FT 4 June TikTok protests - Tiananmen Sq? HSBC, Airlines, 5 eyes, Autos and more


FT 4 June TikTok protests - Tiananmen Sq? HSBC, Airlines, 5 eyes, Autos and more

Markets
Opened higher following the strong showing in Europe and the US but with little local news to drive markets and concerns over US/China relations and covid-19 they sold off. Being the anniversary of Tiananmen Sq there is likely to be caution in HK trading.
Japan Opened higher but trended lower found support at yesterday’s closing level and currently trading sideways.
S Korea Opened higher and trended lower dipped below yesterday’s close but then bounced, currently trading around flat.
Taiwan Opened higher small sell off and then traded sideways
HK opened on the highs and sold down before bouncing at the 24,200 level to close -27pts at lunch.
China followed a similar pattern and bounced into the lunchtime break
Europe Likely to open higher on the expectation of more support from the ECB today.
US Futures opened flat and dipped slightly, currently Dow -45pts

Tiananmen Square anniversary today for the massacre that happened 31 years ago; with the number of fatalities still not known. The annual HK vigil banned by the HK police on the grounds of covid-19. There will be an online event and I suspect a lot of groups of up to 8 people in Victoria Park and elsewhere. The online FT has When tear gas comes to TikTok: how the internet is changing protest. Which looks at how posts on TikTok (owned by Chinese ByteDance) have changed/reacted to the US protests. It along with Snapchat and Instagram have changed from ‘junk food for the brain’ and are becoming forums for civic activism. There are already post of Hong Kong protests and other actions. It also notes how some people are putting their phones into airplane mode near protests to avoid being tracked. But the posts recounting what is happening are vivid.
There are calls for cyber action and solidarity. In the US many of the leaders are on-line in HK after the umbrella movement they realised that was dangerous even in Hong Kong’s so called free society. The article also notes that the algorithms within TikTok are sending the content posted by others to particular profiles and there a huge number of clips showing police violence as well as rioting, vandalism and looting. Those algo’s and that profiling will have a significant impact to the reaction that results and have been designed with a target audience in mind.
As it notes
'A world full of echo chambers is a place where it is difficult to create sensible policy solutions. It is also a place that is easy for provocateurs to manipulate. (There is speculation that Russian or Chinese outlets may be using social media to spark more unrest in an effort to influence American institutions, echoing what was seen in 2016, while domestic political groups may also be seeking to inflame tensions in order to influence the November election.) And that is before you throw in the additional ingredients of tear gas, rubber bullets and youthful emotion.'

HSBC risks Hong Kong backlash after publicly backing Beijing’s security law. Having come under pressure from CY Leung the current Vice Chairman of the National Committee of the Chinese People’s Political Consultative Conference and other delegates from China’s parliament about its stance to declare its stance it has revealed it supported the law. It said “We reiterate that we respect and support laws and regulations that will enable Hong Kong to recover and rebuild the economy and, at the same time, maintain the principle of ‘one country, two systems’,” Having seen what happened to Swire I think the management made a sensible decision but it is not out of the woods. It could still see a backlash from pro democracy supporters and groups although it must be hoping that the reaction will be limited.
The article also mentions that Nomura was seriously examining the scale of its operations in Hong Kong. (Read also Nomura reviews scale of operations in HK and LEX Nomura/Hong Kong: beyond our Ken)
Not mentioned in the article but yesterday there was also an AMCHAM survey that showed of its 180 US firm members; 30% of them were “moderately” concerned and 53.3% were “very concerned” about Hong Kong National Security Law legislation. Some 30% of the respondents stated that they are considering moving capital, assets or business operations out from Hong Kong.
Today is the anniversary of the Tiananmen Square massacre 31 years ago and in Hong Kong the police have banned the annual vigil due to covid-19 but a virtual vigil will be staged on line and the organisers are hoping that supporters will still commemorate the event by lighting candles across Hong Kong. It could be an interesting evening as I think there could be a lot of groups of 8 (the maximum allowed under covid-19 laws) heading to Victoria Park.
Also worth noting that Carrie Lam announced following her visit to Beijing that the authorities were aware of the opinions of Hong Kongers on the National Security Law issue but she would not give details of what those were.

US vows to bar Chinese passenger airlines. Key is that China still flies to the US but doesn’t allow US carriers to fly into China. Due to come into affect from June 16. The US says the move is to ensure that both parties get to fully exercise their bilateral rights, which I have to say seems reasonable.

US realises Five Eyes are better than one in dispute with China. A step in the right direction, presenting a nearly unified approach to China is more likely to produce results than individual representations. This group of five have a number of common interests with respect to Hong Kong as well as long standing national ties to each other. The question is now whether it has any impact on China? I think it is still unlikely; as President Xi is really playing to his home audience. More importantly will be if this united front marks a new phase of Trump’s US diplomacy, working with others to achieve common aims. The FT over the past few years has often reported how much more effective US policy could have been if it had worked with other countries. We have seen China trying to utilise a divided and conquer policy if the majority of the world now presents a united front then some of China’s bullying and oppression may be checked. It could be timely as yesterday the US lent it voice in support of growing calls at the United Nations objecting to China’s claims over the South China Sea saying they do not comply with the 1982 US Law of the Sea Convention (Unclos). This comes months after China underlined its claims to the the contested waters by notifying the UN of its claims; at the time that prompted many countries to file objections. The matter is on-going but worth remembering that when the Philippines took action against China and won; China’s reaction was to say it didn’t recognise the court. It can’t say it doesn’t recognise the UN without undermining its ambitions to be recognised and accepted as a world power.

