Nov 4 Asia opened higher but moving lower. FT Tapering, COP, Logistics, Debt and Entrepreneurs

04 Nov

This and previous notes can be found at  Substack ( Asian Market Sense )
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Asian markets closed Singapore, Malaysia and India (Diwali)

Market opened higher and tested 7,416 in the initial trades then eased toward 7,400 before trended higher and testing 7,421.  It remained in that range for the rest of the day to close +35pts (+0.5%) @ 7,428.  Balance of Trade and Retail Sales broadly in line but Exports/Imports were weaker.
Financials and Tech lead but Energy sector was weak.
Afterpay +2.4% after Square Inc investors approved the $39 billion acquisition.
Earning in focus: Domino’s Pizza -18% after it flagged higher input costs and slowing momentum in Japan Wednesday evening after the market closed.
CSR +4.7% after reporting that its half-yearly profit after tax surged 163 per cent to$160.2 million and announcing an interim dividend of 13.5c per share.
Uranium miner Paladin Energy +13% after it gave an update on plans to re-open the Langer Heinrich Mine.
NIB Holdings +5.8% after telling investors at its AGM that of an 8.5 per cent rise in premium revenue for its first quarter to $669.5 million.
Ingham -5% after warning shareholders of sustained input cost pressures that have the potential to place upward pressure on pricing.
Woodside Petroleum -2.7%, Santos -3% and Oil Search -2.8%
Balance of Trade Sept A$12.24b vs 14.739b Aug (F/cast 12.5b)
Exports Sept -6% MoM vs +4% Aug (F/cast was +2%)
Imports Sept -2% MoM vs -1% Aug (F/cast was -0.7%)
Retail Sales Sept -1.3% MoM vs -1.7% Aug (F/cast was +1.3%)

Nikkei opened higher but trended lower through the morning to 29,790 at lunch.  PM opened lower and traded sideways with a small upswing into the close.
Topix opened higher and traded sideways in a tight range 2,045/56
+VE reaction to the FOMC comments and the Yen weakness. Earnings still in focus with key names like Toyota reporting. Nintendo weak on cutting Switch production. T/O increased as investors played catch-up
Leaders Textiles, Electric Apps, Warehouses, Machinery
Laggards Shippers, Miners, Utilities
Services PMI Oct 50.7 vs 47.8 Sept (F/cast was 50.7)
Composite PMI Oct 50.7 vs 47.9 Sept (F/cast was 50.7)

S Korea 
Local Inst and Foreign buying but Retail selling. Nuclear power names in focus as China intends to build more power stations.
Earnings still in focus Kakao +VE on record quarterly earnings. Hyundai 2.6% on news of US EV production in 2022. NC Soft -9.4% on poor reception of ‘Lineage W’. KakaoPay -12.4% with foreign selling after strong IPO debut. T/O increased.
Kospi opened higher and tested 3,011 initially but then trended lower through the day with an uptick into the close. Some support at 3,000, 2990 but short lived, better support at 2,980. Closed +8pts (+0.3%) @ 2,984
Kosdaq Opened higher and tested 1,015 in early trades but failed to break out and sold down to trade around 1,005 for about an hour but then drifted lower and then sold down to 996 before rebounding to close -3pts (-0.3%) @ 1,002

Taiex opened higher tested to 17,020 but unable to break out and the late morning sold down and then trended lower. Support at 17,061. Closed -43pts (-0.3%) @ 17,079
T/O was US$11.07b vs US$11.69b Wednesday
The head of the first-ever official European Parliament delegation to come to Taiwan told President Tsai on Thursday that the visit is meant to send a clear message that Europe is standing by Taiwan in the defense of freedom. Comes as Pentagon report on China’s military says the PLA has sets 2027 military modernization goals to compel Taipei into talks.

CSI 300 opened higher and worked up to 4,874 by 11am and then drifted lower into lunch. PM market traded sideways with good support at 4,860 to close +48pts (+1%) @ 4,869
Sentiment +VE on hopes of policy adjustments after Premier Li’s warning of downward pressure. BYD +VE on good EV sales and Solar rebounded as US actions discounted. Coal weak after NDRC statements about controlling prices.

Hong Kong 
Pre market opened @ 25,141 +116pts vs +9pts ADR’s as recent shorts covered; which saw market then test to 25,245 but resistance around that level and around 11am market sold down heavily; weakness in Wuxi Bio and Chinese Developers. But +VE interest in Solar, EV and Retail on the hope of border with China opening.

Expected to open higher after Fed statement but some caution ahead of BoE meeting with the expectation of a rate hike.  Earnings still in focus with Credit Suisse, BMW, Commerzbank, Deutsche Post,Tate & Lyle, BT, Monte dei Paschi di Siena, Enel and SocGen reporting.
Data releases include the final purchasing manager’s index composite data for the euro zone in October and German industrial orders for September.

US Futures
Opened Dow flat, S&P +0.08% and NDX +0.17% but have improved Dow +18pts, S&P and NDX +VE
AHEAD Challenger Job Number, Balance of Trade, Unit Labour Costs, Non Farm Productivity, Initial Claims, 4 wk Ave Claims, Continuing Claims, Exports, Imports, EIA Natural Gas Change.
Earnings: AIG, Moderna, Regeneron, Pinterest, ViacomCBS, Dropbox, First Solar, Expedia, Airbnb, Shake Shack, Uber, Square,  Kellogg, Cigna, Southern Co, Air Products, Hanesbrands, Barrick Gold, Citrix, CyberArk, Duke Energy, Wayfair, Planet Fitness, Sprouts Farmers Market, Allscripts, JDS Uniphase, Datadog, Cushman and Wakefield, Illumina, Occidental Petroleum, Skyworks Solutions.

