May 12 FT Thoughts China commodities and Population. India's future at risk. HK Property and more

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Markets at 2:30 pm HK time
Market trended lower through the morning but found support around 7,015 (-1%) level at midday and bounced to 7,057 but then retested the morning support before working back to close -52pts (-0.7%) @ 7,045.
CBA released Q3 update good results but sold down with the rest of the market.
Quatas annonced delaying the start of international flights inline with the governments inoculation plans
Tech names saw interest following the pattern seen on the Nasdaq.
Building Permits Mar +17.4% MoM vs 20.1% Feb (F/cast was 17.4%)
Nikkei opened higher and tested 28,800 in inital trades but reversed after about 15mintues and sold down to 28,400 level and then traded sideways into lunch. PM sold down to 27,888 before bouncing back to 28,200 and trading sideways to close -461pts (-1.6%) @28,148
Topix traded in a similar fashion to close -28pts (-1.5%) @ 1,878
Pre marketData
Foreign Exchange Reserves Apr $1378.5b vs $1368.5b Mar
Coincident Index Mar 93.1 vs 89.9 Feb (F/cast was 90.4))
Leading Economic Index Mar 103.2 vs 98.7 Feb (F/cast was 98.2)
S Korea 
Kospi opened flat but started selling off after about 25 mintues to 3,172 bounced to 3,190 but then continued selling down to 3,138 then bounced to 3,166 before easing to close -49pts (-1.5%) @ 3,161
Kosdaq traded in a similar pattern low was 959 and closed -11pts (-1.1%) @ 968
Data pre market
Unemployment Rate Apr 3.7% vs +3.9% Mar (F/cast was +3.9%)
Taiex open flat sold down to 16,245 and bounced to test Tuesday close a couple of times before trending lower to 15,700 (@ 11:15am) and then legged it down to15,165 and bounced back to 15,500 in 20 minutes. Then worked higher to close -681 pts (-4.1%) @ 15,902
CSI 300 opened lower but rallied to 5,030 in early trades then trades around yesterday’s clsoed until mid morning but then sold down to 5,004 before a bounce into lunch. PM opened lower but working higher currently +25pts (+0.5%) @ 5,048
Team China at their best.
HK Opened @ 28,207 +60pts vs +143pts ADR’s On higher than normal initial T/O which suggests margin selling and short covering taking place.
Traded up to 28,100 in early trades then sold down to 27,980 before boucing back to test the highs around 28,160 level but then sold down to 27,900 at lunch. PM open back at 28,000 and working higher currently +109pts (+0.4%) @ 28,127
Futures indicate FTSE +3 points higher at 6,942, DAX -16 points at 15,072, CAC 40 -4 points at 6,246 according to IG.
German inflation data in line with forecasts along with intial UK data.
Earnings due from
EDF, Allianz, Bayer, Commerzbank, TUI Group and RWE.
The weakness in Asia at this stage does not seem to be impacting. But expect cautious trading ahead of the US inflation data.
US Futures 
Opened Dow -30pts S&P -0.12% and NDX-0.14% But now Dow -133 points while S&P 500 futures and Nasdaq 100 futures also in negative territory.
AHEAD MBA Mortgage Applications and 30 yr Mortgage Rate, inflation Rate, Core Inflation Rate, EIA Oil Report, Monthly Budget Statement
Earnings: Toyota, Wendy’s, Fossil, Bumble, Allianz, Jack in the Box, Vroom, SoftBank, Sonos, Bayer, 1Life Healthcare

On line lead
Companies prepare share buyback bonanza as outlook clears

US corporations announce record repurchase plans as activity resumes

Print Edition
Front Page

Fed and ECB play down inflation concerns as global markets sell off
• Fears over policy direction • World indices take hit • US prices set to show 3.6% rise
The sudden change in sentiment seen yesterday was surprising and caught a lot of investors and commentators off guard. But it reflected the wariness of investors to inflation and I think more importantly inflation expectations. There were a number of Central bank speakers yesterday, both Fed and ECB trying to reassure people that policy was not going to suddenly change. That is certainly true, Central banks are likely to take a data led ‘wait and see attitude’ and are willing to see overshoots. Whilst that has its benefits there are risks too. I think a key element is the fact that people are not only reading about inflation but seeing it in prices that they are paying for goods and services.
Markets in Asia still seeing selling pressure this morning but I think will see a cautious rebound as the Nasdaq did yesterday around lunchtime. But also overhanging Asia is the China new loans data which could be released any time now. Yesterday’s China data showed rising costs at a time when many are worried about the Chinese recovery which is not uniform. There are concerns about credit tightening, defaults and poor international relations all of which could impact the recovery.
Also worth remembering that in the US the federal income tax return filing date of May 17 could be adding pressure to tech stocks as investors may be selling winners to pay their taxes.

