FT Weekend 20 June Pandemic Top 100 companies, HKEX, Rio Tinto and more


FT Weekend 20 June Pandemic Top 100 companies, HKEX, Rio Tinto and more

Prosperity in the pandemic: the top 100 companies As the crisis caused by coronavirus reshapes our world, the Financial Times profiles and ranks those businesses that managed to increase their market capitalisation during the year so far. Many of the names you would expect and a few surprises.   Key are the ones that will operate well in the post lockdown economy; bearing in mind the temporary and permanent changes that have occurred.  

Bankers hunt for Wall St-listed Chinese groups to bring ‘home’ to Hong Kong Following the success of recent secondary listing. Good news for the banks involved and for HKEX (388 HK) but I still think at some point the US could restrict US investors investing in names that have been delisted from the US on grounds of protecting US investors. At present no one seems concerned over that possibility.
It also means that Hong Kong becomes a much more Tech orientate bourse and hence the decline in weightings for Property names which were once its bedrock. When I started in HK over 20 yrs ago as a property analyst most company descriptions were ‘Engages in XYZ industry…. and property’. No longer HK property now only accounts for 5.42% of the HSI. On the plus side it does show have Hong Kong continues to adapt and in the light of so many concerns at present that might be a good thing.

Rio Tinto criticised by former adviser over heritage site blast • Sacred caves destroyed • ‘Accident waiting to happen’ • Indigenous rights in focus
Worth reading because the company has been benefitting recently from the increased iron ore prices and this could prompt an investor backlash. The shares trading lower on Friday. Another issue will be that Fortescue Metals Group just lost its appeal against a landmark ruling on indigenous land rights, which could expose the miner to hundreds of millions of dollars in compensation claims and set a precedent for other cases.

Relentless stocks on track for best quarter in a decade Global rally has shaken off the pandemic crisis, an economic downturn and political tension. There is a lot of positive sentiment and a feeling the rises could continue for various reasons. Some remain cautious. I think that the Q2 results which will be upon us soon could be the grounding that many are waiting for. There is a big fear of missing out but for a lot of investors want to see the fundamentals demonstrate that the rally has real legs. It will also be interesting to see what position analysts take. This quarter many of them are going lack the company guidance. In the past we have seen analysts following company guidance lower and then for the company to come out slightly better. With no company guidance they will have to make real calls. The question is will they following the bullish conviction of the rebound, will their models have accurately forecast what has happened in reality. It’s going to an interesting time and I suspect a nerve racking one for investors and analysts alike.
Darker corners of debt offer refuge for patient investors notes the concerns about financial instability despite the rebound in asset prices. The longer term outlook for equities is going to be impacted as corporate earnings are hurt by structural changes in supply chains, protectionism, taxation and potentially debt repayment if/when interest rates start to rise. Also equity returns will no longer be flattered by the fall in long dated government bonds as it is unlikely that yields can fall much further. But also as recently mentioned in other articles the classic portfolio diversified between bonds and equities no longer has the capacity for the bonds to absorb the shocks they once had which means portfolios should in theory be less inclined to change higher equity risks. Given then the key is then is what kind of economic and earnings recovery are we going to get? The fed and other central banks are worried (including China) because that will determine job recovery which tends to come from SME’s. Slow economic recovery can cause large companies problems, especially those who have high debt levels, especially at historic borrowing costs. The recent BoA survey found that most Fund Managers think companies should focus on debt reduction over Capex and Buybacks. The article says 'A lengthy process of repairing balance sheets, with weaker companies defaulting and restructuring, suggests the economic recovery will be modest, but it also makes a case for owning areas of the corporate debt market. Companies that pay down their debt in the coming years and climb back up the credit-rating ladder are certainly appealing.’
The Feds worries are seen in its move into buying corporate debt but defaults are likely over an extended period of time, which is a worry. The article notes that Blackrock is pushing less liquid private markets as a solution and Calpers has sold it will increase both leverage and exposure in order to try and achieve a 7% return over the next decade. Pension funds have been increasing their exposure too over the past 12 years according to Willis Towers Watson although there are obvious risks but at present few attractive alternatives. But key is that all this is required because of the intervention of Central Banks and the fact that they have been distorting the financial markets since the GFC and maybe even earlier. Every action they take, well meant to try and resolved a pressing issue has an unintended consequence. Worth remembering that we haven’t unwound QE from the GFC and since then Central banks have add significantly more policies.
I cannot help feeling that if we were analysing a company, rather than the economy, we would, long ago, have said enough. Let it fail go bust and start again. Since the GFC we thought that Central Banks could solve all the issues and keep all the companies going and we wouldn’t have to go through major company failures as had been seen historically. I think it has been admitted that monetary policy along cannot solve all the problems. Maybe we need to admit a major reset is needed?
For a more positive thought read Leading central banks to reduce use of Fed’s dollar swap lines next month which offers a positive note that at least dollar funding conditions have improved. That suggest an element of normally is returning to global conditions, although we still have a very long way still to go.

