David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Macau's Future in Doubt as Crackdown Spurs Global Casino Selloff

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “Macau is already experiencing a challenging period where its top two biggest markets, the mainland and Hong Kong, are already constrained in terms of permitted travel,” said Ben Lee, a Macau-based managing partner at gambling consultancy IGamiX. “Add to that the recent crackdown on gambling as well as money channeling, one could easily draw the conclusion that the size of the market going forward will likely remain tightly controlled.”

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    Volkswagen Says Chip Crisis Won't Ease Until Second Half of 2022

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    The pandemic exposed a “structural gap” between chip production and demand, and the disruption from the virus has only exacerbated the imbalance, Keogh said. But it hasn’t been all bad for automakers.

    Tight inventory has led to soaring prices and minimal incentive spending, padding the companies’ bottom lines. That helped Volkswagen’s U.S. business turn a profit in 2020 for the first time in eight years, Keogh said, following a revamp of its lineup from sedans to SUVs.

    When semiconductor shortages eventually ease, Volkswagen plans to keep fewer cars on dealer lots, because it has proved to be more profitable for manufacturers and dealers, Keogh said.

    “Going back to the days of having 100 to 120 days’ supply is not going to happen,” he said. “Now, people have 30 to 40 days’ supply and it’s working quite fine. Somewhere in that 40 to 50-day camp would be a beautiful thing.”

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    Does Tax Efficiency Just Delay the Tax Burden?

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    Over a horizon of 40 to 50 years, the value generated by hypothetical tax-efficient investments can be more than twice as high as that generated by hypothetical tax-inefficient investments, and—again—that is after the higher liquidation taxes are fully accounted for. Due to compounding, paying liquidation tax once can be much less punitive than foregoing part of capital appreciation to taxes each year, especially at long investment horizons

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    China Tech Crackdown, a short-term pain for the new growth phase?

    Thanks to a subscriber for this note from UOB which may be of interest. Here is a section: 

    As there is still no indication of the regulatory crackdown, investing in the tech sector at this current juncture could result in a high risk of catching falling knives. On the flipside, the attractive valuation and rapid growth of these China Tech companies may strike as a good bargain to long-term investors. The sell-off of some tech stocks were not a result of any fundamental changes, but rather investor sentiment, which could change again in a flash. First, we must understand the short and long-term impact of the crackdown. Here are 3 fundamental factors you may want to consider if you decide to buy the dip:

    1. Will policy changes cause structural change to business’s model?
    2. Companies’ valuation
    3. Companies’ growth

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    Priciest Food Since 1970s Is a Big Challenge for Governments

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    Adjusted for inflation and annualized, costs are already higher now than for almost anytime in the past six decades, according FAO data. Indeed, it’s now harder to afford food than it was during the 2011 protests in the Middle East that led to the overthrow of leaders in Tunisia, Libya and Egypt, said Alastair Smith, senior teaching fellow in global sustainable development at Warwick University in the U.K.

    “Food is more expensive today than it has been for the vast majority of modern recorded history,” he said.

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    Key U.K. Power Cable Will Be Partly Knocked Out Until March

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    A key U.K. power cable knocked out by a fire will stay partly offline until March, National Grid Plc said, deepening the energy crisis threatening Britain as it heads into winter.

    The timing couldn’t be worse. The U.K. is already struggling with shortages, with gas and power prices breaking records day after day. The energy crunch is fueling concerns about inflation and a potential hit to businesses just as the economy emerges from the worst impact of the pandemic. How the U.K. fares through the winter now hinges in large part on the weather.

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    Chinese Banks Are Dumping Dollars in Swap Markets, Traders Say

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    The PBOC is expected to conduct its monthly MLF operation on Wednesday, with 600 billion yuan due. Last week a central bank official said that interbank liquidity should remain balanced in the coming months, damping speculation that there’ll be another cut in the required reserve ratio soon. 

    Money market traders are more cautious this month as cash demand could rise due to quarter-end regulatory checks and before China’s Golden Week holiday in early October. If the maturing MLF is not mostly rolled over or covered by another liquidity injection, market sentiment is likely to be further impacted, said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp. 

    Evergrande Woes
    Concern about the property sector amid the potential restructuring of China Evergrande Group -- the world’s most indebted developer -- could also be impacting swap rates. 

    Market participants might be preparing for “the liquidity squeeze in crisis mode,” Mizuho Bank Ltd. chief Asian FX strategist Ken Cheung wrote in a note.

    “Rising property sector concerns and specific credit concerns around Evergrande are raising pressure on banks’ liquidity management,” Eddie Cheung, senior EM strategist at Credit Agricole, wrote in a note. He expects onshore yuan liquidity conditions to remain tight in the near term.

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