Oct 20 Asia turned softer, FT Thoughts Japanese Chips, Xi's reform, HNA upset and more

20 Oct

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

Opened higher despite the IMF downgrade of its growth forecast to 6.5%  from 7.6% its April forecast.  But turned weaker after disappointing Chinese data and an eruption in Japan

Market opened higher around 7,420 in early trades following the +VE moves in the US and then worked better to test 7,450 late morning  but then drifted slowly lower, currently +46pts (+0.6%) @ 7,419
Material stocks leading although selling down with Rio selling down ahead of strategy day in UK.
Energy names are weaker with Whitehaven Coal weak as China says it will intervene to curb the surge in coal prices. Beach Energy weak after Q1 sales volume and revenue missed.
Worley strong after winning a operate/manage contract for 8 pacific hydro wind farms. Kogan also strong after its Q1 business update. But Flight Centre Travel after saying it was unable to give forward guidance.
Leading Index Sept -0.02% MoM vs -0.27% Aug revised (F/cast was -0.1%)
Nikkei opened higher around 29,400 and tested up to 29,500 mid morning after mixed trade data but eased back to 29,400 level and then sold down around 11.45am on news Mount Aso had erupted.
PM the market opened around 29,300 and trading sideways +86pts (+0.3%) @ 29,310
Topix trading in a similar pattern currently +4pts (+0.2%) @ 2,030
Data pre market
Balance of Trade Sept ¥-622.8B vs ¥-637.2B Aug revised (F/cast was ¥-500B)
Exports Sept 13% vs 26.2% Aug (F/cast was 12%)
Imports Sept 38.6% vs 44.7% Aug (F/cast was 34%)
S Korea 
Foreigner/Local Insts turn net sellers on weak China data.
Entertainment plays Kakao and Naver +VE after Netflix subscriber growth also content providers +VE
Steel & Battery plays weak
Kospi opened higher but trended lower and sold down into the red late morning to 3,016 before then trading 3,020/26
Kosdaq traded in a similar pattern currently flat @ 1,006
Announced 1,571 new covid cases and 66.7% of population vaccinated
Taiex opened higher and tested to 16, 975 in early trades but 17k is resistance and the market then trended lower, currently -36pts (-0.1%) @ 16,868
Tech seeing some interest but TSMC struggling to hold above 600 level. EV +VE after Hon Hai’s model debut. Shipping also +VE on news of extended delays at US ports. Some caution ahead of Export data due after market
Due after market
Export Orders Sept (Aug was 17.6% YoY and F/cast is 17.5%)
CSI 300 opened higher and tested to 4,944 in early trades but then reversed and sold down to 4,900 before bouncing back to flat at lunchtime.
PBOC injected 100bn yuan today having previously been withdrawing liquidity as House prices fell and there is news that land sales have fallen too as developers hold onto cash which will cause funding issues for local governments.
Loan Prime Rate 1yr 3.85% unch and 5yr +4.65% unch; as expected
House Price Index Sept 3.8% YoY vs 4.2% Aug (F/cast was 4%)
Hong Kong 
Pre market opened @ 26,074 +287pts vs +133pts ADR’s initial weakness but found support as it approached 25,900 and then worked higher to test 26,200 pre lunch but failed to break out and eased back to 26,100.
Coal names weak on news China would intervene. But Tech seeing a strong rally as Baba announced new chip for data centres. Macau names +VE on broker upgrades. WH Group weak on news hog prices to remain low.
Expect a muted open FTSE +1pts @7,223, Dax -19pts @ 15,506 and Cac  -18pts @ 6,654 from IG data.
Caution ahead of data and earnings from Carrefour, Atos, Metro, Sartorious, AkzoNobel, Roche, Nestle, Antofagasta and Metro Bank.
Core Inflation and Inflation
PPI data
Inflation Rate, Core Inflation, PPI Core Output PPI Input, PPI Output, Retail Price Index
US Futures
Opened Dow +19pts S&P +0.1% and NDX flat
Earnings: Tesla, Verizon, IBM, Lam Research, CSX, Baker Hughes, Abbott Labs, Nasdaq, Biogen, Knight-Swift Transportation, Canadian Pacific Railway, Northern Trust, Tenet Healthcare, PPG Industries, SLM
Fed Speakers: Bosti, Evans, Bullard and Daly
Data Beige book, MBA Mortgage Applications and 30 yr rate, EIA Oil report.

Front Page
Brussels vows to punish Poland for challenging unity of EU law
• Warsaw ruling alarms member states • Bloc’s ‘foundations’ undercut • Threat of sanctions
Continued friction between the Polish government and the EU but it seems to be coming to a head.

J&J spends $1.4bn on legal ‘two-step’ to shelter from talc cancer claims
Looks to try and shield the company from the liability from an action claiming its talc is carcinogenic.

Japan signals mission to revive chip sector
Industry in peril without state strategy, warns head of powerful new ministry.
Highlights the issues facing a number of governments about supply chains and self sufficiency. The trouble with any intervention is that is tends to distort markets. It is interesting the range of economic security minister’s brief. Worth a read but also see the recent Economist article on why governments shouldn’t intervene.

