Sept 9 FT Thoughts Softbank, China's Taliban deal, China Banks:Lex -VE, Nissan and more

11 Sep

Sept 9 FT Thoughts  Softbank, China's Taliban deal, China Banks:Lex -VE, Nissan and more

MARKETs @ 1pm HK time
I think we are likely to see some bargain hunting in the large tech names like TSMC, the were sold down early, as we go into the close; similar in S Korea and Japan

JAPAN opened lower and traded sideways in the range 22,900/23,000. Currently just testing the upper resistance of that band. Currently -1.1% Machine Tool Orders due out 2pm HK time for Aug. July was -31.1% YoY (F/cast is -26%). Softbank -4%
S KOREA markets opened lower but worked higher Kosdaq currently -0.3% and the Kospi -0.7%.
TAIWAN opened lower around 12,590 level and initial sold down o 12,480 but then worked higher but seeing resistance at 12,600 level currently -0.7%
CHINA CSI 300 opened lower and after an initial tock higher, trended lower to 4,580 level before fining support and then worked higher into lunch Currently -1.6%.
Inflation slowed as food cost rises slowed and the prices for most other items declined less.
PPI continued to fall but by the smallest in 5 months as the economy continues to recover.
HONG KONG Opened lower in line with the ADR’s at 24,300 level and has basically traded sideways through the morning (24,200-24,400) Currently -0.8%. Nongfu +2.7%
EUROPE Expect markets to open lower following Asia but the downside may be limited following yesterday’s sell off. No Data Due. But news that AstraZeneca suspending its trial could put Pharma names under pressure.
US Futures opened -230pts, but have eased back to flat over the morning. Similar with S&P and Nasdaq futures which were negative but now slightly +VE The Nasdaq has now seen a 10% correction in three days. Data due today MBA Mortgage Applications & 30 year Mortgage Rate, Redbook, JOLT’s Job Openings, API Crude Oil Stocks

China Data
Inflation Aug +2.4% YoY vs +2.7% Jul (F/cast was +2.5%)
Inflation Aug +0.4% MoM vs +0.6% Jul (F/cast was +0.3%)
PPI Aug -2% YoY vs -2.4% Jul (F/cast was -1.5%)

On line
SoftBank shares sink as tech rout spreads to Asia  It's share were -7% in early trading as investors continue to worry about the strategy it is operating under. Plus the sell off in the US means that the Nasdaq is now in correction territory with major tech names suffering significant falls. Asian markets followed the lead from the US and opened lower. The early sell off in Japan has encouraged traders to expect the BoJ to make large ETF purchases later today in an effort to support the market.
But many view the correction as a useful breathing space and it will be interesting to see if those who missed the initial rally now start buying.
The article also mentioned the weakness in Sterling on the prospect of no Brexit deal and the concerns about oil demand that saw oil trade below US$40.

Kim Jong Un’s dependence on China grows as virus hits economy. Beijing will ensure North Korea has continued access to food and fuel, analysts say. Basically the regime is under more pressure than every. Sanctions were already making things difficult but covid combined with recent heavy rains and typhoons have made things even worse. Against that backdrop Beijing with continue to support N Korea with enough fuel and food to ensure its survival. That maintains the buffer zone it wants against the US presence in S Korea. Essentially whilst reform is required it is not going to happen.

Print Edition
‘Lone Wolf ’ founder’s fortune soars to $50bn after Chinese bottled-water IPO. 
Looks at yesterdays very successful IPO and the stock continues to rise today as institutional investors who were unsuccessful in getting their full allocation in the IPO continue to but stock in the market. It has raised the personal fortune of the founder to over US$50bn and made him one of the richest people in China. It will be interesting to see whether he follows the Jack Ma leadership style of stepping down from the business or the Pony Ma style of running the company and keeping out of the limelight. I suspect the later as the title suggests he is known in business circles as a ‘Lone Wolf’.

