Sept 2 FT Trump quiet on China Trade, How to help Taiwan, Diplomatic hostage taking? Covid testing

07 Sep

Sept 2 FT Trump quiet on China Trade, How to help Taiwan, Diplomatic hostage taking?  Covid testing

MARKETs at 1:45pm HK time
JAPAN opened higher but has drifted lower through the day.  Abe’s successor and the potential implications onto policy overhanging the market.  Currently +0.3%
S KOREA  opened higher, good inflation data and the Kosdaq trading sideways; currently +1.1%   The Kospi opened higher but has sold down through the session current -0.2% but ticking higher
TAIWAN opened higher but sold down the session, found support around the 12,650 level which it has tested several times before bouncing currently flat
CHINA CSI 300 opened higher but sold down, found support at 4,800 and bounced into lunch.  After lunch pushed higher but finding resistance at yesterday’s closing level  Currently flat.  Expect team China to support in the PM
HONG KONG Pre market +55pts @ 25,240 vs -121pts ADR’s @ 25,062 and futures were lower too. On T/O $11.81bn higher than normal would suggest a number of late trades from yesterday and would help explain the significant drop in volume for the start of the month.   Market then sold down on the open to 25,100 in line with the ADR’s and futures but failed to hold and then tested the 25k level through the morning with a small bounce into lunch.  PM market trying to push higher, seems good support from Them China but I would expect 25k will remain under pressure.  It is a key level to maintain considering the number of IPO’s/Secondary listings coming to the market.
EUROPE I would expect markets to open lower following the weakness In Asia.  Data due today: Eurozone PPI, Germany Retail Sales, UK a number of BoE speakers
US Futures opened higher Dow and S&P +0.3% and NDX +0.5% Data due MBA Mortgage Applications and 30 year Mortgage Rate, ADP Employment Change, ISM New York, Factory Orders, EIA Oil Report, Feds Beige Book.  Less emphasis on the ADP data now but probably more focus on the Beige Book

US trade deficit with China undermines Trump strategy. Looks at Trump’s record with regard to trade with China which during his 2016 campaign he had pledged to reduce the trade deficit. Now with the January’s Beijing agreement looking wobbly and figure trade deficit remains high. Basically despite all the tough talk the figures show that he hasn’t made much of an impact.
'The US trade deficit in goods with China in 2016 was $347bn. For 2019, it was only marginally lower at $345bn.’ With the drop in 2020 being largely due to the drop in world trade due to covid.
China bashing seems likely to remain a key part of the Trump re-election campaign and that could be a negative for more China stocks as sanctions are widened. The really big worry is that he further weaponises US pension money investments in China firms. It was mentioned earlier this week that US citizens should avoid using Chinese made apps as the administration was looking to clamp down on them. It’s only a small additional step to suggesting that funds should not be investing in Chinese companies.

Pentagon warns of Beijing’s growing nuclear arsenal. In its annual report to Congress the Pentagon sets out the huge build up of military hardware as Beijing looks to expand its military capabilities. The report also notes that in some areas China is already ahead of the US. Interestingly whilst China continues to grow its military spending, to an estimated $200bn last year that still trails the US’s $686bn.
The article stresses the build up of nuclear weapons which is obviously a concern for everyone.

Editorial How western nations can support Taiwan. China is putting growing pressure on the self-governing island. Notes that China has been far more aggressive towards Taiwan recently and suggests that more nations, in a co-ordinated fashion give their support to Taiwan. Doing it in a co-ordinated fashion means that Beijing’s ability to victimise individual countries would be curtailed. But it suggests that recognising Taiwan as its own country would probably trigger a Chinese attack and so should be avoided. Says so far the US approach has been balanced and hopes the will continue up to and effectively past the election although there is a chance Trump escalates it.
I have said for sometime that I think more nations should support Taiwan and the strategic importance of Taiwan on the tech front is a fundamental reason. But backing off confrontation with Beijing for fear of an attack I think is the wrong policy as it will give the impression that China does have rights over Taiwan; which is does not have. Whilst it thinks it has those rights and the ability to exercise them it will continue along that route; which on the current projection may well lead to an invasion anyway.

