FT & Asia update. US/China dangerous politics, Education, Luxury and sports shoes.

This and previous notes can be found at asianmarketsense.com 
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Asian markets largely +VE but uncertainty over China policy remains. Earnings in focus but covid lurks in the background.

Australia 
Market opened higher initially to 7,427 and then trended higher and spiked to 7,448 around 1:20pm; pulled back and then saw resistance at 7,440 level now drifting lower; +42pts (+0.6%) @ 7,436 Market is testing new highs. Miners (Rio, BHP, BlueScope Steel and Mineral Resources hitting new highs) and banks leading with tech and healthcare the laggards. Covid case number remain high but some social distancing rules to be eased.
Inflation data due tomorrow.
Japan 
Nikkei opened higher and tested 28,000 in early trades before pulling back to 27,917 after 45 mins then worked higher to 28,036 before pulling back into lunch. PM opened around 27,950 and working higher. Currently +148pts (+0.5%) 227,983
Topix traded in a similar pattern currently +13pts (+0.7%) @ 1,939
PPI Services Jun +1.4% vs +1.5% May (F/cast was 1.3%)
S Korea 
KDCA announced 1,365 new covid cases (+47 DoD).
Kospi opened higher and traded in a tight range 3,240/250; currently +21pts (+0.7%) @ 3,246
Kosdaq also trading in arange 1,048 - 1,054 but mostly at the lower levels
Pre market Data
GDP Growth Rate adv Q2 +0.7% QoQ vs +1.7% Q1 (F/cast was +0.7%)
GDP Growth Rate adv Q2 +5.9% YoY vs +1.9% Q1 (F/cast was +6.1%)
Earnings in focus: SK Hynix, Samsung SDI, Samsung Biologics, Samsung Card, Shinhan Financial, Jeju Bank, JB Financial, Doosan Fuel Cell, S-Oil, Doosan Infracore, Doosan Bobcat, Hyundai Steel, Samsung SD.
Taiwan 
Taiex opened flat; initially ticked higher to 17,450 but then pulled back to 17,350 then traded in that range until around 10:45am when it sold down to 17,275 level and traded sideways again.
China 
Data on the open
Industrial Profits (YTD) Jun 66.9% vs 83.4% May (F/cast was +65%) also new of more covid cases.
CSI 300 opened flat and ticked higher in early trades before selling down to 4,863 at 10:30am . It then rallied back to 4,920 by 11am but then ticked lower into lunch; -18pts (-0.4%) @ 4,907
HK 
Pre market opened@ 26,011; 181pts vs -229pts ADR’s
Market initial rallied back to flat and traded around there until just after 10am. Then sold down to 25,737 level over the next 30 mins which looked like margin call selling. Stock then bounced back to 26,100 level before easing lower into lunch. 
Europe
Expect markets to open higher; earnings still in focus. UK may look at easing travel restrictions with EU and US.
Data due
Eurozone Loans to Households, Loans to Companies, M3 Money Supply.
France Unemployment Benefit Claims, Jobseekers Total
UK CBI Distributive Trades 
US Futures
Opened Dow +7pts S&P and NDX flat. Earnings in focus; Tesla was +VE after earnings. Ahead we get earnings from JetBlue, UPS, General Electric and Starbucks with Google-parent Alphabet, Microsoft and Apple set to report after the bell Tuesday.
Data due Durable Goods Orders, Redbook, Case Shiller Home Prices, House Price Index, Consumer Confidence, Richmond Fed Index. After Market API Crude Oil Stock Change. FOMC two day meeting starts.

Online
Russia seeks to forge ties with Taliban as US troops leave Afghanistan

Moscow cheers retreat of American forces and aims to stop threat of Isis and al-Qaeda spilling over its borders. Could make for an interesting mix if China gets involved too.

FT Front Page
Teenager sets Games records

Momiji Nishiya of Japan winning the women’s street skateboarding finals at the Tokyo Olympic Games yesterday. It was good for a number of stocks names associated with sport and Nishiya. Not doing a lot for PM Suga’s rating.

Aon’s $30bn tie-up with Willis collapses after US blocks deal
• Plan for huge insurance group dies • ‘Victory for competition’ • Underwriters relieved.
Comes as the US government sued to block the combination.

