FT 12 June The sell off, Netease +VE for others, Bain challenged in Japan and more


FT 12 June The sell off, Netease +VE for others, Bain challenged in Japan and more

Markets in Asia opened lower but all worked higher from the initial weakness.  European stocks are following a similar pattern and already in the green.  US Futures indicate a rebound although +300pts muted by the standard of the sell off.

For Asian investors there will be key China data out Monday morning; House Price Index, NBS press conference, Fixed Asset Investment (YTD), Industrial Production, Retail Sales and Unemployment.

Global stocks tumble on second wave fears and economic outlook.  Just as a lot of commentators were getting optimistic that things were getting better the markets sold off.  Always difficult to know exactly what was the triggered the selloff but it’s probably a combination of the Fed not announcing more stimulus (market tantrum), the weak economic data or the rise in covid-19 cases.  Whatever it was they sold down and nearly everything sold off.
Trump was quick to blame the Fed as the selling accelerated and said Q3 and Q4 would be better, and that there would soon be a vaccine and cure… ’thats my opinion’ he Tweeted.
A few key factors could influence the rebound from here. How badly have the US retail day traders been hurt by this sell off and will they come back to the market or have they been burnt. How much institutional money is there still sitting on the sidelines that missed the rebound after the March sell off. Will markets/countries that have handled covid-19 better now see more interest; that would be good for Asian markets like Taiwan, Hong Kong, S Korea, Japan and Australia along with some of the TIP markets. They all opened lower but the main Asian markets have worked higher from the open and cautious investors slowly accumulate good names.

NetEase jumps on $2.7bn HK debut as peers ponder further ‘homecomings’. The encouraging debut and continued strength today bode well for the company and other potential secondary listing from Chinese companies.  It quotes China Renaissance who have identified 30 Us listed Chinese companies as potential candidates and who says 'Chinese companies listed in Hong Kong or the mainland “typically receive strong investor interest at higher valuations, and better initial price performance”.’
The real short term beneficiary is HK Exchange (388 HK) which is trading at a six month high. But I still caution is required, Trump could yet impose more sanctions on Hong Kong when the details of China’s national security law for Hong Kong are known. I still think he could further weaponise US pension money as it seem incredulous to think he would force Chinese companies to delist from the US on the grounds of protecting US investors and then allow them to freely buy them in Hong Kong. I think he is likely to put pressure on pension funds and others not to buy the stocks in Hong Kong as he did with the Federal Pension money. Short term good news for HK Exchange and certainly worth buying on pull backs. Trading volumes remain good, new listings are good and having won the MSCI mandate its bringing on new products. BUT the risk of sanctions on Hong Kong shouldn’t be underestimated.

JET’s grab for Grubhub puts focus on growth Rapid-fire move sets up fresh battle for leadership in food delivery arena.  Will bring food delivery platforms into focus.  Uber will now need to think of a new strategy but with cash in the bank it will remain a significant player.  For Hong Kong’s Meituan Dianping it will have little impact, the company is too big to be bought by any except Tencent or Alibaba.  It will no doubt continue to look to build its goods and services offerings to its more 400m user base. The shares have rallied to new high recently so one to watch on pull backs.
See also LEX Just Eat/Grubhub: hunger games

Bain Capital’s $1bn Japan nursing home buyout hits opposition. Lim Advisors is contesting the offer on the basis the board is not protecting minority shareholders.  It is setting out that the Bain offer breaches the spirit of the new M&A guidelines that were introduced last year with the intention to protect minorities from this sort of bid.  Lim Advisors should know they were involved in drawing up Japan’s  2015 Corporate Governance Code.  Worth watching to see if there is real change taking place in corporate Japan.

LEX Japan banks/Mizuho: risk spree. Looks at Mizuho’s desire to expand its mezzanine financing business in an effort to enhance its slim profit margins. But warns that whilst historically default rates in Japan have been low; which makes this riskier business appealing; these are not normal times.

Powell delivers dovish message based on lessons of past recession. Fed chairman reveals dire assessment of prospects and need for big dose of support. Sets out that Powell could have said things are going well and project confidence in the economic recovery but he didn’t. The FOMC outlines the reality of how dire they see things. Expecting every with a recovery that unemployment will be higher than before. The need to keep interest rates low. Having learnt lessons from the previous crisis; they didn’t mention about unwinding any of the measures, but effectively stressed it was going to be a long process. He stressed focusing on the state of the economy, labour markets and inflation. He also remained committed to further action if needed and that they and other central banks were discussing other moves like explicit forward guidance and yield curve control.In my view the FOMC did the right thing in not pandering the markets desire for more support, especially considering the bounce back in the markets. The Fed is focused it appears on the fundamentals of now whereas it seems the markets were looking at the future and assuming that the now had been dealt with. The rise in covid-19 cases shows that was a mistake.
Editorial Powell delivers a stark message to the markets Federal Reserve is right to rule out any near-term interest rate rises
Also read Bad things start to happen when finance front-runs the economy by Mohamed El-Erian

Americans are losing the stomach to continue virus battle again makes the point that early easing of lockdowns comes with risks, I have written on this and there have been numerous articles in the matter but many it seems have been blind to the risks and only focusing on the need to re-open the economy. As Edward Luce says 'Having the world’s best laboratories will come to naught if Americans refuse to fight side by side in the same war.’

US sanctions intensify pressure on tribunal. In authorising sanctions against International Criminal Court officials involved in investigating or prosecuting US and allied military personnel for alleged war crimes the Trump administration has followed in the footsteps of China. Where, if it doesn’t like the way thing might be going, it refuses to recognise the authority of the court; like in the South China Sea. In this case the US has gone even further and has accused the court of 'financial corruption and malfeasance at the highest levels of the office...’. For the US to say that none of its activities can be investigated by an outside court shows an arrogance that is beyond belief. It has held itself out to be the policemen of the world for many years and done much good but as the current protests in the US show even the police need to be watched and held to account.

