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The return of the bond vigilantes

Many eulogies have been written for the “bond vigilantes” that were once said to prowl global markets for spendthrift countries to bully into fiscal rectitude. But the vigilantes seem to have saddled up again.

The term was originally coined by former EF Hutton economist Edward Yardeni in the early 1980s to describe how bond sell-offs could force the hand of central banks or governments. The concept was later immortalised by James Carville, an aide to President Bill Clinton who in 1994 ruefully wished he could be reincarnated as the bond market so he could “intimidate everybody”.

For the past two decades there has been little sign of the vigilantes. Inflation remained quiescent globally, and a desperate hunger for returns eroded the discipline of many bond investors. Since the financial crisis, central banks have smothered fixed-income markets with a succession of vast quantitative easing programmes that neutered any would-be vigilantes.

‘Bond vigilantes’ was originally coined by economist Ed Yardeni in the 1980s to describe how bond sell-offs could force the hand of central banks or governments . . .  © Bloomberg
https3A2F2Fd1e00ek4ebabms.cloudfront.net2Fproduction2F5741b55f 1850 4107 a833 9db8257344b9 captis executive search management consulting leadership board services . . . a concept later immortalised by James Carville, former aide to President Bill Clinton, who said he wished to be reincarnated as the bond market so he could ‘intimidate everybody’ © Getty Images for Politicon

But 2021 has seen a disconcertingly swift and powerful bond market rout. The 10-year US Treasury yield — arguably the most important interest rate in the world as it influences prices in virtually every other corner of financial markets — jumped from under 1 per cent at the start of the year to over 1.6 per cent amid tumultuous trading.

As the pandemic starts to wane, many governments around the world have promised to “act big” to spur recovery and repair the economic scarring of the past year. But some analysts now believe the bond vigilantes are riding again — and could undermine the economic recovery and on unsettle booming financial markets.

“We’re in a brave new world of excesses in fiscal and monetary policy, and that’s where the bond vigilantes thrive,” Yardeni says. “It’s their job to bring law and order back to the economy when the central banks and the fiscal authorities are lawless. And that’s arguably what we’re seeing here.”

Line chart of 10-year bond yields (%) showing The global rise in government bond yields

The central reason for the global bond sell-off is a positive one: although the economic scars from the Covid-19 pandemic remain significant, the combination of ample financial stimulus and pent-up demand being unleashed by the rollout of vaccines means that analysts are rushing to ratchet up their growth forecasts for 2021. Many now expect the biggest economic boom in generations.

However, some fear that this could finally reignite long-dormant inflationary pressures. Inflation is the nemesis of bonds, because it erodes the real value of the fixed interest rates that they pay. Central banks have vowed to stay their hand as long as unemployment remains elevated, but the deepening bond dive shows that markets are beginning to be sceptical of that promise.

A year ago, Italy abruptly quarantined 10 towns to limit the outbreak of a novel coronavirus, hammering home the global scale of the threat

For now, most analysts and investors stress that even if inflation is likely to accelerate in 2021, it is likely to prove a fleeting phenomenon, and not something that will pose a serious, longer-term challenge to fixed income markets. While the recent rise in yields has been notable for its speed and power, bond yields remain astonishingly low by historical standards, and some investors now reckon they have moved too far, too fast and are likely to stabilise soon.

Nonetheless, others worry that with investors so accustomed to low bond yields, even a modest rise could upset the dominant fuel of the “everything rally” across markets. Stock markets have already started trembling at the recent uptick, and bond market sell-offs have a nasty way of revealing unexpected faultlines.

“We will certainly get an overshoot. The question is whether the market structure is now vulnerable enough that you’re going to have that echoed and exacerbated in ways we’ve not seen previously,” says Joyce Chang, chair of global research at JPMorgan.

The post-Covid economy

Almost exactly a year ago this weekend, Italy abruptly quarantined 10 towns to limit the outbreak of a novel coronavirus originating in China. The move hammered home that a pandemic was a serious, global threat, and turned simmering nervousness into a full-blown financial market meltdown by March.

