Jan 13 FT Mainland buyers in HK, Private Business in China, Toyota's warning, Crypto and more

13 Jan

MARKETs at 2:45pm HK time
Nikkei 225 opened slightly lower but has traded higher through the morning. Machine Orders Data at lunchtime was up MoM but missed forecasts but the market has kept moving higher but hit resistance at 28,500. Currently +293pts (+1%) @ 28,457
Topix has followed a similar pattern, resistance at 1,870 currently +7pts (+0.4%) @ 1865
Data Machine Tool Orders Dec +8.7% YoY vs +8.6% Nov (revised from +8%) (F/cast was +12.5%)
Pre market Unemployment Rate Dec 4.6% vs 4.1% Nov (F/cast was 4.1%). Institutional caution ahead of options expiry this week
Kospi opened flat and spiked to 3,160 before trending lower, saw some support at yesterday’ s close but the traded down to 3,109 before trending higher with resistance around 3,165 level, then sold down to 3,140 before a slight bounce. Currently +18pts (+0.6%) @ 3,144
Kosdaq opened flat and traded sideways 978/972 until 11:30am after which it worked better to 983 before easing lower; currently +5pts (+0.5%) @ 978
Opened higher and worked higher to 15,779 around 11:20am before trading sideways to close +269pts (+1.7%) @ 15,770
CHINA CSI 300 opened higher after the mixed loans data and work higher to 5,645 but then sold down to flat and traded sideways into lunch.  PM saw the market sell down to 5,535 before a small bounce. Currently -40pts (-0.7%) @ 5,567
Opened at 28,309 +33pts vs +90pts ADR’s and rallied to 28,400 on some initial shooter covering before trending lower through the morning to flat at lunchtime. PM saw a volatile open before selling off down to 28,137 and then bounced back to flat. Currently -40pts (-0.1%) @ 28,237
Petrochems firm as US inventories drop more than expected but Chinese financials remain mixed; Chinese Financials and E Commerce names mixed; Ping An hit a new high. Chinese machinery names seeing interest with Zoomlion hitting a new high.
Expect a higher open following the majority of Asia, with sentiment encouraged by the rollout of vaccination programmes world wide; despite new lock down extensions in Germany and Holland. Investors watching for the trading updates from Sainsbury’s, Persimmon and ASOS.
FTSE is seen opening 15 points higher at 6,771, Germany’s DAX 17 points higher at 13,942, France’s CAC 40 up 10 points at 5,662 and Italy’s FTSE MIB 25 points higher at 22,531, according to IG.
EUROZONE Industrial Production
GERMANY Wholesale Prices
FRANCE  No data due
UK  No data due
US Futures
Opened flat in Asian time; Dow -20pts, S&P and NDX -0.1% but rise slightly throughout the day currently Dow +41pts S&P and NDX +0.1%Data MBA Mortgage Applications and 30 year Mortgage Rate, Inflation Rate, Core Inflation Rate, EIA Oil Report, Monthly Budget Statement, Beige Book.Earnings: IHS Markit, Infosys, Wipro
On line
Detained US lawyer urges Hong Kong to look to Ireland for inspiration  
First expatriate arrested under security law tells activists their cause is not hopeless. “Look at Irish history . . . They were completely hopeless for so long, but eventually they got part of Ireland — they got a republic,” Mr Clancey told the Financial Times.Hi arrest has raised fears that the authorities will target lawyers who represent opposition figures; which is what happens on the mainland.
He was amongst those the HK administration has accused of attempting to “subvert” Chinese state power. Which is what a free vote in HK could do if the majority voted against the pro Beijing representatives.
Front Page 
Alamo stand. Trump denies sparking riot.  With more articles inside on the Trumps impeachment inside the paper.
Commerzbank warned BaFin of Wirecard money-laundering risk. • Watchdog alerted a year ago • Merkel aide defends lobbying • Lender eased ties with group
Modi’s agriculture reform derailed as Supreme Court freezes liberalisation.

