Sept 10 FT Thoughts Biden's carrot, US banks in China, China's Middles East wins, and more

14 Sep

Sept 10 FT Thoughts  Biden's carrot,  US banks in China, China's Middles East wins, and more

MARKET s @ 1:15pm HK time
opened higher Machinery orders declined less MoM and were better than forecast. But market drifted lower through the morning. PM opened slightly higher than the AM session closed but again drifting lower. Pre market tomorrow we get PPI and BSI Large Manufacturing Data. Nikkei currently +0.6% roughly were it opened.
Softbank +2% but opened flat, saw a ramp after lunch
S KOREA opened higher and has traded sideways Kosdaq currently +1% and the Kospi +1.1%. Futures and Options expiry today.
TAIWAN opened higher and trading in a tight range 12,650 - 12,710 currently +0.4%
CHINA opened higher trended slightly lower in the morning. Just open lower in the PM and sold down immediately Currently +0.7%
HONG KONG Opened higher in line with the ADR’s again but sold down in the first hour, possibly margin calls from Wednesday Then rebound and was flat going into lunch. PM opened higher but selling down currently flat.
Yum China IPO -3.9% but off the lows.
EUROPE Expect markets to open flat following Asian but with caution ahead of the ECB announcement. Data today French Industrial Production.
US Futures opened +50pts, with S&P and Nasdaq also slightly +VE but eased back to flat. Expect caution ahead of the initial claims number. Other data today 4 week Average Claims, PPI, Core PPI, Wholesale Inventories, EIA Report.

Biden vows to bring US jobs home as Trump’s China ‘decoupling’ falls flat. Biden like Trump is looking to attract US companies to onshore jobs. He’s talking about tax reform to woo companies into bringing jobs. Basically by increase corporate taxes on profits generated by overseas production of goods then sold in the US; including the use of overseas call centres. Comes as an AMCHAM survey shows that less than 4% of the 200 companies with operations in China that responded to a surveyor looking to move production back to the US. That reflects how cheap it is to manufacture in China.
Biden would also provide a 10% tax credit for companies creating manufacturing jobs in the US, by relocating them from overseas or revitalising closed factories in the US.
Whilst the proposals would have to get through the Senate they are an improvement on just threats.
But still the cost of manufacturing in the US is very high because of the worker benefits that have to be provided whereas in China salaries and benefits are much lower; which is why the jobs moved in the first place.

Wall Street strives for star performance in China. BlackRock, Citi, Vanguard and JPMorgan benefit from Beijing’s liberalisation drive. Despite the worsening relations between China and the US it is a growth area that neither side seems to want to upset. China has spent the last few years trying to get its domestic banks to operate to the same level as US ones with some success but see inviting overseas into the market as being a way to raise standards and provide the range of services that domestic clients want.
Building up respected domestic mutual funds should also help to reduce market volatility and to an extent protect inexperienced retail investors. Although the funds are unlikely to be able to give the same potential returns.
Key I think is that in doing so it hopes to avoid money going overseas that it doesn’t know about and to try and keep money out of the shadow banks. For the US banks; the hope is that China will gradually allow more domestic investment money to go overseas and then being known locally in China will be key to running that money.

Opinion China digs deep in the Middle East. Looks at how China has benefited from the Iraq war and its aftermath. China who is the largest importer of oil globally is Iraq’s biggest trading partner. Oil exports to the US halved in the first six months of this year as the Pentagon looks to reduce US troop presence further in the coming months. China is filling the space left by the US exiting; as it is in Afghanistan as noted yesterday. China is becoming the key foreign investor in the Middle East region building partnerships with many countries. Making investments in many commercial ports and been increasing the size of it navy in order to protect the shipping routes that are key for its energy imports. It’s interest in Afghanistan is seen as a way to enable an overland transport route for energy for additional energy security.
The fact that Beijing’s policy has changed from being friends to signing up allies. It has also succeeded in some cases of being allies with countries that are in conflict with each other. It has even got the support of Muslim-majority countries for its incarceration of Xinjiang Muslims as necessary for counter terrorism.
It points out that the US has tired of being the 'international policeman’ only to see others, notably China reap the benefits.
But now that policy may need re-visiting if the US is intent on containing China. It will also need to strengthen its ties with its allies in Asia.
It notes that
'Most Asian countries are even more dependent on ship-borne oil than China. Ceding control of the key waterways around the Arabian Peninsula to Beijing would force all countries in Asia to rethink their strategic alliances and make them far more susceptible to the kind of coercive diplomacy China is using all over the world.
Whoever wins the US presidential election in November will face the uncomfortable reality that competition with and containment of China now runs through the Middle East.’
An interesting article that is worth a read.

