Aug 24 FT Lessons from China, Poorer Pensions, Dividend Pain, Nokia 5G, Techtronics and more

26 Aug

Aug 24 FT Lessons from China, Poorer Pensions, Dividend Pain, Nokia 5G, Techtronics and more

JAPAN opened lower as covid concerns worry investors but rallied from around 10am from 22,900 to 23,000 going into lunch.  PM retest to 22,930 (near Friday’s close) before trending higher again. Currently +0.3%
S KOREA  opened slightly higher following Friday’s US but sold down again on covid concerns
Kosdaq tested 790 before bouncing and working higher to 810 level and then traded sideways currently +1.9%%
Kospi tested 2,285 in the early sell-off before bouncing back to 2,330 level and then traded sideways Currently +0.5%.
TAIWAN opened higher sold down tp 12,560 before rebounding to 12,700 and then traded sideways currently +0.3%
CHINA CSI 300 opened higher initially sold down to test Fridays closing level a couple of time and then bounced to 4,760 level and traded sideways into lunch.  PM has worked slightly higher  Currently +0.9%.  ChiNext trading user revised IPO pricing rules can now move +/- 20% vs 10% previously.
HONG KONG Opened higher as I expected after the increased shorting on Friday;  +238pts @ 25,352 vs -54pts ADR.  E commerce names strong after Tencent rallied on news on continuing business with Apple despite WeChat ban and good earnings from Meituan after market Friday.  Chinese Property may see weakness after weak results at lunchtime from R&F, China Overseas.  AAC Tech Net profit -58% missed f/casts.  Currently +1.5% and trading sideways.
EUROPE I would expect markets to open higher following the US on Friday and Asian markets today.. No data due but covid concerns may limit the upside.
US Futures opened +60pts and initially rose to 70pts and then crept higher through the day currently +115pts with S&P and NDX set to open higher too.  Data today Chicago Fed National Activity Index

Editorial Learning from China’s unequal recovery. Beijing has focused more on helping businesses than ordinary earners. Looks at what lessons can be learnt and notes that many western countries took a different approach to covid than Beijing. Europe and the US has spend billions on keeping workers paid. China in contrast has offered cheap credit, public investment and construction spending and focused on keeping businesses operating.
The result for China has been a recovery in output growth but private consumption demand and even private investment are lagging behind. While high earners have come largely unscathed through the downturn. Meaning the luxury is still doing well but other retail sectors are not. In Europe retail activity has been steady.
Key going forward will be when the support schemes are removed and the bigger impact it is likely to have open low income earners. 'China’s struggle to boost consumption demand shows the macroeconomic risk of a botched exit strategy from extraordinary income support measures.’
It also notes that 'Beijing’s reliance on public credit and investment spending is also a longer-term problem for its own aim to rebalance the economy towards a consumption-led growth model.’ But without consumer confidence achieving that goal will be nigh on impossible and most ordinary workers and especially the lower paid migrant workers are suffered and hence not spending. It is a similar problem for western governments too. Key will be how to rebuild better, to re-skill workers to be able to get better more sustainable jobs.

Poorer retirement is a hidden pandemic legacy. Workers will need to live with lower returns from their pensions. Makes the point that for many covid has wiped out saving and for pension funds it has become harder to pay out pensions; which may result in people having less. It makes the point that many of these problems were already there pre covid but the crisis has now not only revealed the true extend of the problem but made it worse. It notes that 'Those wanting a comfortable retirement will simply need to squirrel more away — but governments and regulators should make sure that obstacles to their doing so are removed, and that nothing is done to precipitate a crisis in the structures that look after their current retirement savings.’
It also highlights what many on TikTok stressed that having mutilple income streams is the only way to ensure a good life and retirement. On TikTok its about drop shipping, or multi layer marketing, being a brand influencer. They are right. Those who only work 9-5 have limited scope to enhance their earnings they are limited to 9-5 and perhaps some overtime.
Drop shopping, multi layer markets, influencer videos work 24 hours a day.
I have recently become involved in a food supplement business that does just that others who have be involved longer now have sustainable incomes. It's likely that more people will look for more than their 9-5 to be able retire. Pension schemes are good but they don’t grow significantly once you retire, even with government tax assistance whilst contributing (and certainly not helped by the pension being taxed again when you draw it). So with low interest rates for the foreseeable future you are going to need other sources of income to maintain your lifestyle. Now is the time to start building them.

Trump eyes fast-tracking UK Covid-19 vaccine before election. Emergency authorisation weighed for drug • Questions over size of trial numbers
Looks at the possibility that Trump would by-pass the normal procedures and start supplying a covid vaccine before it had completed all the normal trials. Seen as a election ploy and many doubt that the plan would be successful due to the fact that there are likely to be a number of key resignations because the normal procedures are being ignored. Additionally the drug companies themselves are likely to be wary of such a plan unless the US government is prepared to indemnify them against any future claims should the drug have unforeseen side effects.

Investors feel dividend pain with worst quarterly drop in payouts since 2009 Estimates that global dividend plays saw $100bn wiped of their value as payout fell by 20% to the lowest Q2 since 2012 according to Janus Henderson report. Worst affected regions were the US and Europe. Expects it to take several years to recover to pre-covid levels but was encouraged that seem companies had already re-instated their dividends.
It is likely that a lot of income investor funds will have to revise their plans in the light of the situation.

Okinawa virus surge stokes local anger over US military bases. An additional issue for the US’s already fraught relationship with the locals around the bases. Comes as a video of an Independence Day beach party hosted by the US marine reveals that no one was wearing a mask. The bases were expected to be an example of control of the virus but in fact over 340 personnel on the base tested positive for covid. Okinawa now has the highest number of cases in Japan. The US says that personnel are confined to the bases but the local wonder if there is a link; especially as a second waves seems to be sweeping Japan.
Highlights the lack of knowledge we have on the virus’s transmission and that control measures are only effective if everyone observes them. Read also Surge in coronavirus cases puts Europe on high alert as holidaymakers return to cities. This is a global problem.

