Nov 18 Asia mainly lower on inflation & covid concerns. FT US/China relations, Brands in China.

18 Nov

This and previous notes can be found at  Substack ( Asian Market Sense )
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News that Japan’s stimulus package was going to be bigger than expected prompted Japan to rally but didn’t spill over in the region. S Korea opened and hour late for College Exams.

Market opened lower and dipped to 7,348 before reversing and working higher to 7,396 after about a 90 minutes of trading.  Drifted lower to 7,375 but now working better into the close.  Energy (weak as oil fell), Financials (Commonwealth Bank remains weak as brokers downgrade the stock) and Utilities weak.  Miners mixed, Iron Ore futures +VE and Evolution rallying having announced acquiring Ernest Henry gold mine from Glencore  Consumer Staples and Healthcare +VE too.   Aristocrat weak after disappointing earnings. But Property +VE after Goodman group upbeat guidance.
PM news that the fiscal stimulus package could be 55.7tn Yen which would be bigger than expected prompting a spike in the markets
Nikkei opened lower as expected and traded sideways for the first hour before selling down to test 29,400 before a bounce into lunch.  PM opened lower but working slowly higher before spiking Currently -41pts (-0.1%) @ 29,644
Topix followed a similar pattern; tested 2,025 in the am. Hit 2,024 on the PM open but worked higher then spiked; currently +2pts (+0.1%) @ 2,040
Leaders Services, Precision Insts, Machinery and Non Ferous Metals
Laggards Miners, Shippers, Oil/Coal and Rubber
S Korea 
Foreigners and Local Institutions across the board small net sellers. Foreigner buying some Tech and continue buying gaming names.
Insurers weak as Kyobo Life to IPO. NCSoft +5%
Market opened 1 hour later than normal
Kospi opened flat but sold down to test 2,940 before rebounding and working higher to test Wednesday’s closing level but unable to break above and currently -6pts (-0.2%) @ 2,957
Kosdaq similar trading pattern but did break above Wednesday’s closing level before easing back to trade around flat.
Taiex opened flat traded sideways in a tight range; 17,748 - 17,839 and closed test of the day high +64pts (+0.4%) @ 17,828. Tech initially lead but then eased back as Financial attracted attention lead by Cathay Financial and Fubon Financial on hopes of rate rises. Shipping eased again prompting some retail margin calls
Leaders Healthcare, Financials and most sectors +VE
Laggards Energy and Consumer Discretionary
CSI 300 opened lower and trended lower for the first 90 minutes to 4,830 before working better into lunch. PM opened higher but seeing resistance at 4,860 level.
Hong Kong 
Pre market opened @ 25,370 -280pts vs -196pts ADR’s
Country Garden Services halted pre market for a placement. Ecommerce names weak and Baidu weak after earnings which is a -VE cross read for Alibaba due to report later today. Market initially sold down to 25,222 and then traded sideways around 25,300 level. PM opened slightly higher but drifting lower.
Only sectors in the green are Industrials and Utilities. Techtronic continues higher along with BYD, Hengan, Mobile, HKEX and a few others.
Expect a weak open on inflation concerns and with a resurgence of covid cases.   Little European data but US data will be watched carefully.
Futures indicate FTSE -6pts, DAX -2pts and CAC -3pts.
Data  Eurozone New Car Registrations
Earnings come from Thyssenkrupp, Royal Mail and the National Grid.
US Futures
Opened -20pts S&P +0.05% and NDX +0.14%
Data due 
Initial Claims, 4 week Average Claims, Continuing Claims, EIA Natural Gas Report, Philly Fed Data (Manufacturing Index, Prices Paid, Business Conditions, Capex Index, Employment, New Orders), Kansas Fed Composite Index & Manufacturing Index.
Earnings Alibaba, Applied Materials, Macy’s, Kohl’s, BJ’s Wholesale, Ross Stores, Intuit, Palo Alto Networks, Nuance Communications,, Vipshop, Workday, Williams-Sonoma
Fed Speaker Chicago Fed’s Evans

FT Front Page

Warner seeks Bowie rights
Warner Brothers is in talks to buy Bowie’s songwriting catalogue, and is raising $535m to fund the purchase and other rights.

Biden urges probe of ‘potentially illegal conduct’ by energy majors
• Concern on petrol prices • Letter written to regulator • Analysts deride ‘political stunt’.
An interesting read, which suggests Biden, like other presidents is just looking for someone to blame with regards to the handling of the economy.

Amazon to stop accepting Visa credit cards in UK amid battle over ‘high’ fees 
Triggers concerns about a ‘war’ between retailers and the payment networks over the high fees for processing transactions. ‘Visa last month began charging 1.5 per cent of the transaction value for credit card payments made online or over the phone between the UK and EU, and 1.15 per cent for debit card transactions, up from 0.3 per cent and 0.2 per cent, respectively.’
Calls for the “The Payment System Regulator must urgently intervene to tackle these anti-competitive card charges, and both the government and parliament should ensure that they do.”
It says it only applies to UK credit cards and that suggests that Visa should outline why it has increased the charges.

ECB warns of investor ‘exuberance’ threat
Housing, junk bonds and crypto assets seen as vulnerable to rates surge.
Looks at the biannual ECB report. Key seems to be the fact that the bank has recognised that low rates are not going to be with us forever and the threat is that a rise in rates is likely to occur sooner rather than later. The concern is that increased volatility could ripple through all the asset classes. It concludes ‘The ECB said its own ultra-loose monetary policy had increased “incentives to engage in more risk-taking which could become excessive and lead to the build-up of systemic risk”.’

