Sept 21 Japan opened -600pts but recovering HK still choppy, some rebounds. FT HK polls, CPTPP issues, Toshiba and more


21 Sep

This and previous notes can be found at Substack ( Asian Market Sense )
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Australia
Market opened lower and touched 7,192 in early trades but then worked better through the day Utilities and Banks still a drag but other sectors in the green.
AusNet trading halt considering the latest bid for its assets, but the fact that APA’s share price is down; tells you that their shareholders certainly think the offer is generous. UBS points out that Monday’s Brookfield offer implies a premium over the KKR offer for Spark infrastructure but says this is justified based on what AusNet brings to the table.
Leaders: Miners staged a recovery, Qantas was higher as US announced opening to foreign vaccinated travelers and Domino’s moved higher too.
Laggards AMP, Pointsbet Holdings and gas business APA
Japan
Nikkei opened down -500pts  but dipped to 29,833 in early trades and then worked back to 30,000 but then drifted lower into lunch.  PM opened flat and trading sideways; currently -609pts (-2%) @ 29,895
Topix traded in a similar fashion, currently -34pts (-1.6%) @ 2,066
Laggards Iron/Steel, Machinery, Marine Transport, Autos on plant closures.
Leaders Airlines, Electric Power & Gas along with Pharma.
Softbank weak on China exposure along with Toto, Nippon Paint, Komatsu, Daikin
Shinsei Bank weak after announcing poison pill defence from SBI bid.
MUFJ -VE on news its considering selling US operation
Daiichi Sankyo +VE on drug trial results
S Korea markets closed re-opens Thursday
Taiwan market closed re-opens Wednesday
China CSI 300 market closed; re-opens Wednesday.  It reported 72 confirmed new covid cases yesterday (20th), with 30 of them being imported cases and 42 of them being local infections (all recorded in Fujian).
HK Pre market opened @ 23,867  -231pts vs -248pts ADR’s  but market rallied back to flat in the first 15 minutes.  Then traded sideways around 24,100 until 11am when it sold back down to the opening level before rebounding into lunch; -77pts (-0.3%) @ 24,022
China developers rebounding as R&F’s top executives pledge HK$8bn in short term financing to the company and its selling three businesses to Country Garden
HK developers rebounding after denials that Beijing was putting pressure on them. I would remain cautious; Sunday’s election removed some political power from the developers and I think Beijing still blames high property prices for the democracy uprising. Macau names rebound as they broadly support the review. Ping An remains weak along with Ecommerce names.
Laggards Consumer Discretionary, Comms, Energy, Healthcare & Industrials
Leaders Property, Financials, Macau, Utilities and IT
Europe Expect markets to open flat; slightly lower after yesterday’s weakness. 
Data
UK
  Public Sector Net Borrowing, CBI Industrial Trends Orders
US Futures
Opened Dow Jones futures -12 points. S&P 500 futures were down less than 0.1% and Nasdaq 100 futures were about flat.
Ahead Current Account, Housing Starts, Building Permits, Redbook, API Crude Oil Stock Change. FOMC meeting starts.
UN General Assembly


Front Page
US eases entry for vaccinated
Fully vaccinated passengers will be able to travel to the US from November, as an 18-month ban for those without US citizenship or green cards comes to an end.  A significant change that will be good for international airlines and I think a significant step towards global travel normality.

Evergrande liquidity crisis drags down world’s financial markets
• Asia, Europe and US stocks hit • Chinese developer’s shares dive • Metals prices suffer.
The key being that investors are trying to work out whether Evergrande could trigger a wider domino effect and whether the Govt will step in to resolve the issue. For the past 30 years property development has been closely intertwined with China’s growth and the general raising of prosperity. President Xi’s switch to Dual Circulation and common prosperity is re-writing the game plan. There is a good pod cast on Bloomberg that explains a lot of the background of Evergrande and why it is not a normal China company and how is structure has given rise to such a lot of debt.

https://open.spotify.com/episode/7GWVfQY7OQZcmjZIoOY0GA?si=dTNOlYMZTQaqMOkBfTLx7g&dl_branch=1

With China closed until Wednesday there is more uncertainty but key to many is the Thursday Bond repayment issue.
What is hurting globally is the uncertainty regarding the status of the off-shore bond holders. Wider than that is the impact onto Commodities in the light of the slow down in Chinese property construction which has been the way by which local governments have financed their wider operations. Also being rumoured is a property tax, especially a vacant unit tax. In the short time the outlook remains very uncertain.

