Apr 5 FT China curbs property lending, Japan's overseas problems, China and Myanmar and more

05 Apr

AUSTRALIA market closed, reopens Tuesday
PMI data, after the market opened, was stronger than expected opened Nikkei opened higher at 30,084 and traded around the 30,100 leveller most of the day Currently +236pts (+0.8%) @ 30,090
Topix Opened higher at 1,980 level but initially eased back to 1,975 before working better through the morning but with resistance at 1,985 just before lunch. PM broke above 1,985 briefly before easing back, and finding support around the 1,980 level. Currently +10pts (+0.5%)@ 1,981
Services PMI Final Mar 48.3 vs 46.3 Feb (F/cast was 46.5)
Composite PMI Final Mar 49.9 vs 48.2 Feb (F/cast was 48.3)
Services PMI was revised upward to 48.3 in March 2021 from a preliminary reading of 46.5 and after a final 46.3 a month earlier, marking the highest reading since January 2020. Employment expanded for the second straight month, with the pace of job creation quickening and the steepest since January 2020, amid easing COVID-19 restrictions under state of emergency laws. Also, new orders shrank the least since July 2020, and export sales fell at the softest rate since February 2020. On the cost front, input cost inflation hit its highest in 14 months, due to higher raw materials and fuel costs. However, prices charged dropped further, though the rate of decline was the softest in four months. Looking ahead, sentiment strengthened to the highest level since May 2013
Composite PMI was revised higher to 49.9 in March 2021 from flash data of 48.3 and after a final 48.2 in February. This was the highest reading since January 2020, signaling a broad stabilization in business activity, with manufacturing output growing solidly while services activity rose at a softer pace. New orders moved towards stabilization; while employment levels rose for the second straight month and were at the fastest rate in 14 months. Finally, sentiment hit its highest since May 2013, on hopes that the impact of the pandemic would dissipate amid a successful vaccination program ahead of the Tokyo Olympics.
Tomorrow we get Household spending and Average cash earnings pre market. Later there is a 30 year JGB auction.
S KOREA  Pre market Foreign Exchange Reserves missed.Korean investors initially reacted positively to the strong US jobs numbers but it appears they have more concerns over possible inflation and the pushback from Republicans over the infrastructure spending plans.
Kospi opened higher at 3,120 but sold down through the morning to 3,100 level around 10:30am before working back to Fridays closing level and trading sideways. Currently +1pts (flat) @ 3,114.
Kosdaq opened @ 971, sold down in first 30 minutes to 966 and then worked back to flat late morning. Then sold down again to 968 before working back towards flat; currently -1pt flat @ 969.
Foreign Exchange Reserves Mar $446.13b vs $447.56b Feb (F/cast was 453b)
TAIWAN market closed re-opens Tuesday
CHINA market closed re-opens Tuesday and we get Caixin Services and Composite PMI data just after the market opens.
HONG KONG market closed re-opens Wednesday
EUROPE markets closed re-opens Tuesday
US Futures 
Opened Dow+136pts, S&P +0.4% and NDX +0.2% and have risen to Dow +200pts, S&P +0.5% but NDX still +0.2%.  The strong jobs numbers on Friday the driver.  Plus the US reported another daily record of new Covid vaccinations Saturday, pushing the weekly average of new shots per day above 3 million +VE.  
But some concerns about the pushback from companies on tax increases to pay for the stimulus package.
Data due Services and Composite PMI’s, ISM Non Manufacturing Data, Factory orders.

On line
Russia flexes its ‘sovereign internet’ with move to curb Twitter
Parallel web is designed to give Moscow more control and reduce reliance on foreign tech.'Exerting greater control over foreign social networks — the biggest outlet for dissent in Russia — has become more pressing for the Kremlin after supporters of jailed opposition activist Alexei Navalny used them to organise nationwide protests in January.’
Looks at how Russia is looking at a sovereign internet run on its own servers, it will be cheap and easy to access and they will make the foreign controlled internet difficult to access. It hopes initially that that threat will ensure more compliance by western sites with Russian laws, especially anti Kremlin content.
An interesting read about the potential for state control.

