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Saudi Arabia celebrates step change in Christmas festivities

Conservative kingdom opens up to the Christian holiday as it pushes through a series of modernising reforms

Saudi Arabia wishes you a Merry Christmas! Rulers of the conservative Muslim kingdom have not traditionally tolerated formal celebrations to mark the most important day of the Christian calendar.

But this year, residents of the capital Riyadh could enjoy seasonal displays in shopping malls and were able to buy Christmas trees, while one official Saudi newspaper published a special festive edition for the first time in its history.

“Saudis feel Xmas spirit like never before,” read the front page of the official English-language Arab News, advising readers on the best place to secure a turkey for Christmas dinner. “Better late than never,” editor Faisal Abbas wrote in a column.

This is not the first time that Christmas paraphernalia has been on sale in Saudi Arabia; restrictions on the celebration have been gradually easing for a few years. But 2022 marks a step change for a country where almost all Christians are expatriates, and where traditionally any form of worship other than Islam has been prohibited. Shoppers in one Riyadh shopping centre were this month treated to festive lights, Christmas trees and a toy polar bear holding a stringless cello.

The newfound Christmas cheer comes as Crown Prince Mohammed bin Salman, the kingdom’s day-to-day ruler, pushes through a significant series of reforms. These include revamping the economy to make it less oil reliant and easing religious restrictions on life that, until a few years ago, meant women were unable to drive.

Offering good wishes to those celebrating non-Muslim religious holidays remains a controversial topic for Saudi Arabian hardliners. This year, however, Mohammed Al-Issa, a senior Muslim cleric, told television viewers that “there’s nothing in scripture that bans congratulating”.

The change of tone has been welcomed by some Saudis, including those who have studied abroad. One Saudi professional said that several of his friends enjoyed Christmas.

“Young couples, western educated Saudis with kids,” he said of those he knew who marked the occasion. “It’s usually for the kids, the presents and the celebratory atmosphere,” he added.

The conservatism of previous times was waning, he continued, while also requesting anonymity so he could speak candidly. “They were [in previous years] closing down flower shops over Valentine’s Day, now they’re allowing people to celebrate Christmas. It’s a step forward for liberalism.”

The move by the Arab News appeared to be aimed at showing that Saudi Arabia was becoming a more tolerant country. The kingdom is attempting to attract western talent and businesses in the face of increasing competition from the likes of the United Arab Emirates, which offers freedom of religion to most faiths as well as a more liberal lifestyle.

Prince Mohammed has won support for his reforms from many young Saudis, but the kingdom has been heavily criticised by western governments and advocacy groups for continued human rights abuses.

Saudi Arabia has put dozens of sentenced prisoners to death this year, while a PhD student and mother of two was jailed for almost 40 years for tweeting criticism.

Prince Mohammed’s supporters insist he has to take a firm stance if he wants his reforms to succeed, although some of his critics also want social reforms.

His drive has angered conservatives in the country that identifies as the custodian of Islam’s holiest sites. Although there are no accurate public opinion polls on the topic, a Halloween display in Riyadh in October prompted a flood of criticism on social media from conservatives in Saudi Arabia and across the region.

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Easing of Covid-19 restrictions and U.S. audit progress likely to boost new listings

Will initial public offerings from Chinese companies make a comeback in Hong Kong and New York next year? Deal makers hope so—but they might have to start small.

Chinese companies have raised just $536 million from U.S. listings this year through Dec. 23, down around 96% from the total they raised throughout 2021. The proceeds of their Hong Kong listings are less than a third of last year’s haul. But after progress on resolving a long-running audit dispute between China and the U.S. and guarded hopes for a recovery in share prices, these companies may now be preparing to return to overseas exchanges in greater numbers.

Auto maker Zhejiang Geely Holding Group Co. is among the Chinese companies expected to boost IPO supply next year. The company filed a draft registration statement in December to spin off its Zeekr electric-vehicle brand through a U.S. IPO. A raft of smaller Chinese companies have filed documentation for listings in Hong Kong and the U.S., despite a clampdown this year on small-cap listings on American exchanges.