LEX China cars: shock and roll. Is positive on the outlook for the Chinese Auto market after the May car sales data that came out yesterday. It expects pent up demand and buyers seeking to avoid the risks of public transport. It also notes the need to consolidate car manufacturing in China. It likes Geely and Dongfeng and expects more consolidation ahead.

USD hit its weakest since March 11 yesterday. At the start of the crisis everyone scrambled for the USD in order to pay off debts and it was seen as a safe haven. Now with economies re-open and businesses restarting the necessity to hold USD is easing. It therefore likely that other currencies which have been relatively stable recently, like the Yen will also see a return to more normal volatility.

‘Japan model’ brings infections to heel Cluster control strategy helped but timing mattered most of all, claim experts. Looks at what is the Japanese model. Notes that it didn’t impose a compulsory lockdown and did little testing. It sets out that it was less about culture and seems to have come down to three things:-
'Instead they point to three more prosaic factors: a special contact-tracing strategy, early awareness that brought a positive reaction from the Japanese public and the timely declaration of a state of emergency.’
It notes that timing was crucial and things could have been done better but it did work well in the initial stages. It will be interesting to see if, in the light of Ctherecent increase in cases in Tokyo it continues to do so and if the system will adapt. Worth also reading Swedish virus expert admits mistakes Scientist behind the ‘lighter lockdown’ agrees extra curbs could have cut death toll. Anders Tegnell, Sweden’s state epidemiologist, agreed with the interviewer on Sveriges Radio that too many people had died in the country but also noted that if at the start they had known then what they know now everyone would have reacted differently. Not in the article but just remember that at the start there was a rush to buy ventilators, now many of those sit unused as doctors learnt about how to threat the virus. For investors some are thing the same regarding the large provisions that the banks have already taken. I suspect more of those are going to be used that the ventilators so many health authorities have bought.

Google takes down phone service that removes Chinese apps. 'Remove China Apps, from the Indian developer OneTouch AppLabs, was downloaded 4.7m times in India between May 27 and June 1, according to SensorTower data.’ Google’s policy forbids Android apps that help people delete/disable other apps. But it highlights the concerns of many about the influx of Chinese tech companies in India and a move by New Delhi to tighten foreign direct investment rules for Chinese groups. It is probably safe the say that there are similar concerns in other countries too but in India at the moment with heightened tensions on its border with China it in particularly focus. The article notes that there have been calls in India for people to boycott Chinese products using 'wallet power’ a technique that China has used in disputes with Japan and S Korea and that might now be coming back to haunt it.
The article notes that regarding Chinese apps 'the three biggest concerns around such apps were censorship, data security and the potential for computational propaganda and dissemination of a pro-Beijing agenda.’
It is going to be an area that comes under more scrutiny as time goes on. Gone are the days of just being able to down load an app and trust that it only did what is said it would. For investors I think the key point is that data centres and tech hardware and software are going to be in every much demand.

Brussels treads tricky path between ‘resilience’ and protectionism Looks at the case for Europe but the reality is that is it increasing a global issue. Resilience is good but protectionism is bad. Looks at the testing of supply chains and particularly the reliance on China. But EU reliance in China is not great but has been growing. Makes that point that companies were given a hint of what could happen in 2011 with the the earthquake in Tohoku, Japan but didn’t says Isabelle Méjean, professor of economics at the Ecole Polytechnique. She set out a ' hierarchy of intervention’ four points she recommends the EU could adopt (again applicable anywhere).
1 Better information about the vulnerabilities within supply chains
2 The use of stress tests similar to those used for banks
3 Provision of tax benefits for holding larger inventories
4 Subsidise/invest in new industrial capacity to ensure Europe has diversity of supply or can capture more of the value-added in production.
The EU had embarked on some projects that were designed to improve resilience. Key is that whilst some say global supply chains with emphasis on outsourcing to China leaves countries vulnerable but Prof Méjean makes the point “Importing [medical] masks from China is not a problem. Importing all our masks from China is a problem.”

Public participation in equities is flagging when we need it most. Looks at the case for broaden opportunities for people to own a real stake in the recovery, whether through domestic sovereign wealth funds or retail investment products. An interesting read of how to help pension and mutual funds. But the title is misleading because I would say, judging by recent data on how many new individual broke accounts are being opened that the public is looking to participate but even more directly than the article intending. The question with the personal broking accounts is will they continue to be used when people are back in the office? Equally when there is a big sell off will those investors retreat from the market and not been seen again?

For Interest
Are we heading for another Depression? Leading economists and market analysts on what is next for the world economy. 4 different opinions
Expect fumbling fragmentation Robert Zoellick,  Former World Bank Presdient and author of  ‘AMERICA IN THE WORLD’
A V-shaped recovery is on track Mike Wilson, Morgan Stanley's Chief Investment Officer.
Without a global recovery plan, demand will stagnate Mariana Mazzucato , Director of the Institute for Innovation and Public Purpose University College London.
It could be the 1930s all over again  Andres Velasco Dean of the School of Public Policy, London School of Economics.

None are really expecting a depression; all recognise the importance of vaccines for the recovery
An interesting read and at the end of the day no one right answer the likely outcome will draw something from all of them

I hope you enjoyed the read, feedback and comments welcomed