Sept 29 Asian market weak but HK rallying. FT Chinese Pets, Belt & Road debts, US / China trade.

29 Sep

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End of Quarter tomorrow.
Drams weak following Micron missing overnight
Concerns over possible stagflation ahead

Market opened dipped on the open and spent most of the day trading between 7,150/200 and currently  -100pts (-1.4%) @ 7,175
Weakness in Banks, Tech and CSL. Utilities seeing interest and gold miners +VE with St Barbara the strongest.
Nikkei opened lower as a large number of firms went Ex div and sentiment weak as US markets sold down.  Additional caution ahead of the LDP leadership vote.
Market drifted lower through the morning but saw support around 29,400 level. PM traded 29,400/600 to close -640pts (-2.1%) @ 29,544
Topix traded in a similar pattern. 2,020/40 to clos -44pts (-2.1%) @ 2,037
Leaders Shippers rebounded and Airlines +VE
Laggards Tech, Precision, Banks, Insurers and Machinery.
Run off vote saw Fumio Kishida win the leadership. No change on monetary policy but could see more fiscal spending by the year end.
Tomorrow pre market Retail Sales, Industrial Production and Nikkei rebalance.
S Korea 
Foreign & Local Institutions selling large cap Tech. All sector in the red. Samsung weak on poor Q1 guidence.
Kospi opened lower traded initially around 3,060 level before dipping down to traded around 3,040 from 10am until around 1pm and then saw small rally to close -36pts (-1.2%) @ 3,062
Kosdaq opened lower @ 994 but initally rallied to 1,005 but then sold down to 989 and traded around that level until just after 1pm when itworked higher to close -11pts (-1.1%) @ 1,002
Pre market tomorrow Business Confidence, Industrial & Manufacturing Production, Retail Sales and Construction Output.
Concerns over China power cuts hurting production
Taiex opened lower and traded around 16,900 levelfor most of the day before trending lower in the last hour to close justoff the day low -326pts (-1.9%) @ 16,856
CSI 300 opened lower at 4,846 and traded sideways for most of the morning although it dipped to test 4,800 just before lunch. PM opened higher at 4,840 climbed to 4,870 before easing back to close -34pts (-0.7%) @ 4,850
Gree to cancel 220m shares worth approx Rmb 10b
Leaders Healthcare and Consumer
Laggards Financials and Energy
Tomorrow pre market Manufacturing and Non Manufacturing PMI
HK Pre market opened @ 24,277 -224pts vs -180pts ADR’s  but market worked better through the morning to 24,400 at lunch.  PM opened 24,400 and tested the support before working higher.
No South bound connect
Laggards Gaming after new regulations released aftermarket Tuesday.
Leaders Property on talk that CR Land, Vanke and Jinmao being pushed to buy Evergrande assets
Futures indicate markets to mixed; FTSE lower, DAX and CAC  higher
Earnings from Next, Travis Perkins
Eurozone Sentiment (Economic, Industrial and Services) Consumer Confidence & Inflation Expectations.
German Import Prices
UK Consumer Credit, Mortgage Approvals, Net Lending to Individuals.
US Futures
Ahead MBA Mortgage Applications, 30 yr Mortgage Rate, Pending Home Sales, EIA Oil change report.  Powell’s speech.

FT Front Page
US risks running out of money by October 18, Yellen warns
• Impasse over raising debt ceiling • Shutdown looms on Friday • Bipartisan action urged.
Unfortunately we have seen this played out before, generally with a last minute deal and a promise not to let it happen again.

Stroke of fortune for China investors as young put pets before procreation
Looks at the recent GS report on the pet sector. Not really new, The Economist had an article outlining much the same a few months ago. The reality is that the historic one child policy and the preference for male heirs has had a profound effect on China. It is always easier to stop people doing things than to make them and for that reason the drive for larger families is unlikely to succeed.
Pet’s however are generally seen as more reliable and cost accountable than partners. I expect the pet business to do well and it is unlikely to be subject to government interference something that investors will increasingly taking into account.

Lagarde sets ECB apart in shift towards tightening by central banks
Christine Lagarde has distanced the European Central Bank from a shift to tighter monetary policy by many of its contemporaries, promising not to “overreact to [the] transitory supply shocks” driving inflation higher.’
The reality is that we don’t really know whether the current bottlenecks etc will result in permanent inflation or not so it seems prudent to keep monitoring the situation and making policy adjustments as the data changes.
It notes that in addition to the covid related bottlenecks and the surging energy costs countries will also have to deal with carbon taxes; something else to added to the mix and something over which agreement is unlikely to be easy.

Belt and Road plan
China lending leaves $385bn debt burden
More than 40 countries owe Beijing over 10% of their economic output.
Outlines how new research shows that the liabilities of projects have been under reported and often hidden by the respective government’s. There are concerns that in the case of defaults China would look to seize assets in the case of defaults. Another concern is that the terms of the loans is unknown.
It concludes ‘Parks said, however, that while the “media myth that has developed over time is that the Chinese like to collateralise on physical, illiquid assets”, the latest research suggests that collateralisation of liquid assets is common.’

White House pledges more trade with China
US commerce secretary Gina Raimondo said the Biden administration would push for US companies to trade with China even as Washington takes an increasingly tough posture on Beijing over human rights and national security.’
An easy statement but the implementation will be more difficult, especially whilst the US maintains the Trump administration’s restrictions on Tech exports. Something that it is trying to widen and align with other countries like Europe. As Sec Raimondo accepts ‘“Unilateral export controls are not effective, because if we tell American companies ‘You’re not allowed to sell such-and-such equipment to such-and-such Chinese company’, but they get the same thing from Europe or a European vendor, well then all we’re doing is hurting American companies and depriving them of that revenue,”’
Worth also remembering that the US and China have not starting discussing phase 2 of that deal. Moreover, that China has failed to honour the phase 1 purchasing levels. It concludes “I am working and will continue to work with the administration to hold China accountable,” she said, adding that she was “clear-eyed” about what is a “complicated relationship”.

Mizuho’s tech woes highlight the dangers of messy mergers
An interesting read about the failure of the management which it suggests are not limited to Mizuho. Key being the desire to maintain existing hostoric relationships.

Investors probe SenseTime’s ties to Beijing ahead of $2bn flotation
AI group’s facial recognition schemes enjoy state support but raise human rights concerns.  Key being  ‘..the companies have had to tread a careful path to maintain good relations with their most visible and most important customer: the Chinese government.’
The key being that this is an area that China wants to lead in and is promoting. The downside risk is that other governments sanction the companies because of what their equipment is being used for by the Chinese government.

Look harder at expectations to value stocks
By Alfred Rappaport professor emeritus at Kellogg School of Management and co-author of recently-updated Expectations Investing. Michael Mauboussin, researcher at Morgan Stanley Investment Management and coauthor of Expectations Investing, contributed to this article.
Sets out to explain how to determine the difference between price and value. Key being the determination of the future cash flows.
They suggest a three step process.
The first is to read price-implied expectations. This puts a twist on the traditional application of a DCF model by starting with price then discerning the market’s expectations for a group’s value drivers.
The second step applies strategic and financial analysis to assess whether the expectations are too optimistic, pessimistic or about right.
The final step is to compare the expected value with the stock price and to make a decision to buy or sell.
An interesting read.

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