Nomura’s Archegos setback bares growth dilemma for Japan Inc
Companies need to expand globally but often stumble abroad.
'Familiar criticisms of the bank’s accident-prone nature have resurfaced. Its past is befouled with crises and misadventure, not least its disastrous purchase of the failed Lehman Brothers operations in 2008. But few debacles before Archegos so succinctly define the dilemma facing not just Nomura and Japan’s finance sector, but the broad sweep of the country’s corporate base. Japanese companies need to go global, but are often haphazard globalisers.’
He concludes 'Nomura’s problem is an acute version of an issue shared with many Japanese companies that surged to the top of global rankings in the late 1980s, but may never have used their spell at the top to develop the management musculature and scale required of globalisation. Now Nomura and others have no choice but to globalise, that oversight is shifting into a liability.’
I think a key issue is that Japanese companies do not trust foreign staff to control overseas operations. They don’t believe they can do the job as well and additionally western executives rarely exhibit the same level of loyalty and obedience to the company (even when it makes no sense) that the firms top management expect. Until there is compromise on both those points I think Japanese overseas expansion is doomed.

Front page 
Europe suffers fresh spike
Italy starts a three day lockdown as more cases of the now dominant B.1.1.7 variant, in France, Germany and Belgium. The slow roll out in Europe blamed and it puts questions over the European recovery. Likely to be high on the agenda of G20 summit later this week.
Inside Page 2 ‘It’s spreading fast and it’s spreading everywhere’A new strain, shortage of shots and lockdown fatigue allow cases to surge again. This wave is not only impacting the old but middle aged and younger patients are also susceptible.
Also Italy central bank warns on jab rollout
Chief says patchiness of international effort poses large economic threat. Italy will on Wednesday host a virtual meeting of G20 finance ministers and central bank leaders.

China tells banks to curb lending as fears rise over property boom
• Loans that buoyed Covid rebound curtailed • Beijing shifts focus to controlling credit risks
PBOC extends its tightening telling lenders (foreign and domestic) 'to keep new loans in the first quarter of the year at roughly the same level as last year, if not lower,’A big negative to the banks and developers but also to the white goods sector like Haier and Gome etc.
Many investors have been cautious since the NPC meeting trying to determine the governments policy and now they have a clear sign that it is focused on reigning in debt. The question is how far will it go?
A number of developers have bonds to repay and a large number of local governments depend on land sales to make up for the short falls between their spending and central government allocations. -VE for markets which are trading around 5 year highs but I think designed to ensure there isn’t a big markets crash ahead of the communist 100 year anniversary.

Jordan accuses demoted crown prince of ‘foreign’ plot to destabilise kingdom'
Jordan has accused a former crown prince of plotting with “foreign entities” to destabilise the kingdom, as divisions within the ruling family burst into the open.
’Foreign minister says the plot has been contained. 'Prince Hamzah released a video on Saturday claiming that he had been placed under house arrest as part of a crackdown on government critics.’
Major General Yousef Huneiti said that Bassem Awadallah, an ex-finance minister and chief of staff to King Abdullah, and Sharif Hassan bin Zaid, a distant member of the royal family, had been arrested along with 16-18 other people had been arrested.
Jordan, which borders Israel, Iraq and Syria is seen as a moderator in the Middle East.
Some think there are divisions within the ruling family or that the King could be reacting to complaints of corruption and poor governance as social and economic pressure mounts in the resource-poor country.Whatever the reason the events are surprising and slightly -VE for sentiment.

Page 3 
Tycoon bomb plot sheds light on Mumbai’s dirty politics
Threat to Reliance chair highlights hub’s reputation as city of extremesAn interesting read which suggests the corruption of the 1990’s has come back to Mumbai, back then it was called Bombay, the name may have changed but it seems the ethics haven’t.

Page 4
Vital Indian state tightens curbs amid Covid surge
'The state of Maharashtra, home to India’s financial capital Mumbai and more than 100m people, introduced restrictions, including a weekend lock-down, as the country’s daily Covid-19 caseload approached a record.’
Not quite a lock down but close. Notes authorities are worried about the speed at which the new outbreak has spread and the presence of the variants first seen in UK,S Africa and Brazil but now have identified a new “double mutant” variant in Maharashtra but they are not saying that is the reason for the sudden acceleration in cases.The surge could have an impact on the number of vaccine doses that India can export! -VE

