OCT 19 FT Thoughts & Mkt updates; China Data, Ant international? Vaccine shortages and more


22 Oct

OCT 19 FT Thoughts &  Mkt updates; China Data, Ant international? Vaccine shortages and more

Asian Markets at lunchtime 1:45pm HK time
JAPAN Pre market data largely missed estimates but di show an improving trend. Futures had already indicated a higher open, the market rallied on the data and then worked higher through the morning with resistance around 23,700 before easing back into lunch. Pm opened lower but quickly retested 23,700 but unable to break out and is trading sideways; currently +1.2% @ 23,694
Data 
Balance of Trade Sept Yen 675b vs 248.3b Aug (F/cast was 900b)
Exports Sept -4.9% vs -14.8% Aug (Consensus was -2.4%)
Imports Sept -17.2% vs -20.8% Aug (Consensus was -21.4%)
Detail
Exports 21th straight month of decline. Shipments of transport equipment -23.2%, while exports of machinery -16.8%.
Sales of manufactured goods -14.1% as iron & steel products -27.4%. Exports to the US -21.3%, Western Europe -15.3%, South Korea -13.8%, and Hong Kong -4% BUT sales to China +5.1% although that was down from an 8.2% increase in July.
Imports 16th consecutive month of decline in inbound shipments, as purchases of transport equipment -39.1%, due mainly to aircraft -50.9% & motor vehicles -38.2%.
Purchases of mineral fuels -45.1%, with a 52.5% decline in petroleum.
Imports from China -7%, Hong Kong -26.3%, Thailand -18.3%, South Korea -18.3% and the US -22%.

S KOREA Markets opened higher the Kospi has traded sideways (2,346/2,364) and is currently +0.6% @ 2,355
Kosdaq opened higher but sold down to 825 before rebounding to around the opening level 839 then eased back to flat before selling down again; currently -0.5% @ 830
No data but rising covid cases a concern.

TAIWAN opened higher an worked up to 12,890 and then traded sideways test the 12,900 on occasions but without much conviction Currently +1.3% @ 12,910

CHINA Opened higher and rallied on the GDP and other data but then sold down into lunch. PM the market opened flat and looks to be trading sideways. News of changes to export laws and the treat of arresting American’s in China seem to be spooking the market
Shanghai Composite currently -0.3% @ 3,326
Shenzhen Composite currently -0.3% @ 13,489
Data
GDP Growth Rate Q3 +4.9% YoY vs +3.2% Q2 (F/cast was 5.1%)
GDP Growth Q3 +2.7% QoQ vs +11.5% Q2 (F/cast was +3.3%]
Industrial Production Sept +6.9% YoY vs +5.6% Aug (F/cast was 5.7%)
Retail Sales Sept +3.3% YoY vs +0.5% Aug (F/cast was +1.7%)
Unemployment Sept 5.4% vs +5.6% Aug (F/cast was 5.5%)
Fixed Asset Investment (YTD) Sept +0.8% YoY vs -0.3% Aug (F/cast is +0.7%)
Industrial Capacity Utilisation Q3 76.7% vs 74.4% Q2 (F/cast was 75.1%)
Detail
Fixed Asset Investment up as Public investment rose at a faster and private investment fell less. Investment in the primary industry expanded 14.5% vs 11.5% prior, while that in the secondary industry shrank less only 3.4% vs -4.8% on the back of manufacturing. Investment in the tertiary industry advanced +2.3% vs 1.4% due to transport, storage & postal industry; education, health and social work; and recreation & culture activities.
Industrial Capacity Utilisation edged higher as China recovered further. The utilization rate rose for both manufacturing (77.2% vs 76.9% in Q3 2019); and electricity, heat, and gas, water production (72.8% vs 72.1%). Meantime, the utilization rate of the mining sector fell mining (73.9% vs 74.7%).
Considering the first nine months of the year, industrial capacity utilization was at 73.1 percent, down 3.1 percentage points from the same period of 2019.

