FT 15 June Beijing Covid Outbreak, Softbank, Shionogi, Ikea and more
Markets opened lower on news of new covid-19 cases in Beijing and a rising number in the US as lockdowns ease.
US futures opened lower (-300pts) and have sold down, currently -650pts. Europe will open lower.
JAPAN Opened lower and initially traded sideways but sold down from midday as US futures dropped further. The Tertiary Industry Index Apr-6% vs -4.2% Mar (F/cast was -14.3%) was better than forecast but had little impact on the market.
S KOREA Markets opened lower saw small bounce mid morning but then reverting and are trending lower.
TAIWAN Opened flat and sold down slightly before rebounding to flat and traded sideways but selling down; following the regional trend and US futures.
HONG KONG Opened lower and traded sideways in the morning session but has seen a big sell off at the start of the PM session, and looks to continue selling; currently -450pts.
CHINA opened lower but worked higher though the morning in choppy trading after mainly in-line data, which suggest Team China at work. PM saw a big sell off and currently market is trading at day lows CSI 300 -30pts
Today’s China data was largely in line except Retail Sales which I think is cause for concern.
House Price Index May +4.9% vs 5.1% Apr (F/cast was 4.9% (F/cast was -6.2%),
Fixed Asset Investment (YTD) May -6.3% vs -10.3% Apr),
Industrial Production May +4.4% YoY vs +3.9% Apr (F/cast was +4.5%)
Retail Sales May -2.8% vs -7.5% Apr (F/cast was -2.6%)
Unemployment May +5.9% vs 6% Apr (F/cast was 6.2%)
Battle stations Beijing springs into action after virus cluster emerges Looks at the latest outbreak with many of the 41 symptomatic cases and 46 without symptoms being linked to Beijing’s largest seafood and vegetable market.
SoftBank puts $500m in Credit Suisse vehicles that back Vision Fund bets Reports that the company has paid $500m to CS investment funds (‘supply chain finance funds) that made big bets on the debt of struggling start ups that the Vision Fund had backed.
The investment was done via Greensill Capital in London
This has allowed Softbank to provide additional financial support for those companies along with other investors. The article points out that the other investors may have been unaware of Softbank’s involvement.
The article also points out that the CS’s main supply-chain finance fund shows that 4 of the top ten largest exposures are to Vision Fund companies and they account for 15% of the assets. Those include Oyo and Fair.
The article notes that clients have been withdrawing funds from ’supply-china finance funds in part due to a string of Greensill Capital’s clients defaulting in high profile collapses or scandals.
It would be interesting to know if Softbank had specifically put money into the fund because if was invested in companies that the Vision Fund had invested in, or whether it was investing in the fund for other reasons? But it will raise some questions both for Softbank investors and for the other investors in the CS funds.
Shionogi boss warns against hopes of early Covid vaccine. Basically saying that there hasn’t been enough thought put into developing and distributing vaccines and those hoping for a quick solution are likely to be disappointed. That’s all of us! It notes that there are over 100 potential vaccines in development. But little done on the how they will be manufactured and distributed and at what price. He also thinks that current timetables being put forward are too optimistic. It is working on a 'traditional protein-based vaccine and will aim to supply about 10m doses, initially in Japan.’ Whilst 10m doses sounds small its actual capacity would be 60m; if its vaccine can be administered as a single dose with no follow up required. He notes that it usually takes three to five years to do all the work needed to produce a safe vaccine.
The article points out that Shionogi’s is the traditional method and that other manufacturers are looking at less proven methods which could yield quicker results but have a higher risk of failure. Worth noting that the FT reported back in May that Merck also refused to sign up to the US timetable over concerns about safety and rushing the trial process.
Governments want a quick solution, especially those that mis-handled the initial stages of the pandemic but human safety and any potential side effects should be fully investigated before any new vaccine is delivered to the public. Warnings like these make me believe that we are unlikely to se a V shaped recovery in the short term.
Ikea in talks with countries over return of furlough cash. Having thought the worse when the crisis started it wisely took all the money it could to protect workers jobs. It has found that things are not so bad and so wants to return the money.
