Oct 21 FT Thoughts Books on China, China on history, Iron Ore & China and lunchtime updates.

27 Oct

Oct 21 FT Thoughts Books on China, China on history, Iron Ore & China and lunchtime updates.

Markets as at 1:15 HK time
Hopes of a US stimulus deal supporting markets and the announcement of one will push them higher. Outside of that company earnings in focus. Interestingly over-night even good US earnings saw selling pressure and investor bank recent gains and look for stocks that will be able to outperform in the light of an expected covid vaccine in the coming months.

JAPAN Opened higher at 23,615 and rallied to 23,690 and has traded in that range all day. PM range currently tighter 23,650/23675 and I would expect it to remain in that range. Hopes still pinned on a US stimulus package. Currently +0.4% @ 23,668
S KOREA Pre market PPI missed but markets opened higher on US stimulus hopes and are trading sideways
Kospi opened at 2,363 and trading 2,371 to 2,356. Currently +0.4% @ 2,369
Kosdaq opened at 827 traded down into the red at 820 but rebounded to 829 and traded in the range 825 to 830 which is where it is currently +0.7%
Pre market data
PPI Sept +0.1% MoM vs +0.5% Aug (F/cast was +0.7%)
PPI Sept -0.4% YoY vs -0.5% Aug (F/cast was +0.1%)
TAIWAN Opened higher at 12,890 and rallied to 12,942 around 10am. It tested that level a number of times before selling down to 12,880 and now trading sideways with 12,880 as support and 12,905 as resistance.
CHINA CSI 300 opened higher at 4,801 but sold down through the morning to 4,759 around 11am and then a small bounce into lunch. PM has opened flat.
Investors cautious over US stimulus and the potential for more US sanctions whilst waiting for Beijing to announce more domestic stimulus.
Shanghai opened higher 3,332 and sold down to 3,304 before a rally into lunch.
Shenzhen opened higher 12,614 and sold down to 13,402 before a small uptick into lunch.
HONG KONG Pre market opened at 24,696 +126pts vs +1pt @ 24,570 ADR’s as shorts squeezed and market rallied to 24,900 in the first 30 minutes. Then trended lower over the next hour to 24,653 before a small rebound to 24,750 and traded sideways into lunch.
EUROPE Market set to open higher following Asia on US stimulus hopes but covid concerns overhang and market along with earnings.
London’s FTSE is seen opening 3 points higher at 5,902,
Germany’s DAX up 27 points at 12,785,
France’s CAC 40 up 6 points at 4,944 according to IG.
Only data due is from the UK; Inflation Rate, Core Inflation Rate, PPI data, Retail Price Index, Public Sector Net Borrowing. Speech by Ramsden
US Futures opened DOW +50pts but have risen to +160pts with S&P and NDX +VE too. Stimulus package hopes the main driver. Earnings in focus with Netflix weak after poor results after market Tuesday.
Earnings today Biogen, AutoNation, Baker Hughes and Abbott Labs are among the names set to report pre market. After market Tesla, CSX, Las Vegas Sands and Chipotle Mexican Grill due to report.
Data due MBA Mortgage Applications and 30 year Mortgage Rate, EIA Crude and Gasoline Change Report, Beige Book. Speech by Brainard and Mester

FT On line

Book review
What will Xi’s China do next? 
Three books shed light on the historical forces driving Beijing’s mission for superpower status — and what it means for Asia and beyond.
Summary ‘ Two of the books — China’s Good War by Rana Mitter and Superpower Interrupted by Michael Schuman — are about history or, more pertinently, the potency of history in shaping China’s self-image and strategic posture.
The other book — The Emperor’s New Road by Jonathan E Hillman — is about how China is projecting its power across the world.’
Summary 'Every country channels its own history in its dealings with the outside world. But China’s history is so long and varied that it can be tricky to know which echoes are sounding the loudest in Beijing at any one time. These three books allow the reader — and the next US administration — to prepare for what China may do next.'
Interesting reviews. Basically that XI is akin to the Hongwu emperor of the Ming Dynasty; with personalised rule and stressing the country had been victimised to fuel nationalism. An us versus them mentality. Now China is turning inward as it did Ming dynasty. What Deng started has been slowed ‘Just as the Ming demonstrated its suspicion toward Mongols and other “barbarians” by building the Great Wall, Xi has erected a “Great Firewall” of online censorship to block foreign influences from infiltrating China over the internet.’
In Hillman’s book the BRI programme is revealed to cost roughly 7x what the Marshall plan cost post WWII. But he makes clear whilst it is huge, it is not being managed well setting out that corruption is rife and fiasco’s are increasing. It illustrates the paradox of China being at the leading edge of some tech and construction but still operating on the governance models of the Ming dynasty. That is likely to tarnish rather than enhance China’s standing.
In China’s Good War Rana Mitter shows that China is seeking to portray itself as the creator of the post 1945 order in the Pacific; rather the US being seen as the liberator. Beijing is building a commentary of its role, seen in recent movies and not in the book but last week Xi re-opening a Korean War memorial. It will use this narrative to support its territorial claims. It takes a quote from Mitter '“Some of those claims will undoubtedly be coercive. China is unafraid to wield its power in profoundly nonliberal, noncooperative ways, as in its militarisation of the South China Sea and use of economic boycotts to damage Taiwan’s economy.”’

