July 29 FT & Asia update. China policy, Taliban, RioTinto and more


This and previous notes can be found at asianmarketsense.com and Substack ( Asian Market Sense )
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Australia
NSW announced 239 new covid cases -VE
Market opened higher initially to 7,400 and then to 7,410.  Its currently trading sideways around that level. RioTinto hit a new high post earnings; BHP and  Fortescue Metals hit highs too.  Tech shares +VE too
Data
Export Prices Q2 +13.2% QoQ vs +11.2% Q1 (F/cast was +7.4%)
Import Prices Q2 +1.9% QoQ vs +0.2% Q1 (F/cast was +1.3%)
Japan
Rising coivd cases are a concern.  Focus is on earnings and the Topix rebalance on the close
Nikkei opened higher  and worked higher to test 27,800 mid morning before easing back into lunch.
Topix opened higher and traded sideways testing the 1,930 level for most of the morning before easing into lunch
S Korea
KDCA announced 1,674 new covid cases (-222 DoD).
Kospi opened higher with earnings in focus. Samsung results in line. Tested 3,252 in early trades but then sold down into the red but bouncing. Currently flat.
Kosdaq rangebound trading 1,040/044 currently +6pts (+0.7%) @ 1,042
Taiwan 
Taiex opened higher and rallied to 17,292 in early trades. Then pulled back with support at 17,200 which has been tested a couple of times. Good earnings and with covid under control +VE.
China 
CSRC tries to sooth investors but the damage has been done. Despite the fundementals of the Chinese economy being sound Beijing has hurt both domestic and foreign investors. Beijing said mid morning said that chinese companies will be allowed to IPO in the US reported CNBC that would suggest the VIE structure will be allowed although it could be subject to restrictions.
CSI 300 opened higher after CSRC meeting and more soothing articles in the press but trended lower, saw support at 4,800 level, which suggest Team China active to support the market.
Hong Kong
Pre market opened @ 26,221  +748pts vs +709pts ADR’s; saw some initial selling but support at 25,860 level.  Interestingly Property weak despite the FOMC comments; concerns are that is a sector that could still come under specific reform.   Futures expiry today adding to the interest.
Europe  
Ahead Eurozone 
Consumer Confidence, Sentiment data (Economic, Industrial and Services)
Germany Unemployment data, Inflation Data
France No data due  
UK  Car Production, BoE Consumer Credit, Mortgage Approval, Net Lending to Individuals 
US Futures
Opened Dow +40pt, S&P and NDX -0.2%, initial claims, GDP and PCE data in focus.

FT
Chinese farm pioneer jailed
Sun Dawu, founder of one of China’s most successful private agricultural groups, has been jailed for 18 years in the latest sign from Beijing that it expects entrepreneurs to toe the party line.
Full story inside China jails farm entrepreneur for 18 years
Agriculture businessman who created model town falls foul of authorities. Article puts forward that its because his style and model was successful and his criticism of the bureaucratic system upset the authorities. It stresses the fact that the party is far less tolerent to public criticism and that many of Sun’s defenders have been jailed. Xi want the party to be supported, it would appear even when not doing as well as it might. It concludes by saying ‘Sun was defiant and defended his business model in his closing remarks at the trial, according to a transcript of his comments shared by his lawyers.
“I say that I ran the business in a caring and idealistic way, for the ideal of sharing prosperity,’‘ he said. “You say that the 38-year history of Dawu Group is 38 years of crimes. Is that really justifiable?”’
As we have seen over the past couple of days in the action against the education sector there does seem to be a disconnect between the action the party takes and the public reaction. That I think will put increasing strain on the social contract between the communist party and the people. A big forthcoming focus will be the Politburo meeting this week which will be chaired by President Xi. It will be interesting to see if we get more information on policy going forward.

Flawed $22tn US debt market a threat to stability, warn grandees
• Call for urgent Treasuries reform • Bouts of stress expose fragility • More liquidity needed.
An area that has been under study since there were a couple of scares. An interesting read and I think it highlights how the current ‘forced’ low interest rate policy has significant knock on effects.

BGC London employee sued for fraud admits he owes Lutnick’s firm £15m.  A worrying read.

INSIDE
Beijing hosts talks with Taliban as US troops quit Afghanistan
Interesting that Beijing is visibly interacting with the Taliban rather that the Kabul Government but stressing that Beijing was looking to ‘expand “co-operation with the Afghan people”, to not “interfere” in its  affairs. Wang told the delegation the hurried US and Nato troop  withdrawal showed US policy had failed and created an “important  opportunity for the people of Afghanistan to themselves stabilise and  develop their country”.’
Beijing is also calling on the Taliban to ‘to fight and clearly divide itself from the “East Turkestan Islamic Movement”, the Uyghur militant group that Beijing claims threatens security in Xinjiang, according to the Chinese foreign ministry.’ Key here is that the US says the organisation no longer exits but Beijing insists it does and is the reason behind the clamp down in Xinjiang.
It is difficult to know the truth but for the people of Afghanistan it is a worry that China should side with the powerful but unelected Taliban rather that the elected government in Kabul. Going forward the question is how far will China get drawn into Afghanistan.

Companies &  Markets
Bumper dividend Rio Tinto dishes out $9.1bn as China demand whips iron ore prices higher.

Strong earnings as a result of the booming demand from China. Worth noting that the CEO was keen to note that they ‘had been very lucky with the circumstances of a strongly expanding Chinese economy.’ Without indicating whether he thought the trend would continue.

Nissan forecasts a return to profit in spite of chip shortage
The COO said “We are determined to continue this momentum with cautious optimism,”. But without doubt the outlook is tough and the chip shortage is not exepcted to end anytime soon.

DWS chief urges a long-term view amid China regulatory crackdown ‘noise’   
Comes as the asset manager seeks to enlarge its footprint in China. They are right to an extent, the savings market in China is attractive and for a large part regulatory changes hurt all the players in the market. The issue is more about how the regulatory changes hurt investors outside China and the risk premium they require in order to invest money into China.

Stay overweight equities during turbulent times By WeiLi; investment strategist at the BlackRock Investment Institute.
For three reasons
1. The restart of economic activity is real and broadening out from the US to Europe and Japan.
2. Vaccines are working
3. A deep conviction is that monetary responses to rising inflation will be more muted than in past crises or economic cycles.
An interesting read. Concludes by saying ‘Our anchor view keeps us constructive on equities, but we acknowledge that markets may yet overreact amid thin summer liquidity and the potential for an unusually wide range of macroeconomic outcomes. We view temporary episodes of turbulence in markets as opportunities to readjust portfolios to a stance in favour of taking more risk.’