Aug 12 Asia Update & FT Chinese Schooling, Drinking, Justice and more


12 Aug

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

Market summary at lunchtime HK
Australia
Market opened higher;  Telstra +VE as earnings out and announced share buyback. QBE strong but AGL weak as earnings weak.   Also out NAB, AMP and others hitting the tapes. Oil & gold started+VE but Covid in focus as Melbourne may extend restrictions but Sydney may ease.
Having tested 7,610 in the opening moments the market quickly sold down to flat and has trade around there for most of the session (7,595/7,580).
Data
Consumer Inflation Expectations Aug +3.3% vs 3.7% Jul (F/cast was +3.6%)
Japan
Nikkei opened higher and tested to 28,280 in early trades as investors reacted to earnings and shorts covered.  But pre market PPI came in stronger than expected.  Materials and Energy strong in the AM session
Sentiment hurt by news at lunchtime that a panel expert said the covid surge was out of control. Market in the PM selling off. Currently -20pts (-0.1%) @ 28,058.
Topix traded in a similar pattern currently +3pts (+0.1%) @ 1,957
Pre market
PPI Jul +1.1% MoM vs +0.6% Jun (F/cast was +0.3%)
PPI Jul +5.6% YoY vs 5% Jun (F/cast was +4.9%)
S Korea
KDCA announced 1,987 new covid cases (-236 DoD) +VE
Options Expiry today and MSCI rebalance announced, effective 31 Aug
Foreigners still selling tech. Defensives like Telco’s, and cyclicals Transport and Construction +VE
Kospi opened lower but initially bounced and has traded around flat for most of the session but then sold down around 1pm to 3,210; currently -10pts (-0.3%) @ 3,211
Kosdaq opened higher and worked higher to test 1,058 around midday but again 1pm saw selling pressure and sold down to almost flat; currently +0.5pt (+0.04%) @ 1,052
Samsung unveils new phones, watch and ear buds
Taiwan 
Taiex opened slightly lower continues to traded in a tight range. Tested yesterdays closing level a couple of times in the first 45 minutes but then eased back to traded sideways around 17,175; currently -47pts (-0.3%) @ 17,180
China 
On-line insurance sector under pressure and Govt indicates that oversight on Tech could last for years. Loans data weak prompts hopes for more support from Govt/PBoC. Covid remains a concern.
CSI 300 opened lower tried to test yesterday’s closing level several times in the first hour without success and then sold down to 4,960 level before bouncing to 4,980 level at lunch
HK 
Pre market opened @ 26,624 -36pts vs +91pts ADR’s and saw an intial bounce to 26,710 level but then reveresed to 26,550 before working back into the green but short lived. Oscillated around 26,600/650 from mid morning. Earnings results in focus, Ecommerce mixed; any exposure to insurance -V
Earnings at lunchtime
Swire A&B, Swire Properties, Galaxy, Hua Hong Semi, China Mobile,
Still to come MTRC, China Everbright Envir, WH Group, PAX Global, Rusal, Yue Yuen, Value Partners, Prosperity REIT, Convenience Retail, Ausnutria, Li Ning, Pou Sheng,
IPO LI AUTO-W (02015.HK) -0.2% off initial weakness, debut today, opened at (Listing price $118)
Europe
Markets to see a cautious open; Eurozone Industrial Production and a  large amount of UK data; Balance of Trade, Business Investment, GDP Growth Rate, Construction Output, Industrial Production, Manufacturing Production, GDP 3 Month Ave, GDP, Goods Trade Balance, Labour Productivity, Construction Orders, NIESR Monthly GDP Tracker.
US Futures
Opened Dow futures +9 pts, or 0.03%. S&P 500 futures -0.02% and Nasdaq 100 futures -0.14%.
Ahead  PPIInitial Claims, 4 week Average Claims, Continuing Claims, Core PPI, EIA Natural Gas Report, WASDE Report.

FRONT PAGE
Taliban plots Kabul push

The insurgents continue to push to control the whole country.
Diplomats say the Taliban’s strategy is to encircle Kabul and pen Afghan forces in the capital in order to press President Ashraf Ghani’s government to surrender. US president Biden, reiterated his plan to pull out all American troops by the end of this month, arguing that it was up to Afghans to defend themselves.
See also Taliban closes in on Afghanistan’s big cities  Insurgents focus on Kandahar, Herat and Mazar-i-Sharif, a bastion of resistance in north
You have to wonder if that sends a mixed signal to China about the defense of Taiwan? The key difference is that Taiwan has tech than the US doesn’t want China controlling.

US asks Opec for boost in output to stop fuel prices ‘harming recovery’
• Abrupt shift from Trump policy • Petrol up almost 50% • Inflation still at 13-year peak
An interesting move by the Biden administration to try and contain costs for the US consumer.

UK embassy worker held in Germany on suspicion of spying for Russia
A sign that Russia continues to be active in spying on Germany which may be a slight embarrassment considering Merkel’s defence of the new gas pipeline from Russia.

INSIDE
US inflation levels out at 13-year high amid supply chain delays
Whilst many will no doubt say this justifies the Fed’s position on inflation it is only one reading and the core reading remains elevated.
Worth noting that used cars were no longer a key element and travel related costs also eased but watch housing costs which continued to rise.

