TheChek News Flow

Communist party newspaper says no reason for alarm but admits families running low on supplies

China has warned families to store food and other essentials in case of emergencies, as officials drastically tighten restrictions to control a small Covid-19 outbreak.

Beijing’s already harsh “zero Covid” policies have grown even stricter as coronavirus cases climb in the country despite targeted lockdowns. Authorities reported 54 new locally transmitted cases on Monday.

China’s commerce ministry did not cite Covid outbreaks or potential lockdowns as a reason for people to store more supplies. But the ministry did urge authorities in charge of lockdown areas to publicise information quickly on where and how people could get essentials.

Food prices are volatile in China and traditionally rise as winter approaches. Vegetable prices have surged over recent weeks because of heavy rains and flooding.

The Economic Daily, controlled by the Chinese Communist party’s Central Committee, urged readers not to be alarmed by the ministry’s advice but also noted that many households had been caught up in Covid lockdowns without adequate supplies of rice and vegetables.

In Beijing, officials have urged anyone travelling or away on business not to return, while restricting departures. Civil servants and employees at state-owned enterprises are typically banned from travelling during outbreaks.

While Beijing has reported only 31 new infections since mid-October, authorities have closed some cinemas and other entertainment venues while quarantining large residential areas.

China’s latest Covid-19 outbreak also expanded to Shanghai, where authorities shut down Disneyland. On Sunday night more than 30,000 revellers who had been posing with Mickey Mouse and watching fireworks were sealed in the park for mass testing by healthcare workers in hazmat suits. The Disney lockdown was ordered after one person who had been to the park tested positive.

China’s strict rules have helped suppress coronavirus outbreaks, which are tiny by international standards, and reduced the death toll from the pandemic. But the rolling lockdowns and other restrictions have begun to weigh on economic growth, especially since the highly contagious Delta variant took root in China over the summer.

Zhong Nanshan, one of China’s leading coronavirus experts and a government adviser, told state media that the zero-Covid approach was “relatively low-cost”.

“This policy will continue for a relatively long time and it will depend on how the rest of the world gets control of the pandemic,” Zhong said.

Some commenters on Weibo, China’s Twitter equivalent, disagreed. “It might be low-cost for the government but what about for the common people?” asked one user.

The number of people caught in ad hoc quarantines has grown as officials have expanded the forced isolation to include the potential contacts of people who had tested positive.

Gabriel Corsetti, an expat in Beijing, said he had been put under home quarantine for 11 days with a sensor attached to his door after briefly entering a hotel and asking for help at the front desk. A Covid positive individual had also visited the hotel.

ms“I told them I’d only been [inside the hotel] a few minutes,” he said. “I am not alone. In my office of less than 20 people, I have several colleagues currently in quarantine.”

Another person in Beijing said their entire apartment block had been put into quarantine because a close contact of an infected person lived there.

Authorities have also detained 26 people in Beijing’s Changping district, where the capital’s outbreak is centred, for breaking Covid-19 rules since mid-October.

The draconian policies have had far-reaching implications for China’s interactions with the outside world, ranging from international summits to sports tournaments.

President Xi Jinping has not travelled outside China since January 2020 and sent a written address to the COP26 climate summit in Glasgow rather than attend in person.

Lu Xiang, a foreign policy expert at the Chinese Academy of Social Sciences in Beijing, said Covid was “the only reason” Xi skipped COP26, as well as last weekend’s G20 leaders’ summit in Rome.

“When the top leader travels, he travels with hundreds of people,” Lu said. “It’s essential to keep [Xi] and other high-level officials safe.”