South Korea urged to follow Japan lead on coal finance ban. Pressure is mount on S Korea to follow Japan’s lead after President Moon promoted clean energy as part of his Green New Deal. They are seeking the government stop state support of coal fired power units which would impact state backed Korea Electric Power Corp (KEPCO). It highlights how in the face of economic uncertainty governments are reluctant to abandon the cheap but polluting fuel. It is made more difficult because S Korea has a shortage of natural resources.

Nokia goes back to the future with 5G team. Stakes have never been higher for Finnish group as Lundmark takes over at height of US-Huawei spat. Looks at the new CEO and chairman and if they can step up to the plate and deliver. Some think they have been slow to monetise the opportunity with eh US government effectively saying we will buy what you cn provide. But I think that misses the point. Those easy statement are rarely followed up with blank cheques and 5G equipment has had thin margins; Huawei was able to gain market share through cheap labour something neither Nokia or Ericcson really have access to.
There are lots of opinions about what the new CEO should be doing but it will take time for him to formulate his own plan, but a review is underway. I think the company is certainly worth watching; it is back to pre March levels and the new appointments seem to be seen as +VE by the moves in the share price. It has generally trended lower over the past 5 years lets hope the next 5 years see a reversal off that trend given the current opportunity and the US squeeze on Huawei.

Eurozone industry fears rebound will stall Experts express concern that honeymoon for factories is set to run out of steam soon comes as Fridays PMI data cast doubts on the recovery with some saying the data showed the Europe would not see a V shaped recovery.
There has been some conflicting data out of Europe recently but if does appear that as in the US the recovery is not uniform with different sectors reacting differently and that there are likely to be a number of hiccups on the way in my view.
An interesting read and it will mean that investors will need to a be sector and stock specificities when making their investments. For Asia it will impact the exporters and investors will need to look carefully at who companies are supplying.

Eurozone Bets against US stocks drop to lowest in more than a decade
Shorts have been burnt due to the record S&P 500 rally a big reversal of fortune since early March. Goldman’s say 'Short interest as a proportion of market capitalisation for the median stock in the S&P 500 index fell to 1.8% at the beginning of August’. The lowest since they started collecting the data in 2004. The average at the start of the year was 2% and the long term average is 2.4%. Shorts against the big tech names including Tesla are obviously the worse performers. The article doesn’t mention how shorts against other sectors are preforming; with the US rally focused on a relatively few names I would expect that a number of shorts are still looking healthy and that a number of funds are still looking healthy. Highlights again that stock picking remains key. Last week the FT ran an article about how some Macro Hedge Funds had done very well this year; so as always research is key.

Out of the woods Timber prices surge to all-time high on renovation demand. Worth a read if you invest in Timber or are thinking of but also because the rise in DIY and renovations is a key driver for Techtronics (669 HK) which is looking to test HK$100 shortly and is +1.7% at the time of writing. I like the stock and this surge in renovation will be good for sales as is the strength of the US housing market. It is difficult to recommend the stock at this level but I would recommend taking some money off the table of you have owned the stock for over 6 months. I would still be a buyer of the stock if we see pull backs.
It is also good news for the likes of Home Depot and Lowe’s. Lex recent saw potentially more upside for Lowe’s that Home Depot so worth taking a look.

What steps will central bankers reveal at Jackson Hole summit? Starts on Thursday; hopes are for more clarity from the Fed about the tools at its disposal to cope with covid but also the persistently low US inflation. For Europe clues from the ECB’s chief economist and Andrew Baily of the BoE. BiJ has yet to say who will represent it but investors will be watching closely considering it experience in quantitative easing, negative rates, yield curve control and massive asset-buying programmes.

Will the US broaden its assault on Chinese companies? Who else is likely to suffer after Huawei? Notes that Xiaomi and Oppo are positioned to benefit from Hauwei's bad fortune. I still think that Trump could further weaponise the USD and that could impact Chinese companies listed in Hong Kong.

TikTok to sue Trump administration over ban. The expected lawsuit is likely to be files this week; which will accuse the White House of denying the company due process when the US president issued an executive order on August 6. It will then be for the court to decide and that decision will be key for how the presidential powers granted under the International Emergency Economic Powers Act as used in the future. It will be interesting to watch and we can expect a lot more comment of the use and potential abuse of those power and the powers of the President in general.

FT BIG READ. ENERGY & MARKETS. Carbon: the ‘one-way’ bet for hedge funds
The price of EU carbon credits has risen amid warnings that speculators stand to make gains. But the new entrants focus less on short-term factors and more on the direction signalled by Brussels’ green strategy.

Pandemic shows US must make vital products at home. By Kevin McCarthy the Republican leader of the US House of Representatives
Worth a read because just as the US can turn the tap to stop chips getting to Huawei it is possible that China could turn the taps off regarding active pharmaceutical ingredients for antibiotics, as well as finished penicillin and streptomycin, the majority of which come from China.
Also mentions 'locating physical infrastructure on US soil, we should design our tax policies in such a way as to lower the cost to firms of relocating their intellectual property. This valuable information can then be placed alongside the manufacturing assets it supports.’
It also mentions about attracting key industries and technology to the US. But says in summary
'We will not reshore everything, nor should we. But the US and our allies, especially our USMCA partners, have the capabilities and resources to protect and provide for ourselves. We just need the same strong leadership we’ve seen from Mr Trump for our government and businesses to take action on behalf of the American people.’
Worth a read.

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