Feb 10 FT Covid warnings, China births, Japanese Auto, Blackrock +VE on HK & HK EX hires non Chinese speaking CEO


10 Feb

MARKETs 
JAPAN 
Market will be closed tomorrow for National Foundation Day and re-open Friday.
Nikkei 225 opened lower following the weakness in the US overnight. Pre market PPI was in-line with expectations and market worked better through the morning breaking into the green ahead of lunch. PM opened lower (back in the red) and traded sideways for most of the afternoon before rallying at the end to close +57pts (+0.2%) @ 29,563
Topix opened lower but broke above yesterday’s close mid morning and rallied into lunch the day high. PM opened lower and traded sideways to close +5pts (+0.3%) @ 1,931
DATA
PPI Jan +0.4% MoM vs +0.5% Dec (F/cast was +0.3%)
PPI Jan -1.6% YoY vs -2% Dec (F/cast was -1.7%)
The eleventh straight decline in producer prices, mainly explained by petroleum & coal products (-14.7 percent vs -16.3 percent in December), chemicals (-3.4 percent vs -4.3 percent), iron & steel (-0.7 percent vs -2.0 percent), and lumber & wood products (-0.5 percent vs -1.3 percent). On the flip side, prices in the food & beverages division increased by 1.5 percent after a 0.9 percent expansion in December. On a monthly basis, producer prices increased 0.4 percent after a 0.5 percent advance in the previous month, also matching consensus source: Bank of Japan
S KOREA  
Markets will be closed tomorrow and Friday; re-opens Monday.
Options Expiry was today but key was foreigners turned buyers
Kosdaq opened flat and initially traded lower to 950 level on the poor unemployment data and rising covid cases before reversing and working higher but saw resistance at yesterday’s closing level and traded sideways. Mid afternoon broke through yesterday’s closing level and worked back to 965 where is again saw resistance and then traded sideways to close +7pts (+0.7%) @ 964
Kospi followed a similar trading pattern and closed +16pts (+0.5%) @ 3,101.
DATA
Unemployment Rate Jan +5.4% vs +4.6% Dec (F/cast was +4.1%)
TAIWAN 
Market Closed all week
Apple Inc has partnered with Taiwan Semiconductor Manufacturing Co to develop ultra-advanced display technology in Taiwan, Nikkei Asia reported on Wednesday, Reuters said.
CHINA 
Markets will be closed tomorrow until 17 Feb
CSI 300 opened higher after the good loans data out after market Tuesday and lower than expected inflation and PPI in line. Market worked higher through the day peaking at 5,823 in the late afternoon before easing back to close +122pts (+2.1%) @ 5,808
Data Inflation Rate Jan-0.3% YoY vs +0.2% Dec (F/cast was -0.2%)
Inflation Rate Jan +1% MoM vs +0.7% Dec (F/cast was +1%)
PPI Jan +0.3% YoY vs -0.4% Dec (F/cast was +0.3%)
Inflation due to lower cost of non food items. Household goods were flat, healthcare eased but food rose.
PPI saw the first rise since Jan 2020 and a further sign of economic recovery
HONG KONG 
Market will have shortened trading hours on Thursday and close at Midday and then re-open on Monday.
HSI Opened @ 29,796 +320pts after the good China lending data. It did see an initial dip button worked higher to test 30,000 in the first 30 minutes of trading. It then eased back and traded sideways around that level for the rest of the day with a small rally at the end to close +563pts (+1.9%) @ 30, 039
EUROPE 
Markets opened slightly higher with focus on earnings with Societe Generale, Air Liquide, Metro, Thyssenkrupp, Siemens Energy, Heineken, Maersk and Equinor all reporting pre-open.
Germany inflation data in line but French Industrial Production missed
US Futures 
Indicate a higher open; Dow +74 points. S&P 500 futures and Nasdaq 100 futures also both traded in mildly positive territory.

