March 1 FT. Vaccination delays, Chips, Results, Japan corporate shake up, End of the Party for markets


01 Mar

MARKETs at 1:30pm HK time 
JAPAN 
Nikkei opened higher as I expected. It was +453pts on the open and worked higher for the first 40 minute, hitting resistance at 29,686 and then eased back and traded sideways.Currently +620pts (+2.1%) @ 29,578
Topix followed a similar pattern, opened at 1,889, saw resistance at 1,904 and currently +32pts (+1.7%) @ 1,896
Data
Manufacturing PMI Feb 51.4 vs 49.8 Jan F/cast was 50.6
S KOREA  
Market Closed Data
Balance of Trade Feb $2.71b vs $3.76b Jan revised from $3.96b (F/cast was $4.3b)
Exports Feb +9.5% vs +11.4% Jan (Consensus is 9.5%)
Imports Feb +13.9% vs +3.6% Jan revised from +3.1% (Consensus was 12.3%)
TAIWAN 
Market Closed re-opens tomorrow
CHINA 
CSI 300 opened higher but initially sold down with support at 5,346. PMI data remains in expansion but showing signs of slowing. Market cautious ahead of ’two sessions’ annual political meetings of the National People’s Congress and Chinese People’s Political Consultative Conference. Also with US relations showing no signs of thawing as US says China must honour the purchases agreement in made under phase 1 of the Trade Deal.Market currently trading sideways; +43pts (+0.8%) @ 5,379
Data
Caixin Manufacturing PMI Feb 51.4 vs 49.8 Jan (F/cast was 51.2)
Lunar new holiday and renewed covid outbreaks impacting but notes Output rose the least since April 2020, while new order growth hit its lowest in nine months. Export sales shrank for the second month, employment fell for the third month in a row, with backlogs of work declining for the first time in nine months. Firms registered a second monthly drop in inventories of purchased items, while stocks of finished goods rose marginally. Prices data showed inflationary pressure continued to increase. Input cost rose substantially due to greater prices for raw materials and higher transport cost while selling prices went up solidly. Looking ahead, sentiment strengthened, with the gauge for future output expectations jumping to the second-highest since August 2014.
HONG KONG 
Opened 29,458 +478pt vs +18pts ADR’s. As expected saw some initial margin call selling before rebounding to around the opening level and then trading sideways. Market saw a broad rebound expect for Property stocks and CNOOC which saw weakness.
Macau names +VE as Macau's gross gaming revenue (GGR) +135.6% YoY to MOP7.312 billion in February, according to Gaming Inspection and Coordination Bureau.
EUROPE 
Expect markets to see a strong rebound following the lead from Asia
AHEAD
EUROZONE Manufacturing PMI
GERMANY Manufacturing PMI, Inflation Rate
FRANCE Manufacturing PMI, New Car Registrations
UK Nationwide Housing Prices, Manufacturing PMI, Mortgage Lending, BoE Consumer Credit, Mortgage Approvals, Net Lending to Individuals
US Futures 
Open in Asia opened higher but have extended during Asian trading Dow +240pts S&P +0.88% and NDX +1.2%
AHEAD Manufacturing PMI, Construction Spending, ISM Manufacturing data (PMI, New Orders, Prices & Employment)
Earnings  Zoom Video, MBIA, Ambac Financial, Hilton Grand Vacations, Inovio Pharma, Perrigo, Boingo Wireless, Tegna


