FT : Trump signals he has more Chinese companies in his sights

Trump signals he has more Chinese companies in his sights
US president says he is ‘looking at’ further punitive measures against companies, including Alibaba

Donald Trump has signalled that he is considering taking action against more Chinese companies, including Alibaba, one day after he ordered ByteDance to divest TikTok’s operations in the US within 90 days.

Asked whether he was contemplating punitive action against more Chinese companies, such as the ecommerce giant Alibaba, Mr Trump replied: “We’re looking at other things, yes we are.”

The White House did not provide any explanation about the comment. But it comes as Mr Trump increasingly takes aim at China, which he blames for the spread of coronavirus, ahead of the US presidential election.

As well as the ByteDance order, the US president on Friday ended a waiver that had allowed some US companies to continue selling goods to Huawei, the Chinese telecoms equipment firm that the US believes spies for Beijing.

Mr Trump has made a series of assertive moves against China in recent months to address what his officials say are economic and national security threats from the Chinese Communist party.

Most China experts in the US believe that he will increase pressure on Beijing ahead of the US election.

In his TikTok order, Mr Trump said there was “credible evidence” that ByteDance might take action to hurt US security.

His order for ByteDance to divest TikTok within 90 days followed a recommendation from the Committee on Foreign Investment in the US (Cfius), a government panel that vets foreign acquisitions of US companies.

The order came one week after he issued a directive banning US companies from dealing with TikTok unless ByteDance sold the app to an American group within 45 days. The latest move goes further by providing a deadline for ByteDance to sell its TikTok operations in the US.

Microsoft has been in talks to buy the app.

A senior US official said the new order would add to the pressure on ByteDance to sell TikTok because the value of the asset would fall as the 90-day deadline approached.

“If no deal [with Microsoft] is reached, this could shut TikTok down in the US in 90 days,” said Kevin Wolf, a partner at Akin Gump who oversaw the commerce department’s sanctions list until 2017.

Separately, the commerce department took aim at Huawei by ending a waiver that had given a temporary reprieve to US companies by allowing them to continue servicing contracts with Huawei without a licence.

Huawei denies the US claim that it helps China conduct cyber espionage.

The most high-profile beneficiary of the temporary waivers has been Google, which has continued updating its Android operating system on old Huawei phones.

The US official said the White House was sending a signal to companies that they needed to decrease their business with Huawei and also that there would be an increasingly high hurdle to issuing any licenses.

Mr Trump had taken a slower approach on Huawei than some hawks had hoped, as he tried to avoid derailing trade talks with Beijing. But he has recently shifted tack on China ahead of the US presidential election, as he blames the Chinese government for the global spread of Covid-19.

His tougher line on China has also given hawks in his administration a window to push him to take other actions against Beijing.

The White House last week took aim at Tencent, a high-profile Chinese technology company, by giving US companies 45 days to stop dealing with WeChat, the ubiquitous messaging app owned by Tencent. That move spurred speculation that he was willing to take action against big Chinese companies that produce popular goods and services in their home market

Mr Trump has recently imposed sanctions on Chinese and Hong Kong officials after Beijing imposed a draconian security law on the former British colony to crack down on pro-democracy, anti-Beijing protests.

Steven Mnuchin, the Treasury secretary who chairs the Cfius process, said Mr Trump on Friday evening “issued an order prohibiting the transaction that resulted in the acquisition of Musical.ly, now known as TikTok”.

He added that ByteDance would have to divest any assets that were used to “enable or support the operation of TikTok” in the US and also any data that it had obtained or derived from TikTok or Musical.ly users in the US.

ByteDance bought Musical.ly in 2017 and merged it with its existing TikTok app, fuelling growth of the video platform. Last year, Cfius opened an investigation into the acquisition. Though musical.ly was a Chinese company, Cfius had jurisdiction because it had a large US presence. 

Earlier this week, John Demers, the top US justice department national security official, said Washington was increasingly vigilant about the ability of the Chinese government to glean the personal data of American citizens via apps such as TikTok. Mr Demers said Cfius was widening its approach as the threat to data grew with the pervasive use of smart technologies.

