June 30 FT thoughts & Asian update. China data, defaults and Didi. SCMP on the judiciary -independent?

30 Jun

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

Asia generally +VE at 12:45pm HK time. China +VE despite poor PM data but HSI sold down (and will be closed tomorrow). Other Asian markets +VE
Market opened higher in-line with the futures for the final trading session of the financial year. High was 7,370 in early trades and then trended lower with support around 7,340.
Leaders Communications and Materials. Telstra +4.3% on news its sold 49% of its tower business.
Covid cases remain a concern.
Private Sector Credit May +1.9% YoY vs +1.3% Apr (F/cast was +1.5%)
Private Sector Credit May +0.4% MoM vs +0.2% Apr (F/cast was+0.2%)
Nikkei opened higher and ticked up to 28,998 in opening trades but then sold down to flat at lunch time after Industrial Production data disappointed.  PM trading around flat -6pts @ 28,808
Topix traded in a similar pattern, early high was 1,960, to flat at lunch. PM trended lower -3pts (-0.2%) @ 1,946
Industrial Production Prelim May -5.9% vs +2.9% Apr (F/cast was -2%)
Industrial Production Prelim May +22% vs +15.8% Apr (F/cast was +27%)
Later 1pm
Consumer Confidence, Housing Starts and Construction Orders
S Korea
Investors encouraged on news the Moderna drug was effective  vs the delta variant.  Tech+VE following the US
KDCA reported 794  new covid cases 
(+199 DoD) a sharp spike.
Kospi opened higher despite mixed initial data; early high was 3,305 then consoldated back to 3,293 before working higher in choppy trading.  Currently +18pts (+0.6%) @ 3,304
Kosdaq opened higher eased back but then worked higher,small resistance at 1,030 but now working above +8pts (+0.8%) @1,031
Data out
Industrial Production May -0.7% MoM vs -1.6% Apr (F/cast was -0.4%)
Industrial Production May +15.6% YoY vs +12.6% Apr revised from 12.4% (F/cast was +19%)
Manufacturing Production May +16% YoY vs +13% Apr (F/cast was +21%)
Retail Sales May +3.1% YoY vs +8.6% Apr (F/cast was +7.9%)
Retail Sales May -1.8% MoM vs +2.1% Apr revised from +2.3% (F/cast was +1.4%)
Construction Output May -7.6% YoY vs -3.2% Apr revised from -1.8% (F/cast was -0.7%)
Taiex opened higher and trended higher but saw resistance approaching 17,800 currently +183pts (+1%) @ 17,785
Pre Market PMI data CSI 300 opened flat but rallied despite weak PMI data but trading was choppy through the morning suggesting Team China working hard. +22pts @ 5,212
Manufacturing PMI Jun 50.9 vs 51.0 May (F/cast was 50.9)
Non Manufacturing PMI Jun 53.5 vs 55.2 May (F/cast was 55)
Pre market opened @ 29,107 +114 pts vs ADR’s higher T/O with 2 IPO’s but no Northbound connect as HK closed Wednesday. After market Retail Sales Data. Market initially sold down to 28,922 in first 30 mins after weak PMI data. Bounced to flat but then sold down to lows beforea small bounce into lunch -62pts @ 28,950
Expect a cautious open ahead of inflation and employment data in Europe and jobs data from the US.  Futures indicate s FTSE +7 points at 7,095, DAX +12 points to 15,703 and  CAC 40  +8 points to 6,575, according to IG data.
Data Eurozone 
Core Inflation Rate, Inflation Rate,  
Unemployment Rate, Unemployment Change
Inflation Rate, Household Consumption, PPI,  
Current Account, Business Investment, GDP Growth Rate,
US Futures
Opened  Dow +20pts, S&P +0.08% and NDX +0.11%; 
MBA Mortgage Applications and 30 yr Mortgage Rate, ADP Employment Change, Chicago PMI, Pending Home Sales, EIA Oil Report

FT Front Page
Radio array to probe skies
An artist’s impression of some of the 200 15-metre wide dishes to be installed in South Africa that will become part of the world’s biggest radio telescope. The €2bn Square Kilometre Array observatory, a partnership between South Africa, Australia, the UK and four other countries, will be at least 10 times more powerful than existing telescopes.
Inside  South Africa and Australia to host giant radio telescope

Zuma hit with 15-month jail term after snubbing corruption inquiry
• Ex-president told to turn himself in • Big test for judiciary • ANC issues appeal for calm.