Xi sticks to reform plan despite sluggish growth
President wants to change over-reliance on debt-fuelled property investment.
Underlines how determined President Xi is to change the current social contract and system in China. It is clear that he is happy to see a change in the system which he views as necessary to protect the Party’s rule. What we are seeing is what he laid out in Dual Circulation and his desire to see China move into higher manufacturing and wider prosperity. The question is whether the people of China accept the change; especially considering the amount of peoples wealth that is currently tied up in property in terms in savings. China and Xi will need to give people a good reason to follow this new direction. The reduced exposure to property will have a significant impact on the financing of China and how business is focused. Implimentation of a property tax, which has talked about for years would again be a radical step for China and the risk I think would be that with more taxation people would look for more representation, which is probably not on Xi’s agenda. Although worth noting his recent thoughts on democracy. Key though for Xi and investors is that as he looks to radically alter the way China operates that there is no social unrest and no doubt that he will carry it through.
China is a ‘whole-process people’s democracy’, Xi Jinping says (Click the link to People’s Daily )

Xinjiang detention camp officials studied at Harvard
Interesting but it was back in the period from 2010 - 2012 when US/China relations were on a very different level.

Companies & Markets
Wall St listing of bitcoin ETF is milestone for digital assets

• ProShares fund shares trade briskly
• Test of mainstream investor appetite
A significant move for the acceptance of digital currencies in the US, although the ETF does not hold bitcoin only futures contracts linked to its price. That satisfies the SFC that it is operating in a regulated market. But that does significantly increase the cost of operating the fund with contracts having to be rolled every month.
A notable quote ‘Ben Johnson, director of global ETF research at Morningstar, said that the arrival of bitcoin ETFs “opens up the investment opportunity to a larger pool of assets than ever before, including many investors’ nest eggs”. However, “given the asset’s mind-bending historical volatility, investors should approach with caution, if at all”, he added.’
See also Lex  Bitcoin ETF: regulatory arbitrage 
‘The ETF’s real target are financial advisers, who have not been able to recommend unregulated bitcoin to clients. Regulators see futures as a safer proposition and the new funds let them claim they are giving retail investors access to a popular asset while still protecting them from its worst excesses. It is regulators, rather than crypto-curious investors, who are having their cake and eating it.

‘Squid Game’ pitches Netflix into a Korean broadband showdown
An interesting read about who should pay for the internet; highlighted by the surge in traffic linked to the popular Squid game show. Worth a read
‘Should Netflix lose its case against SK Broadband, the estimated fees of $84m are unlikely to dent its bottom line. But it opens the door for global internet providers to consider charging streaming companies for heavy bandwidth loads.
This could mean a rise in prices for everyone as upgrade costs are spread across subscribers as a whole and not just corporations. Subscription costs of video streaming services could rise accordingly. Both SK Broadband’s lawsuit and Netflix’s hearing are scheduled for December. This is the show viewers should be watching after Squid Game.’

Amazon joins green shipping drive
Pledge by nine businesses to use only zero-emission cargo vessels by 2040.
It should help the industry in deciding how to power ships going forward but at the moment there is little agreement on that subject. It notes that ‘No zero-carbon fuels are at present available in the quantities needed to decarbonise the entire shipping industry. The commitment comes despite turmoil in supply chains that has caused container shipping costs to rise as much as 10 times over pre-pandemic levels.
The companies have ruled out using ships that run on liquefied natural gas, which puts pressure on groups such as France’s CMA CGM to power those vessels with green methane, or face the risk of ships prematurely depreciating or being written down. Green methane could fuel LNG-powered ships, unlike methanol, ammonia and hydrogen.’
One of the big issues for the industry will be ensuring that alternative fuels are available at all the ports where ships refuel which is no small undertaking.

HNA creditors rebel against plan to contain collapse fallout
It seems that some frustrated creditors are threatening to take their complaints about state administrators to the Chinese Communist party’s internal oversight body. It comes at an interesting time considering the current prospects for the property sector.
HNA’s restructuring has been underway for years having collapsed with debts of $90bn and involves tens of thousands of creditors many of whom feel their interests have been ignored as the regulators are keen to close the book on the whole embarrassing event. ‘“We want the government to see our disagreement and anger and pressure HNA . . . to adjust and redraft a fair proposal,” one creditor told the Financial Times. The individual, who asked not to be identified, said their family’s losses from HNA’s collapse totalled more than Rmb2m ($313,000).’
‘One creditor called for accountability over a lack of supervision of HNA and warned that ordinary people’s “hard-earned” savings and pensions would be sacrificed in exchange for the administrator’s “victory” in completing the restructuring.’
How the HNA settlement works out will probably have a significant influence on how people view the prospects for Evergrande.

Sinic latest to default in China real estate crisis
The latest addition to the list of defaulting companies in China. Investors remain cautious about which other developers will default. What we have not seen yet is the businessess that supply the sector report problems which may be why the PBoC is confident that the issue can be contained but that could be a matter of time.

US political and business elites no longer agree on China By  Janan Ganesh.
Worth a read, looks at the increasing willingness of US firms to invest in China and the notes the previous unity against China has changed.
He concludes ‘If anything, there is something of turn-of-the-20th-century Europe about the US and China: the same economic integration and political froideur, the same sense of countries at once entwined and not. There is no reason the contradictions should unravel with similar force, but nor can they can be denied or glossed over. It is the mark of free societies that the elite is not a monolith, toiling on a shared national project. The dread is that it is also their frailty.’

Lex. Alibaba: Arm and a leg 
Looks at it’s newly designed chip which is a significant advance but it could open it up to the same polictical factors that undermined Huawei. ‘Such factors would be awkward for Alibaba. Sales from cloud services, accounting for about a tenth of group total, grew 29 per cent to $2.5bn in the quarter to June. The shares are off 28 per cent this year.
The business is relying on its new growth engine, cloud computing — powered sooner or later by its new chips — for a rebound.’
Interestingly Alibaba is +8% at lunchtime on huge volume on the news of the new chip and the recent sighting of Jack Ma.

* The email will not be published on the website.