Highly rated government bonds are the investment world’s panic room, a safe space where everyone from sovereign wealth funds and insurance companies to money managers and individual savers instinctively head to when times are tough. That causes their prices to rise, and pushes down their effective interest rate, or yield.

Treasuries trading as poorly as during 2013 ‘taper tantrum'

When Covid-19 rattled markets, the bond yields of countries from the US to Finland, Germany to Australia, France to the UK, plunged to fresh lows that in some cases made even past records seem dowdy. But since last summer, sovereign bond yields have been creeping steadily up.

The first big impetus came from the emergence of several highly effective vaccines last November, which meant investors could finally start to contemplate what a post-Covid global economy might look like in 2021. Then Democrats won control of the US Senate in January, making possible another big stimulus package that would swell the deficit but hopefully ensure a powerful economic upswing that balms some of the scars left by the pandemic.

https3A2F2Fd1e00ek4ebabms.cloudfront.net2Fproduction2F01838d8f 4c60 4b3d abf7 7f8ae3b79748 captis executive search management consulting leadership board services Dan Ivascyn of Pimco is sceptical that inflation will take off but stresses that the economic environment is unique © Bloomberg
https3A2F2Fd1e00ek4ebabms.cloudfront.net2Fproduction2F8fcc57e2 b1bc 4c1d 8ebf f78a7cb56b8d captis executive search management consulting leadership board services Joyce Chang of JPMorgan says the question is ‘whether the market structure is now vulnerable enough that you’re going to have that echoed in ways we’ve not seen previously’ © Bloomberg

JPMorgan Asset Management estimates that the combined central bank and government stimulus measures already totalled $20tn last year, or more than a fifth of global economic output. Now some economists fret that the additional $1.9tn spending package being readied by President Joe Biden’s administration may overheat the US economy.

Pimco, a bond investment group, expects that this additional Covid-19 relief package will boost the US budget deficit to a record $3.5tn in 2021, and lift the annual growth rate to over 7 per cent. That is a pace that has only been hit in three quarters since the 1950s — all of them in the inflationary 1970s and 1980s, Pimco notes.

Dan Ivascyn, Pimco’s chief investment officer, is sceptical that inflation will take off, but stresses that the economic environment is unique. “There’s a lot of stimulus at a time when the economy is starting to show some strength. And that understandably makes bond markets nervous,” he says.

Some economists predict a shortlived inflation burst as spending on services and restaurants surges when lockdowns end © Bloomberg

Dan Fuss, vice-chair at US asset manager Loomis Sayles, has seen many economic cycles through his six-decade career as a bond investor, and he is worried that history shows that the scale of the stimulus will inevitably reignite inflation. “I can almost hear Milton Friedman shouting ‘look out here it comes’,” he says. “Can it work out differently? Of course. Is that the way to bet? No, it’s not.”

Notably, the primary drivers of the bond market sell-off have subtly shifted in recent weeks. While the increase in yields since November was primarily powered by rising inflation expectations, the latest moves have largely come from investors starting to price in central banks tightening monetary policy more quickly than they have previously indicated.

That is particularly dangerous for other financial markets, as sub-zero “real”, inflation-adjusted yields have been the dominant reason why investors have felt comfortable paying more for a range of other financial securities than they have in the past. “You’ve built these mini pockets of speculative excess that arguably could be subject to more profit-taking if this continues,” says Liz Ann Sonders, chief investment strategist at Charles Schwab.

The ‘taperless tantrum’ sends long-term bond prices sliding

Underscoring this tense relationship, equity markets have recently seesawed nervously on days when yields have climbed higher, even though the fundamental reason is rising economic optimism. More than $800bn has been sliced off valuations of the companies that make up the Nasdaq Composite over the past two weeks.

