Mar 25 FT Chinese stocks lag, Ant wants more but tech under pressure, EU warns China on trade deal, Chinese Hackers

25 Mar

MARKETs @  1.45pm HK time
No major data out today in Asia. N Korea fires 2 more projectiles into East Sea.
ASX200 choppy start but then rallied to 6,800 before seeing resistance and then reversed and gave back all the gains to close +12pts (+0.2%) @ 6,791
Nikkei 225 opened higher after 5 days of weakness. Initially rallied to 28,600 level before pulling back to the opening level. Then rallied into lunch at 28,715. PM opened lower but working higher Currently +328 pts (+1.2%) @ 28,734
Topix followed a similar pattern; lunchtime was 1,955, currently +29pts (+1.5%) @ 1,958
Signs of bargain hunting after four days of losses. Initial weakness on news of N Korea firing 2 projectiles into the East Sea this morning.
Kosdaq trading in a tight range. Opened lower ticked higher initially into the green but then sold down to test support around the 950 level a tested it few times between 9:30 and 10:30am but then rallied back toilet around midday only to sell back down again to 950 level. Currently -1(-0.1%)@ 952
Kospi opened flat, traded sideways for the first hour then worked higher to 3,024 before selling back down. Currently +6pts (+0.2%) @ 3,002.
Opened lower ticked to flat in early trades the sold down to15,950 before rallying to 16,147 late morning. Unable to break higher and trended lower to 16,050 and traded sideways around there to close +28pts (+0.2%) 2 16,060. TSMC closed @ 575 TWD -0.2%
CSI opened lower and initially traded sideways in choppy trading before working higher into the green and tested 4,950 a couple of times but unable to break above and sold down into lunch. PM opened higher @ 4,930 and working higher currently +5pts (+0.1%) @ 4,934. Investor remain concerned about international relations and PBoC policy on reigning in debt.
Pre market opened @ 27,628, -290pts as margin calls hit retail investors and ticked lower in early trades but the market then rallied back to flat and touched higher to 27,970 but then dropped back to 27,800 before bouncing into lunch flat. PM opened slightly higher but easing back to flat.
China international relations, policy on debt and Ecommerce also concerns along with HK earnings which continue to be mixed. Ecommerce and Tech weak, Macau bouncing, along with some consumer names
After Market we get Balance of Trade.
Expect markets to open slightly higher following Asia but covid concerns pre market data and US initial claims out later likely to limit the upside. Data due
EUROZONE Loans to Households, Loans to Companies, M3 Money Supply
GERMANY Consumer Confidence
FRANCE Business Confidence, Business Climate Indicator, Unemployment Benefit Claims, Jobseekers Total
UK Car Production, CDI Distributive Trades
US Futures 
Opened Dow +30pts but have ticked higher to +70pts, S&P and NDX opened slightly +VE but now +0.2%
Data due Jobless Claims 4 week average, Initial Claims, Continuing Claims, Corporate Profits, GDP Price Index, GDP Growth Rate, PCE Prices, Core PCE prices, EIA Natural Gas Report, Kansas Fed Manufacturing Index, 7 yr Note Auction.

On line
Chinese stocks turn from leader to laggard on tighter liquidity
Country underperforms other big markets in 2021 as Beijing seeks to rein in risky lending
One of the key reasons though was the quick recovery it saw last year giving it a high base case to outperform this year. But the article does make the point that the PBoC trying to reign in debt is also a concern and something I have been saying for a while now. It notes that 'One area where Chinese markets have continued to boom this year is initial public offerings.’ That has been good for Hong Kong but a lot of that is because US markets have been seen as risky. The other key is that in opting for Hong Kong Chinese companies can still access international money and allow mainland money to participate.
Worth a read. Many who were underweight China will be looking to increase their exposure whereas those who have long China will be looking to the next opportunity especially with China coming under increased isolation on international relations due to a large number of it policies.

Front Page 
Suez debacle. Mishap clogs trade artery
EverGreens container ship runs aground in the Suez Canal. High wind blamed, the forces of nature strike again. The pilot will have a lot of explaining to do. But the disruption to trade will add to the existing woes of exporters and shippers. The incident had an immediate impact on oil, pushing prices higher but it will only be temporary.
Evergreen Marine’s share price is lower today and whilst embarrassing their liability should be minimal as the pilot would have been responsible for the navigation in the canal. But many customers may not realise that so the impact on long term business could hurt.
See also Suez Canal blockage threatens severe disruption to global trade supplies Page 3   Waterway handles at least 10 per cent of worldwide seaborne goods and similar amount of oil shipments

Brussels demands reciprocity from Britain on vaccines supply
• Barbs traded on access to jabs • Talks aim to calm tensions • UK points to contract law
I still believe that the EU bureaucrats are trying to make up for their earlier mistakes and find someone….apart from themselves to blame for why the EU was so slow in ordering vaccines.
Also read Discovery of AstraZeneca doses in Italy highlights rift with Brussels Page 2

