Dec 14 FT Thoughts. Investors Rmb1tn bet on China, Brexit, Covid, Renewables & Updates

14 Dec

MARKETs at 1pm
Mainly +VE on Brexit negotiation extension and FDA approval for Pfizers covid drug.
But sentiment cautious as local covid cases spike in S Korea, Japan, Hong Kong and even a few cases in China.

Nikkei 225 Opened higher but off the initial highs suggested by the Nikkei futures when they first opened. Tankan survey showed improvement in sentiment and the market rallied to 26,850 which was the morning resistance and was tested a couple of times. Market then traded sideways 26,850/26,780 into lunch. Opened lower after lunch, and trading sideways. Currently +153pts (+0.6%) @ 26,808
Topix followed a similar trading pattern currently +17pts (+0.9%) @ 1,799
Data pre market
Large Manufacturers Index Q4 -10 vs -27 Q3 (F/cast was -17)
Large All Industry Capex Q4 -1.2% vs +1.4% Q3 (F/cast was -0.4%)
Small Manufacturers Index Q4 -27 vs -44 Q3 (F/cast was -38)
Non Manufacturing Outlook Q4 -6 vs -11 Q3 (F/cast was -8)
Large Manufacturing Outlook Q4 -8 vs -17 Q3 (F/cast was -12)
Large Non Manufacturing Outlook Q4 -5 vs -12 Q3 (F/cast was -7)
Out at 11:30am
Industrial Production Oct +4% MoM vs +3.9% Sept (F/cast was +3.8%)
Industrial Production Oct -3% YoY vs -9% Sept (F/cast was -3.2%)
Capacity Utilisation Oct +6% MoM vs 6.4% Sept (F/cast was +1.5%)
Tertiary Industry Index Oct +1% MoM vs +1.8% Sept (F/cast was +1.5%)
Tech and Pharma and Ecommerce strong but concerns about the rising number of local covid cases(over 1,000 for the first time on Sunday) hurting sentiment.
Kospi market opened lower and tested down to 2,755 before rebounding to 2,783, which it tested a couple of times before tended lower, and trading sideways in the range 2,766/2,776; currently +1pt (unch) @ 2,770
Kosdaq Opened higher but sold down to 924 in early trades rebounded to the opening level but eased back to test support before working higher to test 936. Currently easing back; +6pts (+0.7%) @ 934
Opened lower and sold down to 14,182, then rebounded to Friday’s closing level which it tested a couple of times but unable to break above and so drifted lower to 14,220 where if found supper and traded sideways for around an hour before resting Friday’s closing level. Tech names still seeing interest.Currently -13pts (-0.1%) @ 14,250
CSI 300 opened higher but initially sold down on the weak House Price data and traded sideways in the range 4,890/4,912 before seeing a small push higher into lunch. Currently +29pts (+0.6%) @ 4,918.
May see some caution into the close ahead of tomorrows data.
Data on the open
House Price Index Nov +4% YoY vs +4.3% Oct (F/cast was +4.1%)
Tomorrow morning we get NBS Press Conference, Fixed Asset Investment, Retail Sales and Unemployment Rate
Pre Market Opened at 26,522 +16pts vs -242pts ADRs; After the positive news about FDA arriving the Pfizer vaccine and Brexit talks. But sold down 70pts initially to 26,406; then rebounded to around Friday's closing level. Then pushed higher to 26,544 but without great conviction and trended lower into lunch. Currently -26pts (-0.1%) @ 26,480.
Ecommerce weak on fears of more rules from Beijing, Financials mainly +VE Tech rebounding with Xiaomi and Sunny Optical +VE. Chinese Developers firm.
Data Due After market Industrial Production
Expect a higher open on news that Brexit talks have extended and that the FDA approved the Pfizer covid vaccine. But upside limited by rising covid cases and Germany to go into lockdown from Wednesday.
Data Due
EUROZONE Industrial Production
GERMANY Wholesale Prices, Bundesbank Report
US Futures opened higher Dow +150pts, S&P +0.6% and NDX +0.5% in Asian time. With markets expected to have a positive reactions to the FDA approval of Pfizers covid vaccine. Electoral College meets today to confirm the election results.  
Data Due Consumer Inflation Expectations

On Line
Global investors place Rmb1tn bet on China breakthrough. Bonds, stocks and currency draw in buyers in a year when everything unexpectedly came together. Notes the CSI is +27% in US dollar terms and the ChiNext +59%.  Also that Chinese Govt bonds have seen record inflows from foreigners. The contrast with what was seen in January is stark.
The articles notes 'Investors say the surge is likely to keep coming.’ China has done well and is viewed as further down the recovery road than many others; which it suggests is due the command economy structure. Its ability to keep its benchmark interest rates stable has made it attractive to debt investors. That is likely to remain the case as Chinese Govt debt is incorporated into the FTSE Russell’s World Government Bond index. That coupled with confidence in the renminbi is also easing investor concerns.
Equities have also seen an inflow of funds; especially since Biden won the US election.
It notes that 'Even in spite of rising tensions, flows into China have run at a rapid pace throughout the Trump presidency, with total inflows of over $620bn over his four years in office. Similarly, the number of Chinese IPOs in the US grew faster under Trump than it had under Barack Obama. But the country faces growing bipartisan hostility in Washington, and Mr Biden has said he will not immediately lift Mr Trump’s trade tariffs.’
However recent bond defaults by SOE’s has raised concerns with some worrying that State planners may be stricter in the near future.
It quotes Hayden Briscoe, head of fixed income for Asia-Pacific at UBS Asset Management who 'suggests that China is positioned for both positive and negative scenarios for the coronavirus, and that global flows into the country are “just going to accelerate”. “The number of conversations we’re having with clients is just ever-increasing,” he said. “People are making their first standalone allocations in China.”’
I think 2021 is certainly likely to be an interesting year for China.  Beijing will have to deal with a new administration but with tariffs staying in place but a new collaborative negotiating premise expected.  That could see it having to open up more. The US banks are moving quickly to capitalise on the growing wealth management business and with China’s still pushing domestic consumption there are likely to be a lot of new opportunities.A number of funds that have been exposed the China recovery are likely to rotate to other Asian markets as they recover but for those new to Asia China remains attractive but not without concerns.  The recent defaults and credit issues highlight the need for good due diligence but there are still good opportunities to be found.  

