Sept 30 Asia most turn +VE FT CGN out of UK, CPTPP politics, Japan Status Quo, GS & China


30 Sep

This and previous notes can be found at Substack ( Asian Market Sense )
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Asia Summary. 
Quarter end and seeing signs of window dressing despite weak data. China closes for a week from today and HK will be closed tomorrow

Australia
Market worked higher from the open and currently +121pts (+1.7%) @ 7,318 the day high.   Iron Ore futures +10% helping the miners as China mills seek to restock ahead of the Chinese Golden week  holiday. All sectors were in the green with banking stocks and biotech heavyweight CSL leading the pack;  Westpac Banking Group +3.3%, CBA +1.5% and BHP +2.6%
Laggards Afterpay -0.6%, Whitehaven Coal -2.5% and Alumina -1.4%
Data
Building Permits Prelim Aug +6.8% vs -8.6% Jul (F/Cast was -7%)
Private Sector Credit Aug +0.6% MoM vs +0.7% Jul (F/cast was -0.2%)
Private Sector Credit Aug +4.7% vs 4% Jul (F/cast was +3.5%)
Japan
Disappointing data but with State of Emergency rules to be eased  the re-opening names seeing interest.  Laggards Shippers seeing some profit taking, Softbank weak as HK tech index weak, Toyota production cuts and safety certifications issues.
Market on close Nikkei re-balance
Nikkei opened slightly higher but initially sold down to 29,310 by 11am after disappointing data but then saw a rebound into lunch.  PM has seen the market continue to rebound and currently +29pts (+0.1%) @ 29,570
Topix traded in a similar fashion; currently -2pts (-0.1%) @ 2,036
Data
Retail Sales Aug -3.2% YoY vs +2.4% Jul (F/cast was +1%)
Retail Sales Aug -4.1% MoM vs +1% Jul (F/cast was -0.3%)
Industrial Production Prelim Aug -3.2% MoM vs -1.5% Jul (F/cast was -0.4%)
Industrial Production Prelim Aug +9.3% YoY vs 11.6% Jul (F/cast was +9.5%)
Just out
Housing Starts Aug +7.5% vs +9.9% Jul (F/cast was 8%)
Construction Orders Aug -2% vs -3.4% Jul (F/cast was -10%)
S Korea 
Pre market data was mixed. Foreigners turned net buyers which suggests end of quarter window dressing. Leaders Game names, Laggards Energy
Kospi opened lower but worked higher to 3,080 around 1pm and now just easing lower currently +12pts (+0.4%) @ 3,072
Kosdaq traded in a similar fashion currently +6pts (+0.6%) @ 1,007
Data
Business Confidence Sept 90 vs 95 Aug (F/cast was 94)
Industrial Production Aug 9.6% YoY vs 7.7% Jul revised (F/cast was 8.5% )
Industrial Production Aug -0.7% MoM vs +0.2% Jul revised (F/cast was +0.3%)
Manufacturing Production Aug vs Jul (F/cast was )
Retail Sales Aug -0.8% MoM vs -0.5% Jul revised (F/cast was -1%)
Retail Sales Aug +3.8% YoY vs 7.9% Jul (F/cast was +6.6%)
Construction Output Aug +0.3% YoY vs -8% Jul revised (F/cast was-1.2% )
Taiwan 
Taiex opened slightly +VE, dipped in early trades but from 9.45am the market trended higher and rallied strongly around 12:30pm; currently +126pts (+0.8%) @ 16,983
Tech mixed,
Leaders Pulp&Paper, Shippers & Transport
China 
Pre market data was weak but it seems ‘Team China’ at work
CSI 300 opened higher despite the weak PMI data and market traded sideways around 4,860 level in choppy trading. PM opened higher currently +33pts (+0.7%) @ 4,867 Sentiment +VE ahead of Golden Week with hope that domestic consumption will see a rebound. Overhangs remain; power shortages, Evergrande/Property concerns and slowing manufacturing.
Data
Market Manufacturing PMI Sept 49.6 vs 50.1 Aug (F/cast was 50.4)
Non Manufacturing PMI Sept 53.2 vs 47.5 Aug (F/cast was 50)
Caixin Manufacturing PMI Sept 50.0 vs 49.2 Aug (F/cast was 49.9)
Hong Kong 
Pre market opened @ 24,494 -169pt vs -205ptsADR’s
Weakness in Tech as Beijing delays new game licences as new rules come into effect; its unclear if existing games will need to reapply for a licence. Market traded sideways around 24,435 level through the morning. PM opened at 24,500 level.
Macau +VE on hopes quaratine free travel can resume after the mass testing; note Gaming Revenue data due out tomorrow.
Data
After market Retail Sales
HK markets closed Friday and re-open on Monday
Europe
Ahead Eurozone 
Unemployment Rate
Germany Unemployment Rate
France Inflation Rate, Household Consumption, PPI
UK  Nationwide House Prices, Current Account, GDP Growth Rate, Business Investment, Car Production
US
Futures Opened in Asia Dow +81pts, S&P +0.24% and NDX +0.24% but have improved to Dow +114pts, S&P & NDX both +VE
Ahead GDP Price Index, GDP Growth Rate, Initial Claims, 4 week Ave Claims, Continuing Claims, PCE Prices, Core PCE Prices, Chicago PMI, EIA Natural Gas Report, WASDE report.

