Nov 10 Asia weak as Chinese inflation rises. FT Chinese Housing Controls, Chinese holdings and Bond's ESG issues.


10 Nov

This and previous notes can be found at  Substack ( Asian Market Sense )
Check out ERI-C.com  for your research needs

Asia saw a weak open after US markets closed lower but it was made worse by China’s Inflation rate and PPI coming in much higher than forecast (PPI growth was due to imported inflation and tight domestic supply of major energy and raw materials. CPI higher despite declining pork prices but other foods rising) the expectation is that will add to global inflation and could cause further problems for the slowing Chinese economy which is also facing threats from covid and developers debt.
World Container Index -4.9% last week; the first decline since March but it remains +252% YoY.

Australia
Market dipped lower on the open but then rallied to 7,460 by noon after good Consumer Confidence data at noon but with choppy trading. Building Permits dropped inline with expectations.  From there it trended lower to test 7,410 before ticking higher to close -15pts (-0.2%) @ 7,420
Miners weak as Iron Ore prices fell again. Energy names +VE
Chalice Mining hit another high and ASX Ltd hit a new high. Sims +VE after strong guidance. Pushpay weak disappointing earnings.
Data
Consumer Confidence Index Nov 105.3 vs 104.6 Oct (F/cast 104)
Consumer Confidence Change Nov +0.6% vs -1.5% Oct (F/cast -0.6%)
Building Permits Sept -4.3% MoM vs 7.6% Aug (F/cast was -4.3%)
Japan
Nikkei opened lower following the weakness in the US and a poor Tankan reading.  Initially rangebound trading 29,200/250 but ticked higher to test yesterday’s close around 10.30 but then dipped back to 29,200 at lunch.  PM opened lower and dipped to 29,080 before a small rebound and traded 29,100/140.
Topix followed a similar pattern and currently -9pts (-0.4%) @ 2,010.
Earnings still in focus but inflation concerns rising but T/O was lighter. Nissan and Nexon strong post earnings
Leaders Shipping, Miners, Pulp, Banks
Laggards Rubber, Airlines, Non Ferous Metals, Iron/Steel
Data
Tankan Index Nov 13 vs 16 Oct (F/cast was 15)
Out after market
Machine Tool Orders +81.5% YoY vs 71.9% Sept (F/cast was 68%) S Korea 
Local Institutions and Foreigners broad net selling but quite small.
Celltrion strong as EU approval for its covid antibody expected soon. Steel weak as Iron Ore futures drop.
Dear U strong on IPO debut.
Kospi opened lower at 2,948 but resistance approaching yesterday’s close and then trended lower to 2,924 around 1.45pm but now working better -31pts (-1%) @ 2,932
Kosdaq opened lower and trended lower to 984 before working better currently -20pts (-2%) @ 988
Data
Unemployment Rate Oct 3.2% vs 3% Sept (F/cast 3%)
Taiwan 
Taiex opened flat and choppy trading, resistance above 17,565 level. Did dip to 17,490 but rebounded and closed +18pts (+0.1%) @ 17,522
TSMC the main driver.
Leaders Energy, Communication and Property.
Laggards Industrial’s and Healthcare
China 
CSRC orders influencers from advising on stocks and wearing strange clothing. Sixth plenum ends tomorrow but a briefing will be held on Friday at 10am.
CSI 300 opened lower and trended lower for most of the morning to 4,754 before bouncing into lunch. With investors worried about the higher inflation figure and surging PPI which is likely to limit the scope for the PBoC to help. PM opened 4,777 and worked higher but seeing resistance at 4,800. Foreigners net sellers. Solar weak as Changdu suspended solar project registrations to prevent aggressive investments. Commodities weak but Metaverse in focus. Property slight +VE on news conditions for new bonds may be eased. Defence stocks +VE as US lawmakers visit Taiwan raising China’s ire.
Data
Inflation Rate Oct +1.5% YoY vs +0.7% Sept (F/cast was +1.2%)
Inflation Rate Oct +0.7% MoM vs 0% Sept (F/cast was +0.4%)
PPI Oct 13.5% vs 10.7% Sept (F/cast was +11.5%)
Hong Kong 
Pre market opened @ 24,787 -25pts vs -40pts ADR’s
Fantasia opened -50% on resumption of trading but HK Electric and CLP rallied having announced new tariffs. Market initially dipped to 24,700 before retesting 24,800 but failed to break above and trended lower before finding support at 24,500. Now trading sideways.
All sectors in the red; worst being Wind/Solar, IPP, Power and Dairy.
Good volume. China says cross border travel may resume by January.
Wuxi Bio weak after management call. PM seeing the drug names +VE (Akeso, Shanghai Junshi Bio, Innovent Bio and Jiangsu Hengrui Med) on talk off potential of being added to National Medical Insurance list
Europe
Futures indicate a lower open after the weakness in Asia and ahead of the US inflation data. Earnings still in focus with Credit Agricole, Engie, Alstom, EDF, Allianz, Continental, Dialog, E.On, Infineon, Siemens Energy, ABN Amro, Thomas Cook and Marks & Spencer, among others due to report.
FTSE -15pts, DAX -40pts, CAC -13pts.
Data
Eurozone Non Monetary Policy Meeting
Germany Inflation Rate
US Futures
Opened lower Dow -117pts, S&P and NDX -VE
MBA Mortgage data, Inflation data, Initial Jobless claims data,  Wholesale Inventories, EIA oil and Gas data and the Monthly Budget Statement.



