Oct 28 FT Thoughts India/China maritime moves, Financing China, China Jobs and lunch update

02 Nov

Oct 28 FT Thoughts  India/China maritime moves, Financing China, China Jobs and lunch update

MARKETs at 12:30 HK time
Most markets mixed but trading in tight ranges with no local data to drive sentiment the major concerns remains covid in Europe and US.

JAPAN Opened lower 23,372 slightly better than the future indicted (23,335), then tested lower in early trading down to 23,350, before trending higher to 23,425 level before easing back with a small uptick into lunch. Afternoon opened higher but sold down to the lunchtime level. Currently -0.3% @ 23,413 No data today but tomorrow we get Retail Sales pre market and then the BoJ Rate decision; so expect some caution into the close.
S KOREA Pre market Consumer confidence beat but market focusing on covid cases in Europe and US.  Broad weakness.
Kospi opened lower at 2,324 and tested lower in choppy trading to 2,316 before rallying yesterday’s closing level but unable to hold move the drifted lower, currently trading sideways -0.1% @ 2,328
Kosdaq opened higher and worked higher to 798 around 10:15am before easing back and trading sideways; currently +1.4% @ 795.
Data out
Consumer Confidence Oct 91.6 vs 79.4 Sept (F/cast was 81). Tomorrow we get Business confidence.
TAIWAN opened slightly lower at 12,854 but did test yesterday’s close in early trading but lacked momentum to break out and reversed and sold down to 12,300 level and traded sideways until 11am when it sold down again to the day low 12,800. It’s tested support a couple of times and ti seems to be holding currently -0.6% at 12,808
CHINA opened slightly higher and saw a uptick before selling down to test 4,690 support a few time and then rallied into lunch Currently +0.6% @ 4,725
Shanghai followed a similar pattern currently +0.2% @ 3,260
Shenzhen followed a similar pattern currently +0.5% @ 13,342
ChiNext followed a similar pattern currently +0.5% @ 2,664
HONG KONG Opened 24,774 -14pts vs +63pts @ 24,850 ADR’s E-Commerce names were higher but Chinese Financials were weak. Market trended lower to test 24,600 support, which it did a couple of times before rallying back to 24,740. Then eased back into lunch -0.2% @ 24,727. E commerce still firm, Chinese Financial weak along with Telcos. Earnings in focus; key names Sinopec, ASM, ZTE, Budweiser amongst others.
(See earlier email or visit the website to a list)
EUROPE Expect the markets to open lower with Covid still a major concern.
Data FRANCE Consumer Confidence
US Futures opened -100pts but traded to -150pts in early trades and currently -118pts with S&P and NDX lower too. Covid cases still key with some cities re-intorducing social distancing measure. The election is less than a week away and with no clear leader many are looking to hedge positions. Earnings still in focus after market there were good numbers from First Solar, AMD and Chubb but Microsoft’s guidance disappointed despite earnings and revenue beating.
Data MBA Mortgage Applications and 30 year Mortgage Rate, Goods Trade Balance, Wholesale Inventories, EIA Oil Report.
Key Earnings United Parcel, Boeing, General Electric, Ford, ServiceNow, Etsy, Pinterest

FT On line
India takes its tussle with China to the high seas
. New Delhi has shifted focus from the Himalayas to the oceans to send a warning to Beijing. Looks at how India recently sent one of its warships into the South China Sea the article suggests to send a message; “The message was: Don’t mess in my backyard or otherwise I’ll mess in your backyard,” said Nitin Pai, director of the Takshashila Institution, a Bangalore-based think-tank.’
Clearly an escalation by India following the border incidents recently and a change from India trying to appease China to a asserting itself. It comes as the India invited Australia to join the US, Japan, India naval exercises; a move that itself increases pressure on China. Then yesterday India and US signed a information sharing agreement. Clearly is putting its historic differences with the US to one side in order to confront China.
It was said, when China took action along the Himalayan, that is was trying to put down India. No doubt the initial India action of appeasement was what was expected. But clearly these latest moves were not what China envisioned, along with the trade pressure being put on Chinese interests in India. It will be interesting to see whether China tones down is action on the Himalayan border with the on-set of winter.
The action by India and the Quad may also mean that China tones down its pressure on Taiwan fearing that the reaction to its increased probing of the country’s defences may actually be raising support for the recognition of Taiwan as an independent country. That would be a blow for President Xi and the party. All goes to show that sometimes if you push a position too far you to get a result; you sometimes don’t get the result you were expecting.
Print edition has US and India boost ties to counter China Security links tightened as Himalayan conflict enters sixth month. The deepening of Defence co-operation will not be to China’s liking. Key here is that in agreeing to share military intelligence that will eventually enable the US and Indian militaries to co-operate more closely on the ground. BUT more importantly it gives India access to US maps and satellite data as well as topographical, nautical and aeronautical information. This will improve the accuracy of Indian weapons, such as missiles and drones.

Print Front Page
About Deals

LVMH and Tiffany in price-cut talks to salvage $16.6bn takeover. Looks at home the parties are trying to salvage via negotiation a deal rather than pursue the matter through the courts.
Chip dealmaking ramps up with AMD’s $35bn takeover of Xilinx. Further consolidation within the semiconductor sector at a time when the sector is being buoyed by good demand for its products; which has lead to record valuations.
See aslo LEX AMD/Xilinx: stock take For Xilinx shareholders, AMD's rapid price rise will raise legitimate queries about how much further AMD shares can rise. Compromise, in the form of a cash and shares deal, would have been preferable.

Two very different deal but illustrates that business continues despite covid and that opportunities exist; some better than others.