Mongolian language crackdown stirs fury. Looks at China’s move to use Chinese in schools which has provoked strikes, sit-ins and violence. The move is seen as part of President’s Xi plan to assimilate the regions and people on the periphery of China into the Han culture. In the past this has often been done with brutal force where there has been opposition to the Communist rule. Key here is that the primary language is to be Mandarin with Mongolian being taught as a topic.
It notes that 'Beijing defends the policy as necessary for ensuring ethnic minorities have opportunities to work in Chinese society. But activists argue there is little evidence an education in ethnic language leaves people unable to flourish in China. “The literacy rate for the Mongols in Inner Mongolia is higher than that for ethnic Chinese in the region,” Mr Atwood said. “This is a centrally designed plan by people in Beijing who, frankly, have very little direct understanding of what’s going on in Inner Mongolia.”’
Also interesting to note that in the petitions against the move many used the practice of 'duguilang, where protesters’ signatures form a circle around the text in a show of leaderless solidarity.’ Seems everyone is learning that it is dangerous to be a focal leader in disputes with China.
It will be interesting to see the Beijing’s reaction to the protests, especially as it is already under international scrutiny over Xinjiang and Hong Kong.

Beijing detains Australian TV journalist. At this stage it is unclear on what grounds but such as the security laws in China that that is a minor detail. It does show how bad the relations between China and Australia have become and raises concerns about hostage diplomacy as was seen in the arrest of two Canadians after the Huawei CEO was detained in Canada.
It's also interesting because Cheng Lei, works for China Global Television Network, which is the Chinese Government’s English news network. She has worked there as a television anchor for eight years. She was born in China but is now an Australian citizen.
For foreigners living in Hong Kong it may further raise concerns about the new national security law and how business people could become ‘collateral damage’ and the subject of hostage diplomacy too.

Hong Kong activists distrust Covid-19 mass testing. The article sets out that the Beijing backed plan is seeing a lot of local opposition and has for many morphed into a public vote on the government’s legitimacy. Some people are worried about privacy of data and how useful the initiatives results will be. Fears have been heightened by the use of mainland staff, again raising concerns over where the data will end up, especially after the new security law and not helped by accounts of widespread DNA collection by the Chinese security apparatus in Xinjiang.
Carrie Lam has assured people the data will remain in Hong Kong but few believe her and I suspect under the new security law legislation mainland authorities could request the data be handed over at some point in the future in secret on the grounds of national security.
The opponents of the scheme make the very valid point that the administration cancelled the local election on fears busy polling stations could spread the virus but are happy to use a number of those same sites (about 50% of the test venues) as testing venues with people queuing up to be tested.
Once again Carrie Lam has managed to score an own goal, undermining many peoples trust in both the local administration and Beijing.

China sounds subtle warning on TikTok sale. Looks at China’s new export controls which have been rarely used in the past (Rare earths was a recent example) but last week they were expanded to include tech and AI and hence ‘catch’ TikToks algorithms.
The new rules update the “forbidden and restricted technology exports” list and now include “personalised information recommendation services based on data analysis” (ie algorithms).
Things on the list are not banned but restricted so you can still sell them but need government approval.
They are not specially about ByteDance but they do signify a general tightening up of tech that can be freely sold abroad. They seem directly linked to the the US sanctions on Huawei which have illustrated how crucial some tech is.
They also to an extent are there to appease public opinion.
Whether the new rules help or hinder ByteDance is open for discussion. It might scare off some buyers but it also means that ByteDance can extend the negotiations on the grounds of having to get them approved by Beijing.
Which also means that Beijing can ultimately block the sale of the algorithm which could scupper the deal. But it might mean that ByteDance remains the algorithm and maintains it whilst the buyer operates it but that might not satisfy the US government.
I think the main aim is to ensure that Beijing protects its position and defending Chinese companies from being taken advantage of but foreign companies or governments.  Mainly for consumption by the nationalist citizens of China 

Samsung heir faces manipulation charges. Legal action heightens investor concerns about world’s biggest chipmaker. Prosecutors have indicted Lee Jae-yong, de facto head of Samsung, along with 10 others; on a range of charges including stock manipulation relating to the 2015 merger of two company units and a $3.9bn accounting fraud at the biopharmaceutical unit.
It highlights the complications for the families trying to keep control of these companies. These events are historic and Mr Lee has already been in jail for a while which didn’t seem to have a huge impact on the running of the company. But it is likely to be a distraction and it is obvious that they are under a lot of scrutiny which is not likely to ease up for some time to come.
The share price recovered most of the March sell off by end of July but has seen resistance at 60,000 Won and is currently trending lower. Yesterday it unveiled the new Galaxy fold range but it is difficult to see what the real driver to take it higher will be.

