FT Thoughts Bitcoin, Gunboat diplomacy 2021, China's investment style and Huarong warnings

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Australia Market opened flat but worked higher to 7,025 around 3pm after good jobs data and inflation expectations coming in lower than expected. After 3pm the market traded sideways to close +88pts (+1.3%) @ 7,019; led by major banks, health, and technology. Qantas +3.5% announced more job cuts and a wage freeze
Japan 
Nikkei opened lowered at 27,875 but rallied on better than expected Trade data to 28,145 in the first 35 minutes but then sold back down to 27,900 in the next 50 minutes before rallying back to 28,090 and then eased into lunch. PM worked back to test 28,150 a couple of time before easing to close +54pts (+0.2%) @ 28,098
Topix traded in a similar fashion and closed flat @ 1,896 
S Korea 
Kospi re opened flat but sold down to 3,140 in the first 75 minutes and then spent the rest of the day working better to close -11pts (-0.3%) @ 3,162
Kosdaq opened lower and tested 964 in the opening minutes before bouncing to 971 in the next 35 minutes only to then sell down to 963 level 35 minutes later. It then spend the rest of the day working better to close +2pts (+0.2%) @ 971
Taiwan 
Taiex opened lower, Chopping trading in the first 90 minutes between 16,050 and 16,150 but then sold down to 15,950 before working better to 16,090 around midday and then trended lower to close -90pts (-0.6%) @ 16,042
CECC reported 295 new covid cases (286 local infections)
China 
CSI 300 opened lower but spent the morning trading around yesterday’s closing level. PM it worked higher to 5,200 but unable to hold and eased back to close +14pts (+0.3%) @ 5,186
HK 
Pre market opened 28,413 -180pts vs -97pts ADR’s 
Initally dipped to 28,342 before bouncing to 28,500 but then trended lower to the day low 28,293 mid morning and worked slightly better into lunch 28,382. PM dipped initially but then worked better to 28,470 and then drifted lower to close -143pts (-0.5%) @ 28,450
Europe 
Opened higher but drifting lower, seemingly ignoring the threat of Fed tapering and the volatility of crypto. News of an EU travel standard +VE for tourism stocks.
German PPIslightly higher than F/cast and Eurozone current account better than F/cast.
Earnings due from EasyJet, Kingfisher, National Grid, Royal Mail, Manchester United and QinetiQ.
US Futures 
Opened lower Dow -80pts S&P and NDX -0.3% but have eased to Dow -65pts with S&P flat and NDX slightly +VE
Expect caution ahead of the Initial claims data
Data due Philadelphia Fed Manufacturing Index, Initial Claims, 4 week Average Claims, Continuing Claims, EIA Natural Gas Report, CB Leading Index.
Earnings BJ’s Wholesale, Kohl’s, Petco, Ralph Lauren, Applied Materials, Ross Stores, Deckers Outdoor, Hormel Foods, Palo Alto Networks

Print Edition Front Page
Bitcoin tumbles 30% after China cracks down on cryptocurrency
• Move sparks volatility • $8.6bn of positions liquidated • Beijing prepares own digital coin
Various factors seem to be influencing the crypto markets at present; recent comments from Elon Musk, environmental concerns and then comments from the PBOC along with a ban on financial institutions from offering crypto services.
In addition it lead to a number of companies and funds with known links to crypto also coming under pressure. It mentions Coinbase, Micro Strategy, Marathon Digital and Galaxy Digital.
The comments from the PBOC come as it seeks to launch its own digital currency and probably has more to do with seeking to control cash within China and eliminate any competition.
Key is that whilst they may say its not a real currency the fact is that it is and one that is getting more international acceptance. Governments are increasing looking at their own digital currencies in an effort to match the ease with which crytpo can be used.
It should also be noted that some crypto currencies are closely linked to block chain usage which gives them an edge of the purely speculative or joke coins.
What will be interesting to watch is how the crypto currencies respond to rising interest rates and whether that will dent some of their attractiveness?