Although most real yields remain negative across most major government bond markets, Matt King, a Citi strategist, notes that the threshold for rising real yields to trigger sell-offs across markets seems to be falling. “The more dovish central banks are, the more money they pump into the system, the more dependent markets become on that money to maintain high valuations,” says King.

Reacting to turbulence

Nonetheless, most investors and analysts are sceptical that a new era of inflation is dawning given the scale of the economic devastation left in the wake of the pandemic, and longer-term deflationary forces like ageing demographics, global supply chains and technological innovation.

Seth Carpenter, chief US economist at UBS, also envisages only a shortlived inflation burst. Spending on services will surge as lockdowns end, yet spending on goods will probably fall as people choose to visit restaurants and do less shopping online. Furthermore, much of the additional stimulus cash coming into households will go to repaying overdue debts, Carpenter says.

Continuing deflationary forces like ageing demographics and global supply chains cast doubt over predictions of a new era of inflation © Bloomberg

Central bankers have this week been at pains to stress that they will not tighten policy to stem an expected inflation spike this year, and that they are keeping a close eye on the bond market reversal. The Reserve Bank of Australia has already restarted its quantitative easing programme, and some analysts expect that others may take action to ensure that the fixed income rout doesn’t deepen further into something more destructive.

The dramatic shifts this week may precipitate action sooner rather than later, argues Scott Minerd, global chief investment officer of Guggenheim Partners. “This volatility is starting to have a real impact in financial markets and given the excessive amount of leverage in the system . . . we are running the risk that we are going to have financial instability,” he says. “Ultimately the Federal Reserve may have to become even more aggressive to keep markets from becoming more chaotic.”

However, the bond vigilantes’ comeback tour may be a shortlived one. Robert Michele, chief investment officer at JPMorgan Asset Management, points out that the Fed is still buying $120bn of bonds a month. Add in the purchases of other central banks and there is a global tsunami of money that will eventually manage to quell the turbulence, he expects.

“At some point — and it may be now — there will be a capitulation, yields will have gotten too high, and the relentless weight of the bond purchases from the central banks will stabilise the market,” he says. “The asset purchases are relentless. You can’t fight that.”

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US concludes Saudi crown prince approved Khashoggi operation

US intelligence has concluded that Saudi Arabia’s Crown Prince Mohammed bin Salman approved an operation in Turkey to “capture or kill” journalist Jamal Khashoggi.

The four-page report declassified by the Biden administration and released on Friday said the assessment was based on factors including Prince Mohammed’s “control of decision-making in the Kingdom”.

The report pointed to direct involvement of key lieutenants of the crown prince in the 2018 operation against Khashoggi, as well as members of his protective detail. It also noted the crown prince’s personal “support for using violent measures to silence dissidents abroad, including Khashoggi”.

The assessment said it was “highly unlikely that Saudi officials would have carried out an operation of this nature without the crown prince’s authorisation”, citing the crown prince’s “absolute control of the Kingdom’s security and intelligence organizations” since 2017.

The report named 21 Saudi officials who it said “participated in, ordered, or were otherwise complicit in or responsible for” the death of Khashoggi on behalf of Prince Mohammed. 

But the report stops short of describing the operation as mission to kill Khashoggi from the outset.

“We do not know whether these individuals knew in advance that the operation would result in Khashoggi’s death,” the report said.

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Coronavirus latest: California reports sharp rise in new cases as US vaccinations top 20m

Total Covid-19 cases

View charts and maps

World

Confirmed

99,672,717

Deaths

2,140,260

Updated at 1/27/2021, 4:12:29 PM BST

Chicago to enforce diversity on health board

The city of Chicago on Wednesday ordered more diversity on its health board, as part of efforts to reduce inequities underscored by the coronavirus pandemic.

Lori Lightfoot, the mayor, introduced an ordinance requiring that the board have “demographic diversity [and] members with a variety of skill sets ranging from community engagement to health equity”.

She added: “These changes will [help] the board guide policymaking effectively in an age of Covid-19 and deep health inequity.”

