July 7 FT HK all media under threat, SMIC, Sina, Gold and more


09 Jul

July 7 FT HK all media under threat, SMIC, Sina, Gold and more

Markets
JAPAN
opened lower and failed to break above Monday’s close, and then drifted lower into lunch.
S KOREA market’s opened higher but have tracked lower into the red. Currently trading sideways just below yesterday’s closing levels.
TAIWAN opened higher but sold down initially into the red before rebounding , currently trading around flat.
CHINA Opened higher and trading sideways in choppy trading.
HK Pre market +232pts (+0.9%) @ 26,572 vs +127pts ADR,s at 26,465. T/O was HK$6.56b vs HK$2.15bn Monday. Which suggests long term shorts have decided that Hong Kong is no longer about fundamental but liquidity and Team China. Market squeezed higher to 26,783 as recent shorts covered and then sold down to 26,196 below yesterday’s close and then traded sideways around that closing level. I remain cautious and expect more downside as we enter reporting season in the US.
EUROPE I would expect to see a weaker open, following from Asia
US Futures opened slightly lower but then rose but I think that could reverse if we see more downside in Asia.


Facebook and Twitter defy China and block Hong Kong from accessing data They are temporarily blocking the HK authorities despite threatened jail sentences for executives that do not comply with the new security law. This comes after many had said the law was only going to affect a few extremists. Obviously Beijing wants it to impact everybody.
'Facebook yesterday said it was acting to support the right of people to express themselves “without fear for their safety”, while Twitter said it had “grave concerns” about the “full intention of this law”.’
They are now required to take down content that the authorities deem illegal.
Telegram another encrypted app said it would not process any data requests and noted that it had been subjected to large hacking attempts before the law was introduced.


Journalists warned over Hong Kong reports Expulsion threat as issue of independence ‘red line’ is highlighted by adviser; Charles Ho, a member of the Chinese People’s Political Consultative Conference, said while journalists were more likely to receive a warning if they unintentionally promoted Hong Kong independence while reporting.
I think this reflects how badly China has mis understood Hong Kong and been ill advised by those it listens too. Most of Hong Kong does not want independence, the fact that China thinks it does probably reflects the paranoia in Beijing. Most Hong Kong want the freedom to live the way they had. Moat have a great affinity for China and newly everyone understands that Hong Kong is too small to survive alone. But the threat to free speech in Hong Kong is growing and with it general repression.
I expect that if the Hong Kong elections go ahead in a couple of months time and that all those who last week intended to stand are allowed to that there will be an overwhelming rejection of the pro Beijing stance. The current ramping of the markets looks like President Xi is taking a leaf from Trump’s book and hoping that a strong stock market will improve Beijing’s chances of acceptance.

LEX China semiconductors/ SMIC: chip flip. Looks at the fortunate timing of its listing China. Initially intended to raise US$2.8bn and now expects US$6.55b. It may not be at the forefront of Chip tech but the money will be useful in advancing. Currently it’s thought to be about 5 years behind its global rivals. Currently riding the wave of euphoria but the risks from US/China relations and with others. Plus other risks. Lee thinks that long term investors should give the issue a miss.

Sina draws $2.7bn management buyout offer That could end its 20 year Nasdaq listing as the Chairman/CEO takes the company private. The big question will be whether it follows the example of others and looks to relist in China or even Hong Kong on a higher valuation?

Luckin Coffee shareholders oust founder following accounts fraud. Comes just days after an board proposal to oust him failed. Interesting to see that also removed were David Li, founder of Centurium Capital, and Liu Erhai, founder of Joy Capital, significant early investors. Mr Li led early capital raising rounds for the coffee chain and pulled all his firm’s money out of Luckin in January, when the company raised $865m; although he said he knew nothing about the fraud the fact that he pulled all his firms money out will surely raise questions and hopefully an thorough investigation. Despite the changes many think that the founder, Mr Lu is still ‘pulling the strings’ as half the board are thought top be supporters of him and he was also involved in the selection of two new independent directors. No doubt over time more of the truth will be revealed.

Mitsubishi’s line on M&A to be one in, one out. So as it buys and asset it will also look to sell one. The aim is to make sure its balance sheet remains robust. The article notes that despite being known as ‘cash hoarders’ they are currently trying to increase the amount of cash they have unhand. Other Japanese companies are likely to follow its lead. They keys whether they will be able to find good assets to buy.

Gold miners glister on raised dividends as spot price nears highest for 9 years Gold mining stock prices have rise an average of 23% YTD with some upas much as 40% like Canada’s Kinross Gold and Barrick Gold, and US-based Newmont Corporation.
As more people become worried about the threat of inflation from all the government stimulus and the fact that Govt Bonds are yielding negative rates means that it is possible that it will break through US$1800 and could test US$1900.
I remain positive on the outlook for Gold.

Don’t fight the Fed but don’t rely on it either. By Karen Ward chief market strategist for Emea at JPMorgan Asset Management. Looks at how the historic relationship between stocks and bonds has broken down since QE was introduced. Notes that the recent Fed actions have supported the markets BUT the key point is that do not assume the Fed will continue to buy the assets it is at the rate it currently is. The recent good macro data (like the jobs report and th ISM Non Manufacturing data) should mean that the Fed eases back from its currently policy. As such she suggests that should look to assets that are not subject to or have been impacted by central bank liquidity. She suggests infrastructure and property to serve as ballast to the portfolio. I would caution that you probably want to look more towards residential property than commercial considering the defaults likely in that sector.

Opinion Hong Kong will never be a Singapore Gideon Rachman. Compares the two cities now that China has imposed the new security law on Hong Kong. He sums Beijing’s argument up as 'a year of unrest and demonstrations had left Hong Kong teetering on the brink of anarchy. Now, so the argument goes, Beijing has acted to restore order and Hong Kong can get back to business.’ Singapore is a highly successful city where the government limits its political opponents. Could Hong Kong the same? The model of you can carry on just don’t mention the four taboo’s of secession; subversion; terrorism; and collusion with foreign powers.
But he notes the big difference between the two is that Singapore knows that it is reliance on the good opinions and will of the rest of the world. Whereas Hong Kong is part of China and China will always come first. He says Singapore measures itself against global best practices. 'Their system has some authoritarian features, but it is predictable and restrained. By contrast, the Chinese system is unpredictable and based on the unrestrained power and authority of the Communist party.’
Singapore believes in the rule of law whereas President Xi believes in the rule by the communist party; 'In an article published last year, Mr Xi himself wrote: “China must never follow the path of western constitutionalism, separation of powers or judicial independence.”’ Unfortunately those are the principles that has made Hong Kong into the international gateway to China.
The freedom of speech in Hong Kong is already being self censored. Questions are being raised about what the outcome of a legal dispute with a well connected mainland business or person would be? China wants and in some ways needs Hong Kong to remain successful and attractive to the world. It may believe that the new security law really I the best thing for Hong Kong but he closes by saying its actions are unfortunately reminiscent of a phrase often attributed to a US officer in Vietnam: “We had to destroy the village, in order to save it.”
As I mentioned above I think must of the situation has arisen because Beijing has been poorly advised by those that are supposed to support it. Most of Hong Kong doesn’t want independence but they do want live with the freedoms they had until last Tuesday night.

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