Nov 15 Asia mixed after Japan weak data, China's better. FT Inflation, Australia would back Taiwan, Japan politics and Corporates.


15 Nov

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

Biden/Xi summit in focus; also this week US Retail Sales and earnings from Target and Walmart. Barron’s cover this week is on ‘Malls’. Bloomberg Economic Summit, Dubai Airshow and LA Auto show (later this week).

Australia
Market trended higher in initial trades following the US, and worked higher to 7,479 at midday and then traded sideways until 2pm when the market sold down to 7,460 level  before rebounding; currently +19pts (+0.25%) @ 7,462.  Miners and Energy names  +VE but with some concerns about the slowdown in Chinese home prices.
Leaders Healthcare (Mesoblast released details of heart attack drug) ], Consumer Discretionary and IT (Seek and Megaport strong)
Laggards Financials as NAB goes Ex Div; Last week, the banking giant declared a fully franked final dividend of 67 cents per share with its full year results
Japan
Nikkei opened higher despite weak GDP data; traded sideways around 29,800 level for the first 45 minutes but then drifted lower to 29,750 level.   PM opened lower and trading around 29,735.
Topix also opened higher and traded sideways initially but then drifted lower currently +5pts (+0.25%) @ 2,046
Leaders Pulp& Paper, Services, Metal Products, Pharma
Laggards Shippers, Iron/Steel, Airlines, Insurers
Investors took the weak GDP data in their stride noting the link to covid resurgence and with the hope that the government stimulus would big large enough to make up for it. Trading volumes are muted.
Pre Market GDP Prelim data
Growth Rate Q3 -0.8% QoQ vs +0.4% Q2 revised (F/cast was -0.2%)
Annualised Q3 -3% vs +1.5% Q2 revised (F/cast was -0.7%)
Price Index Q3 vs -1.1% Q2
Capital Expenditure Q3 -3.8% QoQ vs +2.2% Q2 revised (F/cast was -0.6%)
External Demand Q3 +0.1% QoQ vs -0.3% Q2 (F/cast was -0.1%)
Private Consumption Q3 -1.1% QoQ vs +0.9% Q2 (F/cast was -0.4%)
Out at 12:30pm HK time
Capacity Utilisation Sept -7.3% MoM vs -3.9% Aug (F/cast was -1%)
Industrial Production Sept -2.3% YoY vs +8.8% Aug(F/cast was -2.3%)
Industrial Production Sept -5.4% MoM vs -3.6% Aug (F/cast was -5.4%)
S Korea 
Foreigners net buying Tech, Internet and Pharma (Celltrion +9.6% on +VE news from Europe of its covid treatment). Local Instituitons followed the foreigners to be net buyers. SamsungBio +4% as JY Lee to meet Moderna’s management.
Laggards Utilities and Telcos
Kospi opened higher and worked back to 3,000 level in the first hour and then traded sideways at that level
Kosdaq opened higher and worked to 1,025 in early trading, eased but then worked slowly higher. Currently +18pts (+1.8%) @ 1,027
Taiwan 
Taiex opened higher and tested to 17,683 in the first hour but since then drifting lower but seeing support at 17,600 and ticking higher into the close.
Leaders Internet, Financials, Industrials, Pharma and Property
Laggards Materials
China 
CSI 300 opened higher and ticked up to test 4,900 but sold down on the weak housing data and concerns over developer debts as developers resort to more serious fund rising activities like selling shares or units at discounts. The wider data was better than f/cast but there are concerns about the impact of the latest covid resurgence and tonights Biden/Xi summit.
Pharma +VE on news China likely to approve a covid antibody drug by December.
New Beijing Exchange in focus with a strong start.
Pre market Data
House Price Index Oct 3.4% YoY vs 3.8% Sept (F/cast was 3.6%)
New Home Prices Oct -0.25% MoM vs -0.08% Sept
Out at 10am
Industrial Production Oct 3.5% YoY vs 3.1% Sept (F/cast was 2.9%)
Retail Sales Oct 4.9% YoY vs 4.4% Sept (F/cast was 3.6%)
Unemployment Rate Oct 4.9% vs 4.9% Sept (F/cast was 4.9%)
NBS Press Conference
Fixed Asset Investment Oct 6.1% YoY vs 7.3% Sept (F/cast was 6.5%)
Hong Kong 
Pre market opened @ 25,438 +110pts vs -1pt ADR’s ticked higher initially but Sunac and Sunac Services weak on share sale and other fund raising news plus 21 Chinese cities have issued ‘restriction orders’ limiting property price cuts. Market turned lower and initially found support at 25,300 but only for an hour before selling down to 25,230 before bouncing into lunch. PM opened higher currently -26pts (-0.1%) @ 25,308
Ecommerce weak but Gamers, Software and Hardware firm.
Europe
Expect a cautiously +VE open following the generally positive trading in Asia. But concerns about the Covid resurgence and some new lockdowns and well as the Biden / Xi Summit today.  
Data ahead Eurozone Balance of Trade.
US Futures opened Dow +40pts, S&P and NDX both +0.14%.
Data due NY Empire State Manufacturing Index. Biden/Xi virtual summit in focus.
Ahead NY Empire State Manufacturing Index. Biden/Xi virtual summit.
Earnings  Advance Auto Parts, Tyson Foods, Warner Music, WeWork, Axon, Casper Sleep, Rackspace, Oatly, Lucid

Front Page
Gaddafi’s son runs for leader
 
‘The 49-year-old has been out of view for almost a decade since his capture during the armed uprising of 2011. His entry into an unstable political scene divided between squabbling factions is expected to further complicate efforts to hold the election.’