UK State opening of parliament
She set out more than 25 bills at the heart of the legislative package are economic bills aimed at ensuring a more equal economy, including a proposal to boost life-long skills.

British Spac king plans to raise €400m in European blank-cheque tech listingIan Osborne, the British investor at the forefront of the US Spac boom, is turning to Europe with plans to launch the region’s largest tech-focused blank-cheque company.
’The new company is expected to be listed on the Euronext in Amsterdam, where the rules are more favourable to the sorts of blank-cheque companies that have turbocharged the US tech rally over the past two years.’ So far few Spacs have started in Europe and they are coming under greater scrutiny in the US. But it is said he hopes to offer a more ‘investor friendly’ offering with ‘commitments from management to financially back the listing.’
No doubt it will be watched with interest although as has been said before most tech companies prefer a US listing because of the better valuations that can be achieved because more investors are familiar with the sector.

Commodities boom buoys China’s factory goods prices
Yesterday’s data showed that prices for goods leaving Chinese factories was at the highest level for 3 years. Another clear sign of inflation. There was an element of low base comparison but still a clear indication of inflationary forces too. The question now is whether they are permanent or transitory? China this time is just one of the countries that is stoking demand for commodities, as other economies recover too. What I think is exacerbating the situation is previous under investment in certain sectors; like copper mines. Adding to the problem is the fact that the easy mining for a lot of resources has been done. So future mines are going to be more expensive, more remotes and with ESG issues more difficult to either get permission for from policy makers or shareholder acceptance.
The one thing that may give the situation some respite is that with economies opening up there is potential for the demand for goods to ease as consumers switch spending to services in the short term. Longer term the fact that China’s population growth is slowing and that their is resistance to larger families in China is driven by financial concerns that could mean domestic consumption in China drops which would have a significant impact on global inflation.
For those interested in the Demographics ERI-C has this Thursday (13 May) a Webinar on 'The Implications of Global Demographics For Long-Term Investors: Charles Goodhart & Manoj Pradhan in conversation with Stewart Paterson" If you are interested please let me know or sign up on It is free and Mifid II compliant and will be recorded so you can watch it later.

China’s population grows at slowest in decades
Finally the official release which the FT reported on last month; interestingly the it says ‘People close to the NBS said the initial population figure came in at less than 1.4bn, but was revised up.’
But the reality is that the population grew at its slowest rate. Confirming earlier concerns about a demographic crisis which has already prompted Beijing to try to increase the birth rate, with the significant step of relaxing the one-child policy; which was started in the 1970’s and only eased in 2015. Interestingly it also mentions ‘More than a dozen cities, especially in the north-eastern provinces, reported a falling population last year because of slow birth rates and an exodus of workers to economically vibrant regions.’ But also ‘China’s migrant worker population also fell last year for the first time since records began in 2008, the NBS said.’
Local press has comments from Shanghai residents regrading the falling birth rate; which most expressing concerns about the financials implications of larger families, current income to debt ratio’s, cost of housing/education and the responsibility for aging parents.
The one child policy obviously has had a huge impact and it is one the the few ‘u-turns’ that China has instigated. But it has had little impact. The policy was so well implemented that it has become very difficult to persuade people that it was wrong.
Interestingly the data shows that after the change in policy in 2015 there was an initial increase in the birth rate as ‘patriotic’ couples followed the party line but that was short lived.
The article concludes ‘Central government has remained cautious. The National Health Commission said in February it was considering allowing north-eastern provinces to join a “pilot programme” that would end all birth restrictions. Government advisers said there were still divisions on what a shrinking population might mean.’
There will be a lot written no doubt because it has far reaching implications.
Again I mention the free ERI-C webinar this Thursday (13 May) on 'The Implications of Global Demographics For Long-Term Investors: Charles Goodhart & Manoj Pradhan in conversation with Stewart Paterson" If you are interested please let me know or sign up on It is free and Mifid II compliant and will be recorded so you can watch it later.