Deal makers expect the recovery in international IPOs from China to be gradual. The pickup could start as early as the second quarter, but the bulk of activity may not come until the second half of the year, they said.

“If these are the good-quality, big-value IPOs, I don’t think they would rush into that first glimpse of rebound,” said Bosco Yiu, a lawyer whose practice includes Hong Kong IPOs at Paul, Weiss, Rifkind, Wharton & Garrison LLP. “They would rather price it better than rush into a first-quarter listing.”

Growatt Technology Co., a maker of inverters for solar panels that had previously been aiming to raise as much as $1 billion, has delayed its IPO due to the volatile market, according to people familiar with the matter. The company, which in November filed updated paperwork after passing its listing hearing in Hong Kong, will consider launching the deal next year, some of the people familiar with the matter said. A spokeswoman for Growatt declined to comment.

Bankers expect secondary share sales and block trades—sales of large blocks of stock that can be executed as quickly as overnight—to recover more quickly than new listings.

“IPOs are always the last product to come back,” said Kenneth Chow, co-head of Asia-Pacific equity capital markets at Citigroup Inc.

The Chinese government made sweeping changes to its Covid-19 policies earlier this month, including dropping most testing requirements and reducing the power of local officials to impose widespread lockdowns. Attention has already shifted to the costs of reopening—but some bankers say the easing will help boost demand for IPOs from Chinese companies.

“With China reopening, we are seeing the sentiment starting to come back and that will definitely help some IPOs,” said Cathy Zhang, co-head of Asia-Pacific equity capital markets at Morgan Stanley. “We are seeing investors getting more active on China—they want to know what’s going on and what deals are coming next year. We haven’t seen this kind of investor engagement for a long time,” Ms. Zhang added.

Electric-vehicle manufacturers and their suppliers will be an important source of listing volumes from China next year, as will solar-panel makers and power companies, said Ivy Hu, a Hong Kong-based managing director for equity capital markets at UBS Group AG.

That builds on this year’s trend. CALB, a battery maker, and Zhejiang Leapmotor Technology Co., a car manufacturer, are among the companies in the EV sector that listed in Hong Kong this year—although Leapmotor’s shares plummeted on their debut.

The U.S. audit regulator recently secured complete access to inspect China-based audit firms, marking progress in a long-running dispute between the two countries. That resets a three-year potential delisting clock for Chinese companies already trading on New York exchanges—and means Chinese companies will continue to turn to U.S. investors to raise capital.

“If you think that you want to be considered a global company, you want to be able to attract global talents, it definitely still feels as though the U.S. is the first port of call,” said Matthew Culley, an emerging-markets portfolio manager at Janus Henderson Investors. He added that some Chinese companies he had talked to are considering ADR listings in the U.S. ahead of a possible secondary listing in Hong Kong.

There is a caveat: Chinese companies that want to list in the U.S. will need to survive tough scrutiny by regulators in both countries. That rules out a lot of tech IPOs—cutting out some of the biggest deals bankers could bring to market. ByteDance Ltd., the Beijing-based owner of social-media platform TikTok, had previously considered listing in either Hong Kong or the U.S. The company scrapped the plan last year, after Chinese regulators expressed concerns about data security.

“The data-sensitive ones are going to either be challenged or prohibited from listing in the U.S.,” said Robert McCooey, a Nasdaq Inc. vice chairman overseeing business development for new listings in Asia Pacific and Latin America. “That’s just the reality.”

Hong Kong’s stock exchange has been trying to expand the kinds of companies that are able to list, most recently through a proposal to lower revenue requirements for companies in categories including semiconductors and artificial intelligence. That could also boost supply from China. A government push to develop the semiconductor sector has led to a rise in domestic listings by Chinese companies—creating one of the few bright spots amid a sharp slowdown in global IPOs this year.

Toyota’s CEO delivers a timely warning, and many states echo it.