At least five of the board’s nine members would also need to have experience or education in public health.

“They will help ensure the board has a clear role, looks like Chicago and continues to evolve to face the challenges of the day, from the pandemic to racial injustice,” said Board of Health president Carolyn Lopez.

Russian capital to lift some entertainment curbs

A shop assistant wears a face shield as she arranges Dolce & Gabbana handbags in the Tsum department store in Moscow

George Russell in Hong Kong

Moscow will lift curbs on restaurants and bars operating at night, as Russia’s president warned the pandemic would drag on for months.

Nightclubs, bars, discos, karaoke, bowling and other leisure and entertainment facilities will be able to operate later than 11pm from Thursday, provided they comply with capacity and social distancing restrictions, Moscow mayor Sergey Sobyanin wrote on Wednesday.

“These facilities still have to comply with the requirements for customers’ seating areas and standards established by Russia’s sanitary watchdog,” he said.

President Vladimir Putin said on Wednesday that he foresaw stricter measures in future to control the spread of Covid-19.

“The epidemic will drag out, its uncontrollable clusters will remain, it does not have borders,” Mr Putin said via videoconference at the World Economic Forum Davos Agenda Week.

“We should … propose measures aimed at boosting efficiency of systems that monitor emergence of such diseases in the world,” he said.

Russia has recorded 3,774,672 coronavirus cases, including 71,076 fatalities.

Asia-Pacific stocks track Wall Street falls

Alice Woodhouse in Hong Kong

Equities in Asia-Pacific pulled back on Thursday, following the biggest one-day drop of the year for US stocks as a risk-off tone prevailed.

In Japan, the Topix dropped 1.6 per cent, the Kospi in South Korea shed 2.3 per cent and the S&P/ASX 200 fell 2.3 per cent.

On Wall Street on Wednesday, the S&P 500 tumbled 2.5 per cent and the tech-heavy Nasdaq Composite fell 2.6 per cent.

Those moves came amid fears over new coronavirus variants and obstacles to President Joe Biden’s stimulus package.

Jay Powell, Federal Reserve chairman, warned on Wednesday that the battle against the economic impact from the pandemic was not over.

“We have not won this yet,” he said as the Fed held its main interest rate close to zero and its asset purchases steady.

S&P 500 futures fell 0.8 per cent.

Covid-19 ecommerce push boosts Facebook

Hannah Murphy in San Francisco

Facebook posted record quarterly revenues on Wednesday, surpassing analysts’ expectations as the company’s push into ecommerce during coronavirus lockdowns bore fruit. 

Fourth-quarter revenues at the social media group rose 33 per cent to $28.1bn, beating analyst expectations of an increase to $26.4bn. Net income jumped 53 per cent to $11.2bn, or $3.88 a share.

In a statement, the company’s chief financial officer David Wehner said the business had been boosted by “the ongoing shift towards online commerce” and “the shift in consumer demand towards products and away from services”. 

Read more here

California sees sharp rise in cases as jabs top 20m

Peter Wells and Matthew Rocco in New York

California reported its second-biggest daily increase in coronavirus deaths, offsetting the continued downward trend in hospitalisations and new infections.

Authorities on Wednesday attributed a further 697 fatalities to coronavirus, a daily tally second only to the 764 deaths reported last Friday. That pushed the state’s death toll, which is the highest in the US, to 38,224.

More than 20m Americans have received at least one dose of a coronavirus vaccine, as health officials push to accelerate the shot’s rollout to older people.

The US Centers for Disease Control and Prevention said health providers have administered doses to 20.7m people as of Wednesday.

Out of that group, 3.8m have been given two doses – a requirement for vaccines made by Moderna and BioNTech/Pfizer.

China lifts Apple to record quarterly profit

People try out the iPhone 12 at an Apple store in Shanghai

Patrick McGee in San Francisco

Apple reported its highest-ever net profit in the holiday quarter as revenues swelled way beyond forecasts to $111.4bn on the back of a 57 per cent rise in sales in China.

