Financial Times Europe - 31.07.2019

(Axel Boer) #1
Wednesday31 July 2019 ★ 11

The Financial Times Limited 2019© Week 31

Buying US government bonds could
soon become a more enticing prospect
for overseas investors as the high cost
of protection against dollar gyrations
starts to recede, with the prospect of
Fed rate cuts set to ‘change the
hedging economics very meaningfully’.
Marketsi AGE 19P

Cooling hedging costs
spur US debt investment

JAV I E R E S P I N OZ A , A R A S H M A S S O U D I
A N D A N TO N I A C U N DY— LONDON

Saudi Arabia’s sovereign wealth fund is
in advanced discussions to invest in the
UK’sBabylon Health, a digitalstart-up
used by the National Health Service,
according to people with direct knowl-
edge of its plans.

The investment, which is part of a new
funding round for the UK start-up that
willrunintohundredsofmillionsofdol-
lars, might be announced as soon asthis
week,thosepeoplesaid.
Founded in 2013 byAli Parsa, a
British-Iranian entrepreneur and
banker, abylon has devB eloped a “chat-
bot” that checks the symptoms of
patients used by the NHS. It also offers a

service connecting patients in south-
west London to doctors through video
callsonsmartphones.
The company, which also has con-
tracts with South Korea’s Samsung and
China’s Tencent, has been hailed by
Matt Hancock, the UK health secretary,
as one of the “biggest names in AI”. But
thestart-uphasfacedscrutinyintheUK
fromregulatorsfollowingcomplaintsby
doctors that its symptom checker could
misssignsofseriousillness.
The investment will mark the latest
tech bet by Saudi Arabia’s Public Invest-
ment Fund, the main vehicle through
which Crown Prince Mohammed bin
Salman has attempted to diversify the
oil-dependent country’s holdings. Best
known for its $45bn investment in Soft-

Bank’s tech fund, it has made a series of
investments into Uber, Tesla and Magic
Leap,theaugmented-realitycompany.
The deal is the first high-profile direct
investmentbythePIFintoaUKstart-up.
It comes asBritain continues to court
the Gulf countryfor deeper economic
ties, including in healthcare, even as the
international community wrestles with
the fallout from thekilling of journalist
JamalKhashoggi astOctober.l
The size of the investment is expected
to amount to between $100m and
$500m,oneofthepeoplesaid.Thecom-
pany was valued at more than $200m in
a fundraising in 2017. Babylon declined
tocommentandthePIFdidnotrespond
toarequestforcomment.
Additional reporting by Tim Bradshaw

Saudi fund seeks to invest in Babylon


chatbot used by British health service


Huawei is awaiting a decision by the
US government to issue licences allow-
ing some US companies to continue sell-
ing to it. Last week, President Donald
Trump romisedp US chipmakers hatt
thedecisionwouldbemadequickly.
After Mr Trump’s meeting with
China’s President Xi Jinping last month,
theUSsaiditwouldissuelicencesallow-
ing companies to supply Huawei ithw
exports that did not pose a threat to
national security. Huawei’s US suppli-
ers, fromQualcomm ot Google, have
been lobbying the government to allow
themtoresumesales.
Additional reporting by Nian Liu in Beijing
Lex age 10p

2018, Huawei grew its sales at an aver-
ageof26percentayear.
Looking ahead, Mr Liang said the
smartphone and smart devices division
remained Huawei’s most vulnerable
area. Huawei said it had sold 118m
smartphones in the first half, against a
targetof250mto260mfor2019.
“The US ban definitely had a big
impactonsmartphonesales.Theirship-
ment growth in Q2 was only driven by
Chinasales,andhasdroppedinallother
regions,” said Jia Mo, analyst at market
researchcompanyCanalys.
The company had previously
announced afall in smartphone sales fo
40percentinthemonthaftertheban.