DAX:

MDAX:

SDAX:

Nikkei -0,39% Hang Seng +0,07% CSI -1,53% Shanghai -1,57% Shenzen -1,28%

Eur$ 1,1604 CNH 6,3963 CNY 6,3987 JPY 113,69 GBP1,3657 CHF 0,9094 RUB 71,4421 TRY 9,5543 WTI$ 84,27 Gold 1,793 BTC 61,770 +1,77% ETH 4,39à +1,52%

S&P -0,12% Nasdaq -0,05% EuroStoxx -0,20% FTSE -0,16% Dax -0,20% SMI

Macro :

- Chinese ADR Stocks Index Jumps 4%, With Tech Firms Gaining

- October Was Worst Month for IPO Prices Since 2015: ECM Watch

Keep an eye on :

- ADEN SW : Adecco 3Q Revenue Misses Estimates

- ADS GY : Anta, Li Ning Set to Blunt Singles’ Day Revival for Nike, Adidas

- AMS SW : AMS 3Q Revenue Beats Estimates

- AAPL US : Apple Cuts iPad Production to Use Chips in iPhone 13: Nikkei

- AZN LN : Astra to Source Vaccines for Southeast Asia From Other Regions

- BCHN SW : Burckhardt Sees FY Revenue CHF620M to CHF650M

- BAVA DC : Bavarian’s Covid-19 Vaccine to Beat Peers, CEO Tells Borsen

- BP/ LN : BP 3Q Adjusted Net Beats Estimates

- DMGT LN : Rothermere Close to A Deal With Trustees of DMGT, Sky Says

- DEMANT DC : Demant Boosts FY Ebit Forecast, Beats Estimates

- DTE GY : T-Mobile Outlook Muted After Peers’ Strong Results: Preview

- DGE LN : Diageo to Make Whisky in China in Bid to Woo Premium Drinkers

- DSM NA : DSM 3Q Adjusted Ebitda Meets Estimates

- ENGI FP : Bain, Bouygues, Eiffage to Submit Final Bids for Engie Unit: FT

- ENGI FP : NHOA: Engie Has Abandoned Solar/Storage Project in Hawaii

- ENI IM : Eni Said to Increase Stake in World’s Largest Offshore Wind Farm

- EBS AV : Erste 3Q Net Income Beats Estimates, Cuts Risk-Cost Guidance

- EUCAR FP : Avis Budget 3Q Adjusted EPS Beats Estimates

- EUCAR FP : Musk: ‘No Contract Has Been Signed Yet’ on Hertz

- FLTR LN : Fanduel, DraftKings Among Bidders for The Athletic: Information

- FFARM NA : ForFarmers 3Q Gross Profit Up by 2.6%

- FME GY : Fresenius Medical 3Q Operating Income Meets Estimates

- FME GY : Fresenius Medical to Cut Up to 5,000 Jobs in Next Phase of FME25

- FRE GY : Fresenius SE 3Q Sales Meet Estimates

- HFG GY : HelloFresh Boosts FY Sales At Constant FX View, Beats Est.

- HIAG SW : HIAG Immobilien to Issue up to 1.69M New Shares; Range CHF94-96

- IAG LN : *IAG'S IBERIA ASKS SPAIN TO ENTER AIR EUROPA'S CAPITAL: EL CONFI

- KOJAMO FH : Sweden’s Heimstaden Bostad Increases Stake in Kojamo to 10%

- KN FP : Natixis May Seek Asset Management IPO to Finance M&A Deal: FT

- NCCB SS : NCC 3Q Operating Profit Beats Estimates

- NHOA FP : NHOA: Engie Has Abandoned Solar/Storage Project in Hawaii

- NHY NO : In Race to Net Zero, Being Small or Diverse Foils Metal Makers

- PSH NA : Pershing Square Holdings Oct. Net Performance +8.5%

- SAE GY : Shop Apotheke Sees FY Revenue Low End Of +10% to +15%

- SINCH SS : Sinch 3Q Adjusted Ebitda Beats Estimates

- 9984 JP : SoftBank Said to Explore Options Including Sale of Fortress

- STAN LN : StanChart Has $4.2b China-Related Commercial Property Exposure

- STLA IM : Stellantis Offers Buyouts to Eligible U.S. Workers: CNBC

- THG LN : THG Holder BlackRock Offers ~55m Shares via Goldman Sachs: Terms

- UBSG SW : Goldman Hires From UBS, BNP to Expand Wealth Business in Mideast

- YAR NO :

- Z01 GY : H&F, EQT Offer for Zooplus Acceptance Rate at About 26%

Central bank says it will end use of yield caps that keep interest rates low

SYDNEY—The Reserve Bank of Australia said it would stop using yield caps and abandoned a view that its benchmark interest rate won’t rise until 2024, joining other central banks that are tightening policy as inflation risks mount.

