FT : Ericsson chief hits out at Swedish 5G ban on Huawei

Ericsson chief hits out at Swedish 5G ban on Huawei
Borje Ekholm says action against his rival undermines free competition and trade

Ericsson’s chief executive has criticised the decision of his home country Sweden to ban Huawei from its 5G telecoms networks, arguing such a move restricts free competition and trade and will lead to a delay in rolling out the new technology.

Huawei, the Chinese telecoms equipment manufacturer, is appealing against the ban, which was made last month by Swedish authorities on advice from its armed forces and security services who accused China of “extensive intelligence gathering and theft of technology”.

Borje Ekholm, chief executive of Swedish rival Ericsson, told the Financial Times that it was “important that those type of decisions are reviewed”.

He added: “For Ericsson and Sweden, we’re built on free trade. We’re built on the opportunity to trade freely . . . From my perspective it is important that we have open markets and free competition.”

Sweden’s ban was unusual in being so explicit with its reasoning, with other countries such as the UK having referred more vaguely to general national security concerns. Telecom operators in Sweden are barred from using Huawei or ZTE products in their new 5G installations and have to remove their equipment from their existing infrastructure for core functions by 2025.

Mr Ekholm said that he understood that mobile networks are a national security question and would “increasingly be so”.

But he argued that Sweden had deviated from the EU’s guidelines on secure 5G networks, which aim to balance the need for national security with free competition. “I do think that framework is a good one. This is their own interpretation of the toolbox,” he added.

The appeal has already caused Sweden’s telecoms regulator to postpone an auction of 5G spectrum this month and Mr Ekholm said he expected the overall rollout of the new telecoms networks to be delayed.

Ericsson and Finland’s Nokia are Huawei’s biggest rivals, but as the Swedish group has a relatively large business in China, some analysts have suggested it could try to protect that by refusing to align itself with Stockholm.

Mr Ekholm noted that while Ericsson competed “heavily” with Huawei, it also collaborated with them on industry standards. “It’s important to maintain that,” he said.

Ericsson’s chief executive added: “I belong in that category that believes competition makes us longer term a better company. It may be painful shorter term but longer term it drives us to be more innovative and make better products for our customers.”

Ericsson has been more successful than Nokia in the early days of the 5G rollout and has won several deals in China. Both companies have become part of a geopolitical tussle with some officials close to US president Donald Trump suggesting that America should consider taking a stake in one or both of them.

Mr Ekholm argued the political focus in Europe should be on rolling out 5G as fast as possible. “Think about 4G — the debate in Europe was: what is the killer app? The Americans and Chinese rolled out 4G fastest and the app economy for consumers is now dominated by American and Chinese firms,” he said. “5G is going to be the same but for enterprise. Slowing the rollout of 5G is a risk for the economy. Europe risks falling behind again.”

FT : Why value investing still works in markets

Why value investing still works in markets
To buy something for less than it is worth is as useful as ever

The writer is a researcher at Morgan Stanley Investment Management

Value investing, defined as buying or selling securities at prices different than their true value, is alive and well. You might not know that by reading headlines in the financial press or witnessing the poor returns of stocks with low multiples of price to earnings or book value per share. But here’s why you don’t need to fret about value investing.

Benjamin Graham was a professor and investor who is widely acknowledged as the father of value investing. The Intelligent Investor, arguably Graham’s best-known book, tells the story of Mr Market, a metaphorical way to explain why prices diverge from values. It also discusses the margin of safety, which impresses the importance of finding large gaps between price and value.

Graham’s most famous student is Warren Buffett, the chairman of Berkshire Hathaway. He has said that Mr Market and the margin of safety have been bedrock principles of his investing philosophy over his lengthy career.

In recent decades, value investing has come to mean buying stocks with low valuation multiples and selling those with high multiples. However, simply buying stocks with low multiples should not be confused with value investing.

One reason comes from the capital asset pricing model, a theory in finance that underpins asset pricing. This is ironic because many avowed value investors heap scorn on the model. Developed in the 1960s, the CAPM’s core idea is that there is a positive linear relationship between risk and reward — the more risk that investors take, the more they expect to be rewarded, on average, by a market that is efficient. That much is common sense, but the trick is in its measurement.


