Oct 16 FT Thoughts Beijing Bond, Taiwan spies? Asian update; general weakness

20 Oct

Oct 16 FT Thoughts Beijing Bond, Taiwan spies?  Asian update; general weakness

Summary Asian Markets as at 1:15pm HK time
Markets opened cautiously and saw weakess around 11am, although HK bucking the trend.
I would expect caution in the PM ahead of US Retail Sales tonight and rising covid cases in Europe. Also China GDP and Retail sales in Monday.
Trump and Biden contrasting TV events; takes US politics to a new level of entertainment but it really has very little to do with politics.

JAPAN Opened lower (23,478) but worked higher and into the green at lunch. PM re-opened at 23,400, below the initial open and worked to 23,450 but now seeing resistance . Currently -0.3% @ 23,437

S KOREA Premarket data was weak
Export Prices Sept -6.2% YoY vs -6.8% Aug
Import Prices Sept -11.5% vs -10.5% Aug
Unemployment Rate Sept 3.9% vs +3.2% Aug (F/cast was +3.3%)
Kospi opened slightly higher initial ticked up to 2,370 but then trended lower through the session; currently -0.9% @ 2,340 re testing the day low.
Kosdaq following a similar trading pattern currently -1.8% @ 829 level.

TAIWAN Market opened lower at 12,814 spiked to 12,850 and sold down to 12,800 the bounced back to 12,850. Eased back to 12,830 level before working higher to day high 12,896 but hit resistance and trended back to 12,836 level and traded sideways until 12:10 when the market sold down heavily.

CHINA  Shanghai opened higher and traded in a range with resistance at 3,320 level and support at 3,334 until 11:10am when the market sold down heavily into lunch -0.3% @3,323
Shenzhen opened lower but ticked up to 13,650 but then sold off though the morning, saw some brief support at 13,550 but then sold down again to 13,450 -1.3% at lunchtime.
China CSI 300 Opened flat and traded sideways but like the other market sold down into lunch -0.6% @ 4,772
Data due Monday GDP Growth Rate, Industrial Production and Capacity Utilisation, Retail Sales, Unemployment, NBS Press Conference and Fixed Asset Investment.

HONG KONG Pre Market Opened at 24,194 +35pts vs +24pts @ 24,182 ADR’s with a rebound in E Commerce names, SMIC +6% on revised guidance and handset makers +VE. Market worked ticked higher as recent shorts squeezed, then saw some margin call selling before working higher. Resistance at 24,436, then market eased back to 24,270 before working back to 24,352 at lunch +0.8%. Chinese Financials leading the market higher in the morning session.

EUROPE Expect markets to open lower with the rise of covid cases in Europe and the weakness being seen in Asia.
Data Eurozone New Car Registrations, Balance of Trade, Inflation Rate.

US  Futures opened Dow +30pts but turned lower and are currently -25pts with S&P and NDX also -VE. Expect caution ahead of the Retail sales data; light on earnings but Schlumberger, State Street and VF Corp due to report among the 15 scheduled companies.
Data Retail Sales, Industrial & Manufacturing Production, Capacity Utilisation, Business Inventories, Michigan Preliminary Data (Inflation Expectations, 5 year Inflation Expectations, Current Conditions, Consumer Sentiment, Consumer Expectations), Baker Hughes Total Oil Rig Count, Net Long-Term Tic Flows, Overall net Capital Flows.

Beijing’s first bond offer to US investors draws record demand ‘Strong reception’ for $6bn sale • Market defies trade war • China rebound a key factor.
The first direct sale to US buyers who were attracted by the high yields compared to those offered in the US. The sale was done under a mechanism that gave institutional investors the ability to buy the issue. The article mentioned that the response showed the confidence in China’s recovery. Interesting to note
'Frances Cheung, head of macro strategy for Asia at lender Westpac, said the issuance suggested Beijing believed restrictions on access to dollar funding were “very unlikely to become a policy option” for Washington.’
Also 'Hayden Briscoe, head of fixed income for Asia Pacific at UBS Asset Management, said the bonds would help “set the benchmark” for Chinese corporates such as Sinopec and Sinochem, which also borrow in dollars.
He added that the bonds benefited from strong demand partly owing to their scarcity value.’
I would think that the yield was the key driver being 0.5 percentage points about the US T10.

