Sept 16 Asia weak ahead of holidays next week. FT China Growth, Covid, Macau and more


16 Sep

This and previous notes can be found at Substack ( Asian Market Sense )
Check out ERI-C.com  for your research needs

Malaysia closed today
Holidays next week

Japan Closed Monday and Thursday
S Korea Closed Monday to Wednesday for Chusok
Taiwan Closed Monday & Tuesday
China Closed Monday & Tuesday
Hong Kong Closed Wednesday

HK/China Connect
Southbound closed today re-opens Thursday
Northbound will close Friday and re-open Thursday

Australia
Market traded higher through the morning hitting 7,487 around  11.20am before easing back.  Then worked higher but resistance at 7,480, has trended lower since 1.20pm; currently +44pts (+0.6) @ 7,461  Employment data out generally +VE
Energy leading shares higher along with BHP and Commonwealth Bank and Macquarie. Myer +VE as it returns to profit and Telstra higher as it’s investor day takes place.
Data
Consumer Inflation Expectations Sept +4.4% vs +3.3% Aug (F/cast was +3.2%)
Employment Data
Part Time Change Aug -78.2k vs +8.1k Jul revised (F/cast was -18k)
Unemployment Rate Aug 4.5% vs 4.6% Jul (F/Cast was 4.9%)
Employment Change Aug -146.3k vs +3.1k Jul (F/Cast was -66k)
Full Time Employment Change Aug -68k vs -5k Jul revised (F/Cast was -48k)
Participation Rate Aug 65.2% vs 66% Jul (F/Cast was 65.6%)
New Home Sales Aug 5.8% MoM vs -20.5% Jul (F/Cast was -9%)
RBA Bulletin
Japan
Nikkei opened slightly higher but weak trade data prompted selling and the market trended lower through the morning.  After lunch traded lower but seeing suppport around 30,200 level.
Topix traded in a similar fashion, support at 2,080 currently -10pts (-0.5%) @ 2,087
Leaders Oil/Coal, Mining, Foods
Laggards Other Products, Sec & Cmdty, Info & Comm.
Data
Balance of Trade Aug ¥-635.4B vs ¥441B Jul (F/cast was ¥-60B)
Exports Aug +26.2% YoY vs 37% Jul (Consensus was 34%)
Imports Aug +44.7% YoY vs 28.5% Jul (Consensus 40%)
Foreign Stock dropped but Bond Investment rose.
S Korea
KDCA reported 1,943 new covid cases
Foreigner and Local Institutions net sellers. Tech & Insurance weak but Chem seeing interest along with Internet names. Some closing of positions ahead of long weekend.
Kospi opened higher but sold down through the session but finding support at the 3,130 level.
Kosdaq traded in a similar fashion; -5pts (-0.5%) @ 1,038
Taiwan 
Taiex initially rallied to 17,400 and traded around there until 9:30am but then sold down to flat which gave brief support but then sold down to 17,300 which gave support until 11:30am and then the market dipped lower. Currently -78pts (-0.5%) @ 17,274
China 
CSI 300 opened flat ticked higher initially but then sold down to 4,830 level around 10:15am then rallied back to 4,860 before selling down into lunch. Southbound Connect closed. Broad based weakenss with concerns over covid and Evergrande. Interesting headline that China has started a second, larger scale, purchase of Hog reserves; likely to add to food price inflation.
HK 
Pre market opened 25,042 +9pts vs +15pts ADR’s but market sold down first to 24,680, small bounce to 24,835 before the selling pressure prevailed into lunch. Macau and Chinese Developers and Financial under pressure. Also news that Chinese regulators are reviewing game content, to ensure suitable content.
Europe
Expect markets to open lower with caution on the recovery following Asia and ahead of the US initial claims and  Retail Sales data.
Data
Eurozone New Car Registrations, Balance of Trade 

US Futures
Opened Dow +30pts, S&P and NDX +0.1% Initial claims data and Retail Sales will be closely watched
FT Front Page

US builds bulwark against China with UK-Australia security pact
• Boost for Canberra’s nuclear submarine plans • Signal to Beijing over Taiwan tension.
Key is that it gives Australia’s submarine fleet a significant boost although it will be years before they see the first nuclear powered submarine and there are no plays to arm them with nuclear weapons. It will also increase other security related ties.
But it is a reminder that its hegemony in the international waters of the South China Sea will not go unchecked.
It comes as China’s Foreign Minister says Taiwan is a "sea fortress" blocking China's expansion into the Pacific and is willing to share with other democracies its knowledge of countering Beijing's efforts to undermine it.