Toyota CEO Akio Toyoda recently caused the climate lobby to blow a fuse by speaking a truth about battery electric vehicles that his fellow auto executives dare not. “Just like the fully autonomous cars that we were all supposed to be driving by now,” Mr. Toyoda said in Thailand, “I think BEVs are just going to take longer to become mainstream than the media would like us to believe.” He added that a “silent majority” in the auto industry share his view, “but they think it’s the trend, so they can’t speak out loudly.”

The Biden administration seems to believe that millions of Americans will rush out to buy electric vehicles if only the government throws enough subsidies at them. Last year’s infrastructure bill included $7.5 billion in grants for states to expand their charging networks. But it’s a problem when even the states are warning the administration that electric vehicles aren’t ready to go mainstream.

Maine notes in a plan submitted to the Federal Highway Administration this summer that “cold temperatures will remain a top challenge” for adoption, since “cold weather reduces EV range and increases charging times.” When temperatures drop to 5 degrees Fahrenheit, the cars achieve only 54% of their quoted range. A vehicle that’s supposed to be able to go 250 miles between charges will make it only 135 miles on average. At 32 degrees—a typical winter day in much of the country—a Tesla Model 3 that in ideal conditions can go 282 miles between charges will make it only 173 miles.

Imagine if the 100 million Americans who took to the road over the holidays were driving electric cars. How many would have been stranded as temperatures plunged? There wouldn’t be enough tow trucks—or emergency medics—for people freezing in their cars.

The Transportation Department is requiring states to build charging stations every 50 miles along interstate highways and within a mile of off-ramps to reduce the likelihood of these scenarios. But most state electrical grids aren’t built to handle this many charging stations and will thus require expensive upgrades. Illinois, for one, warns of “challenges related to sufficient electric grid capacity, particularly in rural areas of the state.”

Charging stations in rural areas with little traffic are also unlikely to be profitable and could become “stranded assets,” as many states warn. Wyoming says out-of-state traffic from non-Tesla electric vehicles would have to increase 100-fold to cover charger costs under the administration’s rules. Tesla has already scoped out premier charging locations for its proprietary network. Good luck to competitors.

New Mexico warns that “poor station maintenance can lead to stations being perpetually broken and unusable, particularly in rural or hard to access locations. If an EV charging station is built in an area without electrical capacity and infrastructure to support its use, it will be unusable until the appropriate upgrades are installed.”

Arizona says “private businesses may build and operate a station if a grant pays for the first five years of operations and maintenance” but might abandon the project if it later proves unprofitable. Many other states echo this concern, noting that federal funds could result in stranded assets.

The administration aims to build 500,000 stations, but states will likely have to spend their own money to keep them running. Like other federal inducements, these grants may entice states to assume what could become huge financial liabilities.

Federal funds also come with many rules, including “buy America” procurement requirements, which demand that chargers consist of mostly U.S.-made components. New Jersey says these could “delay implementation by several years” since only a few manufacturers can currently meet them. New York also says it will be challenging to comply with the web of federal rules, including the National Environmental Policy Act, the Americans with Disabilities Act, the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, and a 1960 federal law that bars charging stations in rest areas.

Oh, and labor rules. The administration requires that electrical workers who install and maintain the stations be certified by the union-backed Electric Vehicle Infrastructure Training Program. New Mexico says much of the state lacks contractors that meet this mandate, which will reduce competition and increase costs.

Technical problems abound too. Virginia says fast-charging hardware “has a short track record” and is “prone to malfunctions.” Equipment “previously installed privately in Virginia has had a high failure rate shown in user comments and reports on social media,” and “even compatibility with credit card readers has been unexpectedly complicated.”

A study this spring led by University of California researchers found that more than a quarter of public direct-current fast-charging stations in the San Francisco Bay Area were unusable. Drivers will be playing roulette every time they head to a station. If all this weren’t disconcerting enough, Arizona warns cyber vulnerabilities could compromise customer financial transactions, charging infrastructure, electric vehicles and the grid.

Politicians and auto makers racing to eliminate the internal-combustion engine are bound to crash into technological, logistic and financial realities, as Mr. Toyoda warned. The casualties will be taxpayers, but the administration doesn’t seem to care.