Fingers point to China as Australia suffers state-sponsored cyber attack. Although Australia did not directly say it was China but the article says 'the scale and sophistication of the malicious activity prompted cyber-security experts to speculate that China was the most likely culprit.’ Comes at a time when relations are already strained following Australia’s call for an inquiry into the origins of covid-19.
It notes that there are a number of countries that might have the ability of carry out the attack (Russia, China, US, UK, and perhaps Iran and North Korea) but with the current state of relations between China and Australia, China seems the most likely. Such actions damage China’s assertions that it is seeking to be a peaceful world player.

India and China play for high stakes in deadly ‘Great Game’ border dispute Territorial claims dating back to the 19th century lie behind clash that will increase militarisation. Looks the background to the dispute and the difficulties of operating at such high altitudes. Also the fact that for years firearms have been banned, and hence to ‘brawling’ and use of makeshift weapons.
It sets out that for years China has avoided trying to agree a set demarcation line in the hope that its rising military and economic power would over time allow it to gain greater leverage. In the meantime the two had seen improving economic ties, especially for Chinese companies into India.
The question now is whether the two countries will sit down and resolved the border question?
I doubt that China wants to get anything settled at the moment. To do so might set a precedent for other countries to want to sit down and agree borders and that risks China losing out in areas like the South China Sea, the Sea of Japan and even Taiwan. If it sits down with India the precedent is set to sit down with the others. As the article says 'Their calculation is that with every passing day, they get stronger. From China’s point of view, this ambiguity is far preferable [ to] . . . clarity on the ground.” ‘
The other factor t take into account is that both India and China have very nationalistic elements. In India with a free press there have been big calls for retaliation and the boycotting of Chinese goods. That has already seen a move by the Indian government baring state owned companies from using Chinese telecom equipment and private operators using equipment from Huawei and ZTE. It has also imposed new tariffs but of more powerful move is from the public calling for a boycotting of Chinese goods. It is a tactic that China has used in the past to great effect as Japanese and S Korean firms know well. So it is interesting that China, with its total control of the press has downplayed the incident in terms of the information being released. If China were to inflame its nationals then it might not be able to appease them and that would be another outcry against Beijing which has already seen outcries over poverty and this week the covid outbreak in Beijing. The party is well aware you can only have so many outcries before people start taking more serious questions about the competence of the rulers!
Trade-wise this is also bad timing as China needs access to as many export markets as it can with a global slowdown.
Read also Opinion Treat China’s border clash with India as a clarion call by Michèle Flournoy a former US Under Secretary of Defense for Policy, is co-founder of West-Exec Advisors. Josh Hochman, an associate at WestExec Advisors, co-wrote this piece
His first point is that this skirmish is the ’tip of the iceberg’ in regard to China’s increased assertiveness; which has been growing since 2008. At that time China took the view that America was weakened by the financial crisis thus giving China a strategic opportunity. It has invalidated the hope that the US could ‘influence’ China into being a 'responsible stakeholder’ in global affairs. Hence it thinks the India skirmish is to test the waters of international reaction, at a time when the world is already distracted by covid-19 and a global slowdown, to see what it can get away with. It notes that this is not the only ’skirmish’ unfolding.
'Such opportunism is not new, but the crisis has put China’s aggressiveness in starker relief. Its vessels have collided with foreign ships in the South China Sea. Japan protests that its vessels are being harassed in the East China Sea. Chinese aircraft have encroached upon Taiwan, and Beijing has promulgated a new national security law for Hong Kong that seriously erodes its liberties. If China truly wants to portray itself as a “responsible great power” it must start acting like one and put aside its longstanding reluctance to resolve territorial disputes through good-faith negotiations and compromise.’
Second that it underlines that China’s policy is not only rhetoric and that the region would be very different if dominated by China with its ‘might is right’ attitude which is already demonstrated in its South China Sea Policy.
Third that China is not just about a US standoff but all the countries; democratic or otherwise in the region.
The writer calls on all countries in the region to strengthen their bilateral and multilateral security co-operations. In the past the US might have rallied them together Trump is unlikely to do that.
It notes 'International order is not self-organising. A security environment conducive to democracies flourishing is not a birthright. It is a cherished legacy of sacrifices by the US, its allies and its partners that can only be preserved if the region’s democracies recognise and take steps to protect their common interests and values. Without such a strategy, China will continue pushing boundaries, posing unacceptable risks to international order.’
I agree with many of the writers opinions. My biggest concern is over Taiwan. I think that Western countries need to stand up for Taiwan and make it very clear that the world acknowledges Taiwan as a country dependent from China. Unless they do then China is likely to think that the world is saying they believe Taiwan is part of China and so China can get away with invading it. That is what many nationalist in China are currently calling for. The temptation I think, for China to have a go in ‘unifying’ it is dangerously high. In part, by not inflaming a nationalistic response to the Indian incident it could be preparing the case to present the Chinese people as to why its important to invade Taiwan now.
The US’s move in restricting tech to ZTE and Huawei makes it clear how important Taiwan as a tech hub is to the world. Just imagine the change globally to the balance of power would be if TSMC, the worlds leading semiconductor firm, was in China’s hands.
I think is time the people of the world called on their elected representatives to acknowledge Taiwan as an independent country, that doesn’t want to be part of China (demonstrated in the recent election results) to call for it to be admitted back into the UN.

