May 20 Huawei - what now? HSI allows WVR +VE, Softbank -VE, and more


Asian Markets rallied strongly this morning following rally in Europe and the US.HK and China; after the initial spike are trending lower.  Shorts would have been hurt in HK (seen in the high initial T/O) and now expect caution ahead of PBOC Prime Loan Rate decision tomorrow and NPC and CPPCC at the end of the week
JAPAN Spiked higher and has traded sideways
S KOREA didn’t see so much upside and the Kosdaq slipped into the read in early trading. But both now in the green and trending higher. Concerns over US/China hurting.
TAIWAN Opened higher but failed to get close to the resistance of 11k. Then drifting lower. TSMC only +0.9% as impact of US tightening on supplies to Huawei hurts.

US attacks Xi $2bn pledge to fight virus President Xi addressed the WHO yesterday and sought to deflect criticism of its handling of the covid-19 outbreak, stress the good China had done and tried to take the mantle of being a guardian of world trade.
In my view he was unsuccessful. He has conceded to an investigation of the origin of the virus although he wants it done when the virus is under control (the WHO said earliest opportune moment) but that is a big concession for him to make. Whilst stressing the need to international co-operation and support of supply chains after the address he imposed tariffs on Australian barley imports which most will see as a retaliation for Australia pushing for an inquiry into the source of the virus.
The US welcomed 'high-quality, transparent contributions’ but viewed China’s offer as an attempt to deflect blame. Coming at a time when many; especially the US are trying to get renumeration from China because of its initial handling of the outbreak.
President Xi also mentioned suspending debt servicing for the 'poorest countries’ by G20 although didn’t expand on whether that would would include Belt and Road projects. He stated that China would make any vaccine available for ‘global public good’.
The article doesn’t mentioned the fact that Taiwan wasn’t invited due to China’s objection which was also condemned by many not least because of Taiwan’s success in handling covid-19. The fact that just because China claims Taiwan doesn’t make it so. It is strange that the WHO still feels bound by a decision it made back 1972 when the world was a very different place.
Looking forward the tensions between the US and China are not being eased and the framework for real co-operation lacking. President Xi was right to call for a united approach but that is only likely to happen with full transparency and in China that is unlikely to happen; especially with the party under threat from factors like a slowing economy and rising unemployment.

Huawei warns its survival is at risk after latest US move. Washington decision ‘pernicious’ Sanctions expected to hit expansion. This is the reality for China that in many industries and especially those that China aspires to be a world leader under its Made in China 2025 programme it is still beholden to the US. Getting to be dominant in Tech is not easy or cheap unless you steal your way there and that’s not easy! China can focus on developing its tech but its tough and at the same time your competitors are always moving ahead. This is one more straw on the camel’s back.
The US has more economic tools in its arsenal the question is does China anything to fight back with?
The FT quotes from a statement the company made
'“This new rule will impact the expansion, maintenance and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries,” it said in a statement.
“To attack a leading company from another country, the US government has intentionally turned its back on the interests of Huawei’s customers and consumers. This goes against the US government’s claim that it is motivated by network security.”
The company also claimed the US’s campaign against it would damage the global semiconductor industry.’
I think the first two statements are true but I doubt it will do last damage to the semiconductor industry. That industry is always looking for ways to improved and expand the scope of its products.
For President Xi it will give his detractors more ammunition that his policies are failing. It will be interesting to see whether this is addressed at the NPC and CPPCC meetings that start later this week.

Hong Kong benchmark paves way for Alibaba inclusion Looks at the changes announced by Hang Seng Indexes regarding whether companies with Weighted Voting Rights should be allowed into the index. Whilst there were concerns over 90% or respondents said yes; so they will be allowed in. However their weighting will be limited at 5% initially. Means that Alibaba and Meituan now eligible for inclusion but only to a maximum of 5% vs Tencent which has a current 12% weighting.

Chinese self-driving car projects accelerate. More than 30 groups are forging ahead with testing as virus leaves US rivals in limbo. I must admit I don’t think a couple of months is going to make the difference between success and failure. Also there are big differences between China and the US in terms of testing and roll out; not least because of the Government support China is giving. This is an area that China is aiming for a first.

SoftBank founder and CEO says he is misunderstood — just like Jesus Christ. I’m not sure many people would. He was presenting the latest results which were not good and raised questions about the future of the Vision Fund which has seen its value marked down by $18b as several of ‘its large bets’ to quote the FT like Uber, Didi and Oyo were hit by covid-19. In many people’s eyes that will be the key; many of the companies that the Vision fund invested in were bets. Regarding the second fund Mr Son said it would go ahead but using Softbank’s own money but might open to outside investors later. Softbank warned it may not a pay a dividend this year, for the first time since listing.
I think it's not so much that Mr Son is misunderstood but that he doesn’t explain his decision to investors before or after making investments.
See also Lex SoftBank: final fantasy. Takes a negative stance on the results, notes the shares have risen 72% since March but due to buybacks and that the company has also seen increased financing costs which is hurting. Most importably that does nothing as assist with the fact its investments are exposed to ’shared economy and travel’ not good in the current economic situation. Lex doesn’t think Softbank’s unicorns are going to fly anytime soon… neither do I.