Net profits rose 29 per cent to $28.8bn, against forecasts it would rise 6.3 per cent, while earnings per share jumped 35 per cent to $1.68. Forecasters expected revenues of about $102bn.

All five of the $2.4tn company’s product categories grew at double-digit percentages, led by a 41 per gain in iPad sales and a 30 per cent climb in wearables, which include AirPods and the Apple Watch.

The iPhone, by far its biggest category, generated sales of $65.6bn, a 17 per cent gain that far outpaced analyst expectations of a 6 per cent rise.

Apple declined to offer any guidance for the March quarter, citing uncertainties around the pandemic.

UK experts defend 12-week delay for 2nd dose

Clive Cookson in London

A month after the UK government decided to extend the gap between first and second jabs of the Covid-19 vaccines from three to 12 weeks to ensure maximum inoculation as soon as possible, Britain’s “first doses first” policy remains an outlier in global terms.

The UK’s decision prompted widespread concern that it might weaken the immune response to the two marketed vaccines that use groundbreaking mRNA technology made by BioNTech/Pfizer and Moderna.

But almost every independent expert on vaccinology and virology in the UK contacted by the Financial Times has supported the 12-week interval policy formulated by the government’s medical advisers and the Joint Committee on Vaccination and Immunisation.

Read more here

Mexican billionaire Slim ‘recovering’

Jude Webber in Mexico City

Mexican telecommunications magnate Carlos Slim has been admitted to hospital with Covid-19 but is recovering well, his son-in-law Arturo Elías said.

On Monday, Carlos Slim Domit, the América Móvil boss’s son, had written on Twitter that his father was undergoing tests at the Instituto Nacional de Ciencias Médicas y Nutrición, one of Mexico’s most prestigious state hospitals.

Mr Elías told the Financial Times that he had been in hospital since then, “but he’s doing very, very well, it’s just for monitoring and so on, he’s nearly over this”.

Mr Slim, who turns 80 on Thursday, suffered a massive haemorrhage following open-heart surgery in 1997 and contracted pneumonia but has since been in good health.

News you might have missed …

After a two-day meeting on Wednesday, its first since Joe Biden replaced Donald Trump in the White House, the Federal Reserve held its main interest rate close to zero and its asset purchases steady as it sought to maintain a massive dose of support for the US economy as it suffers through a new slowdown.

A growing number of passengers are trying to board airlines using fake test results to get around immigration controls, the aviation industry has warned. “We are aware of numerous counterfeit test results which have cropped up in … several countries,” the International Air Transport Association said on Wednesday.

US public health officials have changed their vaccination advice to make it easier for people to get a second shot, saying injections can be spaced up to six weeks apart, and can even be from a different manufacturer from the first shot if necessary, said Rochelle Walensky, head of the US Centers for Disease Control and Prevention,

Vaccination rates for the Covid-19 jab in England are much lower among non-white people aged 80 and above than their white counterparts, data show. By January 13, 42.5 per cent of elderly white people in England had received their first dose, compared with 20.5 per cent of black people and 29.5 per cent of South Asians.

AT&T posted a $13.8bn quarterly loss as the US telecoms group and owner of Warner Bros and HBO warned the Covid-19 crisis has hit most of its businesses, resulting in $650m in charges. The group recorded a $15.5bn charge on its pay-TV business, as customers abandon cable and satellite in favour of streaming.

French pharmaceuticals group Sanofi is to help accelerate production of the BioNTech/Pfizer Covid-19 vaccine and add millions to the EU supply, as concern grows about the availability of doses around the world. Sanofi plans to start working on late-stage manufacturing of the vaccine in the summer,

Tullow Oil has secured an additional month from its banks before it faces a test on a key lending facility as the embattled explorer and producer continues refinancing talks with its creditors. The company is still trying to recover from a torrid 2019 that resulted in hefty cuts to its production forecasts.

