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MSCI Changes announced
Additions and deletions having impact today
General sentiment helped by Evergrande payments being made and hopes of regulatory relaxation to help the developers.
Plenum has finished and Xi’s authority established; now investors have to understand Xi’s Thoughts but dual economy and common prosperity will be key.
Market traded up to 7,420 in initial trades and then worked better but saw resistance around the 7,460, then in the afternoon eased back but found support at 7,440 and then closed +61pts (+0.8%) @ 7,443.
Miners and Energy names positive as Iron Ore and Oil prices rose. Tech also strong. Healthcare was the only laggard. JobKeeper awards continue to be disclosed with some big names and awards being named. Australian Prudential Regulation Authority (APRA) is preparing banks for the possibility of tougher curbs on mortgage lending, saying it could impose limits on higher-risk loans if they raised risks for the financial system.
BHP chairman Ken MacKenzie has not ruled out shutting down its Mount Arthur coal mine in NSW if no buyer can be found for the mining giant’s last thermal coal mine.
Consumer Inflation Expectations Nov 4.6% vs 3.6% Oct (F/cast was 3.7%)
Nikkei opened higher and traded up to 29,643 in the first 40 minutes but then eased back to 29,530 before working back to trade around 29,600 for the rest of the day and closed +375pts (+1.3%) @ 29,652
Topix traded in a similar pattern, initial high was 2,046 before easing back and closed +26pts (+1.3%) @ 2,041
Toshiba announced to split the company into three. Toyota announced to increase production as factories in Japan return to normal.
Yen came back to 114 level.
Earnings still in focus but tailing off.
Leaders Property, Iron/Steel, Mining, Precision Insts
Laggards Oil/Coal, Retail, Rail, Fish/Agri and Electric Power.
Foreign buying focused on Tech, Financials and Chemicals. Local Institutions were buying internet/games. Increased T/O today. NCSoft -9% following limit up yesterday. Steel +VE ahead of China Industrial data Monday. Hugel +5.8% gets a stay on the FDS’s ban.
Kospi opened higher, initially tested 2,940 but then worked better to 2,975 level before easing back and trading sideways to close +43pts (+1.5%) @ 2,968
Kosdaq similar pattern tested 998 shortly after the open then worked better to 1,009 before easing back to 1,005 around 1pm but then worked slightly better to close +16pts (+1.6%) @ 1,009
Export Prices Oct 25.3% YoY vs 20.4% Sept revised
Import Prices Oct 35.8% YoY vs 26.6% Sept revised
Taiex opened higher and traded up to test 17,600 by late Morning but then sold down to 17,516 and drifted lower to 17,489 but closed +66pts (+0.4%) @ 17,518. Tech in focus with MediaTek leading the index higher. T/O was US$13.18bn.
CSI 300 opened higher but trended lower in choppy trading before finding support around 4,880 going into lunch. PM opened lower but rebounded to 4,895 before drifting lower into the close.
No injection from the PBoC today
Pre market opened @ 25,479 +231pts vs +153pts ADR’s but drifted lower through the morning and touched 25,210 after lunch. Currrently working better around 25,300.
Leaders Solar, Wind, Beer, ECommerce, Auto
Laggards Steel, Coal, Cement and Property
Expect market to open higher
Dow +51pts, S&P +0.2% and NDX+0.3%
Cologne gets carnival back
The carnival resumes despite a surge in covid cases in Germany. Austria and Switzerland are also seeing increased cases but as part of living with covid the carnival goes on.
Xi cements grip on China after vote puts him on par with Mao
• President set to embark on third five-year term • Potential to remain in power for life.
The culmination of his time in power and paving the way to retaining power for life. The adoption of his history of the party and his role means that his policies will now continue; ‘dual circulation’ and ‘common prosperity’. Investors will need to understand the impact of those on companies. Key is that Xi does not want to undermine business but make sure that profits are controlled and that society benefits.
Having secured his own future it will be interesting to see how he shapes the key committees next year. That too could have an impact on the investability of China. Social stability remains key but I think that could face strain if resolving the country’s property developers debt problems impacts the value of peoples investments.
Wall Street bankers reaped $7bn in fees from General Electric’s rise and fall
An interesting look at the costs of building a business. Notes that ‘Critics have said the outsized fees are indicative of how bankers — who have profited despite GE’s market value falling about 75 per cent since 2000 — care more about completing lucrative transactions than acting in the best interests of their clients.’
But the directors always had a choice.
Xi warns of ‘cold war’ divisions as US seeks ties in Asia-Pacific
Addressing APEC Xi warns against making alliances with the US that China views as a threat to its economic and military growth.
