Aug 16 Asia update & FT: China's tech policy, Softbank and Afghanistan

16 Aug

This and previous notes can be found at Substack ( Asian Market Sense )
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Market opened lower and trended lower in choppy trading before finding support at 7,590 level.  Earnings and covid continue to dominate the market; as Melbourne extends its lockdown.  Beach Energy, Lendlease, Bendigo and Adelaide Bank, and Seven West Media  each sold off heavily after reporting earnings results. Argo  Investments was flat BUT BlueScope Steel good earnings; more than triple its final dividend, tack on a special payout, and announce a $500 million buy-back. Shares rose to a new 13-year high $26.15. There were also gains for JB Hi-Fi,, GWA Group, and GPT Group.
BHP confirmed this morning that it is in talks to merge its $20 billion petroleum business with Woodside Petroleum in what would be another blockbuster deal for the market.
No data due today but Tuesday we get the last RBA minutes.
Nikkei opened lower pre market data was better than expected and it avoid at technical recession but the market contiued to trend lower. Obon holidays underway meaning domestic flows lighter.  The covid resurgence overhanging the market and talk that the State of Emergency to be extended to Mid September and the area expanded.  None of which is going to help PM Suga’s ratings and there is talk of a hung parliament at the next election -VE for sentiment.  
Nikkei currently -536pts (-1.9%) @ 27,441
Topix traded in a similar pattern -33pts (-1.7%) @ 1,923
GDP Growth Rate Q2 +0.3% QoQ vs -0.9% Q1 (revised from -1%) (F/cast was +0.4%)
GDP Growth Annualised Q2 +1.3% vs -3.7% Q1 (revised from -3.9%) (F/cast was +0.8%)
GDP Price Index Q2 -0.7% YoY vs -0.2% Q1
GDP Expenditure Q2 +1.7% QoQ vs -1.3% Q1 (revised from -1.2%) (F/cast was +1.5%)
GDP External Demand Q2 -0.3% QoQ vs -0.2% Q1 (F/cast was 0.1%)
GDP Private Consumption Q2 +0.8% vs -1% Q1 (revised from -1.4%) (F/cast was 0.0%).
Due later
Industrial Production
Capacity Utilisation
S Korea 
Closed for Liberation Day, re-opens Tuesday.
Taiex opened lower and trended lower before finding support at 16,800. Bounced to 16,850.
Comes as the Govt raised its economic forecast and good results and propects for the Tech sector.
Taiex currently -144pts (-0.9%) @ 16,826
CSI 300 opened lower ahead of data but rallied despite the weak data. Shenzhen trading in the red but Shanghai trending higher in the green. Team China working hard to support the market and some investors also hoping this will prompt more Government or PBOC support. Trading wise I would expect to see some more caution ahead of the NPC session which starts tomorow.
House Price Index Jul 4.6% YoY vs +4.7% Jun (F/cast is +4.5%)
Fixed Asset Investment Jul 10.3% YoY vs 12.6% Jun (F/cast is 12.3%)
Industrial Production Jul 6.4% YoY vs 8.3% Jun (F/cast is 8.2%)
Retail Sales Jul +8.5% YoY vs 112.1% Jun (F/cast is 12.3%)
Unemployment Rate Jul 5.1% vs 5% Jun (F/cast is 5%)
Pre market opened @ 26,365 -26pts vs -9pts ADR’s
Market sold down heavily as the China data missed but found support at 26,100 but then bounced back to 26,300 level but now selling down again. Ecommerce and Tech names remain weak. Support from Insurers and Property names. cau names flat
No data due today, so I would expect Europe to open lower following the weakness in Asia.
US Futures
Opened Dow -50pts, S&P -0.1% and NDX slightly -VE
Data NY Empire State Manufacturing Index, Foreign Bond Investment, Net Long Term Tic Flows, Overall Net Capital Flows.

FT Front Page
Taliban on brink of taking over Afghanistan as president flees
• Islamist fighters face little resistance as they enter Kabul
• US and other governments rush to evacuate embassies
• Washington’s two-decade military project ends in chaos
China will be well aware of the Afghanistan’s ability to resist foreign influence but it has invested a lot of money into infrastructure in the country and so it will be keen to have good relations with the new government.

Investors flip to chips and biotechs in scramble to avoid China crackdown  Underlines that investors still like the basic China story but are seeking to avoid the uncertainty that is hurting the ecommerce sector as policy is being fleshed out and revised.
'“When President Xi talks about the importance of technology, he has expressly elevated the manufacturing industry over digital goods,” said Dan Wang, a Shanghai-based technology analyst at Gavekal Dragonomics.'
‘The co-founder of one big Silicon Valley venture capital investor said it still planned to invest in China but only in biotechnology, software and other sectors deemed as “safe”.’
The Economist as a number of articles outlining the potential downside risks of the current policy shift. It makes the point that much of the new policy is about data and also about re-distribution of wealth. Meituan is under pressure to pay its delivery staff better and provide adequate care; so wages and insurance costs will rise and that will hurt profits. Didi could face similar pressures.
But it highlights that many of that they are various departments seeking to tighten up the regulations and little co-ordination. Additional the implimentation of the policy directives from on high falls to people who have little experience or understanding of the businesses they are regulating.
Additionally the swift changes have undermined investors and venture capitalists which will make it harder for the new startups. That means that China’s world leading fintech sector could suffer a setback.
It concludes by saying ‘Apparently without irony, Chinese media have likened the government’s push to spur domestic chipmaking to the Great Leap Forward. In 1958 Mao decreed that farmers set up furnaces in their backyards in order to help China surpass British steelmakers. What the media have omitted to mention is that the resulting steel was mostly unusable pig-iron. Meanwhile, millions of Chinese starved as fields went unploughed. Mr Xi’s techno-leap towards cutting-edge chips and other deep tech will not be as calamitous—China is too prosperous for that. But it is not immune to the law of unintended consequences’.

Week ahead. Market questions
Doubts on commodities rally as China demand slows
Data due this morning will bewatched closely for clues about the level of demand.   Recent data has suggested demand in China has been easing, with the exception of coal.  
How are US consumers faring as virus cases jump?  Looks ahead to tomorrows US retail sales data.  An indication into the state of the US consumer and also the supply lines into the US.   We also get a number of US retailers reporting this week; Walmart, Target and TJ Maxx owner TJX Cos. DIY chains Home Depot and Lowe’s
What will the Fed’s minutes reveal about the debate over tapering?  They  will be released Wednesday.

Ex-Alibaba manager held over sexual assault claim
Further investigation over the case that made the headlines last week. Seems that whilst it may not have been rape they are still talking about assault by both the manager and client.
Online forums are now starting to question some elements of the woman’s story but the government looks set to use the case to its advantage and put companies underpressure to fall into line with whatever policies it wants to put in place.

SoftBank’s cosmic journey leaves investors off balance  By Leo Lewis
An interesting read about the recent presentation that SoftBank’s, Masayoshi Son gave to investors. It appears to have been somewhat laboured and confusing rather that illuminting. An interesting read, it concludes ‘Son’s difficulty in explaining the company to the markets may, at its core, stem from his extraordinary powers as a salesman. He is eager to load the Soft-Bank rocket with the stardust of visions that stretch centuries into the future.
But his enthusiasms risk blinding him to the possibility that the futurist razzmatazz is freight, not rocket fuel.’

For interest
‘Silver era’ beckons after a dismal decade
Hedge funds are enjoying a pandemic renaissance, with assets under management swelling to a record $4tn this year. Yet some industry veterans are sceptical that the current ebullience will prove durable.

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