Beijing offers Taliban roads-for-peace deal. Chinese pledge to invest in motorway network and energy as US withdraws. Looks at talks that Beijing has been engaged in with some Taliban leaders in an effort to ensure peace in the region as US forces withdraw. The key commitment by China being to infrastructure and energy projects. A road network would be a dramatic step forward for commerce. It will be interesting to see how the projects are financed and whether the infrastructure projects will use Chinese companies and workers. I can imaging that if the benefits to the Taliban or the costs become too high for the economy to bear then the backlash against China could be severe. The difficulties of dealing with the numerous factions of the Taliban should not be underestimated but for China to have another ally would be beneficial. It will also give it access to Central Asia for the transportation of oil and gas. It is difficult to see how Afghanistan will make money from the scheme.
But is all goes well, China will have succeeded where Europe, Russia and the US have all failed. It will be interesting to watch.

LEX. China banks: yuan for the team looks at the rise of NPL’s in Chinese banks and how it has surged over the past year. I think it has been surging for longer but as it notes it has not been clearly seen because the banks have been allowed to redefine non performing loans as different things over the years. BUT now profits are suffering and you can’t redefine those so easily. Bad loans are rising and the bank are being told to take on more of the burden. Basically all bad news for shareholders.

ByteDance hands bonuses to all staff. TikTok owner seeks to offer reassurance amid job security worries as the company faces bans in India and US. It’s a nice move by the company at what is a very difficult time. The company has also been handing out bonuses to TikTok stars who have over 10,000 followers in a bid to keep them loyal to the company.
The proposed sale of some overseas operations has become more complicated by Beijing’s recent changes to its export requirements which mean that AI exports now need its approval.

Nissan loan guarantee adds to questions over Renault alliance. Looks at the revelation of loans to the company from the Development Bank of Japan to the company with a government guarantee should the company fail to repay the loans. It seems the the government was not involved in the Nissan specific decision and Nissan says it wasn’t aware of the government guarantee. All of which seems very strange. It also raises questions about how involved the government will be in Nissan going forward.
It adds a new layer to the on going saga and comes as the trial of Greg Kelly, Nissan former legal head is about to start.
More distractions for the company and more worries for investors I would think.

Beyond Meat to open factory near Shanghai. Building on its agreement with a supermarket chain owned by Alibaba and its agreement with Yum China. Looking to capitalise on the fact that China consumes roughly a third of the worlds meat and hence has great potential as a market. It is following Nestle who have also set up production facilities in China. Beyond Meat’s rival is also looking to set up in China but requires regulatory approval because its products are genetically engineered.
Key will be the price points for its products because whilst China consumes a lot of meat a lot of it is not of western standards and for rural dwellers the quality and price are pretty low. Beyond Meat is very much looking at the premium market.

Disney courts controversy with ‘Mulan’ scenes in China camps zone. Key is seems is the credits where a large number of Chinese Communist Departments in Xinjiang were thanked, including the public-security bureau of Turpan; who are on the US governments entity list.
It illustrates the difficult that companies are having trying to be apolitical as the animosity between the US and China increases.

Kakao Games smashes Seoul record as retail investors vie to play $323m IPO. 'The $323m initial public offering of a South Korean gaming company has smashed local records for demand, attracting orders of about 1,500 times the stock available, in a graphic illustration of what one fund manager described as “herd behaviour”.’
Demand was from both institutions and retail but the retail demand seems to have been increased after the recent debut of SK Biopharmaceuticals in July. Also the fact that Big Hit Entertainment, the music agency behind K-pop boy band BTS got a $4b valuation last week.
 Key is that as we have seen in the US retail investors and institutions are more focused on tech gaming launches. Seen also in the success of Nintendo and others.
It will no doubt out pressure on the old economy stocks to perform.

