June 29 FT Thoughts Xi and the Party, also Huarong, women working in China and more

29 Jun

This and previous notes can be found at  Substack ( Asian Market Sense )
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ASIAN summary at 1:45pm HK time,  Mainly weak


Market opened lower, with futures -VE on covid lockdowns, a number of REIT’s going Ex Div and miners weak. Initially support at 7,260 before trending down to 7,240 around noon but then worked better through the afternoon after NSW announced financial support measures.
Currently -4pts (-0.05%) @ 7,303
Pre market unemployment was worse than expected  although the jobs ratio was unchanged.  Then Retail sales data was not as bad as expected.
Nikkei opened lower at  28,927 but dropped to 28,900 level and traded sideways lower; currently -280pts (-1%) @ 28,768
Topix opened lower traded around 1,950 in the morning session PM dipped to traded around 1,945 level; currently -20pts (-1%) @ 1,946
Data out pre market
Unemployment May +3% vs +2.8% Apr (F/cast was +2.8%)
Jobs/Applications Ratio May 1.09 vs 1.09 Apr (F/cast was 1.09)
Retail Sales May +8.2% YoY vs +11.9% Apr revised from +12% (F/cast was +8%)
Retail Sales May -0.4% MoM vs -4.6% Apr revised from -4.5% (F/cast was +1.9%)
S Korea 
Kospi opened higher but dipped to 3,290 level in the first 30 mins and then traded around that level bfore trended lower to 3,280 around 2pm and traded sideways currently -17pts (+0.5%) @ 3,285 Kosdaq opened higher at 1,020 and worked higher to 1,026 around midday. Around 12:35pm it sold down to the opening level before rebounding; currently +4pts (+0.4%) @ 1,022
Taiex opened higher and rallied to 17,713 in early trades before reversing into the red at 17,579 then bounced to 17,650 then trended lower to 17,500 around 11:45am before rebounding to the morning highs before easing back to close +7pts (+0.04%) @ 17,598
CSI 300 opened lower (5,249) and sold down to 5,180 over the morning. PM bounced to 5,200 now trading sideways. currently -53pts (-1%) @ 5,198
Hong Kong 
Pre market opened 29,292 + 23pts vs +93pts ADR’s Auto and E commerce +VE Li Ning weak after its strong rally Monday. Market trended lower through the morning to 29,043 at lunch.
PM opened lower but seen a bounce currently -250pts (-0.9%) @ 29,016 Futures Expiry today. Northbound connect will be closed Wednesday and Southbound closed Thursday.
Futures indicate a lower open; FTSE 100 -4 points at 7,069, DAX -8 points @ 15,546 and CAC 40 -1pts @ 6,557, according to IG data. Sentiment data due later.  Asia  weak on covid concerns.
Data due
Eurozone Consumer Confidence, Sentiment (Economic, Industrial and Services), Consumer Inflation Expectations
Germany Inflation Rate
France Unemployment Rate, Consumer Confidence
UK Nationwide Housing Prices, Car Production, Mortgage Approvals, Mortgage Lending, BoE Consumer Credit, Net Lending to Individuals
US Futures
Opened Dow and S&P flat, NDX -0.1%
Redbook, Case-Shiller Home Price, House Price Index, Consumer Confidence, NY Fed Treasuries TIPS Purchases, API Crude Oil Stock Change.

Front page Print
Covid variant sparks exodus
Migrant workers looking to exodus from Dhaka, the Bangladesh capital, after authorities ordered a new lockdown to contain the spread of coronavirus amid a rise in infections of the Delta variant that was first identified in India.

Bundesbank boss tells ECB to cut stimulus amid fears over inflation
• Call for reduction of virus-led bond purchases • Special concern at rising energy prices
Highlights the diverse views within the ECB about the outlook for the economy and how it should be handled. The reality is that Europe is not one economy and so one standard plan fails everyone in some aspect.
See also inside Berlin’s future budget and fiscal policy will ripple across continent

Chinese women add to demographic struggle with fight to work beyond 50
Looks at the rising number of cases of women suing employers for making them retire at 50, for professionals its 55, but the law is vaguely worded.
It highlights the increase in single women in China who are self reliant. Also the aging population and the waste of human talent. It mentions that the basic shortage of good jobs in China; saying “But the authorities also don’t want old people to compete with young ones for jobs that are still in short supply.”
The basic problem seems to be that the law was passed in the 1950’s when life expectancy and the Chinese economy was in a very different position; back them few people lived passed 50 and women had an average of 6 children.
Starkly contrasting with today when life expectancy is to around 80 and births have plummeted.
The big problem will be the mismatch between the skills of those being forced to retire and the skills of those entering the jobs market from school or increasingly university. Whilst forced retirement allows for succession there is a huge waste of skills and no doubt a growing resentment of government policy by single women.
It’s part of an interesting debate about the state of the recovery in the Chinese economy. Nice quote ‘“The Chinese economy doesn’t allow both the young and the old to be fully employed,” said an adviser to the ministry of human resources and social security, which sets retirement policy.’