European countries step up Covid restrictions as infections rise
Notes the resurgence of covid infections in a number of European countries and some associated re-introductions of social distancing measures; notable Ireland, Slovakia and Czech Republic. But as winter approaches authorities will be watching carefully for a further resurgence of cases. So far only the Netherlands has implemented lockdown measures and German is considering them too.

Xi-Biden nuclear breakthrough clouded by distrust
China and US presidents hold differing visions about what constitutes a more stable bilateral relationship.
An interesting look at Monday’s meeting which without took some tension out of the relationship but a lot of uncertainty remains especially over Taiwan. Also raises the point is what constitutes a ‘more stable relationship’; each side having its own opinion.
It concludes ‘“Xi is going to want to focus on domestic politics over the next year,” said Paul Haenle, director of the Carnegie-Tsinghua Center in Beijing. “He’s going to do what he can to reduce uncertainties in US-China relations, put the relationship on a more stable footing and reduce the risk of complicating his own domestic political goals.”’.
That would make sense but on the basis that Beijing considers Taiwan a domestic issue it may not results on easing the current cross straight tensions.
Read also Editorial Easing US-China strains requires more dialogue
Virtual summit between Biden and Xi should be the first of many. ‘The rivalry between the US and China remains wide-ranging and dangerous. The Biden-Xi talks have not altered that underlying reality. But the two leaders have begun a dialogue that they can now build on. This week’s summit meeting should become the first of many.’

Japan to start $350bn stimulus as west winds down aid
Cheques will be sent to families but economists warn move will not boost consumption.
Ahead of tomorrows announcement of the new Japanese stimulus package. Past efforts at stimulating the economy have not been very successful and the expectation is that this will not be any more successful. ‘“This is not the best designed package nor the best timed package that the Japanese government could be doing,” said Adam Posen, president of the Peterson Institute for International Economics. “It is not clear that speeding up the recovery through temporary fiscal stimulus should be a priority.”’
Much of the problem seems to be the lack data about which households have been hit most and so how to target the money to where it is most needed.
An interesting read as it highlights other problems with the package and its timing; which is coming just as many are already forecasting a robust rebound in the last quarter. Today Credit Suisse upgraded their view on Japan on improving fundamentals as the US market look toppy.

Companies & Markets
Apple U-turns on customers’ right to repair its products

A move that seems to have been forced on the company. ‘Last month Apple was fighting a shareholder proposal in support of right to repair. It said its own experts were best placed to service its products. This move follows an executive order from the Biden administration in July, directing the Federal Trade Commission to address “unfair anti-competitive restrictions on third-party repair or self-repair of items”.
It also notes ‘Consumers have been forced to choose between third party technicians that use parts purchased from non-certified suppliers, or paying for “official” repairs by Apple whose costs can be so high that many consumers feel incentivised to buy a new device.’
The question is how much will this impact the replacement device market for Apple phones and also how they will price replacement parts.

SoftBank-backed Fortress pays $3.5bn for Japan golf operator
An interesting transaction, notes that golf courses are in decline in Japan; often being converted into solar farms. The business model relies on ‘an increasing number of active and financially sound retirees offsetting the drying pipeline of younger players and corporate days out.’
Sets out opposing views on the deal. An interesting read.

Opinion Western brands aim for the sky in Xi’s China  By Brooke Masters.
An interesting read that suggests ‘common prosperity’ could be good news for some western brands as long as they can navigate around the political and social minefields. It does note that Chinese consumer tastes have been changing and the allure of foreign brands is less than it has been in the past as local brands become more established. Western brands are also likely to come under activist pressure too which could put them at odds with Beijing and nationalists.
It concludes ‘For now, multinationals are steaming ahead, drawn by the size and growing wealth of the Chinese market. Diageo broke ground this month on its first malt whisky distillery in China, while touting its commitment to “middle-class consumers”.“For luxury companies, we are still in a golden period. They are still benefiting from the fact that consumers are getting richer,” says Ernan Cui, consumer analysts at Gavekal, a consultancy.’
It is a large market and so attractive but getting it right is not easy.

For Interest
Markets Insight Valuation chasm for growth groups can be bridged by Aswath Damodaran professor of finance at the Stern School of Business at New York University.  
‘Value investors who dismiss those who invest in young, money-losing companies as irrational and uninformed and reject these stocks as investments just because they look expensive are being myopic.
True value investing requires that you abandon simplistic pricing metrics and screens, attempt to value these companies and, if you find them trading at lower prices, buy them.
Investors in young growth companies need to understand that, while conventional pricing metrics are flawed — big markets, technology and promise notwithstanding — all companies have to find pathways to make money in order to be successful.’

Why the next pandemic could be lab-made
US government funding for so-called ‘gain-of-function’ research which splices deadly viruses to make them more transmissible is under scrutiny amid safety concerns and ethical questions over its use.
A worrying read. Key ‘“The justification was that in the event of a pandemic, their cutting-edge work was supposed to help us come up with a vaccine,” says Hale. “But when a pandemic hit, it was the people working on mRNA and other platforms who saved us. Gain-of-function work carries all the risks, but apparently few of the benefits.”’
‘It does not matter whether Covid-19 actually leaked from Wuhan. Just knowing it could have should be enough for us to change our approach’
Richard Ebright, Rutgers University

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