May 22 CHINA on HK, Versus US, What & When did Xi know? Sony, Samsung and more


Markets all significantly lower as China seems likely to impose Article 23 on HK and the implications for HK as well as Taiwan and China/US/World relationships.

On line edition has a number of articles regarding the possible new security law for Hong Kong, (-VE and I’ve written a separate piece on the website) the fact that they have dropped the setting of a GDP target (+VE) and Baidu reconsidering its US listing. All worth looking at.

China risks reigniting Hong Kong protests by imposing security law. Beijing set for show of force Local legislature bypassed Move likely to provoke US. I’ve covered this in a separate article but basically I think reflects that President Xi is under pressure over covid-19, the US tariff war, the US attack on Huawei’s essential supply chain, Taiwan and protests in HK. Of that list HK is the one he thinks he can act decisively on. Whilst we haven’t seen what is actually being proposed it is likely to resemble the Article 23 that Hong Kong was supposed to enact in its own time and measure. When Tung Chee wah tried 500k people protested and it was shelved. In the light of the recent protests I suspect that more than 500k people would come out…. If the government were to give permission for them to do so; remember at the moment groups of 8 only.
The key is they are saying they expect to lose the pro Beijing majority in the September elections and don’t think they can get anything through Legco before that. But they think they can use a loophole to put the legislation in place without it going through Legco. There is likely to be huge public backlash in HK and how that is dealt with will no doubt influence how the US and other countries react. Key is whether HK loses its special status and whether the US further weaponises US pension money. China still needs the HK ATM for access to international funding. Its going to be an interesting weekend.
Read also FT BIG READ. CHINA What did Xi know, and when did he know it? Pressure is mounting on the Chinese leader to reveal details of what Beijing knew about the spread of coronavirus. But, say critics, the authoritarian system makes an independent inquiry impossible. The article raises lots of questions many of which we may never know the answer too. But it highlights the pressure President Xi is under at home.

Senate passes bill putting audit pressure on China listings. Means that firms have to adhere to US accounting rules. Also they will be required to disclose whether they are owned or controlled by a foreign government. It was passed in the Senate but now has to get though the House. Whilst not mentioning Chinese companies specifically they are the obvious target.
It is interesting that for years China has been allowed to operate its own accountancy standards. It is part of China’s stand against the West, just like it was with 3G and in its recent attempt to re-write the internet protocols. The reality is that the West for years so wanted access to China’s markets that it was prepared to overlook the signals. Now they are obvious and becoming the friction points. For President Xi they are the hallmarks of the Communist Party and his is determined for them to remain; he wants China to be the leader on the world stage and believes it is inevitable, along with Made in China 2025, dominance in 5G and 6G, ownership with the 9 Dash line in the South China Sea and unification of Taiwan. Not so dissimilar from Trump believing that as US President he can do anything he wants.

Baidu plans for Nasdaq eviction as US curbs China. Related to the above article. The company said that if you are a good company there are many possible venues, not limited to the US. Whilst that is true the US offers the most liquidity and understanding. China’s own nasdaq equivalent has failed to really get off the ground in terms of offering liquidity and I think US listed Chinese companies would have trouble finding anywhere that was as good as the Nasdaq.

Tensions grow in India-China border dispute. Looks at recent skirmishes, which are probably part of the on-going theme of China trying to asset itself and to claim as much territory as it can. So far they have just been skirmishes but they have the potential to escalate and that could be real problem. It is more pressure on President Xi and with everything else that is happening you wonder if he has the bandwidth to deal with it all?

Scandals threaten Singapore commodity hub ambition Questions raised over strength of regulatory framework and oversight of trading houses. Looks at the recent scandals and the fact that there are scandals, plural is a worry. No doubt the government will now be giving more attention to the matter and the requirement not only for tighter regulation but also its enforcement. Fines etc after the event are of little compensation to those who have lost money. Investors, including the banks will want to know the regulations are being enforced before it comes to that.

Death knell sounded for traditional trading Virus forces drastic shake-up in working patterns and deep thinking about what the floor of the future will look like. A good article that highlights that trading doesn’t have to be done on trading floor BUT I still think it is best done on a trading floor. Whilst trading can be done anywhere it notes that trading from home has meant more mistakes and failed trades. Also increased risk of home broadband going down (who has a backup UPS and alternative broadband at home?).
One thing it can’t pick up is the missed trades because you weren’t sitting next to your colleague who mentioned something that triggered a call and resulted in a trade. Also the fact that some trades will not be being executed in the best possible manner because the informal information flow isn’t there. I agree with much of what the article shows is possible but from my trading experience whilst a lot can be done efficiently via FIX, Bloomberg or other trading platforms often the really good trades are done because of word of mouth.

Sony focuses on headsets as virtual events become reality. An interview with CEO Kenichiro Yoshida six months ahead of the planned launch of its Play-Station 5 and what analysts believe will be a period of blistering competition with Microsoft’s new Series X machine.
An interesting read but for investors it highlights the fact that the chip and other hardware business is about to see a surge in demand as these new consoles come onto the market and gamers upgrade. In some ways the covid-19 pandemic has raised the profile, and the need to upgrade to be able to take part in more social gaming.

Samsung defies pandemic and trade spat with chip expansion. It's building a new plant in S Korea and interestingly it says that it is also going to expand its factory in China. Chips are clearly going to be in demand and the US action against Huawei is not going dampen demand. But it will be interesting to see whether with US tightening on the use of US technology or machines to make chips for Chinese manufacturers changes that decision with respect to the Chinese plant.

LEX Panasonic: running low. Looks at Panasonics investment in US supply-chain software provider Blue Yonder in the hope of developing retail and manufacturing management solutions. In time also shelf-stacking robots. But it still has an issue with it business with Tesla, which could get worse if Tesla decides to diversify suppliers. Key then to Lex is 'Shares in Panasonic have fallen more than 50 per cent in the past five years. At home, the effects of recession cast a shadow on future sales. Until robots appear as shelf stackers investors should not expect a turnround.'

Mall of America’s skipped payments signal threat to mortgage-backed debt Another potential threat to the US financial system (Banks, Pension Funds, Hedge Funds and Individual investors all are involved); America’s biggest shopping mall has missed mortgage payments in April and May and whilst it is not clear at this stage 'whether the owner is seeking forbearance on the loan, a delay to foreclosure’ it is not a good sign. Being a large Mall would have originally been seen as a +VE for the commercial mortgage-backed security (CMBS) that it is a part off; now its a liability. That is likely to be the same across a lot of the $500bn CMBS out there.

For interest
Banks must halt dividends and buybacks or be forced to do so 
by Kristalina Georgieva MD of the IMF.  
Worth a read makes the point that all the banks should be following the same game plan otherwise some will be penalised by investors. Also makes the point that as we don’t know how long this is going to last it is prudent to halt dividends and buybacks now and keep the cash. After all it can always be paid out later if it is not used in the meantime.