LEX Evergrande: containable contagion
Looks at the issue of Evergrande, notes the exposure of  Mainland Banks and the Trust companies.  Even the exposure of the HK developers.  It concludes ‘The likeliest scenario is that Evergrande shareholders will be wiped out while its lenders absorb big losses. Evergrande has been an over-indebted outlier for years. Few defaults have been prophesied as frequently and often. That should help China to contain contagion.’  Personally I doubt that, I think there will be a more Chinese resolution.

Fears of winter energy squeeze grow after gas prices soar across Europe Rising energy costs in Europe are raising concerns about the impact on the recovery and the potential impact on green reforms.  The shortages are being blamed on ‘falling storage capacity during a prolonged winter in Europe last year as well as lower natural gas exports from Russia to north-west Europe this year, ahead of the start-up of the politically controversial Nord Stream 2 pipeline. Russia’s Gazprom has fulfilled its long-term contracts but not made additional top-up sales available through Ukraine, while allowing its own storage facilities in Europe to fall to low levels.’  Underlines how Europe is in energy terms hostage to Russia.

INSIDE
HK’s chosen few take part in first vote since change of poll rules
Looks at the weekend’s poll for the election committee, the group that will select the next HK Chief Executive Officer. Changes have been made to the arrangements that were already steeped in the pro Beijing supporter favour but further measures have been taken to ensure that pro-democracy elements will not get close to gaining influence as happened a couple years ago. Key being disqualifying anyone who was not fundamentally pro Beijing, increasing the size of committee and cutting down the number of voters.
A interesting quote “Beijing knows you need to make changes by undermining the influence of the big families,” one politician with knowledge of Beijing’s official thinking said. “Then there will be less obstacles to formulate policies.”

Beijing faces obstacles on road to Pacific pact membership
China must convince Canada and Australia it can ‘behave’ before accession talks begin
An interesting read and it shows why countries should be considerate in their actions. China’s current disputes and actions against Canada and Australia are likely to present it with problems getting membership. China is saying its application shows Presidents Xi’s ‘commitment to difficult economic and financial reforms in the world’s second-largest economy.’ It also commented that “China works for economic co-operation and regional integration. What the US and Australia push for is wars and destruction.”
The standards within the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, (CPTPP) are high and it will be interesting to see how committed China is to changing the structure of its businesses especially the SOE’s. Other areas of concern would be over IP, data and labour. Key for many though will be the recent examples of China ignoring WTO rules and resorting the trade retaliation in response to policy criticism.
It notes that it took the UK four months to get agreement to start talks, so it is likely to take China a lot longer just to get to the start line.

Companies & Markets
SoftBank and Tencent buy into India’s Cars24

As the chip shortage hurts new car sales Softbank and Tencent are investing in India’s largest website for used vehicles. Other investors include ‘DoorDash chief executive Tony Xu and US hedge fund billionaire Dan Och are investing in the round. Ritesh Agarwal and Yashish Dahiya, chief executives of SoftBank-backed Indian companies Oyo and Policybazaar respectively, are also taking part.’
A key point is that after the recent policy changes in China investors are looking at alternative countries to pursue investments. Worth noting that Tencent is investing via its European entity.

Toshiba heads for showdown with investors
Shareholders will demand plans for shaking up the business and boosting their stock at end of strategic review which is due at the end of October.
3 options seem to be available
1. Restructure and sell non core assets
2. Secure a private equity bid and good private
3. A hybrid of the two above options
After the last showdown the board was given time to examine the options but investors are doubting that the board is fully investigating all the options and putting the interests of shareholders first.
Failure of the board to be able to offer an acceptable deal is likely to lead to more fireworks.
An interesting read and whilst the background to why Toshiba is subject to such shareholder pressure makes it unique the fact is that that there are a lot of Japanese companies that should be undertaking strategic reviews for the benefit of their shareholders.


FT BIG READ. MIDDLE EAST POLITICS
‘More of China, less of America’
Caught between Washington and Beijing, Gulf states are struggling to balance relations between the two superpowers in areas ranging from technology to investment, military spending and human rights.

EditorialsWhy Aukus is welcome in the Indo-Pacific by Gideon Rachman
A good read and makes the good that many countries in the region applaud the the agreement as a way to balance China’s belligerence.
China’s worry now will be about who else might join the alliance. He asks how did China make the mistake of letting this happen? It seems to have made the mistake of believing its economic power meant that the countries in region who not seek such alliances. But it’s build up of military bases and increasingly aggressive actions have worried its neighbours the question now is whether others will be draw in.

Climate change is a common enemy the US and China must fight together  By Laurence Tubiana thechief executive of the European Climate Foundation.
An interesting read and I think everyone would agree its a global enemy not just one that requires co-ordinated action from China and the US.Demand from foreign investors props up Treasuries trade
Appetite for US debt in China and Japan keeps prices high ahead of expected Fed taper.
Interesting read.

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