Crypto has ‘no inherent worth’ but is good to trade, says Man Group chief.
Highlights how different people view the sector and often see crypto as detached from the block chain. The fact though that it is viewed as another tradable assets is a slight +VE. An interesting read.

INSIDE
Beijing warns US against ‘dangerous’ policy
Vice-foreign minister urges Washington to change stance in talks.
Beijing taking a very aggressive stance in the first significant meeting since Alaska. It is unlikely that there is going to be easing up by either side in the short term.
Interesting that the US was pressing the Chinese to follow ‘international norms and obligations’; which suggest they are trying to get China to accept the international rules based system.
Obviously it is still hoped that progress will be made in the coming months such a meeting can take place between Biden and Xi later this year.
It is worth remembering that it was not long ago that Xi was suggesting that the ‘Wolf Warrior’ diplomacy was not achieving the required results and yet here they are taking an aggressive stance. Obviously they are keen to to demonstrate to the domestic audience that they are taking a tough line. But that could make for more problems further down the line if they have to walk back from some of the positions. It could also reflect a need for a positive spin on events in the face of potential issues of a slowing recovery and debt/credit problems in the property and other sectors.
Beijing is also going to come under increased pressure regarding Taiwan and the South China Sea and that is likely to results in a significant loss of face.

Companies & Markets
Beijing to bar foreign capital in overhaul of education

• Profits, foreign investment banned
• Tutor market forecast to shrink 76%
The moves over the weekend and the losses on Monday in HK and China highlight the fact that in China party doctrine comes first. Whilst there has been no clear policy reason given; the main reason given is to ease the burden on families and children. Many are saying it is about trying to help increase the birth rate which could be part of the reason although that is very long term goal.
Shorter term it could be about easing financial pressures although most of those with children using these services would be from the better off families.
It could be about controlling the curriculum which seems to be becoming increasingly important in China.
The bigger problem the party has is that the one child policy was started in the 1980’s and the party stressed this was the right policy. Changing such an established policy is inherently difficult.
Also whilst costs are an issue the reality is that it is also about falling marriage rates and the fact that despite the skew of the population towards male heirs the problem now days is that a lot of women are choosing a career over marriage. With the comfort of a pet; a sector that has seen good growth in China in recent years.
On a broader scale investors will need to factor in a lot more policy or doctrinal risk when considering investment in China.
It could be a further sign of the government educating investors that the stock market is risky. It seems to have taken the view that there will be no push back from ordinary people losing money in the markets. That could be bad news for the property companies and Evergrande leaps to mind. The property sector also recently spun of their management companies making some people very rich but adding maybe, in President Xi’s view, to the disparity in society.
There is also the burden on the state of some high profile companies that have been brought to heel too and the problems or stigma they have caused China. The rise of Meitiun and others who have been hiring migrant workers and profiting from their labour, whilst not paying them well has raised questions about the type of society was being created.
The real problem though is that it is going to be very difficult to ‘wind back the clock’. It is nice to think you could return to the earlier years when large tranches of society saw big improvements but most of the easy gains have been made.
It will take time for the full implications to be seen. It would be interesting to know how exposed the Chinese Insurers were to the sector, especially considering how in the run up to the party anniversary they were part of “Team China” supporting the markets.
Whether the likes of BlackRock, SoftBank, Tiger Global, Baillie Gifford, Sequoia will be as willing to invest in Chinese companies at the historically valuations is unlikely which means that China could be undermining the growth potential and deciding that the future lies within China and there is no longer such a need for foreign investment?

Going places Luxury frenzy puts LVMH back on track with strong demand in China and US
In a nice contrast to the previous article LVMH is seeing strong sales in the US and China. It rather underlines President Xi’s concerns; that China should be a key market for luxury goods whilst so many in China are still living around the poverty level. The reality is, like it or not China has made a lot of Chinese people rich; changing the social contract between the middle class and the Communist Party could lead to more problems.

Lex Nike/Adidas: no Yeezy get-out Looks at how covid means factories in Vietnam are being closed. That will result in show shortages. Add to that rising shipping costs and Lex thinks it is time to take profit in the names like Adidas, Nike, Pou Chen and Feng Tay.