July 1 FT Thoughts & Asian update. China's party black market, Didi, Toshiba and Xi.

This and previous notes can be found at  Substack ( Asian Market Sense )
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Asian Summary at 1:45pm HK time; slightly weaker despite some good data; HK closed, China’s Communist Party 100th anniversary but China markets open.

Market opened the new financial year by dipping lower despite some good data. It bounced into the green but then trended lower to 7,280 just before noon. Traded data was good.  Bounced around 1pm and then rebounded to 7,300 but lacked momentum and trended lower to 2,272 before a small bounce currenctly -37pts (-0.5%) @ 7,276.  Financials & Miners laggards, Covid concerns remain -VE travel related names. PEXA IPO had a weak debut.
Data pre market
Manufacturing Index Jun 63.2 vs 61.8 May (F/cast was 62)
Manufacturing PMI Jun 58.6 vs 60.4 May (F/cast was 58.4)
Balance of Trade May A$9.681B vs 8.157B Apr revised (F/cast was A$9.5B)
Exports May +6% vs +3.3% Apr revised
Imports May +3% vs -2.7% Apr revised
Mixed Tankan data mixed, PMI data later was +VE
Nikkei opened higher but sold down to 28,700 in the opening minutes, bounced/worked back to flat but then sold down to 28,650 and traded around there into lunch. PM range bound 28,650/700.
Tankan Survey
Large Manufacturers
Index Q2 14 vs 5 Q1 (F/cast was 15)
Outlook Q2 13 vs 4 Q1 (F/cast was 17)
Non Manufacturers
Index Q2 1 vs -1 Q1 (F/cast was 5)
Outlook Q2 3 vs -1 Q1 (F/cast was 10)
Large All Industry Capex Q2 +9.6% vs +3% Q1 (F/cast was 5.1%)
Small Manufacturers Index Q2 -7 vs -13 Q1 (F/cast was -7)
Later Manufacturing PMI Jun 52.4 vs 53 May (F/cast was 51.5)
S Korea 
Kospi opened flat as trade data came out on the open. It sold down over the first hour to 3,278 before working higher but with resistance at 3,290. Eased back and now trading sideways 3,280/285
Currently -14pts (-0.4%) @ 3,283
Kosdaq opened higher, dipped into the red when the PMI data came out but then worked higher, some resistance at 1,034 but then broke through currently +6pts (+0.6%) @ 1,036
Balance of Trade Jun $4.44b vs 2.94b May revised from $2.93b F/cast was $6.8n)
Exports Jun +39.75 YoY vs +45.6% May (Consensus was 33.6%)
Imports Jun +40.7% YoY vs +37.9% May (Consensus was 33%)
Manufacturing PMI Jun 53.9 vs 53.7 May (F/cast was 53)
Taiex opened higher and traded sideways (17,770/852) until around 11am; then sold down to 17,644 before a rebound to flat but then dipped to close -42pts (-0.2%) @ 17,714
Manufacturing PMI Jun 57.6 vs 62 May
CSI 300 opened higher but sold down to 5,190 ahead of PMI data, rallied to flat as Xi speech got under way but sold down into lunch. PM opened higher and trended higher, currently +24pts (+0.5%) @ 5,248 T/O light with HK closed.
President Xi tells the people who much good the party has done them and is now ‘moderately prosperous’. Warned other countries not to bully, said China never bullied others (I think as lot of Asian would question that) and that re-unification of Taiwan still key.
Caixin Manufacturing PMI Jun 51.3 vs 52 May (F/cast was 51.9)
Market closed but ADR’s were +91pts @ 28,919 with Chinese Financials weak but other sectors +VE
Markets to open higher; focus on the PMI data and covid cases.
FTSE 100 +18 points at 7,055, DAX + 67 points to 15,598 and CAC 40 +35 points to 6,543, according to IG data.
H&M numbers beat and +VE outlook
AB Food numbers ahead of f/casts.
US Futures
Opened  Dow +50pts, S&P +0.15% and NDX slightly +VE, caution ahead of Initial claims, ISM and PMI data, also Friday’s jobs report.

FT Front Page

US and Japan conduct war games amid China tensions over Taiwan

• Beijing stance sparks alarm • Drills couched as relief training • Allied planning boosted
Article says that the US and other nations have already been conducting war games should not really come as a surprise in the light of Chinese aggression in the region. An interesting read.
Amazon seeks to force new FTC chair Khan to step aside from investigations.
An interesting call by Amazon but one I think that is likely to be ignored. It is obvious that Khan has been picked because of her previous stance towards e-commerce companies in general. Worth noting that ‘Democratic congressman David Cicilline, who chaired the House antitrust subcommittee, criticised Amazon’s recusal call. “This is the problem when a company has this enormous economic and political power. It is a level of arrogance that is hard to really appreciate,” he said.’
I would agree; she was appointment with her past views clearly known. Amazon’s move I think will lose it any sympathy it might have had and probably makes it a larger target with many thinking that it has things that it wants to try and hide.
‘Day 1 in Seattle’ nears for Jassy As head of the cloud computing business, Andy Jassy helped to make the ecommerce group a huge moneymaking enterprise. He will now face intense political and regulatory scrutiny as chief executive.

UK secures exemption in global tax reform
Financial services victory comes at cost of levy on US technology companies.
The first of the carve outs begins which is likely to ultimately lead to the undermining of the original intent. Worth a read.

FT-IGM survey
Fed forecast to raise rates at least twice by 2024
Looks at the results from the FT’s latest survey. Which suggests that repsondents are more hawkish about mponetary policy than Powell is currently. Worth a read.

