Aug 3 FT & Asia China & Covid, HSBC, Evergrande, Steel and lying flat


03 Aug

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

Asia Tech names under pressure on concerns about more regulation from Beijing; Tencent trading for the first time in 10yrs below its 200day moving average

Australia
Market had a choppy open but trended lower from recent highs after mixed data and ahead of the RBA decision due later.
AfterPay +VE on the M&A news but Miners, Financials and Industrials weak. Qantas -1.2% on news staff will be stood down. Data out
Home Loans Jun -2.5% vs +1.9% May (F/cast was -2.1%)
Building Permits Jun -6.7% vs -7.6% May (F/cast was -5.5%)
Investment Lending for Homes Jun +0.7% vs +13.3% May (F/cast was +8%)
RBA Rate Decision
Japan
Nikkei opened lower at 27,580 but initially ticked higher to 27,700 but then reversed and trended lower to 27,500 going into lunch.  PM opened higher currently -200pts (-0.7%)  @  27,573
Topix traded in a similar fashion currently -13pts (-0.7%) @ 1,927
Gaming names weak; following the sell-off in the Chinese names on fears of more restrictions. Travel names weak as the Govt calls for people to refrain from travelling.
Results still in focus with 113 companies due to report today.
Data out
Tokyo Core CPI Jul -0.1% YoY vs 0.0% Jun (F/cast was 0.0%)
Tokyo Core CPI Jul +0.1% MoM vs 0.0% Jun (F/cast was -0.1%)
S Korea
Inflation data was slightly stronger than expected but sentiment hurt by the sell off in Chinese games names.   Tech names firm after a positive report on the semiconductor sector.  Foreigners rotating out of cyclicals and Steel remains weak.
KDCA reported 1,202 new covid cases (-17 DoD)
Kospi opened flat but worked higher to test 3,235 in early traded but unable to break above and then sold down to 3,213 around late morning before rebounding to around flat; currently +1pt flat @ 3,224.
Kosdaq worked higher initially to 1,042 in the first 20 minutes before trending lower before finding support at 1,030. Currently -6pts (-0.5%) @ 1,032.
Data out 
Inflation Rate Jul +2.6% YoY vs +2.4% Jun (F/cast was +2.4%)
Inflation Rate Jul +0.2%MoM vs -0.1% Jun (F/cast was 0.0%)
Taiwan 
Taiex opened slightly lower ticked higher and has traded around flat for most of the day; currently -12pts (-0.1%) @ 17,490
TSMC and UMC seeing good interest along with Shipping, but weakness in Energy and Plastics.
Data
Consumer Confidence July 76.92 vs 70.48 Jun
China 
CSI 300 opened lower but worked better through the morning. Investors concerned over the spread of covid as the Govt restricts travel -VE airlines etc. Infrastructure +VE on hopes of more stimulus and Power companies strong too At lunch CSI 300 +11pts (+0.2%) @ 4,945
HK 
Pre market opened @ 26,289 +53 vs -136pts ADR’s but market sold off first to 26,000 and then down to 25,800 before a bounce back; at lunch -249pts (-1%) @ 25,987.
Most sectors weak Tech especially on concerns about further regulation of the on-line games sector. Alibaba strong ahead of earnings.
HK looking to ease travel restictions from several countries; +VE for travel names.
Standard Chartered -0.7% numbers coming out announces dividend and buyback.
Evergrande -4.6% as Beijing says its debt problem is ‘liquidity stress’
See below for the more detailed Summary of the HK names from Jeremy’s sheet.
Europe  
Expect market to open lower following Asia.  Earnings still in focus
Ahead
Eurozone PPI
France New Car Registrations
US Futures
Opened slightly higher Dow +50pts, S&P and NDX +0.1%. Covid concerns remain. Last big week for US earnings 
AHEAD

Total Vehicle Sales, Redbook, Factory Orders, IBD/TIPP Economic Optimism, Logistics Managers Index, API Crude Oil Stock Change
Earnings due from : Alibaba, Amgen, Eli Lilly, Clorox, KKR, Under Armour, Eaton, Discovery, Pitney Bowes, Marriott, ConocoPhillips, Activision Blizzard, Avis Budget, Public Storage, Devon Energy, Jacobs Engineering, Bausch Health, Incyte, Philips 66, Ralph Lauren, Expeditors International, Nikola, Warner Music.


FT Front Page
China races to stem Delta rise
The outbreak in Nanjing is raising concerns as it quickly spreads into more provinces. Interestingly they are citing the clusters were seeded by imported infections or contaminated frozen goods.
A further story inside  In Nanjing, airport staff ’s illness has been linked to plane arriving from Russia   The concern for the authorities is the virulance with which the variant spreads.  This is the first time that an outbreak has spread between provinces having started at an airport it highlights the risks of opening up boarders if travellers are not vaccinate.