Front Page
EU and UK trade talks extended but parties still split on key issues. The decision to extend the talks was seen as positive with increased optimism of a deal despite some key sticking points.  The fact that there is no deadline could be good or bad but the key for the markets it that there seems to be intent to get a deal which is +VE.  

Merkel takes tough action.  Germany to go into strict lockdown on Wednesday in response to the exponential rise in the number of new cases.  -VE for the German recovery and Europe too; other European governments will be considering their response too in the run up to Christmas.
See also Europe imposes stricter Christmas lockdowns.  This will be very bad news for Retailers and that is likely to impact onto many of their suppliers from Asia too with Apparel makers and Shoe manufacturers likely to see reduced orders.

Kremlin faces wall of suspicion in race to roll out vaccine.   Trust of government seems to be a key issue.  Evidently only 59% of the population do not intend to get vaccinated and a survey showed that 61% of Russians do not trust the government data on the virus. Another survey showed that 42% of Russians were willing to get vaccinated.  Interesting that Putin himself has not yet been vaccinated, although when he approved its use he said it was quite effective.
This is likely to be a problem in a number of countries I think along with concerns about which manufacturers drug the people are receiving.  Whist the market has assumed that once a vaccine was fund and approved everyone would sign up that is proving to be far from the case.  The additional news this weekend about Sanofi and GlaxoSmithKline saying their vaccines will be delayed may well add to public concerns about the long term safety of the vaccine.

China flashes some star quality in push to eclipse Washington.  Space, tech and pharma advances touted as diplomats fire anti-western broadsides.Looks at the news flow out of China; all of which are very good PR for President Xi although they don’t really impact the serious economic issues the country is facing but will have a feel good factor no doubt.
The article mentions that government seems to be continuing to support the ‘wolf warrior’ tactics viewing them as ‘proportionate’ to what it sees as the provocation from “International anti-China hostile forces have suppressed China, deliberately attacked the Chinese Communist party and China’s political system, and coerced other countries to ‘contain’ and ‘confront’ China,” Le Yucheng, Beijing’s second-highest-ranking foreign ministry official, said last weekend. “We cannot submit to humiliation and compromise, and have to carry out a tit-for-tat struggle.”
A big issue remains is over Covid which is thought to have originated in China; the fact that China has not allowed foreign scientists to carry out a detail investigation is considered unusual.  China whilst saying it supported such an investigation has done little to actually progress it.  That is viewed by many a suspicious; as if it has something to hide.  

Beijing plans to triple wind and solar capacity within a decade. More good news for the renewable energy sector in China.  Other articles in the virtual summit which was attended by more than 70 heads of state to mark the fifth anniversary of the Paris climate accord, suggest that there is still a feeling that China could do more especially with regard to its use of coal fired power stations.  
From China’s perspective coal is still a cheap power source; it is closing older coal fired stations and replacing them with modern less polluting ones.  The key is that China still needs cheap power to fuel its economic growth. 
Read also US renewables sector struggles as virus blows hole through tax breaks. Wind and solar investment incentive weakens after pandemic reduces profits.  The drop in corporate profits has reduced the attraction of tax credits.  Direct payments to the sector could results in less quality projects.  An interesting read.  

Fed poised to extend crisis bond-buying. US central bankers grapple with need for further monetary lift.  Look ahead to this weeks FOMC meeting.  The expectation is that it will offer new guidance and extend its emergency bond buying programme until certain criteria in the economy are met.  The article thinks that the change of language could make it hard to wind down the programme.  
But I think the Fed will act as it sees best and is not afraid of changes although it does try to keep the market aware of its leanings.  Other areas thought to be in focus as bolder monetary moves via the asset purchase programme.  A key point is that the Fed remains data dependent and much of the recent data has been encouraging with the exception of initial claims.  So far we have not seen a mass of bankruptcies or other examples of fall out and so I think it quite likely that the Fed maintains its current stance on other support measures; saying that it is carefully monitoring the situation.

Brighter skies Commodity prices strengthen as vaccine progress spurs growth optimism.  Looks at how a range of commodities are moving higher as the global economic outlook improves thanks to the roll out of vaccines that should bring the current covid 19 pandemic under control.  It notes the Gold is bucking the trend but mentions growth in oil  (marine fuel and diesel especially - a sign that trade is improving) and other energy products. Thermal coal on tight supplies in China and Iron Ore too.  Notes; Soyabean and cotton too likely to be Chin related; with soybean imports and the US embargo on Chinese cotton.
Other articles have mentioned the growth in Lithium; last weeks FT on IGO Group acquiring a 49% stake in Tiangi’s lithium assets. IGO is also involved in gold and nickel which have also been good drivers and should see it well positioned. But Lithium could be a good play as long as companies don’t get ahead of themselves again.

For interest
Deutsche eyes shift of many New York jobs to lower-cost US centres. Makes the point that working from home during covid has proved that some jobs can be done in lower cost centres.  But also notes that they are likely to focus on hubs rather than work from anywhere.

Restoring growth is more urgent than cutting public debt. Looks at how the UK Government should act.    Key; it notes is that 'The government must sustain confidence that the UK is run by sensible and competent people'

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