Academics define risk, denoted by the Greek letter beta, as how much a stock moves relative to changes in the stock market. A stock with a beta of one will move in line with the market on average, while below one suggests smaller changes and above one bigger changes than the market. The reward is the expected total return of a stock.

The theory is beautiful in principle but doesn’t work in practice. Researchers who put it to the test found that the average returns for low-risk stocks were higher, and those for high-risk stocks lower, than they were supposed to be.

In 1992, Eugene Fama and Kenneth French, professors of finance, published a much-cited paper which showed that adding measures of size and value to beta righted the relationship between risk and reward. The size factor documented that the stocks of small capitalisation companies earned higher average returns than those with large capitalisations. The value factor, measured as a multiple of price-to-book value per share, revealed that stocks with low multiples did better than those with high ones.

Consistent with the CAPM, Profs Fama and French saw these as risk factors and argued their tests did not confirm that markets were inefficient. Value investing suddenly became synonymous with buying stocks with low multiples and avoiding or shorting those with high multiples.

Years later, many investors and market observers still unfortunately conflate value investing with the value factor. Value investing is buying something for less than it is worth. The value factor is an ersatz measure of gaps between price and value. Worse, the relevance of the value factor is fading.


Earnings and book value no longer mean what they used to. Tangible assets, such as factories, were the foundation of business value in Graham’s time. Yet intangible spending, such as research and development, has been on the rise for decades. Indeed, companies in developed countries started spending more on intangibles than they did on tangibles shortly after the Fama and French paper was published.

Investments are outlays today in the expectation of higher cash flows tomorrow. Intangible investments are treated as an expense on the income statement. Tangible investments are recorded as assets on the balance sheet. That means a company that invests in intangible assets will have lower earnings and book value than one that invests an equivalent amount in tangible assets, even if their cash flows are identical. Earnings and book value are losing their ability to represent economic value.

Fundamental value investors should focus on gaps between price and value for individual securities. The present value of future cash flows, not misleading multiples, are the source of value. As Charlie Munger, Warren Buffett’s partner at Berkshire Hathaway, has said: “All good investing is value investing.” The value factor may be floundering, but value investing remains as relevant and useful as ever.

FT : Tesla supplier Panasonic to make big battery bet in Europe

Tesla supplier Panasonic to make big battery bet in Europe
Japanese group plans to set up its first plant in Norway with Equinor and Norsk Hydro

Panasonic is making a significant push into Europe with plans to set up its first battery factory in Norway, as the Japanese group tries to leverage its success supplying Tesla in the US to win more business from European carmakers.

The group intends to team up with Norwegian state-controlled oil and gas major Equinor and aluminium company Norsk Hydro for a feasibility study on expanding its battery business in Europe to be completed within six months.

Despite running the world’s largest battery factory with Tesla in Nevada, Panasonic has only a small presence in Europe, where a number of companies including Swedish upstart Northvolt and Tesla itself are building plants.

Demand for batteries is set to increase rapidly as electric car sales take off, with their share of the European market forecast to climb to 15 per cent next year, according to policy group Transport & Environment.

“Europe is quite a premature market. It is still growing and there’s a lot to happen. It could be colossal,” Allan Swan, the head of Panasonic’s US battery manufacturing unit, told the Financial Times.

European carmakers are likely to lead the switch to electric vehicles by aiming to be the most “progressive” in the industry, he added.

The size of any factory in Norway would depend on the outcome of the study, Mr Swan added, but it could be “in the ballpark” of the Nevada gigafactory, which is about to be upgraded to 38 gigawatt hours a year. 

The factory owned by Northvolt, which is backed by Volkswagen, BMW, Ikea and Goldman Sachs, in the Swedish Arctic is due to have at least 34GWh of capacity by 2024 and could be upgraded to 40GWh. Peter Carlsson, Northvolt’s chief executive, told the FT last year that Europe was expected to have about 600GWh of capacity by 2030.

Panasonic has previously supplied batteries to European carmakers such as Volkswagen and Peugeot, but not the cylindrical lithium-ion type it makes for Tesla. 

Its expansion into Europe, where the group generates about $7bn in revenue, also comes as Tesla has recently announced plans to build its own battery cells, making it more critical for Panasonic to expand its client base. 

