Sept 3 FT US/China space wars? Food shortages in China, Tech in China and more


07 Sep

Sept 3 FT  US/China space wars?  Food shortages in China,   Tech in China and more

MARKETs at 12:15pm HK time
JAPAN opened higher and effective traded sideways in the AM sessio. Opened slightly lower in the PM but I would expect it to continue to trade sideways.  Currently +1.2% PMI Services data was in-line but the composite reading was up MoM and beat forecasts.S KOREA  opened higher; the Kosdaq has traded sideways and is currently +0.6% and the Kospi has trended slightly higher and is currently +1.5%.
TAIWAN opened higher and trading sideways in the range 12,750/12850 currently +0.5% CHINA opened lower int he red but the Caixin PMI data was better than expected, although the Services data was still down MoM which prompted the market to move higher into the green and then trade sideways before selling down to 4,825 and then saw a small bounce into lunch Currently flat.
HONG KONG Pre market Opened -93pts @ 25,027 vs -132pts ADR’s (24,988)  T/O was HK$3.16b back to normal levels. Pre Market PMI missed and said sentiment remains severely pessimistic.  The market initially dipped to 24,900 level but then bounced back above 25k on the better than expected China Caixin data. It tested 25,200 several times but without success and then sold back down before a small bounce into lunch to close flat.  I still think 25k is a key level that China will seek to hold with so many Chinese secondary listings coming up.  Currently -0.3% @ 25,043
EUROPE Expect markets to open higher following most of Asia. Key today will be the European Services and Composite PMI’s along with retail sales in the Eurozone and France.
US Futures opened -28pts, currently +10pts, S&P and NDX opened slightly weaker now slightly higher. Data due today Challenger Job Cuts, Balance of Trade, Exports, Imports, Unit Labour Costs, Initial Claims and 4 week ave Initial Claims, Services and Composite PMI’s, ISM Non Manufacturing Data (Business Activity, New Orders, Prices, Employment and PMI), EIA Natural Gas Report,

General 
Worth noting that as markets continue to move higher those still sitting on cash in hope of a market correction will no doubt be tempted to buy in even at these heady levels. Tech continues to be the driving sector and some other sectors are beginning to see interest too. Value and Defensive names in the US saw interest after the weak ADP jobs number. Although the Beige book reported modest growth although less than pre covid.Many are hoping for a correction but it is difficult to see what will trigger it. Those already invested seem to be undertaking some rotational moves taking some money out of the those that have done well and investing in the attractive, and sound laggards.

US military puts space weapons in its sights to counter China. Looks at how the US is thinking about a new generation of space weapons as it worries about Chinese space capabilities. It's especially worried that now China has its own GPS system (Beidou) it could look to disable the US GPS network in the event of a conflict.For investors it is likely to mean more money invested in the defence contractors and satellite makers.

India reacts to border tension with ban on 118 Chinese apps. The ban includes Tencent’s popular battle-royale game PUBG Mobile along with apps from Alibaba and Baidu. This is further to the 59 Chinese apps that it banned earlier which included TikTok.
The border tension continues as was described in the article as “something above a competition and below a conflict”. But it does appear there is scope for an ‘accident’ and the situation to escalate.
For investors the worry is that more Chinese companies are targeted not just by the government but also by Indian nationals.

China targets waste in face of food shortages. Xi is taking steps to address a surge in prices that families are struggling to digest. It notes that the Chinese State broadcaster has run a series of programmes revealing the hoaxes behind many of the programmes that have shown China’s champion eaters. Its part of Xi’s campaign to cut down on waste as China faces potential shortfalls. It notes that China is estimated to waste about 18m tonnes of food a year; enough to feed 40m people.
Key is that whilst rice, corm and wheat are in good supply soybeans and pork are facing shortages. That coupled with trade tensions with the US has raised concerns about food imports. It had already sought to increase its domestic production of soybeans with subsidies to help expand soya farmland and supplemented the legume in pig feed, but progress has been slow. The situation has been made worst by the heavy rains and flooding in southern China this year. That has impacted pork supplies which have not really recovered since African Swine Flu.
The key thing is 'the problem is not so much keeping China fed but providing middle-class consumers with the food they want at prices they accept.’
That should be good news for the exporters of soya and pork to China. WH Group (288 HK) hasn’t seen much impact over the past 3 months but worth watching.