Conspiracy theories abound over Beijing outbreak. Wild online speculation erased but state-promoted rumours spill out into real world. Continuing the theme of controlling the media; this article looks at the many different theories that were allowed to circulate on Chinese media about the outbreak in Beijing. Obviously Beijing encouraged them, in so much as it didn’t stop them and its well known that it can. Be allowing them it was deflecting attention away from the party not having Covid-19 under control.
The initial rumour promoted by the government in the Global Times was that the source was imported in salmon from overseas and definitely not locally transmitted. That spread inside and outside China and hurt fish farm share prices in Europe and was later revealed to be untrue but it had already resulted in 1,000’s of salmon products being removed from shop shelves in China.
It shows the power of being able to control social media, which is the absence of free media leaves the citizens with nothing to judge the contents truth or accuracy. It allows the party to direct most peoples thinking inside China.
The article quotes researchers from Stanford University “Groundless speculation about the origins of the pandemic did not begin with Zhao (the Ministry of Foreign Affairs spokesman), but the case of his eye-catching tweets reveals how China’s changing propaganda tactics have interacted with mangled news reporting, social media conspiracy theorising, and underlying US-China tensions — all resulting in high-profile misinformation about a public health crisis,”
As long as it can continue that then the Party is fine and I think is a major reason for China not wanting an investigation; it fears the truth about where the virus originated and when it was first known about by the leaders in Beijing. The truth would also reveal the implicit action by Beijing in not telling its citizens the truth; that could be the undoing of the party.

