Oct 19 Asia Updata and FT thoughts Nato, China, Energy, and more

19 Oct

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

Malaysia closed today.
No major data releases to drive the markets but Wednesday we get Japanese Trade data, China House Price and Loan Prime Rate and Taiwan Exports.

Market opened flat dipped lower but then rallied after the  RBA minutes.  Traded around the 7,405/390 level for most of the day but then sold down at the end to close -6pts (-0.1%) @ 7,375.
Miners (BNP -1.8%, Rio -3.1% on falling Iron Ore shipments) and Energy weak along with some big Banks at the close. Property and Tech ended in the green.
Nikkei opened higher morning session traded 29,230/100.  PM tested 29,275 in early trades then eased and traded around 29,200 level
Topix traded in a similar pattern, 2,027/20 in the morning. Touched 2,029 in the pm but then traded around 2,025 level
Volumes were light with some caution ahead the Balance of Trade data Wednesday pre market and earnings next week. Slight -VE asN Korea fired another missile and then later Kawasaki -6.6% sold off on news of a derailment in Washington of one of its trains.
Focus on quality/growth names especially Monday’s laggards. Value underpreformed. Tech mainly +VE after the Apple launch.
Leaders Shipping, Precision Inst, Tech
Laggards Resources/Miners, Energy, Airlines.
S Korea 
Interesting to see interest returning to Internet platform plays after last week’s weakness Naver reports Thursday. Tech +VE on news Samsung and Intel to return to full production at Vietnam plants in November.
Kospi opened higher but saw rangebound trading 3,034 in early trades and support at 3,014 but most of the day around 3,025.
Kosdaq traded in a similar pattern but closed at the day high +10pts (+1%) @ 1,004
Taiex opened higher, small initial rally eased but then worked hihger resistance approaching 16,900 but traded around that level all day. Apple supply chain +VE after Monday’s new launches. TSMC re test 600 level but fails to break out. Tomrrow we get export data which may give it more impetus
CSI 300 opened slightly -VE but worked higher to 4,900 initially and then 4,920 going into lunch. PM trading around 4,920 level.
Hog breeders in focus on hopes of a price recovery in Q4. Muyuan +6.7% on private placement 6b yuan. Financials +VE especially brokers after recent weakness. Apple supply chain names +VE
Logistic, F&B and Pharma all +VE
Hong Kong 
Pre market opened @ 24,471 +62pts vs +4pts ADR’s but saw a strong initial rally to 25,700 and then tested 25,785 level a couple of times before easing into lunch at 25,700. PM initially sideways but working better. All sectors +VE
Apple Supply chain +VE ECommerce mixed on news platforms may have to allow competitor access. Techtronics rebounding after recent pullback.
Markets indicating higher following the rebound in Asia.
FTSE +5 points at 7,209, DAX +17 points at 15,496, CAC 40 +10 points at 6,685 and Italy’s FTSE MIB +28 points at 26,107, according to data from IG.
Earnings in Europe come from Danone, Kering, Vinci and Deutsche Boerse on Tuesday while BHP releases an operational review on Tuesday.
Data releases include EU construction output in August and Spain’s trade balance data for August.
US Futures
Opened in Asia Dow futures -30 points but have eased to -21pts. S&P  Nasdaq futures trading around flat.
Earnings ahead : Netflix, Johnson & Johnson, Procter & Gamble, Travelers, United Airlines, Synchrony Financial, Halliburton, Manpower Group, Kansas City Southern, Bank of NY Mellon, Fifth Third, Intuitive Surgical
Data Housing starts, Building Permits, Redbook.
Fed Speakers Daly and Bostic

FT Front Page 
US statesman Powell dies
Covid related complications.
See inside Soldier and top US diplomat who regretted speech on Iraq
Colin Powell US general and statesman 1937-2021

Nato chief says countering China will be part of new strategic focus
• Role for next decade set out • US pivot to Asia spurs shift • No retreat from Russia threat.
Key being the cyber threat from China along with long range missiles but mentions ‘new technologies’ too.
See inside too Nato ordered to close Moscow office after expelling Russians  It follows Nata expelling 8 Russians whom it said were “undeclared intelligence officers”.  Nato had reduced the staffing to a maximum of 10 diplomatic staff.  Relations between Nato and Russia are now at new post cold war low.

European gas prices surge as traders see no sign of Gazprom raising supply.
No sign of increased supplies despite the recent hints from Putin; which saw prices squeeze 18% higher yesterday. It seems that a key to getting more gas could be the approval of the Nord Stream 2 pipeline which bypasses Ukraine and raises wider political pressure issues.
Highlights why energy self sufficency is so important.

China grows in third quarter but momentum slows
Data add to pressure on Xi as he approaches final year of his second term.
Yesterday’s data makes clear the difficult decisions that President Xi has in push forward his now ‘common prosperity’. It is clear that there are factors outside his control coming into play but as he seeks to ensure he gets the extension to his mandate to rule it will be important that there is no civil unrest or anything that might suggest that he has less than 100% grip on power. That could be a problem after the public has lost money in the stock market from the clamp down on monopolies and in the property market from the ‘three red lines’ on developers and the overhang of Evergrande. If people lose their jobs as well; then pushing through the new social mandate and ensuring his reign may face a similar uncertainty. Already there are some signs of him easing up but I do not expect to see a fundamental change; he beleives that the change is necessary for the protection of the party and by inference his leadership. To achieve that some lack of growth and he beleives is acceptable. The real question is whether the people will too. Having signed up to the last social contract and having seen the benefits will the people sign up again. As we have seen on other recent policy changes; like larger families, the people are not always so keen.

