July 29 FT China Second Wave? New Third Board Select?, Japan/China, Gold, Central Banks


31 Jul

July 29 FT China Second Wave? New Third Board Select?, Japan/China, Gold, Central Banks

MARKETs
JAPAN opened lower and has trended lower thought out Currently -1.2%
S KOREA opened flat Kospi initial rallied but then sold back down to flat and has traded sideways Kosdaq just traded sideways Kosdaq currently -0.2% and the Kospi -0.16%.
TAIWAN opened lower after yesterdays record day. Worked higher, then eased back to flat and trading sideways currently -0.14%
CHINA opened lower but driven higher, slight off their highs currently +1.5%
HONG KONG Opened lower but rallied before easing back to flat Currently -0.1%
EUROPE I would expect markets to open flat/lower with concerns over covid cases and caution ahead of Earnings and the FOMC statement.
US Futures opened flat then rose slightly I would expect a flat open Earnings, Covid, FOMC and Tech CEO’s in front of Congress.

Xinjiang rise in infections adds to fears of national second wave. Comes as China’s National Health Commission said there were 64 locally transmitted cases of which 57 were found in Urumqi, Xinjiang’s capital. In recent weeks there are have been a number of new cases announced. Previously when new cases have arisen the authorities have been swift to look down area’s in order to contain the spread. In addition it has implemented contact tracing and testing. Despite China’s best efforts small clusters continue to appear which underlines how little we know about how the virus is able to spread.
China relative to most other countries has been successful in containing the spread and for most people life in China continues relatively normally.
In Hong Kong new strict social distancing measures were introduced to try and control the recent surge in new cases. With the administration saying that is will seek to close any loopholes in the current quarantine requirements. The disruption to everyday life has been immense. Many restaurants are closing for the next seven days rather than just providing take-out services. Leisure facilities are closed and the wearing of masks in public areas has restricted running and other leisure activities during the current very hot weather. The impact on low paid jobs in the leisure and restaurant trade is likely to be very high.

China’s newest trading venue gets off to a stumbling start. Looks at the start of the New Third Board Select (NTBS). The Small-cap board’s initial losses were a blow to investors who are used to seeing stocks surge on their first day regardless of the fundamentals. But on Monday some stocks went up and some went down. That according the article has ‘undermined’ some investors confidence in the market. The article notes that covid has hit millions of SME’s in China and in order to try and help them get access to finance they came up with the NTBS, which has looser listing requirements than the other exchanges; with many of those listed having had previous IPO submissions rejected. Monday was mixed, Tuesday saw 30 or the 32 stocks rising but 20 are still below their IPO level. Retail interest in IPO has been a big driver in China; the article notes 'Public records show that more than 95 per cent of new listings in Shanghai and Shenzhen over the past two decades have jumped on their first day of trading.’ It’s been seen as a ’sure way’ to make money BUT the article warns that if that stops being the case then investors will look for other ways and that will make IPO’s more difficult which would be a big -VE for China. In the past the Government has controlled the IPO prices so investors got a good deal. The NTBS is supposed to be a test bed for new ideas and reforms. Various rumours surround Monday’s performance, analysts the article says think it was institutional investors trying to sell out to retail which drove prices down. But that still leaves the question as to why institutions had taken the shares in the first place if they had no intention in holding them. The reality is that you cannot really have a ‘controlled’ market with arranged valuations and questionable listing data. Open markets find the right levels. It suggests that China needs to do a lot more in its allocation of capital to companies. With the small companies being responsible for around 60% of GDP and 80% of jobs (Govt data) they deserve better treatment by the SOE banks and others.

Japan treads carefully in dealings with China Geographical proximity and business ties are reflected in the response from Tokyo. Notes how after 20 years of trying to get the world to be more aware of the threat from China, Japan appears to have had some success and is now taking a more back seat approach. Japan is aware that it cannot decouple completely from China and so it will need to ‘manage’ its dealings and stance for practical and economic reasons.
Japan is already under threat from China; incursions into its airspace and territorial waters. Japan actions may not appear as strong as some other countries actions but by its standards and considering all the issues at stake it has been forthright. China takes 20% of Japan’s exports and many Japanese companies have operations in China, so it needs to manage the situation carefully but without appearing weak which could lead China to thinking that it could be more assertive with its military incursions. It is a tricky problem for most countries who would like to do business with China but want the business to be fair and balanced. Only a few countries have been hugely confrontational with China and none of them are close neighbours to China.

Nissan warns of record $4.5bn operating loss as pandemic crushes demand. Looks at the poor results as the company continues to battle with numerous issues. At this stage it does not look like cost cutting alone will be able to reverse the company’s fortunes. The results were much worse than expected. See also LEX Nissan: crumple zone 'Nissan’s share price is down by a third this year. That does not fully reflect its predicament. It takes many years to build — or in Nissan’s case, rebuild — a brand. Cash flow constraints mean time is a luxury Nissan cannot afford. The odds of the business continuing in its current form just widened.'

Editorial Rise of gold is a sign of uncertain times By normal standards, the yellow metal is not an attractive investment. Basically makes the point that whist gold is generally not an attractive investment currently the alternatives are worse. Historically Gold rarely holds its highs for long before its disadvantages become apparent. That is all true. I just think that the current circumstances just mean that it may hold out at the top for longer than on previous occasions.

Editorial The US-China rift has now become ideological. What started as a tariff war is morphing into a battle of values. Draws parallels from the US/Soviet confrontational era. It notes that in some ways good has come about in the airing of subjects that had been obscured. But the risk is if it comes down to ideology there is unlikely to be a solution. Noting that the US/Soviet schism was only ended when the Soviet system collapsed. Worth a read.

Rage against central banks is misdirected 'Rocketing house prices, zombie companies, rising inequality, a runaway stock market, struggling savers and even the outright destruction of capitalism — perhaps the only thing that does not get blamed on easy monetary policy from central banks is the weather.’ Sets out that central central concept to economics is the ’natural rate of interest’ and there is little central banks can do to influence it. It cites Japan as the example of what happens if you try to hold rates above their natural rate. An interesting read but I think it fails to appreciate that Central banks since the GFC and maybe before have not just influenced interest rates but also used other tools too try a ’save the economy’ but at no stage have they actually unwound and put away the tools they took out which were only supported to be temporary. For not doing that, I think Central Banks deserve some blame.

Big Tech chiefs face Washington grilling together for first time. Looks at how Apple, Amazon, Alphabet and Facebook heads are set to encounter questioning today before Congress. Looks at some of the issues. The problem with these events, having watched some in the past the time time limits put on the members of the panel and the fact that some of the time is wasted in political niceties. It seems to me that the congressmen and women would do better to agree their questions before hand and devote the time to seeing how the respective heads answer.

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