MARKETs @ 12:45pm
JAPAN opened higher and has worked gradually higher through the session. Pre market GDP data was generally better than forecast with only Capex missing. Industrial Production just out inline, Capacity Utilisation beat. Exporters +VE; Autos all strong, along with tech names like Tokyo Electron, Panasonic and Softbank.
Nikkei currently +469pts (+1.9%) @ 25,858
Topix traded in a similar fashion currently +28pts (+1.7%) @ 1,732
GDP Data Preliminary
Growth rate Q3 +5% QoQ vs -8.2% Q2 Revised (F/cast was +4.5%)
Growth annualised Q3 +21.4% QoQ vs -28.8% Q2 Revised (F/cast was +19.5%)
Price Index Q3 +1.1% QoQ vs +1.4% Q2 Revised (F/cast was +0.7%)
Capex Q3 -3.4% QoQ vs -4.5% Q2 Revised (F/cast was -2.7%)
External Demand Q3 +2.9% QoQ vs -3.3% Q2 Revised (F/cast was +2.5%)
Private Consumption Q3 +4.7% QoQ vs -3.1% Q2 Revised (F/cast was +5.4%)
Industrial Production Sept +3.9% MoM vs +1% Aug (F/cast was +4%)
Industrial Production Sept -9% YoY vs -13.8% Aug (F/cast was -9%)
Capacity Utilisation Sept +6.4% MoM vs +2.9% Aug (F/cast was 1.3%)
S KOREA opened higher following with Chip and Autos leading the market and worked higher. But LG Chem weak on news of possible fire hazard from the batteries it has supplied to GM.
Kospi seeing resistance around the 2,540 level currently +48pts (+1.9%) @ 2,541.
Kosdaq opened higher dipped initially but then rallied to and worked higher with resistance as it approached the 850 level currently +7pts (+0.9%) @ 846
TAIWAN opened higher and quickly rose to 13,450 level where is saw some resistance and traded around there until 11am when it pushed higher, now seeing resistance around 13,500. Currently +220pts (+1.7%) @ 13,498
CHINA CSI opened higher but sold down on mixed data Housing and Retail numbers missed but FAI, Industrial Production and Unemployment beat. Market then rallied back, initial resistance at the opening level but then worked higher to close at lunch +37pts (+0.8%) @ 4,894
Shanghai Comp +32pts (+1%) @ 3,342
Shenzhen Comp +68pt (+0.5%) @ 13,823
ChiNext Index +1pts (+0.4%) @ 2,719
House Price Index Oct +4.3% YoY vs +4.6% Sept (F/cast was +4.4%)
Fixed Assert Investment (YTD) Oct +1.8% YoY vs +0.8% Sept (F/cast was +1.5%)
Industrial Production Oct +6.9% YoY vs +6.9% Sept (F/cast was +6.3%)
Retail Sales Oct +4.3% YoY vs +3.3% Sept (F/cast was +4.6%)
Unemployment Oct +5.3 vs +5.4% Sept (F/cast was +5.5%)
HONG KONG Opened at 26,362 +205pts vs +61pts ADR’s with Hang Seng Index additions Meituan, Anta and Bud APAC strong but deletion Swire was weak. Other E-commerce names were weak. Market then sold down 130pts on the mixed China data before then working higher into lunch but trading has been choppy. Banks and Macau names seeing good interest. Currently at lunch +107pts (+0.4%) @ 26,263
EUROPE Expect markets to open higher following Asia despite the resurgence of covid cases and the new lockdown in Austria. Only the Bundesbank monthly report and speeches by EU’s Guindos & Mersch.
US Futures opened strongly Dow +202pts (+0.7%), S&P +0.7% and NDX +0.9% and worked gradually higher.
Data NY Empire State Manufacturing Index.
Fed speakers Clarida and Daly
Earnings Vodafone, CasperSleep, Aecom, Tyson Foods, Palo Alto Networks, Baidu, SmileDirectClub
Walmart sells majority stake in Japanese supermarket chain. KKR to take 65% and Rakuten 20% of Seiyu in deal valuing retailer at $1.6bn. The remainder will be held by Walmart. Notes that the retail sector in Japan is extremely competitive and that other Carrefour and Tesco have already exited the market. It is the latest international dispoal for Walmart who last month agreed to sell its UK ASDA unit and this month its Argentinian business. It says it is looking to focus on high growth markets like China and India. Walmart will report earnings on Tuesday.
Sony’s flashy PS5 launch aims to affirm Japan’s gadget prowess. Games console arrives amid a broader march of consumer electronics away from what the country once did so well. Looks at the changing face on electronics in Japan and asks whether the gaming consoles will become an anachronism in the face of streaming, mobile and new entrants. It notes that the new consoles are now powerful entertainment conduits.
'But the greater significance of the PS5 may be to Japan’s sense of itself. If, as many analysts expect, this machine goes on to outpace the PlayStation 4’s worldwide sales of 110m units, it will prove Japanese gadgetry is still world-beating. Sony has not said as much, but its use of the Kanda shrine for the launch event feels like a prayer for the protection of all Japanese gadgets.'
Asia-Pacific nations sign historic accord in ‘victory’ for free trade. With China, Japan and South Korea linking up for the first time. It estimates that $200bn set to be added to global economy by 2030. Read also Future of trade in Asia starts to take shape
The key points about the Regional Comprehensive Economic Plan (RCEP) pan-Asia trade pact
1. Signatories Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam (combines them into a single multilateral pact) with Australia, China, Japan, New Zealand and South Korea.
