FT 18 June GOLD, HSBC, Yum China, SGX delistings and more
JAPAN opened lower and is trending lower but has rebounded from the day low.
S KOREA Kosdaq opened slightly +VE tested yesterday’s closing price before trending higher but then rolled over and is currently trading sideways around flat. Kospi opened lower, sold down, bounced to test yesterday closing level but failed to break above. It sold down and has bounced again currently -0.7%
TAIWAN opened higher but moved lower, currently trading sideways -0.3%
CHINA opened lower but worked back to flat
HONG KONG opened lower saw a small rebound and traded sideways but just spiked.
EUROPE I would expect to open lower with caution ahead of the BoE meeting
US Futures having opened -120pts are now -385pts.
Before the FT a few stock notes.
GOLD It's been rages bound for the past 3 months but with second waves and with US quarterly earnings approaching could be poised to breakout and may break above the 2011 historic highs.
Stocks to watch and accumulate on weakness
TECHTRONICS (669 HK) I still like the stock trading around new high with blue sky above. US data yesterday saw building permits surge along with mortgage applications. Add to that the US retail spending data that showed good spending on DIY coupled with good reports from firms like Home Depot and Kingfisher. Plus the likelihood of staycations this summer. All bodes well for the company
TENCENT (700 HK) a new round of funding at Epic Games is going well and the general gaming market in the US is +VE. Also +VE moves at China Literature. So I still like the stock. Pony Ma selling not a worry, whilst not knowing why he’s selling, logic would say 'you don’t keep all your eggs in one basket’. Also +VE on SONY, NINTENDO and SQUARE ENIX
ALIBABA looks to be attractive considering its dominance in the ecommerce and online payments in China and Asia.
RESOURCES Continue to see upside as Countries plan more infrastructure spending +VE for BHP and Rio who also pay reliable dividends
Beijing virus curbs tighten and Beijing fights to control virus outbreak No really new news; specific compound controls and school closures but no City wide lock down. 31 new cased on Tuesday but signs of new cases slowing. But restrictions likely to remain in place for sometime. The damage to reputation and peoples confidence being the biggest impact; especially as its highlighted the lack of testing facilities for residents.
HSBC revives scheme to slash 35,000 jobs. The delay is over and the cuts will start in order to get the restructuring underway. Investors will be watching to see whether the latest restructuring actually produces a better bank or just cuts costs.
Yum China seeks bank advisers for Hong Kong secondary listing. Following the trend of a number of Chinese companies with US listings (including todays debut in HK of JD.Com). Whilst like others it would boost its coffers I still remain cautious because they are moving because the US is looking to impose tighter reporting conditions/standards. Why would the US, who is doing this under the guise of protecting US investors, then let those same investors buy the shares in Hong Kong. That to me is a risk. The flip side is it will bring them closer to the Chinese investor base. Those with access to Hong Kong will be able to buy them direct and presuming they qualify for connect, in time, more mainlanders will have access too. LEX Yum China: winging it also has some doubts.
I think that with regard to their business in China they are actually very well positioned because a lot of sole restaurant owners will unfortunately have been forced out of business by the lock downs. I also think that many Chinese consumers will feel happier going into a modern fast food outlet with new preventive screens that going back to small crowded outlets. Personally I think its a shame as those small Chinese outlets often serve some great food.
Singapore exchange hit by persistent run of delistings as trading slows. More problems for the SGX; key issues are low liquidity and valuations with frequent accounting and governance scandals. Plus the exchange just lost the MSCI license to Hong Kong.
Whilst there aren’t many large stocks listed in Singapore the City State remains a key hub for investors looking to trade ASEAN countries, whist still having access to China. So whist the exchange may not be doing well the City State remains important and it could become even more important if CHina’s imposition of a National Security Law on Hong Kong prompts some businesses to relocate or the move their HQ designation from Hong Kong to Singapore to avoid being caught by the implications of the new National Security Law.
Frontier EMs are poised for recovery and strong growth. Looks past the generalisation of the problems for EMs, to specifics and thinks Philippines, Peru and Vietnam are well positioned to benefit post covid-19 due to the relative resilience of their banking sectors and strong foreign exchange reserves.
It’s also +VE on Egypt due to its commitment to tax and civil service reforms and have maintained access to IMF programme funding. I mentioned that because I’ve been involved in marketing an opportunities fund there. Drop me a line if you want more details.
LEX Day trading: Portnoy’s law. More on the day trading in the US. Hi ‘laws are 1. Stocks only go up. 2. When in doubt whether to buy or sell, see rule 1. History would prove him wrong as would Warren Buffett; who he loves to deride.
Lex looks at how day traders are able to trade for free (another reason for their better than ‘professionals’ gains. They don’t need to pay back office, compliance etc etc). But it notes that free trading is possible because trades are routed to firms who pay for flow and then profit from market making and deal execution via high-frequency trading. It notes the 'The payment for retail flow is justified in part by the idea that trades are so small they do not move the market. Price discovery is growing more difficult. No wonder Mr Portnoy believes in his rules.’
I would add that at some point amalgamating retail flows in some stock will move markets.
Visa predicts permanent change in consumer behaviour. Looks at how debit card and credit card usage in the UK, which has grown since the pandemic started is expected to continue and for the use of cash to decline. But it notes that many businesses in the UK are not set up for such a move. That is surprising but suggest that business for point of sale readers is set to see another upswing. In Asia the use of cards and phones for transactions is already well established.
Debt investors let borrowers go back to the future on earnings. Lenders reluctantly accept rolling over profits from 2019 to avoid breaches of covenants.
A strange move but one that gets around significant issues for both sides. In the current circumstances there is generally no benefit in the lenders pushing borrowers over covenant breeches. This move allows both sides time to asses the situation. Nice to see a sensible short term solution. But longer term it highlights that there are likely to be increased defaults. The next couple of years are not going to be anything like last year for companies that are currently struggling. Last year was a good year for most with economies generally doing well. Post pandemic will be very different.
US scuppers global digital tax plan and fires warning to Europe. Mnuchin quits talks and threatens retaliation if tech groups face EU levies. Meaning a fresh trade spat looms. He said in a letter dated 12 June “Attempting to rush such difficult negotiations is a distraction from far more important matters,”. Key here is that the US want stop US firms being taxed, Trump previously said if there were going to be taxed the US would be the ones taxing them. But just as the US wants the benefit of tax revenues so do other countries and especially now after the significant increase in digital company revenues. I would expect that the Europeans will proceed with their moves to tax large digital firms because it is the reasonable thing to do and wait to see the US response.
Former aide Bolton sued over ‘tell-all’ book about Trump. You can’t pay for such good publicity and a number of media outlets are already releasing excepts. Trump claiming that “any conversation with me is classified” although he doesn’t say what level of classified. Trump is also threatening ‘criminal problems’ if the book gets out. Having seen some excepts I can understand why Trump wouldn’t want the book published .
FT BIG READ. ARAB-ISRAELI CONFLICT ‘The debate is what to annex’ Israel is poised to unveil an annexation plan that could involve substantial parts of the West Bank. As well as being an ‘existential’ threat to the idea of Palestinian statehood, it risks a new outbreak of resistance.
An interesting read an a key reason for concern is that if Israel is allowed to annex parts of the West Bank what signal does that send to China about land that it would like to Annex? One would hope that global leaders realise the dangers and potential hypocrisy they are laying themselves open too?