FT 3 June My thoughts, Hysan, BEA, Taiwan sabre rattling? and more


FT 3 June My thoughts, Hysan, BEA, Taiwan sabre rattling? and more

Markets opened higher following the moves in Europe and the US. But upside in early trading looks muted with the Nikkei, Kosdaq and Taiex all trending lower and HK and China looking like they will follow (Watch to see if CSI300 can hold above 4,000, the Caixin data was better than f/cast ) and Taiwan continues to trade sideways.
US futures continue to trend higher.

Not a huge amount in the news for Asia to day which explains the market moves; investors are looking for the next driver. A lot of investors are turning cautious over the rebound aware that it could take a few months for the defaults and failures to become apparent and tonight we the ADP jobs number ahead of the US payrolls on Friday. As businesses fail it will become more apparent that a lot of those jobs in the US are not coming back anytime soon. I listened to Mohamed El-Erian last night warning that current Fed policy is too focused on company’s and not enough on jobs. Negative interest rates are not necessary but jobs will be. That I think is very true.

A few other interesting observations Smith & Wesson broke out yesterday a rather worrying sign considering the riots. Trumps attitude does not seem to be helping but as the FT points out markets then to look through such events; read Wall Street stays calm in the storm of political unrest.

In Hong Kong businesses seem to be OK on the surface but talking with some small business operators the government support for small businesses is not an easy programme for the owners to navigate. Made worse by the fact that much of the government is working from home; so finding support or even someone to talk to is difficult. This does not bode well for the low paid shop and restaurant workers.

Tomorrow is June 4 the Tiananmen Square anniversary. The police have banned the vigil on covid-19 distancing rules. Organisers say the police were not engaging to try a find a solution. That I fear will lead to more social unrest.

There are a lot of concerns about Hong Kong being collateral damage in the standoff between US and China, however, there is data that shows that Chinese money is supporting the HSI. Bloomberg data shows US$35.7bn of Chinese money has been invested via the connect programme, the most since 2016. Much of the money targeted on CCB amongst others. It could be Beijing directed to support the HSI and prevent more discontent in HK or it could be just taking advantage of attractive valuations with a lot of stocks trading around 5 year lows but it is worth watching.

Those looking for encouragement should note how Copper and Aluminum prices climbing mainly due to strong demand from China. May also be worth reading yesterdays FT article on aluminium.

Stocks to watch Budweiser APAC rebounding as China re-opens with the expectation that the Chinese will move towards more premium beer in the future.

Lastly watch the tech names ahead of the Netease IPO. It has already sucked up significant margin money it’s likely that Tencent could see some rotational selling.


IWG moves in to Hong Kong office vacated by WeWork. Which is good news for HK listed Hysan Development whose share price rallied on Monday along with the rest of the market. Although the new rental is likely to be significantly less than before its better than being vacant. For IWG it is also likely to be have had the benefit of reduced fit out costs, taking over the space as is rather than having to fit out; which makes a significant difference in HK because of the generally shorter lease terms. It still leaves the other landlords in HK with WeWork as a tenant at risk; especially in the light of changing work practices by many major clients but that is a risk to both IWG and WeWork.

LEX Elliott/Bank of East Asia: the hold-up. Looks at the yesterday’s rally on rumours of sales; which were denied by the bank. Lex makes the good point that Elliott Management are doing well at forcing reform but covid-19 has exposed their reliance on China. Key being 'In China, BEA’s losses are mounting and provisions for bad loans have surged in unsecured retail loan and commercial property portfolios. The sale of assets will be welcomed, but BEA may struggle to carry out the disposals as buyers show restraint. The pay-off may not make up for Mr Singer’s sufferance.'

Hong Kong’s justice system is tried, tested and worth preserving. Looks at the benefits of Hong Kong’s current system with the key being its openness for all to see what is going on. Worth a read because for investors the courts openness often reveals what the business elite in the city have been doing.