It would seem to suggest that Xi remains concerned about the potential for Chinese influence to be countered in the region.
Biden has maintained the ‘tough’ stance against China that Trump started but his administration has not looked to rebuild significant economic ties that Obama had sought to put in place and that, it suggests, has ‘rankled’ potential partners in the region.
The fact that many Asian nations are willing to work with the US suggests that they too are worried about China’s increasing dominance in the region.
Companies & Markets
Investors jumpy Burberry’s reinstated dividend fails to damp concerns over drop in Asia sales
‘Burberry said yesterday it had reinstated its interim dividend and restarted its share buyback programme after first-half profits beat forecasts, but its shares fell back on concerns over slowing sales growth.’
Key being that same-store sales in Asia-Pac region were -5%; having been +27% in Q1. The company blames covid travel restrictions and said sales were returning to more normal levels saying ‘first-half sales in China were up 30 per cent and full-price sales 40 per cent higher, with a revamped product offer attracting younger customers.’
Chinese consumers account for 40% of overall revenue; pre covid much of that spending was to Chinese tourists but now its is constrained to China which I guess presents its own issues. It also mentions the policy of being ‘increasingly focused on full-price sales as it seeks to position itself further upmarket and lift its profit margins closer to the levels of French and Italian peers.’ That was the aim of Marco Gobbetti who is leaving this year and being replaced by Jonathan Akeroyd. It will be interesting to see if the policy changes.
It is difficult to know if President Xi’s policies will impact the shopping habits of the richer Chinese but just as the company has been trying to attract younger customers it may have to also address Chinese tastes more too.
Bond ructions intensify risks for Chinese property groups
Borrowing costs for junk debt soar to highest in decade after series of missed payments.
The fall out from Evergrande and other’s troubles has pushed borrowing costs for everyone higher. Which comes at a time when the property sector itself is under pressure both to reduce its debts but also to sell units into an increasingly saturated market; especially outside the tier 1 cities.
The article focuses on Kaisa which faces imminent deadlines on its offshore bonds and has requested more time to make payments on some wealth management products.
‘Since September, international bond markets have been essentially closed to property developers.
The average yield on an Ice Data Services index of Chinese high-yield dollar bonds, which is dominated by property companies, jumped close to 29 per cent this week from 14 per cent at the start of September.
The rise brings the key barometer of borrowing costs to the highest level since the 2008-09 global financial crisis.’
The interesting thing is at the moment the drama seems contained to the property sector. The developers were prime movers in borrowing offshore when the PBoC sought to restrict their on-shore borrowing as part of an earlier attempt to cool the Chinese property sector. More defaults are expected and that could then mean it spills over to other sectors. Investors will be hoping that does not happen.
The seriousness has been seen in calls for some of the recent imposed restrictions placed on the developers to be eased and certainly yesterday the sector rebounded on that news. But many fear that at least part of the problem is that the property market is saturated and that there is a miss-match between where developments are constructed and where there is demand. It notes ‘The People’s Bank of China on Wednesday published on a social media account figures showing a month-on-month rise in mortgage lending in October, which analysts said could imply the central bank hoped to reassure investors concerned about the nation’s property market.’ But many have their doubts and suggest caution before buying back into the sector until policy is clear, in the meantime we can expect more defaults.
Also read Ailing Kaisa faces two key payment deadlines.
Those are today. It has already had its S&P rating cut, ahead of today’s $88m in coupon payments due , to triple C minus. S&P saying that it “may not be able to service its debt in time” and pointing to a potential debt restructuring. Kaisa is the second largest borrower on international high-yield markets after Evergrande. Key is that none of the borrowers will want to default because that would allow bondholders to bring bankruptcy proceedings and that would undermine confidence in Chinese property. I think it is likely that the current good developers will be under pressure to help bail out the bad ones and maintain confidence in the Chinese property. That could be difficult but President Xi does not want social upset but with some many people holding property as an investment that will be a balancing act.
Hong Kong Notebook ‘New normal’ leaves city’s residents looking over their shoulders by Primrose Riordan
Looks at how Hong Kong has changed since the protests of 2019 with a focus on the heightened state of security; despite the city having one of the lowest crime rates in the world. The reason being the new national security law. An interesting read.
Australia’s exit shows flaws in yield curve policy By Sophia Rodrigues
Concludes ‘“Any future decision to introduce a novel programme should carefully consider what future commitment this will involve and what its potential exit strategies will be — including the potential cost of having to abruptly abandon the strategy.”’