Suga in pole position to replace Abe. Four of five ruling party factions signal backing for chief cabinet secretary. Whilst he still has to win the actual vote that backing puts him in a strong position.
He has said that “I will take on the initiatives of Prime Minister Abe and do everything I can to take them forward,”. He said he would assume responsibility for Abenomics, the prime minister’s economic programme, and would not make any changes to the government’s existing accord with the Bank of Japan.
That should be good for investors in the short term as he should bring stability. But with a general election due in autumn 2021 he will effectively be on probation and that may limit his ability to push through policies.
The article notes that 'Mr Suga is known as a workaholic and his mastery of behind-the-scenes politics, picking and choosing top bureaucrats and LDP candidates.
He concentrates on domestic, pocketbook issues such as bringing down electricity and mobile phone bills, rather than the diplomatic manoeuvres and conservative, nationalist causes for which Mr Abe is famous. While Mr Suga is regarded as a safe pair of hands, well-suited to handling the health crisis, some backbenchers worry whether he has the charisma and television presence to act as the party’s electoral front-man.'

KKR homes in on assets of pandemic-hit Japan groups. It is increasing its operations in Japan on the basis that covid will provide more opportunities for deals. The article notes
It 'is planning to participate in a wave of transactions generated by railway companies, manufacturers and other corporations with substantial but underused property and land assets, according to Hirofumi Hirano, the head of KKR in Japan.’
It is not the only one gearing up, Bain, Carlyle and Blackstone all expect increased opportunities. Railway companies are seen a s prime targets, with reduced passengers numbers they will need to work their other assets. Also mentioned is the fact that 'Debt funding for private equity-led deals in Japan has been complicated by domestic banks’ focus on coronavirushit companies. That has required sponsors to find bigger syndicates of lenders.'
Lots of people are expecting deals in Japan which would suggest that it will be a crowed space but so often with Japan the expectations are far greater than the reality. If they do happen they should be good for the companies and investors.

Citi weathers tensions with Beijing to win custody licence. It is the first bank to get a custody licence and so can now provide a core service to global asset managers who are looking to grow their business in China. Coming as China seeks to develop its banking services which lags behind those found in the US and Europe. It will also need to have such expertise if it going increase the convertibility of the Yuan in order to be less dependant on the US dollar going forward.
LEX Citi/China: joint custody Notes that it mis likely to be a very lucrative business. But regulatory changes are a concern/risk. As to are sanctions; with Chinese citizens being worried about a US bank holding their assets incase they get sanctioned. It finally notes 'If a US presidential victory for Joe Biden sparked a US-China rapprochement, life would become pleasingly duller for US banks in China. How they must wish for a world where clerical errors are their only problem.'

Cash floods China start-ups in race for next Tesla. Presence of foreign rivals boosts long-term chances of a national champion arising. Looks at how lots of investors are putting money into electric vehicle firms on the basis of how well Tesla has performed along with others. Electric car demand remains good in China although there are some concerns about whether the charging infrastructure can keep up.
Xpeng Mtrs (Alibaba backed) was +40% on its trading debut in Ny last week.
Li Auto has finally turned a profit and is +70% since July
Nio recorded its first quarterly profit and plans a US$1.7bn sale of US depository shares. It's recent new financing has bolstered the company.
But they still remain under pressure from Tesla within China, which has been getting government support. Additional the foreign traditioinal car makers are also about the launch electric models in China.
It will be a competitive market but with Tesla established there with its supply chain that have a model to follow and so they hope that they can one day have a national champion that can compete on the international stage too.

Opinion Technology has abetted China’s surveillance state. Looks at how China digital currency currently being tested in four cities will give the government almost total insight into its citizens lives. Building on the sharp eyes project and its social credit system. That is a system which aggregates police records, political files, financial data, medical records, travel movements, online activity and other information held on individuals to create “trustworthiness scores” designed to rank each citizen’s dependability. That can impact your life to the extent of whether you can buy a plane ticket. Covid has further allowed the mandatory installation of phone apps like Alipay Health to track people 24/7.
It is not just for China but is being exported to 63 other countries.
A nice summery would be “arguably the world’s largest open-air digital prison”.

Zurich poaches Ping An technology chief. Notes that Ping An is envied for its tech prowess, launching products and services that are still on the drawing board at western insurers. Seems like a good move for Zurich and shows that in many respects some Chinese firms are world leaders in applying apps to businesses.

SEC probes Chinese education group GSX Techedu after fraud allegations. GSX Techedu, a Chinese education company listed on the New York Stock Exchange, is facing an investigation by the US securities regulator following allegations from short-sellers that it faked sales. The investigation may prompt more caution on investing in Chinese companies listed in the US but initial offerings for Chinese companies in the US its up 30% YoY. But it may give more weight to the US government’s call for Chinese companies to meet accounting standards.

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