HONG KONG Pre market opened @ 24,565 +179pts vs +16pts @ 24,402 ADR’s market then saw a short squeeze and hit the day high as the China data came out. But then sold down to 24,500 level around 11:30am with a small up tick into lunch. PM opened higher but expect market to remain under pressure in the PM. In the AM session Chinese banks were strong. Sunart Retail +18% as Alibaba bought the controlling stake and proposed a general offer.

EUROPE Expect the markets to open higher following Asia and with US futures positive but upside likely to be capped by the rising covid cases and concern over Brexit
Data due today; just EUROZONE Construction Output

US Futures opened +101pts and rise to +187pts with the S&P and NDX building on initial gains. Hopes of a stimulus deal as Pelosi sets a deadline. Earnings in focus with IBM due before the open, Also Powell speaks this morning.
Data due NAHB Housing Market Index,

FT On line
Chinese economy expands 4.9% in third quarter
. Recovery gathers pace on back of strong industrial growth despite GDP data missing expectations. Much of the driver being a state backed industrial boom as global demand remains under pressure. China also benefits from seemingly contained covid whereas other nations are struggling.

Print Front Page
Europe’s second Covid wave raises threat of double-dip recession
ECB bond buying expected • New curbs to stymie recovery • Fiscal support forecast.
Increased risks as new covid cases rise and it will be a concern to Asia as Europe remains an important export market. For China which has benefitted from the demand for medical equipment this may continue to be a benefit but there are limits to medical exports. Much of the upside from the China data today was because of the state backed industrial boom but that has limits even in China.
The big worry seems to be in Europe; the fact that the countries cannot agree on the recovery fund which means, like the US, that those in need may not get the funds they need in time. It is the failing of the EU that there isn’t accord; each country has its own axe to grind and in the end that could result in its failure to avert the double dip recession.
Interesting to note that Bid to ban the term veggie burger fires debate among MEPs (on page 2) seems to be getting more priority than the recovery fund. Such are the priorities in Europe.

US investment banks warn staff that bonuses will not match blowout profits. Early management of expectations. Key being that at a time when they cannot pay dividends to shareholders its difficult to pay significant bonuses. They also make the point that some areas of the banks activities have done well whilst others have struggled. Many of the gains have been due to market sentiment and one bank mentioned paying for adding value rather than just because the sector made money.

Inside
Ant Group seeks to paint itself out of a corner.
Fintech arm of Alibaba hopes creative distribution of funds from coming IPO will finally win it success beyond China.
Looks at how the business model has worked well in China where it was free from international competition. The big challenge that it now faces is replicating that internationally. It has expanded in some Asian countries; many of which are under banked. But the article notes that Ant tends to “airdrop” in Chinese executives and it may need to build better local teams in order to be able to compete better with the local competition. Especially as it is viewed as a very Chinese firm and China current stance on the international scene does not always help; as seen with its operations in India. There are also some questions over the partners it has chosen in some markets, some of whom are not market leaders; which again will make it more difficult to impact the local market. So far it has not adopted the model used by Ping An and others of offering its technology to other firms in order to enable scaling. The article also notes that Ant should be wary of trying to expand too fast and spread itself too thin.
One clear obstacle is likely to be the US where it is already being threatening with being put on the blacklist; that could hamper tying up with Mastercard or others.
So short term investors should be viewing Ant as a China play but with the possibility of an International business.

Bonds puzzle Clues point to Japanese investors as strategists ponder China’s Tokyo debt spree. Looks at how China has been buying Japanese government bonds over the summer 'with ¥2.2tn ($21bn) in purchases between June and August — the biggest three-month spree since Japan’s Ministry of Finance began compiling data in 2005.’
One reading is that China is looking to diversify out of US Treasuries due to diplomatic strain but there are also animosities between Beijing and Tokyo. Additionally there is the recent direct selling of Chinese bonds to US investors. It notes that 'Nomura offer an alternative explanation: Japan’s growing appetite for overseas bonds offering yields that are not available at home. In many cases, that involves Japanese investors buying dollars from major holders such as those in China, leaving those Chinese accounts with yen that tends to be invested for the short term in JGBs.’
With China unlikely to give an explanation it will be the subject to speculation at this stage.

