May 26 HSBC rethinks overhaul and more

Markets this morning have all opened higher helped by DOW futures opening strongly on news of a vaccine hope.  Japan is up strongly and Taiwan has broken through the 11k resistance level.Recent shorts no doubt are hurting.  

Pandemic spurs HSBC to rethink overhaul with even sharper cuts $11bn of bad loans feared Board sees drastic steps as essential Possible sale of US unit. Front page, the Bank looking at more drastic cuts as it along with many other businesses grapple to come to terms with the potential impacts from covid-19. The board is now prepared to consider more radical changes the article sets out including cuts or the sale of its US business, its French retail business and other non-strategic businesses; essentially previously borderline cases now being re-examined. Whilst many economists are talking about V shaped recoveries many businesses are aware that that hope may be misplaced. Of course as businesses take a more pessimistic view it increases the pressure on governments to do more. These cuts, should they go ahead will result in more lay-offs and that means, less consumers to contribute to the recovery.
Read also US concern mounts over jobs lost forever. A lot of low paid jobs may not return and that lack of income for lower paid workers is likely to to stunt any shaped recovery. Also Hoarded household savings threaten European recovery Consumers are likely to remain wary of crowded shops, foreign travel and trains. The pandemic has changed the spending habits for many and it will take a long time for those habits to change back, if ever. The Article looks at households and hopes that as people save more that money will be funnel into sovereign bonds to help countries fund their rising debt levels. The key will be as lockdowns ease and people can go back out again how they spend their money. I think thrift will be with us for sometime to come. The article mentioned how bicycle sales in Germany have risen as people seek to avoid public transport, there will be pockets of interest but I think most will stick with essentials until a vaccine is widely available and business can get back to a more normal footing.

On a more positive note Outlook for German business rises despite pandemic gloom looks at yesterday’s data, which offers some hope. Sentiment among the trade sector (which includes retail) improved and is expected to recover quick than export orientated businesses.

China seeks to calm Hong Kong investors Beijing official says new legislation will ensure more stable environment. Looks at the comments from Xie Feng, China’s foreign ministry commissioner in Hong Kong . He said “The legislation will alleviate the great concern among the local and foreign business communities about the violent and terrorist forces attempting to mess up Hong Kong,”. “ will create a more law-based, reliable and stable business environment for foreign investors.”
It is interesting to note that since the umbrella movement started, there haven’t been notable calls from foreign investors for such legislation. The reality is that President Xi is under pressure and needs to both deflect blame for the initial handling of covid-19 and can at the same time remove, he hopes, the annoyance of free speech revealing some of the failings of the Party’s operations. Many foreign investors are already looking to relocate operations that could be ‘interfered with’ by the new security laws, most notably the location of servers handling sensitive company information. Many will now look to move these out of Hong Kong to prevent them coming under the Chinese jurisdiction. That will remove a key reason for remaining in Hong Kong for some businesses along with the risk that the current legal system will be undermined. It will be interesting to see how many companies can afford to continue to operate in China if they no longer have the assurance of the independence of the Hong Kong legal system.
Of more concern is, that by circumventing the existing legal format China has once again revealed that it can at anytime change the rules. At a time when many companies are under pressure to re organise supply chains because of tariffs and other risks, China is taking a big bet. President Xi has outlined how China needs to focus more on domestic consumption but its biggest need is for jobs. Risking more tariffs is probably viewed as acceptable by Beijing the real risk comes it the US decides to increase the list of sanctioned companies or to further weaponise the US dollar and restrict more pension fund money investing in Chinese companies. That could have a big impact on jobs at a time when export driven companies are facing slowing or non-existent export orders.
Read also Storm from Beijing had been building for months Party announcement reflects frustration with Hong Kong leaders and protesters. With hindsight some can see that the move to impose this legislation had been brewing for months. It had been heightened by the concern that the pro Beijing camp may lose its majority in the Legco elections in September. Which if they do could create more issues. Of course people will now be wondering whether we get free elections in September. China is pushing ’National Security’ and talking about calls from some about Independence for HK but most Hong Kong people don’t want independence they just want the freedoms they have been enjoying including the freedom to discuss change. The move by Beijing I think reflects the on going fear that the social contract in China is breaking down and that the party is losing its mandate to lead. I am sure that if Beijing could demonstrate that the new legislation would lead to any abuse or undermining of the current legal system in HK, then the reasonable people of Hong Kong would accept it. The reality, having seen how the apparatus is used within China; with abductions, disappearances and ’show trails’ give no one confidence that that isn’t going to happen in Hong Kong.