Ant demands higher online fees as Ma seeks to boost valuation after pulled IPO
Ant Group is demanding a larger slice of lucrative fees from its popular payment platform at the expense of local banks as China’s largest fintech tries to offset losses from a government crackdown on its lending business.
The aim being it seems to rebuild the valuation .
'Merchants in China pay a fee on each transaction made using Alipay that is split between the fintech, the customer’s bank and Unionpay, the country’s card services company. Alipay’s share of this fee has been increasing while that of the banks has been shrinking.’
It is leveraging its position and illustrates how behind the curve Chinese banks are in meeting their clients real requirements. The PBoC and no doubt President Xi are still looking for ways to curb the dominance of the Ant’s almost monopoly. But the reality is that Jack Ma was, in many right, and that the established banks in China have not grasped modern technology or its implications. For too long they have rested on their comfy relationships with the PBoC and SOE industry’s rather that worry about developing their business.I still think a lot of it is about the data that Ant, Tencent and others have on citizens and the fact that that could be a threat to the party.

EU warns China action on sanctions poses risk to access deal Page 3
A significant push back against China, especially as the trade deal is yet to be ratified by the EU members.
“China’s retaliatory sanctions are regrettable and unacceptable,” Dombrovskis said. “The prospects for the CAI’s ratification will depend on how the situation evolves,” he added. “The ratification process cannot be separated from the evolving dynamics of the wider EU-China relationship.”
Key is that 'But the European Parliament’s large centre-left Socialists and Democrats group has already made clear that ending the sanctions against the parliament is a “precondition” for work on ratifying the investment agreement to advance. MEPs point to the political impossibility of the parliament voting through an economic pact with a country actively attacking its members.’
Beijing is now in a very awkward position, to reverse the sanctions would not play well to the domestic audience. Not to reverse them now risks losing the trade deal which it viewed as important in shoring up its trading opportunities in the face of more sanctions from the US.
It is made even more difficult by the stirring up of netizens against H&M for not buying cotton from Xinjiang as reported in the local press today. Saying Chinese celebrities are cutting ties, and products are being removed from online e-commerce platforms as clothing company criticised. Some are calling for the company to exit China. The retailer’s China operations says its position on sourcing is not political.
But it is another example of Beijing coercive nature in whipping up public opinion against a retailer as it did against a number of S Korean companies over S Korea’s adoption of a US missile defence system.
Read also Editorial Xinjiang sanctions are a sign of western resolve
Retaliation by Beijing against EU officials jeopardises investment deal.
It concludes 'The EU still has deep concerns about being pulled into an all-out confrontation with China alongside the US. European and American interests on trade and technological standards will inevitably clash. The EU also wants to leave space for co-operation and fair competition. Aligning with Washington and other capitals on human rights is to be applauded but Brussels must accept that China will punish it in return.’

 Facebook blames Chinese for Uyghur hack. Page 4
Perpetrators try to target hundreds of dissidents and activists living abroad'
Facebook has uncovered a sophisticated Chinese espionage campaign that tried to trick pro-Uyghur activists and dissidents around the world into downloading malicious software that would allow surveillance of their devices.
’The use of fake versions of popular websites which if downloaded would also download malicious software allowing the users device to be hacked.' Victims predominantly 'Uyghur dissidents, journalists and activists from Xinjiang who are based outside of China,’'
“This activity had the hallmarks of a well-resourced and persistent operation, while obfuscating who is behind it,” Facebook said, and identified the Chinese hacking group responsible as Earth Empusa, or Evil Eye. It is unclear whether the group is backed by the Chinese government.’
It would appear more activity which if not condoned by the Chinese government not actively prevented. It would seem to illustrate China rejection of the west's rules based system.
But it may have more to do with the lack of confidence that the Chinese leadership have in their right to rule. President Xi a few years back told cadres that they must earn the right to lead the people of China. Actions like these may indicate the policy is not working yet.

Top central banks identify greener policies Page 4
The world’s biggest central banks have identified nine ways in which they could use monetary policy to tackle the risks of climate change, including greener asset purchases and climate-related lending schemes, according to a report.Looks at the Network for Greening the Financial System report. The report gives central banks options but it will still be a matter of whether they adopt them and furthermore whether they adopt the strong measures or the weaker ones to start with.
Without doubt a step in the right direction… if the advice is taken.

Companies & Markets 
Intel to boost chip output with $20bn Arizona sites
• Turnround hinges on manufacturing
• Chief fends off activist investor’s call
The announcement prompted Intel’s stock to rally pre market but close in the red as some doubt its actual capabilities for external chip manufacturing. It also put both TSMC’s and Samsung’s share prices under pressure yesterday although they have bounced back today.
It is a bold and opportune move considering the current chip shortage and the fact that by the two plants are to complete in 2024, one would expect the supply and demand situation to be back to more normal levels. It also rejects the suggestion by Daniel Loeb of Third Point hedge fund, who took a $1bn stake in the tech group and suggested it consider shedding its manufacturing operations.
'The company called its plan IDM 2.0, an abbreviation for the “integrated device manufacturing” approach in which it designs and makes its chips, whereas most of the industry is fragmented.But Intel said it would be more open to what it called “co-opetition”, or finding ways to partner, and outsource to, traditional rivals including TSMC and South Korea’s Samsung. Intel’s “strategic use of outside foundries is an under-appreciated fact”, Gelsinger said.’
Intel expects to announce further plans on the foundry side in the next year.It is quite a radical plan and its success looks to rely on the industry buying into the concept. Which seems a big if.
LEX Intel: raising Arizona  'Intel has taken a back seat to a resurgent Microsoft and other Silicon Valley upstarts. Now it is going supersize. Google was one of several tech luminaries to offer a statement of support for Intel’s strategy shift. After Washington, that may be the most important endorsement of all.’
I still think it’s a big if.