Jakarta fund vows to avoid 1MDB snags
International appetite tested — with governance issues in the spotlight its new sovereign wealth fund’s head says it will avoid the mistakes of 1MDB and hopefully avoid making new ones too. It says that some worry that a bill passed in 2019 has weakened the anti-graft agency’s powers but I think the 1MDB scandal, with trials related to it still taking place will keep it clean to start with.
It aims to be up to $100bn and the UAE has just become its first external investor with a $10bn pledge. It has not named other backers.
Notes 'Indonesia is being courted by the US and China as a strategic partner. One mooted large investor in the fund is the US International Development Finance Corporation, a federal agency that Jakarta claims has pledged $2bn.’' The UAE said that it would invest in sectors including roads, ports and tourism’ its pledge was in addition to $5bn injected by the Indonesia government and the funds initial aim is to raise $15bn from international investors.
Indonesia needs the money but more importantly needs to be able to show that it can overcome the corruption that has plighted the country for so long. It has attracted a number of good international companies to set up manufacturing and is well located to attract more as global supply chains are adjusted. Over +VE.

Republican states look for ways to undermine Biden on zero-carbon electricity
Says 'Republican-led state capitols are considering bills that would punch holes in President Joe Biden’s green revamp of the US electricity system by promoting fossil fuels or piling costs on renewable energy.’
An interesting read and one wonders if the ordinary citizens will support such moves from the elected representatives. I would suspect a lot will not but time will tell.

Companies & Markets
China tech in rush to shelve listings after Ant debacle
• Reaction to tighter watchdog scrutiny
• Risk of slowdown lasting until 2022

Was run as 'Chinese tech groups scrap IPOs at record pace after Ant listing pulled’
In the online edition over the weekend. Here is a copy of what I wrote Saturday.
Companies cancel plans to sell shares on Shanghai’s Star Market as regulatory scrutiny rises.
FT research shows 76 companies have pulled their proposed IPO’s in March, more tha double February’s. That is going to raise a question mark over the future of the Star Market and the development in offshore capital markets at a time when China is keen to provide an alternative to the US markets as Chinese firms are placed under pressure to delist there.
It is 'a U-turn by Chinese authorities, who had committed to a so-called registration-based system when Star launched with the personal backing of President Xi Jinping.’
That quick listing process it seems is now revoked due to Ant Group. The CSRC is asking more questions and that is increasing listing costs, making the process less attractive.
That said there are still ‘almost 2,300, according to market data provider East Money Information, a backlog that would take about four years to clear based on the pace of IPOs in 2020.’
It says 'The increased scrutiny of IPOs also comes as official concerns grow that a flood of listings could suck liquidity out of China’s stock market, which has been a global laggard this year.’
I would say the laggard nature this year was because of its strength last year and hence a high base case effect. But I don’t see a lack of liquidity at present in the markets China has been trying to tighten up on money flowing into the markets and generally withdrawing liquidity as it seeks to rein in debt. It is also tightening up on personal loans being used for either property or stock purchases. It is worried about a pullback from the current highs, with its markets trading at or near mutli year highs; especially if a crash were to occur ahead of the 100th year anniversary.
Additionally it says Beijing wants to see certain kinds of tech companies list; like semiconductors, which are seen as strategically important. That is certainly true and it is looking for money that can’t be ’sanctioned’ in some way by the US.

Taxing times Biden plan set to knock 9% off earnings per share for S&P 500 businesses
'Goldman Sachs calculated that Biden’s tax plan would knock 9 per cent off earnings per share for companies in the S&P 500 next year.’
Looks at how his infrastructure plan would cost companies, of course these tend to look at the costs and I it does not says if they factor in the benefits from better infrastructure or the fact that some companies impacted will benefit directly from the award of government contracts.Corporate taxes are expected to rise from 21% to 28%. 'The proposal would also add a global minimum tax of 21 per cent, determined on a country-by-country basis, to target tax havens.'
Sectors expected to be most under pressure are Communication services and information technology due to their exposure to higher taxes on foreign dealings. Tech is also seen as being under pressure but from rising borrowing costs, impacting their future cash flows.
At present it suggests that the market hasn’t factored in the rising tax costs, mainly because people are not sure how they will fully impact companies.
I think whilst taxes will rise the benefits to the US from better infrastructure will offset the costs. But as with so many things; everyone wants the benefit but nobody wants to pay.

