Nov 10 Asia sells down. FT Fed Chair, Xi's ambitions, HK's Barrons, Softbank's blizzard and more.

09 Nov

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Market tested higher to 7,460 in opening trades but then eased back to 7,445 before rallying to test 7,470 as Business Confidence beat forecasts but failed to break out and sold down to 4,436 before working better back to 7,460 level in choppy trading before trending lower again.  Currently -8pts (-0.1%) @ 7,444
Material and Resources strong as Iron Ore Prices recover along with Energy and Gold miners. But they are being outweighed by weakness in Financials (NAB weak post earnings) and Consumer names (Telstra and Woolworths weak).
Seven West Media +VE has told investors to expect a large uplift in its earnings as it moves ahead with plans to take a further $20 million costs out of the business.
Business Confidence Oct 21 vs 10 Sept revised (F/cast was 15)
New Home Sales Oct vs +2.3% MoM Sept (F/cast was +3%)
Nikkei opened slightly higher to test 29,750 in the first 15 minutes but then trended lower.  Earnings and guidance in focus, Softbanks strong on share buyback new .   Seeing more interest as valuations are looking attractive and expectations of more stimulus spending encouraging interest.  Nikkei was flat at lunchtime.  Currently -199pts (-0.7%) @ 29,311
Topix followed a similar pattern currently -13pts (-0.7%) @ 2,022
After lunch headlines about 100,000 Yen of cash/coupons to under 18 yr olds
Auto’s +VE as Yamaha raised FY guidance & buyback. Isuzo Motors beat. Chips +VE as AMD signs up Meta as a client.
Leaders Info/Com, Iron/Steel, Mining
Laggards Shippers, Airlines, Rubber, Property
Average Cash Earnings Sept -0.2% YoY vs0.7% Aug (F/cast was +0.5%)
Current Account Sept ¥1033.7b vs 1665.6b Aug (F/cast was 1050b)
Bank Lending Oct +0.9% YoY vs -0.6% Sept
After lunch
Later Eco Watchers Survey
Current Oct 55.5 vs 42.1 Sept (F/cast was 43)
Outlook Oct vs 56.6 Sept (F/cast was 56)
S Korea 
Kospi spiked on the open to 2,987 but failed to go higher and then reversed, slight support at 2,970 and then at yesterdays close before trading sideways around 2,950/65 until 1.40pm when it ticked higher to 2,960.
Kosdaq similar trading pattern but after initial spike traded 1,004/9 and currently +5pts (+0.5%) @ 1,007
Earnings still in focus.csi
Taiex opened higher and tested 17,570 in early trades. Then traded around 17,550 for more of the session, high was 17,581; to close +133pts (+0.8%) @ 17,550
Tech remains in focus after good export data along with consumer discretionary. Some weakness in Industrials , Energy and Healthcare.
PBoC injected another 90b yuan into the system.
CSI 300 opened higher and tested 4,870 in early trades but then sold down; news of a surge in new covid cases. Also developers under pressure on news of tightening use of presale monies. Education names seeing interest on news licences to be issues to some firms to allow them to resume on a non-profit basis. Found support 4,818 and then a small bounce into lunch. PM opened higher, currently -7pts (-0.1%) @ 4,842
Renewables +VE on news of cheaper loans to green industries. Pharma saw a rebound
Hong Kong Pre market opened @ 24,953 +189pts vs +65pts ADR’s with broad interest; only Utilities in the red, ECommerce strong on hopes that the issuing of licences for tutoring on a non-profit basis to the Education companies signals a relaxing tone to sector.  I doubt it means a return to former ways but the start of a new normal as the initial bounce was sold into.
Market trended lower through the morning with support at 24,700 and a small bounce into lunch. PM opened around flat; currently -13pts @ 24,749. Auto’s +VE CPCA data showed EV sales +321k units down MoM but up YoY.
Expect markets to open lower with caution ahead of US PPI data and European economic data.  Covid and earnings still in focus.
BRC Retail Sales Monitor Oct -0.2% YoY vs-0.6% Sept
Eurozone ZEW Economic Sentiment Index
Germany Balance of Trade, Imports & Export, Current Account,ZEW Economic Sentiment Index & Current Conditions
France Balance of Trade, Current Account
US Futures
Opened Dow -23pts, S&P and NDX circa -0.1% but have now fallen to Dow -100pts with S&P and NDX -VE.
Ahead NFIB Business Optimism Index, PPI, Core PPI, Redbook, WASTE, API Crude Oil Stock Change.
Earnings: DR Horton, Coinbase, Palantir, Aurora Cannabis, Bayer, Krispy Kreme, DoorDash, Cardinal Health, BioNTech, Poshmark, Unity Software.

