Oct 25 Asia mainly +VE. FT China's property tax, Evergrande.

25 Oct

This and previous notes can be found at Substack ( Asian Market Sense )
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Asia mixed with Japan giving back Friday’s gains and with some uncertainty regarding the Japanese Election next weekend. China recovering and I would imagine ‘Team China’ active in the fact of its covid resurgence and news of expanding the Property Tax trails and more regulation on on-line Insurance.

Market opened higher and hit 7,460 in early trades before dipping back to flat and then testing to 7,472 before easing back to 7,440 and trading sideways.  Energy and Mining names +VE but Tech weak following the US.  Telstra buying Digital for $2.1bn but with most of the finance coming from the Govt.  Woodside considering a $1b hydrogen plant south of Perth.  S&P add’s it voice to those calling for cooling measures on the housing market. As Blackstone reported to be looking to buy a stake in the Dexus Logistics Fund, whilst raising funds for its Real Estate Fund and also money for its infrastructure fund.
Concerns about the number of seats the LDP will win in the election having only secured one of the two available seats at the weekend by-election as opposition parties agree a co-ordinated single opposition candidate approach.  Inflation concerns after Powell’s comments and Covid as China sees a surge in cases.
Nikkei opened lower but initially worked better to 28,670 level before trending lower into lunch -221pts (-0.8%) @ 28,584
Topix traded in a similar pattern; opended 1,990 rose to 2,004 then eased back; at lunch -3pts (-0.2%) @ 1,999. Remember there is a Topix rebalence on Thursday which may influence trading this week.
Leaders Iron/Steel, Miners, Shippers, Logistics
Laggards Info/Comm, Rubber, Food.
Panasonic +4% on news Apple considering it for EV batteries.
Chugai +9% as Operating Profit beats estimates.
Data at 1pm HK time
Coincident Index Final Aug (July was 94.4 F/cast is 91.5)
Leading Economic Index Aug (July was 104.1 F/cast 101.8)
S Korea 
Foreigners and Local Institutions net buyers. BuyingFinancials and Transport but rotating out of Pharma. Tech flat. Posco +1% as earnings beat. Doosan Heavy+14% Samsung Heavy+2.4% and Kepco KPS +4.8% on new order hopes. But SKT -1.8% ahead of trading halt.
Kospi opened lower and dipped to 2,980 level before bouncing back to the opening level and working better. Resistance around 3,020.
Taiex opened lower and trended lower to 16,780 level around 10am before working better to 16,930 and then trended to flat.
After market
PBoC inject 200b yuan in open market operations pre market
CSI 300 opened opened lower with news of the Property Tax Trial to be widened, On-Line Insurance sector to see more scrutiny and a resurgence in covid cases. Market worked better in choppy trading to -2pts (unch) @ 4,958. Moutai -1.2% after a four days rally. Property remains weak but the street chatter is that it is unlikely to implemented as the current main beneficiaries resist.
Hong Kong 
Pre market opened 26,021 -106pts vs -90pts ADR’s
Tightening rules re On-line Insurance regulations to be tightened, China property weak on news of widening Property Taxation Trials. HSBC was flat ahead of results. But market worked saw an initial bounce then tested down to 25,930 before spiking higher to 26,200 in the next 30 minutes. It retested the 26,200 twice more before closing for lunch +23pts (+0.1%) @ 16,150. Healthcare +VE but Property weak although Evergrande +4%.
At lunch HSBC +0.5% ahead of earnings which showed strong headline numbers and a @ $2bn share buyback.
Leaders Healthcare, Auto, Energy, IP’s and Shippers
Laggards China Property, Consumer and Cement
Expect the market to open flat following the mixed performance in Asia.

Germany Ifo Business Climate & Expectations, Bundesbank Monthly Report
US Futures
Opened Dow -50pts, S&P and NDX dipped about -0.1% ahead of a number of big tech companies reporting.  By lunchtime that had eased to Dow -24pts with the S&P and NDX slightly -VE
Powell says inflation may be ‘longer term’ and run higher than the 2% target; so now is the time to taper.
AHEAD Chicago Fed National Activity Index, Dallas Fed Manufacturing Index
Earnings Facebook, Restaurant Brands, Otis Worldwide, Kimberly-Clark, Owens-Illinois, TrueBlue

FT On Line
China expands property tax trials in next step of ‘common prosperity’ drive

Xi Jinping backs plan to test levy that could alter country’s economic model; which is all part of his re-orientation of the Chinese economy.
This looks to be a widening of the existing trials but widened in terms of locations and scope although it makes clear that it excludes rural households; obviously acknowledging that the wealth is currently focused in the urban areas.
It raises issues of how local governments will be financed as they have for years relied on land sales but is should also reduce the potential for some elements of corruption. But it will be a huge change for a lot of citizens who have looked at property as a safe store of value. The potential downside is the undermining of property values. At present developers sale prices are regulated and they themselves are aware of the risks of cutting prices but overtime that could change.
As with all taxes the devil is in the detail. At present the trials focus on second homes and expensive homes. If the new broader tax is efficient, equitable, adequate and transparent then it should be broadly welcomed.
It quotes research for how it might work: ‘According to an analysis by Capital Economics, the research group, an effective tax rate of 0.7 per cent of the total property value would have generated Rmb1.8tn ($282bn) last year in China, compared with Rmb1.6tn from land sales.’
The one issue that many have found in history that with taxation comes the desire for representation and I doubt that is part of President Xi’s plan. Another area of concern is that if prices aren’t rising they tend to fall and that would be disaster for China considering how much wealth is tied up in property currently to say nothing of its current contribution to GDP.
One aim of the plan would be to try and redirect investment money away from Property and into advanced manufacturing and technology.
Will it happen? It concludes “Because the class that owns the most property is actually the bureaucracy, it is most likely that the property tax will become a formality and has no actual effect in the end,” said a company manager in Beijing. “I will continue to invest in houses.”

With Asian earnings kicking off in earnest this week the news flow on Asia is light time Monday.

Front Page
Disputes in Europe dominate the front page
Poland tells Brussels to stop the threats as EU tensions escalate

• PM bridles at rule of law warnings • Bloc weighs sanctions • Risk of ‘Polexit’ dismissed.
Erdogan orders expulsion of diplomats after call for release of his political rival.  Putting further pressure on international relationships.

Super League heads to ECJ
Real Madrid, FC Barcelona and Juventus, the three football clubs behind the proposed Super League, are taking legal action against Uefa and Fifa in an effort to fundamentally reorganise the running of the sport.
Companies & Markets
Evergrande resumes work at southern China sites
Comes after it made the interest payment that was outstanding. It is estimated that it has resumed work on 11 sites; with it posting some time stamped photographs of workers.
Some good news for investors although it notes that bondholders had complained about the lack of dialogue from the company when the interest payment was missed. Stock opened higher this morning but is trending lower. News that Beijing intends to widen the Property Tax trial is likely to put weaker developers under more pressure.

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