Mainland Chinese pile into battered HK stocks Many of them taking advantage of the recent discounts due to US sanctions on Chinese companies.  The article says that 'Mainland Chinese investors’ holdings of Hong Kong-listed stocks bought through market link-ups with Shanghai and Shenzhen climbed to an all-time high of $235.7bn yesterday, according to Financial Times calculations based on Bloomberg data.’
With mainlanders taking an increasing role as Beijing seeks to integrate Hong Kong into its financial system.
Key points to note:
It reflects also the fact that mainland institutions are growing in size and that the domestic market in China no longer is able to fully meet their needs. Hong Kong is an easy first step via the connect programme but they don’t actually hold the shares; those are held at the exchanges on behalf of the investors.
So there is no complicated settlement issues. It is a first stage to allowing funds move off shore with is something that China, to date, has been very wary of; because it doesn’t want to lose the money. As with gambling, you can gamble as long as it is within China. But moves to encourage mainlanders to gamble in Australia were met with a sharp clampdown.
Also worth noting that on Tuesday Secretary for Commerce and Economic Development Edward Yau told Reuters that international companies in Hong Kong look law and order one very important thing in their investment, and in fact there is more money flowing to the city than leaving, proving market confidence in the global financial hub. The fact that a lot of that money is coming from the mainland rather than international investors undermines the statement.
But most importantly is that the US sanctions only impact a limited number of companies at this stage and the wider market is still open to the US investors. With the whole of the market being available to investors who are not constrained by US regulations. HK still access to China’s stocks and associated growth.What investors need to watch is whether the issue of the National Security law really does impact investment in China names. I believe it is something that most investors look through and accept. Only if the clamp down becomes so severe that there is no longer the infrastructure that they require to invest available (banks, brokers, lawyers etc) will they stop using Hong Kong.
It is also interesting to note that many fund and wealth managers are primarily looking to the mainland for their growth rather than the wider international investment community. The reality is that Hong Kong in the past has thrived on its ability to service the needs both.  I believe its future still depends on that.  I know from my own experience that my mainland contacts are always interested to know what my western clients are thinking and doing and the same is true in reverse.  

FT BIG READ. CHINA ECONOMY. The future of private business
The crackdown on Alibaba and Ant Group amounts to an unprecedented squeeze on a ubiquitous ecommerce empire. It reflects a distrust of powerful private enterprises and a desire to rein in Jack Ma.
Notes that Ant’s premier money market fund was a source of concern because it was pulling money from the banks. The key being that anyone could invest and earn interest. The fact that it was so popular shows that the State run banks are not able to offer the citizens of China what they wanted.
The fund called Yu’E Bao (translates as “account balance treasure”) was reigned in by imposing limits on how much could be invested.
Then Jack Ma’s speech, about which much has been written, further criticised the establishments way of operating. The evidence of the success of Yu’E Bao would suggest that the criticism was justified but that struck at the politics of the system within China. The response from Beijing was a pulling of the IPO and an probe into the business activities. Again giving validation to Mr Ma’s criticism about how the system works or doesn’t in China.
Mentions about the cult status of Mr Ma and how that could be seen or portrayed as a threat to President Xi, but dismisses that. It is interesting to think that the government’s response says more about the fear in Beijing than the treat from Mr Ma.
I think the incident shows the key differences between politicians and entrepreneurs. Both seek to please the public but entrepreneur’s tend to be more honest; in the fact that it's known their aim is to make money. With politicians it is more difficult to say.
Mr Ma the article says is still committed to helping Chinese society grow and improve. Putting more regulation and potentially breaking up part of the group may make it more manageable but will not improve the faults in a system which fails to meet the needs of the people.
Worth remembering that shadow banking became such an issue in China because the State could meet the needs of the people and they had to look for better returns. Even today the PBoC is constrained by the need to support the SOE’s despite the fact that they will not be the engines of growth for China.
Well worth a read.
Read also Get ready for self-driving banks. By Brian Brooks the US acting comptroller of the currency.  In summary 'Could we usher in a future where we eliminate error, stop discrimination, and achieve universal access for all? Optimists like me think so. How different would banking in the US be today if regulators, bankers, and policymakers were as bold as carmakers 10 years ago?’  I guess he couldn’t say that in China?

UK to fine businesses over Uighur links. Threat of penalties for using supply chains tied to alleged forced labour.A further move against China’s after evidence of human rights abuses in Xinjiang.  The US says as many as 2m Uighur Muslims may have been detained with many sent to factories as forced labour.  China says they are training centres to curb extremism and promote acquisition of new skills.
UK companies must now publish annual modern slavery statements and 'companies with an annual turnover of more than GBP36m required to show their supply chains are free of slave labour.’
The UK government is also producing ‘robust’ guidance which will highlight the risks of sourcing from Xinjiang and the difficulties of due diligence there. 'The government will also ensure public procurement rules exclude any suppliers found to have links to human rights violations’
Furthermore the government has not ruled out using sanctions on companies or individuals found to have been responsible and was working with others to gather evidence.

Australia prevents China from buying local builder.   Looks at how Australia has blocks a deal involving China State Construction Engineering Company and its acquisition Probuild on “national security” grounds.  A further sign of the deterioration in relations between the two countries.  

