June 23 FT Thoughts & Lunchtime update Covid on shipping, trust in China and the benefits of long term investing

23 Jun

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

Asia at 12;45pm HK time
ASX 200 sold down initially after PMI’s were lower than expected.
Market sold down to 7,303 but 7,005 seems to be the support; key being to hold above 7,300. The rise in covid cases -VE for travel names. Laggards Financials along with Woolies (announced a $50 million non-cash impairment across its metro stores due to the impact of COVID-19). Leaders BHP, Fortecue and Afterpay.
Data Flash PMI’s
Manufacturing Jun 58.4 vs 60.4 May (F/cast was 61)
Services Jun 56 vs 58 May (F/cast was 59)
Composite Jun 56.1 vs 58 May (F/cast was 59)
Nikkei opened  slightly higher and traded sideways 29,008/28,860
Closed for lunch around the mid point. PM opened lower traded sideways in a tighter range 28,915/28,895. Consumer names +VE but weakness in Shipping
Softbank AGM, Son says he’ll remain Chairman after 69, defends autocracy.
Topix Opened lower 1,955 rallied to flat but then dropped with support around the opening level. Then late morning sold down to 1,952 and traded sideways into lunch. PM drifting lower. Currently -8pts (-0.4%) @ 1,952
Flash PMI’s
Manufacturing Jun 51.5 vs 53 May (F/cast was 53.1)
Services Jun 47.2 vs 45.7 May (F/cast was 47)
Composite Jun 47.8 vs 48.8 May (F/cast was 49)
Due later
Coincident Index Final Apr vs 92.9 Mar (F/cast was 95.5)
Leading Economic Index Apr vs 102.4 Mar (F/cast was 103)
S Korea
Govt to propose a record extra budget +VE for sentiment
Kospi opened higher and traded 3,265/3,275 until late morning then stepped higher to trade around 3,278.
Kosdaq opened higher, ticked up to 1,018, eased and then worked slowly better again. Currently +9pts (+0.9%) @ 1,021
Taiex opened higher as covid cases drop and despite weak consumer confidence data. It traded around 17,150 for the first 30 minutes then rallied. but saw resistance approaching 17,300 and traded 17,250/300 for the rest of the session.
After market we get
Unemployment May (Apr was 3.71% F/cast is 3.7%)
Industrial Production May (Apr was 13.62% YoY F/cast is 10%)
Retail Sales May (Apr was 18.27% YoY F/cast is 21%)
CSI 300 opened slightly higher, initially dipped but then rallied with resistance at 5,171 then eased into lunch +45pts (+0.9%) @ 5,167
Brokers downgrading China growth targets to 8.4% from around 9%. China announced to release next month will include 20,000 tons of copper, 30,000 tons of zinc and 50,000 tons of aluminum. With the exception of zinc, the volumes look light compared with expectations.
Pre market opened @ 28,468 +158pts vs+82 pts ADR’s
With E-Commerce, Macau, Auto and Tech weak on intial margin call selling but then worked higher to 28,763 just before lunch and ticked lower to 28,717 (+407pts +1.5%) at lunch.
Expect markets to open higher following Asia but key will be the PMI data
Flash PMI’s (Services, Manufacturing and Composite) and  ECB Non Monetary Policy Meeting  
US Futures
Opened flat Dow +28pts, S&P flat and NDX +0.1% but have risen in Asian time Dow +82pts, S&P and NDX slightly +VE
Ahead MBA Mortgage Applications and 30 yr Mortgage Rate, Current Account, Manufacturing, Services and Composite Flash PMI’s, New Home Sales, EIA Oil Report.
NY Fed Treasury Purchases 4.5 - 7 yrs, 2 yr FRN Auction and 5yr Note Auction.
FED Speakers Bowman, Bostic and Rosengren speak
Earnings: IHS Markit, Winnebago, KB Home, Steelcase


G7 snubbed
Tax resistance in Bermuda
Bermudian finance minister Curtis Dickinson has told the Financial Times the island’s taxation regime is a matter of sovereignty, as he pushes back against the G7’s bid to agree a global minimum levy on profits and close loopholes.
Inside Bermuda pushes back against G7 pressure for global tax deal.  Island haven fears corporate levy would hit reinsurance sector and be complex

More than 5m people become millionaires despite pandemic
• Global wealth rises by $29tn • Rich-poor gap widens • Most adults have under $10,000 Looks at the result of a recent Credit Suisse report.
“The contrast between what has happened to household wealth and what is happening in the wider economy can never have been more stark,” the Credit Suisse report said. It found that the wealthiest benefited the most from a policy response that inflated assets, with the gap between rich and poor widening in most countries.’