Business groups add to chorus of dismay at watered-down COP deal
• Fossil fuels pledge softened • China and India raise objections • Pact broadly welcomed. Key was India and China calling for ‘the change in the language on coal, from ‘phase out’ to ‘phase down’.’ That may make it more practical but it seems vested interests are still outweighing the stated aim.
see inside Relief and frustration as climate deal is done  Agreement is signed despite falling short of Paris goals and clashes over fossil fuels

EU targets Lukashenko allies in push to widen sanctions over border crisis  Looks at the developing crisis on the EU border which Brussels has called a “hybrid attack” at its eastern border.

INSIDE
Inflation will not be tamed until Covid is under control, says Yellen
Placing the blame for inflation squarely on covid.  ‘Yellen said many workers remained cautious about the risks of catching the virus in their workplace, and she outlined shifting demands from consumers associated with lockdowns and new remote working patterns.
But she added that she expected spikes in the prices of goods such as used cars and petrol to abate by the second half of next year, if the pandemic is brought under control.’
I think that the fact that Biden’s administration has come under attack for failing to control inflation has prompted them to seek as easily understood reason and covid can do that. But it is a gross over simplification. Inflationary forces have been building realy since the introduction of QE after the financial crisis and has never been unwound. The reality is that covid has added to some inflationary pressures but it wasn’t the core driver. I also doubt that covid will ever be under control; it will be similar in many ways to the flu becuase at the moment we do not know enough about it and its ability to mutuate and to be transferred.

Australia vows to back US defence of Taiwan
Minister signals Canberra’s willingness to take action to deter China aggression. Another clear statement to China that Taiwan was off-limits and that the Australian government did not accept China’s statement that Taiwan was part of China.
It will be interesting if tonights virtual summit between Biden and Xi produces any more clarity on the matter, because from the sixth plenum it is clear that Xi still sees making Taiwan part of China as a key role for Chinese communism.
The article quotes Gerald Brown ‘an Asia security expert, welcomed Dutton’s statement, saying one of the most important factors in deterring Chinese military action against Taiwan was “creating a multilateral front”.’ That I think is the key element having more international nations support Taiwan and its re-entry into the UN in recognition that it is a free country, able to make its own decisions and not subject in any way to China.

Japan’s pacifist constitution under scrutiny after fringe populists make big poll gains
Looks at the recent successes of the ‘Nippon Ishin no Kai, or Japan Innovation party.’ An interesting read but it also illustrates how difficult it is to really make roads into the main political parties with voters often fickle over issues like the pacifict constitution and parties face risks over highlight issues as much as they do over working with other parties in order to present a realistic opposition. As was seen in the recent elections.

Companies & Market
Lenders braced for debt fallout at NSO after US blacklisting

• Business restrictions alarm creditors
• Offer to sell loan at a discount fails
Looks at the consequences of being blacklisted. An interesting read.

Miners dig deepest Global shareholder payouts buoyed by commodities boom
Global dividends are poised to exceed pre-pandemic levels by the end of the year, earlier than analysts had expected, buoyed by mining companies benefiting from a commodities boom. An interesting read and explains why value names are seeing interest. It it does note that whilst the miners are the big payers this year that it unlikely to continue. Also mentions that Banks have also been quick to re-instate dividend and that is likely to continue.

US rental fleets charge into electric revolution
Tesla deliveries to Hertz signal change for markets that long absorbed unpopular models. An interesting read that seems to mark an important step forward for the EV sector.

Beijing crackdown hits public listings
Surge of IPOs in India as rattled investors turn to alternative territories ‘Funds raised in public listings of technology start-ups in mainland China are on track for their first annual drop in seven years as Beijing’s crackdown on the lucrative sector sends investors in search of alternative markets.’
It reflects how Beijing has re-orientated and it is placing party doctrine ahead of private profit. Currently investors are still trying to work out what that means to profit levels. It has, as the article points out the crackdown has scared investors away and that will hurt start up entrepreneurs and their potential initial backers; especially when there are plenty of alternatives like India and the US.

Supply problems put brake on bike industry
It notes that ‘Global bike production has been convulsed by the pandemic, as consumers across the world turned to bicycles as a means of avoiding the risk of being infected by Covid-19 on public transport.
The supply problems have been exacerbated because the production of brakes, derailleurs, chains and cassettes is concentrated in a handful of companies, including Japan’s Shimano, SRAM in the US and Italy’s Campagnolo.’
For investors the good news is that makers have not expanded production too fast fearing that the demand would not outlast covid.

Toshiba break-up hopes for Japan Inc might be a long shot by Leo Lewis.  Looks at the implications for potential change that can be taken from Toshiba’s proposal to split itself up.  Does also make the point that the current proposal needs to be fleshed out and that because of the background to the situation it could a unique case.  An interesting read that again highlights the problems with Japanse managements and corporate set ups.
Opinion Federal Reserve must drop the nonsense of average inflation targeting  By Willem Buiter  a visiting professor at Columbia University
Worth a read, concludes ‘The choice of average inflation targeting is economically illiterate. Why should unintended and mostly unavoidable inflation targeting failures in the past justify future deliberate failures? And the cost of adopting AIT could be serious: future periods of unnecessary, deliberate above-target
inflation. It is time to get rid of this potentially costly nonsense.’

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