Front PageMyanmar’s worst day yet. Rioting worsen with at 18 people reported dead.See also Junta warns embassies about ‘illegal entities’ (Page 4)EU leaders talk up AstraZeneca jab in effort to spur inoculations
• Vaccine stocks pile up • Merkel and Macron wade in • Prague eyes Sputnik rolloutChina’s investments in Australia dive as scrutiny of foreign deals tightens Sinking 61% YoY in 2020, to the lowest in a generation.  So far the tightened investment rules haven’t impacted the iron ore trade exports but many think that over time it will as Beijing continue to seek to punish Australia for calling for an international investigation into the source of Covid amongst other things.  Australia is not the only country to have increased scrutiny of deals mentions UK, Europe and US who have all revised foreign investment rules.
Inside China vaccination rollout beset by delays (Page 2)
Concern about side-effects, export pledges and shortage of vials combine to hit scheduleOne hinderance is the fact that the government’s lockdowns have seemingly brought the virus under control in China and that has reduced the incentive for many to sign up for vaccinations. Coupled with the lack of trial data has left many in the medical profession at best cautions and worst sceptical. With many citizens opting to wait and see if side effects become apparent.The age restrictions (18 -59) for the use of Sinopharm and Sinovac vaccines has also had an impact.Some SOE’s have made vaccination compulsory whilst other sectors have stipulated weekly testing for those not vaccinated.Sinopharm and Sinovac say they can produce 2bn doses by the end of the year although that is unproven at the moment and the lack of glass vials to store the vaccine is also constraining the process. Sinopharm uses a single does vial, BioNTech/Pfizer’s vaccine vial contains six doses, while a vial of Oxford/AstraZeneca’s vaccine has 10 doses.In addition to meeting local demand Sinopharm and Sinovac also have global commitments.The article notes that 'Chinese nationals who travel must quarantine for 14 days when they return, regardless of whether they have been vaccinated. Borders have been almost completely closed to foreign nationals since March 2020, with exceptions made only for some diplomats and a handful of business executives.’
China is not the only country to see some reluctance to being vaccinated and it seems the most likely reason is the possibility of unknown side effects which become apparent only after time. The elderly for the most part seem to have little concern about taking the vaccines; probably because they recognised they are most at risk.Some still show a preference for one particular vaccine brand over another and some have mentioned concerns that certain countries may make the type of vaccine taken a requirement for quarantine free travel. Which illustrates the need for a global approach for ending travel restrictions from countries and airlines etc.
Biden faces demand for hardline response on Uighurs.  (Page 4) Some are calling for a the International Olympic Committee to rebid the 2022 Winter Olympics others are calling for a boycott.  Many are saying the since the 2008 Olympic’s China’s him riots record as deteriorated and now an increasing number of counties have past motions highlight the Uighur’s situation and other abuses in China.The problem for China is that many of these programmes are so wide spread now that rolling them back would be a huge political risk for Beijing.  West without such action the west is unlikely to be appeased.  At this stage most are focusing on items that originate in the Xinjiang with cotton being a big target but if those moves don’t bring results it is possible that wider sanctions could be imposed which would have more impact on China.
Companies & MarketsCarmakers braced for prolonged chip shortageThe expected impact will last until at least the 2H of 2021 which reflects the wide range of items that chips are now used in; not just in the auto sector but many other sectors too.For the auto sector that is likely to mean the manufacturers are unable to make up lst production by the year end -VE.The wider impact of the shortage is a review of the just in time supply chain system. Which is coming under review.  But as Toyota showed what is probably required it better communication between the auto makers and their suppliers to be able to plan production better.
Go figure US blue-chips struggle to impress investors despite upbeat round of resultsDespite good results investors are still rotating out of many of the US blue chip companies as they focus on re-opening names. Notes that companies whose earnings beat have generally managed to stay flat.   Covid beneficiaries have generally seen share prices drop:'Apple and Facebook both beat estimates by about 20 per cent, but their shares slid more than 7 per cent in the two days following the announcement. On average, technology sector shares dropped 2 per cent for companies beating expectations.’For the first time in a year good results have not been rewarded but reflects the forward looking nature of investors with re-opening stocks clearly in focus.  For investors though it will mean tough choices whilst some stocks will clearly benefit from re-opening there is uncertainty about the supply chains behind them and the health of the companies involved in those chains.
Japan to shake up its corporate codeThe Japanese Financial Services Agency is preparing a series of tough revisions to its corporate governance code.  It will include companies having a majority of non-executive and press companies to continue the changes that have raised returns on capital since it was first introduced in March 2015.It aims to 1.strengthening the role of boards, 2. making core management more diverse and 3. improving disclosure on the environment.Suggestion are that boards have at least one third independent directors and some up to half.  More importantly some want the role of independent directors more effective than it currently is.  The code works on the basis of ‘comply or explain’ but some complain that the lack of sanctions hampers the code’s ability to effect change, especially in the more established ‘old Japan’ companies; it cites how former Nissan Chairman was able to set his own pay.The other issue raised is finding suitable executives ‘who are not middle-aged, male, Japanese and lifetime employees,’  It is hoped the new code will push companies to train new directors.The FSA is also behind the move to try and attract more financial services firms to Japan, especially from Hong Kong; it recently changed the rules on foreign residents; saying there would no longer be liable to Japanese inheritance tax at rates of up to 55 per cent on their worldwide assets if they die in Japan. But noted  “Of course, we can’t just reduce all the tax rates to 18 per cent, but we’re responding to all of the areas where there are strong opinions.”For investors it is clear that Japan is for the large part trying to change but there are deep rooted ‘establishment’ type resistance to change.  It seems to be continuing to improve and the hope is that the new tech companies may instil a change into the older establishment companies. Time will tell.
Clouds gather for Facebook after Australia media battle
Negotiations over publisher payments set stage for more campaigns elsewhereThe new Australian law sets a precedent for other countries to follow but probable reveals that Facebook despite its claims recognises that new content is important and also that disruptions to service are bad for its advertising model.It notes that Nick Clegg, Facebook’s vice-president of Global Affairs, last week said “We neither take nor ask for the content for which we were being asked to pay a potentially exorbitant price,” Whether they do or not now seems irrelevant the fact that they carry it and it is a part of their product which helps them to sell advertising would suggest a value that should be paid for. Working out that value and price is always going to be difficult.It looks a the differing stances from Goggle and Facebook as well and noting a letter from Lord Rothermere published in the Financial Times, the executive chairman of Daily Mail and General Trust questioned whether Google and News Corp were now locked in an “unholy alliance” that could “give rise to unfair competition unless its terms are made public”. The article also mentions that Mark Zuckerberg keeps changing his mind about the position of news on the Facebook platform.It concludes by saying “[The outcome in Australia] could easily embolden other countries to do the same,” said Pasek. “Countries know they are going to be able to get a deal at least as good as Australia’s, if not better.”
He suggested Facebook may try to get ahead of regulation by introducing “blanket” initiatives in the space, in the hope lawmakers no longer feel the need to act. “Goal number one is to avoid having this game play out everywhere and avoid getting heavily regulated.”
Oyo reins in ambition to be world’s biggest hotel chain
Retreat to Asian markets as pandemic, business model and expansion rush take heavy tollAn interesting read to the changing fortunes due to covid. The key is that Softbank is a key investor and the outlook does not look good in the short term, with questions being raised about its business model and the way it does business which impacts on hotel operators. All of which will no doubt reflect on Softbank in time.
Future ‘bleak’ for fixed income, says Buffett. Berkshire Hathaway chief tells shareholders bonds ‘are not the place to be’Looks at the results; notes that buyback increased as Buffett said “made those purchases because we believed they would both enhance the intrinsic value . . . and would leave Berkshire with more than ample funds for any opportunities or problems it might encounter”.It will be interesting to see if the company can find more deals the economy recovers this year.  They did not see the deals they were expecting when the pandemic started because of the scale of government intervention.  It will interesting to see if more deals arise as companies could struggle to meet increased demand while capital remains short for many smaller companies.
Week ahead. Market questions
Rebound in US employment strengthens; expectations are that this weeks Payrolls report will show that US companies are re-hiring and that the outlook is getting brighter.Will eurozone inflation keep rising? Preliminary data due Tuesday is expected to show it will.  It notes that 'A change in the inflation basket of goods and services is also at play. The 2021 basket reflects that people are consuming more food, where prices are rising, and less recreation, where prices are generally falling.’   But the ECB is unlikely to consider raising rates any time soon; waiting instead for them to increase substantially and persistently.Can the copper bull run continue?  Most think it will, not least because there are few copper mining projects that are ready to start.  '“It takes 15 years from discovery to navigating approvals to ultimately getting a development up and running in our industry,” Anglo American chief executive Mark Cutifani said. “So you can’t just wiggle your nose. It does need high prices, but it also needs time.”’