Is that it is one of the few 'bricks and mortar’ operations that have benefitted. Home Depot, Lowe’s and others have also reported good business during the lock-downs and they are been designated 'essential businesses’ and so able to remain open. IKEA mentioned a large amount of pent up demand for home improvement. I think that will continue whilst the lock downs continue and people have ‘staycations’ holidays. It is one of the reason that I like TECHTRONICS (669 HK) which last week broker above its HK$70 resistance level and I think will continue to do well.
Ikea is also making the first move to repay government money which makes it look good, which can’t hurt when your tax activities are being investigated.
Market questions. Global challenge Central banks face pressure to garner fresh stimulus.
What next for Wall Street? Says the pullback was not a surprise bearing in the mind the rebound. I think many people thought there would be a pullback at some point but no one knew what would trigger it. What next I think depends in part on how badly day traders were hit and if they are confident to return. It mentions that next month we start quarterly earnings again and that is likely to impact some investors thinking, because they are unlikely to be good and analysts have had less company guidance. As ever some are bullish and others less. The rise in covid-19 as lockdown measures are eased though I think will be a concern; despite what Larry Kudlow says.
What extra measures has the BoJ got up its sleeve? Whilst no one is expecting the BoJ to change tack it is likely to try and encourage the market and may seek to help SME’s. Others are looking for clarity on its policy of buying long dated JGB’s.
Will the Bank of England steer the pound lower? People will be watching to see if there is any further moves towards negative interest rates. If so that would probably mean the recent strength seen in the Sterling would be lost.
Tourism blow from pandemic set to linger in global economy Countries turn to domestic travellers as they race to reposition themselves. Notes that globally tourism has created one in four of all jobs created over the past 10 years according to the World Travel and Tourism Council. Also that the rise of the middle class in Asia has been a big contributor to the industry. Hence the crisis for the sector especially in South Asia, South Europe and Central America where is contributes up to 30% of the economy. If doesn’t mention Africa but I am sure that for some countries there it is a significant part of some economies.
With international air travel curbs many are looking at domestic tourism and it mentions Sanya in Hainan China where bookings are rising, the Rtiz-Carlton says booking have ‘at least doubled’ since they bottomed in February.
So things are starting to improve seen in visits to websites for hotels but from a very low base and those to airline websites are seeing minimal interest. So for those that rely on international travel, like Southern Europe the outlook remains grim. There is hope from ’travel bubbles’ but these have yet to be agreed. Even those that do see an increase, they will have to change the historic models. Until we have a vaccine and cure; people will want to know they can holiday safely with appropriate social distancing measures.
Life stalls on the border with North Korea Sanctions and pandemic dash Chinese city Dandong’s hope of deals with hermit kingdom. The future for Dandong looks bleak; GDP has dropped 11.8%, House Prices have fallen because the prospect of the border opening up has dropped after rising 50% back in 2018 after talks between Trump and Kim raised hopes of more trade. All that enthusiasm has gone.
Covid-19 has impacted both sides, with N Korea shutting its border to prevent the diseases enterng the country. N Korea claims to have had no cases but most doubt that. There are sanctions which are an even greater barrier and there is no sign of them easing as they are no long in-focus for China’s or Trump’s. Grand projects from previous years now lie idle. It notes that some like the free trade zones on China’s side are almost empty of N Korea traders. Some because they were too China centric; N Korea to supply low value added goods and China the sophisticated ones was not what Pyongyang wanted. It also notes that a final problem is that those in N Korea as just too poor. For investors it's a reminder that N Korea is not going to be helping China out of the slow down any time soon.
Nepal snubs India with Himalayan claim. It's entering the standoff between China and India by making its own claims over the disputed area. The article suggest this is probably more at China’s behest than any real interest of its own. It notes that historically India has taken a number of its smaller neighbours for granted or mistreated them (India blockaded Nepal back in 2015).
As an outside observer it appears that in addition to trying to contain India’s power and influence in Asia that Beijing is orchestrating some large media events to deflect domestic attention from the economy and covid-19. That could be a indication of the threat is sees domestically from the potential slow down. As Alicia Garcia Herrero of Natixis Economic Research, pointed out in ‘China’s fiscal response to covid-19’, China is committed fiscally to do whatever it takes but actually getting the money to households and ensuring employment is not as easy as making policy. News over the weekend of new outbreaks of covid-19 in China will not make the process any easier. But news clips showing tanks and soldiers in conflict will often that the publics mind off the more important issues.
Feedback and comment welcome