Nov 24 FT Thoughts; Biden advances, Drugs, HK guilt, China debt, and Lunch updates

27 Nov

MARKETs at 1pm HK time
opened higher as the Japan played catch up on the positive vaccine theme. Nikkei seeing resistance at 26,260 level. Currently +705pts (+2.8%) @ 26,233
Topix again saw an early rally and saw resistance at 1,770, Currently +40pts (+2.3%) @ 1,767.
Japan Airline +5% rallying as Adviser to PM Suga Mr Takenaka says the airline would be recapitalised and restructured and the that ANA -1% should be combined.
S KOREA opened higher
Kospi opened higher @ 2,616 saw an initial dip but then reversed and worked higher first tot around the 2,625 level and traded sideways testing the 2,620 support then rallied to the day high of 2,628 but unable to break out as eased back to 2,620. Currently +15pts (+0.6%) @ 2,618
Kosdaq opened higher at 877 but sold down to 869 in initial traded bounce retested the low and then worked higher to trade around and slightly higher than the flat level. Currently +0.2pts (+0.01%) @ 873
Data pre market
Consumer Confidence Nov 97.9 vs 91.6 Oct (F/cast was 82)
TAIWAN opened higher after the good after market data Monday (Industrial Production weaker MoM but better than expected and Govt warned demand may have peaked although companies optimistic. Unemployment and Retail sales +VE) It ticked up to 13,951 before selling down to 13,833. Worked back to flat but has since drifted lower; currently -65pts (-0.5%) @ 13,812
After market today M2 Money supply data
CHINA CSI 300 opened lower and sold down to 4,960 level before working higher into lunch. Credit market concerns and the threat of more Trump sanctions hurting investor confidence. Currently -17pts (-0.3%) @ 4,987.
HONG KONG Opened @ 26,630 +144pts vs -2pts ADR’s but sold down to 26,410 level before working slightly higher to 26,500 and traded around that level. Close at lunch +13pts (+0.05%) @ 26,499. Ecommerce names rebounded, green energy still popular. Autos opened strong but selling down. Rumoured that HK will report 83 new covid cases today as Carrie Lam outlines more social distancing measures.
EUROPE Expect markets to open higher as the US starts the transition process to Biden and news that Janet Yellen likely to be Treasury Sec.
Data due
EUROZONE ECB speakers Schnabel, Lagarde and LaneGERMANY GDP Growth Rate, Ifo Business Climate, Current Conditions & Expectations. Bundesbank speaker MaudererFRANCE Business Confidence, Business Climate IndicatorUK CDI Distributive Trades, BoE’s Haskel speaks
US Futures opened higher (Dow +160pts) and have climbed higher currently Dow +260pts; S&P and NDX slightly higher. Expect more rotation into the recovery names.
Data due Redbook, Case-Swiller home Price, House Price Index, CB Consumer Confidence, Richmond Fed Manufacturing Index, API Crude Oil Stock Change. Fed Speakers Bullard and Williams.

FT On-line
Biden acknowledged as the US election winner by the General Services Administration 
which will allow the transition process to start; removing another uncertainty for markets and helping a number of Asian markets to rally. Trump say’s he is continuing to fight the election results. Biden is expected to appoint Janet Yellen as Treasury Sec which was seen as +VE too. He announced some key positions:
Antony Blinken as secretary of state, Jake Sullivan as national security adviser and John Kerry as special presidential envoy on climate, Alejandro Mayorkas as secretary of homeland security, Avril Haines as director of national intelligence and Linda Thomas-Greenfield as US ambassador to the UN.
All seen as good, experienced appointees.

Print Edition
Oxford and AstraZeneca vaccine adds to armoury for Covid battle.
Trials data better than expected • ‘Immediate’ approval sought • Jab to be sold at cost (circa $3-4 per dose)
Whilst the results were not as effective in trials as the Pfizer and Moderna vaccines but it is easier to store and transport. Key is that the effectiveness is over 50% which is the base case for the US FDA. 'Under one dosing regimen, the Oxford-AstraZeneca vaccine achieved 90% efficacy, a measure of prevention of infection or severe disease. That required a half dose of the vaccine to be given, followed by a full dose at least a month later. When the jab was given as two full doses at least one month apart, efficacy was only 62%. The average efficacy, during trials in the UK and Brazil, was 70%.
Read also Jab cheaper than rivals’ and easier to store. Which also looks at the AstraZeneca and Oxford university drug.
Also Investors join drive to reduce antibiotics in food and drugs which looks at the growing call to cut antibiotic use as the dangers of drug resistance rise.

Hong Kong leader of democracy protests faces prison term. Activist Joshua Wong and his two fellow activists Agnes Chow and Ivan Lam were remanded in custody after pleading guilty to charges linked to anti-government protests last year.
Mr Wong said that other recent arrests under the new security law had bigger implications and Amnesty International has criticised the arrest of lawmakers on the basis of limiting freedom of expression. Worth noting that these offences were pre the National Security Law and so are not subject to the potentially draconian sentencing.