Taiwan remains sanguine despite Beijing sabre-rattling. Looks at comments from Joseph Wu, Taiwan’s foreign minister, last week. He thinks China’s intervention in Hong Kong is an admission that the ‘one country two systems’ is not working. More worryingly, is the fact that Beijing has failed to recognise and continues to deny that Taiwan is its own Country and that it has rejected the advances from China. It notes that Taiwan has been separate from China for over a 100 years and has enjoyed democracy for over 30 years. Less than 20% of Taiwanese would even consider unification with China, as the recent election clearly demonstrates. But China still insists and threatens to use force.
Some think the current situation in Hong Kong spells danger for Taiwan while others say that military action now is unlikely because Beijing has too many other issues to deal with and it quotes the Taiwanese former deputy minister of defence and one of Taiwan’s longest standing experts on cross-strait relations as saying that China is trying to rein in those calling for military action. Even if invasion is off the table for now the article notes that China can still send more military flights and ships to hassle Taiwan to quote ‘That will not be war, but it will not be peace either.’
I remain worried about the situation not least because many in the Chinese military are hard line party supporter. President Xi has made it a priority and they want to see it happen. The lack of overt support for Taiwan by other countries and especially China’s key trading partners I think will give many in Beijing the impression that they could ‘get away with it’. Just like Putin did. I think it is time the countries of the world to revisit the 1971 UN vote recognising the People’s Republic of China and not the Republic of China. They should have a new vote and give Taiwan the recognition and status that it deserves.

Japan’s all-male boards face reckoning. Global investors poised to rebel against businesses lacking female directors. Looks at what might happen in the coming weeks as Japanese companies hold their AGM’s and shareholders get the chance to vote. The key difference this year is the changes in voting polices by a number of major fund mangers. Last year 57% of Japanese boards did not have female representation. Other issues are also likely to be raised this year with many AGM’s being held on-line . Firms are expected to be challenged on ‘poison pill’ defences, calls for asset sales, higher dividends, auditor changes and a range of other matters. The next few weeks could be very interesting for Japan investors.

Singapore seeks lift from gradual reopening. It did well to start with but then was struck by a significant second wave which has resulted in a two month lockdown. Now it is looking at getting the economy back to work but initially only 75% and still recommending working from home. There has been a significant impact on the economy and that will continue for some time. It has also forces Singapore to look at its dependence of migrant workers and how it treats them.
This comes at a time when the US and Europe are re-opening and seemingly are less concerned about possible second waves. There is an optimism that any second waves can be contained but that remains to be seen. US states reopening are seeing an increase in reported cases but the option for returning to lockdowns is getting much harder. Unfortunately it is likely to take a significant increase in reported cases for the threat to be taken seriously.

Australia’s iron miners exploit supply gap to outpace Covid-stricken rivals. BHP, Rio and Fortescue are sending record ore shipments to China, where lockdown easing is lifting the economy. Despite the spate over calling for a covid-19 independent inquiry the sector is doing well not lease because Brazil & S Africa its major competitors are struggling due to covid-19 issues. Which means for rhe time being Iron ore prices are likely to remain strong. +VE. Interesting to see Angang Steel and Maanshan Iron have been trading sideways in response to the higher iron ore prices.

South Korea shipyards buoyed by $20bn Qatar carriers plan. Positive to Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering whose shares rallied yesterday on the news. Although the number of ships to be built and the price were not disclosed. At the moment its just nice to have the signal of a potential US$20bn order. But the outlook remains bleak. They are under pressure from the Chinese shipbuilders and for China that will be a key source of jobs which it badly needs.

Delinquency rate soars for loans backed by mortgages. Looks at the state of the commercial sector in the US. Worth a read as this could have a significant impact on the financial sector as many funds have invested in these in search of yield that was supposed to be safe.

Data centres emerge as ‘recession-proof ’ bets during virus shift to online working Here is one area that property investors ought to be getting involved in, although the sector is already popular but the covid-19 outbreak has illustrated why we are going to need more of them going forward. Worth a read. It also is a big positive for the tech sector which makes the equipment inside these centres +VE

For interest
FT BIG READ. INTERNATIONAL TRAVEL The new era of quarantine Panicking at the start of the coronavirus outbreak, many governments decided to isolate new arrivals. But with little agreement about how to go about it, the new rules are often haphazard and muddled.

I hope you enjoyed, feedback and comments welcome