Pipelines warned about cyber threat before Colonial attack
Vulnerability of back office network laid bare in February 2020 intrusion
An interesting read and highlights the need for greater security. Also asks how it will impact the meeting between Biden and Putin in June.
‘The US president said there was “no evidence” of Moscow’s direct involvement in the attack but added that Russia had “some responsibility to deal with this” given DarkSide’s perceived roots. Liska said Moscow tended to tacitly allow ransomware gangs to operate there and in return they “don’t attack victims in Russia and Russian-aligned companies”. The US Treasury last month accused the FSB, one of Russia’s intelligence services, of harbouring, “cultivating and co-opting” the notorious Evil Corp ransomware group.’
A key quote ‘“I fully expect DarkSide to shortly experience the full extent of [US intelligence community and Department of Defense] precision tactical deterrent capabilities,” said William Evanina, former director of the National Counterintelligence and Security Center and chief executive of The Evanina Group.’

Another recent Webinar by ERI-C mention how some within the US administration are increasingly worried about groups such as “Darkside” being able to operate from certain countries with impunity and want to carry out a ‘strike back’ to show that the US will not tolerate such action. I would not be surprised if something along those lines was currently being planned. Of course we may never know if they do and it does not reduce the need for greater vigilance.

Pandemic batters India’s aspiring middle class
Upwardly mobile who drove economic growth prove more susceptible to second wave
The keypoint being that the middle class in India are key consumers and if they are significantly impacted by the recent surge then it will put a question mark over future growth.
"Public health experts pointed to signs that after widespread infection among the urban poor last year, sectors of society including the comparatively affluent were more vulnerable this time. This was compounded by the near collapse of private health services. "
”The Pew Research Center found that 32m people fell out of India’s middle class — defined as those earning between $10 and $20 a day — in 2020. That represented more than half of those added to the category since 2011.”
A harrowing read in many respects but it underlines the critical importance of inoculations; especially for those that do not feel at risk.

Biden picks Emanuel as Japan envoy in first of several nominations
Looks at the expected nomination and Emanuel’s background.
”Emanuel will resurrect a tradition of sending influential former lawmakers to Japan, a trend Tokyo has appreciated because it is felt they have gravitas and more direct access to the White House.’
Worth noting that Biden seems to appreciate what the Japanese would like in the posting. In line with Biden’s approach of building alliances which is likely to be key in the Asian region.

Airlines call for summit on return of transatlantic travel
The airlines are no doubt pushing because they believe that there is demand for the services. I think air travel will rebound quickly especially for business after recent comments from the likes of Jamie Dimon at JPMorgan. Slight -VE for Zoom and other video conference facility providers.

For interest
Djibouti thrives amid spying and intrigue
Stable east African nation plays host to global powers in highly strategic location.
Looks at the small country and the impact of the Chinese arrival.
A interesting read
"Many agree that the atmosphere of the port city of Djibouti, where most of the population lives, resembles that of Casablanca, the film about intrigue in the second world war. “Everybody snoops on each other,” quipped one foreign diplomat. “We know very well that the Chinese want to spy. It doesn’t mean that we don’t do the same thing,” said a western military officer stationed in Djibouti. “We’re all friends here but we all like to know what the other is doing.”"

Canberra unveils spending spree ahead of poll
’Canberra has announced a pre-election spending spree worth tens of billions of dollars, with tax cuts and boosts for elderly care, childcare and women’s wellbeing partly funded by a A$53bn (US$41bn) windfall from surging iron ore prices and a better than expected jobs recovery.’
Looks at the budget announced yesterday ‘Analysts said the government’s focus on maintaining border security and safety and its continuing pivot away from fiscal discipline to prioritising jobs and social spending could result in an early election.’

