Sept 21 FT Thoughts China exports, WeChat still, HSBC Funds in China, Napoleon on China.

23 Sep

Sept 21 FT Thoughts China exports, WeChat still,  HSBC Funds in China, Napoleon on China.

MARKETs at 1pm HK time
JAPAN Closed until Wednesday
opened slightly higher Kosdaq saw a choppy start, then traded sideways just above flat but sold down from about 10:30; with support at 877 level; currently -1.%
Kospi opened higher, choppy initial trading hit the day high around 10:15am and then reverse to Friday's close and traded sideways before trending lower from midday. Current support around 2,400 level, which has been tested a couple of times and now rebounding; index currently -0.2%%.
TAIWAN opened flat initially trended higher to 12,936 (day high), then trended lower with support around 12,814 level and trading sideways; currently -0.4%
CHINA China Loan Prime rate was unchanged for both 1 and 5 year as expected. Opened higher but sold down, initially to 4,720 and traded sideways for an hour before trended lower into lunch where is was -0.5%
HONG KONG Opened +25pts @ 24,483 vs -96pts @ 24,359 with weakness in E commerce names and HSBC. Other financials and tech were positive. But market trended lower though the morning with support at 24,170 and a small bounce into lunch. Market was -1%
EUROPE Markets to open lower following Asia and with covid cases in the UK and France still a concern. No data due.
US Futures opened -151pts but worked their was back to flat -17pts; S&P -0.1% and NDX -+0.2%. Data due Chicago Fed national Activity Index. Replacement of Justice Ginsburg is set to make the election run up even more interesting.

On line
China’s export machine comes roaring back to life.
Big economies may be struggling but their appetite for Chinese electronics is growing.
But the question is will it last?
Using data from Oxford Economics and Haver Analytics the article notes that whilst total exports have fallen China’s global share of exports was 18% in April but eased to 15.9% in July. It notes that China remains fundamentally competitive in terms of supply chains but there are some shifts taking place. Part of China’s strength comes from the resilience within Asia and the global increase in demand for working from home electronics. Seen in the fact that Taiwan saw it highest ever levels of exports in August, the majority being electronics. With S Korea also seeing increases after the sharp fall in April. A big part of the Chinese success story was medical equipment. Part of the rise being due to the easing of lockdowns in China and the lower number of cases in Taiwan and S Korea.But as Natixis’s Trinh Nguyen points out there is a bifurcation; tech doing well but heavy industries under performing in most countries. But in China the State support and the way that many companies in China adapted to the new demands; especially for protective equipment has been a hallmark. Whilst the traditional business lines are seeing weak demand from their normal export markets. Hence the concerns over whether it will last.
The recovery has also been helped by many companies building inventories instead of the previous practice of 'just in time'; in case covid resurges and disrupts supply chains again. Also impart, due to Huawei seeking to access as much stock as possible before the US sanctions hit.
So far then it notes that China has stimulated less and relied on exports to drive its recovery. But it finishes by saying '“I think over time the surplus will raise concerns that in some sense China isn’t pulling its fair share in supporting global demand amid a pandemic.”

I think that China is aware that exports can be fickle and that the demand for medical equipment and work from home electronics will not continue and that is why President Xi has been stressing the need for domestic consumption. The trouble there is that relies on people having confidence that covid has been contained. Hence the parties in Wuhan and Shanghai getting prominence in the press; as a sign that everything is OK. But time will tell. It's also good to see that they haven’t eased the housing restrictions having spent years trying to contain that bubble. Overall the data coming out of China looks good but political tensions and the potential for covid to surge again, be it in China or the countries that China exports too, are real threats.

Front Page
Trump’s attempt to ban WeChat stymied by California ruling
Trump’s plan to prevent new downloads of WeChat held up by California Judge; on the basis of violating First Amendment-protected freedoms of speech. Whilst a temporary respite the threat to WeChat and possibly other Chinese platforms remains.
It also notes that the TikTok deal got Trumps approval, many think because he is worried about alienating younger voters if he bans it. But it still has a number of hoops to go through to get the deal done. Not least because of the $5bn education fund that Trump has demanded.

It highlights the ‘political’ danger to companies now from the breakdown in US/China relations. Beijing at the weekend announced some more about its ‘Blacklist’ with threats to Qualcomm, Cisco and Apple and that it was also considering suspending buying aircraft from Boeing, in response to US sanctions on Huawei Technologies. HSBC (0005) and FedEx are "highly likely" to be put on the first batch of the list. For China the ability to restrict firms is more limited as many of them are big employers in the country and hence it will hurt China’s economy too.