Teneo chief resigns following claims of drunken misconduct at charity event.
Declan Kelly, an influential adviser to many Fortune 500 chief executives, has resigned as head of communication firm Teneo, days after allegations of drunken misconduct at a charity event.

England waives quarantine for big business
Opposition politicians and smaller companies criticise travel policy.
Highlights the lack of a standard approach. One thing that strikes me is that government don’t really believe in the vaccines. if they did then the quarantining would not be required, just good tracking. That is a concern largely because of the signal sends to those who are and are not vaccinated. It would be interesting to know, how many covid cases have been discovered from vaccinated people who have been required to be vaccinated.

Father and son apologise to Japan for helping Ghosn flee
An interesting move. Saying that they felt sympathy for Ghosn’s situation which reflects badly on the legal system in Japan.

Taiwan unity flags as China steps up flood of disinformation
Looks at how China has sought to divide the Taiwanese people through the recent outbreak of covid in the country by using disinformation and fake news. ‘Group (IORG), a nongovernmental body that tracks Chinese information manipulation aimed at Taiwan. The group identified Chinese state media and other Chinese sources in either creating or spreading them.’
An interesting read and highlights how investors need to be careful about how they treat information coming out of China.

See also For the Chinese Communist party, opacity is a virtue and transparency a vice. Looks at the information release regarding the Taishan Nuclear Power Plant in southern Guangdong province.
It starts with ‘For the Chinese Communist party, opacity is a virtue and transparency a vice.’
Highlights the difference between the standard of news release between that in the West and China. An interesting read, no doubt the Biden administration has exaggerated the incident and used the it to embarass the Chinese but equally if China had been more honest in the first place it could have avoided giving the US that opportunity. The key parts are that CNN used the headline that the ‘Biden administration was “assessing reported leak at Chinese nuclear power facility”.’ That was worrying, more worrying was the fact that is was in Guangdong. The information only came out because China General Nuclear Power Group (CGN) has been sanctioned by the US; so CGN’s French partner Framatome was required to seek the US approval before it could assist in resolving the situation.
It notes ‘The Taishan plant had apparently tried to pre-empt the CNN report by publishing a statement on its website on Sunday night on June 13. That statement, however, simply said that there were no problems at the plant and did not address any of the seemingly alarming details in CNN’s report.
CGN and Taishan’s “never apologise, never explain” type of approach to the situation rattled people’s nerves. One local official in Jiangmen, whose jurisdiction includes the Taishan plant, said that local residents were in the dark.’
But Framtome and its parent EDF operated under different rules; plus the power plant is the first in the world to operate a European Pressurised Reactor, a Franco-German technology and hence would have implications for other sites.
Subsequent reports it says from Framtome have contained only minimal information; which it implies is because of the Chinese influence, and much less than that coming out of the US.
The incident turned out to be minor and seemingly easily remedied. China’s approach to it less so.

South Korean ex-prosecutor launches bid for presidency
‘South Korea’s former top prosecutor has launched a campaign to become president of Asia’s fourth-biggest economy in an election next year that will focus on discontent over rising inequality and corruption allegations.’
Increasingly the electorial issues are going to feature more in the news. They cover; engagement with North Korea, ties with China and Japan as well as local issues like Housing. Although the main focus is liklely to be the state of the economy.