Ant, Haitong and WeBank in Singapore push. They are looking to get more involved with local industry groups. Reflects the expectation that Singapore will become more important as Hong Kong’s national security law deters some companies from operating there.
It mentions Haitong, who have had offices in the City for at least 5 years now, Huawei also mentioned have been present for nearly 20 years. So its not really a new push but does underline that Chinese companies are becoming more visible in their overseas expansions.

Airlines cut flights after passengers fail to return. More warnings from the airline industry as passengers continue to avoid air travel. -VE for all airlines.
Not mentioned in the article but it will be interesting to see if rail travel is rising. Also whether things like the channel tunnel and ferries are doing better business? Interestingly Bernstein research yesterday initiated coverage of Aston Martin with a positive note on the basis that people were moving the country side and hence the demand for cars would increase.
Key for the airlines is a vaccine although most people I know who have travelled by plane recently have found it a pleasant experience because the flights are not crowded. But obviously the airlines are losing money.

AstraZeneca’s trial pause injects dose of reality into race for coronavirus vaccine. Pharma group’s safety move comes as reminder that sector is aiming for unprecedented success. The halting of the trial due to an adverse reaction should encourage us all that corners are not being cut in the pursuit of a effective vaccine. They are currently investigating whether the illness was due to the vaccine or not. These trials using 30,000 are done in order to try and pick up any potentially dangerous side effects. The article notes that ‘pauses’ in drug trials are quite normal.

Central banks will win the tug of war in asset trading. By Mark Haefele of UBS
Look at the fact that Central bank polices should set the investment parameters for investors over the impact of Covid. Focusing on Europe but the selections are probably true globally. They like UK and Germany.
UK because it trades at a discount to other markets and the fact that 40% of the FTSE 100 are value stocks which should out perform on the recovery. Also energy; with Brent is expected to recover over the next 9 months.
Germany because of its exposure to industrials and particularly automation and robotics; where Europe has many of the world leaders. The focus on these long term plays has been accelerated due to the crisis; in their view.
It thinks that we are likely to see a rotation out of the mega tech stocks in the US .
The other sector they like is healthcare and again Europe is home to a number of medtech companies. Other areas that go in Europe’s favour are green initiatives and digitalisation. Which should encourage the development 'areas such as renewables, energy efficiency, electric vehicles and infrastructure related to mobility and transport.’
Covid outbreaks may mean hiccups along the path to recovery but it will not derail the long term trends and in some cases accelerate it. The fact that we now know more about viruses than we did six months ago and have adopted measures to allow an element of normality is key to success.
It notes in conclusion 'All this suggests room for global stocks to move higher. But investors will need to choose particularly carefully.’

I think those trends will be reflected globally. Gene Munster was, on Tuesday, saying that not all tech companies have a model that is sustainable post lock downs. He likes for the US companies like; Apple which is still developing new products and services. Amazon for shopping development, Alphabet for services and Zillow as the way forward for real estate be it sales, management, mortgages etc.
Companies in those modes and those of the article in Asia would include from Japan the automation names like Faunc, Yaskawa Electric and THK Co
Much of the Apple supply chain is in Asia and so will continue to benefit although margins are likely to be squeezed.
On property I would suggest investors watch for Juwai IQI which is an Asian Zillow, currently private but in the news recently on expanding its agency network with OrangeTee & Tie joining up and talk of a IPO ahead. Recently KE Holdings listed in the US. It was Tencent backed and operates in China. The stock was +87% on first day of trading. The guys at KE use a similar model to Juwai's and said that Juwai’s model, outside of China was better than theirs; so certainly one to put on the radar screen.

For interest
‘Fomo feeling’ propels Indian retail investors into stocks.
Bangalore-based Zerodha claims more daily trades than popular US app Robinhood. Notes that more retail clients are being drawn into the market, with individual accounts rising 20% since the beginning of the year. A good summary being
'“Because all stocks seem to be going up, including penny stocks, that can lull people into thinking that they’ve got their method right,” he said. “It may be dumb luck but people may be thinking it’s due to their strategy.”
That and
'New investors often “don’t have the patience or time to do any research”, he added. “They say, ‘Give me some names of stocks,’ and without seeing whether it’s suitable for them, they go and invest. Because they tend to make quick money, that’s snowballing slowly into more and more people buying.”
India is not alone Taiwan yesterday reported that Brokerage accounts rise to all-time high: by 442,570 in the first eight months of this year, boosting the total accounts to 11.015 million. The number of investors who traded in local shares advanced to 2.3 million as of the end of last month, an increase of 659,636 from the end of last year, which the TWSE said was a reflection of wider interest in stock trading from new and long-time investors.
Those are probably reflective of many other countries too, which means the potential for a global crash in markets is rising; something that could have a significant impact on the global recovery

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