Toyota’s warning over green plans points to tensions in Japan Inc.  A rare case of a business leader criticising the governments plans so directly.   The FT quotes Mr Toyoda said:' “There is a risk that the automotive industry’s business model could collapse,”  as he warned against the government’s plan for a rapid transition to electric vehicles without a drastic change in its energy mix.’It was notable that as head of the Japan Automobile Manufacturers Association he had done his homework.  
A key point that being that if the vehicle changed to EV more power stations would be need to meet the power demand. Which would mean more nuclear or coal powered power stations.Toyota is lobbying for a mixed of vehicle types; hybrids, EVs and hydrogen-powered vehicles.
Toyota is not alone other big companies face challenges to remaining global leaders under Japan’s proposed green energy transition; others mentioned include Fanuc, or becoming new global leaders like Mitsubishi Heavy and Toshiba. The downside is that these companies get left behind.
Key is how companies are assessed; carbon footprint measurement might make Japanese goods less acceptable unless the government can reduce its reliance on fossil fuels.  That is what prompted the outcry; the fact that the governments proposal lack detail of how the change will take place.
The green debate will be on-going for many years but I think it is important not to lose sight of the fact the customers will still want good products. A company with a good carbon footprint rating but poor products is unlikely to survive, the question is can ones with good products and high carbon footprints?  I think they will; as with most things; consumers will pay for quality be that in cash or carbon credits!

Japan fears blackouts as LNG shortage pushes electricity price to record high.  Electricity prices have soared to all-time highs as a cold snap coincides with tight supplies of liquefied natural gas to raise fears of blackouts in parts of the country.  Good and bad news for the power companies but it also highlights Japan’s power dilemma, something that has real impact on its Green Power plans and the need for a long term and flexible power supply network.

Ex-employee of SoftBank mobile unit held. Being held on suspicion of stealing trade secrets after moving to Rakuten.
Rakuten Mobile said its own probe did not find the employee had taken any 5G trade secrets. Furthermore it had not used any of the information allegedly taken by the employee for its own business. Elsewhere in the world trade secret theft accusations are relatively common but not in Japan. But at a time when the telco’s are all under pressure to reduce prices at the behest of PM Suga tensions and publicity are now playing a part. It is also interesting that Softbank is alleging the stolen secrets 'would allow Rakuten to build its mobile network faster and at lower cost.’
Trade secrets are always going to a fraught area and one reason why companies should look after staff; because staff knowledge is key to a successful business.  Softbank is saying the its trade secrets are on a Rakuten Mobile’s corporate PC used by our former employee.  It doesn’t say he downloaded and took any data but his knowledge of the processes etc could have been good enough for him to reproduce the data.  Preventing that sort of transfer has never been successful.  The UK tried to prevent its cotton Mills technology getting to the US by barring workers leave to migrate but it still happened.  Looking after staff could be the real key to keeping trade secrets…. Secret.

LEX Japan telecoms: close call.  Looks at the state of the Telco’s and notes 'Japanese telecom stocks have underperformed the broader Nikkei 225 Index for years, reflecting the saturated market and looming regulatory risks.How should investors react, given that pricing pressures have been far weaker than expected? The three biggest operators should be able to hold on to ebitda margins well above 20 per cent. Rakuten has failed to make the splash it hoped for. Phone charges will be a very low priority for Mr Suga for many months. Japanese mobile stocks are a better investment than they have been for years.’
Whilst they may be better now than before I think there are a number of other sectors that will remain better investments. I like the robotic sector and Fanuc along with AirCon maker Daikin which continues to do well, both company’s shares are trading at highs and worth accumulating on pull backs.

For Interest 
Crypto. Volatility surge. Bitcoin’s trading jolts unnerve traditional money managers Bout of turbulence raises fresh doubt on whether mainstream investors will join speculators.Looks at the recent rise to a new high and significant subsequent fall.  Bank of America strategists last week asked in a note to clients whether bitcoin is “the mother of all bubbles”.
Others are more realistic; strategists at UBS Asset Management said yesterday '“In our view, given their high volatility and the size of their past drawdowns, cryptocurrencies might be attractive to speculative investors but they are neither a suitable alternative to safe haven assets nor do they necessarily contribute to portfolio diversification,”’
I think that is the real key they have a risk reward profile like every other asset or investment out there. Quantifying it and then considering whether it is appropriate is key.
Bitcoin rose 63% in December which meant some people made a lot of money. Recently it has seen a fall of over 17% in a day, meaning some people have lost a lot of money but that is the world of investing.
Worth noting that UBS’s Asset Management strategists added “For investors seeking to protect against potential downside and improve the risk-reward profile of their portfolios, we recommend options, gold, long-duration Treasuries, and hedge funds,”

Investors are right to look beyond headline GDP data. Looks at how the pandemic has increased the use of alternative data to asses macroeconomic performance. Along with the limitations of national account data.
He notes 'Current policy debates over further pandemic relief reflect the divide between those who focus on granular details revealed by new data approaches and those who focus on headline national accounts measures.
For example, should additional fiscal stimulus measures target overall GDP or should it target households or businesses that are suffering most for no fault of their own?
The broadening use of contemporary “narrow” data is offering rich perspectives of economic life. Alternative indicators have enabled excellent real-time analysis during the pandemic. This has helped to guide policy decisions and minimise the macroeconomic damage.'

* The email will not be published on the website.