Jan 12 FT Taiwan in focus, HK Delisting just a US issue, Pinduoduo more bad press and more

12 Jan

MARKETs @ 3pm HK time
Re opened lower but quickly rallied to a new high, with resistance as it approached 28,300. It then sold down to flat and traded sideways into lunch. PM saw that continue before rallying in the last 30 minutes but then selling down at the end to close +25pts (+0.1%) @ 28,164
Topix traded in a similar pattern to close +3pts (+0.2%) @ 1,858
Data Pre Market
Current Account Nov Yen 1878.4b vs 2144.75 Oct (F/cast was 1610b)
Bank Lending Dec +6.2% YoY vs 6.3% Nov (F/cast was +6.1%)
Eco Watchers Survey Current Dec 35.5 vs 45.6 Nov (F/cast was 45)
Eco Watchers Survey Outlook Dec 37.1 vs 36.5 Nov (F/cast was37.2)
Kospi opened flat and initially sold down to 3,100 level and then traded sideways 3,100/3,150 until 1pm when to sold down to 3,050 before rallying back to close -29pts (-0.9%) @ 3,126. Retail have been strong buyers but institutions and foreigners are selling ahead of options expiry this week.
Kosdaq traded in a similar pattern to close -3pts (-0.3%) @ 974.
Opened slightly lower but initially rallied to 15,650 before selling down to 15,480 then worked back to 15,650 level only top sell down to 15,420 and then traded sideways to close -57pts (-0.4%) @ 15,500
CSI 300 opened lower but worked higher through the day hitting 5,500 going into lunch. PM saw the climb continued and closed at the day high +155pts (+2.9%) @ 5,596. I think Team China back driving the market to counter any concerns about US/China relations.
Opened @ 27,894 -13pts vs -72pts ADR’s.
Saw some initial selling but then worked higher with morning resistance at 28,100 after which it eased back to 28,040 level at lunch. But opened lower outworking higher broke through 28,100 and currently testing 28,200. Currently +275pts (+1%) @ 28,184
Chinese Financials +VE as China markets rally but ECommerce names still seeing weakness. Telcos and SMIC +VE
Expect a mixed open again as investors watch the US politic unfurl with Trump being impeached again. Again no data due for Europe.
London’s FTSE is seen opening 8 points lower at 6,796, Germany’s DAX up 21 points at 13,963, France’s CAC 40 up 5 points at 5,665 and Italy’s FTSE MIB 78 points higher at 22,659, according to IG.
US Futures 
Opened in Asia Dow +30pts, S&P -0.1% and NDX +0.2% and now little changed Dow +23pts S&P and NDX positive.Data due Redbook, JOLT’s Job Openings, IBD/TIPP Economic Optimism.  After mkt API Crude Oil Stock ChangeEarnings due: KB Homes, Albertsons

Front Page 
Merkel attacks Twitter ban on Trump as breach of free speech.
Merkel is suggesting that the US adopt laws that actually restrict online incitement rather than leaving the decision with the platform operators.  But her comments, the article says show the variance in which Europe and the US seek to regulate the social media.
The article also mentions how the House Democrats are proceeding to impeach the president.
See also Big Tech Trump crackdown stokes debate over freedom of expression Political power of a few private companies has attracted attention of incoming Biden administration.
Also the Editorial The limits on free speech in the internet era. Social media groups had no choice but to suspend, for now, Trump

Ex-Credit Suisse chief Thiam links up with JPMorgan to launch $250m Spac   In conjunction with JP Morgan Chase and looking to target the financial services businesses.  The article says JP Morgan pitched the idea to Thiam and that Jamie Dimon is also personally involved.  