Hedge funds review bank ties following assets fire sale by Archegos
I suspect it will be two way with banks doing in-depth risk analysis not just on hedge funds but family offices too and vice versa. Key will be that riskier clients are ‘let go’. But also some funds are going to want to know that if a difficult situation arises that the bank will support then and not sell them out in a disorderly fashion.
There is also likely to be less liquidity available as short term certainly Nomura and Credit Suisse are sidelined by recent events.

Xinjiang backlash tests clothing sector’s moral fibre
Beijing in sharp riposte to cotton boycott based on forced labour claims
Was run as Multinationals tread cautious path in China boycott in the online edition at the weekend.  Here is a copy of my piece.
Diplomatic row over Xinjiang abuse allegations risks lasting impact on foreign brands attempting to clean up supply chains
A further look at the situation. It notes that Chinese netizens are being supported by state media to boycott Hennes & Mauritz, Nike, Adidas, Burberry, Uniqlo and Zara among others as the situation becomes more and more political.
A difference from previous situations is that many companies are not prepared to apologise and acquiesce to China’s demands because to do so would result in criticism at home from customers, politicians and lobby groups.
'Zuzanna Pusz, an analyst at UBS, said the boycott was more serious than past crises as the brands have “been caught up in something that’s political”. “If a brand makes a mistake in terms of its communications or the choice of an influencer, it can apologise and make things right. Here, by trying to make things right, they would actually make things wrong,” she said, noting that many western groups have committed to following guidance on sourcing from Better Cotton Initiative, a Geneva-based ethical trade group that counts more than 2,000 brands as members, including Nike and H&M. Yet membership is now a liability in China, after state media accused BCI of “smearing” Xinjiang and sparking a widespread rejection of its cotton. The non-profit group stopped licensing cotton from Xinjiang last year citing “sustained allegations of forced labour and other human rights abuses in Xinjiang”.
The article notes 'Chinese state broadcaster CCTV last week aired an interview with BCI’s Shanghai representatives, who accused the Geneva headquarters of disregarding its assessments declaring that there was no evidence of “forced labour” in Xinjiang. Mei Xinyu, a researcher affiliated with China’s commerce ministry, told the Financial Times that he believes BCI is now “just one step away from Chinese government sanctions”. The group should reform its verification work to focus on technical standards and “steer clear of politicised acts”, he said.’
Whilst no doubt the state interview will go down well with the domestic population western watchers are less convinced.
In my view the easiest way to clear up the situation is for China to allow the UN team unfettered and complete access to Xinjiang. They have said they would but as with the WHO team on covid, now they are raising issues and restrictions. If China really has nothing to hide why is it following this path?I think once again having adopted a state narrative on the matter Beijing cannot now concede to its domestic audience that it hasn’t told the truth. With such control of the media there is little chance the domestic audience will hear anything but the state view. But I think over time people will start to question why is China always denying foreign claims, at some point they may question the party narrative and that will present the party with a much bigger dilemma.

Investors raise pressure over pandemic issues
US companies are facing the largest number of demands from investors to address environmental and social concerns in four years, as shareholders press management teams over their handling of the Covid-19 pandemic. It doesn’t mention human rights issues but I am sure that will not be far behind covid concerns.

Market Questions. Week ahead
Fed to offer insight into its debates on interest rates.  Investors will be searching the FOMC minutes, to be released this week, for clues about inflation risks and what will concern the Fed.
How strongly will the UK economy rebound?  A lot of countries release PMI data this week and much of it on Wednesday just before the UK re-opens nonessential stores, personal care services, indoor sports centres and outdoor areas at hospitality venues such as bars, pubs and restaurants across England. Services account for about 80 per cent of the UK economy.'The consumer-driven economic recovery expected in the spring was being supported by unprecedented household savings accumulated during the pandemic, said Howard Archer, chief economic adviser at UK economic forecasting group EY Item Club.’
Can the gold price recover?  After its worst quarter since the end of 2016.  Has it lost its safe haven appeal or is the current weakness a reflection of last years strong gains.  One also has to wonder whether it is being replaced by other things like Bitcoin?

