Sept 7 Asian mixed RBA unch China +VE Trade, FT Didi, Xi the new emperor and more

07 Sep

This and previous notes can be found at Substack ( Asian Market Sense )

Market opened and initially traded around flat; with weak Service Index, a number of companies going Ex Div Plus caution ahead of the RBA rate decision. Oil and Iron Ore prices lower.  It then sold down to 7,488 at midday before working better but saw resistance at 7,520.  Currently -19pts (-0.3%) @ 7,509  
Leaders Health stocks like CSL and Cochlear and gaming names Aristocrat and Tabcorp
Laggards Blue-chip miners and banks are lower
Data out Services Index Aug 45.6 vs 51.7 Jul (F/cast was 53)
Later Building Permits Jul -8.6% MoM vs -5.5% Jun (F/cast was -8.6%)
RBA left Interest Rate unchanged but reduced bond buying programme
Positive sentiment with Kono seen as the prime candidate to replace PM Suga.  Nikkei rebalance stocks helping but seeing some rotation out of recent outformers (Shippers  -1.2% today were +8% Monday).  Nvidia facing opposition from EU over the Arm acquisition -VE Softbank.
Nikkei opened higher and broke above 30,000 in early trades but then eased back to traded around 29,900 going into lunch.  Opening after lunch around that level but easing;  currently +217pts (+0.7%) @ 29,868
Topix traded in a similar pattern; currently +17pts (+0.8%) @ 2,058
Household Spending Jul -0.9% MoM vs -3.2% Jun (F/cast was +1%)
Household Spending Jul +0.7% YoY vs -5.1% Jun (F/cast was +2.7%)
Ave Cach Earnings Jul +1% vs +0.1% Jun (F/cast was +0.7%)
Foreign Exchange Reserves Aug $1424.3b vs 1386.5b July
Later Coincident Index, Leading Economic Index
S Korea
KDCA reported 1,597 new covid cases.  Foreigners and Local Institutions selling broad weakness with continued rotation into Steel, Chems and Apparel.
Kospi opened lower and trended down to 3,180 before seeing support. Then traded sideways 3,180/190 but just seeing the market sell down again. Currently -25pts (-0.76%) @ 3,178
Kosdaq opened higher but sold down to 1,050 before finding support, saw a short term bounce retested 1,050 before working higher
Taiex opened higher but sold down to 17,400 before finding support. Then traded sideways 17,400/470; currently -57pts (-0.3%) @ 17,429
CSI 300 opened lower and sold down to 4,916 before finding support but then rallied to 4,947 before pulling back to flat. Choppy trading ahead of the trade data which was better than forecast but may not reflect the most recent covid surges and could mean less Govt stimulus. PPI and Inflation due later this week.
Pre market opened @ 26,207 (+44pts) and market worked better through the morning to 26,443 just after the better than expected China Trade Balance. News headline that HK to allow quarantine free access for mainland visitors from Wednesday; should be +VE for Retail names.
Expect the markets to open higher following the +VE trend in Asia and good Trade Data from China
Eurozone Employment Change, GDP Growth Rate, ZEW Economic Sentiment Index
Germany ZEW Economic Sentiment Index & Current Conditions
France No data due
UK BBA Mortgage Rate
US Futures
Opened  Dow +82pts, S&P +0.21% and NDX+0.31% 

Guinea coup
Aluminium at 10-year high
New regime to set up a unity government, urges mining companies to continue operations and says the ports are open for exports.  But bauxite and aluminium prices remain high.

Germany blames Russia for wave of cyber attacks in election run-up

• Berlin cites ‘phishing’ emails • Protests passed to Moscow • Tight race to succeed Merkel
Goldman taps into private equity boom with IPO for $5bn Petershill division  The division buys stakes in alternative asset managers, in a deal that could value the portfolio at more than $5bn.

Companies & Markets
Chinese state funds invest in ride-hailing rival to Didi

Taking advantage of the fact that Didi is currently under pressure it competitors are looking to take advantage. The company which last year was thought unassailable. Reflects the mood that China seemingly wants its tech companies to be run with state-owned money.
‘Cao Cao Mobility announced yesterday that it had raised Rmb3.8bn ($588m) from a group of state-owned funds based in the city of Suzhou, to accelerate its expansion and improve driver safety.’
‘Suzhou Xiangcheng Financial Holding Group and Suzhou Innovation Capital are among the five investors placing bets that a domestic rival can challenge Didi’s dominance of China’s on-demand transport sector. Cao Cao, which operates in 62 cities, raised Rmb1bn in its first round of funding three years ago.’ Interesting to note that Meituan that had closed its ride hailing programme has relaunched it. But it has also triggered a price war which whilst good for consumers will hurt the operators; especially since the authorities are insisting that drivers are paid livable wages and benefits.

Sinopharm working on China’s mRNA Covid vaccine
An acknowledgment that mRNA vaccines are more effective in combating covid. It is not alone; Walvax Biotechnology is also researching the issue.
It also notes that BioNTech that works with Pfizer and Fosun Pharma is targeting the China market and is currently awaiting it’s drugs approval from Beijing.
The current thinking is that ‘protection against serious infection can be increased by combining inactivated virus vaccines with a dose of another shot with a higher efficacy rate, such as those using mRNA technology.’
For the drug companies the ability of covid to mutate means that selling these vaccines is likely to become a staple part of their businesses.