Black market gatecrashes China’s party
Businesses bemoan ill-defined rules as Beijing squeezes use of memorabilia by private sector.
Worth a read; reveals the amount of control the government seeks to weild and equally how some people in the private sector are just commercial.  It sums up the mistrust between the state and private enterprise. As well as illustrating how the state seems to fail to understand the public mood too.
It notes that in handing out July 1 medals; none went to people in the private sector.
Nice quotes; ‘A second Yiwu entrepreneur complained the propaganda department’s prohibition did not adequately define what constituted misuse of the logo. For example, was it permissible to sell memorabilia to party or government clients for profit — and to private clients at cost, the distributor asked. “The rule has left many questions unanswered.”’
‘Businesspeople complained the party had whipped up demand for centenary souvenirs, which it then refused to make publicly available, creating the black market it was struggling to rein in.’

China free of malaria after decades-long fight.
A timely announement for China as the CCP promotes its achievements. But maybe more revealling; “[Malaria] was never very high in the ranking of disease mortality in China because it’s very regional,” she said. “But [eradicating it] fits neatly into China’s powerful agenda and narrative around controlling infectious disease.”

N Korea suffers ‘grave incident’ in Covid battle
‘The dictator accused senior officials of incompetence in handling North Korea’s efforts to prevent the spread of Covid-19, according to a statement by the state’s Korean Central News Agency.’
No detail as to what the incident was but it notes “That Kim chose to blame his cadres, rather than taking responsibility and pursuing concrete steps to correct the situation, may give some indication that Kim takes the virus seriously, but perhaps not to the extent it will move him to make the right decision,” she said.
Also mentions the concern over his weight loss but again no detail available.
N Korea remains a concern because of its ‘wild card’ nature and the potential impact of its attention seeking method of firing missiles as well as the suffering that is being impacted on its people and the uncertainty of succession but likely to be overseen by China. The whole re-unification case has pros and cons but would result in a massive change to the regional balance but would probably make China a lot more nervous.

Companies & Markets
Didi meets firm demand on New York trading debut

Looks at the debut which saw good initial trading demand but only closed slightly higher but it did manage the exercise the greenshoe.
‘The listing will pave the way for large payouts to Didi’s investors including SoftBank’s Vision Fund, Uber and China’s Tencent. SoftBank’s first Vision Fund, which counts Didi as its largest investment, would own a stake worth around $16bn at the company’s opening price.’
There is a lot of chatter about the pro’s and con’s about the potential for the stock. Worth a read; I remain cautious on the business model. The article notes that ‘Its core business has been profitable since 2019 on an adjusted basis on earnings before interest, tax, depreciation and amortisation.’ The problem to me is that you can’t just buy its core business and as a market leader it faces competition on all sides.

Toshiba faces pressure to weigh offers from private equity funds
As a result of the recent changes to the board the company is now under pressure to find a new chairman and board directors. Key will be how much influence shareholders have on those appointments. Additionally shareholders are hopeful those changes could results in a open appraoch to possible equity buyout offers. Interestingly it says the government’s attitude on that still remains crucial; ‘Although Toshiba has yet to receive any formal or binding buyout proposals from private equity or other strategic buyers, several of the largest PE funds said they would be interested if they could be sure of Japanese government approval.’
Effectively the Government is going to have to make clear its position with regard to Toshiba which will also send a strong signal to investors about whether there has been real change by the government and Japan Inc on corporate governance and shareholders interests.
A good read and a stock to be watched. Stock was trading higher this morning

Xi risks destabilising China’s Communists
Reversal of checks and balances sows seeds of potential instability
A good read, notes that whilst Xi claims that the party is the country’s best way forward for the next 100 years, he would do well to realise how much has been due to the west’s ‘la geste’ and its free markets.
It goes onto outline how by removing the checks and balances to in place by Deng an others he risks damaging the party.
Ruler for life with no successor makes for power struggles. Concentration of power can lead to big mistakes; some might say these are already happening; reaction to covid, Xinjiang, HK, Taiwan, Philippines.
It concludes ‘The CCP leadership should reflect that China owes its success above all to free market reforms and the political checks and balances that reinforced them. Instead of demonising the west, Beijing ought also to recognise western countries’ enabling role in its rise.
The US and European powers should celebrate China’s endeavours but recall that its achievements have been built on a political edifice that suffered catastrophic reversals in the not-so-distant past. Their wisest approach is no longer the hopeful and largely uncritical engagement of the early reform decades, but a blended policy of limited economic engagement, resistance against CCP influence campaigns and hard-headed strategic preparedness.’

For Interest
Markets Insight
Goldilocks-like view downplays inflation threat  by Mohamed El-Erian.
Concerned that the market’s beleif in the Fed’s view on inflation means that we are not carrying out proper research into whether the Fed is actually right. I think he is right, there is too much resting on the Fed being right for investors not to be investigating the potential reasons for the Fed being wrong.

Brussels needs to be bolder in tackling shipping emissions
An interesting read because of the lack of progress on the sector with regard to emissions and future alternative fuels.

Crypto. Yield farming
Digital currency traders embrace lending schemes to juice returns
Consumers are taking more risks to chase ‘ridiculously high’ rates, warn analysts.
Worth a read as crypto players look for alternaive ways to play the market.
Read also  Opinion The Binance stand-off shows bitcoin’s limits

On reasons for returning to the office. Opinion Banks must heed the value of institutional memory  By Simon Samuels a banking consultant at VeritumPartners