Nov 1 Asian markets HK/China weak, others rally FT Comments Climate, Steel and splitting China out of the MSCI EM

01 Nov

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Asia this week has a few notable events. Philippines closed today.
Tuesday focus on RBA’s interest rate decision and BoJ minutes.
Wednesday Japan closed for Culture Day but also Bank of Malaysia meeting the the FOMC in the US.
Thusday holidays for Singapore, Malaysia and India. OPEC meeting and the Bank of England meeting.
Friday India closed and US payrolls data
Sunday Chinese Trade data.

Market opened higher and tested 7,360 in early trades before easing back to 7,340 but then worked slowly better through the day to 7,390 around 2pm.   But currently pulled back to +43pts (+0.6%) @ 7,367
Data was mixed. Brookfield to buy AusNet for A$10.2bn. Westpac to embark on A$3.5m share buyback after it cut provisions.
Manufacturing Index Oct 50.4 vs 51.2 Sept (F/cast was 53)
Manufacturing PMI Oct 58.2 vs 56.8 Sept (F/cast was 57.3)
Home Loans Sept -2.7% MoM vs -6.6% Aug (F/cast was -3%)
Job Adverts Oct +6.2% MoM vs -2.8% Sept (F/cast was -2.1%)
Investment Lending for Homes Sept 1.4% vs 1.5% Aug
Inflation Gauge Oct +0.2% vs +0.3% Sept
Tomorrow the RBA is expected to make an announcement about its bond yield target having failed to make any recent purchases.
Election out of the way, tomorrow we get the BoJ minutes and then the markets will be closed on Wednesday for Culture Day.  Earnings are still in focus.  Nomura weak as writedown hits profits.
Nikkei opened much higher after the LDP held onto their majority, and tested 29,600 in early trades and then pulled back and traded sideways around 29,540 level.
Topix Opened higher tested 2,038 in early trades now +30pts (+1.5%) @ 2,031.
Manufacturing PMI Final Oct 53.2 vs 51.5 Sept (F/cast was 54.1)
10 yr JGB Auction 0.107% vs 0.049% prior
S Korea 
Foreigners remain net sellers but local institutions net buyers focused on Internet and Tech. Pharma +VE as the Govt introduces ‘living with covid’ +VE also for re-opening plays like Cosmetic and Apparel. Trade data was a little light.
Kospi opened higher and tested to 2,992 around 10:30am before pulling back to 2,980 and then traded sideways 2,981/88
Kosdaq opened higher trended higher but in choppy trading currently +8pts (+0.8%) @ 1,000
Balance of Trade Oct $1.69b (Sept was $4.4b F/cast is $3.9b)
Exports Oct 24% (Sept was 16.7% Consensus is 27%)
Imports Oct 37.8% (Sept was 31% Consensus is 40.1%)
Manufacturing PMI Final Oct 50.2 vs 52.4 Sept (F/cast was 54.1)
Taiex opened higher and tested 17,120 in early trades but then eased back to trade sideways around 17,070 level.
Manufacturing PMI Final Oct 55.2 vs 54.7 Sept (F/cast was 52.1)
CSI 300 opened lower after the poor weekend PMI data and news of more covid cases and the need to release some of the strategic fuel reserves as fuel shortages affect the country. Market worked better through the morning but failed to test Friday’s closed and ease back.
Liquor names remain weak. At lunch -11pts (-0.2%) @ 4,898.
Manufacturing PMI Final Oct 50.6 vs 50 Sept (F/cast was 50)
Data out Sunday
Manufacturing PMI Oct 49.2 vs 49.6 Sept (F/cast was 50)
Non Manufacturing PMI Oct 52.4 vs 53.2 Sept (F/cast was 53)
Caixin PMI data due Wednesday. Trade data due next Sunday.
Hong Kong 
Pre market opened @ 25,268 -109pts vs -55pts ADR’s but then sold down to test the 25,000 support which held and the market rebounded slightly going into lunch -278pts (-1.1%) @ 25,099.
ECommerce and Pharma weak along with BYD (1211) after share placement. Some interest in Chinese Financials.
Data due after market GDP Growth Rate
Expect markets to open higher following the good moves in the US on Friday and the positive moves in Asia.  China’s weak PMI data largely expected.  Some caution ahead of the BoE policy meeting.

