Nov 4 FT Thoughts Ant's IPO, Arm China, China on Chips, Coal & Payments. Lunch updates
MARKETs at 1pm HK time
JAPAN opened higher playing catchup and has then traded sideways in the range 23,600/800 Currently +2.1% @ 23,779
Kospi opened higher initially tested to 2,370 and then sold down to 2,340 (just below Tuesday’s close). Then rebounded and trading sideways 2,360/343. Currently +0.7% @ 2,360
Kosdaq followed a similar pattern rose to 826 in early trades and down to 815. Then trading sideways 818/826 Currently +0.9% @ 826
TAIWAN opened higher tested up to 12,800 and down to 12,736 in early traded. Late morning worked higher to 12,885 and then trended slightly lower. Currently +0.9% @ 12,845
CHINA opened higher and rallied on the good Caixin data but then sold down mid-morning to 4,770 just below yesterday’s close before rallying to the day high 4,825. Then eased back into lunch. Currently +0.5% @ 4,802. Difficult to see the impact of the Ant Group IPO being pulled.
Services PMI Oct 56.8 vs 54.8 Sept (F/cast was 54)
Composite PMI Oct 55.7 vs 54.5 Sept (F/cast was 54
The sixth straight month of growth and the second-fastest for over a decade. New orders accelerated, (rate of increase being the third-steepest since Sept 2010). Employment grew for the third month (most in over a year). Outstanding workloads rose slightly, but softened vs September. Export sales fell further, on rising covid cases globally. Input cost inflation; highest in over two years, (higher staff and purchasing costs). Firms increased their output prices slightly, with the rate of increased little-changed from September. Sentiment improved to its highest since April 2012.
This was the highest reading since June. The second-highest in 10 years, the composite new orders gauge hit the highest point for a decade, and employment continued to recover. Meanwhile, cost pressures picked up, with average input prices rising at the fastest rate for two years. Output charges, however, rose slightly. Lastly, sentiment rebounded.
HONG KONG Pre market Opened at 24,790 -149pts vs +86pts ADR’s at 25,025 with Alibaba -9.3% on news Ant’s Shanghai IPO had been pulled by the regulator, Tencent -4%. Market then rallied to 25,094 before selling back down to 24,800 level. Then rallied back before easing lower into lunch -0.2% @ 24,893.
Pre Market PMI Oct 49.8 vs 47.7 Sept (F/cast was 48)
EUROPE Services& Composite PMI due, I would expect the markets to open higher with a focus on the US Election results.
US Futures DOW opened higher and initially rallied to +230pts but have since eased back to +90pts. S&P and NDX with higher. But they remain volatile as election results begin to get posted.
Data due MBA Mortgage Applications and 30 year Mortgage Rate, ADP Employment Change, Balance of Trade, Exports, Imports, Treasury Refunding Announcement, Services PMI and Composite PMI, ISM Non Manufacturing Data (New Orders, Prices, Employment, PMI), EIA Oil Report.
Earnings Qualcomm, Allstate, Expedia, Hilton Worldwide, Scotts Miracle-Gro, Wendy’s, Perrigo, Zynga, Manitowoc, Public Storage, Pioneer Natural Resources, GoDaddy, Qorvo, Tribune Publishing, MetLife, Fitbit
China halts record $37bn Ant listing. A surprise move following yesterday’s ‘interviews’ and the regulator cited “other major issues”, including changes in “the financial technology regulatory environment”, it said “This material event may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements,”
Application money will be returned to investors.
As I wrote yesterday regulatory issues are and will be one of the biggest hurdles for Ant Group. Its new approach to credit score for loans and the fact that it would not share that customer information with the Government was always likely to be a 'tinder box’.
We do not know exactly which issues the regulator has and issue with but I expect we will get more information in due course. This will impact Tencent too and any others companies looking to enter the Fintech space. Effectively the PBoC is making clear that it sets the ground rules for how banking is going to be carried out in China.
It will also serve as a reminder to investors in China that the government remains the key player for all things China.
Read also Beijing cuts Ma down to size with halted IPO. Ant’s listing delay shows even China’s wealthiest man is not above the Communist party. Also LEX Ant IPO/Jack Ma: party pooper
China plays it straight but watches for unrest. Looks at how the Chinese media is handling the US election. So far it seems straightforward and reasonable but they are looking for propaganda opportunities and over the weekend were highlighting the potential for unrest as shop keepers boarded up shop fronts. But with regard to the candidates there are been little opinion as China does not want to be accused of favouring either candidate.
Arm China battle puts $40bn Nvidia deal at risk. Looks at the on-going dispute between Allen Wu the CEO of Arm China and the parent company. As ever much of it is about money. But for China Inc, it will be a embarrassment and potential warning for international companies looking to invest in China. Something that at present China does not want highlighted as it tries to get foreign capital in to reboot the economy.
The fact that a local executive can hold an international company to ransom is not something one expects to hear about in 2020. It is also worrying that both side can look to try and gain support from different Government officials to back their case. There have been a number of articles written on this case before. The worry for many will be that it illustrates the same problems one had 30 years ago of not being able to trust local partners to act solely in the company’s best interest and not set up various ’side businesses’. The fact that the legal framework in China does not allow for a quick legal solution is another worry. That used to be one reason investors liked Hong Kong because you knew how the law would work.