Editorial The wider risks in SoftBank’s US tech bet. Japanese group’s options trade highlights dangers of the market rally. Looks at how the trading seems tone at odds with the professed strategy. Notes that people, investors and regulators have all show they care about the action.
Also notes that pre Softbank being unmasked there were concerns about the Nasdaq’s course, especially on such high trading volumes. Covid, the stimulus and lock downs have all been drivers for equities and derivatives. All of which makes long term investors nervous. Especially with a lot of unsophisticated investors using their own or borrowed money into high risk derivative trades without fully understanding the implications and possible outcomes. The risk that a large number of new investors lose everything is worrying, especially at a time when the recovery is not certain. (Not mentioned but we know that in such cases a generation of potential long term investors is then lost from the markets.)
For Softbank, many investors in Japan can remember other Japanese companies and investors betting on derivatives only to get burnt. Sometimes it's because they have excess cash; some of Softbank’s trades were financed from the recent asset disposals. The fact that low interest rates means that putting the money on deposit might actually cost the company money may have added to the incentive.
It summaries by saying 'Previous market tumbles have normally had a tipping point, however small relative to the correction that followed. The recent drop in the valuations of tech stocks may have been enough to take some of the heat out of the market for now but a concern must be that SoftBank could be the snowflake that starts the avalanche.’
As I mentioned last week the sell off started for no apparent reason; the data that day was relatively good and there was no specific news. It makes you wonder.

For Interest
Hedge funds need to deliver in their year of opportunity.
Looks at how some funds read the markets right and have done well but not everyone did. Interesting that some of the computer driven/AI/Alogrythm funds have not done so well.
Which suggests there is still a need for humans after all; nice quote
“This is a once-in-a-decade, major macro event,” said the head of one global macro hedge fund. “It was a perfect policy-led year. People either saw it or they didn’t. You had to read the history books to forecast this year.”
The reference to reading the history books may be the key. AI, algorithms etc crunch the data but yet to get a grip on what sometimes lies behind the numbers. Over reliance on either it likely to be a problem; it seems.

FT BIG READ. MEDICAL SCIENCE. Lessons from bats on Covid-19 immunity
Every effort to develop effective drugs or vaccines depends on understanding how coronavirus outwits the body’s response. Some answers might be found in the mammals that have learnt to tolerate the virus.
A very interesting read about how bats cope with so many viruses without dying. 
Seems a lot to do with interferons (which I have to admit sounds like something from Captain Scarlet… just showing my age)  which are very important in combating viruses in the early stages.
A key point it makes it that vaccines are systematic and deliberate way to prevent disease from a virus you have not met before and a well designed one is better that immunity than natural infection. BUT the first generation vaccine currently being developed may not be good enough; especially as covid-19 is continuing to evolve or mutate.
More worrying for the ordinary public but the glee of scientists was the quote from one immunologist

'Whatever happens, he adds, “we have an amazing opportunity to watch in real time as a virus evolves after it has jumped species”. Immunologists will learn invaluable lessons from Covid-19 for the inevitable next pandemic following the leap of a lethal virus from a bat (or a rat) into humanity.’
I wonder if this is how a lab rat feels?

Food inflation threatens lives and economic recovery. Notes that China is not the only country worried about food waste and the need for self sufficiency. Many other countries are experiencing difficulties too and the world is ill prepared for a food crisis. Not just in developing nations but developed ones as well. Covid has hurt in many ways, a decline in dining out, hurt farmers and lead to harvests being destroyed.
There is also the risk of political unrest which history shows often occurs at such times.
It concludes
'Are there any immediate solutions or easy wins? Information technologies could help create greater efficiencies. Blockchain could even find one of its best uses in tracking food on its journey from farm to table, helping to improve market transparency. Either way, the alternative is grim. If conditions continue to worsen, each nation will fend for itself and a global hunger games could begin, with lethal consequences for the poor and the hoped-for economic recovery.’
I must admit growing up famines and food crisis were always in the news but have been less prevalent; worth noting that live aid took place in 1985; over 35 years ago.

Corporate zombies are stalking Europe. I don’t think it's just Europe. I think they are becoming a global feature and have been since the financial crisis. Worth a read, the risks are known but the political will to allow some companies to fail is never there as politicians want to be re-elected.  They all agree it needs to happen but in someone else's constituency.

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