FT : Saudi prince powers ahead with futuristic city and sports giga-projects

Saudi prince powers ahead with futuristic city and sports giga-projects
Riyadh awards billions of dollars of contracts for flagship schemes even as it imposes swingeing austerity measures

Saudi Arabia is forging ahead with Crown Prince Mohammed bin Salman’s flagship giga-projects, awarding billions of dollars of contracts despite Riyadh being forced to impose swingeing austerity measures as it grapples with the twin shocks of coronavirus and low oil prices.

With Riyadh facing its worst financial crisis in decades, it has already taken the dramatic step of tripling value added tax to 15 per cent, suspending benefits of the civil service, which employs most Saudis, and warning that it will have to reprioritise spending.

Many Saudis had expected the three highly ambitious schemes — Neom, a $500bn futuristic city; Qiddiya, a vast sports and entertainment complex; and a high-end Red Sea tourism development — to be victims of state spending cuts.

But executives at the flagship developments told the Financial Times that Prince Mohammed had insisted that the giga-projects move ahead as planned. “He’s completely committed to this vision and he wants to make sure that everybody associated with it, from me on down, is crystal clear that we ‘stay the course, move this forward, don’t let anything get in the way’,” said Michael Reininger, chief executive of Qiddiya.

The prince has identified entertainment and tourism as vital parts of his reforms, from job creation to offering young Saudis more options and reshaping perceptions about the ultra-conservative kingdom.

Qiddiya, a more than $15bn development that will include a Formula One motor racing track, 20,000-seat stadium and Six Flags theme park, last month awarded a $187m contract for roads and bridges, one of about $2.6bn in “near-term” contracts it plans to allocate this year.

Last month, Neom, Prince Mohammed’s most ambitious plan, signed a $5bn agreement with Air Products, a US company, and Acwa Power, a Saudi company that is 40 per cent owned by the Public Investment Fund, the kingdom’s sovereign wealth fund, to develop a renewable energy project.

Days later, the Red Sea Development Company awarded its biggest contract to date, signing up Saudi companies to build an airport designed by Foster + Partners, the British architects. It expects to award more than $1bn in additional contracts this year.

The first phases of Qiddiya and the Red Sea project, which is expected to cost about $10bn and will cover five islands, are supposed to be completed in 2023. But officials hope the Red Sea will begin welcoming visitors in two years, betting that global tourism will bounce back.

“It is full steam ahead, we haven’t skipped a beat . . . he [Prince Mohammed] wants these projects delivered,” said John Pagano, chief executive of the Red Sea Development Company. “In fact, we may expand the project by another island following a recent board meeting.”

Like Qiddiya, Mr Pagano said the capital for the Red Sea development was already committed, adding that the company was also working on a debt facility with Saudi banks.

“There’s always scepticism around big projects . . . [but] the progress we are making, the [contract] awards we are making, starts to dispel any scepticism,” he said.

There are fewer details about what shape Neom will ultimately take, and its scope and ambitions far exceed the others.


Ali Shihabi, a member of Neom’s advisory board, said the project was “proceeding”, while adding that the final schedule had not yet been determined. It would probably move ahead at a more “moderate pace”, he added. Last week, it awarded a contract to US firm, Bechtel, to work on the development of its primary infrastructure.

The price of oil, the kingdom’s lifeline, is still far below Saudi Arabia’s break-even price and oil revenues declined 45 per cent in the second quarter to $25.5bn. There is little space for critical debate in the kingdom, but analysts said the optics of spending billions of dollars on the projects at a time of severe austerity were awkward. “I wish the same effort and speed being put into Qiddiya and Neom are also present in executing projects like hospitals and other government sectors,” said a young mother from the city of Buraidah in the central Qassim region.

One Gulf banker said the fact that Prince Mohammed was forging ahead with his projects was a “characteristic of the crown prince”.

“He wants to show ‘I’m not relenting, I’m committed, things will pick up’,” the banker said. The banker added that if oil recovered to $60 a barrel next year, the “projects are fine”.

“But you still have to question the viability of the projects, regardless of whether they have the money,” he said. “There will be entities that will invest, but most will be local, not many foreign. Neom will have serious problems, because for it to work investors need to see a financial return.”

The PIF is the lead developer of all three projects, but was also hoping to attract foreign investment. Riyadh transferred $40bn of its foreign reserves to the fund in March and April to support its overseas investment strategy and domestic projects.

Even before the crisis there was scepticism about the viability of some of the developments, as well as questions about how the kingdom would finance them — particularly Neom, where officials have suggested robots could outnumber the targeted 1m residents.