LEX South Korea stocks: short circuit. Looks at the short sell ban extension and says in summary 'Ultra short-term private traders are now as common in South Korea as in the US. Shorting, used as hedge, would actually protect other investors from the volatility such quick-fire dealings create. The ban extension will at best raise costs. At worst, it will exacerbate the problem it seeks to address.'

Opinion Abenomics and the fight against ‘Japanification’. Six lessons from Abeconomics
1. Monetary policy works … at least in the first instance
2. Weak economies can handle tax rises
3. Credibility is essential; once lost …. So is everything that had been promised
4. Expectations only go so far but they must be backed up by actions.
5. Stimulus can be good and doesn’t cause a public debt problem. The public sector can only save more if the private sector saves less.
6. The limits of growth strategy; key is to deliver the promises. Abe failed to deliver structural reform for which he is criticised but he did manage a lot of changes and set in motion more. Key for growth is more people, better education, accumulating capital, and most crucially of all, new technology. With Japan’s declining population, the only “reform” sure to expand the economy is large-scale immigration, and Mr Abe rightly felt that choice goes beyond economics. Perhaps he is at fault just for claiming to have had a strategy to revive growth. But since no such strategy exists, delivery was not the issue.
He successor is faced with trying to convince the public that whatever new plan is presented will work and the people are probably less inclined to believe it or continue with the existing.
'One option is to wait, continue central bank asset purchases and hope for the best — the basic BoJ stance since 2016. The alternative is to co-ordinate those asset purchases even more closely with government spending.
That would be another step towards the uncharted and potentially perilous policy of helicopter money. But to sustain the hope that Mr Abe once sold so well, Japan may have little alternative.'

Buffett hopes kindred spirits bring rich rewards in $6bn Japan foray. US investor’s trading house stakes are a bet on fellow dealmakers but collaboration will be tricky.
A good background read into the nature of the trading houses that Buffett has bought into. Some think it's a good move others foolish. Only time will tell.
Personally I think there is a lot of sense behind the move and it adds a diversity to the portfolio that should have some synergy. It may also be a sign of the new lieutenants having meaningful input into steering the company going forward.

For Interest
Debt investors cast doubt on Fed power to stoke inflation. Bond prices wobbled after US central bank statement but long-term impact questioned. Another article looking at the Fed’s policy change announced last week. The key being whether the Fed can avoid the pitfalls of Japan and the ECB. But as many have said having a target and actually achieving inflation are two very different things.

Retail stock market investors should note professionals’ caution by Mohamed El-Erian. He notes that derivatives are reflecting risk of heavy selling that could overwhelm smaller players
The recent US rally since April is giving the impression that it is supported by the whole investment community as few are willing to place shorts, because they keep getting squeezed. But a lot at the derivative market gives a different picture. He views markets and a few names especially as very risky. New trading apps are making entry to the market easier. SPAC’s are also springing up as people look for more yield; replace safe government bonds with more risky corporate debt at low yields in a bankruptcy prone environment where the full impact of covid is not yet known.
He notes that domestic consumption is moderating and initial claims are back to 1m level, whilst congress still hasn’t passed a new relief package. People are putting their faith in liquidity and central bank stimulus.
BUT he notes fear of missing out has prompted increased use of call options; contracts that give the right to buy at a fixed price in future — rather than straight equity longs. That limits risk and gives the owners the opportunity to capture the rallies. Also on the increase it the use of tail protection. He thinks the VIX has decoupled from equity indices which means if a correction occurs professional investors would sell to an extent that would overwhelm those retail investors looking to buy the dip.
This could be a major issue that leaves small retail investors exposed to big risks. The knock on effect may result in central banks having to get more involved and hence distort the markets further.
A good read. Many are expecting a pull back and there is certainly quite a lot of money waiting.

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