Mr Swan said the Norway plant could be “of interest” to Tesla as well, given carmakers are under pressure to pursue partnerships to secure future supply even if they have plans to produce batteries in-house. 

Norway presents several advantages as the Scandinavian country produces nearly all its electricity from renewable hydroelectric power, while its market for electric vehicles is the most developed in the world. In September, almost two-thirds of new car sales were for fully electric vehicles, while just one in 10 cars were petrol-only with the rest hybrids.

Al Cook, head of global strategy and business development at Equinor, said the electric battery partnership demonstrated that the oil and gas group was committed to boosting its renewable energy business, which faces challenges related to intermittency, when, for example, the wind drops.

“It’s a recognition of how more and more governments in Europe are focused on net zero by 2050 or earlier. And we want to be on the right side of history,” he said, adding that three big industrial names would have more credibility than some more “immature” companies.

All three companies said they wanted to have a partnership that went beyond a single factory. “We have to reach the conclusion that this is very scalable. We’re not doing this to build a battery factory together and that’s the end of it,” said Mr Cook. 

Arvid Moss, head of energy and corporate development at Hydro, said the companies would study the “whole supply chain” including the possibility to source raw materials such as cobalt and lithium from Europe. Several mining projects for cobalt and lithium are under way in Sweden and Finland, but it is not yet clear how big they will be.

>>> US After Hours Summary: Pretty quiet after hours; LZB +4.9% up on earnings;

After Hours Summary: Pretty quiet after hours; LZB +4.9% up on earnings; NCLH -5.8% falls on stock offering; PII -4.5% heads lower as its CEO will step down

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: VREX +6%, LZB +4.9%

Companies trading higher in after hours in reaction to news: KZIA +31.6% (summarizes new paxalisib data), CNHI +5.9% (names new CEO, comes over from PII), MGNI +2.4% (reports total connected TV rev growth of more than 50% for Q3), FTI +1.5% (receives Notice to Proceed for major EPC contract), LRN +0.5% (to change name to "Stride"; also to acquire MedCerts and Tech Elevator; updates FY21 outlook), REGN +0.2% (Roche successfully tested manufacture of COVID-19 drug, according to Reuters)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: PII -4.5% (reaffirms guidance, CEO to step down), NIO -2.6%

Companies trading lower in after hours in reaction to news: HMHC -6% (stock offering), NCLH -5.8% (commences 40 mln share offering), PII -4.5% (CEO to step down; reaffirms FY20 EPS and revs guidance), BYSI -0.1% (stock offering), NVRO -0.1% (abstracts for PDN and NSRBP accepted for presentation), CIM -0.1% (CEO to retire)

>>> Asian Market Update

Asia Market Update: Another mixed session for Asia, few notable macro headlines seen


General Trend:
- Australian equities supported by the rise in Financials; Consumer stocks rise as South Australia announced lockdown measures
- NAB temporarily closed all of its branches in Australia, cited ‘physical security threat’
- Financials trade generally higher in Shanghai, gov’t bond yields rise; Consumer firms lag
- Property and Financial firms rise in HK; Geely extends gains after hitting 52-week high, announced collaboration with Daimler; China auto dealer group commented on possible industry support
- Japanese equities decline amid the overnight rise in the Yen; Transports and Financials are among the decliners, automakers also trade generally lower
- Japanese officials continue to push for regional bank mergers
- Tokyo expected to raise its COVID-19 alert level
- Australia Q3 wage data missed ests, annualized pace declined to historic low; Australia Oct jobs data due on Thursday
- RBA Gov Lowe: Economy is on the road back in recovery, though it is uneven
- China set the initial pricing guidance for EUR-denominated bond offering [3-tranches]
- BOK again sells more monetary stabilization bonds than indicated
- RBNZ to conduct probe following data leak
- US FDA: Authorizes first COVID-19 Test for Self-Testing at Home
- Shanghai Exchange said it will launch international copper contract on Nov 19th (Thurs)
- Australia NSW goes into strict 6 day lockdown to combat COVID