ButLiang Hua, Huawei’s chairman,
said being placed on the “entity list” by
theUShadmadethecompany’smission
“clearer”. He said the US campaign had
affected the overseas sales of Huawei’s
smartphones,serversandAIcomputing
platforms.Butheaddedthefalloutfrom
the ban was “controllable” and that
Huawei’s nascent 5G business had not
yetbeenaffected.
“We had already made preparations,”
he said, adding that Huawei has won 11
contracts for 5G networks since the ban
wasannounced.
Huawei’s revenues wereRmb401.3bn
($58.3bn) in the first half of the year, up
23.2 per cent year on year. From 2014 to

Y UA N YA N G— BEIJING

Huawei’s sales increased 23 per cent in
the first half of the year even after it was
blocked from buying components from
USsuppliers.
The Chinese telecoms company said
strong domestic sales had seen a 24 per
centriseinsmartphonerevenuesforthe
period, and it insisted it was well placed
to weather the damage of the US ban on
itstelecomsequipmentsales.
Washington blacklisted Huawei in
May, after several months of warning
allies that they should not use thecom-
pany’s equipment for their next genera-
tion5Gmobilenetworks.

US ban fails to dent Huawei profits


3 First-half sales up 23% 3 Domestic demand bolsters Chinese group 3 Revenues hit $58bn


Inclusion
on the US

‘entity list’
only makes

Huawei’s
mission

‘clearer’


Liang Hua,
chairman

Companies / Sectors / People


Companies
AIG..................................................................... 9
Aegon............................................................. 12
Aihuishou...................................................... 13
Aiwujiwu........................................................ 12
Alibaba........................................................... 13
Amazon......................................................... 14
Apollo............................................................... 4
Apollo Global............................................. 10
Apple............................................................. 14
Aston Martin.............................................. 19
Axioma.......................................................... 10
Barclays........................................................... 9
Barrick Gold.................................................. 4
Bayer...........................................................1,
Beijing Kunlun Tech.............................. 13
Berry Global............................................... 20
Blackstone...............................................4,
Bluegogo....................................................... 12
Café Coffee Day....................................... 14
Campari........................................................ 20
Capital One................................................ 20
Centrica..................................................10,
Citi.................................................................... 19
Clearstream................................................ 10

Colony Capital.......................................4,
Corning......................................................... 20
Credit Suisse................................................ 9
Crown Resorts........................................... 4
Cushman/Wakefield Hong Kong,....
Daiwa.............................................................. 12
Deutsche Börse........................................ 10
Deutsche Lufthansa............................. 20
Dollar Shave Club................................... 14
Déjà Vu.......................................................... 13
Element Capital........................................ 19
Elizabeth Warren.................................... 10
Eskom............................................................... 2
FIH Mobile................................................... 12
FXall................................................................ 10
Flex.................................................................. 10
Foxconn......................................................... 12
GAM................................................................ 10
GPIF............................................................... 12
Gartner.......................................................... 20
Gillette........................................................... 14
GlaxoSmithKline...................................... 20
Goldman Sachs...................................13,
Google.......................................................11,
Gov’t Pension Investment Fund....

Grindr.............................................................. 13
Guazi............................................................... 13
Harry’s........................................................... 14
Huawei......................................................10,
Hyatt Hotels............................................... 12
IP3 International........................................ 4
Infosys............................................................ 14
Intel.................................................................. 10
InterContinental Hotels Group.......
JD.com............................................................ 13
Japan Postal Savings............................ 12
KKR................................................................ 14
Kaiyuan Capital.......................................... 4
Kimberly-Clark.......................................... 14
Larsen & Toubro................................... 14
London Stock Exchange.................... 10
MUFG.............................................................. 12
Meitu............................................................... 12
MetLife............................................................ 9
Micron............................................................ 10
Microsoft...................................................... 14
Mindtree....................................................... 14
Mizuho............................................................ 12
Nikko............................................................... 12
Nine Entertainment................................. 4