India was originally involved but dropped out in 2019 fearing it would be swapped by cheap Chinese completion.
2. Biggest beneficiaries of cheaper goods are likely to be Japan and S Korea but the benefits are expected to extend to Europe and the US.
3. Significantly the ‘rules of origin’ a product made in any RCEP country is covered.
Previously the FT says 'for example, if a company in Indonesia makes a bicycle it might be eligible under a free trade deal with Japan but would need different components to be eligible under a deal with South Korea.’ No longer the case.
4. It is the first trade agreement between China, Japan and S Korea.
5. It eliminates 90% of tariffs (The TPP eliminated 100% and there is some overlap). It does not cover much in terms of agriculture, services covered are mixed, and it does not set many common standards. On E-commerce there was no agreement on cross border data flows or a customs moratorium on data transmission.
Many are concerned about the dominance of China; which increased dramatically when India pulled out. China has the ability to be influential in the setting of standards. Giving it great potential to increase its ’soft power’ in the Asean region.
Whilst it may take time to ratify and put into effect it does mean that Asia now has a trading zone that is similar to the EU and the USA.
Vulture funds snap up paper of troubled China SOEs (I wrote on this on Sunday)
The default of two industrial groups triggered the plunge in prices of Chinese corporate debt. As mentioned in my Friday wrap the default put the Chinese banks under pressure as investors sought to quantify the exposure of the banks to the default and to other potential defaults.On Friday Yongcheng Coal & Electricity, a coal miner in central Henan defaulted. It followed Brilliance Auto, owned by the Liaoning provincial government, saying it would not be able to repay a three-year Rmb1bn bond.
The big question it raises is whether the Central Government will step in? Many think Beijing will because if they don’t then it opens up a whole range of other systemic risks. Others are not so sure; previously triple A rated SOE firms were thought to be safe; that is no longer certain.
Other issues include what happened to over Rmb20bn of cash that both had on the balance sheets according to their last financial statements? Was it was really there in the first place? If so where has it gone?
Adding to the concerns is the fact that both have spun off profitable assets before defaulting. Brilliance spun off its shares in its BMW JV prior to saying it couldn’t repay the bond.
In my view, I doubt the Beijing will step in and just bail them out. It may try and coerce other players in the respective sectors to step up and proved a solution; as it has done with other sectors most notably the Banks. Furthermore we have also seen, over the past year, the Central Government warning investors about the risks of investing; be it in the stock markets, bank products, property etc. So for the Government to step in now would be an about face and President Xi doesn’t seem to do those.
As I and others have previously written the Chinese bond market has been offering very attractive yields but as always with attractive yields comes risk.
LEX China/GDP: think of a number. President Xi envisions massive economic growth in the next 15 years, and why not? There are plenty of precedents. An interesting read, notes that China’s economy is planned and has made an art of hitting pre set targets; even if sometimes not everyone believes the numbers. But it sets out that the target is achievable. However GDP is more about bargain rights more importantly would be GDP per capita; which President Xi is also confident about achieving. With a population that is set to start shrinking in four years time and halve by the turn of the century like many other countries; that target may be easier to achieve!
Pimco warns debt deluge leaves markets in fragile state. Warning that the extra debt taken on by companies and governments makes the whole system more fragile. It’s optimistic about the vaccine discovery and expects that to boost the economy but says investors need to be careful.
Central banks are supporting the credit markets and corporations have sold and refinanced record amounts. There have been lots of investor wiling to buy the issues at a time when long term government bonds are offering near zero yields. Notes last week US junk bonds ave yield fell to 4.8% a new low.
But Pimco re warning that liquidity in the system has been limited since the financial crisis and is dominated by the central banks. Low liquidity can cause big moves that can catch investor off guard.
Interestingly their highest conviction sector is the housing area of the credit market; mortgage backed bonds for US, UK and European housing; die to low borrowing costs. The area they like are those originated over 10 years ago as they have high levels of home equity; giving bond holders a greater cushion in the event of a downturn.
Banks fret over credit card outlook as US consumers pay down their debt An area of business that has been the most profitable for banks. Covid lockdowns are curtailed spending. ' “Consumers are not spending on restaurants and movies, and a big chunk [of the decline] is travel, too,” said Matt Komos, vice-president of research at the credit agency TransUnion, which collects data on every card account in the US.'
Also helping has been the ability to take mortgage holidays, use stimulus cheques and supplementary insurance benefits. New card applications are down 50% YoY.
But card usage may start rising again soon. 'Ioana Marinescu, a professor of economics at the University of Pennsylvania’s School of Social Policy and Practice says “You have to distinguish income levels; the people not spending much are people at higher-income levels because a lot of what they spend is on flying and so on,” she said. “Lower-income people have gotten a big income boost, but now that federal aid is expiring we can expect credit card balances to increase.”’
How to Lead. Leaf Hua Li, founder and CEO, Futu Securities. ‘We leveraged tech to change the landscape’ Chinese entrepreneur’s frustrations with traditional brokerages led him to set up his own firm, writes Henny Sender. As with many successful internet firms it came about because of frustration with the existing offerings. Many of the early platforms we ‘add ons’ from existing brokerages rather than building a dedicated, specific platform. In building Futu the interaction with users was a key element. Futu has a lot of user created content which many feel is better than broker reports.
An interesting read. Mr Li also notes that '“If there is no political issue, the US is still better for tech companies,”'