China holds the key to stabilising Myanmar
The country risks a spiralling conflict or a slide into chaos
Suggests that India but most of all China should use their links to spell out the choices which it says are 'ruling over a ruined economy and an overwhelmingly resistant population, or backing down.’ It continues 'China is Myanmar’s biggest trading partner and investor, shares a border and — while it cares little about a reversal of democracy — has a vested interest in keeping the country stable. Despite its “cold war” with the US, those factors in theory give Beijing reason to send a unified message with western democracies and India to the regime in Naypyidaw. If it does not, Myanmar may already be on the way to becoming a failed state.’
Without doubt China is key and has called on Asian not to interfere. Outwardly China appears to be 'hands off’ and as the Editorial says it shares a border and is a big trading partner. I suspect the undercurrent is support for the generals . There were several visits to Beijing ahead of the coup and I doubt they would have proceeded if they thought there would be opposition from China. Hence for China now to reverse that support is at least very difficult and to do it publicly I would say impossible. It would undermine its reputation with so many other countries to whom it has given support.
But it will probably watch the experiment with interest on the basis of how to quell an overwhelmingly resistant population. It has one of its own; Hong Kong and one that it would like to have in Taiwan. For Beijing this could be the example of what to do and what not to do. The question then is how do you define success?

A riot of US spending spells trouble for future generations. By Raghuram Rajan professor of finance at the University of Chicago’s Booth School of Business.
An interesting look at the recent stimulus packages released in the US. Suggests that individual payments should have been better targeted and that the infrastructure spending should have come earlier.
He concludes 'The newly emerging fiscal caution of Congress comes after a riot of spending. Unfortunately, the unwillingness thus far to be fiscally responsible could constrain even essential investment. And the frequency with which we are experiencing “once-in-a-century” crises suggests the cost to future generations of our eating up their fiscal room could be substantial. Inflation is not the only risk in recent US fiscal behaviour.’
Well worth reading.

Stakeholder capitalism must find ways to hold management to account by John Plender
Concludes 'But there is a limit to what boards and shareholders alone can do. Leo Strine, former chief justice of the Delaware supreme court, supports modernising the 1930s New Deal for a 21st century economy to protect key stakeholders through measures such as curbs on the gig economy, enhanced consumer protection, stronger antitrust law and carbon taxes. With a Biden presidency and a rapidly changing political climate in the rich world, that may now be within the range of the possible.’
An interesting read.

Lex. {Automation: robots’ middle-class march}  Looks at Robotic process automation (RPA) and notes that with Morningstar deploying robots to write reports its coming close to home, for all of us that write reports or give opinions.  Working out which jobs can be replaced is not clear cut. In Morningstar’s case they said it was to allow the humans to work of higher value projects.
Concludes that 'in the short term, job losses are inevitable.’
I would add that these RPA’s will do well until there is a serious clitch, maybe due to a power failure and or a computer virus. Equally just like humans they too are subject to viruses and also hackers holding them to ransom.
An interesting read.

For Interest
Power operators seize hydrogen opportunity
Engineers focus on store of carbon-free energy for dispatch when demand is strong, but process is expensive.The key seems to be to use surplus renewable electricity produced during hours of slack demand can power electrolysis machines to make hydrogen, eventually providing a store of carbon-free energy for dispatch when demand is strongest.
Sounds simple but looks at what is involved.
Looks at the Okeechobee Clean Energy Center project where Mitsubishi Power and a partner are involved. Other companies mentioned are the US’s New Fortress Energy and NextEra along with Germany’s Uniper.
NextEra has about 50 possible ventures in its pipeline; “We see hydrogen as really a longterm solution,” he said. Eliminating the last 15 per cent of carbon from electricity supply “gets very expensive to do with batteries, much cheaper and more manageable to do with hydrogen”.

Brazil’s biggest banks strive to reinvent themselves in digital era
Lenders under pressure to step up reforms as rivals give them a run for their money.Having been dominant and extremely profitable they have been under pressure from new online/digital banks. An interesting case study of what no doubt banks globally are facing to a greater or lessor degree.Concludes 'For the time being, incumbents still have the advantage of scale, brand power and physical presence.
Already the biggest lender by customer numbers, Caixa created 35m accounts last year to pay government coronavirus benefits to people who were previously “unbanked” and is now opening new branches and promoting its digital arm. “We are going to launch microcredit for 10m-30m people through mobile phones,” said Pedro Guimarães, chief executive.’
Things will change though.

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