May 23 FT Weekend

Remember US markets closed Monday for Memorial Day
As expected Sunday has seen protestors and the police out in force and disruption is likely to continue which will probably mean weakness in the HK markets on Monday and especially in the Property and Retail sectors. ADR’s are indicating -90pts but that was Friday and before the news of protests in Hong Kong.

Investors this week will be watching covid cases as lockdowns ease and the economic data whilst historic is still important.
US in a shortened trading week: Consumer Confidence and Sentiment, Beige Book, New Home Sales, Durable Goods and Personal Income and Spending. Earnings season ends with just 180 companies reporting but Costco, Nordstrom and others.

Europe; EU speeches from Lane, Lagarde and Guindos and Consumer, Business and Economic confidence data. Loans and M3 Money supply and Inflation data.
Germany GDP growth, Consumer Confidence, Inflation data and Retail Sales. French Business Confidence, Unemployment and Inflation data.
For Asia the focus will be on news coming out go the NPC and CPPCC meetings in China.
Japan All Industry Activity, Unemployment, Tokyo CPI, Industrial Production, Retail Sales and Consumer Confidence.
S Korea Consumer and Business Confidence, BoK rate decision, industrial & Manufacturing Production and Retail Sales.
Taiwan Retail Sales, Industrial Production, Balance of Trade, Consumer Confidence and GDP Growth Rate

US warns China crackdown will be ‘death knell’ for HK autonomy  Pompeo attacks security law Authorities braced for protests Hang Seng index dives. The key point is that China’s proposal undermines the Basic Law and undermines the ‘One Country two systems’. If it does it for national security legislation then it can do it for anything. It is a recognition that China does not want any criticism or free speech that calls for accountability. Whilst the details are not known it is expected that it would allow China’s national security agencies to conduct operations in Hong Kong and ban subversive and secessionist activity, as well as foreign interference. Many in Hong Kong think that China’s national security service already does; think about the disappearing HK booksellers, or Xiao Jianhua, the tycoon removed from the Four Seasons Hotel in January 2017 s well of rumours of them being present within the Hong Kong Police’s operations in last years protests.
For many Hong Kong residents I think the loss of free speech and the right to protest is the greatest concern. China’s laws are loosely worded and give its security apparatus broad powers over what it considers subversive and secessionist. Furthermore it is likely to remove access to Hong Kong's legal system, with those accused being tried on the Mainland, a further erosion of the fabric that sets Hong Kong apart from the Mainland.
Comments from Pompeo are to a degree a ‘red rag to a bull’, President Xi will not be seen doing something that the US has demanded. In part, the passage of this bill is designed to deflect a lot of negative social opinion that has been generated by the initial handling of the covid-19 crisis.
Interesting to see Joe Biden chip in saying of Trump’s silence '“All it does is encourage thugs and dictators, which . . . the president has some kind of affinity for,” ‘.
I think is true not just of Trump but of other world leaders. Having kept silent for so many years, speaking up now reveals their negligence before. But they should speak up; if they don’t for Hong Kong then it may already be too late for Tawian.

Also Hong Kong security proposals fuel tension Beijing argues a subversion law is overdue and made more urgent by democracy protests. Says much the same thing; notes that the changes would probably allow China’s Ministry of State Security to operate openly in HK. Many thinks it does operate in HK with administration turning ‘a blind eye’ on its activities.
It also notes that the NPC does have the power to alter the Basic Law, that should be made clear. But like so many things related to China at the moment. It's not about having the power but it should be about doing what is right. China has the power to invade Taiwan but it's not right. It has demonstrated that it has the power to take over islands in the South China Sea but that doesn’t make it right. It has the power to change Hong Kong’s basic law but that doesn’t make it right. As I wrote yesterday (See my blog Making Market Sense I think these are the actions of a Party that fears it is losing power. In President Xi’s early speeches he called on Cadre’s to earn the right to represent and lead the people. That sentiment has gone it is now about oppressing the people and telling them that the party is right. That is why the independent inquiry into covid-19 is such a worry because it could show the Party wasn’t right. My biggest fear at present is not about Hong Kong what happens here is may see protests and suppression and it could be the beginning of the end for Hong Kong but the biggest fear is over Taiwan; there is in my view a real threat of military action which will not end well for anyone, least of all for the free and friendly people of Taiwan.
Read also Editorial Beijing has thrown down gauntlet to Hong Kong ‘One country, two systems’ model agreed in 1997 is being undermined. In addition to the points raised above calls on Foreign Businesses to make their voices heard. They chose Hong Kong because it gives access to China with the protection of an independent judicial system based on the principle of precedence. If they want that to continue they too should be adding their voice to the call. I think many are likely to remain silent because they don’t want to upset China which could have a negative impact on their business in China or Hong Kong. That is a key part of the problem, by not speaking up President Xi and others are being mislead as to the true state of affairs. If people say nothing and the US makes good on its threat then business and Hong Kong will lose out. Then it will be too late. For foreign businesses, maybe they can more to Singapore or elsewhere but maybe they fail too. Because it is likely that is the US makes good on its threat to take away Hong Kong’s special status the next step will be to fully weaponise US pension money and bar it from investing in Chinese companies.
To misquote a well known quote “The only thing necessary for the triumph of bad economic policy is for businessmen to say nothing.”

