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Market traded higher through the morning before hitting resistance around noon at 7,416 level before easing back to traded sideways around the 7,400 level. Strength in Materials and Consumer Discretionary. Pharma mixed after Sigma bid for Australian Pharmaceutical Industries in competition to Wesfarmers but Mesoblast and CSL weak. Travel +VE as NSW outlines re-opening plans +VE for Webject and Flight Centre.
Sentiment +VE on the expectation that Govt will remove the ‘State of Emergency’ nationwide this week +VE Airlines and Travel names.
Leaders Mining +4.3%, Air Transp +3.8% and Land Transp +2.5%
Laggards Marine Transp -1.8%, Machinery -1.2% and Ware&Harb Trns -0.9% led declines. Turnover came off slightly but remains elevated.
Nikkei opened higher, rallied to 30,380 level before retrenching to the opening level. But then rallied into lunch. PM trending back and dropped below Friday’s close -18pts (-0.1%) @ 30,231
Topic Opened higher tested 2,105 but then sold down to 2,090 before bouncing but resistance at 2,100. PM trending lower currently testing Fridays close: -2pts (-0.1%) @ 2,089
DATA Out PPI Services Aug 1% vs 1.1% Jul (F/cast was1.2%)
Leading Economic Index Final Jul (Jun was 104.6 F/cast is 104.1)
Coincident Index Final Jul (Jun was 94.6, F/cast is 94.5).
KDCA reported 2,383 new covid cases.
Foreigners net buying large caps
Leaders Defensive Telco +3.1%, and Utilities +1.3%, Machinery +1.3%, Construction +0.8%, and Service (Internet) out-performing on technical rebound. North Korea plays +VE.
Laggard Apparel -0.7% giving up Friday's gain.
Kospi opened lower but worked higher to 3,146 around 11:15am before trended lower, currently seeing support 3,130 level.
Kosdaq Sold down initially to 1,032 before working back to test 1,040 but failed to break out and reversed; currently -2pts (-0.2%) @ 1,035
Taiex opened flat rallied to test 17,335 in the first hour but unable to break out and reversed back to flat. Currently +8pts (+0.1%) @ 17,267.
Leaders Pulp/Paper, Plastics/Petro, Non Tech stocks.
Data due after market
Industrial Production and Retail Sales
PBoC continues to increase liquidty ahead of Golden Week and in the light of the Evergrande situation. More investors demand Wealth Management Investments repaid as it abandons New EV Star board listing. White Liquor +VE on new Chairman outlines reforms.
CSI 300 opened higher and tested 4,922 level a couple of times in the morning session but unable to break above and sold down into lunch +12pts (+0.3%) @ 4,862
HK Pre market opened 24,131 -61pts vs -152pts ADR’s lead by oil names, property, weakness in Macau names and Consumable. Market tested 24,500 in early trades as some recent shorts covered. HK Property +VE recovering after denying Beijing pressure. Personally I believe Beijing is preparing to address the Hong Kong property oligopoly. But having not broken out the market sold down to +80pts (+0.3%) @ 24,270
Europe German election provides no clear winner so the inter-party negotiations likely to take weeks to provide a new government; SPD expected to win the largest share.
Opened Dow +20pts, S&P and NDX little changed.
AHEAD Durable Goods data, Dallas Fed Manufacturing Index,
FT Front Page
German race too close to call. Votes being counted but no clear leader meaning that it is likely to be weak until such time as a ruling coalition becomes clear.
Worth noting this week’s The Economist has a special section ‘The mess Merkel leaves behind’.
Democrats in crunch talks to save Biden’s $1.2tn infrastructure bill
• Progressives cling to $3.5tn promise • Federal shutdown looms • Budget plans in danger.
Watch for key comments and news as politicians review key legislation.
Peloton bike loans peddled to Wall St buyers on back of home fitness craze.
Looks at the use of ‘financial wizardry’ and the attractiveness of the securitisation of “buy now, pay later” services.
Release of Meng and Canadians belies frayed ties
Break in impasse over Huawei heir and businessmen seen as start of uneasy compromises.
An interesting contrast with China ramping up the PR on the release and not mentioning the release of the two Canadians who had been held in retaliation .
What is clear is that will have little impact on future Sino/US relations.