Private school owners bow to Beijing
Shake-up puts greater emphasis on public education and forces institutions to hand over control to state.
An interesting read about seemingly forced handovers without compensation. The focus is to have more pupils in State schools; from the currently level of about 20% of the pupils in private schools to less than 10%.
It is obvious that Beijing believes that education is an area of risk; here in Hong Kong the teachers union is being forced to disband under the new national security apparatus.
That seems to be at odds with what parents want. More so in the rural areas where funding for education/school has been often been restricted. A good quote “Private schools are in general better managed than public ones because the former count on good performance to attract students,” said Liu Qian, a Beijing-based marketing executive.
Key being that without a good basic education then the route to higher education is blocked.
The article notes that ‘Beijing, however, grew uncomfortable with the sector’s rise. Government advisers maintain that the sector’s development has led to worsening inequality and has made it harder for the Communist party to control what is taught.
“Private schools are supposed to be a supplement to public education,” said Wang Feng, an education ministry official, at a conference in June. “Now they are competing against each other for good teachers and talented students.”’
The key seems to be the financing and the need for the government to allocate more money to the sector. That they haven’t would suggest that it was not seen as a priority. Although it notable that the private schools are better run because they have the best incentive profit.
It is also worth noting that control over what is taught is also a high priority for the party much of that I would imagine coming from watching the events in Hong Kong and some of the Chinese Universities.
Most parents value education, Beijing will have to ensure that if they remove private schools and tutors that the state alternative is up to the same standard.

China aims to curb heavy drinking after work
‘The Central Commission for Discipline Inspection, the Chinese Communist party’s anti-corruption watchdog, said pressure to drink could lead to crimes and such practices should be replaced with “correct values”, according to a commentary on its website.’ It also mentioned about banning karaoke songs that were not in the public interest.
For investors the initial reaction was to see the liquor names came under some selling pressure yesterday but it was muted and many think that the threat of some government action may prompt individuals to stock up on liquor; so short term liquor sales may rise.

China jails Canadian for 11 years on spy claims
Most are linking the case as a retaliation for the arrest of Huawei’s executive Meng Wanzhou in Vancouver. It follows ‘the Liaoning High People’s Court upheld a death sentence for Robert Schellenberg, another Canadian citizen, who had been found guilty of planning to send 225kg of methamphetamine to Australia. He denies the charges.’
Most view it as a sign of China’s refusal to accept the West’s rules based system.
It also has highlighted the opaqueness of the Chinese legal system in sharp contrast to the way the Meng is being treated under the Canadian legal system.

Beijing risks missile threat with focus on aircraft carriers
An interesting read that just as China has demonstrated the vulnerability of US carriers it is itself looking to develop more carriers.
An interesting read.

Companies & Markets
Chinese EV sales leap but scandals slow Tesla

Interesting to see how Tesla has suffered from poor publicity in China and that has hit China sales directly and especially because there are so many competitors in China.
China’s battery champ goes on global charge
CATL has benefited from favourable domestic policies but will be put to the test as a challenger when it ventures abroad.
An interesting read. Key for success in the sector is innovation which is something that the company it has recently been focused on.

Cathay Pacific’s radar clouded by Covid-19
Looks at yesterday’s results. It has done well to considering the circumstances but warned the the latest covid variants meant the outlook was still uncertain. Stock saw an initial spike this morning but then sold down was -2.4% at lunch. Its off the lows of last year but with no visibility and rising oil prices the future remains unclear.

Evergrande investors heartened by talks on sale of EV and property management assets
Stock rallied yesterday on the news but has given upmost of those gains as of lunchtime today. In addition to the stake sales the company is also out in the market trying to raise finance against existing projects, I saw the basic term sheet for one of its prime residential projects. It is clearly leaving no stone unturned and that reflects the change in mood in Beijing. It is also evident that Beijing expects the sector to work out a solution so that the government does not have to inject money.
Going forward that I think is the model Beijing hopes to use with any troubled sector.

Opinion
China investors should beware a fickle Beijing   By Brooke Masters
Looks at how many investor assume that in buying into Chinese companies they have the same rights as in developed markets. Notes that ‘Foreign ownership is officially illegal in many Chinese sectors, so companies that want to tap overseas cash set up “variable interest entities”, a structure made famous by failed energy group Enron. Essentially, investors buy shares in a holding company, often domiciled in the Cayman Islands, that purport to give them a share of the economic benefits created by the Chinese company but not operational control.’
But also goes on the explain the risk of change in policy by Beijing.
Worth a read. It concludes
‘It is a truism that emerging markets are defined by their governance: successful investments align your interests with those of the government or a controlling shareholder. In China, that task is rapidly becoming harder. Many of the uncertainties were apparent even when Alibaba listed, but enthusiastic investors opted to discount them. Now they cannot be ignored.’

For Interest
FT BIG READ. CORONAVIRUS
How to reach the unvaccinated

Governments are beginning to mandate vaccination as a condition of employment or travel. But experts warn of the ‘polarising effect’ of both coercive and gimmicky schemes to persuade reluctant citizens.



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