We need banks to stay healthy and make it through the crisis Looks at how 'over 11 years ago, HSBC asked its shareholders to back an unprecedented £12.5bn rights issue.’ In hindsight it made sense and allowed the bank to grow and in time count its share price because it had the capital to survive and grow. So too this time around cancelling the dividend makes sense and Patrick Jenkins suggest that others will be raising capital too; for example PNC selling its stake in Blackrock which could be to fund buying rivals, says the article, but more likely is that it gives it a better buffer.
He suggests that those who act early do better with their shareholders; so +VE for HSBC.

US biotech Moderna shows positive results on vaccine trials. Looks at the drug that prompted the overnight rally in the US. Phase 1 results were positive with minor side effects. Phase two to start shortly, Phase three in July with results by the end of the year assuming the phase two shows equally good results in the meantime. So a good step but that still means 7 months before a vaccine id approved and then it has to go into production and be administered. That is still a long time for the global economy to survive. I remain cautious and expect to see more volatility in the coming weeks. My big concern remains the slow down in China with rising unemployment raising the risks of social unrest.

Early contact-tracing apps offer tool but no silver bullet out of pandemic
Low uptake in India, Norway and Singapore hampers efforts to use technology as nations reopen. Tech will help but its not a full solution and in addition to not everyone has a smartphone and for many there is the privacy consideration. Notes that in Singapore a lawyer says the people don’t trust the government to handle peoples personal data. But the government is pushing ahead and has rolled out technology ’SafeEntry’ in April for entry to hotels, supermarkets, hospitals and offices; using QR codes. It notes that apps with limited scope are having more success. I was in Singapore a few months ago and they were quick with temperature cameras on office building and hotels. They have always been used to providing ID’s to enter office buildings and so it is a bit surprising that they are resistant to this next step. Which should be a warning to the government that it needs to do more to gains its peoples trust.
Read also Taiwan trial brings hope for restoring international air travel Looks at a study that Taiwan is undertaking with Stanford University with regarding to protocols for when air travel is allowed again. Another reason that maybe Taiwan should have been invited to the WHO meeting?

Oil volatility puts spotlight on big speculative bets
Regulator plans to relax position limits despite recent turmoil in crude trading. Looks at how the Commodity Futures Trading Commission is proposing to change the rules; key being that it would only set limits during the final three days before expiry rather than trying to cap exposures for longer periods. Worth a read but notes that it would not have prevented to turmoil we saw last month because of the USO’s positions.

Banks probe alleged sales push linked to business loans. Looks at UK banks on whether they 'pressured corporate clients into giving them extra business in return for loans, after the country’s financial watchdog warned against the practice during the pandemic.’ HSBC mentioned as one of the banks conducting internal reviews.

For interest
Investors bet debt-laden legacy carrier American is on course for Chapter 11 again
Looks at how the company’s credit default swaps price has been rising since February; faster than its competitors. The article notes that capital expenditures and share buybacks have contributed to its debt burden and it quotes and S&P global rating analyst who says they company prioritised buybacks over debt repayment.
In the future I think there should be more control over share buybacks vs debt repayment in order to ensure companies are better prepared. Hopefully, covid-19 only happens once in a lifetime, (but we probably said that about SAR’s too) but it does highlight what decisions board have been allowed to get away with in the past


Barr berates Apple for failing to help unlock killer’s phones Another example of the concerns over handling of personal data. Barr is saying the Apple complies with the demands from Russia and China to set up data centres in those countries which could be used to ‘enable bulk surveillance by those governments’ . He also mentioned the barring of an app that was being used by pro democracy advocates last year in HK. BUT is will not help law enforcement agencies in the US. This will be an ongoing debate for years to come. At the end of the day Apple will do what is best for Apple.
At a slight tangent but in the same vein I am sure the smartphone makers could make our phones even more safe not by just encrypting the data but by making it unusable to anyone but the owner. Of course they don’t because replacement phones for those stolen is good for business. It would be nice to think that one day that might be standard.

Hedge fund heavyweights tighten grip
Virus hastens trend of smaller outfits being squeezed amid investor caution and regulatory burden An interesting look at the industry. Two clear points size matters; if you are large the prime brokers are nicer to you and helps in difficult times. But as one CIO says; '“If they become too big, it’s a problem,” said Con Michalakis, the chief investment officer of Statewide, an Australian pension fund. “If you have a few lumbering giants and one of them missteps, you will have turmoil.”'