HSBC fund chief reshapes business for the Covid era. Moreau faces challenge of transforming unit while its parent undergoes restructuring.
Key is that HSBC wants a new banking licence in mainland China. It is looking to bridge Asia and the West. It already has 49% of HSBC Jintrust Fund Management, a JV with Shanxi Trust since 2005; which has been OK but not as good as rivals like Invesco Great Wall. A new licence would give it new opportunities says the article 'allowing the asset management unit to build new multi-asset, cash plus and loan funds for mainland clients.’
It is also looking to strengthen on-line platforms to enable better distribution.
He has already structured the business as a global one rather than regional one and says it will look to third party mandates rather than inflow from its parent. That will be the acid test of success. He has also focused the units offerings and is looking to launch new funds with HSBC being a cornerstone investor.
I think his job just got much harder with the news that HSBC could be on China’s blacklist which would ban it from investment in China. It also faces an uphill battle against the established local businesses, many like Ping An are leaders in the use of online platforms. China’s wealthy and its institutions have plenty of options as to whom to give their money to for management. I think the targeted approach makes sense. Trying to become a leader in certain areas and build up a track record. But that is becoming increasingly more difficult due to the number of players already established.

Stores short of stock ahead of holiday season. Looks at how US retailers are short of stock having turned conservative when covid first broke out. That coupled with factory closures when the outbreak started has left them scrambling for merchandise. That may yet prove to be prudent considering the fact that the US government has not agreed the next stimulus package. But it mentions a shortages in areas like 'fitness equipment, electrical appliances, footwear and some other types of clothing’. That should be good for a number of the Hong Kong listed companies in footwear and clothing. It should also help cycle companies like Giant and Shimano who have already noted full order boos.

South Korea fringe churches question state over pandemic. Mass rallies against Covid-19 restrictions lay bare religious and political divide.
Distrust on both sides is a concern. Many Church members believe the virus is being used as a witch hunt against the church. It seems to be dividing society too with many outraged by the thought of mass protests and the fact that could lead to a resurgence of covid cases. It will be interesting to see what personal precautions the protesters take.
The article also notes the how Seoul city government filed legal claims against the Sarang Jeil church, seeking Won4.6bn ($4m) in damages over its role in a rally in August. It alleges church violated the country’s infectious disease prevention law, breached virus protection and quarantine rules and undermined the city’s contact tracing work. The church denies responsibility despite hundreds of its members testing positive for coronavirus after the rally.
The article also that some in S Korea are worried about the political influence of some of the fringe churches. Politics and Religion seldom make good bedfellows.

Opinion The west should heed Napoleon’s advice and let China sleep  by Kishore Mahbubani a distinguished fellow at the National University of Singapore, is author of ‘Has the West Lost It?’ and ‘Has China Won?’
Thinks that the west’s hopes to bring about change in China are flawed for three reasons
1. Thinking that China cannot be a good partner whilst under communist rule. That the party rules against the wishes of the people. He sets out that most Chinese people do not see the party as being oppressive. Most are enjoying the changes that are taking place in China and the advances that are being made.
2. That even if the Chinese people are happy with the party the rest of the world would be better off if China switched to a democratic system. He thinks that a democratic system in China would result in chaos and suffering for the people. Furthermore that a democratic government might not be a liberal one and could be more forceful with regard to crackdowns.
3. That a democratic China would adopt western norms in the way that Japan did. He notes that a number countries are moving away from western norms citing Turkey and India as examples.
His view is that only the communist party in China is able to contain the anti western sentiment.
He says 'Napoleon was right when he warned western nations to “let China sleep, for when she wakes, she will shake the world”.’ So he recommends the west reconsider its policies and 'learn to live and work with the Chinese leadership, instead of wishing for its transformation or early demise.’

Some interesting views, I do believe that a lot of people in China accept the communist party and because living standards have improved are happy with the government but with growing inequality and without a forum to air views feely how can we know? Also the education system has over the years indoctrinated many into believing China’s communism is the only way forward. But without the freedom to explore and learn about other ways of government how can they know.
I am not sure that the west wants to remove communism, if that is the right term for the regime that is currently in place. What I think they would like is a more open form of government that accepts that individuals have human rights, not least to freedom of expression and freedom of information in order to be able to make informed decisions. That has laws that protect individuals and are open and fair; not leaving the people in fear. That removes the elitism of the current ‘communist’ system. But most importantly a China that really does respect international laws and procedures rather than one that picks and chooses which internationals norms it will respect and those it will not.
Lastly its worth remembering that with the party’s control of the media the only reason for the anti western sentiment is because the party has created it.
Lastly just worth noting that China is now awake and as far as President Xi is concerned she's not going back to sleep any time soon.

Worth a read.

For Interest
Thai protesters issue direct challenge to king. Students deliver list of 10 demands for royal reform and step up pressure for military government to stand down. Growing unrest and with the protest movement growing in size too but all peaceful so far.
I would imaging that China is watching to moves, as any form of people power tends to worry Beijing.

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