Funds focused on bonds and currencies have profited from powerful trends that have hit equity specialists

Hedge funds trading bonds and currencies are on track for their best year since the global financial crisis, boosted by the steep interest rate rises that have inflicted heavy losses on equity specialists and mainstream investors.

So-called macro hedge funds, made famous by the likes of George Soros and Louis Bacon, endured a barren period when markets were becalmed by trillions of dollars of central bank bond buying after 2008. But this year they have thrived thanks to seismic moves in global bond markets and a bull run in the dollar as the US Federal Reserve and other central banks battle soaring inflation.

Among the winners have been billionaire trader Chris Rokos, who recovered from losses last year to gain 45.5 per cent in 2022, helped by bets on rising interest rates, including during the UK’s market turmoil in the autumn. It leaves the Brevan Howard co-founder on track for his best year since launching his own fund, now one of the world’s biggest macro funds with about $15.5bn in assets, in 2015.

Caxton Associates chief executive Andrew Law gained 30.2 per cent to mid-December in his $4.3bn Macro fund, which is shut to new money, according to an investor. Said Haidar’s New York-based Haidar Capital has gained 194 per cent in its Jupiter fund, helped by bets on bonds and commodities, having at one stage this year been up more than 270 per cent.

“It reminds me of the early part of my career when macro funds were the dominant style of investing,” said Kenneth Tropin, chair of $19bn-in-assets Graham Capital, which he founded in 1994, referring to strong periods for macro traders in the 1980s, 1990s and early 2000s.

“They were truly hedge funds that intentionally were not correlated to people’s underlying exposure in stocks and bonds,” added Tropin.

Global stocks have dropped 20 per cent this year, while bonds have delivered their biggest declines in decades, making 2022 a year to forget for most asset managers. But hedge funds that can bet against bonds or treat currencies as an asset class have leapt ahead. Macro funds on average gained 8.2 per cent in the first 11 months of this year, according to data group HFR. That puts them on track for their best year since 2007, during the onset of the global financial crisis.

Traders profited from bets on rising yields, such as in US two-year debt, whose yield has soared from 0.7 per cent to 4.3 per cent, and the 10-year gilt, which has risen from 1 per cent to 3.6 per cent. A surprise change by the Bank of Japan to its yield curve control policy, which sent Japanese government bond yields soaring, delivered a further boost to returns.

“They have given every macro trader a lovely Christmas — even the office security guards are short Japanese government bonds I think,” quipped one macro hedge fund manager.

With the “artificial suppression of volatility” from ultra-loose monetary policy now gone, macro traders were likely to continue to profit from their economic research, said Darren Wolf, global head of investments, alternatives at Abrdn.

Computer-driven hedge funds have also benefited, with many of the market moves providing long-lasting trends. These so-called managed futures funds are up 12.6 per cent, their best year of returns since 2008.

London-based Aspect Capital, which manages about $10bn in assets, gained 39.7 per cent in its flagship Diversified fund. It profited in markets including bonds, energy and commodities, with its biggest single win coming from bets against UK gilts. Leda Braga’s Systematica gained 27 per cent in its BlueTrend fund.

“We’re in a new era where the unexpected keeps happening with alarming regularity,” said Andrew Beer, managing member at US investment firm Dynamic Beta. Jumping yields and fast-moving currencies presented opportunities for trend-following funds, he added.

The gains stand in sharp contrast to the performance of equity hedge funds, many of which have endured a miserable year as the high-growth but unprofitable technology stocks that climbed in the bull market were sent plummeting by rising interest rates.

Chase Coleman’s Tiger Global, one of the biggest winners from soaring tech stocks at the height of the coronavirus pandemic, lost 54 per cent this year. Andreas Halvorsen’s Viking, which moved out of stocks trading on very high multiples early this year, lost 3.3 per cent up to mid-December.