Nomura.......................................................... 12
Nvidia............................................................. 10
Ofo.................................................................... 12
Plum................................................................. 13
Portwood Capital...................................... 4
Procter & Gamble............................14,
Qiming............................................................ 13
Qualcomm...............................................10,
RPC................................................................. 20
Refinitiv......................................................... 10
Samsung Electronics............................. 14
Shangri-La Hotels and Resorts......
Siemens Gamesa..................................... 20
Sinovation Ventures.............................. 12
SlideShare.................................................... 14
SoftBank..................................................12,
Souche............................................................ 13
Spirit Energy......................................10,
Sumitomo Mitsui...................................... 12
Tencent......................................................... 13
Tink Labs..................................................... 12
Under Armour.......................................... 20
Union Bancaire Privée......................... 19
Uxin.................................................................. 13
Vestas............................................................ 20

Westinghouse.............................................. 4
Xilinx............................................................... 10
ZTE.................................................................. 10
Sectors
Airlines.......................................................... 20
Automobiles....................................13,14,
Banks.........................................................12,
Chemicals...........................................1,14,
Energy........................................................... 10
Financial Services.......................10,12,
Financials..................10,12,12,13,14,19,
Food & Beverage.............................14,
Industrials.......................................14,20,
Insurance...................................................... 12
Media.............................................................. 13
Oil & Gas................................................10,
Personal & Household Goods......... 14
Pharmaceuticals...................................... 20
Property.......................................................... 4
Retail...................................................13,14,
Retail & Consumer...........................14,
Support Services................................10,
Technology..........................12,13,13,14,
Travel & Leisure..................................4,
Utilities........................................................... 12

People
Barrack, Tom............................................... 4
Baumann, Werner...................................... 1
Churchouse, Peter.................................... 4
Conn, Iain...............................................10,
Greenberg, Hank....................................... 9
Harris, Joshua............................................. 4
Jacob, David............................................... 10
Laidlaw, Sam.............................................. 10
Lee, Kai-Fu.................................................. 12
Liang, Hua.................................................... 11
Moeller, Jon................................................ 14
Nilekani, Nandan..................................... 14
Packer, James............................................. 4
Peltz, Nelson.............................................. 14
Ranjan, Amit............................................... 14
Sanderson, Peter..................................... 10
Schwarzman, Stephen............................ 4
Siddhartha, V.G........................................ 14
Silvers, Brock............................................... 4
Siu, John......................................................... 4
Talpins, Jeffrey......................................... 19
Weimer, Theodor.................................... 10
Wensheng, Cai........................................... 12
Zhang, Joyce.............................................. 13