Under pressure Tencent in talks with antitrust regulators as Beijing scrutinises tech groups
Tencent has confirmed it is in talks with Chinese antitrust regulators amid intensifying scrutiny of the country’s technology sector, with the group’s chief rival Alibaba under investigation.
Pony Ma said he had talks but on a voluntary basis at the Tencent post results conference; which beat expectations.
For investors there remains significant uncertainty over potential regulatory changes in China as well as possible restrictions in the US and India.
The stock opened lower today despite the good results and is trading around HK$600 vs its HK$775 peak back in January before the Ant IPO was stopped by President Xi. It is a good company and is continuing its model of investing in new companies but its success depends very much on China policy now.
LEX Tencent: handicap betting. Starts with 'For Chinese tech companies, an antitrust investigation is a sure sign that their business models are working a little too well. Tencent, the latest target of official scrutiny, posted a 175 per cent leap in fourth-quarter profits yesterday, beating expectations.’  
Concludes 'Pony Ma has avoided publicly offending officials, unlike Jack Ma at Alibaba. But antitrust probes are unavoidable. Tencent has about 40 per cent of the market for electronic consumer payments and about two-thirds of the local game distribution market. The Hong Kong-listed shares are down 19 per cent from a January high. Chinese tech giants are suffering a melancholy fate. A crackdown is under way even as years of heavy investment begin bearing fruit. Time for investors to switch to smaller groups challenging these incumbents.'

AstraZeneca labours under intense spotlight
Latest snag for rollout is concern voiced by independent board of experts overseeing large US study of jab.
An interesting read if only because it highlights the almost adversarial system of getting a drug approved in the US. They key here seems to be a cut off date for data.
With constant ongoing not only testing but actual use 'in the field’ one would have thought the authorities could develop a system of closer co-operation. That would surely be better all round. The later broader data showed a lower efficacy and would appear that the company was seeking to provide as much data as possible but was rebuked for doing so.
With the public health at stake it is good to see care being taken but surely there is a better way.
See also LEX AstraZeneca/Soriot: no good deed unpunished. 

Sliding gilts part company with eurozone haven assets and read Big portfolio rebalancing set to check bond falls
Yield gap with Bunds widest since autumn 2019 as outlook for UK economy brightens.
An interesting read the changing outlook for UK debt as result of the successful inoculation programme the government embarked on. Highlights the poor outlook for bonds. The big question is how will asset allocators react? Will they just sell equities and buy bond to maintain the 60:40 ratio or will they re-rate equities as we have seen in the US? For the past 30 years bonds have been used to ‘insure’ the portfolio and actually paid you for doing so. That has now changed, to use bonds as insurance you will now need to pay for the insurance, in that bonds will lose you money. The big portfolio rebalance usually takes place around the end of March.

Investors pump record $43bn into niche ETFs in first two months of year 
An interesting read because it highlights how ETF’s are developing from just following broad market indexes to specialised niche plays. Mirroring the historic stock market and meaning in effect that EFT holders are becoming sector pickers an interesting parallel with mutual fund managers being stock pickers.
Nice quote '“The space is definitely a little hot, so caution should be heeded. One shouldn’t invest blindly based on the headline theme,” said Mark Perchtold, co-founder of Omba Advisory and Investments, an asset and wealth manager.“People are shooting from the hip. They just read about something and they want to buy it,” he added.’

FT BIG READ. MANUFACTURING. Conducting the global economy.  About TSMC the online edition ran the story under the heading of the biggest company the world most have  never heard about.
At a time of shortages and superpower competition over new technology, TSMC has become dominant in chip production. The Taiwanese company aims to cement its lead in the most advanced components.
Well worth a read to understand how it got to its dominant position. To me it highlights a major reason why China wants Taiwan, its not about happy family reunions into one Chinese family its about technology that is too expensive and technical for China to develop itself in the short term or to be able to finance to keep at the cutting edge in the long term.

OPINION What a stronger dollar means for the world By Megan Greene a senior fellow at Harvard Kennedy School
An interesting read; effectively she says it will benefit US imports and hence generate demand for the rest of the world to service. But it will hurt 'dollar demoninated commodity prices resulting in lower real income and depressed domestic demand for EM commodities exporters. It would also make EM dollar-denominated debt more difficult to service.'
She concludes 'An EM sovereign debt crisis could drag on global growth, with negative blow-back for the US. As long as US officials keep that in mind, the Biden administration looks set to continue enjoying the dollar’s exorbitant privilege.’

For Interest A green solution to sovereign debt restructuringSome interesting insights into the issue.

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