FT Front Page headlines 
Impeachment hearing begins
WHO team says Wuhan lab leak highly unlikely as source of virus
Field research finds no evidence for theory • Time lapse hampers hard conclusions
KPMG boss apologises after telling pandemic-hit staff to ‘stop moaning’

UK scientist warns on threat of different strains (Page 3). The fact that the Oxford/AstraZeneca vaccine is less effective at dealing with the South African variant of the covid virus is very worrying. Looks at comments from Sir Jeremy Farrar, director of the Wellcome Trust medical charity and a member of the UK government’s Sage advisory committee.He notes how the virus is becoming very unpredictable and that will impact bringing it under control. He said that we had biological evolution and now we’ve got immunological evolution.  Meaning the need to be able to adapt the vaccines to meet the threat of the virus as it mutates is very important. In the meantime it is important to use effective vaccines quickly including the Oxford/AstraZeneca where they are known to be effective and maintain other social distancing regimes to prevent the spread.  
What it really shows is that the virus is going to be a bigger and longer lasting problem that was earlier thought. Vaccines are useful but are not at this stage a total solution. That for investors means that the economic recovery could be delayed and that the drug companies will see continued demand for covid vaccines that can be adapted.
Read also South Africa’s vaccine plans in tatters after variant concerns emerge(Page 3)  Doubts over jab efficacy against 501.V2 strain prompt rollout halt that will be closely watched.  It is interesting that whilst the Oxford/AstraZeneca vaccine is less effective other vaccines are still effective.  

Also Opinion We must vaccinate the world — now.  The cost of jabs for all would be a rounding error; it is also the only way to end the pandemic for good by Martin Wolf.
Concludes 'Scientists have achieved miracles with the vaccines. Now the world’s leaders have just to show elementary common sense. They must do “whatever it takes” to finance accelerated production and distribution of vaccines — and, if necessary, reformulated vaccines — globally.
This is the only way for us to regain any sort of normality. Nothing should be allowed to get in the way. This is a global war and our species is not yet winning. That has to change, from tomorrow.'

WHO’s trip to Wuhan fails to solve mystery of virus origins (Page 3)
Team rules out laboratory leak while debate on research and its risks heats up. Notes that Beijing is maintaining a tight grip of the WHO team’s trip, the year’s delay in being able to visit the area and time limitations of the trip mean that finding meaningful answers is unlikely. Notes that China is ‘desperate to convince the world it is not to blame for the pandemic and thus absolve itself of responsibility for any of the subsequent devastation to the global economy.’ The trouble is that having delayed the visit for so long means that there is unlikely to be a clear answer and so there will always be doubts over how responsible China was.
It also means we are unlikely to able to prevent another similar virus from developing which could have similar or worse implications for the world.

Number of registered newborns in China drops 15% in 2020 (Page 4). The sharp fall in births is a reminder that China is facing a rising ageing problem.
The historic one child policy (until 2015) and urbanisation are now both putting a strain on public finances. Whilst the issue has been known for some time the size of the decline is shocking.
It underlines the problems the Chinese system has when it decides to change policy. Although it is now encouraging larger families the doctrine of one child has been so firmly implanted into peoples minds making change difficult. It is made worse but the historic imbalance that the previous policy created with a dominance of males. Another negative is the rising cost of bringing up more than one child, in terms of education.
Whilst further policy changes are expected to try and encourage larger families it is difficult to see how they will make a significant change, a case of too little too late.The article notes that the data may not give the full picture because some children are not immediately registered.
More data is due out at the end of the month.
For investors it underlines the growing importance of automation and robotics in Chinese industry as labour shortages are likely to increase in the future.

LEX Honda/Nissan: exhaust manifold. Looks at the results and thinks the outlook for them is worse than for their European rivals because they have been slow to shift towards electric vehicles. Furthermore the rising price of chips will add margin pressure, notes 'Nissan runs a negative nine-month operating margin of 2.5 per cent, something it avoided even during the worst of its management scandals. Ominously, there is not much of a buffer left.'