Digital marketplace OpenSea probes insider’s trading of non-fungible tokens.
OpenSea has launched an investigation after admitting that one of its executives used inside knowledge to buy items ahead of their promotion on the marketplace. Highlights the need for some regulation to avoid such incidents happening.

INSIDE
TikTok faces Irish probe over children’s data
Two allegations; one that data was transferred to China the other about how it processes the data for those under 18 and 13. The company denies the allegations saying it has appropriate systems and measures in place.
It is not just China that is concerned about data although the reasons behind the concerns may be different.

Covid outbreaks slow China growth
Latest data stoke concern that the country’s economy is losing momentum.
Both retail sales and Industrial production slowed; it notes that it may be due to ‘recent flooding, regulatory interventions, new infections and a property slowdown driving down growth expectations.’
All are reasonable explanations; certainly the surge in international and local cases would have an impact. It also notes that spending habits have changed and that people are eating out less but the recent outbreaks have prompted a curtailment in travel and that will continue over the long weekend and Golden Week after Beijing advised people not to travel. It will be interesting to see whether Beijing stick with its zero covid policy and shutdowns or adopts a more ‘live with covid’ policy in order keep the economy operating.
Looking forward it will be interesting to watch Retail spending and whether if following the crackdown on tutoring services whether people have more money to spend or whether they look for alternative ways to educate their children. Other factors to take into account will be the pull back in the stock markets since the late May highs and the new government focus on ‘common prosperity’. Another overhang will be what happens with Evergrande which could also impact consumer sentiment.
On the industrial side much will depend on the international re-opening but it is likely that new orders in some sectors are being curtailed because of the shortage of chips delaying wider production.

US and Taiwan remain split on island’s plans to foil Beijing invasion.
Looks at the difference between how the US sees the best way to defend Taiwan and Taiwan’s own perspective on the issue. A key point being that if Taiwan were to adopt the US’s policy it would be less able to fend off China’s current encroachments which might embolden China to launch an attack.
The key being that the US would like Taiwan to focus on developing a ‘porcupine’ strategy that could wage a guerrilla war against the PLA.
It’s an interesting read with both viewpoints have valid points. Of course what Taiwan really needs is for the major nations of the world to acknowledge that it is a nation state; set up embassy’s and give it membership of the UN.

China Land auctions suspended after changed rules fail to damp demand  and Xi rejects Biden’s call for face-to-face summit 
Covered in yesterday’s note.

Companies & Markets
EU urged to provide €20bn chips subsidy
Soitec chief says package needed if continent is to build sovereign supply.
Worth a read because it illustrates how expensive it is to get involved in the sector. It notes that the US is agreeing a $52bn subsidy package.
So the cost for China to become self sufficient in the sector would be huge, which is why President Xi no longer sees property as the next step foward. Property has served it purpose and he want to take the next step forward.

Macau regulatory crackdown triggers $20bn losing streak for casino stocks 
Looks at the surprising news yesterday of a new consultation which is really just Beijing tightening its grip on the gaming industry in Macau.
An interesting article and worth a read. As we so many activities in China the rule book is being re-written.
See also LEX Casinos/Macau: gambler’s fallacy worth a read, concludes ‘The gamble for investors involves guessing which operator will renew its licence and which will not. That risk outweighs any opportunities of a return of high-rolling mainland gamblers. Don’t double down.’

Laos looks to exploit China curb on digital currencies
Laos has authorised mining and trading of cryptocurrencies in a policy shift by the debt-laden country that positions it to profit from the crackdown on digital currency mining in China. Taking advantage of its cheap power but concludes ‘“You should always be concerned when countries with poor regulatory records start to get involved in things like cryptocurrency,” said Zachary Abuza, a professor at the National War College in Washington, specialising in south-east Asia. “To say that the Laotian financial system is immature would be a brutal understatement, and we have to be concerned if they are rushing into this.”’

FT BIG READ. FINANCE
‘Dirty money’ fears surround DeFi
Decentralised finance, where smart contracts replace intermediaries like banks and brokers, is a boon for those seeking growth in cryptocurrencies. But it makes anti-money laundering efforts even more difficult.
An interesting read.

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