Oct 7 Asia Rebounds FT China vs Taiwan, Japan Post and wider market.

07 Oct

This and previous notes can be found at Substack ( Asian Market Sense )
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Market tested 7,260 in initial trading pulled back to 7,230 over the first hour and then worked back to test 7,260 but failed to break out and from 1pm has traded 7,260/40 currently +50pts (+0.7%) @ 7,256
Tech rebounds as energy names give up some of their recent gains. Consumer staples and Industrial easing. BHP joins a number of firms makingvaccinations compulsory
Data out
Services Index Sept 45.7 vs 45.6 Aug (F/cast was 49.8); slight -VE
Nikkei opened higher, initial resistance around 27,820 but then worked higher with resistance at 28,000.  PM opened lower and trading around 27,800 level.
Topix traded in a similar fashion; resistance at 1,960 level. PM opened lower and trending lower ; currently +4pts (+0.2%) @ 1,945
Rotation out of Energy and Pharma into Shippers and Tech
S Korea 
Kospi opened higher, traded around 2,940 for the first 90 minutes then worked higher but resistance at 2,960 level. Currently +50pts(+1.7%) @ 2,958
Kosdaq traded in a similar pattern Currently +27pts (+2.9%) @ 949.
Local prop and pension funds buying; SEC in focus ahead of prelims tomorrow. Internet and Pharma also +VE But weakness in Energy and Chemicals.
Data out
Services Index Sept 45.7 vs 45.6 Aug (F/cast was 49.8); slight -VE
Taiex opened higher at 16,466 and worked up to 16,700 in the first hour and trading around that level. Broad based buying but Tech leading.
Market closed re-opens Friday
Pre market opened @ 24,339: +373pts vs +26pts ADR’s but as I mentioned increased shorting yesterday made a squeeze likely. A broad rebound with Ecommerce, Tech and AIA the leaders. Petro and WH Group the laggards. Market worked higher but resistance approaching 24,600. Oil names weak along with Techtronics. Ecommerce, Insurers leading the gains. HK Developers +VE on news of a new town development and no curtailment of their current operations in the policy address.
Futures indicate a higher open; FTSE +80 points at 7,070,  DAX +198 points at 15,156, CAC 40 +88 points at 6,576 and Italy’s FTSE MIB +228 points at 25,552, according to data from IG.
Eurozone ECB Policy Meeting
Germany  Industrial Production
France Balance of Trade, Current Account
UK  Halifax House Price Index, Labour Productivity, BBA Mortgage Rate
US Futures
Opened Dow +42pts, S&P and NDX +0.1%, and rose through the morning now Dow +181pts S&P and NDX +VE
Ahead the Initial claims data which will be watched closely ahead of Friday’s payrolls data.

FT Front Page

Johnson sticks to migrant line

He admitted that restructuring the UK’s economy, which is suffering from labour shortages that have contributed to gaps in supermarket shelves and empty petrol stations, would be difficult. But he insisted that going back to “uncontrolled immigration” was not an option. As businesses reject his accusation that they had relied on cheap foreign labour.

Gas markets whipsaw after Putin offers to stabilise energy prices
• Hint of more Gazprom supplies • Fears over manipulation • US wary of Kremlin’s role
Underlines the necesssity of being energy sufficient and how without coal that, in the short term, will be increasingly challenging. The move by Russian is being viewed as connected with Russia’s desire to have the new Nord Stream 2 pipeline approved. That will enable it to bypass Ukraine something that could have much wider ramifications.

Cash-rich private equity pays record premiums to snap up public companies.
Reflects the amount of competition with the private equity space to find opportunities. They have cash, share prices are low but there are few targets. Some however are warning that this could be the sign of a bubble. Not mentioned but the potential for rule changes (regarding the amount of debt targeted companies can take on etc) and rising interest rates would, I think, suggest a bubble.

China will be fully ready to invade by 2025, warns Taiwan
So says Taiwan’s Defence Minister, alerting the country to the threat of war. Mind you he is trying to secure a US$8.6bn budget for defence equipment.
His key arguement being “If they want to attack now, they are already capable. But they have to calculate at what cost it would come and what results it would have. From 2025, they will have lowered the cost and the losses to the lowest possible level, so . . . they will have the complete capability.”
It follows President Tsai Ing-wen writing that other democracies “should remember that if Taiwan were to fall, the consequences would be catastrophic for regional peace and the democratic alliance system. It would signal that in today’s global contest of values, authoritarianism has the upper hand over democracy,” in Foreign Affairs, a magazine.
It’s a complex issue. I was listening to a GS webinar by John Garneaut a China specialist and former advisor to Australian PM Turnbull. He made the point that President Xi was aware of the wider consequences of invading Taiwan and the likely military and other responses from the US and others which outweighted the doemstic benefits from launching such an attack.
There is also the fact that Taiwan’s defence rationale is changing from trying to defeat an invasion to fighting a guerilla defence with units dispersed throughout the country.
All that said the issue remains fraught. More countries need to acknowledge Taiwan and support its recognition at the UN, if only to ensure the safety of semiconductor supplies to the international community.

Japan Post share sale to complete privatisation
The first tranche has underperformed and questions remain inmy view over the outlook for the remaining tranche because of the requirement for it ‘to maintain a universal post service. Its bank is legally restricted from engagement in certain businesses and operates in an environment where loan spreads have been falling for many years. Japan Post Insurance was involved in a mis-selling scandal that came to light in 2019.’
Interestingly it comments that the issue is believed to ‘appeal to potential investors’ patriotism and nostalgia, rather than an expectation that the shares will outperform in the longer term.’
That seems like an odd reason to make an investment, especially considering the poor track record of the company.

Day traders contact gambling helplines amid spread of game-like broker apps
US securities regulator probes whether ‘digital engagement practices’ harm investors. An interesting read about the wider implications of the gamification of day trading.

Don’t believe the hype and look to valuations  By Richard Bernstein is chief executive officer and chief investment officer of Richard Bernstein Advisors.
Highlights the need to separate the valuation from the story in order to make a good investment.
‘There were many stories during the technology bubble regarding new internet-linked breakthroughs potentially changing the economy. Much of the bubble’s buzz on the actual technology did come true. But technology was nonetheless the worst-performing S&P 500 sector during the next decade.’
He concludes ‘Sector performance over the past several years reflects these distorted priorities and the misallocation of capital. Since the end of 2018, only three of the 11 global sectors have outperformed the MSCI All Country World Index: technology, communication services and consumer discretionary. Such narrow performance suggests exciting investment opportunities abound, just not in those sectors.’
Worth a read.

Lex  Japanese equities: this sun also rises
Suggests that like football managers Japanese PM tend to enjoy an initial rally of the stock market when taking office.
It then notes that Japanese equities have a low correlation to the US stock market as well as the Chinese one.
Currently valuations are attractive on a forward price to earnings and dividends basis.
There are concerns about the impact of purchases the BoJ made and how it will unwind those? A suggestion being to follow Hong Kong’s example with the Tracker Fund sales.
It concludes ‘Local investors, mostly through mutual funds, have driven the latest rally. When sizeable foreign buying does finally return, expect an even stronger win for Japan.’

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