Sept 17 FT Thoughts OCED more from Govts, China's power play, Suga policies, Tik-Tok, Nvidia and more
MARKETs @ 12:45pm HK time
JAPAN opened lower and sold down ahead of the BoJ rate decision but then worked back to the opening level only to sell down into lunch. PM opened lower but trending higher ahead of the BoJ press conference Currently -0.6%
S KOREA Kosdaq opened higher but trended lower through the day. Found support around 883 level and now trading sideways currently -1.2%
Kospi Opened lower tested Wednesday closing level but then trended lower finding support of the 2,400 level and now seeing a slight bounce; currently -1.1%.
TAIWAN opened lower but initially moved higher to test the 13,000 resistance. Failed and sold down finding support around 12,850 and now trading sideways; currently 0.9%
CHINA opened lower around 4,600 level and trended lower through the morning Currently -1.1%
HONG KONG Pre market opened -49pts @ 24,676 vs -25pts @24,700 but market then sold down finding support at 24,250 and saw a small uptick into lunch. Currently -1.6%
EUROPE Expect markets to open lower after the FOMC decision and ahead of the BoE decision. Other data today EUROZONE New Car Registrations, Construction Output, Core Inflation Rate, Inflation Rate. UK BoE Quantitative Easing, MPC Meeting Notes
US Futures opened flat. Expect more caution ahead of the initial claims report. Other data Housing Starts, building Permits, Philadelphia Manufacturing Index, EAI Natural Gas Stocks Change, 10 yr TIPS Auction
OECD calls for shift in coronavirus strategy. States urged to end blanket response to Covid-19 and target new forms of growth. Really just saying what everyone has realised; mass lockdowns don’t work and that there is a need to retrain many people into sustainable jobs from those areas that have been hit worst by the covid crisis. Aiming not to cut costs but to target them better until a vaccine becomes available; expected to be in 2021.It looks for good companies to look to help those that are temporarily in difficulty but not to support those that are ultimately unviable. It notes that if governments fail to take difficult decision they will end up supporting zombie companies to years to come; just to keep jobs.
It upgraded its forecasts for 2020 for China and advanced economies in Europe but some like India, Mexico and Argentina saw further deterioration.
Key being that it did not want to see taxpayer support reined back.
China’s great power play puts Asia on edge and risks flare-ups with US. Beijing assertiveness blamed on domestic insecurity, Xi ambitions and pandemic opportunism. Looks at the tension points around China basically and why their profile has been raised. The areas are: Taiwan; disputed islands in the South China and East China seas; and India’s Himalayan border.
It ascribes the reason to 'domestic insecurity after crackdowns in regions such as Hong Kong and Xinjiang, great power ambitions fuelled by the leadership of President Xi Jinping and opportunism afforded by the coronavirus pandemic.’
From China’s point of view the overtures to Taiwan but other countries are a concern. For Taiwan it is worried that the 'Mr Xi’s great power ambitions, coupled with purges within the Communist party, had shaken Beijing’s established decision-making processes. “This has created a very messy situation, and we worry that Xi Jinping might not be stable,” the person said. “When that happens, the risk of conflict rises rapidly.”’
It notes how in Chinese history how internal power struggles have lead to China engaging internationally as in the Korean War. The difference now being the strength and improved abilities of the PLA.
The article sets out how President Xi is focused on a 'total security paradigm’ according to Matthew Johnson a political consultant. As part of President Xi’s stated aim that China should centre stage. So the recent moves are not accidental but premeditated plan to assert China as the key power in Asia.
For India; the fact that India was building up infrastructure in the Galwan Vally , was seen as a serious offence to China and needed to be punished '“In the Chinese perspective, if they do not punish severely enough, it’s going to leave a mentality of possibility,” Yun Sun said. “Punishment must be seriously comprehended and lessons absorbed.”
Similarly in the South China Sea.
An interesting read. For investors it should raise their concerns over more assertive and military moves from China. Just as China seeks to ensure its neighbours are punished the world should realise that unless China is also rebuked over its actions it will continue to push the boundaries of what it considers acceptable. Condemnation thought should be co-ordinated and in unison; so that China understands that adherence to International standard is required.
US prosecutors charge five Chinese citizens with hacking. The latest in the round of charges against Beijing aimed to put pressure on Beijing to halt its alleged theft of intellectual property and cyber criminals operating in China. This time the US has openly accused Beijing directly; saying it was allowing cyber criminals to operate as long as they helped the state authorities. Interesingly these are the same hackers that were charged in August 2019 and August 2020. Who are said to have been operating since 2014. Prosecutors say one tactic they use is to compromise 'software providers to allow them easier access to those providers’ corporate and other customers’
It is interesting to note that both parties in the US view China’s actions as a threat so regardless of who wins the November election China will remain in the crosshairs of US policy
Japan’s new premier opts for continuity in cabinet appointments. Goes through the selection of the new cabinet. The number of existing members points to stability and the continuation of Abe’s policies. Some of the new appointees point to reform and key is that he has seemingly appeased all factions within the LDP. The question now is are they up to the job. Interesting to note that 'Taro Kono, 57, regarded as one of the favourites for a run at the premiership in future, will move from the defence ministry to become minister for administrative and regulatory reform. He will be charged with delivering on some of Mr Suga’s highest priorities.’ Suga known for his behind the scenes work looks to still be at work in positioning people for the long term success of the LDP.
