Oct 26 Asian market mainly +VE FT Tesla, Travel Curbs & Security law in HK, China property tax and more.

26 Oct

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

Market tested higher in opening trades but resistance at 7,470 which it tested a couple of times in the morning but eased back around midday and then trended lower to flat.  Crown Casino +8.5% despite being deemed not suitable to hold Melbourne Licence but the commission didn’t remove the licence but it is to be overseeen whilst reforms take place +VE for the sector. Tech also strong.  Miners eased as Oil and Iron Ore prices eased.   Dicker Data +14% after good earnings
Nikkei opened higher and slowly worked higher in the AM session with resistance at 29,130.  PM opened higher and working higher.  Currently +541pts (+2%) @ 29,137
Topix Opened higher resistance at 2,023 in the AM. PM trading sideways around 2,020 level.
Leaders Iron/Steel, Info/Tech, Auto and Rubber.
Laggards Banks, Warehouses, Precise Inst, Airlines
T/O remains light but less concern about the election with the LDP expected to win and implement economic stimulus.
Earnings in focus and Panasonic +5.8% on new battery and the Tesla news.
PPI Services Sept +0.9% YoY vs 1% Aug
S Korea 
Foreigners flat; rotating into Pharma, Tech, Service
Local Instits buying Tech and Service
Battery plays still +VE after Panasonic/Tesla news
Kospi opened higher but initially sold down to 3,030 after weaker than expected GDP before rebounding and trading sideways.
Data pre market
GDP Growth Rate Adv Q3 +4% YoY vs 6% Q2 (F/cast was 4%)
GDP Growth Rate Adv Q3 +0.3% QoQ vs 0.8% Q2 (F/cast was 0.4%)
Taiex opened higher following the +VE Retail sales and Industrial business and trended higher but saw resistance around 17,050 level.
Currently +143pts (+0.9%) @ 17,037
Currency strengthened on news that Janet Yellen and Liu He had held a conversation covering the economy, bilateral and global co-operation.
Fix was weaker. But PBoC added 190b yuan
CSI 300 opened flat but rallied to test 5,000 on the news of talks between Yellen and Liu He but then sold down to 4,960 before bouncing to trade around flat for the remainder of the morning session. Chinese Property weak on news Modern Land (1107) missed a bond repayment.
Hong Kong 
Pre market opened @ 26,234 +103pts vs +29pts ADR’s with weakness in Baba but offset by BYD & Xpeng (on battery/Telsa news), Li Ning after SSS data and HSBC post earnings. Macau names +VE on news of easing some restrictions and Healthcare +VE as China sees a resurgence of covid cases.
Baba and some tech remain weak. Chinese developers weak on news of another default.
Expect market to open higher but upside limited ahead of results, inflation and covid concerns.
Data due
UK  CDI DistributiveTrades
US Futures
Opened  Dow +10pts, S&P +0.1% and NDX +0.15%
AHEAD Data Redbook, Case-Shiller Home Prices, House Price Index, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing Index, API Crude Oil Stocks change.
Earnings Alphabet, Microsoft, Visa, Advanced Micro Devices, Texas Instruments, Twitter, Chubb, 3M, General Electric, Robinhood, Eli Lilly, UPS, Novartis, JetBlue, Lockheed Martin, Raytheon, Archer Daniels Midland, Sherwin-Williams, Invesco, Hasbro, Boston Properties, Teradyne, Fortune Brands, Hawaiian Holdings, NCR, Boyd Gaming.

Front Page

Sudan coup
PM’s ‘kidnap’ stirs protests
Tension between the military and the people who supported the government.

Amazon strikes deal with UK spy agencies to host top secret data
• Cloud services to boost analytics • Contract worth up to £1bn • Security fears raised.
An interesting read and concludes ‘GCHQ initially wanted to find a UK cloud provider but it became clear that none had the scale or capability needed, said two people familiar with the deal.’
Countries no longer have to think about resources security and supply chains but also their top secret data. With the recent ransomware attacks the stakes are high.

Tesla is first carmaker to break $1tn value barrier after Hertz goes electric.
An interesting read, one of the fastest assents but reflects the trend to EV’s and the advantages of not being constrained by historic work practices, buildings and logistics. It has in part been driven by retail interest too along with Elon Musk’s crypto interests. Worth noting that even those that doubt the company have contributed as short sellers were squeezed and pushed the stock higher. Whether it can continue to grow as more EV companies come on stream remains to be seen.
Lex Hertz/Tesla: buccaneering fleet
A good read  it concludes ‘But lest you imagine Hertz’s owners are paragons of long-termism, note this: a filing this month previewed a fourth-quarter share sale that could take some of their winnings off the table.’   Of more interest will be whether Hertz will change its business model of being a used car company with a car hire business or not.