Print Edition
Front page US accuses Google of strangling competition in antitrust lawsuit

Barr attacks ‘monopoly’ • Tech group rejects ‘deeply flawed’ case • Break-up possible.It will be a closely watched case and have implications for the other Big Tech names. No doubt everyone will have their view but the key will be the legal cases being made and whether they can be proved.

Trump’s re-election prospects dim as voters lose trust in his economic flair Final pre-election FT-Peterson poll (of 1,000 voters) shows 46% believe the president is hurting the economy vs 44% saying it helped. The key is that it's the first time since Nov 2019 that the results have shown that. But rather like the election itself it is really to close to call. More interestingly only 32% of respondents said they felt better off now, the lowest since the survey began 12 months ago. The survey goes onto look at other areas too but the message is much the same. Interestingly it also reveals that a lot of Americans have been casting their votes early either in person or via the post. Those no doubt are the core supporters on both sides who have made their choice.

Sweden bars Huawei and ZTE from 5G telecoms networks
Sweden’s decision is on the advice of its armed forces and security services. Existing networks using Huawei or ZTE equipment have until 2025 to remove it. No doubt the move should benefit Ericsson which is based in Sweden. Another negative to Huawei who had been doing well in Sweden and another negative for Tele2 which used Huawei equipment and was under selling pressure yesterday after in-line results.

China alters view of US role in Korean war Looks at how China is re-writing its views, from being a 'a tale of socialist fraternalism against imperialist aggression into a great sacrifice by Chinese troops to protect the state and allow national rejuvenation, a favourite theme of President Xi Jinping.’ This year there is also an increase in anti-American sentiment. Where US forces are referred to as invasive rather than as United Nations forces previously. It comes ahead of the release of a film on Friday ’The Sacrifice’ about a small band of Chinese soldiers holding off US troops in the final days of the war. The lead actor also starred in Wolf Warrior 2. THE article notes the contrast with 5 years ago when China signed the UN sanctions aimed at halting the acceleration of North Korea’s nuclear weapons and missiles programmes.

BHP and Vale buoyed by iron ore business on booming China demand. Iron ore has been the best performing commodity in 2020 up 28% to a seven high. Helped by Brazilian production being interrupted by covid. Big profit levels from BHP, Vale, Rio Tinto and Fortescue Metals Group, who can all dig it out of the ground for less than $15 a tonne. But prices could come down as the miners focus on production. Other concerns are that China may cut production during the winter months due to pollution issues and note that China’s restocking post Golden week has been disappointing.
The key remains Chinese demand, which has remained strong thanks to the government back production; if that slows then the situation could change quite quickly. It’s also interesting to note that for all of China’s rhetoric against Australia and possible boycotts on various products; iron ore which it needs to maintain the State lead growth programme has not been mentioned. At present the outlook remain positive but China is the key.