London’s Chelsea Flower Show will showcase dahlias rather than spring flowers and roses as the coronavirus pandemic has forced the garden show to be held in the autumn for the first time in its 108-year history. The 2021 show has been moved to September 21-26 from May 18-23, the Royal Horticultural Society said.

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TikTok rival Kuaishou to raise up to $6.3bn in Hong Kong IPO

Chinese livestreaming and short video group Kuaishou is set to raise up to $6.3bn in a Hong Kong initial public offering in a test of investor appetite for China’s tech sector as it faces growing regulatory scrutiny.

The deal could value Kuaishou, which competes with ByteDance’s TikTok, at up to $61.7bn and would be the largest tech IPO since ride-hailing company Uber went to market in 2019.

The listing will raise between $4.9bn and $5.4bn, but that could rise to $6.3bn if bankers exercise an overallotment option to increase its size, according to a term sheet seen by the Financial Times. Shares are expected to price on Friday between HK$105 (US$13.55) and HK$115 (US$14.84) and begin trading on February 5.

The flotation comes as Chinese tech companies face an increasingly uncertain regulatory environment. The $37bn Hong Kong and Shanghai IPO of payments firm Ant Group was halted by Beijing at the last minute in November, while its ecommerce affiliate Alibaba is subject to an antitrust investigation.

Kuaishou, which is backed by Chinese internet group Tencent, earns most of its revenues from users sending virtual gifts to livestreaming hosts. The company takes roughly half of the gift price, which can range from a few cents to Rmb2,000 (US$309). 

Livestreaming rules announced in November ban teenagers from purchasing virtual gifts on platforms such as Kuaishou and limit total spending by any single user. The regulations also tighten controls on livestreaming ecommerce, where video hosts promote goods to shoppers, a growing business for Kuaishou.

Kuaishou competitors including TikTok have faced controversy over their operations and use of data amid tensions between the US and China. In December, a deadline for ByteDance to restructure TikTok’s US operations passed without a deal, and the company remains in negotiations about the short video app’s status in the country. 

Kuaishou’s app had about 262m daily viewers in the first nine months of last year, who on average spent 86 minutes per day watching videos. The company reported an operating loss of Rmb9bn on Rmb41bn in sales during the same period.

The company has spent heavily on bringing in new users as it faces an increasingly crowded online video market in China.

Cornerstone investors in Kuaishou’s IPO include asset managers Invesco and Fidelity as well as Singaporean state-backed investors Temasek and GIC, which will together buy shares worth up to $2.5bn with a six-month lock-up period.

“The quality and size of cornerstone investors are some of the highest we have seen in Chinese tech companies to come to market,” said one banker on the deal. “It shows that the market is still crying out for more liquidity in sizeable, high-growth tech companies.”

Kuaishou will use the funds for purposes including research and development, acquisitions and investment and expanding its ecosystem, according to the term sheet.

Tencent holds a roughly 22 per cent stake in Kuaishou after leading a $3bn financing round last year. As the number-two player in China’s online video market after Douyin — the Chinese version of TikTok — “Kuaishou is less susceptible to political noise”, according to one banker working on the IPO.

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TikTok rival Kuaishou to raise up to $6.3bn in Hong Kong IPO

Chinese livestreaming and short video group Kuaishou is set to raise up to $6.3bn in a Hong Kong initial public offering in a test of investor appetite for China’s tech sector as it faces growing regulatory scrutiny.

The deal could value Kuaishou, which competes with ByteDance’s TikTok, at up to $61.7bn and would be the largest tech IPO since ride-hailing company Uber went to market in 2019.

The listing will raise between $4.9bn and $5.4bn, but that could rise to $6.3bn if bankers exercise an overallotment option to increase its size, according to a term sheet seen by the Financial Times. Shares are expected to price on Friday between HK$105 (US$13.55) and HK$115 (US$14.84) and begin trading on February 5.