Front Page
COP26 speech
Obama invests hope in youth  His speech inspired many.

Central bankers pose rates puzzle with divergent slants on inflation
• Fed and BoE signal rises likely • ECB resists policy shift • Pace of tightening splits opinion.
I am not that surprised because the Eurozone is not just one economy unlike the other two and there are significant intra country differences; making it far more difficult to raise rates across the whole region.

SoftBank unveils $8.8bn buyback after investor pressure stirs up ‘major storm’
Looks at the latest results which were bad and reflected the crackdown on Ecommerce in China and the pull back in S Korea. Despite that Son remains optimistic. The stock today is higher but driven by the news of another share buyback programme. Worth noting that S&P has warned that that buyback reduces some of ‘buffer’ for its ratings. The FT concludes ‘One long-term investor in SoftBank questioned how long the impact of the new share buyback would last. “The buyback has always been an easy way to drive the short-term share price but it does not help long-term institutional investors,” he said.’
Lex SoftBank: dread of winter  Reviews the share buyback and concludes ‘But the amount this year is dwarfed by last year’s total of $23bn. It is clear that SoftBank cannot keep up the pace of share repurchases seen over the past two years. Son’s blizzard analogy is unfortunate. An expedition leader may be able to quell a mutiny by distributing extra rations. But this act of generosity will not give his followers any greater confidence that he has full grasp of his bearings.’

Fed leadership uncertainty causes market jitters
Biden still to announce whether Powell will be reappointed as chair when his term expires in three months’ time.
An interesting read but the reality is that whether it is Powell or Brainard both follow very similar views on the economy. The situation though is complicated by the fact that Biden has to fill a number of other Fed positions too. If he were to pick Brainard then she would have to be confirmed by the Senate and that can be time consuming and uncertain.
Powell is seen by most as having done a good job and has an amount of political capital which would assist his confirmation.
What markets like is clear decisions and it is difficult to understand why Biden doesn’t make the call, although it may be another refection of the in party disputes taking place; which is a little more worrying.

Emissions from food system rise almost a fifth in 30 years
An interesting read about the amount food and agriculture contribute to the emissions problem; ‘The food system, particularly deforestation from land conversion to agriculture and methane from the livestock sector, has come under the spotlight for its contribution to global warming.’

China. Annual meeting
Xi invokes Mao in push for third term
President seeks to solidify his rule and present himself as natural heir to former leaders.
Looks at how Xi intends to use his view of history as the justification for his being allowed to rule for life. Sets himself as on a par with Mao and Deng and distinct from the other interim leaders.
Key being the premise ‘Mao, they said, unified China while Deng made it rich and Xi has made it strong.’ In order to achieve its rightful place Xi is saying that he alone can ensure that China achieves its rightful position.
It notes how ahead of the plenum Xinhua and other news agencies have been promoting President Xi’s character, to justify the move.
The article also underlines how Xi identifies with Mao rather than Deng and his actions have already undone a lot of the structures that Deng put in place to prevent a re-run of the Maoist era. It is interesting to note that despite his purge of the leadership there are still those within the party that support Deng and the measures he put in place. Some view Xi’s actions as being harmful to the party and China; ‘Wu Qiang, a former lecturer at Tsinghua University and outspoken party critic, said the resolution was intended to “prepare China for even more of Xi’s personality cult”. He added: “The resolution is about self affirmation. It will turn a blind eye to negative parts of the party’s history and will damage the country. Xi has used institutional and non-institutional methods to centralise all power around himself.”’
A potential wild card is the ‘zero tolerance’ covid policy, which could undermine the economy especially with the developers debt issues and the move to ‘dual circulation’ and ‘common prosperity’. Listening yesterday to a health commentator China’s big risk is that the delta version (or later variant) gets into China despite its closed borders.
A good read. Bloomberg is also running an article on how Xi’s concentration of power is hurting China as the Cadres struggle to understand what is required by Xi.

