July 16 FT & Asia update Diplomatic games, Delisting, Uneven recovery in China and more


This and previous notes can be found at  Substack ( Asian Market Sense )
Check out ERI-C.com  for your research needs

Asia muted trading BoJ meeting no real supprises. HK rallied on news that HK IPO’s would not be subject to cyber securityAustralia
Market opened lower and it saw a choppy start hitting the day low just after an hour at 7,315 before working back to flat over the next 90 minutes. Then eased back before restest flat. Currently trading sideways around flat. The new Melbourne -VE for sentiment. Weakness in Financials, along with Rio Tinto (Pilbara ops weak on heavy rain & replacement mine issues). Woolworths and Afterpay also weak.  
Japan
Nikkei opened lower after Powell’s comments hurt the Yen; and tested down to 27,850 in early trades. Rebounded to 28,100 but then sold down again to 27,900 worked better and then traded around 28,000 level. BoJ left rates unchanged, tweaked forecasts and announced increased green bond buying. PM opened higher.
Topix opend lower 1,930 ticked lower but then rebouned to flat and then flirted in the green to 1,942 before selling back down to 1,930 then rebounded and traded around 1,935. PM opened higher trading around flat.
Overall volumes light.
S Korea
Samsung and other tech weak after TSMC earnings. Covid cases eased to 1,536 from 1,600 Thursday.
BoK Governor says low rates not good, think scan raise later this year.
Kospi opened lower, sold down to 3,270 and after 40 minutes sold down to 3,260, bounced to 3,270 and then traded sideways. Currently -21pts (-0.6%) @ 3,266 Tech names weak after TSMC earnings.
Kosdaq similar pattern sold down initially and traded 1,045/1050
Taiwan 
Taiex opened lower around 17,840 and worked slightly better but saw resistance approaching 17,900 level, having tested that level but not broken above briefly dropped to test 17,850 but bounced back to 17,900 level. Weakness in TSMC post results.
China 
CSI 300 opened lower around 5,140 and trended lower through the morning down to 5,114 before bouncing into lunch; -18pts (-0.3%) @ 5,134
HK Pre market opened @ 27,973 -24pts vs -108pts ADR’s
Traded in a tight range on 100pts with concerns over US/Sino relations through the morning until it was announced that HK IPO’s would not be subject to cybersecurity prompting a bounce in the market to 28,136 as HKEX rallied. +125pts (+0.5%) @ 28,120
Hang Seng Rebalance on the close.
Europe
Expect a weak open in with Eurozone inflation data, results and covid the key drivers.
US Futures
Opened Dow -32pts S&P -0.1%, NDX -0.1%  weak going into the weekend


ON LINE

China snubs senior US official in worsening diplomatic stand-off

Beijing refuses to allow Biden’s deputy secretary of state to meet counterpart in planned visit.
Looks at the current ‘diplomatic games’ that are being played by Beijing; in the second significant snub since it’s follow up meeting after the Alaska was rejected. It could just be testing the US administration but with the global economic recovery still uncertain it seems a strange course to take. One thing is for certain; it will not help resolve the current issues and increases the risk of them developing into more extreme positions. That could backfire.  

FT FRONT PAGE

Dozens killed in flash floods

Flooding across northern Europe has destroyed houses and left dozens dead, after rainfall that political leaders have linked to climate change and weather experts have called “unprecedented”.
Also inside Floods claim 43 lives in northern Europe
Climate change blamed for inundation that swept away houses and cars

Revolut valued at $33bn to emerge as UK’s biggest private tech group
• Digital bank raises $800m • Worth swells sixfold in a year • Boost for Britain as fintech hub
See also Lex Revolut: undue credit ‘At some point, Revolut will need to cross the line into proper banking. That looks some way off. It cannot compare with listed banks just yet.’