String of defaults sends chill through China corporate debt. Investor faith shaken that local governments will always bail out state-owned borrowers. Another article on the big issue of defaults. This is likely to be an increasingly common issue as many think that China has used debt for too many projects that are unable to make the financial returns required to repay the investment. The bigger issue is the loss of investor confidence just as China is trying to attract more investment as I seeks to re-energise the economy and set up the Rmb as an alternative to the USD financial network. Whilst there has been a surge recently into China’s bond markets the foreign involvement in the SOE debt is more limited. But it will be watched and of course the impact on the domestic market confidence should not be under-estimated.
It also highlights the big differences between regions in China; something that external investors will have to watch more carefully the future.
Other articles have mentioned that many SOE executives have expressed confidence that government would bail them out because of the need to maintain investor confidence but I am not convinced that President Xi will see it that way. It also notes that Beijing is realising how little lending discipline there is in the market at the moment. Hence the investigations that it is currently undertaking. I expect we will see more instances ahead and I think Beijing is aware of that too, which will guide its response. It knows it cannot bail out every situation; especially with the strains connected with the financing of the Belt and Road and other foreign loans which are under pressure due to the covid pandemic. An issue that investors need to be monitored carefully and to an extents reflects the risks behind why Chinese Bonds offer good relative yields.

LEX Lufax/short sellers: from hot to not 'In just three weeks Lufax has gone from hot tip to short sellers’ target. Shares are down more than a quarter in the past week alone. Short positions have jumped more than sixfold since Ant’s listing was suspended.’ At question is whether the tech it has invested in will one day price its worth. Noted that 'Valuations of Chinese fintech companies are due a revision — though they will stay higher than traditional insurance and banking peers.Tencent, another tech group, spent years fighting regulation against its games. It was eventually successful. But even after that it took the company nearly two years for shares to return to pre-crackdown levels.'

Qantas plans to require vaccine jabs before flights. For International flights; in their a very good idea but as we don’t yet know how long inoculation from a vaccine lasts it may not be the best way to restore confidence in long haul air travel.
IATA is looking at working with airlines to try and find an acceptable standard. It is also working on a mobile app for the scheme. Many countries already require a clear covid test before allowing entry. The gold standard would seem to be the combination of the two but that is likely to be costly and would require international co-operation of what constitutes an acceptable test.
Watch for the development of good reliable testing kits.

Japan drops paper seal to digitise bureaucracy. Currently there are 14,992 occasion where only a Hanko seal will meet with Japan’s bureaucracy standards. Soon it will be just 83, although one has to wonder why they are keeping any?
Taro Kono Japan’s new minister for administrative reform is behind the measures. It notes there are 3 types of Hanko;
1. a seal registered with the municipal authorities, which can be used to make binding contracts.
2. a seal registered with a bank, which can be used for payments;
3. an everyday hanko with no legal purpose.
Most government procedures require the third type but not for much longer.
It will allow a wider digitalisation of both government and the wider business practices. Overall +VE

Mutual fund conversions to ETFs set to gather momentum after US moves. Seen as a significant move for the ETF sector and a could be a significant step in scaling up the development of the industry; currently focused on funds within the US but if it sees widespread acceptance could prompt ETF’s in Europe and elsewhere to consider.

Amazon pharmacy puts incumbents to test. Healthcare figures affect to be unfazed by offering but groundwork is being laid for deep long-term push into sector.
At present it seems like the current move seems to be a cursory one; dealing not in the high value drugs but the commonly available ones.
It notes that whilst Amazon is a formidable competitor the established chains still have advantages and loyalty; it cites the likelihood that when you want a covid jab Americans will contact Walgreens or CVS rather than Amazon. Cigna was weak on the Amazon competition fears despite the being an exclusive partner with Amazon via Evernorth which will administer Amazon’s prescription card. Evernorth says it would rather with Amazon than fight it. But there are other options for cheap drugs like GoodRx which has reputation for low prices for commonly prescribed drugs.
I think the real points that Amazon’s move is likely to be its first steps. It will watch and learn and then move deeper into the sector. The recent weakness in CVS, Walgreens, Cigna and United is probably just the first wave.

Facebook plots way to mend fences with Biden. Stakes are high for social media monolith that infuriated the Democrats. Looks at how Facebook is looking to try and mitigate its current relationship with the democrats in order to try and avoid more fall-out down the line. An interesting read.

For interest
Biden needs to cut codependency on Wall Street’s highs.
By Mohamed El-Erian   Suggests that Biden and his policies should seek to be more detached from the US stock market and not view the market going up as a sign that his policies are working. An interesting read.

FT BIG READ. LESSONS FROM JAPAN How to live with low rates and inflation
FT series Fearing prolonged stagnation, many developed economies are looking to Tokyo’s experience during the past three decades to see what approach they should take in the post-Covid era. An interesting read Summary paragraphs
'All advanced countries have ageing populations — which may bring caution in spending — while technological progress is a global and not a national phenomenon. Most important is the need to look past the specifics of Japan’s experience and recognise that whatever the difficulties, countries must not give up on the quest for growth, and do whatever is necessary to raise it to levels that keep employment high, wages rising and inflation from sinking to zero.
“There were two things that we recognised over time. One is how important financial stability is and the second is the importance of a growth strategy,” says Mr Nakaso. “Policies to address both the demand and the supply side of the economy are important. Raising Japan’s potential growth rate remains essential.”’
Also read Opinion Japan has lessons for dealing with common problems

Opinion The shift to remote work carries an inherent risk. Key If I can do my job from home, could someone do it more cheaply from somewhere else?
An interesting read.

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