The flotation comes as Chinese tech companies face an increasingly uncertain regulatory environment. The $37bn Hong Kong and Shanghai IPO of payments firm Ant Group was halted by Beijing at the last minute in November, while its ecommerce affiliate Alibaba is subject to an antitrust investigation.

Kuaishou, which is backed by Chinese internet group Tencent, earns most of its revenues from users sending virtual gifts to livestreaming hosts. The company takes roughly half of the gift price, which can range from a few cents to Rmb2,000 (US$309). 

Livestreaming rules announced in November ban teenagers from purchasing virtual gifts on platforms such as Kuaishou and limit total spending by any single user. The regulations also tighten controls on livestreaming ecommerce, where video hosts promote goods to shoppers, a growing business for Kuaishou.

Kuaishou competitors including TikTok have faced controversy over their operations and use of data amid tensions between the US and China. In December, a deadline for ByteDance to restructure TikTok’s US operations passed without a deal, and the company remains in negotiations about the short video app’s status in the country. 

Kuaishou’s app had about 262m daily viewers in the first nine months of last year, who on average spent 86 minutes per day watching videos. The company reported an operating loss of Rmb9bn on Rmb41bn in sales during the same period.

The company has spent heavily on bringing in new users as it faces an increasingly crowded online video market in China.

Cornerstone investors in Kuaishou’s IPO include asset managers Invesco and Fidelity as well as Singaporean state-backed investors Temasek and GIC, which will together buy shares worth up to $2.5bn with a six-month lock-up period.

“The quality and size of cornerstone investors are some of the highest we have seen in Chinese tech companies to come to market,” said one banker on the deal. “It shows that the market is still crying out for more liquidity in sizeable, high-growth tech companies.”

Kuaishou will use the funds for purposes including research and development, acquisitions and investment and expanding its ecosystem, according to the term sheet.

Tencent holds a roughly 22 per cent stake in Kuaishou after leading a $3bn financing round last year. As the number-two player in China’s online video market after Douyin — the Chinese version of TikTok — “Kuaishou is less susceptible to political noise”, according to one banker working on the IPO.

Weekly newsletter

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Mexico’s Covid-sceptical president tests positive

Mexico’s president Andrés Manuel López Obrador, who has refused to wear a face mask, has tested positive for coronavirus days after dining with some of the nation’s leading industrialists.

“I am sorry to inform you that I have caught Covid-19. The symptoms are light but I’m having medical treatment. As ever, I’m optimistic. We’ll all get through this,” he wrote on Twitter on Sunday.

Mr López Obrador, 67, has been criticised for playing down the severity of the pandemic in Latin America’s second-biggest economy. He has continued to hold meetings across the country despite record deaths and infections in recent days.

Hospitals in Mexico City are almost full and many infected people have struggled to obtain access to oxygen tanks.

The Mexican leader follows other Covid-19 sceptics, such as Jair Bolsonaro of Brazil and Donald Trump in the US, in contracting the virus. At a news conference last year, Mr López Obrador displayed an amulet that he said protected him from the pandemic.

He said he would still hold a scheduled call with Vladimir Putin on Monday morning to discuss procuring Russia’s Sputnik V vaccine and bilateral ties.

The Mexican president said he intended to continue following public affairs from the National Palace, but that Olga Sánchez Cordero, the interior minister, would replace him at his daily morning news conference.

Mr López Obrador, who suffered a heart attack in 2013 and suffers from hypertension, has repeatedly sent an upbeat message that Mexico was coping well with the pandemic and has refused to enforce lockdown measures, despite more than 1.7m confirmed cases and almost 150,000 deaths.

Mexico’s low testing rate and high excess deaths point to a far bleaker picture. Its rolling seven-day average of new deaths, at 0.962 per 100,000, is higher than that of the US, with 0.935, and Brazil, at 0.474.

On Friday night, Mr López Obrador spoke by telephone with US president Joe Biden and posted a photograph to Twitter of himself around a table with Marcelo Ebrard, foreign minister, and former cabinet chief Alfonso Romo. Hugo López-Gatell, the country’s coronavirus tsar, attended the president’s daily morning news conference on Friday.