***Headlines/Economic Data***
Australia/New Zealand
-ASX 200 opened slightly lower
- (AU) AUSTRALIA Q3 WAGE PRICE INDEX Q/Q: 0.1% V 0.2%E; Y/Y: 1.4% V 1.5%E (lowest level since data set started)
- (NZ) New Zealand Q3 PPI Input Q/Q: +0.6% v -0.9% prior; PPI Output Q/Q: -0.3% v -0.2% prior
- (NZ) RBNZ buys NZ$330M v NZ$325M prior in government bonds as part of QE v N$330M sought
- (AU) Reserve Bank of Australia (RBA) Gov Lowe: bond buying is lowering costs of Govt borrowing, but also rates across economy; right to borrow against future income with pandemic and re-pay through growth; Need to keep strong trade relations with China
- (AU) Reserve Bank of Australia (RBA) Offers to buy A$1.0B in Semi Govt bonds v A$1.0B prior
-(NZ) Reserve Bank of New Zealand: Has engaged Deloite on internal process review after information was disclosed to financial services firms before being made public in Nov

Japan
-Nikkei 225 opened -0.6%
- (JP) Bank of Japan (BoJ) Gov Kuroda: New Deposit facility is prudence policy, not monetary; New deposit facility is for stability of financial system; ETF purchases are conducted as part of bold monetary easing; see CPI remaining below 0% for now
- (JP) Japan Oct Trade Balance: ¥872.9B v ¥300.0Be; Adjusted Trade Balance: ¥314.3B v ¥117.4Be
- (JP) Japan Govt ruling coalition looking at spending ¥12T over 5-years, starting FY21/22, for disaster proofing infrastructure – Nikkei
- (JP) Japan Fin Min Aso: Japan will continue to target balanced budget in FY25; Subsidies for regional bank consolidation is an option being considered
- (JP) Japan Chief Cabinet Sec Kato: Ministry will appropriately address support for airlines; Closely watching movements on gasoline vehicles in foreign markets
-Japan MoF sells ¥1.2T v ¥1.2T indicated in 0.4% 20-year JGBs: avg yield: 0.3880% v 0.3940% prior; bid to cover 3.6x v 3.9x prior

Korea
-Kospi opened +0.4%
- 005380.KR Expected to face lawsuit over fires in electric vehicles (EV) amid recall - press
-(KR) South Korea Oct foreign currency deposits at banks $93.32B v $85.43B prior (record high)

China/Hong Kong
-Hang Seng opened +0.1%; Shanghai Composite opened -0.1%
- (CN) China PBoC Open Market Operation (OMO): Injects CNY100B in 7-day reverse repos v Injects CNY50B in 7-day reverse repos prior; Net drain CNY50B v Net drain CNY70B prior
- (CN) China PBOC sets Yuan reference rate: 6.5593 v 6.5762 prior ( Strongest since June 27th 2018)
- (CN) China Finance Ministry (MOF) sets initial pricing guidance for 5-year, 10-yer and 15-year EUR-denominated bonds
- (CN) General Office of the China State Council has issued guidelines aimed at stabilizing grain production - Xinhua

Other
- (TW) Trade officials from the US and Taiwan are scheduled to hold talks on November 20th - Taiwan press

North America
-(US) FDA: Authorizes First COVID-19 Test for Self-Testing at Home
- (US) Weekly API Crude Oil Inventories: +4.2M v -5.1M prior
- (US) SEPT NET LONG-TERM TIC FLOWS: $108.9B V $27.8B PRIOR; TOTAL NET TIC FLOWS: -$79.9B V $86.3B PRIOR; China Total holding of US Treasuries: $1.061T v $1.068T prior; Japan Total Holdings of US Treasuries: $1.276T v $1.278T prior (net seller for 3rd consecutive month, largest sale since 2018)
- (US) Key county, Wayne, in Michigan has failed to certify vote by deadline; deadlock to be referred to Michigan Board - press

Europe
- (UK) PM Johnson said to back real budget increase for defense – Press
- (IE) Ireland PM Martin: EU and UK can see "the landing zones" on a trade deal, but UK will have to compromise - Daily Mail