FRONT PAGE

Poland beefs up its border
More tension on the Belarus - Poland border, with Belarus’s Lukashenko being accused of orchestrating the situation.  
See inside Brussels hits at Belarus ‘gangster’ behaviour
Minsk suspected of masterminding migrants’ bid to enter bloc illegally

General Electric to split into three in chief Culp’s boldest shake-up
• Days numbered for conglomerate • Announcement lifts shares • Welch’s work undone. Three businesses focused on healthcare, energy and aviation; reversing the work of Jack Welch and reflects the change in business structures since the financial crisis.
The market likes the idea and the shares closed +3%
Lex General Electric: pulling the plug

Facebook whistleblower presses UK and EU for stricter online harm curbs.
A difficult time for lawmakers in trying to shape the laws that will impact what ‘harmful’ content people can access and more importantly are steered towards by the algorithms that the tech companies use.

INSIDE
China authorities struggle to prevent big swings in prices on new housing schemes.

Authorities having for ages sought to control rising property prices are now trying to control falling prices as developers, under pressure to pay down debts, are seeking to sell more units to raise capital.
China is trying to dampen the threat to the wider Chinese economy and is focused on the primary new build sector. But it is likely to impact the secondary valuations too and that will impact the banks too.
It quotes ‘Louis Kuijs, head of Asia economics at Oxford Economics, suggested policymakers in China view soaring prices “as a symptom of a runaway housing market” and a cause of social unhappiness.’
That is one of the reasons Beijing is seeking to try and reduce the influence of the Hong Kong developers believing that high property prices were the root reason for the protests that took place a few years ago.
The trouble is that so many people have seen property prices rise and viewed property as a good way not only to store wealth but to increase their wealth too. If the property market was to see significant discounts being applied it could not only undermine the economy but also social stability something that President Xi is keen to avoid ahead of his being given a new mandate to govern for life.
Not in the article but people are beginning to wonder if President Xi will look to not only put himself on a par with Mao but also resurrect his title of Chairman.

Companies & Markets
Holdings of China stocks and bonds soar $120bn
 
‘Global holdings of Chinese stocks and bonds have jumped by about $120bn in 2021 as foreign investors chase returns in the country’s markets despite recent volatility and regulatory crackdowns by Beijing.’ It says that investors are going direct rather than via listed instruments which some suggest is because the previously strong returns seen in developed markets are running out of steam. Noting that previously investors would use Alibaba or Tencent for their exposure but not prefer direct investment in A shares.
It’s an interesting read but it is difficult to know whether more funds are really directly invested or whether it is the growth of wealth management products sold by western fund managers in China. Many investors find the process of registering for an ID to be able to trade A shares is constraining.
What is certain is that if President Xi is going to achieve his aim of moving into advanced manufacturing he is going to need a lot of capital and much of that is likely to come from overseas.

Deal ‘battle’ throws spotlight on Singapore’s M&A hub ambitions
An interesting read; notes how Singapore is trying to usurp Hong Kong as the Asian Financial Centre. Makes the point that it’s policies on travel, crypto and other matters make it more attractive but notes that it lacks M&A (mainly in my view because there are too few companies listed in Singapore) but recently that has changed with competition for Singapore Press Holdings; which is now subject to two bids.
Evidently though the minority shareholders feel both bids, which are separated by only 0.001 of a Singaporean dollar undervalue the company and that the whole affair highlights the cosiness of Singapore business; as seen in the fact that Lee Boon Yang, who is both SPH chair and Keppel’s (the original bidder) non-executive chair until April.
It concludes ‘But the situation raises an important question. Would shareholders have received a higher offer if it was all taking place in another centre of more active M&A animal spirits?’
The other problem that Singapore seems to have is its reluctance to allow Expats to be hired, many positions have to be advertised to Singaporeans first before expats and then justification for an expat hire over a local presented. But to an extent that is true for Hong Kong too; and to the detriment of both.

Bonds remain in an ESG blind spot for investors
Makes the point that ‘global capital is rewarding China, the world’s biggest polluter and a country criticised over human rights.’
Basically the hunt for yield has lead people to the Chinese sovereign debt market and that has trumped ESG considerations.
It also notes how ESG has seen the ‘transfer of dirty assets from public to private equity also entails the biggest regulatory risk on the planet. This is because the Paris and Glasgow objectives are unlikely to be achieved without more widespread use of carbon pricing which would severely impair the value of dirty assets. Yet private equity managers know that carbon pricing and tougher regulation of heavy emitters is politically fraught. So their absorption of quoted companies’ carbon intensive assets may continue for a while yet.’
Worth a read.

There is also a two page advertisement for the China Daily.

Comments
* The email will not be published on the website.