OPINION The end of the party looms for markets high on stimulus by Richer Sharma Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’Sets out that that in 2020 financials markets continued to rally even as the the global economy turned down due to covid. Now there are signs the recopy could become a boom and that the resultant overheating economy ends the party for markets.  That 2021 could be the morrow image of 2020 with markets trading flat as economic growth soars.The reason he puts forward is the the amount of money the Fed and other governments have printed.  That via stimulus and lockdowns meant more people have money in their bank accounts and turned to trading markets and for the most part doing well.The question is what happens to the money as the pandemic is contained?  He thinks excess savings are likely to drop and release pent up demand; which could add two to three percentage points to US GDP alone.His team thinks global GDP growth will be higher than the 5% consensus.  But thinks that may not be good for markets as savers become spenders again.  Straining sectors that have been hurt by the pandemic and given rise to inflation.  Notes the bond market is already reflecting that, and higher yields would see money rotate out of equities and valuations would be hit, especially of the currently dominating tech names.Meaning that 'The buzzwords of last year — the virus, virtual, work from home, recession — are likely to make way for vaccines, the real world, back to the office and reflation. This transition may be more disruptive than imagined for financial markets, which have become hooked on last year’s themes and low long-term interest rates.’Concludes by saying 'Markets often underestimate the impact of big shifts in the global economy. In the early 1980s, disinflation led to a sharp fall in interest rates, with much greater fallout for the markets than most investors had foreseen. Now the risk is that inflation resurfaces, and bond yields rise more sharply than anticipated, overwhelming the rise in earnings during a recovery. The impact could easily end the rally of 2020, leaving markets suffering withdrawal symptoms despite a global economic boom.’
A good read but I think one has to be cautious about savers suddenly becoming shoppers again. A lot of Americans have continued to be shoppers but doing it online. Furthermore they have spent more on their homes and I suspect have developed new habits. It’s popular believed that it takes 21 days to form a habit although many say it's between 66 days and 254. Key being that many people have been subject to the new regime for much longer than 66 days and so breaking the new habits may take longer. Also many people are likely to be more cautious about their spending especially in light of potential for the virus to mutate and even the risk of more viruses ahead; remember will still don’t how this one started.For investors one thing that is clear is that rising interest rates will hurt the the big tech and that the search for good recovery plays will require good research as 2021 is a new sheet, the world hasn’t recovered from a global pandemic before.
Green energy serves liberals and hawks by Rana ForooharLooks at how Defence hawks and liberal progressives may have their interests aligned almost perfectly on climate change.'All of these things appeal to the type of leftwing voters who support Democratic representative Alexandria Ocasio-Cortez, populariser of the idea of a “Green New Deal”. But they also appeal to security-conscious conservatives worried about the rise of China. Both groups are interested in connecting the dots between sustainable energy, jobs, and economic and geopolitical security. What if there was common ground on how to do so?’Works on the basis that great gains can be achieved when public and private sectors work together with a fixed target.  In the past that was a war effort but now its 'a new geopolitical challenge from China, pandemic-related supply chain shortages, and increasing fallout from climate change, Republicans and Democrats alike fear that decades of focus on economic efficiency rather than resiliency has left the US ill-prepared to cope with national disaster.''At the same time, clean energy presents the clearest path to a more sustainable economic model. History has shown that productivity and jobs tend to grow in tandem when government underwrites private sector involvement in a new, paradigm-shifting technology — like railroads, or the internet.'It concludes 'Imagine a national dialogue in which business leaders, security experts, educators, labour advocates and others came together to find ways to transition to clean energy, while also bolstering jobs, security and relationships with allies. They would want to explore how the public sector could best send signals to private investors to enable funding to flow to the right places. The discussion should encompass how best to connect the needs of job creators and educators of a 21st-century workforce.
The challenge would be national. But given the size and diversity of the US, solutions should be local, coming from the ground up and by necessity involving individuals from all over the political spectrum. “The overlap between social priorities and defence priorities is actually quite compelling,” says Garth Jensen, director of innovation at the Naval Surface Warfare Center in Maryland. After years of division, perhaps America can find some productive common ground.’

