Sept 23 FT Thoughts Powell warns, Tibetan Shadows haunt China, 18yrs for calling Xi a clown

25 Sep

Sept 23 FT Thoughts  Powell warns, Tibetan Shadows haunt China,  18yrs for calling Xi a clow

MARKETs at 1pm
Re opened lower, having been closed Monday & Tuesday. Flash PMI data was slightly weaker than F/cast and the market initially traded sideways for the first 45mins. Then is sold won to 23,155 level before a small bounce back to initial levels at lunchtime.
All Industry Activity Index just missed too but market opened higher around 23,275 level (25pts higher than the initial open) and is trading sideways. Currently -0.4%
S KOREA Kosdaq opened higher but sold down to 822 before bouncing back to flat and then effectively trading sideways currently +0.2%
Kospi flowed a similar pattern, morning low was 2,287, the bounce back was only to 2,320 level. Trade sideways for 2 hours before testing Tuesday’s close but failed to regain. Currently -0.3%.
TAIWAN opened higher but trended lower through the morning. Support at 12,550 and then saw a small bounce to 12,600 and now trading sideways currently -0.4%
Industrial Production and Retail Sales due after market.
CHINA CSI300 higher and bounced around Tuesday closing level initially before trending higher to 4,650 but then reversed to 4,624 before bounding back to 4,642 at lunch. Chopping trading suggest Team China battling with retail concerns. Currently +0.1%
HONG KONG Opened -15pts @ 23,701 vs -39pts ADRs at 23,678 with E-commerce names slightly +VE but weakness in HSBC, Hang Seng Bank and Chinese Developers with consolidation in the sector expected. Market then saw choppy trading around Tuesday’s closing level for the firs 30 minutes before trending lower top 23,560 level where it found support and then bounced back to the opening level going into lunch. Chinese Financials weak. Nine Dragons paper +12% after results. Techtronics testing $100 again after good results from Kingfisher in UK. Anta +2.9% & Yue Yuen +0.7% on good Nike results
EUROPE Expect market to open flat slightly higher as covid concerns off set the +VE US close. Key will be the German Consumer Confidence number (F/cast -1 vs -1.8 Sept) and the Flash PMI data which is expected to be Flat/sligthly better MoM.
US Futures opened flat but rose to Dow +115pts, S&P were higher but NDX -VE. Data due today MBA Mortgage Applications & 30 year Mortgage Rate, House Price Index, PMI Flash Services, Manufacturing and Composite, Fed Chair Powell Testimony, EIA Oil Report.

Powell warns of blow to economy if Congress fails to agree stimulus. A very clear warning to Congress. He noted that the economy would suffer once people had used their savings and that more fiscal support was needed. Also that SME’s also needed direct help rather than loans. In spite of these warnings the parties in Congress still cannot agree and the divisions seem to be getting larger.
For investors the message is clear that they should stick to the larger companies with good balance sheets. With Q4 starting in just 9 days portfolio managers will have to decide if to make switches into the last quarter or stay with their existing exposures.

Tibet shadow looms over Himalayan stand-off. Beijing’s concern about Dalai Lama and control of region stoke friction with New Delhi. Looks at the military funeral of Nyima Tenzin, a Tibetan fighter working under the shadow of the Indian army killed in an August skirmish. The deterioration in relations between India and China is well know but Tibet is another fraught issue for the two countries; especially as China tries to eradicate the influence of the Dalai Lama. China has already installed its own Panchen Lama, who it keeps under strict control and aims to ‘find’ the next incarnation of the Dalai Lama when the current one passes. As it notes '“China is convinced that it has to win the Tibetans over by appointing the next Dalai Lama, and it cannot do that unless it can win over this Dalai Lama or exterminate his influence,” Mr Barnett said. “Whether they can do any of that depends on India.”'In the meantime he and his government in exile is a issue between the two countries. The articles says '“The Chinese are absolutely paranoid about Tibet and Tibetan refugees,…. What they worry about is that India can promote separatism and subversion among the Tibetans.”’Prior to the China invasion in 1951 (or invitation depending on whose history book you read) India had a flourishing trade with Tibet. Nee Delhi says is has not interest in stirring Tibetan resistance to Chinese rule and has largely distanced itself over recent years from the Dalai Lama. Although after the recent incidents it may look at reviewing that stance. China the articles notes 'China remains suspicious. “In the Chinese mind, India wants Tibet to be independent in order to be a buffer,”’
Part of the problem being that the border between Tibet and India was never formally demarcated and India feels that China is trying to push historic Tibetan claims through military force now. Key being to take Tawang, site of an important 16th-century Tibetan Buddhist monastery and birthplace in 1683 of the sixth Dalai Lama. Beijing considered its claim over Tawang as central to securing its hold over Tibet, lest any precedent be set for finding the Dalai Lama’s reincarnations outside China. Beijing believes that “regardless of what happens” it has to take Tawang back, said Mr Fang from Taiwan’s National Tsing Hua University.
The issue and stand-off is fraught with risk and with nationalistic interest running high finding a compromise will not be easy as neither side wants to back down. For both governments it is an extra issue on top of covid and the running of the economy.