The RBA’s policy decision follows a hawkish shift by the Bank of Canada, which last week ended its government-bond-purchase program and moved up the time frame for when it might first raise its benchmark interest rate from its current near-zero level. The Federal Reserve is this week likely to begin winding down its $120-billion-a-month asset-buying program with an eye toward ending those purchases by next June.

Central banks around the world have grown concerned about stubbornly high inflation, but a move to tighten policy carries significant risks as it intersects with data pointing to slowing growth in some major economies, including China. Some governments that also unleashed stimulus spending early in the pandemic to support their economies are now seeking to dial back those programs to keep debt in check, presenting another headwind to global growth.

On Tuesday, the RBA kept its interest rate unchanged at a record-low 0.10%, where it has stood since late-2020. The bank said a key condition for rates to rise—a labor market that’s tight enough to spur significantly faster wages growth—wasn’t likely to be met for some time. Gov. Philip Lowe said an interest-rate increase in 2023 was now plausible, but stressed that the central bank was prepared to be patient, in part because of uncertainty over whether current supply-chain disruptions will persist.

Still, Mr. Lowe said the central bank would stop targeting a three-year government bond yield of 0.1%, a tactic that it had used to soften the Covid-19 pandemic’s impact on the economy. Yield caps are a monetary policy tool in which a central bank buys enough government securities to prevent their yields from rising above a certain level or to pin yields at specific levels.

“Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished,” Mr. Lowe said.

Maxime Darmet, an economist at Fitch Ratings, said ditching the yield-curve target marked the RBA’s first step toward normalizing policy.

Other stimulus tools remained in use. The RBA said it would continue to buy government bonds weekly at the rate of 4 billion Australian dollars, equivalent to around $3 billion, until at least mid-February. Some analysts expect the RBA to then scale back bond purchases before ending the program later next year.

Economists had widely predicted that the RBA would adopt a more hawkish policy approach after the central bank surprisingly opted against defending the 0.1% target on the April 2024 government bond last week. Still, the RBA risks making its response to future crises less effective by pulling its commitments at such short notice, said Ben Jarman, an economist at J.P.Morgan Securities Australia Ltd.

Mr. Lowe identified last week’s data showing higher-than-anticipated third-quarter core inflation as key to the policy shift, as well as Australia’s economic recovery.

Core inflation of 0.7% for the three months through September comfortably exceeded the 0.5% implied by the RBA’s forecasts and lifted the annual trimmed mean rate to 2.1%—back inside the RBA’s 2%-3% target band about a year earlier than expected.

Australia’s border closures to limit the spread of Covid-19 have contributed to a labor shortage in industries including mining, while stretched global supply chains have reduced the availability of products including chips and timber. Rising house prices have also contributed to higher rents in many cities.

Yields were already being moved by global central banks signaling they could taper quantitative easing earlier than previously expected, rising inflation, and rate increases in countries including New Zealand.

The implied yield on three-year Australian government bond futures due for expiry in December 2021 rose from 0.332% in mid-September to 1.185% ahead of the RBA’s November meeting. The local equities market has stalled since hitting a record in August.

“While inflation has picked up, it remains low in underlying terms,” Mr. Lowe said. “Inflation pressures are also less than they are in many other countries, not least because of the only modest wages growth in Australia.”

Australia’s economy bounced back from last year’s short-lived recession—its first in 30 years and initiated by the shock of the Covid-19 pandemic—but has been battered hard by outbreaks of the virus’s Delta strain since June.

With lockdowns in Sydney and Melbourne ending in recent weeks, some economists anticipate a recovery as pent-up demand is unleashed. Restaurants have reopened for indoor dining and Australia on Monday allowed more international travel to restart. More than 80% of adults in the country’s relatively densely populated southeastern states have received two doses of Covid-19 vaccine.

