FT thoughts & Asia update; Didi and tech, HK Law and Planes.

This and previous notes can be found at asianmarketsense.com 
Check out ERI-C.com  for your research needs

Asian markets weak going into the weekend
Markets at 1pm HK time

Australia 
Market opened lower and trended lower through the morning, slight support at 7,250 but bottomed at 7,226 and then traded sideways.
Currently -100pts (-1.4%) @ 7,241. Covid resurgence -VE for sentiment. Leaders were Energy names along with Fortescue Metals and Amcor.
IPO Silk Logistics +24% on debut
Japan 
Nikkei opened lower at 27,740 and ticked higher before trending lower through the morning. The new state of emergency not really a surprise. At lunch was 27,467 just off the lows. PM opened higher and trading sideways around 27,600 level. Currently -530pts (-1.9%) @ 27,590
Topix traded along a similar pattern. Opened 1,897, high was 1,903 then trended lower to 1,881. PM seeing resistance at 1,890 currently trading -33pts (-1.7%) @ 1,888
S Korea
KDCA reported 1,316 new covid cases; the third day of it hitting new highs; with social distancing restrictions raised in Seoul.
Kospi opened lower and initially trended lower to 3,191 in the first hour and now trading sideways; Currently -56pts (-1.7%) @ 3,197
Kosdaq opened lower but saw but saw a bounce before trending lower to 1,014 in the first hour. Then a rebound to 1,023 before trading sideways. Currently -17pts (-1.6%) @ 1,018
Taiwan
Taiex opened lower saw an early bounce but then trended lower through the session. Currently -214pts (-1.2%) @ 17,645
China
CSI 300 opened lower ticked higher as PPI eased and inflation data was inline but then sold down to 5,006 by 10am then bounced back to 5,060 before easing into lunch at -52pts (-1%) @ 5,034
HK
Pre market opened @ 27,132 (-21pts) vs +5pts ADR’s  Initially ticked up to 27,200 but then sold down to 26,861 (margin calls and news of more companies to be added to US sanctions list). Then saw a rebound into the green and then worked higher with resistance at 27,370 eased back and traded sideways into lunch +178pts @ 27,300
Established E commerce names seeing a rebound (Tencent +2.5%, Meituan +6.3% but Baba -1.2%) HK EX +0.2%, Anta sports +VE after Q2 numbers, NWD -5% on construction faults news. Evergrande weak on news China pushing then to fix debt issues.
Europe 
Expect market to open lower following Asia data focused on the UK.
UK releasing Balance of Trade, Construction Output, Industrial Production , Manufacturing Production, GDP, GDP 3Mth ave, Goods Trade Balance, NIESR Monthly GDP
US Futures
Opened Dow -25pts, S&P and NDX -0.1% light on data.  
AHEAD Wholesale Inventories, Baker Hughes Oil Rig Count 



Front Page
Tokyo no go
Crowds ban at Olympics
Not a great surprise considering the rising number of covid cases. It puts PM Suga under some pressure regarding the election because even a good showing in terms of Olympic medals is unlikely to give his re-election hopes much of a boost. Next months mayoral election in Yokohama will take on more importance.

ECB’s new 2% inflation target offers room to keep rates at historic lows
• First strategy review since 2003 • Break from conservatism • Climate plans outlined.
Very much following in the path of the Fed but not going as far. But it allows a more flexible outlook for policy. The ECB is also looking to address climate change and including home ownership in its inflation measure.

Beijing asked Didi to change location function to protect sensitive state sites.
Makes you realise how seemingly innocent data can be considered a threat to national security. It is also clear that the Cyberspace Administration of China (CAC); a relatively new department is flexing its muscles which is obviously being done with the permission of President Xi.
For investors it raises China regulatory risk concerns considering how many apps like to use location data.

INSIDE
China. Political crackdown
Security law erodes Hong Kong legal system
Beijing asserts increasing control over judiciary as even mild forms of dissent risk jail.
The new security law has had a significant impact on the legal system in Hong Kong and that continues to evolve. Concerns over the legal system are a concern to the business community and the financial sector.
Concerns that the new law is under mining the previously assumed norms such as ‘presumption of innocence and right to bail in cases involving the security law. Judges also have less sway over these cases.’ Also the pressure that judges are coming under to be in line with mainland policies rather than having independence. Which includes the removal of the right to trial by jury.
Much of that comes from the way the law was introduced, the vague wording of the law, the subsequent restrictions put on pro democracy legislators (worth pointing out they want democracy in Hong Kong not independence) and the changes to the composition of the Legco.
All of which is tarnishing the previously highly regarded legal system’s image.
It notes that ‘Once unheard of, Chinese state media and officials are also increasingly commenting on Hong Kong legal cases.’ and cites that case of Jimmy Lai; ‘When a judge briefly let pro-democracy media mogul Jimmy Lai out on bail in December, China’s state media threatened that if Hong Kong’s judiciary could not “properly” handle the case, the mainland courts would take over. After an appeal, Lai’s bail was revoked. He has since been jailed in Hong Kong on separate charges.’ Regardless of what one thinks about Mr Lai his treatment under the current law raises concerns about the judicial independence.
All of this is important because many firm are established in Hong Kong rather than the mainland because its legal system is viewed as more reliable than that of the mainland.
It concludes ‘For Hong Kong’s judiciary, whose tradition of independence has long attracted multinationals looking to set up their Asia-Pacific headquarters, the real trial may only be just beginning.
Fisher, the lawyer, said: “Judicial independence is the key difference between Hong Kong and the mainland . . . and the Hong Kong characteristic most despised by Beijing.”
‘Many acts which were previously not treated as criminal, especially certain forms of political expression, are now illegal’ Ryan Mitchell, Chinese University of Hong Kong .’
The big worry will be that Hong Kong is seen as the same as the mainland and companies decide to relocate to the mainland or Singapore. It could also impact on Hong Kong’s status as a listing centre. Again investors rely on the courts to be able to protect their interest; if there law is being reduced to the same level as the mainland then we could lose the status of a safe place to invest. That would be damaging to China although it is difficult to see where the business would go; as I doubt that Singapore could really cope with a large influx of business. It may be that is what China is hoping.