Washington to take on Beijing in Latin America
Plan targets renewable energy, digital technology and smaller businesses led by women.
An interesting read and a positive sign about the US looking to fund infrastructure. It rightly notes the advances that China has made in becoming the biggest trading partner with ‘Brazil, Chile and Peru and is close to achieving that status in Argentina.’ But does not mention the basis or the terms on which China has made this investments; in most cases they would be on commercial terms. It notes that recent investments have moved on from the initial basic resources to more added value areas like ‘smartphones, 5G infrastructure, surveillance technology, cloud computing, renewable energy and electricity transmission.’ In those areas China is established competing will be tough, especially as the US has very little practical experience. But it has the opporunity in areas like ‘renewable energy, digital technology, medical equipment and lending to smaller businesses led by women’ It may also find that it can beat China on the terms and the co-operation with the private sector if it is willing to commit.
Worth a read.

Singapore eases travel restrictions on more countries
A radical change from strict pandemic restrictions to open borders with 10 countries. It joins a number of other Asian countries also adopting the policy of opening their borders and learning to live with covid. Others like China and Hong Kong are seeking to maintain a zero covid policy but as Hong Kong found out, after 51 days of zero cases the virus can still apprear.
Worth also noting that ‘When Singapore announced the move to ease travel restrictions on October 9, airline websites crashed and ticket prices soared as thousands of expatriate and foreign workers scrambled to get home.’ Singapore Airlines +8% since the announcement.
It is worth noting that a lot of people, especially the lower paid don’t mind the restrictions since they travel infrequently but expats and foreign workers; upon whom much of the economy relies do object.
The potential skill drain; and its worth remembering that many of the foreign workers do the jobs locals don’t want to, could be critical to a city’s continued success.
In my my view covid is like the flu, we are not to stamp it out, so we need to get on and learn to live with.
An interesting read.

Companies & Markets

Driving ambition Volvo sets its sights on $23bn valuation in share listing next week
An interesting read the previous listing in 2018 was postponed because of concerns about how US/China tensions could hurt the valuation. Now the circumstances have changed and Volvo needs the proceeds to fund its push into electric vehicles. A positive move for its parent Zhejiang Geely.

Goldman gains autonomy in China
US group plans to expand after Beijing approves full ownership of joint venture. Taking ownership as the political, regulatory and economic circumstances of China are changing. An interesting read and notes that opportunities might have changed in the short term following the Didi Chuxing IPO in New York in June.
Long term the potential appears better but with ‘common prosperity’ and potential anti sanction legislation the path is unlikely to be easy.

Toyota and Stellantis to build US battery plants
An interesting read that underlines the importance of having battery plants close to manufacturing facilities because of the difficulties pf transporting battery units.

Commodities. Power crisis
China’s magnesium shortage threatens global car industry
Production curbs have hurt stockpiles of key ingredient to make aluminium in vehicles. Magnesium, another fall out from the power shortages in China because it produces about 90% of the worlds supply, much of that from Yulin in Shaanxii province. It says ‘About a month ago, the local government ordered around 35 of its 50 magnesium smelters to close until the end of the year and told the rest to cut production by 50 per cent in order to hit energy consumption targets.’
It is costly to produce in terms of power required and does not store well as it starts to oxidise after three months. It’s important because magnesium is added to aluminium as an alloying agent to make aluminium stronger.
So unless China increases production the impact could be just as bad if not worse than the chip shortages are this year.
Most alternative suppliers were forced out of business because they could not compete with the chinese producers on price.
It underlines how China has historically tried to corner the market in various important metals and is showing no signs of altering that stance.

For Interest
Markets Insight
Alarm bells are ringing for the developing world  By Mohamed El-Erian
How higher costs are likely to mean inflation in developing countries and that will impact developed countries and investors too.
‘There are also implications for investors. Succeeding in emerging market investing is becoming less about riding the liquidity wave using passive products. Instead, investors increasingly have to go back to detailed credit analyses, smart structuring, proper pricing of liquidity — and, for some, an understanding of debt-rescheduling risk.
The more they delay in making this fundamental transition, the more likely they will be shocked into portfolio adjustments that fuel contagion across markets. This would also complicate an already challenged outlook for global prosperity and social wellbeing.’

Biden’s two-front war for democracy  By Gideon Rachman
‘The White House is trying to project an image overseas of a resurgent America that is neither Rome nor Weimar. But in Biden’s Washington the fear that the president may fail — and the dread of what that might mean for America — now hovers in the background of every conversation.’

A hacker warns: give up trying to keep me out — focus on data.
A good read, written by a hacker. ‘The best security advice for government and business leaders is to simply “give up” on trying to keep me out. Assume I’m already in, finding my way to your most prized possessions. What you actually need to trouble yourself with is, what can you do to stop me?’
Concludes ‘Government agencies such as the National Security Agency and Department of Homeland Security in the US or the National Cyber Security Centre in the UK already realise that the game has changed. Leaders across industry and government who commit to a culture shift in which trust becomes just as much of a currency as data will gain a strategic advantage — limiting the moves an adversary can make, forcing them to make more noise and ultimately leaving them less room to execute their attack.’

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