4 April/5 April 2020 ★ FT Weekend 13
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Li Daxiao’s share tips attract hundreds
of thousands of views within hours of
appearing on social media. The celeb-
rity stock guru, who posts short, quirky
online videos, is known to move mar-
kets when China’s army of retail inves-
tors follow his advice.
But Mr Li’s unshakeably optimistic out-
look on Chinese equities has prompted
scrutiny from authorities and a public
backlash following the market rout
caused by the coronavirus outbreak,
with some investors blaming the star
stock picker for their losses.
In one particularly ill-timed call, Mr
Li in mid-February insisted the Chinese
market was on the brink of a bull run,
just days before stocks plummeted. Last
year, his forecast that the Shanghai
Composite index would hold above
3,000 points was repeatedly proved
wrong as the US-China trade war whip-
sawed the market.
The 56-year-old economist, followed
by more than 5.7m people on China’s
Twitter-like social media platform
Weibo, has now come under pressure
from the government to stop broadcast-
ing his views after being hauled before
market regulators.
Official concerns about Mr Li’s posts
stem from the fact that China’s stock
markets are dominated by retail trad-
ers, many of whom have invested their
life savings. Regulators have long feared
that sudden market downturns will lead
to social unrest if investors’ retirement
savings are wiped out.
Mr Li, the chief economist at Yingda
Securities, a mid-tier Shenzhen-basedbrokerage, has been consistently bullish
on the Chinese market and has for years
playfully tried to predict the move-
ments of Shanghai’s main stock index.
In some videos he wears oversized box-
ing gloves while talking up the market.
“When I talk with people — it doesn’t
matter who it is — I want to contribute
the most valuable and honest informa-
tion that I can. And that information is
on the markets,” Mr Li told the Financial
Times, declining to comment on the
recent controversy around his videos.
His unbridled enthusiasm has now
come back to haunt him after the coro-
navirus outbreak that started in January
led to some of the worst trading days in
China in more than a decade.
In late March, as markets were melt-
ing down, Chinese financial news sites
reported that Mr Li had been sum-
moned by Shenzhen’s securities regula-
tors and accused of providing online
equity trading advice that did not com-
ply with regulatory standards for pro-
fessionalism and objectivity.
The incident underlines market regu-
lators’ high degree of sensitivity to pub-
lic displays of anger among China’s retail
investor base.Equities
Chinese stock guru under pressure to
quit after failing to predict virus crash
K A D H I M S H U B B E R— WA S H I N GTO N
PH I L I P STA F F O R D— LO N D O NGlobal markets regulators have
delayed by a year new rules that
require thousands of asset managers to
set aside cash to cover their bespoke
derivatives deals as a result of the
disruption from the coronavirus
pandemic.The Basel Committee on Banking
Supervision and the International
Organization of Securities Commis-
sions — the umbrella group for global
markets watchdogs — late yesterday
confirmed the standards will now not
come into effect until September 2021
and September 2022. Both stages have
been put back by 12 months.
The rules will require smaller users of
swaps contracts, such as pension funds
and insurers, to set aside margin on
transactions that do not go through cen-
tral clearing houses.
The shift to a new regime has been lik-
ened to an industry “big bang” because
it would be the first time many small
asset managers, which trade the instru-
ments only a few times a year, will need
to find extra collateral to back the deals.Finance trade associations had also
lobbied for a postponement with almost
two dozen such groups collectively
writing to the watchdogs last month to
warn that the coronavirus pandemic
meant it was not “possible or practica-
ble to meet documentation and opera-
tional requirements” by that date.
A 2018 study by ISDA and Sifma, the
trade associations, estimated that itwould affect more than 1,000 institu-
tions and require banks to set up 18,
new accounts for their customers to
cope.
Heath Tarbert, chairman of the Com-
modity Futures Trading Commission,
on Thursday told the Financial Times
he would be open to a 12-month exten-
sion. “If there’s a consensus throughout
the G20 jurisdictions, both among
banking regulators and market regula-
tors, for a delay of one year, then we’llalso go in that direction,” he said. While
Mr Tarbert was keen to bring in the new
rules, he acknowledged the impact of
the coronavirus pandemic.
“If the operational difficulties that
they’ll bring are going to come in a time
when the market participants them-
selves are undergoing considerable
amount of strain, I have to ask myself,
is the benefit worth the cost,” Mr
Tarbert said.
“I’m OK in the interest of continuing
to have orderly and liquid markets hav-
ing a one-year deferral,” he added.