The PIF, which like Qiddiya and the Red Sea Development Company, is chaired by Prince Mohammed, said: “We do not believe that the current economic conditions will have significant impact on project timelines.”


Ali Shihabi, a member of Neom’s advisory board, said the project was “proceeding”, while adding that the final schedule had not yet been determined. It would probably move ahead at a more “moderate pace”, he added. Last week, it awarded a contract to US firm, Bechtel, to work on the development of its primary infrastructure.

The price of oil, the kingdom’s lifeline, is still far below Saudi Arabia’s break-even price and oil revenues declined 45 per cent in the second quarter to $25.5bn. There is little space for critical debate in the kingdom, but analysts said the optics of spending billions of dollars on the projects at a time of severe austerity were awkward. “I wish the same effort and speed being put into Qiddiya and Neom are also present in executing projects like hospitals and other government sectors,” said a young mother from the city of Buraidah in the central Qassim region.

One Gulf banker said the fact that Prince Mohammed was forging ahead with his projects was a “characteristic of the crown prince”.

“He wants to show ‘I’m not relenting, I’m committed, things will pick up’,” the banker said. The banker added that if oil recovered to $60 a barrel next year, the “projects are fine”.

“But you still have to question the viability of the projects, regardless of whether they have the money,” he said. “There will be entities that will invest, but most will be local, not many foreign. Neom will have serious problems, because for it to work investors need to see a financial return.”

The PIF is the lead developer of all three projects, but was also hoping to attract foreign investment. Riyadh transferred $40bn of its foreign reserves to the fund in March and April to support its overseas investment strategy and domestic projects.

Even before the crisis there was scepticism about the viability of some of the developments, as well as questions about how the kingdom would finance them — particularly Neom, where officials have suggested robots could outnumber the targeted 1m residents.

The PIF, which like Qiddiya and the Red Sea Development Company, is chaired by Prince Mohammed, said: “We do not believe that the current economic conditions will have significant impact on project timelines.”

FT : Wirecard casts shadow over Scholz’s bid to be German chancellor

Wirecard casts shadow over Scholz’s bid to be German chancellor
Regulatory failings over collapse of payments company could hobble finance minister’s ambitions

The Wirecard scandal is a national embarrassment for Germany. For Olaf Scholz, finance minister, it is much more — a stain that could complicate his campaign for the top job in German politics.

The German payments company’s spectacular collapse has exposed deep flaws in Germany’s system of financial regulation. All the agencies that should have policed Wirecard appear to have failed. With a few exceptions, Mr Scholz’s ministry oversees them all.

“Ultimately the buck stops with the finance minister,” said Frank Schäffler, an MP for the opposition Free Democrats.

The Wirecard revelations come at a sensitive time for Mr Scholz. On Monday, his party, the Social Democrats, chose him as their candidate for chancellor in next year’s Bundestag election. The most popular SPD politician in Germany, he entertains high hopes of succeeding Angela Merkel as the leader of Europe’s largest economy.

But the Wirecard affair could hobble Mr Scholz’s political ambitions, at least if the opposition has any say in the matter. Many MPs — including some from the SPD’s partner in government, the CDU/CSU — want to see a full parliamentary inquiry. It is a prospect that fills the Scholz team with dread. 

“There are a lot of unanswered questions as far as we’re concerned,” said Lisa Paus, the opposition Greens’ finance spokeswoman. “There’s a suspicion that the authorities gave Wirecard a free pass.”

However, others reject the idea that the minister is in danger. “So far, there’s no evidence at all of misconduct on the part of Scholz himself, or of any personal entanglement,” said Uwe Jun, a political scientist at Trier University. “And if that remains the case, voters will forgive him. They know he can’t oversee everything.” 

Wirecard collapsed in June under €3.5bn of debt in one of the largest accounting frauds in Germany’s postwar history. Its chief executive Markus Braun and three other former executives were arrested by Munich prosecutors last month and are in custody. Investigators believe they were involved in a multiyear fraud designed to inflate Wirecard’s revenue and so deceive investors. Mr Braun has denied any wrongdoing.

Ever since the payments company’s demise, questions have been raised about Mr Scholz’s role in the debacle, especially after it emerged that he had been informed as early as February 2019 that Wirecard was being investigated for alleged market manipulation. 

