July 20 FT & Asian update Delta threat, China hacking, being a Superpower, Evergrande, Tencent and more

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

A number of Asean markets closed today for Eid al-Adha (Singapore, Malaysia, Indonesia and Philippines).
Remember Japan will be closed Thursday and Friday.

Markets continue to see weakness on the surge in covid cases linked to the delta variant. Worth noting though that unlike last March we do now have vaccines and the issue is largely with the unvaccinated; so there is more reason to be positive about the recovery.Australia
Market opened lower following the US sell off and news Victoria extended its lockdown but worked better to 7,286 around lunchtime.  Tested around there for a while before drifting lower.  Currently -38pts (-0.5%) @ 7,248
Oil remained weak but Oil Search +5% after it confirmed it had received a merger offer from Santos.
RBA minutes reveal flexibility +VE
Latest covid surge -VE for sentiment and travel related names; JR West -VE for a 7th day.  Canon +VE after raising FY forecasts.
Nikkei opened much lower but with better than expected inflation data and following Monday’s heavy selling worked better through the morning to 27,564 at lunch.  PM opened lower but 27,400 proving to be a support currently -248pts (-0.9%) @ 27,404.
Topix traded in a similar pattern; rose to 1,899 at lunch. Currently -16pts (-0.8%) @ 1,891
S Korea
KDCA reported 1,252 new covid cases (+26 DoD)
Kospi opened lower (3,223) and trended higher to 3,235 around 10:45am which was reistance. Then sold down to 3,228 and then traded sideways but now selling down -21pts (-0.6%) @ 3,223 .
Kosdaq traded in a similar pattern; resistance at 1,049 and currently -5pts (-0.5%) @ 1,045
Taiex opened lower and trended lower through the day currently -279pts (-1.5%) @ 17,512. Shipping leading the declines on concerns over the global recovery. Finance next weakest then Electronics and then semiconductors.
Loan Rate unchanged as many had expected.
CSI 300 opened lower at 5,080 but rallied 5,114 in early trades, before selling down to 5,067 before boucing into lunch. Sentiment weak over Evergrande situation and international relations over the computer hacking accusations.
Pre market opened 27,396 -95pts vs -285pts ADR’s. Initially tested Monday’s close but weakness after about 30 minutes; first to 27,300 then after a small bounce to 27,130 before an uptick into lunch. Evergrande -14% and related stocks weak too. Broad weakness but E-Commerce and Banks leading the declines. Oil and Healthcare weak.
Expect a weak open with covid concerns paramount.
Data ahead 
Eurozone Current Account and German PPI
US Futures
Opened  Dow +80pts, S&P +0.3% and NDX +0.4%
Ahead Housing Starts, Building Permits, Redbook, After market API Crude Oil Stock Change. 

Front Page
England lifts all Covid curbs

Investors seek safe havens as fears over Delta variant rattle markets
• Stocks and commodities tumble • Bonds and gold rally • Faith dented in global rebound.
The key being that situation is very different to March 2020; now we have vaccines and the current spread of the delta variant is primarily a threat to the unvaccinated. There are no doubt good reasons to think that the global recovery may not be as straightforward as was thought a few weeks ago.
I think there is an element of people locking in gains as they realised how stretched some valuations have become.

US accuses China of hooking up with criminals to launch global cyber raids
Not just the US but a significant number of countries which is likely to make it more difficult for China to take direct retaliation although China has denied the accusation. The fact that the US has taken time to investigate and has presumely co-ordinated its investigations with others gives it more weight. The wording is also important; with some vagueness over whether these were state employees or merely hackers operating out of China. The problem for China us that if it just denies the accusation it risks significant isolation.

Climate goals doomed to fail, wind energy chiefs tell G20
• Call to step up turbine installations
• Capacity shortfall of 43% forecast
An interesting read and makes the point that a lot of these projects take time. It will also impact the demand for copper and aluminium to link them up to the grid and so impacting the commodities markets.