See also Opinion
Isolated China is a concern for us all  By Gideon Rachman
Suggests that President Xi is using covid as a cover for ‘national self-isolation.’ He says ‘Xi’s dismissive attitude to the climate talks was not so much Middle Kingdom as middle finger.’
The impact of its covid travel restrictions has put pressure on business but ‘Yu Jie, a fellow at Chatham House in London, argues that the pandemic has allowed Xi to accelerate down a path where he was already heading — towards national self-reliance. That policy began well before the pandemic, with the “Made in China 2025” campaign, which promoted domestic technology and production.’
He goes onto suggest that this is part of Xi re-writing the social contract; as the official death toll from covid in China is under 5,000 vs 750,000 in the US. Largely Beijing would say because of its lockdowns but these ‘draconian policies are now causing some public debate in China’ although that is unlikely to change policy. At least not until after the next vital party congress and Xi getting his extension of power.
He concludes ‘By that stage, China will have been in self-imposed isolation for more than three years. The Chinese and world economies are likely to suffer as a result, and so will global co-operation.
Yet the biggest and most intangible effect may be on the Chinese people. It is much easier to believe that foreigners are dangerous and decadent if you never meet them. When China eventually opens up, the world may encounter a much changed country.’
Well worth a read. The impact on business will be significant the question is whether China can honour the pledges to keep opening up its economy if people can’t travel to do due diligence.

Hong Kong property barons to gain in affordable homes drive
The key points are that whilst Beijing is upset with the HK developers; believing that high property prices were the reason for the public protests three years ago, there is little it can do directly; ‘A Chinese official said while Beijing was unhappy with the tycoons, it could not directly intervene in land policy due to the “one country, two systems” framework granting Hong Kong considerable autonomy after the handover.’
But talking to people in the sector pressure is being exerted through back channels as seen in the recent ‘lending’ of land to the Hong Kong Government by Henderson and ‘donation’ from New World.
Furthermore their ‘power’ or influence has been diluted in the recent elections.
Other problems for breaking the power of the Hong Kong developers is the cost of buying land in Hong Kong; especially at a time when the Chinese developers are under the ‘three red lines’ threat. Some have tried to get a foothold in the past but been undermined by timing and high gearing. Most Hong Kong developers are geared less that 20%. Henderson who just won the waterfront site may increase its gearing to 30% to cope with that development; that is low by international standards and reflects that these are not run for the benefit of minor shareholders but the families.
The other problem China will have in undermining the developers until Hong Kong is under full Chinese control; is that the developers are the key source of new homes. If Beijing or the administration really wanted to control the building of homes it should, on the grant of land, not only set a date by which works on the site should commence but also a completion date; that would ensure delivery. At present they only have to start, once some ground works are done the site can often sit idle until the market picks up. Also the provision of a ‘reserve list’ means that the developers really don’t need to hold landbanks. So the developers really have got a system that works for them….. until China changes it.

Companies & Markets
Toshiba looks at splitting into three to rebuild market value

An interesting read about a troubled company that is trying to return to its former glory after years of misdirection. It is one of several options being considered as it tries to rebuild itself and address activist investor demands.
An interesting read many view the company as an illustration of the faults in Japanese management’s who run companies for their benefit rather than the shareholders. Toshiba’s mismanagement resulted in it needing emergency re-capitalisation which resulted in foreign and activist shareholders gaining critical mass. The management then tried to ignore then and engineer a return to management control which even tinged the government.
Investors will no doubt be watching the final proposal.

China’s executives pick right time to cash out
Bosses of New York-listed Chinese techs make hefty share sales in US this year before regulatory crackdowns or the release of poor results.
An interesting read that suggests that Chinese executives are good at reading the signals from Beijing. But it also goes on to look at how some executives have taken advantage of the system to make advantageous trades. Albeit that part of the problem is the system. Just as Hong Kong used to allow purchases and sales to be mailed to the exchanged which is how Warren Buffet used to notify the exchange of some of his trades.
The key takeaway would seem to be that the authorities should be paying more attention to technology; the traders do, so the regulator should too.
A good read.

Huobi explores other financial centres as China ban wipes out third of revenues
Moves by the Chinese Govt have forced the company to go global.  An interesting read.

For Interest
Investors hit back over buyout firms’ fees

Regulators are facing pressure to reform opaque expenses that private equity managers charge. An interesting insight into how some hedge funds are so profitable… its in the extra fees they charge.

Travel sector braces for the post-pandemic world
After losing $6tn during the Covid-19 crisis, the industry — from hotel groups to airlines — must prepare for a precarious future with fewer business travellers and pressure to act on climate change.

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