Quoteworthy: "Hong Kong investors’ love for HSBC is still there, but it’s indeed heart-breaking." –— Simon Yuen, founder of Surich Asset Management, referring to the ongoing slump of HSBC’s share price to a 25-year low.
US Fed pleads anew for stimulus; markets start to give up hope
A parade of Federal Reserve officials on Sept 23 stressed that more fiscal stimulus is critical to sustaining the economic recovery, and US stocks tumbled as pessimism began sinking in over whether Congress would ever deliver a new aid package.
Fed chairman Jerome Powell continued to wave the fiscal flag carefully at a congressional hearing — amid a political stalemate — saying that more support was likely to be necessary. Others were more full-throated, with Cleveland Fed president Loretta Mester saying it was very much needed given the “deep hole” the economy is climbing out of.
Chicago Fed president Charles Evans expressed concern the stimulus he pencilled in will not be forthcoming, while Boston Fed president Eric Rosengren suggested it will take another wave of infections to prompt action, and likely not until next year.
The S&P 500 fell 2.4%, the biggest drop since Sept 8 and the fifth decrease in six days, a sign that investors are becoming more downbeat on prospects for stimulus once seen as a near-certainty.
Declines in the stock market, until recently attributed to a reversal of excessive tech-share gains, have increasingly been ascribed in part to worries about the recovery and the need for more stimulus.
Democrats and Republicans have been at loggerheads over another virus relief package, with no formal negotiations since early August. — Bloomberg
China threatens to kill TikTok deal over ‘dirty’ Trump tactics
Just a few days ago, the TikTok deal looked like a win for China. Now its state-run media are denouncing it as “an American trap” and a “dirty and underhanded trick”.
The quick shift in sentiment shows the complications of concluding an agreement that is about much more than finding a proper valuation for an addictive video app that has enthralled teenagers around the world. It also has big ramifications for how the world’s biggest economies handle security threats related to new technologies that will drive growth over the next few decades.
For China, the political stakes are similar to the marathon trade talks that ended with a Phase One deal in January. Any agreement that makes it look like the Trump administration forced China’s hand could hurt President Xi Jinping, who has repeatedly hailed the Communist Party’s emergence as a great power in contrast to the humiliations suffered under colonial powers centuries ago.
“Beijing basically doesn’t want to set a precedent where the US can be allowed to unilaterally flex in this way,” said Kendra Schaefer, head of digital research at the Trivium consultancy in Beijing. “Having some role to play in the decision balances things out a bit.”
Over last weekend, Oracle and Walmart agreed to take 20% of a new US-based entity called TikTok Global that would ringfence the app’s international operations and data, said to be worth up to US$60 billion ($82.5 billion). ByteDance appeared to get most of what it wanted, including keeping the valuable AI algorithms for its short-video app.
That appeared to appease both Donald Trump, who declared victory and called off a ban on TikTok, as well as China’s most nationalistic media. Hu Xijin, the influential editor-in-chief of the Party-run Global Times, said the deal was “still unfair but it avoids the worst result”.
By Sept 21, signs of trouble emerged. ByteDance asserted that it would remain in control of TikTok Global, appearing to contradict Trump’s earlier comments about how Americans would direct the new entity. Oracle issued a statement backing Trump’s view, and the American president warned he could still torpedo a deal if US parties did not have a majority hold.
On Sept 23, two of China’s most prominent state-backed media mouthpieces denounced the deal. “What the United States has done to TikTok is almost the same as a gangster forcing an unreasonable and unfair business deal on a legitimate company,” the state-run China Daily wrote in an opinion piece. Hu from the Global Times tweeted that Beijing likely would not approve the current agreement as it endangered China’s national security.
The saga has sparked “complete disbelief” among Chinese leaders, said Gao Zhikai, a former diplomat and translator for late leader Deng Xiaoping who is now chair professor at Soochow University. “China wants to emphasise that the Chinese companies’ legitimate rights cannot be violated without consequences.”
On Sept 23 in the US, ByteDance asked a federal judge to stop Trump from implementing a ban on TikTok that is scheduled to begin this weekend.
It is unheard of for the major parties to a mega-deal to diverge so drastically on its basic contours. While Trump has yet to give his final sign-off and the deal therefore remains in flux, Beijing will intervene if it feels ByteDance risks giving up too much, Trivium said in a Sept 22 note. — Bloomberg
Ant plans US$17.5 bil Hong Kong IPO, no cornerstones
Jack Ma’s Ant Group is seeking to raise US$17.5 billion ($24 billion) in its Hong Kong share sale and will not seek to lock in cornerstone investors, confident there will be plenty of demand for one of the largest equity deals in the financial hub, according to people familiar with the matter.
The FinTech giant has assessed investor interest, betting it can pull off the Hong Kong portion of the initial public offering without cornerstone investors that are often needed for large deals, according to the people. Ant is leaning towards inviting these big investors for the Shanghai sale to mitigate price fluctuations, the people said, asking not to be identified because the matter is private.
The Hangzhou-based firm is planning to issue new stock equal to about 11% to 15% of the shares outstanding and split the float evenly between Hong Kong and Shanghai, the people added. Ant is mulling over what could be the world’s largest IPO, seeking to raise about US$35 billion in the dual listing at a valuation of about US$250 billion, people familiar with the matter have said.
Plans are still under discussion and could change. Ant declined to comment in an emailed statement.
Ant currently has about 27 billion shares outstanding. It is also planning to issue about 6% of its shares, on top of the new float, to help redeem stock for early C-round international investors that could not invest directly in the onshore entity, according to its prospectus.
If markets are favourable, Ant’s IPO may top Saudi Aramco’s record US$29 billion sale. Ant could exceed Bank of America’s market capitalisation. Ant generated 72.5 billion yuan ($14.6 billion) in revenue in the first half of 2020, after full-year sales of 120.6 billion yuan in 2019, it said. The firm posted a 21.1 billion yuan profit in the first half of this year.
Ant, which grew out of the Alipay payments app, now gets the bulk of its revenue from providing quick consumer loans, fuelling China’s spending. It also runs an insurance business and offers money market funds, on top of credit scoring and technological services for the finance industry. — Bloomberg