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rffrydr
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 Posted: Mon Mar 26, 2012 10:25 am Post subject: |
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Platform economy in action:
Sweat and tears: Li & Fung squeezed
| Quote: | Ever wondered why Walmart never runs out of those patterned fleece pyjamas? Think Li & Fung – the world’s largest “sourcing” company, moving products from Asia’s sweat shops to the world’s retailers. The trouble is that this makes the Hong Kong-listed company’s fortunes hostage to US consumer spending (60 per cent of Li & Fung’s sales come from the US). Its shares were the second worst performing on the Hang Seng in 2011. This year has seen a sharp revival. There are signs, though, that this represents the triumph of hope over reality.
Investors would be forgiven for thinking that Li & Fung’s growth prospects look robust, especially as retailers around the world restock after the consumption downturn. The company’s 2011 results this week offered other positive signals: shifting more expensive products such as cosmetics around the globe helped to support operating margins in its core trading segment. But Li & Fung’s overall net margin for recurring operations was still a measly 3 per cent – down almost 40 basis points from 2010. In the long run, the company may find it difficult to lift this due to its exposure to suppliers in China which are themselves suffering from structural wage inflation.
Li & Fung has done little to hedge against this. It sourced almost two-thirds of its products from China last year, up slightly from the previous year; it is heavily reliant on China’s southeastern manufacturers, which are themselves suffering most from cost pressures. As these suppliers’ margins contract further, Li & Fung’s ability to raise processing fees, which support a large chunk of its revenue, will weaken further. Compounding the problem is a shift by high street clothing chains such as Zara to source from factories closer to Europe to keep up with changing trends. All this leaves Li & Fung very little margin for error. |
--FT
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HenryTo
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rffrydr
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| Posted: Fri Jun 03, 2011 5:41 am Post subject: |
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Macro Team looks for pulling of the peg as depositors stampede to Yuan accounts:
.....HK Commercial Bank: you only make loans on HK property in HKD - unfortunately, your deposits are running away. So what do you do? Make loans in CNY, basically accepting that HK is going to creep towards a CNY peg? Beg and plead with the HKMA to arrange some currency swaps? Or just keep on ratcheting up mortgage rates as your funding runs away to cause rates to level peg with yuan rates? In the meantime, your funding still keeps walking out the door.
HKMA: You are worried about a bubble as real activity is in Yuan but you have a USD monetary policy due to the peg. Do you repeg? Or do you just pester your banks about their loan to value ratios and force them into stress tests without doing anything at all to solve the root of the problem? To date, the latter appears to be the HKMA's attitude.
The sensible answer is to repeg and basically follow CNY monetary policy for better or for worse, because, lets face it, the HKD peg is an anachronism from when HK was a light manufacturing hub that exported most of its products to the US and Europe. It is of course now a financial services hub that is leveraged beta on China and Chinese capital markets activity.
So what is the trade? There is of course the old HKDUSD cross which is one of the more asymmetric trades out there, sadly you pay for it on risk reversals. Another trade though might be Hong Kong banks as distinct from mainland Chinese banks. If HK banks were to become organizations that got deposits, made loans and generally operated in Yuan they would no doubt be as hitched to monetary policy on the mainland as Chinese State Owned Banks and be the recipients of those sweet, sweet 3% Net Interest Margins that Chinese bank analysts know and love. They would also, however, not be natural lenders into all the dumb infrastructure and business lending that Chinese bank analysts know and hate.
Now, TMM may be crazy but if you are making 3% NIMs, not lending to fundamentally uneconomic policy projects and are reasonably well run, you can expect to get a 2-2.5x Price to Book multiple much like higher quality Indonesian banks. As a thought exercise, TMM have seen what the valuation uplift could be for a few HK banks.
In the interim, TMM expect some choppiness in these names as the HKMA girds them for the big inevitable change, but the asset risk is manageable here: HK property may be a bubble but these guys lend to 60% LTV and do not have the type of stuff on balance sheet that Chinese banks do. Going long HK banks and short Chinese ones might not be a bad way to play the HK peg, not to mention a China credit blowup, if you get bored of waiting for what feels like forever for something to happen in the FX market
http://macro-man.blogspot.com/2011/05/hkd-peg-unbreakable.html
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rffrydr
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| Posted: Sun Sep 19, 2010 9:51 am Post subject: |
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Not exactly giving it away; but the idea of making the populace pro-active, and keeping them so (as long as the money lasts) is a bit radical. (see the "invisible man" for the opposite sentiment) HK IS chinese democracy--for better or worse.
Looks like Li is ready to shake Bill and Warren's hand as an "equal." Slap my face.
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HenryTo
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rffrydr
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| Posted: Mon Jul 19, 2010 3:44 pm Post subject: |
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This is part of the yuan "reval without reval" policy first applied in Beijing I do believe.
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HenryTo
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rffrydr
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| Posted: Fri Jan 22, 2010 9:05 pm Post subject: |
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11 of 20 IPOs this year under issue price. 100 percent first day gains are a memory.
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rffrydr
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| Posted: Wed Jan 20, 2010 10:33 am Post subject: |
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FXI down 4.44% today. 
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rffrydr
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| Posted: Sat Jan 02, 2010 2:22 pm Post subject: |
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Hong Kong raised more money in IPOs this year than all US exchanges. Some see this as a sign of the "Chinese Century"--I'd say more a sign of how great this "Great Recession."
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rffrydr
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| Posted: Wed Dec 02, 2009 7:58 am Post subject: |
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November Hong Kong Home ales fell 0.9% in units and have dropped four of the past five months. The value, however, rose 5% m/m. The level of units peaked in September.
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rffrydr
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HenryTo
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HenryTo
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