Taiwan tech groups lock up migrant workers to contain Covid outbreak  Looks at the recent policy in Taiwan of keeping migrant workers confined as it struggled to cope with the recent surge in covid cases


Biden signals his bark and bite are same over Russian cyber attacks  An interesting read, it notes that by involving NATO there is the potential to invoke Article 5 that ‘stipulates an attack on one is an attack on all. “Allies recognise that the impact of significant malicious cumulative cyber activities might, in certain circumstances, be considered as amounting to an armed attack,” the Brussels-based military alliance said, noting cyber threats were “becoming ever more frequent”.   That could raise the stakes because ‘the US believes Russia has structured its policies so its engagements will always fall short of war.’
It also mentions the potential to use offensive cyber capacity; ‘potentially go after computer infrastructure used by ransomware hackers in Russia and Europe.’
Worth a read.

Covid outbreak at Shenzhen port worsens supply chain delays
Looks at the disruption that is occurring due to the recent outbreak of covid in China that resulted in the closure of the Yantain terminal in Shenzhen for one week. The closure was in May and yet the terminal has only recovered to 70% of normal operations and has caused knock on difficulties to other surrounding ports of Nansha and Skekou.
The lesson is the same globally that disruptions at ports or for crews can have global implications; from the piling up of goods at source, lack of space for containers for loading and unloading, shipping issues etc etc. all of which will have an impact of the global recovery and inflation. Also worth nothing that with restricted flights; airfreight is not an option. But container prices can now be over $11,000 vs $8,500 in May and $2,000 in October.
It notes that ‘Larry Hu, chief China economist at Macquarie Group, said that Chinese exports suppressed price growth. “The share of China in global exports has reached [a] new high, in response to the pick-up in goods demand globally and the constrained production elsewhere,” he said. “Otherwise, the global inflation pressure could be even higher.”’
For investors the outlook for shippers remains +VE

Australians’ trust in China falls amid diplomatic chill
looks at the result of the annual Lowy Institute survey, which ‘found that 16 per cent of respondents said they trusted China to act responsibly in the world, a 30 per cent fall since last year. In 2018, more than half of Australians said they trusted China.’
That contrasts with an increased trust in the US.
It also notes that ‘Despite growing distrust of Beijing and positive sentiment towards the US, more than half would prefer to remain neutral if China and the US went to war.’
I would imagine that might depend on the reason the two went to war.
But I think it illustrates how China’s Wolf Warrior diplomacy that was effective in the early days of the Trump administration has become a liability since China refused to allow an independent free investigation into covid. Recently President Xi has called for less outspoken diplomatic comments but in the meantime damage is still being done.

Companies & Markets
EU warned of emissions risk in green plans for shipping
• Proposal involves slower vessels
• MSC chief predicts larger fleets
An interesting read the big problem for the shipping industry is trying to find an alternative clean energy to power the ships that can be made available at all ports in a very short period of time. The fact that the industry has yet to come up with a preferred solution reflects the fact that there is not an easy alternative. Interestingly that indecision also resulted in a sector not engaging in its normal boom and bust cycle of building new ships when rates rise, although there are now signs that they are doing so.
That new willingness to order new vessels at a time of low interest rates could cause problems in the years to come, but in the short term the sectors is seeing good interest especially in Taiwan, Japan and S Korea.

Blackstone seals $6bn housing deal
Private equity firm shows confidence in US property with HPA acquisition.
Blackstone is recognised as being a shrewd property investor and I think this is a play on their view on inflation and bonds. Taking the view that real assets are going to be a much better investment than bonds going forward.
See also LEX Blackstone: home ownership ‘Home ownership is aspirational, but it is hard when single-family home rents in April grew at the fastest in 15 years, according to CoreLogic.
Institutional homeowners claim they provide a  valuable service to those unwilling or unable to buy a home. That may be  true. But the result of public policy and commercial failures means  they have also become rent-seekers, in both senses of the word.’