Beijing and Wall Street foster closer links. Looks at how investment is on the rise despite Trump administration’s trade and tech war with China. Key Being that Beijing is trying to more foreign capital and preferably directly; as seen in its recent Bond offering.
It has also opened up its Financial markets to more investment firms and banks.
The key to me is that China needs the money and whilst it is happy to see its companies tap the US markets it is aware that that flow of money could be cut off by Trump or his successor.
It also is aware of the need for other banks along the PBOC in order to allow the renminbi to become more attractive as an alternative or reserve currency

Chinese job hunters seek shelter from turmoil in civil service. Notes that 1.5m applicants will sit China’s civil servant exam next month. That is the second highest number and up from 1.4m in 2019. There are only 24,000 positions. In part it reflects the changing nature of the job market in China with unemployment rising and the prospects for this years 8.7m college graduates are not good. The article notes that some universities are saying that only 25% of their 2020 graduates have found work. It is note just graduates but many others are also seeking government employment for the job security.
Also private companies are still struggling and the salary levels are down from what they used to be.
A bigger problem that China may be facing is one that the west is also facing; disillusionment amongst the youth. The FT Editorial last week noted that the youth were giving up on main steam democracy. If that becomes an issue in China then the Party will have a very serious problem to address. Historically most of the party faithful are draw from the university graduates but if the majority of them cannot get jobs they may start using their skills to change system in the hope of a better future. Something that Beijing will not tolerate.

HSBC looks at restoring dividend after loan risks drop. Good results and they are bullish on the economic prospects. Key was the drop in provisioning for bad loans; 'Expected credit losses at Europe’s largest lender decreased to $785m in the period. This was less than half the level analysts had expected and a big drop from the $6.9bn reserved in the first half,..’ But loan-loss provisions were still contributed 54% to the fall in net profits and was higher than analysts had forecast. Looking forward they think a deep U shaped recovery is now less likely because a vaccine is closer and that a V shaped recovery in Asia will drive profits going forward. Its capital position is good and would consider modest dividends. The shares rallied yesterday but today have given back much of those gains. Whilst the bank remains positive on opportunities in China many worry about the HK National Security Law impact and the general souring of the relationship between China and UK along with other countries.
See also LEX HSBC: deposit slip. Mr Quinn has done well protecting its capital base — an enviable common equity tier one ratio of 15.6 per cent. But protecting the bank’s customer base could soon be the more pressing concern.

Pfizer chief urges patience in ‘last mile’ of vaccine work. As the time line for its vaccine late stage trials may slip into November, having previously been expected ahead of the US election. Key is that the trial still has to hit key threshold levels and then the data has to be independently assessed. Pfizer expect that to happen by the end of October. Pfizer’s Mr Bourla said he was worried by the politicalisation of the process; noting that the vaccine would not be Republican or Democratic but for citizens of the world. Stock was weaker yesterday on the news but off the initial lows.
I think everyone with maybe the exception of Trump is happier for the clinical work to be done properly to ensure the final product is safe and effective.

TikTok turns to ecommerce with Shopify. Partnership will bring Chinese-owned app in line with social media rivals. A sign of the times. Most interesting is that within China ByteDance blocked users from using third party market places and directed them to it own. That I think illustrates a key difference between working in the controllable system within China and then the rest of the world. Something that Ant will also have to address as it looks to expand and develop its business outside of China. On the roadshow yesterday they mentioned working with partner banks for a win win situation. Key there is picking the right partners, looking at those in Asia she are questionable. Also its an area where US sanctions could hurt the company.

Song and dance breaks out over Big Hit share price. Investors vexed over retreat in aftermath of boy band BTS agency’s much-hyped listing. Looks at how a lot of retail investors are hurting after the rapid decline in the value of the shares. This is despite of many warning about the ‘fad’ element of the listing. Of some concern though that the fourth largest shareholder a private equity firm had sold half of its holding.
A number of large institutions remain investors but one would hope just at the IPO price
Key concerns going forward now the IPO hype is over is the fact that 97% of came from one band and two members of that band are due for 2 years compulsory military service in the next couple of years.
It set itself out as a modern tech ‘platform’ business but in fact most of its cash is from concerts (33%), merchandising, licensing and albums. It also struggles to build a pipeline of new hit groups with so many alternatives available. The article notes that Big Hit was almost bankrupt a decade ago. BTS faces big competition, it has a number of trainees but no new next band. It tends to find talent by acquiring smaller local agencies; rather than developing them in-house. Also local laws limited K-pop group contracts to 7 years, if they are successful they can trade themselves and even if they stay with the same agency the revenue split changes in their favour which hurts the likes of BTS.
Some think that people are being too pessimistic over lost concert revenues which can be replaced by online concerts and the revenues from the other business lines can be good too. As demonstrated by the returns from BTS’s two rivals SM and JYO Entertainment but BTS’s IPO valuation was 60x forward earnings vs SM at 13x in its first year and JYP at 4x in its early years. Also BTS has seen a hit to its operating margin as it invested in its ‘platform business’; whether that was a good investment only time will tell.
Many said at the time it was rich but it was largely driven by the fans, those same fans now as shareholders have a vested interest. But the management of BTS may need to do some radical thinking before facing shareholders.

European mall owners face grim 12 months, says Moody’s. Nothing new or unexpected but I would imagine that the same could be said for a lot of US Mall operators too. I still think that property exposure could haunt banks and funds in the next 12 months as retail and office portfolios are reviewed. Even if there aren’t any defaults tenants renegotiating leases will have a big impact.

ESG credentials in spotlight over ‘greenwashing’ fears. Booming demand for green bonds triggers concerns over issuers’ ethical bona fides.  Key is, as ever proper due diligence into the issuer and the bond.

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