Financials. China credit
Stakes rise over bad debt manager Huarong’s fate
Deepening turmoil piles pressure on Beijing to resolve state-owned group’s future.
Looks at yesterday’s news that Citic Group has been asked to examine Huarong’s finances. That news raises more questions about the state of the company and its prospects along with those for the wider Chinese bond market.
Most people expect a resolution of the situation rather than a default but it highlights the difficult position Beijing is in. Wanting to make investors appreciate the risks involved in investing and the fact that the government will not bail out failed firms. But it is also aware it does not want to kill the growing bond market, not least because it needs the money. A default now would undermine that.
The likely option is, as seen in other sectors, is that it uses other market players to bail out the troubled player and spread the downside across a number of players.
There is however an irony of a ‘bad bank’ being bailed out by other ‘bad banks’.
I think the episode also reveals the immaturity of the Chinese banking system. They have watched how in other countries a ‘bad bank’ has been used but they do not have the experience of actually doing it.

China coal futures dive after Beijing official forecasts higher production  
Comments yesterday from a government official impacted prices yesterday. ‘Xinhua quoted an unnamed official at China’s top economic planning agency (NDRC) as saying higher production, increased imports and greater use of solar and hydropower would lead prices to “drop significantly” from July.’
Shows how Beijing is pulling out the stops to try and prevent inflation. Questions remain over how much influence it really has over commodity prices in the longer term.

Read also  Glencore bets on fossil fuel by taking full ownership of Colombian mine.  Key being that it recognises that coal is not going to be phased out overnight but over time.  Until the alternative power sources are up to speed there is still money to be made from coal.  I think that is a sensible approach.

Samsung’s emissions cast cloud over ESG claims
Samsung Electronics’ rising carbon emissions and slow reduction of fossil fuel use is undermining the group’s sustainability claims, according to environmentalists.
An interesting read that highlights how the environmentalists are going to be closely watching the claims from companies. They will be watching for the weakest link in any companies declarations. Interestingly the article says ‘Samsung has been pushing Seoul and Hanoi to speed up energy market deregulation aimed at inviting renewable energy investments. It wants to be able to buy power from independent renewable energy generators, bypassing state-owned energy groups.
But activists said it could apply more pressure given its political clout. In South Korea and Vietnam, it is the single biggest corporate employer and contributor to gross domestic product.’
It seems as ever that companies will always be pushed to do more. Which is a good thing for the planet.

Hitachi counts on robust US growth
Wave of infrastructure spending and return of manufacturing expected.
Company looking to focus on how to make money from Biden’s agenda as it implements its plans to transform itself into a ‘an IT and infrastructure specialist by merging and selling listed subsidiaries.’
It’s President expects ‘“the next 10 years will be a decade of growth” as the group aims to expand its software business Lumada.’
It will look to build US chip business and integrate the GlobalLogic business too.

Asset management. Monetary policy
Unwinding of reflation trade wrongfoots big-name funds
Bets on higher inflation are ‘rinsed’ after Fed’s signals of more hawkish rate outlook
Looks at the current flux in markets about how to be positioned; value or growth and the position of the Fed. An interesting read that underlines that actually nobody currently knows whether the inflation we are seeing will be transitory or more permanent. Key I think is not to be binary on the trades. The FANGS are good, strong companies and whilst interest rates will influence their valuations that is not the be all and end all for them. Equally with the value names; there are a lot of good companies that are able to benefit with low or higher interest rates.
This should be a gradual swap trade rather than an overnight switch. A good read; nice quote “You are in a period where valuations are much more stretched, [and] it takes less bad news to create the same amount of volatility,” said Ivascyn. “You want to keep checking your thinking.”

Xi places Communist party centre stage
To admirers, Xi Jinping is the right man at the right time, leading the 100-year-old party and China into a new era as one of the world’s dominant economies. But critics say he has erased all checks and balances.
An interesting read into the various reactions to Xi and his policies from different sections of society. To me it illustrates the numerous dichotomies within China. Claiming that the party line on history but warning that revealing other facts will lead to trouble. A party that is supposed to be about the workers and yet whose members are part of an elite. Saying that it presents the people and yet not listening to the views of the people.
I think President Xi does see himself as the defender of the communism that he saw and grew up which was more influenced by Mao than Deng. Worth a read. It suggests that there are more tensions in China than Beijing would have you think. Expect more on China as the party celebrates its 100th anniversay. Today bloomberg covered one of many speeches that Xi will be giving over the next few days; with the dominance of the party being the centrepiece. Which is Xi; the question is what will follow?

For interest
Scientists search for super shot to see off variants past, present and future
While vaccine drive continues worldwide, researchers turn attention to preventing next pandemic

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