the sector in the light of the changing lease structures especially for retail leases.
The article looks at the move to turnover rents which makes sense but many landlords are saying the turnover rents should include an element of on-line sales too. Determining how much will be a very thorny problem. Property valuation was always seen as an art, now maybe it's about to get abstract too.

For interest
When a $20tn market wobbles For a brief period in March, the US Treasury bond market seemed as if it might collapse. With conditions now stable, the authorities are working out how to buttress the bedrock of the global financial system.

ETFs are the canary in the bond coal mine. What the Covid-19 market shock has shown is that while the banks played a starring role in the previous big financial crisis, non-bank financial structures, such as ETFs, matter much more now, and not just in the corporate bond world. That means ETFs deserve more scrutiny and debate — from politicians, as well as investors.

Antique Chinese bonds are now in play among dealers. Are investors betting that Mr Trump will really use the bonds to put pressure on the Chinese government? Perhaps. But they may also hope his rhetoric alone will be enough to boost their value. Stranger things have happened

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