Beijing hits at US bid to boost ties with Taiwan. Trump administration’s move to drop diplomacy guidelines angers leaders
As expected China condemned the US over is revocation of the guidelines that have been in place since 1979 regarding contact with Taiwan. China says that Taiwan is ‘the most important’ part of its relations with Washington. China has threatened to retaliate but not outlined how.
The US move undermines China’s long state aim to annex Taiwan and whilst many never really expected that to happen China’s recent increased provocations and military moves have worried people.
Chinese media reported that 'the US move “crossed a dangerous red line with China” and was “a cowardly act of sabotage of the incoming administration”.’
It cites 'Song Zhongping, a Chinese military affairs observer. “China will calmly deal with these matters, but when it comes to Taiwan, China will not stop for a moment strengthening preparations for military struggle.”’.Some see the move as presenting Biden with a problem that will need resolving quickly in order to maintain relations with China.
I am not so sure.  I think it give Biden an almost clean sheet from which to start relations with China.  Now nothing is off the table.  Trump has left him with several new negotiating tools that previous Presidents never had.The fact that even the pro Beijing party in Taiwan welcomed the move reflects the will of the people of Taiwan.  A spokes for Biden state over the weekend that “Once in office, he will continue to support a peaceful resolution of cross-strait issues consistent with the wishes and best interests of the people of Taiwan,”   The key point being that he will act in the best interests of the people of Taiwan and they clearly, in the last election rejected China’s overtures.  Hopefully going forward that means it becomes internationally recognised for the country it is and that China accepts that it is not part of China.  The worry is that hard liners in China now push for military action.  Currently the markets are treating the issue as a grey rhino event and the Taiex continues to trade at near record high levels.  The presumption being that China will be sensible and not resort to military action.  Unfortunately as the World saw with Crimea that may not be a wise assumption.

LEX Hong Kong delistings: unstructured thinking. Thinks that because JPMorgan, Morgan Stanley and Goldman Sachs are going to delist hundreds of Hong Kong-listed structured products, that investors should take their cue to leave too.  
It thinks the restructuring due to Trumps sanctions means that Hong Kong is losing its status as an Asian trading hub. It furthers 'The city has already lost overseas standing due to political unrest and Beijing’s national security law. The added risk of losing index hedging tools amid increased market volatility will only drive capital away from Hong Kong’s securities markets.’
I think it misses the point.  They are delisting those products in order to ensure compliance with US regulations.  Investors from the rest of the world are largely unaffected by the US sanctions and can still buy stocks that US cannot.  Whilst US funds are large they are not the total pie; only a part of it.  Furthermore for the time being Hong Kong remains the primary access to the China growth story and whilst China is seeking open up its markets it is wary of allowing too much foreign control well aware now that that money can be pulled out rapidly. The political moves by China on Hong Kong are a concern but for the time being most are staying and will continue to do so.  
To an extent the question should really be about how long the US investing public is prepared to be a political pawn.

China’s Baidu and Geely team up to make smart electric cars. Seemingly a good deal for both, Baidu to diversify out of its stagnating core business and Geely to sell its vehicle technology to third parties. Baidu’s share price has risen since announcing the venture but only time will tell if it will succeed.

Pinduoduo hit by new overwork claims. Following the recent death of an employee on her way home from work which is still being investigated the company is facing further social media criticism after a former software engineer at Pinduoduo, posted a 15 minute video with allegations that he was fired after criticising its work practices.  The company denies his allegations.  The trouble for the company is that posts of this sort do gain the attention of users and authorities and at a time when the E Commerce sector in China is under scrutiny any adverse news can be negative.

Higher cost of food drives surprise rise in Chinese inflation.   Looks at yesterday's data out of China.  Headline inflation was higher than expected  by rising food prices due to bad weather and ahead of Chinese New Year. Health cost along with Education, and other goods and services also rising.  Household goods and services flat.  Declines in the price of transport, rent, fuel, utilities and clothing.Core Inflation (excludes food and energy prices) however fell YoY to the lowest level since the covid outbreak and was the weakest since early 2010
That leaves policy makers with a conundrum as other areas of the economy heat up as to what to do with interest rates. Especially as consumer prices could return to deflation again because of the sharp rise in pork prices last year.
PPI was the 11 month of declines but at the smallest level since Feb 2020, as the economy continues to recover.