As finance minister, Mr Scholz oversees both the financial market watchdog BaFin and the Financial Intelligence Unit, Germany’s main agency for fighting money-laundering and terrorist financing. Both have been faulted for failing to supervise Wirecard adequately.

BaFin has been sharply criticised for responding to reports in the Financial Times last year about accounting irregularities at the payments processor by filing a criminal complaint against the FT journalists who wrote the reports. Meanwhile, it emerged last week that BaFin employees had been trading Wirecard shares in ever higher volumes as it edged towards collapse — and that the FIU had received about 1,000 reports of suspicious activity relating to Wirecard since 2017, mainly from banks — but had passed on just a handful of these to police and prosecutors.

“A potential vulnerability for Scholz is if there is more evidence of money-laundering [by Wirecard],” said Fabio De Masi, an MP for the leftwing Die Linke. “Then the question will be why didn’t the FIU intervene earlier? And the FIU answers to the finance ministry.”

Mr Scholz has responded by placing the blame elsewhere, principally with EY, the accounting firm, which issued unqualified audits of Wirecard for a decade. 

“It’s unbelievable that auditors, the ones who check [company] accounts in the first instance in our system, didn’t discover such manipulation, despite high fees, an incredible number of employees and in full knowledge of the press reports,” he told Der Spiegel last week.

He has also defended BaFin to the hilt and dismissed suggestions that it could have intervened earlier in the scandal. The watchdog, he has said, lacked the powers under German law to conduct the kind of forensic audit that was ultimately carried out by KPMG at the behest of Wirecard’s board. In its highly critical report, published in April, KPMG said it was unable to resolve questions about the payments group’s accounting.

“Scholz . . . made it sound like BaFin’s hands were tied and it couldn’t have acted otherwise,” said Ms Paus. “That’s not accurate in our view. And that’s why we still have questions.”

Mr Scholz insists he has learnt the lessons of the Wirecard scandal and is determined to fix the system. Last month he presented a 16-point “action plan” to strengthen financial regulation in Germany, give BaFin sweeping new powers and forcing companies to change their auditors more frequently.

He has also promised full transparency, agreeing to work with MPs to get to the bottom of the authorities’ role in the Wirecard affair. Last month he was questioned by the Bundestag’s finance committee in a closed-door session for four hours.

MPs have asked why Wolfgang Schmidt, a state secretary at the finance ministry and one of Mr Scholz’s closest aides, lobbied for Wirecard with Chinese officials in mid-June, months after the minister had been told the company was being investigated for suspected market abuse. (Officials said ministers routinely lobby for German companies wanting to expand internationally, even if they are under investigation.)

Felix Hufeld, head of BaFin, who stands accused of providing misleading statements to the Bundestag over the Wirecard investigation (BaFin has admitted that some of his answers were “imprecise”), is also under pressure.

Jens Zimmermann, a SPD MP and member of the Bundestag finance committee, said he saw “no way anyone can blame Scholz personally for the Wirecard affair”.

“But of course the opposition and the CDU/CSU will do everything they can to exploit the issue and use it to undermine him,” he said. “That’s what always happens in politics — you just keep repeating something until people start believing it.”

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Trading app Robinhood continues to benefit from the market rally and pandemic, but critics worry it encourages users to take on too much risk

* Cover story: The popular trading app Robinhood has benefited from the convergence of a stock market rally and an economy hit by the pandemic; Of the roughly six million online trading accounts opened in the first six months of the year, at least three million were at Robinhood, and it “has become the flag bearer for a tech-driven revolution in consumer finance”—but critics say it motivates users to take on too much risk, and they compare it to videogames or online gambling.

* Tech Trader: For years, CSCO has been Silicon Valley’s “canary in a coal mine,” an early warning signal about potential problems, but investors don’t seem to be paying heed despite the company’s weak outlook; Amid a recession, the market seems convinced that cloud-based software providers such as DOCU, OKTA, WORK, CRWD, and CRM are insulated from Covid-19 pain—but their connection to the wider market via the companies they sell to makes that a risky assertion.

* Trader: If the market is in a bubble, BTIG strategist Julian Emanuel says one of several catalysts could make it pop—a coronavirus vaccine could cause investors to buy economically sensitive stocks over those tied to the work-at-home trend, interest rates could rise, or China tensions could hit tech stocks; TGT and WMT benefited from the lockdown because they were able to stay open, but Target is doing a better job building on that momentum, while Walmart shares look expensive and its e-commerce efforts are lagging.