However, external headwinds could drag on the recovery. China’s slowing economic growth has led to steep falls in the price of iron ore, Australia’s No. 1 export. China accounts for more than 40% of Australian exports.

Battle for newly created Equans tests French attitudes to foreign takeovers

The €6bn sale of a little-known business that carries out facilities management and energy-efficiency projects for corporate clients has sparked a politically tinged bidding war that is poised to test France’s attitude towards foreign acquirers.

State-backed energy group Engie is carving out and selling newly created Equans to raise funds as it pivots towards investing more in renewables. The auction attracted seven initial bids but the field has narrowed to three that will submit final offers on Tuesday: US private equity firm Bain, French telecoms-to-construction conglomerate Bouygues and civil engineering firm Eiffage.

Equans’ status as a big employer with more than a third of its 74,000 workers in France has added a layer of political sensitivity to the deal just six months before a presidential election.

So has the presence of Bouygues among the bidders — the group owned by the billionaire Bouygues family has many dealings with the state via its roads and infrastructure businesses, and chair Martin Bouygues is a longtime ally of President Emmanuel Macron.

The state owns a stake of roughly 24 per cent in Engie and will be able to weigh in on the sale in the boardroom, where it holds three of 14 seats.

Some suitors have privately voiced fears that the board will favour the bid from Bouygues, and lobbied for a more structured set-up for the binding offers. They are now set to be unsealed at the same time to avoid any leaks or last-minute adjustments.

“We will be extremely vigilant about the transparency and fairness of the auction process,” Matthias Boyer-Chammard, a managing director at Bain, told Les Echos newspaper.

Some have also recounted discouraging signals in meetings with public officials who expressed a preference for French bidders, according to people familiar with the matter.

Macron’s government has had an uneven approach towards foreign investment. It has trumpeted reforms aimed at making the economy more competitive such as loosening labour rules, and wooed investors at the glitzy annual Choose France conference at the palace of Versailles.

But it also swiftly vetoed Canadian convenience store operator Couche-Tard’s bid for French supermarket group Carrefour in January, on the basis that it was a strategically important company for food supply. That rattled many bankers and business leaders in France who were concerned over the message it sent out.

With €12bn in annual revenue, Equans is made up of myriad smaller businesses that specialise in areas such as installing refrigeration and heating systems or electrifying transport such as tramway lines.

The group is likely to benefit from pandemic stimulus packages, as governments pour funds into environmentally friendly projects. Bidders also see a chance to raise Equans’ operating margins of close to 2 per cent to what would be a best-in-sector 6 per cent, people close to the auction say, once it is no longer submerged within Engie’s sprawling structure.

Several offers from international private equity firms have fallen by the wayside. Apollo and a consortium of CVC and PAI were knocked out in an initial auction round, while Carlyle withdrew its interest later on, leaving only Bain to face French bidders.

Spie, a French engineering group, also stood back in mid-October, saying it had not found the information provided during the due diligence process sufficient for it to progress.

For Bouygues, Equans would mark the group’s biggest purchase in years, and make energy and infrastructure services its biggest division by revenue. Martin Bouygues spent several hours in a meeting with Equans managers in an effort to clinch the deal.

But another deal that Bouygues now has in the works — the merger of its TF1 television broadcaster with smaller French rival M6 — has fuelled further concerns over favouritism towards the conglomerate, according to people familiar with the matter.

The deal is expected to draw close scrutiny from competition regulators. In October, Macron decided not to reappoint French antitrust chief Isabelle de Silva for a second term just as her agency was gearing up to take on the review.

In an interview with the Financial Times last month, De Silva expressed surprise and questioned the “change to the captain” during the sensitive case.

Bouygues, Eiffage and Bain declined to comment. France’s economy ministry and Engie did not return requests for comment.

Engie had sought to stamp out any doubts about the auction by tightening the process around Tuesday’s bids, people close to the matter said.

Equans’ suitors have gone out of their way to woo unions with constant calls and efforts to present their case, according to Sebastien Michel of the CFDT union. “It almost borders on harassment every day,” he said.

