Aug 2 FT & Asia update Japan worries about Taiwan, Views on the education policy.

02 Aug

This and previous notes can be found at Substack ( Asian Market Sense )
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Market opened higher and worked better through the morning hitting resistance around the 7,500 level, which is a new high and then trading sideways. All sectors positive.  Square Inc has announced plans to acquire Afterpay +30% for $39 billion; seen by some as a cheeky bid. Talk that the Santos and Oil Search merger is back on the cards.
Manufacturing Index Jul 60.8 vs 63.3 Jun (F/cast was 63)
Manufacturing PMI Jul 56.9 vs 58.6 Jun (F/cast was 56.8)
Inflation Gauge Jul +0.5% vs +0.4% Jun (F/cast was +0.5%)
Job Ads Jul -0.5% vs +1.5% Jun (F/cast was -1.5%)
Nikkei opened higher and worked higher through the morning after lunch it ticked up to test 27,800; currently +542pts (+2%) @ 27,834
Topix traded in a similar pattern currently +40pts (+2.1%) @ 1,942
Covid concerns seem to have eased despite the extension of the state of emergency. PMI came out better than forecast .
Manufacturing PMI Jul 53.0 vs 52.4 Jun (F/cast was 52.2)
Consumer Confidence Jul 37.5 vs 37.4 Jun (F/cast was 37)
S Korea 
Kospi opened higher but dipped initially and sold down at midday into the red. But PM rebounded and worked better to the initial morning level. Currently +16pts (+0.5%) @ 3,218
Kosdaq initially worked better but also sold down into the red around midday and also rebounded. Currently +5pts (+0.5%) @ 1,036
Manufacturing PMI Jul 53 vs 53.9 Jun (F/cast was 52.2)
KDCA announced 1,219 new covid cases.
Taiex opened slightly higher and tested in 17,350 in early trades. Pulled back to flat mid morning before working higher; trading around the day high going into the close +193pts (+1.1%) @ 17,439
Good data and local results encouraging investors
Manufacturing PMI Jul 59.7 vs 57.6 Jun (F/cast was 56)
CSI 300 opened lower after the weak official PMI data at the weekend and Caixin data this morning and drifted lower initially. But rallied strongly from mid morning +99pts (+2.1%) @ 4,909 at lunch.
Caixin Manufacturing PMI Jul 50.3 vs 51.3 Jun (F/cast was 51)
Hong Kong 
Pre market opened @ 26,055 +94pts vs +7pts ADR’s but sold down initially to 25,740 level before rebounding to 26,300 late morning. It eased slightly into lunch. HSBC results at lunchtime were better than. expected +VE. Key changes today are the increase in HK stamp duty and Biden’s Executive Orders come into force meaning that US investors can no longer buy Mobile, Unicom, CNOOC, SMIC and Tracker Fund but it does not seem to be having any material impact.
Expect markets to open higher; investors watching for  PMI data and earnings still in focus.
US Futures
Opened Dow +135pts, S&P+0.4%, NDX +0.35%
AHEAD Manufacturing PMI, Construction Spending, ISM Manufacturing Data (PMI, Employment, Prices, New Orders), Logistics Managers Index

FT Front Page
Signs of ‘housing fever’ surface as global property prices surge
• Fastest US growth in 30 years • Rises across OECD • Pandemic fuels demand for space.
An interesting trend that suggests a high degree of confidence from individuals.

China’s military expansion threatens the ‘survival’ of Taiwan, Japan warns
Japan seems to be trying to raise international awareness of the threat to Taiwan from China and the requirement for an international response to prevent a military confrontation. Taiwan could easily become a flash point because President Xi has said that it is his intention that Taiwan should be re-united with China. It will be interesting to see if more countries do more to express their support for Taiwan; especially considering its importance in the Tech space.

China’s tutoring crackdown divides parents
Looks at the practical implications for Chinese parents, who had intended to send their children to summer school.  Some people are happy that the government is providing affordable summer day school; staffed by licensed teachers and focused on extracurricular activities rather that academic subjects.  But some parents want to prepare their children for gaokao, China’s gruelling university admissions exam.  
The government says it has taken these steps to prevent social division and yet the success of the sector would suggest that a lot of parents in China are keen to make sure their children get the best education that they can afford, in order to have the best opportunities.
It will be interesting to see how the sector responds as their is obvious demand.
It has also raised wider concerns for investors about investing in China and the new risk of understanding government policy.

Beijing seeks talks on US listing reforms
China calls for increased co-operation after SEC tightens disclosure rules.
Follows the moves announced by the SFC on Friday requiring Chinese companies to provide more information prior to listing in the US most importantly being whether they have permission from Beijing to list but also more information about links to the government.
It would appear that Beijing is keen to try and address the concerns that have been raised by its crackdown on the education sector and the implications that arise from that. The article notes that for its past the China Securities Regulatory Commission (CSRC) is keen to develop the orderly development of certain industries. It also mentions Friday’s politburo meeting chaired by President Xi which promised stricter controls on Chinese companies selling shares overseas. The PBoC has also ‘called for fintech companies to improve competition and consumer rights as it signalled stricter oversight on illegal cryptocurrency activities while also forging ahead with its own efforts to develop a digital renminbi. The latest warning from the PBoC did not name any companies.’
For investors it will take time to fully understand and price in the new stance. It would appear that Beijing was surprised by the reaction to its policy announcement and is seeking to re-assure investors but the reality is this is a new risk that will need to be priced in.

China’s $100bn education sector learns how to survive crackdown
Ban on profits from core tutoring activities forces groups to rework models
A more in depth look at the sector which makes the point that some parents will still want the services provided by tutors. There is also the issue of what the current tutors and support staff will do.

Market jitters only underscore China’s importance  By John Plender
Looks at how China has seen significant foreign inflows in recent months and investors are still attracted by the liberalisation of its financial sector. The change in policy recently came as a supprise and suggests investors at both home and abroad underestimated the position of the party with regard to after school tutoring and also with regard to exercising control over companies that are listed overseas. He suggests that there is a risk that China will suffer if it continues to be hostile to foreign capital. He also points out that if Beijing wants the renminbi to be an global reserve currency it will be challenged by having to give up control.
Key is that we believe that China needs foreign capital and often presume that China will act like most developed nations and are supprised when it doesn’t. I think it is likely that going forward investors will realise there are additional risks involved in dealing with China.

Soaring demand leaves US ports choking on freight
Strains on both coasts bring delays and higher prices for businesses and consumers
The US logistics sector seems to have be overwhelmed which suggests a strong recovery and increased costs in the system that would also suggest inflationary pressure. It is also interesting the note that despite being GPS tagged containers can still get lost.

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