* Interview: Tucker York, head of wealth management at GS, talks about the firm’s plan to hire 250 financial advisors over the next three years and bring on lower-net-worth clients to boost its Personal Financial Management division, a strategy it previously wouldn’t have considered. Profile: Scott Davis, co-manager of the Columbia Dividend Income fund, which recently had a 15-year annual return of 8.7%, besting 97% of its Morningstar peers (top 10 holdings: MSFT, JNJ, AAPL, MRK, CSCO, LMT, JPM, UNP, CVX).

* Features: 1) Recent stock split announcements from AAPL and TSLA could prompt more companies with high-priced stocks to follow-suit; Fans of splits argue they can expand a stock’s ownership base, getting more people to buy, while critics say there’s no guarantee a stock’s value will continue to rise after the split; 2) “The escalating tension between the U.S. and China has the makings of a bad divorce, and investors and companies need to brace for long, and lasting, ripple effects,” though the situation does present opportunities for investors able to “create a new framework for profit”; 3) Positive on MRK: The pharma giant has the leading drug for harnessing the immune system to fight cancer and one of the top vaccine franchises, yet Wall Street seems fixated on the 2028 patent expiration for blockbuster Keytruda—but with a strong pipeline and reasonably priced shares, Merck deserves a look; 4) The outcome of the November election will have a significant impact on the outlook for healthcare investors—Raymond James analyst Chris Meekins says the sector would outperform the market if Joe Biden wins the presidency and the Republicans keep the Senate, but if Democrats win both, healthcare stocks could be volatile.

* European Trader: Positive on QinetiQ: Shares of the British defense-technology company have risen by 14 percent during the past year thanks to long-term government contracts that have insulated the company from coronavirus fallout, and a recent acquisition spree could further boost earnings.

* Commodities: After more than half a decade of record-busting price moves, the palladium market hit a bump in the road because of a global economic slowdown and a drop in car sales, and investors should expect neither a rally back to record prices nor a crash.

* Streetwise: The S&P 500 recently traded at 26 times this year’s depressed earnings, or 21 times last year’s earnings, versus an average historical level of closer to 15 times earnings, a trend that is likely to continue, says Jonathan Golub of CS—“For the next decade, we’re going to live with stock multiples in the mid-20s, even though that seems historically very high, and that is going to be really uncomfortable for professional investors.”

>>> Carl Icahn discloses updated portfolio positions in 13F fil

Carl Icahn discloses updated portfolio positions in 13F filing: Exited HPQ FCX positions

Highlights from 2020 Q2 filing as compared to Q1 2020:
  • Increased positions in: IEP (to ~205.06 mln shares from ~197.05 mln shares), TEN (to ~9.14 mln from ~5.65 mln), LNG (to ~20.82 mln from ~20.16 mln)
  • Maintained positions in: OXY (~88.63 mln shares), CVI (~71.2 mln shares), NWL (~43.7 mln shares), HLF (~35.23 mln shares), XRX (~23.46 mln shares), NAV (~16.73 mln shares), DK (~10.54 mln shares)
  • Closed positions in: HPQ (from ~62.9 mln shares), HTZ (from ~55.34 mln), FCX (from ~26.77 mln)
  • Decreased positions in: CLDR (to ~52.33 mln shares from ~54.8 mln shares)

Fwd:Briefing; INSID; Carl Icahn discloses updated portfolio positions in 13F filing: Exited HPQ FCX positions

Carl Icahn discloses updated portfolio positions in 13F filing: Exited HPQ FCX positions

Highlights from 2020 Q2 filing as compared to Q1 2020:
  • Increased positions in: IEP (to ~205.06 mln shares from ~197.05 mln shares), TEN (to ~9.14 mln from ~5.65 mln), LNG (to ~20.82 mln from ~20.16 mln)
  • Maintained positions in: OXY (~88.63 mln shares), CVI (~71.2 mln shares), NWL (~43.7 mln shares), HLF (~35.23 mln shares), XRX (~23.46 mln shares), NAV (~16.73 mln shares), DK (~10.54 mln shares)
  • Closed positions in: HPQ (from ~62.9 mln shares), HTZ (from ~55.34 mln), FCX (from ~26.77 mln)
  • Decreased positions in: CLDR (to ~52.33 mln shares from ~54.8 mln shares)