FT Front Page
Virginia victor flusters Biden
Notes that the Republican’s won Virginia and inside there articles looking at the implications for the parties and what it says about Biden.

Fed triggers winding down of $120bn stimulus programme
• Monthly purchases cut by $15bn • Inflation concerns rise • Other central banks tighten.
The Fed is clearly following the pattern that it had telegraphed to the market but at pains to make clear that tapering is separate from raising rates. Equally that it still believes that inflation is linked to the bottlenecks and transitory although taking longer to work through. It also explained that if the situation changes it can change too. The driver behind it all was the strength being seen in the US economy, and progress towards achieving its twin mandates; which is encouraging.
The article looks at the implications for other Central banks ans especially the Bank of England which meets today.

China plans to quadruple its nuclear arms stockpile by 2030, Pentagon says.
Looks at some of the items in the Pentagon’s 2021 China military power report. Comes at a time of rising tensions and makes the point that not everyone accepts the Pentagon’s numbers but overall; the growth in the Chinese military is evident.

China hits back at criticism of Xi’s absence
Spat with US threatens to shift attention from global warming battle.
An interesting read which highlights the risk of detracting from the key aim which is to cut emissions and reduce the threat to the world. Interesting that the COP had made it clear that it was a participation event; I would imagine hoping that direct conversations would result in more upside. The reality is that no country is blame free.
See also  End of coal for 65 countries in sight as emissions increase    A good read because whilst countries intend to phase out coal there will be a time delay because the alternative energy cannot currently meet the demand; so coal names are currently having a bumper time.
Read also Coal miners exploit rich seam in energy crisis
The fossil fuel might be out of favour and on ESG blacklists but a small group of businesses is reaping huge rewards. Key being with little investment in recent years supply is only to be in more demand.

Companies & Markets
Orsted and Vestas warn of headwinds for green energy

• Offshore power group trims forecast
• Turbine maker’s earnings drop 20%
Hit by low European wind speeds and supply bottlenecks which have increased prices. An interesting read because I have not seen much research on how emissions and climate change are going to impact on wind flows or the impact of recycling the solar panels.
One thing is for certain that it is not going to be a simple process. The hope is that technology gets better and more efficient, both in producing energy and using it.

Port in a storm LA container terminal deal hands CMA CGM trade gateway to Asia
A good read, suggests that one reason for the port bottlenecks is recent under investment in modernising the facilities. CMA CGM is buying Fenix Marine Services something is sold in 2017 when it needed cash following the takeover of Neptune Orient Lines. The interesting thing is with the recent super profits that the shippers have been making they are looking to spend capex to improve their operations. In this case: ‘The company plans to extend the yard and rail capacity, build a new berth and further digitise the facility.’ The issue will be that those improvements will take years to put in place at which point the industry might look very different.
This article follows are earlier one this week which highlighted the lack of warehouse space.

Shares in Korean app Kakao Pay double on IPO
A very strong performance despite the delays and changes that were required by the regulator. Good news for Ant Group who backed the company. Still raises some questions over the role of the regulator and getting the valuation right. In this case it would appear a lot of money had been left on the table by the company for investors.
It concludes ‘Hwang Sei-woon of the Korea Capital Markets Institute said trading in Kakao Pay was likely to be turbulent. “It was a little bit surprising to see the share price double because I thought even the offering price of Won90,000 was quite high given that regulators appear concerned about Kakao Pay’s business model,” he added.’

ByteDance founder cedes his last seat on TikTok owner’s board
Looks at the management changes thought to be as a result of the Chinese government’s increased oversight of the sector. The previous leaders are seeking to avoid the spotlight but that is difficult to do if they want to remain involved in the business. The real question is whether these companies can continue to evolve and develop without their founders. Then there is the question of whether the governments increased scrutiny of these successful companies will put off new entrepreneurs from starting?

Workplace safety law alarms foreign businesses
Legislation making executives criminally liable for injuries puts nation’s appeal at risk.
An interesting read about the risks to managers operating in S Korea where the focus in on making managers personally liable. I think the point is that if S Korea is still seeing one of the highest work related fatalities then the system is not working. Interesting to see the legislation is being opposed by local and foreign bodies. It could be that S Korea’s highly unionised and aggressive union’s are failing to protect their members best interests through their aggressive stance. At the end of the day if the legislation is only effective in making executives leave S Korea it will have failing on more than its stated goal. The article also highlights the impact of S Korean inheritance dues which again seems to be encouraging the wealthy to renounce their S Korea identity.

Spotlight falls on repayment deadline pressures as Evergrande avoids default
Highlights that China is playing down the dangers without explaining what it is doing to resolve it. But the problem remains for many other companies to a greater or lesser extent. It concludes ‘Market participants have been left to speculate about why Evergrande made last-minute transfers after missing interest payments in September. Some said Evergrande was buying time to sell assets offshore, others that the government was involved behind the scenes.
Beijing is likely to be concerned about the completion of Evergrande’s Chinese developments, where many customers have bought houses before they have been built. Contractors at one site on the edge of Beijing said they stopped working in July but returned last month and had been told the government had taken over the project.’

Lufthansa returns to profit as travel resumes
An interesting insight. Cathay Pac opened higher this morning but has continued to sell down. The stock has been rangebound this year HK$6-$8 and currently trading towards the middle of that range. With HK and China’s borders effectively close to all but a few its prospects do not look good, especially with rising fuel costs.

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