On López Obrador also dined on Friday with eight senior business leaders, as well as Mr Romo, his economy minister Tatiana Clouthier and Mr Ebrard in Monterrey, the country’s business capital.

A person close to the business leaders said none had displayed Covid symptoms and they were taking all precautions.

The president, who travels on commercial airlines, spent the weekend touring the states of Nuevo León and San Luis Potosí, where he inaugurated National Guard installations and supervised welfare projects.

José Luis Alomía, Mexico’s director-general of epidemiology, told a daily Covid-19 news conference that “fortunately [Mr López Obrador] is stable, his signs and symptoms are light, he is at home” under the care of a multidisciplinary medical team led by Jorge Alcocer, the health minister.

Contact tracing of people with whom the president had been in contact was under way, he added. This month, Jesús Ramírez, the president’s press chief, tested positive for the virus.

Latest coronavirus news

Follow FT’s live coverage and analysis of the global pandemic and the rapidly evolving economic crisis here.

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Mexico’s Covid-sceptical president tests positive

Mexico’s president Andrés Manuel López Obrador, who has refused to wear a face mask, has tested positive for coronavirus days after dining with some of the nation’s leading industrialists.

“I am sorry to inform you that I have caught Covid-19. The symptoms are light but I’m having medical treatment. As ever, I’m optimistic. We’ll all get through this,” he wrote on Twitter on Sunday.

Mr López Obrador, 67, has been criticised for playing down the severity of the pandemic in Latin America’s second-biggest economy. He has continued to hold meetings across the country despite record deaths and infections in recent days.

Hospitals in Mexico City are almost full and many infected people have struggled to obtain access to oxygen tanks.

The Mexican leader follows other Covid-19 sceptics, such as Jair Bolsonaro of Brazil and Donald Trump in the US, in contracting the virus. At a news conference last year, Mr López Obrador displayed an amulet that he said protected him from the pandemic.

He said he would still hold a scheduled call with Vladimir Putin on Monday morning to discuss procuring Russia’s Sputnik V vaccine and bilateral ties.

The Mexican president said he intended to continue following public affairs from the National Palace, but that Olga Sánchez Cordero, the interior minister, would replace him at his daily morning news conference.

Mr López Obrador, who suffered a heart attack in 2013 and suffers from hypertension, has repeatedly sent an upbeat message that Mexico was coping well with the pandemic and has refused to enforce lockdown measures, despite more than 1.7m confirmed cases and almost 150,000 deaths.

Mexico’s low testing rate and high excess deaths point to a far bleaker picture. Its rolling seven-day average of new deaths, at 0.962 per 100,000, is higher than that of the US, with 0.935, and Brazil, at 0.474.

On Friday night, Mr López Obrador spoke by telephone with US president Joe Biden and posted a photograph to Twitter of himself around a table with Marcelo Ebrard, foreign minister, and former cabinet chief Alfonso Romo. Hugo López-Gatell, the country’s coronavirus tsar, attended the president’s daily morning news conference on Friday.

On López Obrador also dined on Friday with eight senior business leaders, as well as Mr Romo, his economy minister Tatiana Clouthier and Mr Ebrard in Monterrey, the country’s business capital.

A person close to the business leaders said none had displayed Covid symptoms and they were taking all precautions.

The president, who travels on commercial airlines, spent the weekend touring the states of Nuevo León and San Luis Potosí, where he inaugurated National Guard installations and supervised welfare projects.

José Luis Alomía, Mexico’s director-general of epidemiology, told a daily Covid-19 news conference that “fortunately [Mr López Obrador] is stable, his signs and symptoms are light, he is at home” under the care of a multidisciplinary medical team led by Jorge Alcocer, the health minister.

Contact tracing of people with whom the president had been in contact was under way, he added. This month, Jesús Ramírez, the president’s press chief, tested positive for the virus.

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