Beijing crackdown boosts funds that shun China
Prominent ETFs that exclude the world’s second-biggest economy jump 440 per cent.
The recent changes in regulation and policy from China is having an impact and many investors have decided to avoid Chinese investments. The article looks at recent Morningstar Data which shows Emerging Market ETF’s Ex China assets have seen assets rise 41% in August. That compares with Global EM ETF’s where inflows slowed. Investors are still watching to see whether the changed in policy have finished or whether more sectors could be under threat.
Short term funds that don’t have China exposure are likely to outperform the question is for how long? Meantime that is likely to mean lighter flows in HK/China.
It also looks at recent comments that Chinese equities are ‘uninvestable’ because of fears about more party driven changes. Alan Miller, chief investment officer of SCM Direct, a wealth manager, took issue and commented “Whenever I have seen a company or country described as uninvestable, in almost every single case it has marked the bottom of the market,” Others were also sceptical. China isn’t the only country to instigate changes although the recent changes have been radical for some sectors there are still areas for potential good investment. The key is that investors will have to review their risk profile for China.

Markets Insight
Investors are missing the point on US inflation  By Rebecca Patterson  director of investment research at Bridgewater Associates.
Her point seems to be that it really does not matter whether inflation is currently persistent or transitory the key is that market pricing, data trends and the Fed’s evolving reaction function underscore a real need for investors to protect portfolios against higher, more sustained inflation.

The Maoist echoes of Xi’s power play
The Chinese leader is extending the Communist party’s dominance over civil society. The flurry of activity reflects a form of economic populism but also has many of the hallmarks of a new political era in Beijing

Reviews the announcements from President Xi and others over the past two weeks which seem to be the culmination of a policy change that start with the Ant IPO being pulled and seems to indicate a new political era.
Key elements seem to be the Party’s control of both the private sector and family lives. The focus on inequality seems to be a main plank of the policies. The article draws parallels with Mao but notes that Xi is not a revolutionary like Mao. However ‘But it does not mean Xi would not manipulate and direct the anger among frustrated people at political targets he wants to destroy.’
It also notes the focus on core communist values; with the focus on ‘common prosperity’ and standing up to the US. Also the fact that President Xi views most things from a national security viewpoint. Also the fact that much of the decision making is down to President Xi.
Sort term wise it has prompted a number of the wealthy to pledge their allegiance to the policies and donate money to good causes.
It notes how Xinhua news agency declared. “Common prosperity is not egalitarianism. It is by no means robbing the rich to help the poor as misinterpreted by some western media.”
Which is a sign that President Xi is aware that China needs entrepreneurs and the private sector and in the past couple of days China has been keen to point out that the Chinese economy will open up further and open to foreign investment.
It also notes that the tax administration department is cracking down on tax dodgers, declaring the ‘996’ work policy illegal and the housing ministry said it would cap annual rent rises at 5%.
It looks at the recent ‘incendiary’ post by Li ‘“This is a return to the party’s initial aspirations,” Li wrote. “The capital market will no longer be a paradise for capitalists to get rich overnight, the cultural market will no longer be a paradise for sissy-boy stars and [people] will no longer worship western culture.”’ It notes that some ‘stars’ have been removed for various reasons that don’t meet with the party views.
In a section ‘The new emperor’ notes the differences between Xi an Mao. Key being that Xi is ‘is determined to rein in special interest groups whose privileges he believes undermine the common good.’ In such a light ‘people should judge Xi’s administration not by its often draconian means but by its ends — from lower living costs for China’s squeezed middle class to more checks on the monopoly powers of the country’s tech giants.’
But notes that whilst his aims are admirable sometimes the means by which they are implemented is abrasive and they increase uncertainty which is not good. But it does not believe it will lead to a second cultural revolution. If only because President Xi has purged potential successors.
It concludes with a quote from Desmond Shum, a Shanghai native now living in the UK who invested in projects with some of the party’s most powerful families and has just published a book about his experiences. ‘“China is a leaking boat, there are so many humongous problems, whether it’s the ageing population or the economic structure, that every leadership [team] says they’re unable to tackle all of them. They will handle it the best they can during their administration and then pass it on to the next guys. At some stage everybody believes it is going to explode in their face.’ “But Xi,” Shum adds, “sees himself as the emperor who revives the dynasty. He’s going to tackle these problems himself.”
Its the first part of a series, whilst I agree with a lot of the sentiment I worry about alienating the growing middle class and the rewriting of the social contract. Restricting families from doing what they believe best for their children could be a step too far. Well worth a read.

LEX Aluminium/Guinea coup: not bauxing clever
Questions why HK listed Rusal rallied yesterday on the news of the coup in Guinea. ‘But it is less obvious why shares in Hong Kong-listed Rusal, with three Guinean bauxite mines — about half of its supply — climbed 15 per cent on the day. This is bizarre — supply chain risks pretty much invariably increase when coups happen.
Chinese and Russian producers have a lot at stake in the tiny west African country. The political upheaval risks shattering supply chains and halting exports.
Producers cannot switch sources of supply overnight. Investors, less constrained, should move quickly to unearth those — like Norsk — that have little reliance on Guinea.’

* The email will not be published on the website.