***Levels as of 12:15ET***
- Hang Seng +0.5%; Shanghai Composite +0.4%; Kospi +0.3%; Nikkei225 -0.8%; ASX 200 +0.5%
- Equity Futures: S&P500 -0.2%; Nasdaq100 -0.0%, Dax -0.1%; FTSE100 -0.2%
- EUR 1.1894-1.1844; JPY 104.22-104.05; AUD 0.7301-0.7272; NZD 0.6900-0.6875
- Commodity Futures: Gold -0.4% at $1,878/oz; Crude Oil -0.1% at $41.39/brl; Copper 0.0% at $3.21/lb

>>> US Close Dow -0.56% S&P -0.48% Nasdaq -0.21% Russell +0.37%

Closing Stock Market Summary

The S&P 500 declined 0.5% on Tuesday in a cool-down session following its recent record-setting run. The Nasdaq Composite (-0.2%) and Dow Jones Industrial Average (-0.6%) also closed modestly lower, while the Russell 2000 (+0.4%) closed at a fresh record high.   

The market struggled out of the gate after October Retail Sales were softer than expected with total retail sales up 0.3% m/m (Briefing.com consensus +0.5%). A pullback in October discretionary spending may have contributed to the negative reactions to better-than-expected Q3 earnings reports from Walmart (WMT 149.37, -3.07, -2.0%) and Home Depot (HD 272.47, -7.10, -2.5%)

For the most part, losses were kept in check. The S&P 500 utilities sector strayed from the pack with a 2.0% decline, but no other sector fell more than 0.8%. The energy (+0.5%) and real estate (+0.1%) sectors eked out gains. 

Coincidentally, today's low in the S&P 500 (-1.1%) came right before the NAHB Housing Market Index for November was released at 10:00 a.m. ET, which showed homebuilding sentiment hit a new all-time high. Similarly, sentiment among fund managers was indicated to be extremely bullish, according to a survey done by Bank of America. 

The heightened level of bullishness among fund managers perhaps served as a contrarian signal for investors to remain cautious, especially given the market's recent gains. Prior to today, the S&P 500 was up 10.9% over the last 11 trading sessions. 

Separately, shares of Tesla (TSLA 441.61, +33.53, +8.2%) rose 8% on news that it'll join the S&P 500 on Dec. 21. Walgreens Boots Alliance (WBA 39.86, -4.25, -9.6%) and other drug store stocks sold off following the launch of Amazon's (AMZN 3135.66, +4.60, +0.2%) online pharmacy business.

U.S. Treasuries ended the session with small gains, pushing yields lower. The 2-yr yield decreased two basis points to 0.16%, and the 10-yr yield decreased three basis points to 0.87%. The U.S. Dollar Index decreased 0.2% to 92.44. WTI crude futures increased 0.2% to $41.43/bbl. 

Reviewing Tuesday's big batch of data, which featured Retail Sales for October:

  • October Retail Sales were softer than expected with total retail sales up 0.3% m/m ( consensus +0.5%) and sales, excluding autos, up 0.2% (consensus +0.6%). September retail sales growth was revised down to 1.6% from 1.9%. Excluding autos, it was revised to 1.2% from 1.5%.
    • The key takeaway from the report is that it showed a pullback in spending across several discretionary categories like clothing (-4.2% m/m), general merchandise stores (-1.1%), furniture and home furnishing stores (-0.4% m/m), and food services and drinking places (-0.1% m/m).
  • Industrial production increased 1.1% m/m in October (Briefing.com consensus +0.9%) on top of an upwardly revised 0.4% decline (from -0.6%) in September. The capacity utilization rate hit 72.8% ( consensus 72.3%) following an upwardly revised 72.0% (from 71.5%) in September.
    • The key takeaway from the report is that industrial production has recovered most of the 16.5% decline seen from February to April, although output is still 5.6% below its pre-pandemic February level.
  • The NAHB Housing Market Index increased to a new all-time high of 90 in November ( consensus 85) following the previous all-time high of 85 in October.
  • Business inventories increased 0.7% in September (consensus +0.5%) following an unrevised 0.3% increase in August.
  • Import prices decreased 0.1% in October; and prices excluding oil increased 0.1%. Export prices increased 0.2% in October; and prices excluding agriculture were unchanged.

Looking ahead, investors will receive Housing Starts and Building Permits for October and the weekly MBA Mortgage Applications Index on Wednesday.