Xi critic who labelled president ‘a clown’ jailed for 18 years. Ren Zhiqiang formally a prominent property tycoon was found guilty of charges including bribery, embezzlement of public funds and abuse of power; after a one day trial. He was a privileged princeling son of a Chinese Communist party official who participated in Mao Zedong’s revolution and later served as a vice-minister. He connections historically allowed him to speak more freely than most but the party (President Xi) got angry when he criticised President Xi directly on social media, after Xi said stated funded social media should be there to serve the party. Ren is unavailable for comment but the court says he will not appeal.
For investors is highlights the risks of operating in China and Hong Kong under the new national security law. It also reveals I think how fragile the confidence of the top leaders is; as kids we used to say ‘stick and stones may break my bones but names will never hurt me’. Obviously the Chinese leadership doesn’t feel the same way. Many within China probably support the sentiment of what Ren Zhiqiang was saying. Silencing him does not remove the truth of the matter.

Party spirit Chinese nationalist war epic wins communist approval to top global box office. The release of the film The Eight Hundred, a drama set in Shanghai during the 1937 Japanese invasion of China, has become a box office success. Beating other recent releases like Sony’s Bad Boys for Life and Disney’s Mulan. It was backed by Tencent and Alibaba. Due for release in mid 2019 but the censors objected to its original focus on a group of Kuomintang troops, rather than the communist Red Army; so it was re-worked and was 'deemed “patriotic” by state media and screened at local party committee viewings.’

China has the upper hand in corporate proxy wars with US. Suggests that Trump was too eager to get his trade deal and China took advantage of that. When Trump placed sanctions on ZTE he brought the company to its knees. He did a deal with Xi to get the trade deal done and hoped also to get the Qualcomm NXP deal approved. But he didn’t make that explicit in the deal and China let the deal languish in limbo until it died. Now there is Huawei and TikTok on the table and the jury is out on how Trump will emerge from these negotiations. It thinks that if Trump wins the election he could be magnanimous to Huawei with a view to his trade talks phase 2 and getting the US economy going. If he loses he could be vengeful.
I doubt that Trump will want to go down twice to China; especially having come this far but equally I doubt that if he loses he’ll be vengeful, I would expect him to have too many other issues to deal with; not least how to stay out of jail without the privilege of being president.

LEX China ETFs: Ant implant ETF’s in China are relatively new. Four have just been approved to track the Shanghai Star market. They are seen as the prelude to more to satisfy China’s retail investors even as a record number of ETF’s closed the year. But there is a high market out there (for the right product) for individuals who currently are 90% of the daily directly traded market.
Ant could change the game because to trade on the Star market they need an average daily balance of at least Rmb500,000 ($73,600) in their securities account. That should open the door for ETF which only need $147.00 in their account.
Lex hopes that the ETF’s will take some of the volatility out of the tech sector.
Personally I think there is a place for ETF’s but it will take a while for retail investors to accept them.

US scientists call for clarity on pause in AstraZeneca vaccine trial. A vaccine for covid has become so high profile that pressure is being put not he drug company to explain why. Something that in normal drug trials would not be asked as temporary halts are common. The article says the delay in restarting in the US is damaging public confidence in an eventual vaccine. Shows how political and media orientated the process has become.
I would have though it should have encouraged people that the trials were being conducted properly but is seems not.

For Interest
Investors wonder if 60/40 portfolio has a future.
Stocks and bonds mix that has served savers well for decades now strikes some as unsafe.
It is amazing really to think that this is coming as a surprise to anyone having seen what has happened to Japan over the past 15 years or so. When QE first came in without a proposal of how to unwind it the warning flags were raised.
The mis pricing of cash by keeping interest rates low throws everything out of kilter. It was supposed to be a short term relief measure. As they say as some point ‘you have to pay the piper’.
Retirees are most at risk as they have historically favoured bonds.
But the outlook for equities is poor 'Tony James, vice-chairman of Blackstone, last week predicted a “lost decade” for stocks as companies struggle to recover from coronavirus.’
It notes that 'With yields so low, even small changes could lead to big price swings for Treasuries and potentially big losses if inflation rises and rates have to follow.'
So now alternative sources of stable income to replace Treasuries are being talked about but they all carry additional risks that US government debt does not. Things private equity, real estate, infrastructure, inflation-linked bonds and dividend-paying equities. Somer suggest just switch from government bonds to high-quality corporate but again there is additional risk involved. Many think that simply further diversification is required but again that will involve more risk.
For me I think we all really know the answer but we don’t like it; interest rates need to rise so that savers and pensioners are reward. Pensioners especially would then feel more able to spend. Some companies will go out of business; but that is the nature of business. Good companies could then grow.
Since the great financial crisis we have been living in the hope that there was a way to keep everything going as it was before without business failures and layoff's and the truth is that there is not. We have and continue to to run in ever decreasing circles hoping for a magic solution that is just not there.

FT BIG READ. FINANCIAL MARKETS. Brussels battles the City
Brexit brought London’s role as a trading hub into sharp relief for EU officials. They believe the bloc needs to have a stronger financial sector but will find it hard to replicate the UK’s capabilities in many areas.

Opinion First TikTok then gaming as a crucible of US-China rivalry. Looks at Balkanisation of the Internet. Today its about TikTok, next will be on line games etc etc. On line games are important revenue earnings for Chinese companies but that doesn’t mean they are not good for America too. Feels that games can provide a means to build bilateral ties. An interesting read.

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