Hong Kong public broadcaster faces pressure to self-censor. Reports that RTHK journalists have ben told to ’tone down’ their coverage of the city’s independence movement, it comes after increasing HK government criticism of the station’s reporting. It reports that 'At a meeting this month, Leung Kawing, RTHK director of broadcasting, said journalists should not repeat protest slogans of independence activists in the city in their reports’
I think the important point to note in that is that the HK Government and Beijing view the protests as being independence activities. In my view they are not. The majority of people want to stay as a part of China BUT they want their views and voice to be heard and respected. It reveals the paranoia of Carrie Lam and Beijing; they are not hearing what the people of Hong Kong are saying; democracy and representation is not independence.
It notes that RTHK is not owned by big pro establishment business families but government funded with a charter that states its aim is to provide “timely, impartial coverage of local, national and global events and issues”.
RTHK was also criticised by the Hong Kong broadcasting regulator saying its satirical show ‘Headliner’ deliberately insulted the police. Many in Hong Kong allege the Police in Hong Kong have acted with impunity. As 1,000’s of protesters have ended up in court but not one member of the police force. The review board that was supposed to investigate the police’s action has not reported and was seen to be worthless when international members resigned from it because it was not given any power to investigate. Interestingly this week as magistrate gave found that there was enough evidence for a private prosecution to proceed against the policemen who shot a protester at close range in the stomach. That has prompted Secretary for Justice, Teresa Cheng, to say that the right to institute a private prosecution is an important feature of the common law system, but it might be open to abuse, and that those which are groundless or frivolous or brought out of improper motives or political considerations should not be condoned.
It is a luxury of the freedoms that Hong Kong currently enjoys that whilst private prosecutions may be open to to abuse, and that those which are groundless or frivolous or brought out of improper motives or political considerations they are conducted in public an the people can make their own assessment.
As America is currently finding out and I suspect some in Beijing are worried about; if your police do not act in the best interests of the citizens the backlash can be devastating
Against the background of the proposed National Security Law it does not give confidence that the freedoms currently enjoyed in Hong Kong will continue.
For international investors it presents a dilemma and one that is likely to take on more weight if ESG issues become important. Short term it does not seem to have had a significant impact on stocks but I was contacted by one paper to asking whether the new proposal for a National Security Law in Hong Kong would make analysts more cautious about what they wrote about Chinese companies. I don’t think it will but it is a worry that some think it might.

Two Canadians charged with espionage after Huawei arrest. After 18 months the article reports ‘in solitary confinement, deprived of sleep and interrogated regularly. They have been allowed one brief consular visit per month, and no access to lawyers prior to their formal arrest.’
Again more reason for concern about the imposition of a National Security Law.
Especially as this week the deputy director of the Hong Kong and Macau Affairs Office, Deng Zhonghua, said that Beijing will have jurisdiction over "serious" national security cases once the law is passed.
The arrests are widely acknowledges as ’tit for tat’ arrests after Huawei’s CFO was detained in Canada. She is allowed to travel feeling around Vancouver during the day and only confined to her large house there overnight and has had full access to her legal team and consular services.
The contrast and hypocrisy demonstrated by China is, rather than shocking, it is an all too familiar example of the double standards by which China operates.
It is this that I think will result in Hong Kong’s demise and to extent China’s aspirations to be a global force. If people cannot travel in China and possibly soon Hong Kong to do business, or you can’t send key staff there to oversea operations then business and reputation are lost.
The fact that the prosecutions have been announced now as Ms Meng’s legal team failed to get her case dismissed is also telling. China resorting to bullying of due legal process that it doesn’t like. All the time telling others not to interfere in its processes.
Worth remembering that Canada isn’t the root of the issue; they are suffering the collateral damage of the US’s dispute with Iran. The base of the case is whether Huawei broke the sanctions that the US imposed on Iran.

Kenyatta warns of US-China rivalry fallout President fears Africa will suffer if Washington and Beijing tension continues. Again more collateral damage and with little prospect of any change ahead. Increasingly countries are being forced to make a decision about which side to align with; when in truth they need help from both. Mr Kenyatta is also under pressure because Kenya is about to start bilateral trade negotiations with the US, rather than as part of the 54 member African Continental Free Trade Area. It should not be forgotten that the US is just as adept as manipulating the systems as China is to get its way. Neither the US nor China can really claim the moral high ground. But I do think that as long as the USD its the reserve currency of the world it will always have the upper hand.