South Korea urges Pyongyang to restart talks. Interesting that President Moon seeks to restart talks I wonder if he hopes to re-create the same effect as when Trump took office?It comes as North Korea signalled it was looking to develop new missiles and stated that the US was its ‘biggest enemy’.  The problem is that N Korea is still demanding lots of concessions just to return to the negotiating table.

For Interest
Time to end trading conflicts that cost investors billions. Looks at the practice of some US brokers of accepting payments to route orders to certain traders and exchanges and questions it that means that customers are really getting best execution?  Well worth a read. 

Opinion Here’s how the Fed can do more to support small businesses. By Hal Scott an emeritus Harvard Law School professor and directs the Committee on Capital Markets Regulation.  I am sure one or many seeking to advise the new Administration.His points are that the Paycheck Protection Plan is not enough and it shoulder expanded.Put in place a new Federal Reserve Lending programme to replace the expired Main Street programme with the Fed buying all the loans and absorbing the credit risk, whilst offering very favourable terms to borrowers.
An interesting read but I am sure Janet Yellen has a few ideas of her own already. But it is key that small and medium sized businesses get access to funding that will not over burdened them as they try to restart/recovery from the pandemic. That will be crucial for the long term recovery of the US economy.

To thrive globally, banks must ask themselves tough questions. In summary  'Banks will always look abroad for growth. But the ones that succeed will note the pitfalls and ask: how well do we really understand this new market? Will we keep investing in it during the tough times? And are we willing to send our best and most trusted leaders there?’
An interesting read.

US coal’s Asia ‘pipe dream’ ends as Pacific port project collapses
Hopes of an export-driven recovery fade after bankrupt owner kills west coast scheme. Key being that the project was seen as a possible saviour for US coal miners who are suffering as the US cuts its coal fired power stations. It is seen as a negative for Wyoming and Montana, whose open-pit mines in the Powder River Basin would have supplied the facility on the Columbia river in coastal Washington state. It really underlines that coal mining is a quickly declining business.
Also HSBC under fire for fossil fuel investments.  Some investors are saying it is not taking climate change seriously enough because it hasn’t provided targets for reducing its funding of fossil fuels.  They are calling upon not to now do so.  The bank has said it will engage with customers, shareholders and ShareAction (who is behind brining the shareholder group together.)
Also read FT BIG READ. ENVIRONMENT. Will Shell case accelerate the shift to green energy?  If successful, the legal action in the Netherlands could force oil and gas companies to hasten the transition to cleaner fuels, and nudge other polluters and investors to reassess how they can help cut emissions.

US bank shares on the rise after years in wilderness.  Hopes for an end to pandemic and higher interest rates bring rebound in unloved sector.  Seen as beneficiaries of the vaccinations and hopes for interest rate rises ahead.  Also the prospect of a return to share buybacks.  But not everyone is convinced. 'Dave Ellison, the portfolio manager of Hennessey Funds’ large and small-cap financials funds, said that, while banks have enjoyed a relief rally, very low rates and low growth were here to stay.  “A 3 per cent cost of funds and a 6 per cent return on a mortgage? Those days aren’t coming back,” he said. “How do you grow customers? Not on price — the cost of capital is already zero. Not on service — you can’t compete with Apple or Google.”His portfolios are dominated by non-bank financial services companies, such as PayPal and Visa.'

Veteran investors place opposing bets on outlook for growth and value stocks.  Looks at the opinions of two veterans:Howard Marks who warned 'that while it was “easy to be seduced” by low valuations, “investing on the basis of rote formulas and readily available fundamental, quantitative metrics should not be particularly profitable”.'Jeremy Grantham, co-founder of GMO, who 'warned of a “bubble that is beginning to look like a real humdinger” in stocks. For him, one solution is to avoid big tech as much as “your career and business risk will allow” and to focus instead on emerging markets and on value stocks.'

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