Nov 2 Asia mixed but drifting lower. FT Climate, Quaratine, HNA the new model? and more

02 Nov

This and previous notes can be found at Substack ( Asian Market Sense )
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Market opened higher and  tested 7,396 in early trades but then trended lower to 7,311 around 1:45pm before working higher but seeing resistance at 7,355 level.  Energy names like Witehaven, BeachEnergy and IGO weak.
RBA kept rates unchanged and abandoned the bond yield rate policy; the currency and bonds moving lower. Briefing due after market.
Info Tech and Games +VE as Nexon announces to launch a mobile version of D&F in S Korea in Q1 2022 +VE as it fills a pipeline hole.
Earnings still in focus both analysts notes and numbers coming out
Leaders Airline (talk of Japan easing quaratine restrictions), Marine, Wholesale
Laggards Insurance, Property and Non Ferrous
After  lunch the Airlines issues 100b Yen play FY Net Loss F/cast less than expected
Nikkei opened lower after  the BoJ minutes and  despite the positive moves in the US.  But market bounced back to 29,570 level before easing back and traded around 29,550 level before ticking higher into lunch.  PM opened lower and trading around 29,520.
Topix opened lower but tested 2,040 in early trades before trending lower down to 2,031 before a tick higher into lunch. PM opened lower and now trading -11pts (-0.6%) @ 2,033
S Korea 
Pre market data in-line. Foreign buying of futures prompting short covering. Local Institutions also broad buying but a skew towards large tech Samsung pushing higher. All sectors +VE but Telcos & Utilities relative underperformers.
Kospi opened higher around the 3,000 level and traded up to trade just above 3,020 for most of the session.
Kosdaq traded a similar pattern. Rallied to 1,010 in the first hour and then traded around that level, currently drifting slightly lower.
Inflation Rate Oct 3.2% YoY vs 2.5% Sept (F/cast was 3.2%)
Inflation Rate Oct 0.1% MoM vs 0.5% Sept (F/cast was 0.2%)
BoK Minutes due out after market.
Taiex opened higher and rallied to test 17,240 in the first 20 minutes before reversing and trended down to flat over the next two hours and traded around there. Currently -35pts (-0.2%) 17,040.
CSI 300 opened flat and initially worked better to 4,911 in the first 20 minutes before trending lower to flat at about 10:30 and then down to 4,850 before an uptick into lunch. PM opened flat but trending lower.
Currently -58pts (-1.2%) @ 4,832
Worth noting that Caixin reports the top 100 property developers say sales declined by 33% in October. PBoC drained another 190bn yuan from the system this morning. EV/Battery plays still strong which is keeping the SZ Comp +VE. Defence names remain +VE but Cyclicals weak.
Talk of special bonds being issued by local governments in November to aid the slowing economy.
Hong Kong 
Pre market opened @ 25,609 +455vs +185pts ADR’s Broad rebound with Ecommerce (as Double 11 sales take off) and Insurers leading and recent shorts squeezed. At the open the only names in the red; Henderson Land, China Res Land (1109) and Hang Lung Ppty (101) in the red. Market then trended lower through the morning at lunch +185pts @ 25,339. PM opened lower and trending lower currently +82pts @ 25,240.
Laggards Property, Energy and some Financials
Leaders Healthcare, Consumer Discretionary
Stand Chart (2888) numbers out at Lunchtime; in-line
Expect a flat open with caution ahead of the Manufacturing PMI’s and the COP26.  Also caution as FOMC meeting gets underway and BoE, OPEC etc later this week.
Eurozone Manufacturing PMI Final
Germany Manufacturing PMI Final
France Manufacturing PMI Final, New Car Registrations
UK No data due
US Futures
Opened Dow -5pts, S&P and NDX flat having closed at new highs
Ahead IBD/TIPP Economic Optimism, API Crude Oil Stocks Change FOMC begins two-day meeting
Earnings: Pfizer, Amgen, BP, DuPont, ConocoPhillips, Under Armour, KKR, Ralph Lauren, Martin Marietta Materials, Estee Lauder, Marathon Petroleum, Eaton, Cummins, Bausch Health, Akamai, Denny’s Devon Energy, Caesars Entertainment, Match Group, Zillow, Assurant, Prudential Financial, Perkin Elmer.

FT Front PageCOP26
US and UK in climate alert
A lot of stern words about needing to make it work along with a number of positive commitments. A lot of articles inside on the topic.
UK warns of public anger if summit fails
British PM admits past conferences have not prevented climate change

Barclays chief Staley to step down following Epstein investigation
• Links with disgraced financier questioned • CEO to contest probe’s conclusions.
Unfortunately for Barclays although his replacement says he will continue with the same approach which should be good for shareholders.
Inside Scandal shatters Staley’s legacy at Barclays
Chief executive forced to quit over Epstein links just as his strategic bet on investment banking had started to bear fruit.
Also Meet the new boss ‘Venkat’ emerges as victor in succession race
and Questions remain for bank despite changing of the guard.   Lastly LEX Barclays/Jes Staley: the third strike

Coronavirus rules fuel expat exodus from China, warns US business lobby.
It could be the proposed cure is worse than the disease. China is focused on isolating itself despite so many countries around the world demonstrating that the policy does not work. The recent outbreaks in China underline that.
It is not just the expats but business people are finding it tough too. Business owners in Hong Kong unable to visit their factories and it will raise concerns about audits and directors ability to carry out their fiduciary duties to say nothing of being unable to visit customers.
The article suggests that the rules may not change until the end of 2022, I think that would be very bad for China and Hong Kong as the administration increasingly links the policies here with those on the mainland.
Talking to people locally there are a number of people looking to leave when school terms end; especially as fully vaccinated people from high risk countries have to do three week quarantines but travelers from Africa where there is less vaccinations and testing only have to do two weeks….. go figure.