Lex. {Offices after Covid: shrink rap}. Sets out that office use post pandemic will be smaller judging by the space reduction being set out by banks and law firms.Notes that 'The City is accustomed to such tidal ebbs and flows. Central London vacancy rates hit an all-time high of 13 per cent after the recession of the early 1990s. Vacancy rates are expected to peak at 10 per cent in the next couple of years. in line with the aftermath of the financial crisis. Landlords can expect rents to fall. Offices with scant local amenities and transport links will see particularly weak demand.If hot desking prevails, members of workplace cliques will co-ordinate their office days. Lone risk takers will treat commutes as Russian roulette, not knowing whether they will sit next to an ally or an enemy. But after months of daily isolation, company of any kind may be appreciated.’
I think a lot of that depends of the effectiveness of the vaccines. Also it depends on location; whilst in the US remote working is seen as a desire in many other countries I think there will be a different narrative; like Hong Kong and Tokyo where home space is in short supply. Equally with ‘herd immunity’ and social distancing methods understood the daily commute will be less of an issue. But as always with Property …. It's about location.

 FT BIG READ. INVESTMENT How to buy a stake in a hot start-up
New exchanges and trading platforms aim to capitalise on the booming secondary market for shares in promising private companies. But more regulation of an opaque sector may be needed.An interesting read giving insight into the changing world of listing companies.

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