Square taps ‘buy now, pay later’ boom with $29bn Afterpay deal
• US group pays 30% premium • Dorsey touts ‘shared purpose’ • Largest Australian takeover.
The proposal has been well received by investors. The sector is another disrupter to banks and credit card providers; with many seeing it as a more responsible way to spread the cost of making purchases. The key is whether this triggers further consolidations in the sector.
Lex Square/Afterpay: an advance on ambition  Notes that using stock is a form of pay later financing.  Makes the point that the pay later companies rely on the banks they are trying to disrupt for funds.  The  key is that the start up’s appeal to the new generation of customers that have no affinity with the established banks.  

Belarusian sprinter shelters in Polish embassy after backlash from Minsk
Further bad news for Alexander Lukashenko, Belarus’s leader.

INSIDE
HSBC pre-tax profits up fivefold to $5.1bn
Lender resumes dividends and cuts provision for Covid-related loan losses.
Looks at the results and its worth noting that dspite being confident about its business model and the recent changes that it has made it is being reasonably conservative in writing back provisions.
Today the focus will be on Standard Chartered who are expected to announced a shareback and improving numbers key will be how the cost cutting is going, investment in Tech and saving on property.
LEX HSBC: Asia recruits have hire power   ‘As travel restrictions ease, HSBC will lose savings on travel and  entertainment. A return on average tangible equity of 9.4 per cent is  still below a medium-term target of 10 per cent or above. Quinn’s task  is to create an unassailable franchise in Asian wealth management  without creating a permanent drag on returns to go with it.’      

Evergrande sheds $420m stake in HK internet unit
Looks at the recent moves by the company to address its financial troubles. The company is being more aggressive than before in address its problems and I think that reflects further changes with the party with regard to problematic companies. Previously the company was able to rely on friends but this time around it is being forced to sell assest. We are also seeing Beijing putting pressure on companies to resolve their own issues and not looking to the government to step in.

Chinese steel prices fall on doubts about carbon cuts 
Monday saw a significant sell off in the sector following Friday’s politburo meeting chaired by President Xi which called for ‘a correction to “campaign-style” carbon-reduction plans by local governments.’ Basically highlighting the fact that a lot of the current proposals from the provinces have been hasterly out together and without proper thought. But the sector is a significant emitter of harmful carbon related emissions and so will see significant change but it is expected that plans will be revised and changes made more gradual than the initial proposal.
The key thing is that as is not a lot of spare global or regional capacity so any cut in Chinese production is likely to push prices higher.

OPINION
China’s young ‘lie flat’ instead of accepting stress by James Kynge
Looks at the background to President Xi’s crackdown on the private education system and highlights the pressures that some families find themselves under in trying to provide a better future for their children. It highlights the cost of tutoring, buying a costly apartment in the ‘right’ school catchment area etc, etc.
The key point being that some families make these choices and sacrifices in order for their children to have a better chance in life.
The fact that a lot of young people are electing not to follow that path is maybe a reflection on the system.
The government is worried that the young are not committed to work for prosperity; ‘“In this turbulent era, there is no such thing as lying flat and waiting for prosperity,” said Wu Qian, an official spokesman, this week. “There is only the splendour of struggle and endeavour. Young people, come on!”’
Maybe just as is seen in the west there are some people that want to opt out or to take a different route.
This comes at a time when birth rates are falling, women are chosing a carreer and a pet over marriage and children.
It’s an interesting read. It concludes with a quote from Alicia García Herrero, chief economist for Asia Pacific at Natixis who says “The bulk of China’s population is doing worse in net terms as housing affordability continues to worsen and access to education and health becomes more and more costly.”
That is a poor reflection on the system that is supposed to be there to benefit the people. One of the reasons given was to stop social disparity but I doubt it will. The rich will still be able to hire tutors for their children it will I think over time just make it more elitest. As for the sector; it will need to reinvent itself. A lot of people within the sector will now face hardship and that is not going to help unify society.

For Interest
Many bond funds can be far riskier than they appear
An interesting read. Key being that some funds are not reporting accurately what they hold. Summed up by
'The report focuses on the discrepancy between a bond fund’s actual holdings and its Morningstar classification and primarily castigates the former for seemingly deliberately misreporting and the latter for believing them.'

FT BIG READ. SUSTAINABLE INDUSTRY
The search for a circular economy
The mining and manufacturing processes for electric vehicle batteries are harmful to the environment. A quest is under way to find alternative sources of key metals such as lithium, cobalt and nickel.

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