Beijing ditches growth target after economy grinds to halt Premier says GDP goal dropped because of uncertainty in foreign markets. The principle of dropping the GDP growth target is seen by many as a good idea. In the past it has lead for the misallocation of resources, the generation of production regardless of demand and often resulted in white elephant projects. Most China observers doubt the official statistics but have looked at the GDP goal as a guide of China’s confidence in the underlying economic conditions.
It is a shame that Premier Li did just admit that. By saying 'the government refrained from setting the target not because of domestic conditions but because foreign markets were so uncertain.' He effectively scared investors into assuming that the global situation is much worse than maybe they were thinking. But it's classic China not wanting to admit that anything it has done in the past was not 100% right. He noted the economic slowdown but noted that it had saved lives saying '“This is a price we must pay, and a price worth paying.”’ Those words may come back to haunt if a full independent inquiry finds that in the early stages of covid-19 the government didn’t act in a way so save lives.
In his work report Premier Li did not outline any massive stimulus which I think many investors were expecting, altough the article quotes an economist who says he wasn’t.
Premier Li mentioned employment; noting that the pressure had risen; especially the case for micro, small and medium sized businesses. But he did not outline any proposals for dealing with the issue. This I think is going to be the biggest problem; jobs. Not just for the existing work force but for this years graduates and school leavers. It’s not just a China issue, its a global one as unemployment is rising world wide.
He noted that the fiscal deficit was expected to rise; indicating that fiscal policy was being used more that pressing the banks to stimulate growth although he said the banks would be pushed to provide more loans. I think that reflects the fact that the banks are not in such great shape and that there are problems within the banking system.
All this against the backdrop of trying to implement Phase 1 of the US/China trade deal with rising tension between the two. Worth remembering that Phase 1 of the trade deal was about the easy issues. The difficult one are due to be addressed in Phase 2.

China giants defy ecommerce snags to post big sales growth Alibaba and Pinduoduo boost revenues Shortages of merchants and couriers. Looks at the results and makes the distinction that whilst Alibaba has growing competition from Pinduiduo it is looking to follow that model. Pinduiduo growing following is largely due to the subsidised offers which resulted in it spending Rmb7.4b on sales and marketing fees in Q1 vs the Rmb6.5bn it recorded in revenue. The company has yet to be profitable and has regularly tapped the markets for more funding. Nice quote '“It’s not a business, they are [effectively] a charity,” said Steven Zhu of research firm Pacific Epoch. “It’s a Luckin [Coffee] model: without consumer bribes you can’t keep those consumers,” he added.’ I think investors would do well to use the savings made from purchases on Pinduiduo to invest in Alibaba.

Disrupters grab ever larger share of the pie from the disrupted. Notes that the swift government and central bank action has prevented a collapse in equity and credit market that was seen on previous occasions. But whether the stimulus has been enough will only be known over time. It notes that missed payments, defaults and bankruptcies then to lag. But equity and credit markets then to act in advance of a recovery. It notes that Wall Street is still pricing in a swift recovery, which could still happen, thanks to the record stimulus. But what sort of revery is less clear. So far Tech, Ecommerce and Healthcare have benefit. The outlook for the rest is less clear (energy, financials, retailers, transports and industrials. Real estate companies that face slews of missed rental and mortgage payments). It suggests that an opportunity is there for investors to buy cheaper sectors and and wait as they close the gap with current market leaders. Another view is buying companies with good growth prospects, strong balance sheets and the capacity for disruption; they aren’t cheap but have a compelling case. Growth prospects are key because in ultra low interest rates. Notes that inflation is the wild card. 'But there are strong arguments why a legacy of greater debt and challenging demographics limits broader growth and sustains an environment of low rates. Such an outcome would be accentuated by a period of post-pandemic caution that results in businesses and consumers building up reserves and savings.’ Against that backdrop there will be a premium for disrupters, the key will be spotting which companies are disrupters and which are disrupted.

Opinion Fears of Japanification spreading are misplaced by John Plender. Covid-19 has undone much of the good of Abeconomic’s (even if it wasn’t fully implemented). It has also raised worries that Europe and US economies fail into the patten seen in Japan. But he sets out that whilst there are some similarities there are also differences that make it unlikely. In his view we are heading not towards Japanification but to a period of inflation, its just a matter of when.

FT BIG READ. MEDICAL SCIENCE Research reality check Politicians are working on the assumption that there will be a Covid-19 vaccine in 12 to 18 months. But many of the scientists in the field are much less certain and some fear there might never be one.
A good read, the key being that we still don’t know much about the virus and less about a cure. Whist politician’s and people want good news and hope the hard facts are not there. There have been some bits of initial good news but these are very early stages. Those who are expects in the field are far more cautious than those who know very little but write speeches or headlines.
Mentions that this could be a mutate foe but we don’t know yet. Also mentions, that we down know how long immunity lasts; evidently for SARs it was only a couple of years!
Notes how in 1976 President Ford fearing a swine flu out break rushed out a vaccine and had a photo of himself getting a vaccine shot. It was latter found out that the vaccine had serious side effects 'where the body is paralysed by the immune system attacking the nerves.’. There are already warnings about Trump’s self declared hydroxychloroquine solution.
It notes that some vaccines have the ability to make the virus worse hence the need for careful testing.
Also a couple of nice quotes
'Paul Stoffels, chief scientific officer at Johnson & Johnson, says one of the biggest questions is whether it will stop infection or just the disease — or even, like the flu shot, only prevent the most severe symptoms of the disease. “It would be good if it protects against both,” he says. “If you can prevent infection, it prevents spread going forward in the community.”’
'“I don’t want to be a Debbie Downer but let’s be clear: to get a vaccine by 2021 would be like drawing multiple inside straights in a row, to use a poker analogy,” Dr Bach says.'

I hope you find it useful, feedback welcomed