Germany Retail Sales
UK  Manufacturing PMI Final
US Futures
Opened DOW +80pts, S&P +0.25%, NDX +0.3%  Key this week will be the FOMC meeting and then the Payrolls data on Friday.
AHEAD Manufacturing PMI Final, ISM Manufacturing Data (PMI, New Orders, Prices, Employment).
Earnings: ZoomInfo, Avis Budget, Ryanair, Lowes, PG&E, Cirrus Logic, NXP Semiconductor, Public Storage, Rambus, Chegg, Tanger Factory Outlet, Transocean

FT Front Page
Limited G20 curbs on coal leave ‘huge way to go’ at climate summit
• Deal to end global financing • No move on phaseout • COP26 host Johnson issues alert.
Overall disappointment at the lack of clear agreement and commitment; especially over coal.

Kishida’s ruling Liberal Democrats secure victory in tight Japanese poll
It was far from as dire as some had worried; although they did lose 15 seats they maintained their majority. Interesting to note that the biggest winner was the centre right Japan Innovation Party which ‘which more than tripled its representation to 35 seats after a campaign that focused on a push for regulatory reform.’
Japan market have rallied hard on the victory as investors look forward to the implimentation of PM Kishida’s spending plans. The bigger question is whether he can steer Japan on a new path and break the Abe legacy. He has already generated some criticism for appointing veterans into key roles. It will be interesting to see how he develops policy.

US and EU to curb ‘dirty steel’ imports from China 
‘In a deal that was swiftly criticised by China, the US and EU have agreed to work jointly on a “global arrangement” to support sustainable steel and aluminium to reduce overcapacity and encourage greener production.’
A slight -VE for the Chinese steel makers and a slight +VE for trade relations between the US and Europe.

Slowdown in China factory activity persists
Property sector woes and supply shortages drag activity indicator down
Looks at the weak data out of China on Sunday, which missed forecasts and reflected the slowing property market, high commodity prices, energy shortages and covid lockdowns.
The big issue is whether Beijing will ease back on the changes it is pushing through under the banner of common prosperity to encourage growth or press on with the changes. I think they will push on with the changes and re-orientate the economy. I think that President Xi is more concerned about positioning the party than growth.

The case for splitting China out of  the EM index
Looks at a Goldman Sachs report that made the case that it should be.
1. The sheer size of China within the MSCI EM Index which ‘has doubled over the past five years to about a third and could soon top 40 per cent.’ ‘An investor seeking a broad sweep of emerging market narratives, cycles and exposure, either globally or concentrated in Asia, is no longer really getting that. They are getting the China story — with all its idiosyncrasies and peril — and a decreasingly relevant investment hinterland.’
2. The stub of the index that is not China would be highly investable and liquid. ‘EM ex-China, say the report’s authors, would offer an even spread of about 20 per cent weightings each between the three largest markets (Taiwan, India and South Korea). That trio, with its bias towards tech hardware and semiconductors, would also offer a rather different industrial profile from the current one,’
3. The example of Japan when that was stripped out of the MSCI’s pan Asian index in 2001.
But some Fund managers are worried about the current changes taking place in China and whether those changes make in ‘uninvestible’ with ‘common prosperity’ and pressure on Taiwan.
He concludes ‘As matters stand, the idea of EM ex-China may be pitched as a tribute to the extraordinary growth and attractiveness of its market. Some may decide that such an index needs to exist as a form of future contingency.’

I think it would make sense to exclude China mainly for the first reason that of size and influence.
Special Report
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