FT  Front Page

Eurozone consumer activity returns to pre-pandemic levels
• Recovery takes hold • Leisure rebound suggests confidence • Energy prices pose threat
With the lifting of restrictions and increased vaccination levels Europeans are returning to their old lifestyles and that is helping the recovery. That is promting the ECB to considering scaling back its emergency pandemic programme of asset purchases next year. But there is the overhang of China slowing and what imapct that would have on other economies.

UK set to force sale of China-owned stake in £20bn nuclear power station.   Refers to the 20% stake that China’s CGN holds.  Options being considered  include:
The government would hold the stake until it could be sold on to institutional investors.
Or floated on the stock market through an initial public offering.
Lex  CGN/Sizewell C: nuclear option 
‘Infrastructure funds typically target gross IRRs of 12 to 14 per cent. Renewables offer less than half of that. Previous foreign investors have pulled the plug on British nuclear. British hostility to China looks set to provide CGN with its own exit, leaving taxpayers holding the baby.’

Beijing likely to thwart Taipei’s bid for trade pact membership
An interesting read. Whilst China fails to meet many of the criteria it has already called on the group to reject Taiwan’s application despite the fact that Taiwan meets many of the requirements. The article suggusts that it will playout the same way their applications to the WHO were.
It notes now that since joining the WHO China has become a Superpower and has more sway. But that should not influence the applications although it likely will. Taiwan’s more open economy and the worlds reliance on its Semiconductor business should be the driving factors. It the CPTPP decides to follow the WTO template it will give China another endorsement that bullying and the non compliance with the existing rules based system can be ignored.

Japan’s ruling party opts to keep status quo
Kishida wins leadership race and will be next PM, dealing blow to younger members.
It will be interesting to see how the choice impacts them in the forthcoming election. The LDP’s reluctance to embrace younger LDP views and possibly more importantly those of the wider electorate shows that the old guard still holds sway. With internal acceptance being viewed as more important than winning public support.
Worth a read.

Evergrande sells $1.5bn bank stake to state investor
• Cash to cover Shengjing liabilities
• Pressure rises over $300bn burden
Though the sale will not help the bond holders with proceeds being used to settle existing liabilities.
Key points are that government related bodies are getting involved without the central government having to take direct action. It is also putting pressure on semi-government bodies to get involved too.
It notes that ‘In a district of the southern city of Guangzhou, a local government department said last week that revenues at an Evergrande subsidiary must be put into a government account so that “homebuyers’ interest can be protected”. Another housing bureau in the nearby city of Zhuhai asked sales proceeds to be put into a government account.’
It’s a delicate balancing act; wanting a market settlement but one that does not impact the social stability within China. What is becoming evident is that bond holders and especially offshore ones are being viewed as of minimal importance. Whilst that may good for social stability it will mean that future international fund raising will become more expensive. It will be interesting to see whether there will be legislation to make the extent of companies debt clearer. What is becoming evident is the amount of unlisted or reported debt at Evergrande. It would be naive to imagine that Evergrande is the only developer to have gone down that route.

Goldman’s steady advance in China hits snags
Bank set for deeper push just as Beijing’s rules cause rift between country’s biggest groups and foreign investors.
An interesting read showing the changing attitudes in China which even those who are well connected can fall foul of.
It concludes ‘If Goldman can keep expanding in a China that continues to open up its borders to capital, the returns will be huge. Xi Jinping has demonstrated, however, that he is prepared to mount sweeping regulatory crackdowns with ramifications far beyond China’s borders.
“If international investors aren’t interested in being in China, then the very purpose of us being in China is thrown into question,” said one Goldman executive. “But China’s history is full of ups and downs. You have to plan for some big problems.”’
That is key; China is continuing to evolve and there will be ups and downs. Whilst China has come a long way in the last 30 years but it has a long way yet to go still.

GPIF fund shuns China’s renminbi sovereign debt
This is going to be a big issue going forward; the acceptability of Chinese sovereign debt especially as China is seeking for the Rmb to become the currency of choice in Asia and squueze the US dollar out.
Worth noting the GPIF’s reasons;
1. The comparatively limited liquidity of the market
2. Chinese bonds are excluded from the international settlement system used for other sovereign notes
3. Non-Chinese investors were barred from futures trading.

It notes that the Japanese policy is despite the FTSE Russell who said this year that its decision to add China to the World Government Bond index marked its “arrival as a global market”.
It will be interesting to see if Evergrande does default whether there will be a wider recalibration.

Bond sell-off is a timely warning for investors  By Mohamed El-Erian
He concludes ‘For their part, investors should recognise that the enormous beneficial impact on asset prices of prolonged central bank yield repression comes with a consequential possibility of collateral damage and unintended consequences.Indeed, they need only look at how hard it has become to find the type of reliable diversifiers that help underpin the old portfolio mix of return potential and risk mitigation.’
A good read.
The Big Read

Huawei’s necessary reinvention
With American sanctions derailing the telecoms and technology group’s traditional operations, it is rushing to boost areas less dependent on chip supplies such as cloud services and software for smart cars.
Worth a read but the bottom line remains that without access to US tech the future is less certain than it was.
Opinion

Beware the known unknowns when finance meets AI   By John Thornhill
‘But there is an argument that there are also unknown unknowns, as the epigrammatic former US Defense secretary Donald Rumsfeld put it, and that in some circumstances we should deploy the precautionary principle. Regulators should be prepared to ban the use of the most exotic, or ill-designed, AI systems until we better understand how they work in the real world.’
Worth a read.

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