Taiwan plans greater state say on future of industrial development an interview with Kung Ming-hsin, the country’s chief economic planner. Looks at balancing the role of the state with 'companies, industries and academia, to catalyse results.’ Taiwan has weathered the pandemic well and that will be to the annoyance of China. It is increasing its status internationally and that should mean that China drops its unreasonable aspirations of unification. But the fact that China dropped the use of ‘peaceful’ unification in the annual report I think should concern people. With President Xi under pressure his wild move on Hong Kong may just be a precursor to more dramatic actions.

Rollercoaster ride for HK stocks on fears over China law. Monday saw HK end up flat after Friday’s sell off and this morning the market is up nearly 400pts (+1.7%) with resistance at 23,400 level but with good volume again. Hong Kong is likely to see continued volatility until the precise nature of the new Chinese legislation is known and the global response, not just politically but also from investors becomes clear. China is in the spotlight for a number of reasons; trade, covid, leadership, regional bullying and some of the main premises for investing in China historically (relatively cheap production, global exports, domestic consumption) are also coming into question. Hong Kong markets have served as the focus for that investment into China. For all the social unrest in Hong Kong over the past couple of years it has had little real impact on the stock market. But the move by China to change the fabric of the legal system has changed that, literally overnight. Until the details are known, the uncertainty will remain and so will the volatility.

Opinion G7 nations must stand up for Hong Kong’s freedoms by Chris Patten. Expressing his opinions about President Xi’s action towards Hong Kong. At the end of the day there is little that politicians can do. Those that believe and support freedom do not have the luxury of tyrants to trample the opinions of others. China and the UK signed an agreement that should be honoured for the period of time it was designed to. President Xi has shown in a number of cases that rather like Trump, as President he believes he can do whatever he wants. In my view, for too long, too many have put their vested interests or hopes for lucrative trade with China ahead of the moral responsibility to not only say what is right and wrong but be prepared to act in support of those statements. The US and others may impose tariffs or sanctions on China but at the end of the day it will be investors and businesses that decide whether China’s actions are acceptable. Unfortunately for Hong Kong that may lead to its demise, time will tell.

Lex Hong Kong/property: developing story Looks at the impact on property developers and things the bottom is not yet in sight. Whilst the outlook for the developers at present isn’t looking great it is worth remembering that most of them are actually just developers they are conglomerates. The develop both residential commercial and retail. They sell some, they hold some as investment, they manage a lot, they operate construction and have other businesses too. If you take a look at the five year chart, you’ll see that most of them have traded in a band and currently they are trading near the bottom of the band. Today the outlook is unclear but even with the currently new uncertainty most Hong Kong people can’t just leave. People are still getting married and raising families. They need somewhere to live, places to shop, car parks etc. Whatever happens in the next few weeks there will be demand for houses, offices, retail etc. for some time to come.

‘Japan model’ has beaten virus, declares Abe. Bold words and with PM Abe’s performance disappointing a lot of Japanese citizens there is a lot of work still to be done. For now the Country is looking at getting back to work but many remain cautious.

Mayer seeks a happily ever after for TikTok An interesting read about how a Chinese company wants to become a global brand. It is following the pattern that most Chinese businesses do and that it to hire foreigners and to try and get them to merge the cultures. In more cases that not that means adopting the Chinese way and that often leads to disappointment. So often Chinese firms have huge potential but fail to grasp what it is they have. In the brokering industry many of the Chinese brokers have access to Chinese companies and insights that foreign investors would love but they remain focused on their domestic clients rather than investing time and effort to get research translated and to build up sales relationships with foreign investors. One would hope that TikTok will be more open to seeing things as being a two way street than some other Chinese companies have.

Australia hopes TV soap will counter Chinese hold over Pacific neighbours. An interesting read because it shows how more countries are looking to counter China’s influence. In this case with the provision of free TV shows depicting the Australian way of life. This is to counter China’s increased media coverage. For many countries is has been and more about money and economic support but I guess TV shows are a start.

IPO roadshows at home rouse bankers to rethink old ways Interesting because in the short term I think these make great sense but they rely on the historic good willow previous face to face meetings that give investors confidence to take the video conference call. In the future I think there will be a mix. IPO’s also have the benefit that most of the due diligence has been done by others and can be relied upon. For investors making direct investments into unlisted companies due diligence and travel will still have to be done.

I hope you enjoyed, feedback welcome