Well worth a read. Overhanging the market now is when will the election be called.
LEX Japan stocks: Suga rush. The outlook for Japanese equities could be mixed, whilst there is continuity there is also renewed reform. Three areas stand out; digital transformation, regional banks and telecoms. Telcos are likely to see more pressure to cut charges.
Regional banks to be overhauled +VE for the larger ones; of the 78 listed Lex favours larger lenders, like Fukushima Bank, Shimane Bank, Chikuho Bank and Jimoto Holdings.
'There may be less to play for in tech, another enthusiasm of the new premier. He has promised to deregulate and promote artificial intelligence. But the population’s concentration of elderly people could limit progress.
Foreign bulls should push stock prices higher in the short term. Relatively low valuations will help. Even after a 40 per cent gain from a March low, the benchmark Nikkei 225 index trades at just 19 times forward earnings, one of its widest ever discounts to the S&P 500.
Pundits are bracketing Mr Suga as the continuity incumbent. But it will not feel like that to unpopular mobile operators and favoured regional banks.'
TikTok deal faces few obstacles in Beijing. ByteDance and Oracle tailor their US agreement to win China’s approval by not including any source code or Chinese data. The deal allows Oracle which will be ByteDances 'technical partner’ to independently process Tik-Toks US data. It will also have minority stake in ByteDance. Seen by many as a the best deal that China would allow. It mirrors Apple’s partnership in China where it was forced to provide its iCloud service through a local vendor called Guizhou Cloud Big Data.
New overnight is that Trump doesn’t like the deal. So whilst it may get Beijing’s approval, Washington’s it appears is less likely.
LEX TikTok/Oracle: inartful dodge. Looks at the current deal which seems very different from what was originally trumpeted. Notes that Trump and policy have overly influenced the deal; 'Ultimate policy outcomes are thereby tainted, threatening America’s key competitive strength: the rule, and predictability, of law.
Unfortunately, the stigma of government meddling in deals has faded recently. France’s LVMH cited a government edict to help it escape its $16bn acquisition of Tiffany.
The ‘art of the deal’ has taken a whole new meaning.'
China chip sector urges probe of Nvidia’s Arm takeover Lawyers say winning Beijing’s approval for the acquisition will be a significant challenge. There was also a article in the Global Times today warning about the takeover. Since the crackdown on Huawei China is extremely aware of the risk of tech being in US control. Arm’s designs are used in 95% of the chips used in China. Because of Arm’s JV in China the authorities will have the right to review the deal and is likely to raise concerns because 'China’s competition law explicitly instructs regulators to judge the impact of any deal on China’s national development.’This then will be one more hurdle for Nvidia to secure the deal.
It also illustrates that whilst China became the manufacturer for the world it was based on other peoples technology, not home grown. That is one of the reasons it has been so focused on Huawei’s growth in 5G an IoT, it wants to be in control and no longer subject to tecponomic threats that it is currently under with other leading tech.
Global Spac craze triggers fears of dud deals in Asia. Looks at the use of Spac’s in Asia and notes that 'Ray Zage, founder of Tiga Investments, a Singapore-based firm and the longtime head of Farallon Capital’s Asian business, is preparing to launch what could be the first of several Spacs.’ Spacs have risen to prominence in the US recently and are doing the same in Asia. They are liked for the fact that investors have the right to vote on takeovers and can get their money back if they disapprove of a deal. They can also be short duration if the vehicle cannot find a suitable company to invest in. But there are still risks of dud deals.
However, many of the deals these days come with names sponsors to give further credibility; the fist Asian one was backed by Antony Leung, a former finance secretary of Hong Kong and an ex-Blackstone executive in the city. He ultimately bought United Family Health, which he bought from private equity firm TPG and Fosun. That has inspired others Citic Capital launched one looking for ‘green targets’. Others are looking at tech in the so called Softbank hangover; who paid top prices and has left others worried about over paying. Currently it appears there is a lot of interest but agreeing the price is an issue. It cites the case of 'One would-be buyout by a Spac of a tech “unicorn” in south-east Asia recently fell through after the founder balked at a big fall in value from his last capital raising.’
Spacs can be good but its still a matter of getting the right price for both parties.
Opinion Equity investors should cheer low rates. Or should they? Looks at a quarterly assessment by the BIS on the financial system. It has sought to quantify how much of the stock market rise is due to low rates. It goes through the methodology and results.
KEY 'This in turn implies that low rates fuelled half of this year’s US rebound and one-fifth of that for Europe.
This methodology is not perfect. But it should make investors ponder what might happen if rates rise. That seems unlikely in the short term because the Fed’s new view of unemployment suggests that “interest rates will be held lower for even longer”, as a recent report from ING Barings says.
But therein lies the rub. “The more central banks drive real yields down and valuations in risk assets up, the more they will need to keep buying just to keep them there,” Mr King observes.
That could set a nasty trap for central banks and investors alike. And it is a good reason to keep watching those BIS boffins.'