Backlash against S Korea’s Coupang grows after deadly fire
The fall out is being seen in a wave of boycotts and  a petition to hold  executives accountable, according to the article.  The company has faced many criticisms in the run up to its listing and since.  Today S Korean press is reporting that it’s facing its biggest backlash yet as criticism mounts over working conditions as the death of restaurant owner after dealing with Coupang Eats customer marks latest controversy surrounding the company.
So far its convenience and prices have outweighed the criticisms but there may be a point at which that changes.
Stock is trading around$40 off the low in May ($30) and the high on listing in March $69.00.
Management will need to make changes and that could hurt margins but failure to do so could be worse.

Panasonic defends $7bn price tag in acquisition of Blue Yonder
Insisting that the price is reasonable for the benefits it will achieve.
‘The sense of crisis driving Panasonic’s move is pervasive across Japanese companies, which once thrived in the era of consumer electronics hardware. Many have struggled as global demand shifted to software and with the creation of huge technology companies such as Apple and Amazon.’
An interesting read about the failure of Japanese companies to embrace software and also of their business acumen when it comes to buying stakes in companies or taking over companies.
Worth a read, I think it reflects the fact that Japan Inc tends to believe its ways are always right and remains resistant to change. The Toshiba scandal and others incidents reflect that.

Fitch cuts Evergrande rating over debt load
Despite claims from the company that all is well Fitch has downgraded the stock due to “ongoing pressure for Evergrande to downsize its business and reduce total debt”. “We believe the company’s debt reduction plan is achievable but it is subject to meaningful execution risk,” Fitch said.
Comes as Bloomberg reported that some Chinese banks are reportedly not going to renew loans when they become due.
It raises the wider question of debt defaults, credit shortages and whether Beijing is prepared to help large companies in trouble.
To date Evergrande has managed to call of friends and allies to support it and hurt short seller, but the share price has been trending lower since late 2017 and the outlook remains tough.
But it illustrates that normal business practices do not always work out as you would expect in China.

LEX Japanese chipmakers: power down  ‘The chip crunch has supported stock prices of Japanese  chipmakers in the past year. Shares of Renesas have gained more than 80  per cent. This is in line with gains for Taiwanese peer TSMC. However,  Renesas’s shares still trade at a valuation discount of at least 30 per  cent to global rivals.
Higashi notes that it takes at least a decade to build a world-class industry. Even with government support, capital spending will have to remain high for years. Until mass state support is provided, Japan’s chipmakers will continue to underperform global rivals in both technology and on valuation.’
Worth a read, highlights the the difficulties of building a semiconductor business and that is without the complication of US sanctions.

OPINION Economics
The healing of democracies starts at home
Principal threats to western values come not from Beijing but from inside our own societies By Martin Wolf.
Defends the G7 and the need for ‘for high-income democracies to co-ordinate policies in areas of common interests and shared values. This is particularly true when democracy itself is in recession and power is shifting away from the US and its allies, especially to China.’
But the biggest threat is ‘the failure to ensure widely-shared prosperity and defend democratic norms that matters most’
A good read.

Baillie Gifford bets on a long tech boom
Early bets on Amazon and Tesla have made the Edinburgh firm an investment phenomenon and helped it record huge returns for shareholders. It now sees the most compelling opportunities in China.
A good read about the benefits of long term investing and retaining good staff.

Bitcoin rival monero emerges as crypto of choice for cybercriminals
Untraceable asset rises in popularity with ransomware gangs, posing problems for law enforcement.
An interesting read that highlights how not all crypto coins are equal.
‘Monero was launched as an open-source project in 2014 by a user of a bit-coin forum with the pseudonym “thankful_for_today”. Its original white paper argued that bitcoin’s traceability was a “critical flaw”, adding that “privacy and anonymity are the most important aspects of electronic cash”.
Ehrenhofer is among those who argues that bitcoin’s visibility should be rejected in favour of a fully private financial system. “The main goal is transaction indistinguishability — to make private and fungible money,” he said. “We want to make monero as similar to cash as possible, where one $10 bill is the same as another and the merchant doesn’t know where they came from.”’
An interesting read.

AI drug-discovery start-up raises $255m
Insilico, an artificial intelligence-based drug-discovery platform preparing to trial its first treatment in humans, has raised more than $255m from investors including Warburg Pincus and Sequoia Capital China.
Worth noting that this is a Hong Kong based start up with Baidu Ventures as an existing shareholder.

Australia’s pension titans set to storm private capital
Funds controlling $2tn are bypassing PE firms to place big bets on groups directly.
Worth a read, the large ones are following the Canadian funds and others in the search for yield are taking matters into their own hands.

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