China’s rival to Boeing and Airbus poised to join battle for the skies
State-backed aerospace group ready for take-off with 1,000 orders in pipeline for C919 passenger jet.
An interesting read about China’s first passenger jet. Likely to hurt both Boeing and Airbus sales in China despite not being the best in class. There is likely to be pressure on the domestic airlines to purchase.
An interesting read and worth noting that to compete globally it would need US Federal Aviation Administration and the European Union Aviation Safety Agency approval.
Going forward it will be interesting to see whether it manages to develop the tech that it currently relies on its partners for.

Didi tremors spread as top China fitness app misses US flotation filing
The immediate impact of the Didi situation being the cancellation of proposed listings. The fact that location is now a national security issue and with most apps using or tracking location that is going to mean that a lot of apps are either going to have to be re-written or have changes made.
It also highlights that some companies are coming under pressure to list in Hong Kong rather than the US. The article estimates that US$2tn of shares could be impacted.
The reality is that this will, in the short term, make Chinese US listings, or elsewhere both more difficult and mean they will not achieve such good valuations. A listing in Hong Kong is an alternative but the firms, even before the Didi situation would not have received as good a valuation as they would have in the US.
It suggests that the Cyberspace Administration of China (CAC) has yet to fully understand the implications of its actions on the value of companies.
For all investors this will mean an obvious hit.
See also Lex Didi/NY’s China stocks: hesitate, don’t repatriate Concludes
‘China would love to claw back some of the liquidity lost to New York. It could help reduce the discount separating mainland listed stocks from US-listed peers. But curbing or banning VIEs would be a gamble. It would send a terrible message to foreign investors about the Chinese economy. Officials must realise that lower-scale hostilities of the kind epitomised by the attack on Didi would nudge business into line with far less dislocation.’

Treasury yield plunge propels tech shares to record highs
Investors forced to reposition away from bets on reflation as borrowing costs tumble.
Investors reviewing the outlook with regards to inflation and the reflation trade in the US and other markets. Best summed up by the closing quote;
‘“Markets are like pendulums,” said Adrian Miller, chief market strategist at Concise Capital Management. “They go too far one way and then too far the other. We went too far in March worrying about inflation. We are too complacent today.”’
I think that is very true the big problem is the central bank’s policy of keeping interest rates artificially low. It notes ‘BlackRock this week downgraded its outlook for US high-yield bonds, warning the potential yield on offer was too low to compensate for the risks involved in lending to such lowly rated groups.’
Until interest rates are allowed to return to more market determined levels then investors are going to struggle.

Digital currency groups find shelter in Singapore as watchdogs take action
An interesting read about how Singapore is cautiously embracing the crypto crowd. It notes that ‘Singapore’s economy meanwhile is reliant on services such as commodities trading and financial transactions.
“Without a natural resource industry to fall back on, Singapore cannot risk being overly hostile to an industry that could be a big winner in attracting talent and business,” said Daniel Burke, a Singapore-based managing director for US cryptocurrency custodian BitGo.’
The approach is likely to pay off in the longer term and Singapore will be able to establish a niche for itself. Worth a read

Investors need to prepare for the ‘Yotta Age’ of data By Ulrike Hoffmann-Burchardi a senior portfolio manager at Tudor Investment Corporation. Tudor might hold interests in some of the companies mentioned.
One Yotta of data ‘is equivalent to 1tn terabytes of data (with each terabyte equivalent to about 85m pages of data)’
But her point is that with all the data points that are being created the key will be firms that can optimise the data rather than just organise it as alot of current applications/firms do.
Concludes ‘While awareness of the importance of data usage has been rising, it is still under-recognised compared with the likely impact.
Increasingly, investors must evaluate companies through a prism of their data assets and how they use them. They need to prepare for the Yotta age.’
An interesting read and confirms the on-going importance of chip makers.

Ransomware demands are digital extortion: don’t pay By John Thornhill
Looks at various ways to combat ransomware attacks. A number of relatively simple steps could be taken. Worth a read. As he says ‘a policy of banning ransom payments is easy to accept in principle, far harder to follow when your own child is at risk. That makes it all the more vital that we devise a considered and collective response in anticipation of attacks rather than leaving it to panicking hacking victims to respond in a crisis.’