Hedge Clippings | Friday, 20 November 2020

It would seem that with the recount over in Georgia that Donald Trump will finally have to concede, although he's still fighting hard to have the result in Pennsylvania overturned and let the Republican controlled legislature choose the winner instead of the electorate.

And guess who they'd presumably choose?  One can't accuse the Donald of being a defeatist or giving up early, irrespective of the cost and damage done on the way out of the White House.

Back to reality, as opposed to Reality TV politics.

While the US and Europe (and most of the rest of the world) are entering a dangerous winter as COVID cases surge, Australia and South Australia in particular, appear to have worked out that if you strike hard enough, and early enough (perhaps not early enough in Victoria's case, but hindsight's a wonderful thing) then the chances of things getting out of control are significantly diminished. 

Irrespective of the timing of a release of an effective vaccine, it's going to be well towards the end of 2021 that life returns to semi normal, and that's without factoring in how the economy, both here and overseas, will respond and recover.

Meanwhile in China, there's another potential storm brewing - and not one of name calling and rhetoric, at least not yet. Rather, defaults by three state owned companies (SOE's), a chipmaker, car manufacturer and a coal company, have sent jitters through China's credit markets. As Bloomberg reports, "the big questions when it comes to SOE's is whether they are happening with the blessing of Beijing as authorities try to reform the bond market, or whether they're happening outside of government control".

In a controlled economy (and state) such as China, it's difficult to determine, but if it's the latter and more SOE's default on their debt repayments, then it will be a case of "Beijing, you have a problem". How the government will react is anyone's guess, but based on past performances they're unlikely to 'fess up and admit making a mistake, or being at fault.

Bloomberg is suggesting that if it is being controlled, - by deflating a massive debt balloon slowly rather than letting it pop suddenly, then using friendly (controlled) Chinese credit rating agencies would be one way of doing it. However, Chinese ratings agencies aren't that good at doing their job.  The coal company, that was one of the three defaulters mentioned above, was issued with a triple-A rating just a few weeks before defaulting.

Either way it's potentially a risky environment - as anything is when dealing with China. Just ask Scomo! And don't you dare mention where COVID-19 originated!

And on that note have a great week-end!

News & Insights

Video interview with Dean Fergie from Cyan Investment Management

4 Answers to the RBA's Toughest Questions by Nikko Asset Management