Companies & Markets
Soaring Spac redemptions signal fall from favour
• Trend challenges listing advantage
• Hottest product on Wall St goes cold
Reflects the changing attitude of investors between Q1 2021 and now part of which must be the perception that the company earnings could be peaking; especially with questions over China’s growth as President Xi pushes ‘common prosperity’ with restrictions on a number of sectors and as power cuts hurt.
Chinese city agencies seize revenues from Evergrande
Whilst there has been little public acknowledgement by Beijing of how Evergrande’s future will be determined some local agencies are taking action in order to try and protect ‘home buyers interests’.
It is still not clear how Evergrande is dealing with its bond payments and until such time as that becomes clear the market and those who have invested in Evergrande products will remain cautious.
SoftBank bets on live music with Dice deal.
An interesting read following the concerns that TicketMasters model was flawed as concerts were cancelled during Covid but refunds were hard to obtain.
Call for global appraisal of logistics chaos
Governments must co-ordinate action to end turmoil, says Mitsui boss. Putting forward the view that without co-ordinated government action the current bottlenecks and chaos will continue for longer. What he seems to want is better co-ordination alternatives to port closures, the provision of alternative supply routes. It would make sense in some regards but the fact that there is currently every country has its own attitude to lockdowns, quarantine and many other restrictions getting a global appraisal seems unlikely.
Macau casino groups fear end of winning streak with new gaming law
Proposals threaten structural change for operators as Beijing cracks down on capital outflow.
The new rules which would include appointing government supervisors to enforce official policy within the operators companies and the fact that gaming licence renewals are not guaranteed.
The key point being that this is part of the ‘common prosperity’ doctrine and that going forward super profits will be curtailed and profit levels will be effectively controlled by the regulator, in this case Beijing. It notes ‘But the Chinese government has long been unhappy with US shareholders making profits from the territory, believing the economic benefits should stay within the country.’ That is what President Xi’s ‘Dual circulation’ is seeking to achieve.
The problem that view point has is that it fails to fully appreciate the initial risk capital investment and the full benefits that Macau has reaped from those investments.
Anyone you has been in region for more than 15 years will remember what a very different place Macau was before the big Casino’s were granted licences and completely revamped much of Macau. Now China wants to see more of that money stay in China, and whilst not wiping out the profit levels it will mean more stays in China. That is the same objective from the crackdown on other sectors of the economy too.
Opinion China is just as susceptible to capitalism’s ill effects
Ruchir Sharma; Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’
Suggests that China’s Evergrande illustrates how the bond market has got it right in reflecting that ‘the global economy is heavily indebted and too financially fragile to handle tighter credit conditions. We are caught in a debt trap.’
Notes how China’s debt levels have been rising just as debt levels in the US and Europe grew in the run up to the global financial crisis in 2008.
Since 2016 he contends China’s growth has not slowed as much as one would have expected; helped by the rapid development of its tech sector; lead by private companies that were debt free. But the debt bomb was still ticking in the background as households took on more debt via mortgages; thus inflating the property bubble. It estimates that 40% of China’s banks assets are in property.
Now with Evergrande it’s not just its debts but also the potential knock on effect. The situation is made worse by the conflict between the market and President Xi’s ideology.
Furthermore what happens in China now impacts the world; ‘In many ways, China follows the same deformed model of capitalism as most western countries, only more so, taking on ever increasing levels of debt to generate less and less growth.’
A financial system that requires government support to avoid a loss of confidence. That may now be changing.
He concludes ‘What we are likely to witness over the coming months is an epic clash between a leader with supreme powers determined to change the course of his nation, and the economic constraints imposed by gargantuan debts. For now, the markets are still betting that the stakes are too high, even for a leader as powerful as Xi, to wean China suddenly off a debt-fuelled form of capitalism the world has been practising for years.’
I think he is wrong, the whole point of ‘Dual Circulation’ and ‘Common Prosperity’ is to put ideology ahead of what would normally be taken for ‘sensibile’ economics. It remains to be seen whether the white collar middle class are willing the accept the new social contract. I worry that many of them will not be. They like common prosperity as long as it means they getting richer and their kids have a better chance to shine.
Special Report Health and Communicable Diseases.
An interesting read.