Funds issue climate warning for Japan and South Korea groups over coal plant. Notes that European funds with $3.4tn of assets have criticised South Korean and Japanese groups over developing a coal-fired power plant in Vietnam. Showing the rise of ESG issues. The companies being criticised are Japan Bank for International Cooperation, Nippon Export and Investment Insurance, Mizuho Financial, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial. South Korea’s involvement comes via state-backed groups Korea Electric Power Corp and Doosan Heavy Industries, as well as Samsung C&T, an affiliate of tech group Samsung Electronics. The Japanese lenders note that Japan has said it will refrain from financing coal fired power projects; that refers to new projects and this project is already at the panning stage.
But the other side of the coin is what about Vietnam? The project is said to harm nearby residents and farmland but what about the harm to the economy without the cheap power that coal can provide. Developed nations have grown rich historically polluting the world. For ESG to really be viable for the poorer developing nations then developed nations are going to have provide better deals so the the poorer nations can have access to more expensive clear power at cheap rates.

Mothers index spurs next generation of Japan’s retail traders. 30 weeks of unbroken gains and last week hit a 14 year high; looks at the success of the Mother market and wonders when it turn. Most view the success of the market being due to the retain investors known under the cliche of ‘Mrs Watanabes’ although now more likely to be her son or daughter and trading on-line. Interestingly it notes that many of the traders used to trade currency but the Yen recent stability has prompted a switch to equities.
The Mothers is a start up index and has provided many winners as covid disrupted the traditional markets. It also falls into the area PM Suga would like to see more activity; with his call for households to invest in riskier assets. Additional many of the names are in the areas the government is seeking to expand like digital working.
But it notes it is not a one way bet and the contrarian instinct of the market players could turn.
'On one reading, the sustained arrival of institutional money to a market previously boosted by retail buying should ensure months of buoyancy and gains and give retail investors reason to stay locked into Mothers stocks. History suggests, however, that Mrs Watanabe’s famous contrarian instinct will kick in at any moment and that institutional buy-in will become her trigger to sell’. An interesting read.

SK Hynix in $9bn deal for Intel unit. S Korea chipmaker to acquire Nand memory business over five years. For SK Hynix it means it becomes the second largest Nand chip maker the leader being Samsung. But some question the deal and SK Hynix stock was weaker yesterday on the news. It makes sense for Intel who was the sixth largest maker. But many feel that Nand chips are a sunset industry.  SK Hynix share price was lower again today.
See Lex Intel/SK Hynix: chip away

Hyundai Motor hit by $3bn round of recalls. Yesterday’s news that saw the stock along with Kia sell off on the open in S Korea yesterday but both stocks worked higher through the day to close around flat. It does raise questions about whether the new engines are fit for purpose an no doubt the engineers will be working hard to overcome the issues. Hyundai remains committed to EV’s going forward, the reality is that there is little alternative for the auto sector. The stocks were probably also helped by good sales data both domestically and exports which was also out yesterday

For Interest
Investors bet US recovery will lift long-term yields.
Money managers wager that Democratic win and progress on Covid can ease uncertainty.
'Investors are running increasingly weighty bets that long-term US government bond prices are about to fall, expecting a Democratic win at next month’s US election and progress on Covid-19 to dent the haven assets. So-called “curve steepener” bets, which profit if long-term yields rise faster than short-term yields, have reached the highest level in a decade, said John Normand, strategist at JPMorgan Chase. Yields rise as prices fall.’
An interesting read but sounds like it had already become a crowded trade.

Opinion The threat of long economic Covid looms. Countries need to focus on the price of inaction, not the cost of supporting growth Martin Wolf
Key I think is getting the balance right in supporting companies to protect jobs and focusing and investing in those companies that are going to and able to grow in the future. Equally, in time, taxing those companies that benefited from the government aid when they needed it.
He ends the article 'A long economic Covid must be prevented. This does not mean abandoning efforts to control the disease, but rather the reverse. It will also require active, imaginative and bold economic policy for years ahead. Do not worry about what it will cost to do this. Worry far more about what it will cost not to.'

FT BIG READ. US ELECTION. Facebook Under pressure to act against a deluge of misinformation and violence-inciting content ahead of the November 3 poll, the tech group also faces the threat of antitrust measures once the dust has settled.
An interesting read, especially in the light of the the DoJ case against Google.

LEX Leveraged loan covenants: unbearable lightness. There have been a number fo articles worried about loan covenants and how lenders in their efforts to lend money have been removing burdensome covenants to make their loans attractive since they have little scope to alter the already low rates. The funds that bought the loans are now facing a judgement as defaults and bankruptcies are expected to soar. Looks at a recent limited stay by S&P which should be a worry to investors. An interesting read

* The email will not be published on the website.