Companies & Markets
Rise of decentralised finance catches watchdogs off guard
Blockchain projects that aim to cut out the middleman have made rapid advances. Looks at an event hosted by the International Organization of Securities Commissions that was attended by reps from the Commodity Futures Trading Commission and the Securities and Exchange Commission. Illustrates how DeFi has seen rapid growth and extended into new fields beyond crypto and now is evident in insurance, derivatives and even savings. Once again it could be that the regulators are behind the curve just because they are not being included in the conservations by the developers as there are no established regulatory forums.
Key being the fact that this is happening outside the normal banks as the orignators are trying to create a new financial system that means that the regulators haven’t been alerted to the developments. ‘Founders of some of the largest projects, such as Uniswap, have begun introducing governance systems that aim to spread responsibility for the apps among their users, rather than with a central authority.’
A good read and high lights the need, I think for a new body to oversee developments because whilst the founders may have the best intentions they will be others with less honest aims.
It concludes ‘For the SEC to take action against DeFi, it would need to assert “securities jurisdiction” over the programs and their related digital assets, said Michelle Bond, chief executive of the Association for Digital Asset Markets. “Just as a doctor shouldn’t recommend heart surgery for a knee scrape, regulations from one asset class or platform shouldn’t be broadly applied to non-similar asset classes or technologies,” Bond said.’

Also read Banks turn to blockchain in push for improved issuance  Networks offer potential to cut costs, streamline sales and reduce settlement risks.  A reminder that there are a lot of good uses for blockchain.  Others that spring to my mind are Property,  Freight Forwarding, Medical records etc.  

Didi steers cautiously to New York bourse debut with target of $3.9bn
Ride-hailing business that raced past Uber in China commands 90% of domestic market. Looks at the IPO and the potential issues. Competition seems to be less of a threat than regulatory change. But the other issue is whether it can finance the future that it envisions in autonomous driving. I still think that whilst no one new comer would look to challenge its dominance in the sector there is still a threat of being undermined on the edges.
Worth a read.

Rising China bond yields raise fears over looming surge in state-linked defaults
Looks at the rising concerns about weakness in some less developed province’s finances and the knock on impact on some SoE finances; adding to the wider default concerns in the credit market. Which is no doubt prompting investors to take a closer look at their own investments.
The six regions in focus ‘Hebei, Henan, Liaoning, Shanxi, Tianjin and Yunnan — have so far been able to avoid mass defaults as provincial authorities have stepped in to prevent a handful of missed payments cascading into a more serious wave.’
The point is whether the provinces/government would step in to prevent a major default. Key to me is that these defaults are occuring because the investment are not making enough money to repay the debt. The main reason then for Beijing stepping in would be to prevent mass unemployment or other social upset.
The articl makes clear that Beijing’s appetite for bailing out companies has dissipated. Its stated aim is to make people aware of the risks of investing. But it doesnt want unrest; so recently it has taken to pressurising other companies in the sector to shoulder the burden. But that can only last for so long. At the same time as the risk of default is rising so too is China’s need for more investment; meaning that is cannot just turn its back on the problem.
It concludes ‘While there have been fewer Chinese corporate defaults this year, the scale of missed payments has grown, said analysts. In the first half of 2021, 11 issuers with Rmb95bn of bonds defaulted compared with 17 issuers and Rmb92bn in the first half of 2020, S&P said.
S&P analysts added that “defaults are increasingly higher profile with bigger impact on markets and investors”.’
It will, in my view, only get worse. The question is whether there are enough profitable companies to take on the burden and if they do; will they remain profitable? At the end of the day the risk is being mispriced.

Just wanted to draw attention to an SCMP article  Below
Hong Kong judiciary next?  It highlights that China does not believe in an independent judiciary but see’s it as an arm of the government not a check on the government.  

Hong Kong’s judiciary should uphold country’s will, advance its interests, says Beijing’s national security chief in city | South China Morning Post

Hong Kong’s independent judiciary derives its authority from the central government, and as such, its decisions should reflect the country’s will and interests, according to the head of Beijing’s national security office in the city.

In a rare interview, published by a pro-Beijing magazine on the eve of the one-year anniversary of the imposition of the national security law, Zheng Yanxiong warned that Hong Kong’s much-vaunted rule of law would only be “castles in the air” if the legislation was not enforced.“[Hong Kong’s] independent judiciary’s power is authorised by the National People’s Congress. It must highly manifest the national will and national interest, or else it will lose the legal premise of the authorisation,” said Zheng, who is the director of the Office for Safeguarding National Security.
“It will be the biggest loophole in the rule of law if national security is not safeguarded.”
Comment: I would not call this a hint or a signal but a statement of what is going to happen. Why would the relationship between the Party-state and the judiciary in Hong Kong be any different than the relationship between the Party-state and the judiciary in the rest of the PRC?

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