Zoom shuts down meeting of activists in US and China. Potentially another mis step by the company and raises questions about how it reacts to government censorship requests. In this case they were paid accounts that were closed. Zoom said to the SCMP that Tiananmen commemoration had violated local laws and said “when a meeting is held across different countries, the participants within those countries are required to comply with their respective local laws”. But there are no laws that ban it. China has used its security laws to punish those that do commemorate the event, which it is unlikely to want highlighted at this time as it tries to convince the world that imposing a national security law on Hong Kong will not interfere with current freedoms. It will be interesting to see how Zoom explains this. Potentially another case of business bending to China; as we saw with the UN going with Tencent for a virtual world conference because otherwise the couldn’t be seen in China.

EU states ready to widen search for WTO head. An example of good common sense putting aside past norms to ensure the right person for the job is selected. It it crucial that the WTO has at its head someone who can reform and refocus the WTO and make it the force for good that it should be when it comes to global trade. Let's hope that having said they will that they actually do!.



Looks at how very wafers are actually made in the US and at a time of increased trade tensions that should be a worry. This has lead to a number of bills before Congress this week to try and change that, although what is really needed is a coherent national policy and political cooperation; which remains unlikely. But news that Apple will be using its own chips in Mac highlights the issue. Intel has fallen behind and TSMC is the leader but most of TSMC production is in Asia, as is Samsungs. So news that TSMC would be setting up in the US was taken as positive although the detail of exactly what its US plant will produce is unclear. Its also unclear about where TSMC stands on supply Huawei but the new Arizona plant will buy it breathing space.
Richard Waters sums it up in saying 'White House horse-trading and the pull of customers such as Apple and the Pentagon will certainly help to draw chip production investment into the US. With chip production a national priority, Washington now needs to notch up some real wins’
For investors is underscores the dominance of TSMC and I would advise buying the stock on any significant pull backs.

OPINION Myths can make ‘smart money’ act dumb. Looks at the fact that so called dumb money; retail day trading has recently been out performing so called smart institutional money. Yesterday’s sell off may have taken the wind out of some of the day traders claims; especially those trading on margin finance. Day trader have done well since the market sell off, but largely I would say because in general terms that sell off was so dramatic that a bounce back was inevitable, although maybe not to the levels we had seen. The realty of investing is over the long term, day traders saying they have ‘killed it’ over a period of a few weeks are a 'flash in the pan’ lets see how well they are doing over a year or longer. But it does make the valid point that sp called smart money that just focuses on the Marco data and its other established data sources is likely to become mired because the world is constantly moving and new matrix become more valid. There must be a willingness to evolve constantly aware fo the changing surroundings. That is what should be driving analysts and fund managers.I also think that setting a short time benchmark is a mis step. Just a funds match their investment horizons to their payout liabilities we should be benchmarking fund mangers over several years of performance not months. One invests in a pension for 20 years plus why then look at if quarterly performance; that short termism is likely to encourage a short term investment strategy and that is not necessarily good unless it can be maintained for the 20 years plus.The final paragraph is a good summary 'Mr Buffett…., once wisely said: “When ‘dumb’ money acknowledges its limitations, it ceases to be dumb”. By the same stroke, smart money that fails to question the myths that it clings to can no longer be considered that smart.’

The Big Read is The mystery over Anbang’s hotels Anbang is embroiled in a legal fight over the stalled sale of hotels to South Korea’s Mirae. And the emergence of a rival claim of ownership now threatens to embarrass the Chinese Communist party.
Which I covered yesterday but is opted below.
Documents being disclosed reveal competing claims on the US hotels. A Delaware Rapid Arbitration Act agreement (DRAA) signed by Wu just weeks before he was arrested. The DRAA makes things complicated because they involved a number of other powerful Chinese families. Hardly surprising as Mr Wu had married Deng Xiaoping’s grand daughter. A key clause in the DRAA is that to quote the FT 'in the event that Anbang is seized by China’s insurance regulator or other government entities, the Wu and Deng families “unconditionally agree to have the four parties of the United States to sue and file an additional complaint against the institutions”.’ The DRAA also warns that ‘...may not be leaked: “In particular, to Xi Jinping’s family, [then anti-corruption chief] Wang Qishan’s family and other families of members of the Standing Committee, or any personnel from the central government, any law enforcement personnel, and other personnel, lest that relevant personnel be subject to criminal liability or death penalty”. The document adds that any party that contravenes the agreement could be liable for a penalty of up to $270bn. Wu once described Wang to the FT as his biggest enemy. 'Also involved are Chen Xiaolu a princeling, son of Chen Yi a revered revolutionary and major of Shanghai. Chen died of a heart attack after being questions by Chinese regulators and President Xi sent a representative to the funeral who gave a speech in which he described Chen as an elder brother to the Xi family.It goes on to look at how the transaction was being carried out and highlights the fact that in come cases the vendor did not make full details known until very late in the process. TH net result is that China could be left holding the assets and be liable to pay compensation and still face trying the sell the assets which are now seen as tainted because of the uncertain legal title. Interestingly it notes that before the DRAA came to light there were other questions over title but Mirae was told they were fraudulent titles and could be expunged. The article notes that since the early 2000’s the Chinese were seen as buyers of first choice. That is no longer the case, both buyers and sellers have lost their credibility.Again for China this comes at an unfortunate time as it seeks to reassure global investors that doing business with China is safe. The fact that this case also involves prominent families and links to President Xi himself will put the party and Xi under more pressure.