Firm founded by Beijing financial tsar’s son invests heavily in China tech stocks
The investment firm Tianyi Ziteng Asset Management, also known as Skycus Capital; founded by Liu Tianran the son of China’s vice-premier Liu He has invested heavily in technology companies, including units of leading Chinese internet groups Tencent and JD.com.
It looks at the set up of the firm and how Liu Tianran remains working at the firm but is no longer part of the management because Chinese regulations prevent it.
Mentions how ‘princelings’ are very influencial within China despite Presidents Xi’s efforts to reduce their influence and notes that President Xi is himself a ‘princeling’ as his father was a senior party official under Mao.
It also looks at Tianran’s work background and the ease with which he seems to have moved into finance would again suggest privilege.
Interestingly there is no hint that that the family connection has helped Skycus capital in avoiding the consequences of the recent regulatory crackdown. I think that President Xi has done a lot to crackdown on that but there is still often an issue with business connections in China as the current ARM holdings situation shows.
An interesting read and without doubt goes to show that business is often more about who you know.


INSIDE
Eurozone shows signs of bouncing back
Consumers drive rebound from double-dip recession as restrictions start to ease
An encouraging read about the recovery in Europe with consumers being prepared to spend again; ‘An increase in the number of job adverts, growth in travel to entertainment and leisure venues and rising holiday bookings all suggest that economic activity is bouncing back despite continuing restrictions to control the spread of the virus.’

EU countries plan to allow visits from vaccinated tourists
A positive for the travel sector and airlines especially. It requires people to have been fully vaccinated; at present with vaccines approved by the European Medicines Agency (BioNTech/Pfizer, Moderna, Astra-Zeneca and Johnson & Johnson) but it says those approved by the WHO are also being considered too.
There is a real need to see a global standard adopted but at present it seems that the is little being reported. If Europe can agree a standard then that would go a long way to getting a global one.

Latter-day gunboats set out on differing courses towards China
A look at the reasons behind European countries sending ships into Asia Pacific. The main reason seems to be a sign of support for the ‘…US-led, rules-based international order on which they, as Nato members, depend for their security,”’
'“But to an even larger extent, this reflects growing worries over Chinese attempts to change the military status quo in the region, for instance through an increasingly threatening stance towards Taiwan and the assertive behaviour of Chinese maritime militia, coast guard and navy vessels in contested regions of the South China Sea.”'
It notes that of the nations sending ships to the region only Germany’s will actually visit China; stopping at Shanghai which seems to be an effort to appease China and maintain its strong trading partnership whilst also alining with its NATO partners. It does ask if that will be tenable.
I think that the fact that these are co-ordinated international moves make an important statement to China that its actions, especially in the South China sea but also elsewhere are being monitored and it will not be allowed to bully its smaller neighbours.
Also The Big Read UK FOREIGN POLICY
Brexit Britain experiments with battleship diplomacy
The maiden voyage of a new aircraft carrier is intended as a military signal to China. The exercise will also reflect the UK’s bid to reconcile its economic, political and security priorities after its exit from the EU.

COMPANIES & MARKETS
China’s Jingye sets sights on Gupta plants
British Steel owner tells ministers it is ready to take on parts of Liberty.
Makes an interesting point that the UK government might not want to see the assets going to a Chinese firm at a time when it is criticising the Beijing over its actions in Xinjinag and Hong Kong.
There is also the issue that some of the Liberty plants ‘make speciality steel for nationally sensitive customers in the aerospace and defence sectors.’
For the UK government at the moment it is not a issue because it is still in the hands of Gupta to sort out but it could be in the near future.

SoftBank’s solar ambitions dimmed by deal with Adani
An interesting read; shows that whilst Softbank remains strong on solar in Japan it has had little success elsewhere. The sale to Adani is seen as positive as Adani adds value in its ability to navigate the Indian regulatory environment.
Interesting also because Adani is transforming itself from a coal company to a renewable energy one.
See also LEX SoftBank/Japanese bonds: inside baseball
‘Surging tech stock prices may prove only a temporary comfort factor as rate rise expectations solidify. SoftBank is also prone to credit panics — its credit default swaps surged just two years ago. But the relationship between Son and Japanese retail investors is too solid for criticisms to feature as anything more than background noise. On both sides, a 35-year bond says: “I’ll always be there for you.”’