Bain has tried to address concerns it is not French enough by teaming up with billionaire Marc Ladreit de Lacharrière, who will take a 20 per cent stake and has promised to act as an “important French anchor”. His investment firm Fimalac would stay on even after Equans goes public in Paris, something Bain has promised within five years, while the deal would be structured so Engie has a 20 per cent stake too.

The US firm, which is seeking to head off fears it could come in with fierce cost-cutting tactics often employed by private equity, has like its rivals promised no forced lay-offs within five years.

It is offering to formalise that promise with unions in a binding contract, echoing a similar move by Eiffage and making its offer, according to Michel, “very, very seductive”.

French investment bank’s new boss bullish on asset management business despite scandal

The boss of France’s Natixis is on the lookout for international asset managers to buy and could list its recently scandal-hit division to build firepower for a large purchase.

“We are clearly the consolidators of this industry,” chief executive Nicolas Namias told the Financial Times, adding that “Asia is for sure an area for expansion”. 

Namias added that he had “strategic manoeuvrability” and could “list the asset management arm to finance a big M&A project”.

The group’s asset and wealth management activities — the second-largest in Europe by assets under management after French rival Amundi — are currently centred in Europe and the US.

Namias, who has been at the helm of Natixis for a year, is seeking to transform the fortunes of the company after it faced intense scrutiny over its high-risk appetite and was dogged by losses, including at its beleaguered London-based subsidiary H2O Asset Management.

In 2019, the Financial Times revealed that H2O, which was previously the star performer in Natixis’s stable of asset managers, held more than €1bn in illiquid bonds linked to the controversial financier Lars Windhorst. Panicked investors withdrew billions of their money and regulators subsequently forced H2O to temporarily suspend trading in a series of its funds because of concerns over the valuations of investments.

Natixis has been seeking to sell its majority stake in H2O, which was also hit hard by the pandemic, back to its management since late last year, though this has so far faced obstacles from regulators.

Namias said H2O had now taken over the distribution of its own products and would no longer be included in Natixis’s financial results, but declined to comment on why the French investment bank has been unable to shed its stake and whether it was considering other buyers.

A director and two sales representatives from Natixis have joined H2O to set up a proprietary distribution team that the company is looking to grow to 15 people.

In spite of the reputational hit caused by the H2O scandal, Namias defended the asset manager’s multi-boutique model, whereby it takes majority stakes in smaller investment firms and offers them its marketing and distribution might.

Natixis was now the biggest investment manager in the world to have this kind of decentralised business structure, he said, which enabled the company to benefit from different investment strategies and talents, so long as there are good systems of compliance in place.

Natixis replaced its chief executive last year after a two-year term marked by doubts over the bank’s business model and risk management, and was taken private this year by its largest shareholder and French mutual bank, BPCE.

As part of a sweeping restructuring of its business operations, the company’s insurance and payments arms — representing about 20 per cent of the company’s sales and employees — have been transferred to BPCE.

This has left Natixis to focus on two core segments — corporate and investment banking and asset and wealth management, reducing its employee count from 16,300 to about 12,000.

In the first half of the year, gross operating income across both sectors — now named “Global Financial Services” — more than doubled to €1.1bn, supported by the post-pandemic recovery. The asset and wealth management division increased its gross operating income by 41 per cent to €400m, when excluding H2O asset management, but by only 12 per cent including the investment subsidiary.

Natixis has also sought to slash its exposure to risky products and diversify its areas of corporate banking expertise so it is less exposed to volatility in sectors such as oil and gas, and aerospace. As part of this drive, it has expanded into sectors including health.

“We will never be the largest corporate and investment bank in all geographies,” Namias said, but “we can enlarge the number of sectors [as part of] a ‘selective diversification’.”

Natixis’s exposure to equity derivatives, which led to hundreds of millions in losses in 2018 and 2020, had also been reduced, Namias said, although the bank has not stopped dealing in these products altogether given that there is still strong demand from clients.

“The business of banking is not to avoid risk but to choose your risks wisely,” he said.