  • Nasdaq Composite +32.6% YTD
  • S&P 500 +11.7% YTD
  • Russell 2000 +7.4% YTD
  • Dow Jones Industrial Average +4.4% YTD

CNN : Boeing's 737 Max debacle could be the most expensive corporate blunder eve

Boeing's 737 Max debacle could be the most expensive corporate blunder ever

New York (CNN Business)The 20-month grounding of the 737 Max could end as soon as this week, but Boeing's mounting costs have soared to tens of billions of dollars. That means the plane maker's repeated safety oversights and mismanagement were not only tragic but also rank among the expensive corporate mistakes in history.

The two fatal crashes that led to the grounding of the Boeing 737 Max killed 346 people.
Financially, Boeing continues to pay a hefty cost to ensure the safety of future 737 Max passengers.

Direct costs
Boeing has detailed about $20 billion in direct costs from the grounding: $8.6 billion in compensation to customers for having their planes grounded, $5 billion for unusual costs of production, and $6.3 billion for increased costs of the 737 Max program.
The company also spent nearly $600 million for jet storage, pilot training and software updates that are not included in the company's overall cost estimate. It also established a $100 million victim compensation fund, which is also not included in Boeing's $20 billion in estimated costs.
So the costs of the grounding released by Boeing total $20.7 billion.
Boeing's legal liability will almost certainly add to that cost. Published reports show that the families of the first 11 victims to settle with Boeing received at least $1.2 million each. That means the total cost is likely to top $500 million.
Interest costs are adding up, too. Boeing borrowed billions of dollars at a roughly 5% interest rate to keep building 737 Max planes it can't deliver. The company built 450 Max jets during the grounding, but it hasn't delivered a single 737 Max plane in that nearly nearly two-year period.
Only about half will be delivered next year, and some deliveries will stretch as far as 2023. Boeing doesn't get most of the money from a sale until the plane is delivered to the airline, so the interest will pile up — perhaps by about $3 billion or $4 billion, said Chris Denicolo, aerospace credit analyst with Standard & Poor's.
What's clear is that the $20.7 billion in costs that Boeing has detailed is only the starting point. Bank of America puts the costs at more than $25 billion.
"It's going to be more than $20 billion. But it's hard to say how much more it's going to be," said Denicolo.

Lost sales
If financial damage from the 737 Max remains in the $20 billion range, that would not put it in the running for the most expensive mistake by a company. Volkswagen has spent €32 billion, or $38 billion, on its emissions cheating scandal. The most expensive mistake to date is the $68 billion cost to BP of the Deepwater Horizon explosion and oil spill of 2010.
But BP lost little or no sales because of Deepwater Horizon, and VW suffered only a minor, short-term loss of sales from the emissions scandal. By contrast, it's clear that Boeing has suffered a huge loss in sales in the wake of the 737 Max grounding.
Because of the grounding, Boeing lost the cancellation fees that had been written into in its sales contracts for 737 Max orders. As the Covid-19 pandemic sent air travel demand plummeting, airlines have begun taking advantage of the free cancellation policy, anticipating they won't need new planes for several years.
Boeing had disclosed 448 canceled orders for the Max so far this year, compared with only nine for its other models. In addition it has dropped another 782 orders from its backlog of 737 Max orders because it believes those orders are no longer certain enough to rely on. In at least some cases those uncertain plane orders are jets airline customers have said they no longer want.
A 737 Max typically sells for about $55 million, or half of the stated list price, so the worst-case scenario for Boeing is that it could lose as much as $67 billion in revenue from the drop in sales.
But experts say it's more likely that Boeing will eventually sell those planes, though at a steep discount, in some cases to the same customers who are now canceling the orders.
S&P's Denicolo and another industry expert agree that those steep discounts in sales price, which wouldn't have taken place if not for the grounding, are the real financial risk for Boeing.
"Say you're an airline. If there's no longer any penalty, why not cancel all my orders, and I can buy them back much cheaper?" said the industry expert, who spoke on the condition of anonymity.
Boeing will not comment on the prices paid for its planes or any discounts. But the expert said it might be as much as a $20 million discount per plane, or roughly $25 billion total — more than doubling the true cost of the grounding.
Discounting many of the 3,300 other Max orders still on the books could make Boeing's total cost of its 737 Max debacle climb even higher, perhaps past the $68 billion price tag of Deepwater Horizon.