China demands Taiwan spies change sides as tension grows. Comes as Beijing claims to have uncovered hundreds of cases of Taiwan spying on the mainland. It notes that the People's Daily said Thursday “We welcome the wise elements in Taiwan’s intelligence services who support the unification of the motherland . . . to completely abandon the ‘Taiwan independence’ ideology,” . The Chinese campaign started as Taiwan celebrated its National Day last week and is no doubt a rebuff to Taiwan President Tsai’s call for talks as equals.
Beijing is still convinced and determined to take over Taiwan. The People’s Daily went on “Hopefully, we can join hands to contain ‘Taiwan independence’, fight separatism, promote peace, build a hidden line of defence against foreign aggression and safeguard national sovereignty, and create a bright future for a united China,”
The tension continues to rise between China and Taiwan and it is difficult to see how there will be an eventual resolution. The fact that more countries are beginning to more openly acknowledge Taiwan is good but it could just trigger China into military action.
Local press reported that on Thursday HK air traffic controllers warned a Taiwan charter flight going to the Pratas Islands there were “dangerous activities” happening below 26,000 feet and the aircraft could not enter, so for safety reasons pilot decided to turn back. There was no prior official notice of activities in the area. Key being the generally weekly charter flights to the Pratas mostly carry Taiwan government and coastguard personnel. The Pratas are the closest Taiwan-controlled territory to Hong Kong and have taken on extra significance since anti-government protests began in the Chinese-run city. Taiwan has intercepted at least one boat close to the Pratas carrying people fleeing from Hong Kong trying to make their way to Taiwan. Some Taiwanese officials have expressed concerns that China could seize the Pratas, in a drastic escalation of tensions that could lead to a war.
China is gradually increasing the pressure on Taiwan and it is really up to the rest of the world to counter that in a uniform way. It is one aspect of Biden winning the US election that would worry Beijing; his ability to unite countries against China.

Japan’s labour market set for shake-up Looks at the recent Supreme Court rulings on employee benefits for contract and salaried staff. This will be an on-going issue and highlights the problems that Japan’s employment system has in differing between between secure, salaried jobs and precarious part-time work. The distinction has been blamed for slowing productivity growth and even reducing Japan’s birth rate, since salaried workers are reluctant to change jobs, whereas contract staff lack the security to start a family. The court rulings will to some extent help irregular workers and raise cost companies. An interesting read and an issue that will become more important as the population continues to age, and population rate growth slows. PM Suga has already announced his intention to make it easier for men to get paternity leave but much more dramatic action is required to really change the system.

Taiwan investor battle raises fears of China’s influence. Wish to curb infiltration by Beijing-backed shareholders balanced by governance needs. Looks at the case of Tatung; a conglomerate whose businesses range from handling government information systems to making rice cookers. Shareholders are trying to oust the chairwoman but she and the management say that many of those seeking that course of action are Chinese or backed by Chinese money. The FSC has already confirmed and fined some investors who were found to be backed with Chinese money. The problem is that the company was being badly run. The chairwoman’s husband (the previous chairman) was jailed for 'using company money and incurring debt on its balance sheet to assist a friend’s business in which he had invested personally.’
Which then raises the questions of national security and good governance. The fact that it runs government electronic document systems should not shield the management but equally it should not mean that the company should fall into Chinese control.

Asia fuels record revival for Uniqlo and Muji The two are expecting record profits as consumers buy their affordable everyday clothes. A key driver has been the growth in on-line sales in China but also in other Asian countries. An interesting read and I think highlights that consumers are currently more focused on value for money than big brand name purchases. They are still very aware to the threat from covid to jobs and livelihood and their spending patterns are reflecting that.

Big Hit proves true to name on Seoul stage as boy band agency soars 160%. Looks at the debut of the entertainment group in Seoul yesterday. But the upside for the company looks limited; trading at between 60x - 70x projected 2021 earnings vs 6x for Samsung. There will also be concerns as most of the revenue comes from BTS and members of that band are due to enter military conscription.
See LEX Big Hit/BTS: liable to pop. For some fans, Big Hit shares may rank as just another item of must-have BTS merchandise. For professional investors, the steep price is a prompt to seek better value among Big Hit’s cheaper rivals.

For interest
Investors must banish short-termism and look to the horizon.
Suggests that funds should use 'the motivation for buying securities rather than the length of holding period as the defining difference between long and short horizon investing’.
Investing is either buying securities that are priced cheaply in relation to their expected future cash flows or following benchmarks. Following benchmarks is now shown to amplify mis-pricing by forcing managers to chase prices instead of fundamental value.
So the article suggests funds should measure and report their use of the two basic strategies. They should assign scores for each sub-portfolio as well as the total fund, with a range from one for price-only to 10 for pure cash flow, broadly matching the implied investment horizon in years. It also recommends understanding better where fund managers performance is coming from.
A lot of good points but getting the industry to change will be very difficult because this large funds that come out well under the currently performance evaluations have little to gain from adopting a new system that might not show them in such a good light!

LEX Morgan Stanley: well balanced. suggests Morgan Stanley may be undervalued. It is more diversified than Goldman. And unlike JPMorgan, the group has little exposure to consumer credit. While the feared widespread defaults and loan losses have not yet materialised, it may only be a matter of time. When it happens, Morgan Stanley may be the place to be.

FT BIG READ. EUROPE Sweden’s solitary voice in a crisis
Covid-19 is not the first time the Scandinavian country has shown its independent streak. But what explains it? Wartime guilt, a ‘moral superpower’ complex or just confidence in its position?

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