Meanwhile, Boston-based Whale Rock, a tech-focused fund, lost 42.7 per cent. And Skye Global, set up by former Third Point analyst Jamie Sterne, lost 40.9 per cent, hit by losses on stocks such as Amazon, Microsoft and Alphabet. Sterne wrote in an investor letter seen by the Financial Times that he had been wrong about the “severity of the macro risks”.

Equity funds overall are down 9.7 per cent, putting them on track for their worst year of returns since the financial crisis of 2008, according to HFR.

“Our largest disappointment came from those managers, even well-known ones with long track records, who failed to anticipate the impact of rising rates on growth stocks,” said Cédric Vuignier, head of liquid alternative managed funds and research at SYZ Capital. “They didn’t recognise the paradigm shift and buried their heads in the sand.”

With the exception of 2020, this year has marked the biggest gap between the top and bottom deciles of hedge fund performance since the aftermath of the financial crisis in 2009, according to HFR.

“Over the last 10 years, people were rewarded for investing in hedge fund strategies correlated with [market returns],” said Graham Capital’s Tropin. “However, 2022 was the year to remind you that a hedge fund should ideally give you diversity as well.”

PLA jets violate airspace in biggest show of force since Nancy Pelosi’s visit to Taipei in August

China staged its largest military manoeuvres near Taiwan over the weekend since the Taiwan Strait crisis in August, days after the US passed an annual defence spending bill that authorised up to $10bn in security assistance to the country for the first time.

In the 24 hours to Monday morning, 47 People’s Liberation Army aircraft entered the country’s air defence identification zone, with at least 41 flying across the Taiwan Strait median line, Taiwan’s defence ministry said.

This marks China’s third-largest number of single-day violations of Taiwan’s ADIZ, a self-declared buffer zone, and the most since August 5, during week-long exercises that Beijing staged to retaliate against US House Speaker Nancy Pelosi’s visit to Taipei.

China has been steadily increasing the scope and scale of its air and naval operations near Taiwan in recent years, including an elevated level of activity since the August stand-off. But the exercises on Sunday were the first officially announced by the PLA since August.

The military had organised “joint combat readiness patrols and joint firepower strike drills”, the PLA’s Eastern Theater Command said in a statement. “This is the resolute response to the US and Taiwan’s current escalation of their collusion and provocation,” it added.

The drills come after Beijing sharply increased its military posturing as the US Congress deliberated and then adopted unprecedented military assistance for Taiwan in its annual defence spending bill, which US president Joe Biden signed into law on Friday. The National Defense Authorization Act includes provisions for up to $10bn in security assistance over five years and fast-tracking of arms sales for Taiwan.

China on Saturday said it was “strongly dissatisfied and resolutely opposed” to the law, which it claimed damaged peace and stability in the Taiwan Strait. “The case ignores the facts to exaggerate a ‘China threat’, wantonly interferes in China’s internal affairs and attacks and smears the Chinese Communist party, which are serious political provocations,” the foreign ministry said.

According to Taiwan’s data, 42 of the 47 PLA planes that flew into the ADIZ were fighter aircraft, with early warning and reconnaissance planes, including one drone, accounting for the rest. More than two dozen fighters crossed the median line, including at its centre where the strait is narrowest — a highly risky manoeuvre the PLA uses infrequently, generally when Beijing is seeking to respond to moves such as visits to Taipei by senior US officials.

Following the NDAA’s emergence, the PLA stepped up relatively unusual operations, including an aerial refuelling exercise with fighters and bombers around southern Taiwan last Thursday, an ADIZ incursion by a record 18 bombers on December 13 and fighters crossing the centre of the median line on December 8.

Senior Taiwanese officials said the PLA had used these operations to practice elements of a potential Taiwan Strait war, including a simulated attack on warships and preparation for invasion with amphibious vessels positioned on the northern and southern ends of the strait.

China’s largest single-day incursion into Taiwan’s ADIZ was 59 aircraft in October last year, according to Taiwan defence ministry data. The ministry said a total of 71 PLA aircraft operated in the area surrounding Taiwan over the past 24 hours, but the significance of that number remains unclear because Taipei only selectively discloses Chinese military planes’ flight paths.