Chinese chip sector prepares for a long struggle with the US. Looks at the huge task China ha in trying to develop its own chip sector without using US tech or machinery. Whilst China does have some domestic machinery makers they only currently have 8% market share in China. It’s the classic ‘chicken and egg’ if you have the money you buy the best in class and that currently is foreign and ofter using US tech. That means the domestic manufacturers struggle to become leaders. Going forward that should change with government money being directed to domestic manufacturers but at present no Chinese company can offer the a range of machinery to be able to to carry out the whole chip manufacturing process. As China tries to find solutions to get around the US issues the US will be watching to close any loopholes that appear. I would expected that overtime China will be able to development its own chip business but whether it can become a world leader in the foreseeable future is another matter.
China’s manufacturers hit by late payments. Looks at how Chinese businesses are spending more time and money on getting paid. Data shows it now takes an average of 54 days to get paid up from 45 days in 2019 and 27 days in 2015.
That is meaning that companies are trimming their Capex and suggests that the economy is weaker than the headline data suggests. Credit driven sales may have driven much of the early recovery but as they encounter problems companies will be less inclined to offer credit. It cites one owner saying “There is no shortage of orders,” said Zhang Huaqiang, owner of a machine parts factory in the eastern city of Ningbo. “The challenge is to figure out when you can get paid.”
The problem it seems stems from the SOE’s and local Governments who are slow paying their suppliers and that then has a knock on effect down the supply line.
The worry being that the current growth being seen in China slows as more people try to keep hold of their cash for longer.
FT BIG READ China’s coal addiction clashes with Xi pledge. Xi Jinping has set a deadline of 2060 for China to cut carbon emissions to ‘net-zero’ but with the rapid construction of new coal plants questions are being asked about the president’s promise. A good read. It certainly seems to be tough challenge. See also Opinion by Martin Wolf. We can avert irreversible climate change Action is both essential and affordable — but it demands the co-operation of leaders around the world.
Hong Kong journalist’s arrest stirs media fears Hong Kong’s police arrested an RTHK journalist who reported on allegations that law enforcement failed to protect civilians from a group of thugs. The arrest was made on the basis that she made “false statements” when accessing a public database of vehicle licence plate information. The allegation centred on the reason she selected when accessing the databases, which allegedly did not reflect why she was using it. In the past it has been common for investigative journalists to use public databases in this way. The police said the arrest was made following a complaint from the public.
I don’t know what reason options are available to chose from when accessing the public data bases but I’m guessing that investigative journalism is not one. As it is a public data base it also raises the question as to whether one should have to give any reason?
It is difficult to draw too much from the incident as the police are using the existing laws and not the new security law. It would be interesting to know who filed the complaint and whether they were linked to the incident that Ms Choy was investigating. It could also illustrate a the change in attitude of the police; with a more ‘hard line’ being presented. It has certainly worried the journalist community and many will wonder if the future of investigative journalism in Hong Kong just got harder. It would certainly appear that journalist's will have to adopt new ‘squeaky clean’ practices and that relying on the fact that they are doing something so that the public can be better informed and aware is going to hold less sway than before.
Europe’s shopkeepers on warpath over lockdowns. Shop owners and small business operators are protesting against the latest lockdowns and warning that they are on the verge of bankruptcy. Moreover that the latest lockdowns favour on-line retail giant like Amazon and large retail chains. Key for investors is that if these businesses go bankrupt there will be an impact in the banks and on the retail sector and a rise in unemployment. But it could also mean that landlords are under pressure as they lose tenants and with no real prospect of finding alternative ones. In the business world it could also lead to disruptions for larger businesses that have outsourced elements of their supply chain.
BoE faces fresh doubts over potency of buying bonds. Investors question whether further QE will be effective in stimulating the UK economy. Looks at the issue ahead of this weeks BoE meeting. Soon the BoE could be facing similar problems to those the BoJ faced when it became the largest player in its Bond market. Illustrates to an extent how Cental banks are running out of options and will need governments to act as well. Only by using Monetary and Fiscal policies are countries going to find solutions.
A terrible year for computer trades but we are all quants now Notes how the woes of value investing have triggered debate about the success or otherwise of other types of investing. With regard to quants it notes from a report by Inigo Fraser-Jenkins, head of quantitative strategy at Bernstein, “At their core, quant funds try to apply backtests to future investment decisions. But what does it mean to do quant research and run backtests if the rules have changed? There is a challenge to quant beyond a recent patch of poor returns. If Covid doesn’t count as a regime change, I don’t know what does.” Basically saying that the idea of mean revision no longer works. Quotes Ted Aronson,'a value-oriented quant investor recently said to the WSJ after closing his hedge fund, AJO, after a dismal performance stretch: “It can all work for years, for decades, until or except when the not-so-invisible hand comes down and slaps you and says, ‘That’s what worked in the past but it’s not going to work now, nope, not any more.’”
Not all quant funds have done badly but many have and across various strategies too. The only quant strategy that has worked this year was ' trend-surfing momentum as winners have won big and losers have been left for dead.’
I think that under covid and tech a lot of the things we took as fundamentals have changed or become irrelevant. We need to constantly be looking for the new drivers, that after all is what the broking industry has always been about.