The comments are a sign of compro-
mises financial regulators across the
world have been considering in light of
the economic and logistical upheaval
caused by the pandemic.
Authorities have long sought to
strengthen the market for privately
negotiated derivatives, whose opaque
standards were seen as exacerbating the
credit crunch of 2008.
Last summer, BCBS and Iosco had
agreed to postpone introducing por-
tions of the rules beyond 2020, instead
coming into effect in 2021.
The CFTC had made that decision
legally binding only last month.Derivatives
Regulators postpone rules shake-up
in wake of pandemic disruption
‘Ifthere’s a consensus
throughout the G
jurisdictions, then we’llalso go in that direction’
Liked: Li Daxiao is followed by more
than 5.7m people on social mediaDAV I D S H E P PA R D
President Donald Trump’s claim that oil
producers are going to make big cuts in
output has helped propel crude prices
back above $30 a barrel, from an 18-
year low.
Brent, the international benchmark,
is up 35 per cent over the last two days.
Saudi Arabia has convened an emer-
gency meeting of the expanded Opec+
group, which includes Russia, in an
indication that it could be ready to end
the price war that has contributed to the
halving of oil prices in the last month.
But analysts wonder whether a global
deal can really be done — and whether it
will make much difference to the
outlook for the market.
The US president has claimed there
was a deal between Saudi Arabia and
Russia to cut oil supplies by 10m-15m
barrels a day. That would be by far the
biggest cut in the history of Opec.
Opec+ is preparing to meet on Mon-
day — online — and, with the pandemic
having helped to pushed oil demand
down by as much as a third, or more
than 30m b/d, there is a strong incentive
to reach some sort of agreement.
The oil industry has never faced a col-
lapse in demand of this magnitude and
is ill-equipped to cope.
While production remains rampant,
storage tanks could be filled within
weeks, forcing a disorderly and damag-
ing shutdown of production.
US shale oil producers have been par-
ticularly hard hit. Whiting Petroleum, a
Denver-based group, declared bank-
ruptcy this week. Yields on bonds issued
by rival producers have soared as inves-
tors expect more to go bust.
That has led to a prospect that was
once unthinkable — the US partaking in
some form in a co-ordinated cut with
rival producers.
It is far from straightforward. Anti-
trust law in the country will restrict the
ability of companies to work together to
reduce production, even if enough of
them wanted to. Many in the industry,
especially majors like ExxonMobil, are
deeply opposed to co-ordination, both
for ideological and economic reasons.
But it is clear that — deal or no deal —
US oil production is likely to fall. Prices
are a long way below the level that shale
producers need to break even.
There could therefore be a temptation
to formalise this eventual drop in output
as the US contribution to a global supply
deal. Even if prices rise quickly, US
producers as a whole would remain
under pressure as they need at least $
a barrel to break even.
The Railroad Commission of Texas,
which regulates the oil and gas industry
in the biggest energy-producing state,
has held talks with Opec secretary-
general, Mohammed Barkindo.
RCT chief Ryan Sitton has described
proportionate production cuts in the
state — which were relatively common-
place half a century ago — as a “bargain-
ing chip we can bring to the table”.
Mr Sitton told the FT that Mr Bar-kindo invited him to the Opec+ meet-
ing, though it is unclear if anyone will
represent the US at the talks.
An agreement is likely to be aimed at
averting a further collapse in prices
rather than boosting them significantly.
Rystad Energy’s Per Magnus Nysveen
said a cut of around 10m barrels a day
would give the oil industry “room to
prepare” for shutdowns that would be
forced anyway once storage runs out.
“This will give sufficient time for the
rest of producers to adapt,” Mr Nysveen
said. “The market could balance at
prices higher than $30 a barrel, rather
than a complete collapse [to] around
$10 or even lower.”
Not all traders are convinced. The
scale of the drop in demand means a
deal may just delay the inevitable.
A lot rests on the pandemic. If lock-
downs look like they will stretch into the
summer, the impact of any cut might
fade quickly. “If you lose 30m b/d of
demand, at some point you’re going to
need to lose roughly the same amount of
production,” said one trader.
It was Moscow’s decision to walk away
from an offer to make deeper produc-
tion cuts in early March that prompted
Riyadh to launch the price war.
But a month on, has Russia had a
change of heart? Already, it is strugglingto place all its crude into the market.
Russia’s President Vladimir Putin said
yesterday that he would welcome joint
action to stabilise oil markets, saying
any cut should be about 10m b/d and
they would like the US to participate.
His comments represent a swift
change in direction for Moscow.
