McDonald’s To Sell China Restaurants, Yum Stocks Sink

McDonald’s is selling mainland China and Hong Kong restaurants to Chinese state-owned Citic Group and U.S. private-equity player Carlyle Group, according to the Nikkei Asian Review.

The deal could be valued at $2 billion or more, the report says.

Shares of McDonald’s (MCD) were up 0.6% in afternoon trading.

Earlier this year, Yum Brands (YUM) carved out its China business, creating a separate entity that trades as Yum China Holdings (YUMC). Yum shares were fractionally lower this afternoon, and Yum China shares were off by 2%. Shares of Starbucks (SBUX) were down 0.5%. The iShares MSCI China Large-Cap exchange-traded fund (FXI) is down nearly 1% today.

The sale to a consortium was expected, but needed McDonald’s board approval, The Wall Street Journal reported earlier this month. WSJ noted a third of McDonald’s roughly 2,200 China stores are franchised, and the deal would make franchises of the rest while allowing buyers to build more stores.

See our posts Why Yum China Has 24% Upside After Jumping On Day One, China & Yum: Troubled Economy, Healthy Consumer? and 5 Yum Split Takeaways: Elusive China Growth.

Baidu Eyes $1 Billion IPO Of Video Unit

Chinese search giant Baidu (BIDU) is planning an initial public offering for iQiyi.com, which would value its video-streaming unit at up to USD5 billion, sources told the Wall Street Journal.
The paper reported that Baidu wants to list iQiyi in either the U.S. or Hong Kong next year in a deal that could raise about USD1 billion. The company may also separately raise funds by issuing a convertible bond prior to the iQiyi float.

Baidu’s chief executive Robin Li, leading a consortium of investors, earlier in 2016 tried to buy out iQiyi for USD2.3 billion. That deal was eventually dropped after criticism that Li had low-balled his offer and was seeking to profit at the expense of public shareholders.

Taiwan Semi Growing Faster than Anyone Thinks, Says BlueFin

BlueFin Research Partners analysts Steve Mullane and Paul Peterson once again today bang the drum for contract chip manufacturer Taiwan Semiconductor Manufacturing (TSM), arguing that the production of the custom “A10” chip designed by Apple (AAPL) for its iPhone 7 continues to drive revenue higher than the Street thinks, and even stronger than TSM management suggests.

The authors note that Taiwan Semi’s September-quarter revenue rose by 17.4% from a year earlier, which was as they expected but “well above consensus estimates.”

For the December quarter, management has told the Street that revenue will decline by 1.3% this quarter from last quarter, note the duo, but the analysts don’t believe that, insisting it’s too conservative:

Why Is Honda Talking To Google On Self-Drive Cars Now?

Honda Motor (7267.Japan/HMC) said it was in talks with Waymo, the self-driving spin-off of Google parent Alphabet (GOOGL), trying to strike a deal that would put Google’s self-driving technology into some of Honda’s cars.

Both companies said the talks are about research, rather than full production vehicles, at this point.

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Is SK Hynix More Attractive Than Micron?

South Korea’s memory chip producer SK Hynix (000660.Korea) rose as much as 3.3% after competitor Micron (MU) posted its first revenue rise in 7 quarters and beat street estimates.  But Hynix lost most of its gains, up only 0.9% after saying it would invest 2.2 trillion won on a new plant south of Seoul to meet growing demand for NAND flash chips.

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Japan Approves Record $830 Billion Spending Budget

Prime Minister Shinzo Abe knows weakening the yen alone can’t bring Japan out of its slump.

Japan’s cabinet approved a record 97.5 trillion yen ($830 billion) spending budget for fiscal year 2017 that begins next April (ending March 2018).

But tax revenue for fiscal year 2017 is estimated to be only 57.7 trillion yen. How will Japan’s government pay for it?

The government plans to sell 34.4 trillion yen of new bonds, broadly in line with this fiscal year’s new bond issuance.

Japan also plans to tap non-tax revenue of 5.4 trillion yen, 2.5 trillion yen of which will come from investment returns from foreign reserves.

Why The Euro Has More Downside Than The Yen

Yen at 130 and euro at 0.95 by the end of 2017?

Capital Economics sees that.

The forwards market sees the yen to be at 115.8 in a year, stronger than the spot rate of 117.6, while the euro to be at 1.06 to the dollar, little changed from the spot price of 1.04.

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Trump Rally Will Trigger Yellen Call, Warns Goldman

The stock markets so far are taking the Federal Reserve‘s hawkish hike last week with stride. But don’t be too complacent, warns Goldman Sachs.

Fed chairwoman Janet Yellen is clearly not comfortable with president-elect Donald Trump‘s fiscal stimulus so late into this business cycle, and the more Trump pumps out fiscal projects, the more times Yellen will raise rates next year. Analyst Charles Himmelberg wrote:

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Hang Seng Gains As China Pushes For Mixed Ownership Reform

The Hang Seng China Enterprises Index rose 0.6%, led by gains from industrial companies after China’s State Council said it would push for mixed-ownership reform in civil aviation, telecommunications and defense industries next year.

At last week’s Central Economic Work Conference, an annual three-day meeting of China’s leadership to set the national economic agenda, the State-Owned Assets Supervision and Administration Commission of the State Council, or SASAC, said that as well as continuing with the supply side reform in the steel and mining industries, the government will also quicken the pace of divesting its stakes in the civil aviation, telecommunications and defense industries.

This morning, China Eastern Airlines (670.Hong Kong/CEA) soared 4.8%, China Southern Airlines (1055.Hong Kong/ZNH) rose 3.5% and China Unicom (762.Hong Kong/CHU) rose 2.1%.

There’s been a lot of market rumors on China Unicom’s “mixed-ownership reform”. See my November 29 blog “China Unicom Soars On Rumors Of Alibaba, Baidu, Tencent Buying Stakes“.

China Vanke: 3 Reasons To Buy

China Vanke (2202.Hong Kong), a popular stock this fall, has tumbled almost 25% since December, as the Chinese government moved to discourage “barbaric” leveraged buyouts in China’s stock markets.
All of a sudden, no activist investors want this real estate blue-chip. Vanke has dropped plans to foster an alliance with state-owned Shenzhen Metro Group. A major shareholder Shenzhen’s Baoneng Group said it was looking to sell its shares after its insurance affiliate was banned from selling universal insurance products. And Evergrande Real Estate (3333.Hong Kong), another major shareholder, said it was no longer seeking to raise its stakes after the government suspended Evergrande’s insurance unit from buying stocks. For details, see my December 18 blog “China Vanke Tumbles 5% After Dropping Alliance With Shenzhen Metro“.

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