Pompeo calls Bolton a traitor and accuses him of writing lies. The publisher must be shouting for joy; no need for a marketing budget with the Trump administration doing all the marketing and more. It will remind many of the UK Government trying to suppress Spycatcher. The furore by the administration does suggest there is at least some truth behind what Mr Bolton has written.
See also the Editorial Bolton underlines global stakes of the US election Tell-all book shows Trump’s foreign actions are deeply troubling. Takes the view that
'Beset by the virus and racial strife, Americans could be forgiven an inward focus in this election year. Mr Bolton’s book offers some reasons to consider the larger stakes. Republicans are right to insinuate the messenger is flawed. The message, nevertheless, is all too credible.’

Focus on racism and income inequality signals evolution in Federal Reserve’s thinking. Worth a read and interesting to note that the Fed is concerned and that its policies are likely to try and use monetary policy to try and help minority communities. Whilst it is unlikely to introduce policies directed specifically as minority groups, it can in keeping policy loser for longer to benefit them. That is obviously going to benefit most of the rest of the economy as well. It does however also mean that savers are likely to be disadvantaged for longer as interest rates remain low, it also means that those saving to make purchases or retirement are going to have to save more. Which means there is likely to be less money circulating in the economy. At a very basic level it shows how blunt a tool monetary is in trying to achieve some objectives. The reality is that is the job of governments to eradicate racism and income inequality but the unfortunate truth is that those in government are more cornered about getting re-elected that in resolving the real problems of society.

The Big Read RETAIL Dressing up again The long queues at reopened shops suggest pent-up demand. But the impact of Covid-19 has been severe on an industry dependent on global supply chains, high levels of discretionary spending and tourism. Looks at the impact of covid-19 and how it has affected brands across the world. Key points seem to be that established players probably have strong enough balance sheets to survive. Some will look for opportunities to buy competitors or acquire new lines. Those with large debts and new start-ups will probably suffer most and some upcoming designers will be set back. But it expects luxury to continue and that the industry whilst changing is going remain as Paul Smith says 'There will always be demand, he says, for a well-made suit. “Quite a lot of people who enjoy clothes will want to dress up again.”'

For interest
A sports star uses his platform for good The Manchester United striker has forced the government to feed Britain’s poorest children, writes Murad Ahmed. Heartening to read how the footballer has not forgotten his roots.

US biotech group to trial Covid pill for home use. If the drug is ultimately successful, it would offer a simple twice-a-day tablet that could be given to millions of people who test positive, preventing them from becoming seriously ill and helping them recover more quickly. Worth watching.

When will we fly again? Airlines are rushing to put planes in the skies but passengers are reluctant to board. From social distancing to luggage rules, Michael Skapinker on the challenges ahead.
The real answer is of course when there is a vaccine or cure. In the meantime key is passengers being aware of their own health. The article does mention that IATA noted on the positive side 'that passengers all face the same direction, that they are protected from those in front and behind by seat backs, that cabin air flow is from ceiling to floor and that modern planes have high efficiency particulate air (Hepa) filters that are effective at trapping viruses.'
Pre flight testing will be another positive for flying and whilst not mentioned in the article there is the Oura ring FT Article Covid-detecting ‘smart rings’ to be trialled by staff at Las Vegas resort June 16)

BOOKS
Wuhan: the insider’s account. Fang’s simple account of what she saw, heard and felt serves to distil and amplify the trauma of a city in crisis. The collection of 60 entries, mostly written before the rest of the world had woken up to the threat of Covid-19, is also a painful reminder that the risks of contagion were clear in China, even as they were ignored in western capitals.
'In Fang’s words: “China’s lax attitude early on and the West’s arrogance shown in its distrust of China’s experience fighting the coronavirus have both contributed to . . . all humanity having been dealt a heavy blow.”
It is a simple but powerful message — one that wouldn’t go amiss in either the courtyards of the Zhongnanhai leadership compound in Beijing or the corridors of the White House.'

Conflict economics 
Essay | The faultlines in the global economy run more along divisions within countries than between them, as an important new book argues. By Martin Wolf
'Trade war is often presented as a war between countries. It is not: it is a conflict mainly between bankers and owners of financial assets on one side and ordinary households on the other — between the very rich and everyone else.”
This encapsulates the argument of Trade Wars Are Class Wars.’ An interesting read and looks at Germany, China and the US over the past 30 years.

Feedback and comment welcomed