Asset management. Sustainability
Investors make a beeline to value the natural world
Wall Street finance is building a new trading environment for green investment initiatives
An interesting read about sustainability; it concludes ‘Johan Floren, head of sustainability at AP7, the €80bn Swedish pension fund, said protecting biodiversity and natural capital was a priority, but he was sceptical that it could be an asset class in its own right. Instead of buying into natural capital-themed investments, he said AP7 preferred pushing portfolio companies to clean up their act.’

Rusal plans to spin off old smelters and refineries in ‘green’ aluminium push
‘The company is working on a carbon-free way of producing the metal used in everything from turbines to cars. This involves replacing the carbon anode used in smelting with a material that releases oxygen rather than CO2. But it faces fierce competition from rivals including Rio Tinto and Alcoa.’
It seems that more and more firms are looking for ways to be more green because the greener you are the easier it is to raise finance.

Markets Insight
Don’t bet against China’s attachment to investment-led model
By Arthur Kroeber head of research at Gavekal Dragonomics and author of China’s Economy: What Everyone Needs to Know A good read that explains the back ground to China’s growth historically and how it is currently changing but remains good.
He sees continued strength in the exporters which he views as reflecting ‘robustness as a manufacturing base, the breadth of goods it can produce and the skill of its exporters in navigating tough times.’ I would certainly agree they are adaptable but my concern currently is the dependence on PPE and Electronics. I think the PPE market will slow very quickly and probably before China’s traditional export sectors pickup.
He also notes China’s good capital inflows and direct investment. He doesn’t mention the current credit and bond defaults taking place. China has successfully attracted capital by offering good rates when Europe and the US were not. As US rates rise, which I expect they will then that will change. Equally if China fails to achieve a satisfactory restructuring at Huarong and elsewhere then those capital inflows will be less assured.
He notes the key question being the composition of China’s economy and the efforts to make it more a consumption led model rather than investment led. He says that is not the governments intention.
‘They believe investment drives growth with incomes and consumption following in its wake. The role of policy is not to support demand but to direct capital to the right investments.’
Recently the drivers were housing and infrastructure as China urbanised; now they will decline especially in the light of achieving emissions targets. So heavy industry is under pressure. Leverage is in the spot light ‘since much of China’s debt is taken on by local governments to finance infrastructure, housing developers, and state enterprises in heavy industry.’
New investment is targeted at high tech and ‘backed by policies including the Made In China 2025 programme to upgrade manufacturing’. With the government focus on hardware over consumer internet; ‘Even as it pours money into plants and factories, it is tightening regulations on the big internet firms, both to control financial and market risks and to limit the political power of these privately owned behemoths.’
He concludes ‘These policies may look questionable to those brought up on the demand-side orthodoxy of western economies. But China’s investment-led approach has delivered high returns for many years and there is good reason to think it will keep doing so in the coming decade.’
A very upbeat read but I would be cautious. The governments ability to drive the investment led model is being undermined by its lack of cash. I still think that whilst overall the country’s recovery has been good it is still patchy and there is still scope for failure.

OPINION
Huarong’s woes are a warning to lazy investors
Brooke Masters
Worth a read as she looks at the issues that surround Huarong and the wider Chinese market.
‘Its $22bn in dollar-denominated bonds are very popular with blue-chip overseas investors who thought its size and official ties amounted to a government backstop.’ Investors are now realising that is not the case. Furthermore investors are likely to find that smaller Chinese companies with less connection fare even worse.

LEX Home Depot/Lowe’s: lumber party
‘Shares in Home Depot and Lowe’s — at 24 and 19 times forward earnings — are trading in line with a year ago.
That is curious given that last May a global crisis was unfolding. Both stocks are attractive considering the sector’s sturdy fundamentals.’
Worth a read, I also think that Tectronics (669 HK) is likely to benefit. It got hit down last week but I think remains atractive