Shortages hit campaign to increase flu vaccinations Manufacturers struggle to meet demand surge as effort to prevent ‘colliding epidemics’ is hampered by capacity limits.
Worth noting for a couple of reasons.
Firstly because governments are trying to avoid the flue combining with covid.
But also because it illustrates that even when an approved vaccine is found production capabilities will be an important factor is immunising people.

WeChat ban risks silencing Trump’s Chinese-American fans. Looks at how a number of Chinese Americans Trump supporters are big WeChat users and have been using the service to reach fellow Chinese Americans to garner support of Trump.
An interesting quote 'Trump activists on WeChat use the app to keep in touch with friends and family back in China, but draw a distinction between their love of Chinese people and the Chinese government, which they said was the target of Mr Trump’s policies. Some accept sanctions on China as it is in the interests of the US. Others are happy to see Beijing bashed, particularly those who came to the US out of disillusionment with China.’

Fund houses rejig holdings to profit from ‘blue wave’
• Reaction to Biden’s progress in polls
• Small-cap US stocks back in favour
Looks at how US portfolio managers (Janus Henderson, Schroders, Invesco and Candriam) have rejigged their portfolio’s on the basis of a Biden victory at the election. The general trend seems to including buying the Russell 2000 EFT to get more exposure to domestic small cap US market. They also expect a boost to the unloved ‘value’ stock. Which would be interesting considering FT Weekend article looking at the closure of the AJO Partners (Value drought claims big victim as trendy stocks power ahead). They also expect Biden to spend heavily but under the current environment the associated tax hikes normally expected with that are likely to be watered down. Mr O’Connor of Janus Henderson said he had already reduced his exposure to US tech recently. It also notes that asset managers are adjusting their fixed income portfolio’s and reviewing other areas of their portfolios.
The key thing I think is that many portfolio managers are reviewing their positioning but with the election likely to be a close run thing I would be surprised if many were making significant changes yet.

‘Final Fantasy’ creator warns of hit to games development. Covid has hit the development of new games and whilst existing games are seeing rising revenues due to lockdowns there is a risk of those falling in the future due to the lack of new titles or upgrades. An interesting warning at a time when many are so positive on the sector. Worth a read

Carlsberg looks beyond beer for growth Danish brewer to accelerate push into non-alcoholic drinks. It is also looking at developing fermented beverages — a new category in between soft drinks and beer — although declined to say if the drinks would resemble the increasingly popular kombucha or fermented tea. Also on the new menu 'hard seltzers — alcoholic, flavoured, low-calorie carbonated water — that have proved highly popular in the US. It has launched a hard seltzer in Norway and one under its Somersby cider brand this month in Singapore.’
It is encouraging to see the company exploring a wide range of activities in order to remain relevant in the market place. So far its brands have been relatively stable despite the covid impact this should help the share price which fell to DKK 650 but is now trading around 870 levels.


For interest
Pilots swap the cockpit for trading screens.
A London firm gave flyers the chance to test their concise decision-making against the markets, writes Laura Noonan.
An interesting read but after a short intensive course on trading most were in the red. As an ex pilot I can attest that there are a lot of useful, transferable skills but good trading really comes down to deep market knowledge gained from experience; just as being a good pilot does.

FT SERIES. CORONAVIRUS: COULD THE WORLD HAVE BEEN SPARED?
What went wrong in Wuhan?

The first days and weeks of the pandemic were crucial — so why was no action taken? Through a six-month investigation in the city, the FT has uncovered the answers. By Tom Mitchell, Sun Yu, Xinning Liu and Michael Peel
A detailed look at what happened and when and where there were mistakes.
China’s system has allowed it to contain covid better than most.  But it was that same system that prevented the virus being contained in the first place.

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