BlackRock keeps faith in HK hub (Page 6 second page of Companies & Markets)
Incoming Asia unit chief highlights value of city’s business infrastructure.
The new head of its Asia Pacific operations says Hong Kong will remain important to China opening up its Financial systems, despite the recent political changes. She says the existing infrastructure is difficult to replicate or move in the short term.
Consequently Blackrock along with others like UBS and JP Morgan will use Hong Kong as the bridgehead to expand their Wealth Management businesses in China.
China, UBS estimates, will be the second largest asset management market after the US this decade, making it an important target for most wealth management companies. The fact that China no longer operates the ‘iron rice bowl’ means that China is encouraging its people to develop their own savings for their retirement. That need means that China is looking to foreign firms to assist.
Blackrock is targeting to raise its non US business revenues from 30% to 50% and China is central to that effort. Currently Asia Pacific is just 7%. It is hoping to get approval to operate a wholly owned fund management business in China that would be able to sell funds to retail investors. Also for its wealth management JV with Temasek and CCB in which it holds 50.1%
Notes that she replaces Geraldine Buckingham, who will continue at BlackRock as a senior adviser but will move to Beijing. Buckingham is married to Dominic Barton, Canada’s ambassador to Beijing.

It will be interesting to see how whether with growing demand for mutual funds in China will allow investors to pursue off shore funds rather than having to keep the money in domestic markets. It is something that many Chinese citizens would like but the government is wary of.

HK stock exchange appoints banking veteran with global vision as next chief. Looks at the appointment of Nicolas Aguzin, former chief executive of JPMorgan’s international private bank, to take over at Hong Kong Exchanges and Clearing.
He is a 30 year JP Morgan veteran as served as Chairman and CEO for Asia Pac between 2012-20. His predecessor Charles Li was also a former JP Morgan China Chairman. Interestingly Aguzin does not speak Chinese but is fluent in English, Spanish and Portuguese. Commenting on that Laura Cha, who chairs HKEX, said Aguzin’s international background “will be of great help to us at this stage in our development”. “The fact he does not speak Chinese will not be a factor that affects any of our policies or any of our relationships with our counterparties,” she said.
Analysts commented that his appointment suggests HKEX is looking to further diversify its revenue streams.

I think it's very interesting that they did not appoint a Chinese speaker, so many jobs in Hong Kong now seem to insist on it. Hong Kong’s greatest asset is in its ability to link China to the west and often for that having a westerner who understands China is more important than the ability to speak Chinese. Hong Kong has built its reputation on being the link between east and west and that will continue to be important going forward.

For interest 
A parting of two trading forces spurs sharp rally in stocks. By Michael Mauboussin a researcher at Morgan Stanley Investment Management.Explains the large stock price movements over the past year as the result of the cost of capital and the volatility diverging due to action of Central banks and covid.  Expects that cost of capital and volatility will post pandemic converge and move in lock step again.  But the effects of last years divergence will remain for sometime; especially in terms of company valuations.

FT BIG READ. EUROPEAN POLITICS. Draghi and the EU’s recovery mission
Now Brussels has a huge amount of money to spend on its member states, it will gain greater influence over their economies. But that brings the risk of a backlash in Italy and Spain. How will it use its leverage?Looks at one of Italy’s biggest problems which the article suggests is its bureaucracy. Starts out with an example that its cheaper to have an Italian website but company in Holland rather than set up an on-line business in Italy. The question is can Draghi make a difference?
Key headings
Toxic Politics
Historic opportunity
Windfall fears

Editorial Foreign investors face a dilemma in Myanmar
Cutting ties risks pushing the country further into China’s embrace; calls for targeted sanctions that hurt the military but not the people.
Worth a read. Myanmar is important to China (its called China’s West Coast giving access to the Indian Ocean) so a mass exodus of companies could push it further into China’s sphere of influence. Although I think it would be interest to see how much China could currently do to help; considering President Xi is already coming under pressure at home with regard to China's investment in other countries via the Belt and Road at a time when its own domestic economy is in urgent need of funds and restructuring.

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