Business concerns
Zero-Covid rule puts Hong Kong financial status at risk, say banks
The Asia Securities Industry and Financial Markets Association Lobby group urges city to rethink strict curbs that hit international travel. The current rules are expected to last until 2022 and are being increasingly viewed as unnecessarily restrictive when compared to other Financial centres.
Asifma said ‘a survey of its members revealed that 48 per cent of companies were contemplating moving staff or functions away from Hong Kong owing to uncertainty over when and how quarantine restrictions would be lifted. Almost three-quarters of companies were struggling to attract and retain talent in Hong Kong, it added.’
At the heart is China’s adherence of a zero covid policy; a policy that is increasingly seen as untenable. The problem is that instigated a course of action China finds it difficult to change polices; that in part to due to its social contract that implicitly says if you let us rule we will make good long term decisions because we don’t have to worry about short terms policies to get re-elected.
It is interesting that in the early stages most local Hong Kong people were not worried about international travel restrictions but are concerned about access to families on the mainland. But now more middle management locals who used to take an overseas holiday are being impacted. Also local companies with mainland operations are finding it increasingly difficult to do business as they cannot visit their factories or overseas clients because of the need to quarantine despite being fully vaccinated. As time goes on it is likely to impact company reporting, how can the directors fully exercise their duties if they cannot visit their company operations?
There are also questions being raised as to why 21 days quarantine is required when the data shows 14 days is sufficient and why people need to quarantine in a hotel paying a minimum of around HK$1,000 per day, when originally we were allowed to quarantine at home with a bracelet.
It concludes ‘Sophia Chan, Hong Kong’s secretary for food and health, has defended the strict approach. “We keep a close watch on public sentiment when adjusting the control measures,” she said. “In adopting the zero-Covid strategy . . . [the] government puts people’s health as the top priority and adjusts border control and social-distancing measures in tandem with the epidemic situation.”’
Perhaps its worth noting that Carrie Lam and other officials have not been made to quarantine in a hotel post mainland visits.
I think China will increasingly find itself isolated by this policy. It will miss out on investment potential as investors elect to put their money in places where they can visit and carry out their own due diligence.
Also worth noting that agents just releasing the quarantine hotel availability for those coming back for christmas/New YearUS to open door to all vaccinated travellers 
‘The US will allow vaccinated travellers to enter the country from anywhere in the world from November 8, even if they have been jabbed with the relatively untested Chinese vaccines Sinovac and Sinopharm.’ An interest contrast to the Chinese policy; including the acceptance of Chinese vaccines.

Security law
Amnesty International to quit HK over fears for staff safety
It is citing ‘concerns for its staff as Beijing cracks down on civil freedoms.’ It follows the closure of more that 35 local civic groups who have closed due to the action or threat of action from law enforcement or and pro Beijing groups.
The government has said ‘freedom of association was protected under the security law. “Any claims that freedoms have been eroded due to the security law are far from the truth.”’ Which is interesting following the closure of the Teachers and other unions.

Economic planning. Revenue stream
China widens property tax pilot schemes
Levy proposal falls under Xi’s ‘common prosperity’ reforms that aim to redistribute wealth.
A rewrite of the ‘China expands property tax trials in next step of ‘common prosperity’ drive’ in the online edition Monday
Notes that the proposal has raised concerns from ordinary citizens whose savings are tied up in property.  It is also said that many ranking party members are resistant too as they are closely involved with the sector.
The article looks at the tax under the headings
How would a property tax work? Annual levy set and collected locally. Ideally broad but with relief measures for the economically vulnerable. It would ideally mean local governments were no long reliant on land sales.
What stands in the way? Connected elites and local government officials coupled with concerns that it could lead to a market crash and social unrest.
When would it be implemented? no clear time line
What do Chinese people think about the tax? Suggests very different view; I would imagine those with property are -VE, those without +VE and some just worried that it is the government just seeking a new revenue stream.
Worth a read, I do think that whilst President Xi want to direct money currently tied up in property to advanced manufacturing to enhance China’s long term objectives is a worthy one; the revision of the social contract with so many might not be well received.

Companies & Markets
Volvo Cars IPO cut amid reticence over China owner

Cutting the size of its listing and pricing it at the bottom of the range as it struggled to attract investment. Struggling because Geely originally wanted to retain ‘98 per cent of the voting rights even after its capital stake was set to fall to 83 per cent.’
Key I think was ‘Hakan Samuelsson, Volvo’s chief executive who is to retire at the end of next year, said that there had been “intense” talks with investors over the weekend, particularly over how to value the carmaker but also over “China, voting rights, trade war”. Volvo has one of the most advanced plans of traditional carmakers to become fully electric by 2030 but currently only sells 3 per cent of such vehicles.’
Those three “China, voting rights, trade war” are probably occupying a lot of investors minds at present.

Bullish HSBC in $2bn stock buyback
Quarterly profit up 74% as fears over bankruptcies fade and growth revives.
Headline numbers were well received along with the writing back of bad loan provision and the share buyback. But the detail is less rosy with revenues under pressure and loan growth in Asia slowing. Stock is trading +1% today which suggests that investors are still looking for more clarity on how it will leverage its Asia business which is facing increased competition from local and international banks and the zero covid travel restrictions will not help its Greater Bay expansion plans.
See also LEX HSBC: Noel follows his nose it conclude ‘HSBC shares are up 16 per cent since January, despite a sharp drop between May and September triggered by China’s crackdown on business. The biggest risks to HSBC are still political. For the moment, however, most of these are priced into the stock.’
Cheniere bets on China to drive growth of LNG sector.
An interesting read in the light of the recent long term contract signings. Worth noting that China is happy signing longer term contracts something the Europeans are less keen on as they see ‘“uncertainty” over the speed of the transition away from hydrocarbons’. I think that in the future it is going to have to lock in supplies where it can.
Action demanded to tackle logistics crisis
An interesting read calling on governments to boost investment into ports, railways, warehousing and road systems to ease the current problems.
“There needs to be some government support here to maybe switch people out of some parts of the economy where demand is not so strong to more critical parts of the economy where the demand is very strong and important for global supply chains,” said Jeremy Nixon, chief executive of Ocean Network Express, which carries more than 6 per cent of the world’s containerised freight.
The problem is that switching is not easy and investment can take years. Many of the current bottlenecks reflect years of under investment in the past. The current stand-off between the parties in the US reflect how contentious an issue this is to politicians.
Worth noting too that many of the shipping companies are being restrained new ship ordering recognising the potential for over building in response to short term demand. But logistic warehouses remain in demand as that last mile distribution remains so important.

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