One careful ownerChinese consumers


discover second-hand market— PAGE 13


Korea breakTokyo’s toxic rift with Seoul


opens door to Beijing— ANALYSIS, PAGE 14


Katie


Martin


Tail


Risk


What does Boris Johnson think of thefall in sterling? The
currency has declined markedly since the new UK prime
minister moved into Downing Street last week, with inves-
tors recoiling at the apparently rising possibility that the
UKwilldropoutoftheEUwithoutanysafetynet.
Well, just as there is always a pre-2016 tweet from Don-
ald Trumpto reveal his thoughts for every situation, with
MrJohnsonitappearsthereisalwaysacolumn.Backinthe
winter of 2008, the now prime minister wrote that a drop
insterlingwhenhard-workingBritishfamiliesweretaking
holidayswas“thedefinitionofanationalhumiliation”.
“Who is to blame for the cost of myvin chaud?” Mr John-
sondemanded,balkingattherisingpricetagfortippleson
theslopesofFrancewhilethepoundskieddownhill.
Backthen,MrJohnsonwasconfidentheknewwherethe
responsibilitylay. He placed the blame for this shameful
drop in the Queen’s currency squarely at the door of the
Labour government of the day. It was, he wrote, absurdfor
those in power to blame the then shadow chancellor,
George Osborne, who was at
the time berating Labour for
seeking to “defy the laws of
economic gravity”. Pointing
out the folly of Labour’s posi-
tion was Mr Osborne’s duty
as a public servant, Mr John-
sonwrote.
The message for today is
clear: if you are concerned
about the inflationary
impact of the falling pound, worried about the effect on
great British holidaymakers’ bottom lines, convinced that
thisdeclineinthecurrencyisdowntoBrexit,thenfeelfree
to make your voice heard.This is good news, considering
the ad hominem attacks so frequently directed at anyone
whoobjectstothenation’sdirectionoftravelonBrexit.
The consensus among investors is, and has always been,
strong: the harder the Brexit, the further the pound has to
fall. Traders have been waiting for months to get a clearer
sense of Brexit policy, and now that it has arrived, sterling
is responding. This is not the work of diehard Remainers.
Even some who financially backed the campaign to leave
theEUhavebetonitbeingdamagingforthecurrency.
Now, with the prospect of a deal with the EU appearing
to fade, some investors warn that the pound could sink to
$1. It now trades under $1.22, the weakest point in two
years,butnowhereclosetosuchanadir.Bankerspointout
thatpensionfundsandmorespeculativehedgefundshave
recently ramped up their bets against the pound. The pho-
neywarinsterlingisover.Wearegettingdowntobusiness.
Yes, as ever, the pound could turnround. A deal with the
EU would send it soaring. But in the meantime, the cur-
rencyisvulnerable.Sincethereferendum,sterlinghassuf-
fered a number of flash crashes. Buyers have been known
to evaporate just when the market starts to tumble. It
wouldbewisetobealerttotheriskofarepeatnow.

katie.martin@ft.com

The consensus


among investors
is strong: the

harder the Brexit,
the further the

pound has to fall


Theprospectofafurtherdoseofinflation
willnotstoptheBankofEnglandfrom
cuttinginterestratesthisyear,investors
arebetting.
Marketsnowseearatecutby
Decemberasabetter-than-evenchance—
asharpreversalfromearlierintheyear
whenthetimingofaraterisewasthetalk
oftradingfloors.
Risingrisksofano-dealBrexitafterthe
appointmentofBorisJohnsonasUK
primeminister,whichhavecausedthe
poundtotumbleinrecentdays,havealso
beenfeltininterestratemarkets.BoE
policymakershaveindicatedinrecent
weeksthatachaoticdeparturefromthe
EUcouldleadtoratecuts,oratthevery
leastderailplanstoraiserates.
“Marketsarebeingpulledbetweenno
deal,noBrexit,andleavingwithadeal,”
saidGeorgeBuckley,chiefUKeconomist
atNomura.Thestateoftheeconomydoes
notwarrantlowerrates,hesaid,whilea
no-dealBrexitwouldprobablymean
deepercutsthanthemarketisimplying.
“Whatthemarketsarepricingatthe
momentisanin-betweenscenariothat
won’tactuallyhappen,”headded.
Sterlingweaknessisalsoexpectedto
driveupinflationbyincreasingtheprices
ofimportedgoods—inarerunofthe
aftermathoftheBrexitreferendum.
Inflationexpectationsforthecoming
fiveyearshavecreptupoverthepastfew
weeks,accordingtothemarketfor
inflation-linkedgovernmentbonds,but
haveyettohittheirJunepeak.
Tommy Stubbington

Going down K poised for rate cut despite inflation threatU


Traders bet on UK rate cuts as
Brexit no-deal risks increase

Source: Bloomberg

A weaker pound is fuelling
inflation expectations

Per cent













Jan  Jul

Probability of rise
Probability of no change
Probability of cut

Five-year inflation breakevens ()













Jan  Jul

SimonDawson/Bloomberg

JULY 31 2019 Section:2Front Time: 30/7/2019- 18:52 User:alistair.fraser Page Name:2FRONT USA, Part,Page,Edition:EUR, 11, 1


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