Companies & Markets
Tencent lands games group Sumo with £919m offer

An encouraging action for Tecent after the recent domestic investigations. Being allowed to continue to acquire overseas companies is +VE for the company.
See also Lex Sumo/Tencent: prize ring.  
Including its own existing 9 per cent stake, the  Chinese group has secured approvals from 33 per cent of the majority  vote required. Remaining shareholders may struggle to knock back an  offer for shares at five times the 100p listing price from 2017.
No surprise that Frontier shares also rose almost 7 per cent yesterday. UK politicians might prove a trickier hurdle for a deal on national security grounds. But Tencent’s deep pockets should still put a price floor under its affiliated game software groups.’

Evergrande hit by freeze on division’s bank deposits
Stock is trading lower again today. The company has managed to dodge previous concerns over its finances and has often relied on friends to defend the shares in the face to rumours. But the recent news has been more worrying especially with government seeking to clamp down on level of debt that the Property developers hold.
It will be an intereting case to watch because the governement is very unlikely to bail it out. So it will be intereting to see which other developers are brought in the take over the company if it get to that stage. Currently it is looking at other ways to raise money but one gets the feeling that time is running out. One wonders whether investors friends that have supported the company before will be willing to do so again?
Lex Evergrande/China credit: high yield, low quality  Outlines the extent of the liabilities that the company has. It concludes
‘Investors remain fickle. The mere mention of a possible Evergrande dividend last week brought buyers back for its shares and bonds.
Yet local bank balance sheets teem with bad loans. Without government banking, investors will suffer badly should Evergrande fail to secure more liquidity. Good reason to avoid its shares and bonds.’

Extending the Evergrande case wider China has been offering attractive yields for a reason; that there is risk and recently many investors have believed that Beijing would bail out failing companies. Beijing for its part is I think trying to show them otherwise, the offered yield is because there is risk.
  KPMG settles after failure to spot China Forestry fraud
An interesting read as access to Chinese company data; especially those listed in the US is such a hot topic. In the case of China Forestry a lot of people came unstuck. It would appear that firms have tightened up and are now more diligent but sometimes the data is difficult to obtain because of Chinese restrictions.

Pandemic delivers brighter outlook for boxes
Packaging groups’ share prices soar amid 40% increase in volume of cardboard used for sending goods to households.
Focuses on the European market but worth considering the Asian plays too.

Strengthening dollar stokes nerves for EM investors
While a rerun of 2013 ‘taper tantrum’ is unlikely, Fed shift and China slowdown pose risks.
Investors in Emerging Markets are being buffeted by a number of different factors at present and outlook is far from clear. A good read and makes the point that the performance of the Chinese economy is a key element. It also makes the point that a lot of emerging markets are better placed than they have been historically.

GLOBAL AFFAIRS  Superpower status is still far off for China by Gideon Rachman
An interesting read notes there is a difference from parading one’s military might and taking on the burdens of becoming a ‘policeman of the world’.
Also notes that in the past commercial/economic weight have in the past has lead to wars that have defined new superpowers. But China’s economic power is not so decisive and I would add the world has changed. Which in itself presents issues.
China hints that the US is unreliable but is not prepared to test that assertion. He also says that China needs to build up its international network of military bases in order to project the message that it has the ability to be a superpower. He concludes ‘If China is unwilling or unable to achieve a global military presence that rivals that of the US, it may have to find a new way of being a superpower — or give up on the ambition.’
I think the China realises the impossibility of matching the US and the current ‘rules based system’ for superpowers and hence is seeking its own route. Not recognising those rules which don’t fit with its ambition and taunting the US to cross it. At this point China doesn’t need to be a global superpower; it is content to be the superpower in Asia; so Afghanistan could be a key test.
Rather than taking on the US; it seems China want to draw the US towards a fighting on China’s terms, within the region and where it has the advantage.
Equally I think with presenting a combined accusation the US is seeking to challenge China on it’s prefered turf…. the rules based system.

For interest
Markets Insight
Passive investing still provokes fears on 50th birthday  By Robin Wigglesworth.
Looks at the history of the index funds and how some of the original fears are still valid.

Has Big Tech backfired on robotaxis?
Companies targeting a moonshot solution to driverless technology face a challenge. The risk for these hopefuls is not whether full autonomy can succeed, but whether a bottom-up approach will get there first as the suppliers of advanced driver-assistance systems, or ADAS make gains.
A good read and the outcome of the race is still uncertain.