Igor Sechin, the head of state oil
champion Rosneft and close ally of Mr
Putin, has opposed co-operation with
Opec, and had hoped that a price war
would damage the US shale industry.
Riyadh launched the first salvo in the
price war a month ago but under US
pressure — and with its international
reputation suffering — it could be ready
for a truce.
As Saudi Arabia battles its own coro-
navirus outbreak, it may have been
stung by the criticism that it has helped
destabilise the global economy and lim-
ited the ability of Opec members such as
Nigeria and Iraq to fund their own
responses to the pandemic.
Crucially, Saudi Arabia’s key western
ally remains the US — and especially Mr
Trump. With November’s presidential
election on the horizon, Riyadh may
fear what a Democratic victory would
mean for relations with Iran, its main
regional rival.
Mr Trump has issued thinly veiled
threats, suggesting he could retaliate
against the kingdom if it does not agree
to a deal. Shale companies have lobbied
the US president for an aggressive
response, including a suspension of mil-
itary aid to the kingdom.
Ultimately the collapse in demand
could force Riyadh’s hand. “One way or
another, oil supply from Saudi Arabia
was about to fall because there is no
demand for it,” said Olivier Jakob at
Petromatrix, a consultancy. “In the end,
for Saudi Arabia, it is better to cut sup-
ply by portraying that it is in control.”
Additional reporting by Derek Brower and
Anjli Raval in London, and Henry Foy in
MoscowUS president has claimed
producers will combine for
large cuts in production
‘If you lose
30m b/d ofdemand, at
some pointyou’ll need
to lose thesame in
[output]’The pandemic
has helped
push global
demand for oil
down by as
much as a third
Sergei Karpukhin/ReutersCommodities.Emergency summit
Trump talk of global unity to
boost oil prices faces big test
C O L BY S M I T H— N E W YO R KThe US Treasury department issued a
record amount of short-dated debt this
week as it began to fund the federal
government’s economic stimulus pack-
age at historically low interest rates.
The Treasury flooded the market
with $319bn of Treasury bills, which
mature in one year or less — far
surpassing the previous record of
$190bn seen in October 2008.
The jump in issuance came roughly
one week after President Donald Trump
signed a $2tn relief programme into law
aimed at bolstering the economy from
the damage inflicted by the coronavirus
outbreak.
In order to fund portions of the stimu-
lus package that require immediate
financing — like direct cheques to
households and increasing unemploy-
ment benefits — analysts at TD Securi-
ties said they expected the Treasury
to raise $700bn over the next few
months.
The department would likely rely
most heavily on the bills market to raise
the necessary cash, the analysts said.
“Bills are the most flexible issuance
instrument in the Treasury’s arsenal
and are currently benefiting from a
surge in safe haven demand,” the
analysts wrote in a recent report.
As investors have sold risky assets dueto fear over the costs of the pandemic,
money market funds — which invest in
safe, short-term government debt —
have seen robust inflows.
The resulting demand from these
funds for Treasury bills helped to push
yields on certain bills below zero at one
point late last month and, while they
have risen marginally this week as a
result of the deluge in supply, they still
remain extremely low.
On Thursday, the Treasury was able
to auction off $80bn of one-month bills
at a yield of 0.09 per cent.
“The market digested the bill
issuance perfectly fine,” said Jon Hill, a
rates strategist at BMO Capital Markets.
“The big benefit was that there was
already an imbalance... too much
cash chasing too few securities.”
Mr Hill said this imbalance was exac-
erbated by the fact that the US Federal
Reserve had snapped up roughly $1tn of
Treasuries since mid-March, removing
a lot of supply from the system.
The Fed announced last month that it
would buy an unlimited quantity of
Treasuries in order to alleviate strains
that had emerged in the market.
Beyond increasing its issuance of bills,
the Treasury department also
announced on Thursday that it would
raise the size of its monthly auctions for
three-year, 10-year and 30-year notes,
which are set to take place next week.
Analysts at JPMorgan originally
projected such increases would not
occur until next month.Fixed income
US issues
record amount
of T-bills to
fund stimulus
‘The market digested the
bill issuance perfectly fine.
The benefit was that therewas already an imbalance’
Oil rises as Trump talks up chances of Russia-Saudi pact
Brent crude ( per barrel)Source: Refinitiv Opec meeting failsSaudi Arabia
launches price warTrump stokes hopes
of supply cutJan AprAPRIL 4 2020 Section:Markets Time: 3/4/2020 - 18: 50 User: stephen.smith Page Name: MARKETS1, Part,Page,Edition: USA, 13, 1