Thousands of New York workers snub jab mandate  An interesting reaction.  It is difficult to understand why some people are so against the covid vaccines.  Much of it probably goes back to the mis-information at the beginning and the failure to trace the original source.  But covid is similar in many ways to flu and people have been happily taking flu jabs for years.  
Confirmed Covid deaths worldwide top 5m

Central banks under scrutiny over trading by top officials

Fed clampdown has raised concerns of possible conflicts of interest elsewhere
The issue really comes down to whether we trust those we place in positions that can be taken of but equally if we are going to take away their freedom to trade should we be making sure the compensation that they received reflects the fact that advantage has been removed. Not to do risks that we don’t attract the best in class to serve in positions that are crucial for the rest of society.

Japan PM plans stimulus after poll victory
Voter turnout was third lowest in postwar history and wary electorate opted for stability.
An interesting read about the election and the various reactions. What is clear is that there is no real opposition to the LDP and that the public was wary of alliances between parties; with only the Japan Innovation Party seeing real advances.
Whilst some of the public might want to punish the LDP for its handling of the covid situation the alternatives had nothing to offer.
The next question is about how PM Kishida will be received. He was a successful foreign minister but his appointment of veterans to key positions has raised questions about his willingness to set his own agenda. He has to be careful because there are more elections next year.
Short term more stimulus and increased defence spending are likely to be well received as seen in the market rally Monday. Re-opening the economy is key and the moves announced today are likely to be well received.
He has time to reveal his true colour’s but not much.

Competition for space in US warehouses intensifies amid rebound in consumer demand
A good read about the bottlenecks in the US. Lack of storage space, warehouse staff, drivers even down to the racking systems and fork lift trucks. Companies taking space in buildings that are not yet complete. That could be good for the real estate sector short term but historically warehouses have not seen such demand. The key is the lease terms that the space is being let on. It would also give an indication of how big an issue the logistic operators think the problem is going to last.
For developers they would want to either sell or let on long term leases but may only be being offered short term contracts.
The other issues are obviously the planning system and securing permissions, power and equipment requirements. A nice quote to end on; “This problem is going to be with us for a while,” said Moghadam, who added he saw no let-up until the middle or end of 2023. “I think, actually, it’s going to get worse.”
That should be good for the developers and equipment suppliers and staff…. not so good for the consumers.

See also Inflation is Covid-linked and transitory, says Yellen  makes the point that the impact of covid has been significant but with vaccinations and the re-opening of economies those pressures should ease.
Also read Markets Insight  Fears of durable inflation remain wildly premature By Robin Wigglesworth.  Worth a read nice quote  ‘Raising rates will not fix congested ports, logistical bottlenecks, selective labour shortages or under-investment in energy infrastructure. But doing so prematurely could hamstring the economic recovery.
A few notable exceptions aside, such a mistake still seems unlikely. The three central banks that actually matter are the Fed, the European Central Bank and the Bank of Japan. None is likely to slam on the brakes soon, even if inflation does not immediately begin to subside.’

Companies & Markets
HNA’s $170bn restructuring approved
Creditors hit in rejig that points to similar solution at Evergrande.
A remarkable result considering some earlier articles which highlighted the frustrations of some and concern that announcing a solution was more important that making some smaller creditors were catered for. It mentions ‘Ahead of the vote, several frustrated creditors had called for the Central Commission for Discipline Inspection, the Communist party’s internal oversight group, to investigate the process amid allegations of misconduct by the administrators. Some were stunned to see the overwhelming support in the official voting results.’ ‘But Yu added that it was becoming clear that many smaller HNA creditors would never “be made whole”.’
Whilst this may be seen by Beijing as a success and hence then becomes the blueprint for future situations; including Evergrande should it be required; I think it will make investors more wary of lending to Chinese companies or at least requiring a higher risk premium. That is unfortunate because as China seeks to re-orientate its economy it is going to need a lot more investment and preferably at as cheap a rate as possible. Currently the Chinese property developers are finding that because of Evergrande and others access to new funds has become a lot more difficult if not impossible.

FTSE Russell considers rejig of China futures index after launch of HK rival
HK launched an MSCI contract earlier this year hence the FTSE guys looking at a tweak. Their contract covers ‘the 50 largest companies listed in Shanghai and Shenzhen including Kweichow Moutai, the world’s most valuable liquor group, and Ping An Insurance, China’s biggest private insurer. Staal said that potential changes included broadening the index, possibly expanding it to 100 companies.’ They are also looking at the weightings.
An interesting read following the article Monday on splitting China out of the MSCI EM. The reality is that the FTSE and MSCI contracts are one of the few ways to hedge China A share positions .

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