Poland’s rift with Brussels deepens as court rules checks on judges breach law
The EU’s top court has ruled that a contentious Polish system for disciplining judges breaches European law, deepening the rift between Brussels and Warsaw over judicial independence.
INSIDE

Higher transatlantic inflation stokes pressure to address overheating risk
US and UK policymakers fear acting too late but if they move too fast, recovery will be jeopardised.
There are concerns on both sides of the Atlantic as central bankers enter as Powell correctly observes ‘new territory’; no one has been here before.
Worth a read as it highlights some of the key questions. Lovely key quote ‘All periods of high sustained inflation appear temporary at first’

SEC chided for delay in delisting China stocks
Looks at the political pressure on the SEC to finalise the regulations to delist Chinese companies that don’t adhere to US auditing rules. Key being that under the Trump legislation; the 3 year time period has not started because the SEC has not issued the rules.
A key reason seems to be because of turmoil at the Public Company Accounting Oversight Board (PCAOB) the US accounting watchdog overseen by the SEC. Back in June Gary Gensler removed the chair of the PCAOB
An interesting read considering the high profile of issues involved.

China warns over uneven pace of recovery
Modest second-quarter growth brings pressure for looser fiscal policy.
Looks at Thursday’s data out of China which was better than many were expecting after the RRR cut ahead of that data.
It notes that ‘Liu Aihua of the NBS in Beijing said the economy had continued to “recover steadily” but warned that the rebound was “unbalanced”.’
So there is speculation about whether there will be more policy support from Beijing; which so far has been skewed to reducing stimulus, seen in the reduction of special purpose bonds and not mentioned in the article the noticesent recently to local governments banning them for increasing debt levels; both on and off balance sheets.
Many are calling for more stimulus but the government is resisting as it tries to bring under control credit and debt defaults. A key area is exports which have been increasing as lockdowns in other countries eased. So the recent increase in cases could have implications for 2H exports. Another concern is over retail sales which remain sluggish.
I think Beijing is aware that there are a lot of sectors that have not seen a recovery. There have been reports that staff at SOE’s are going unpaid but not being layed off.

Japanese tech groups told to beware overseas takeover bids
A good read, highlights Japanese decline from being the worlds tech leader to just a key player.
Highlights comments from Akira Amari; a former economy minister that ‘Japan is defenceless against foreign activist investors taking over sensitive technology companies such as Toshiba because domestic shareholders do not step up in a crisis’. Comes as more tightening of controls on foreign investment are expected.
He is probably right that “We are moving from a society that uses chips to a society where everything depends on chips,” said Amari. “If we miss this opportunity, we will never be able to close the [competitive] gap.”
The key then is how to keep the tech companies in ‘friendly’ hands without sacrificing corporate standards. Unfortunately Toshiba is not a good case study.

Companies & Markets
Chips are up TSMC gives cheer to carmakers by signalling semiconductor crunch is easing.

Looks at yesterday’s results and its increased production of auto related chips. The share price dropped post results because auto chips are the most difficult to produce but have low margins. I would imagine that TSMC is looking to improve those margins and seekmore committment from the auto manufacturers going forward. +VE for the auto makers but less so for TSMC at present.
I still like the stock and its market leading aspects and would accumulate on weakness.
LEX is also +VE TSMC: chips ahoy ‘…..The glut that has historically followed extended stretches of rapid capacity increase may not emerge this time around. Nervous clients, which have experienced the crippling effects of a chip shortage, are hoarding. Default inventory levels are much higher than before the pandemic. A lasting change in purchasing habits could support further upside in TSMC’s share price.’

China share of bitcoin power usage falls but Kazakhstan soars into third place
An interesting read. Notes that crypto miners are fully incentivised to find cheap energy. In Kazakhstan that is mainly from fossil fuels.
The crack down in China is fortunate as hot weather increases power demand in China.

FT BIG READ. DIGITAL MONEY
The ‘Merlin’ of stablecoins
Backed by dollar assets, Tether has developed into a form of crypto reserve currency. The man overseeing its rise is Giancarlo Devasini, whose past career includes being a plastic surgeon and electronics trader.
Read also  Tighter scrutiny will prove a boon for Big Crypto also
Digital coin exchange FTX eyes blue-chip acquisitions. Plus Opinion Digitisation has ended ownership but can now reinvent it by John Thornhill
Like it or not crypto is here to stay and some of its proponents are becoming more establishment than many of the initial could have imagined.