Companies and Markets
AstraZeneca chief suffers investor revolt over pay rise
Worth a read highlights again that increasingly boards are seeing shareholders upset by the executives salary and bonus packages. Currently such votes are advisory but I would imagine that as boards seem to be ignoring such votes it will not be long before shareholders push for them to carry more weight.
See yesterday’s Support for US bonus deals at nadir

Billionaires back $10bn crypto asset exchange

Billionaires Peter Thiel, Louis Bacon and Alan Howard are among the backers of a new crypto asset exchange that will bet heavily on decentralised finance radically reshaping trading and investment in digital assets.
This could be a crucial move in the use of blockchain; decentralised finance (DeFi) is a quickly growing market that is outside the existing custodian model currently used by banks, brokers and exchanges.
‘Instead of using a traditional market maker to persuade buyers and sellers to trade on exchanges, investors can deposit their assets into a smart contract and let automated computer code handle buying and selling.’
Interesting because it removes the spread and offers the owners of assets a share in the fees generated by trading activity. It notes ‘The process has been compared to YouTube because investors can generate and upload their own content, bypassing established intermediaries.’
It does look set to disrupt but there are still issues and I would imagine that sourcing liquidity is going to be key. Often the intermediaries are the ones providing the liquidity because there may not be an immediate match between a buyer and seller. Computers and block chain can provide the playing field but liquidity is often key.

Hong Kong’s buoyant property market defies gloomy forecasts
Looks at home the prospects for the Hong Kong property market seem to have improved over the past 12 months and how the feared exodus of Hong Kongers has not impacted the market; at least not yet.
Rents have dropped across the board, for most types and class of property but deals continue to be done and secondary residential prices at hitting 23 year highs.
Worries over an exodus of people leaving and selling is probably overdone because many potential leavers will not sell their property but merely rent them out. Furthermore many already own overseas properties.
It does mention that relatively speaking UK property is cheaper than Hong Kong which does make it attractive especially if you can mortgage your Hong Kong property rather than sell it. ‘Over the past decade, Hong Kong home prices have gained well over 200 per cent.’ So not selling is a good option.
Also for Mainland buyers there was historically the benefit of getting money off-shore but under the new security law that is curtailed.
There is also the benefit for mainland buyers of renting the property out and getting an income something that is less frequently done on the mainland
It then looks at the developers stock prices which have remained trading at high discounts to their NAV’s but it has always been like that; for a number of reasons.
HK developers run on cash for the benefit of the major shareholders which is usually the family, the dividend increases if they need money. The balance sheet is not leveraged which is a negative normally and especially in inflationary times. It mentions CK Asset ‘net gearing — total debt versus total shareholder equity — stands at just 4.8 per cent, even lower than levels before the pandemic. That compares with 98 per cent for mainland peer Kaisa and Evergrande’s 153 per cent.’
They are not just property developers, they are property managers, property investors and also some own telco’s and bus companies; effectively they are conglomerates with a holding discount.
An interesting read. I do actually like the Hong Kong developers as a bond replacement. Their local knowledge and the high entry barriers in the cost of land here gives them a great advantage. The big worry ahead is that Beijing sees high property costs in Hong Kong as the reason behind the unrest of two years ago (rather than admitting it was the clamp down on freedoms) and will move to try and bring values down. The FT noted that a while ago in an interview with Chief Secretary Matthew Cheung he said
'But Cheung said Beijing had instructed the local government to focus more on “grassroots” interests and low-income workers.
“[Beijing] made it quite clear we have to crack the hard nut . . . We will crack the hard nut, the hard nut is housing, land, the wealth gap and so forth,” Cheung said.
“In the new landscape . . . some vested interests may have to compromise.”
From the article Hong Kong promises investors its prized tax haven status is secure on March 22.
That to me more than anything is the reason for the discount.

Back to office issue opens a transatlantic divide
JPMorgan frets that remote working means lost deals but SocGen pushes hybrid policy
An interesting read about differences to a return to the office.
Interesting quote ‘“There is an entrenched office culture in most investment banks, [but] there is a bit of resistance from staff,” said a Credit Suisse banker. “There is a value in having face to face, but does it need to be five days a week any more? No.”’
My guess is that it will come do to individual job functions but increasingly I believe that most jobs will return to the office now that inoculations have been rolled out.
There is a culture difference but I’m guess if Jamie Dimon is at his desk those wishing to impress will be too.
The one thing that could upset that is the covid variants; if they prove vaccine resistant then we are back to square 1.

SoftBank unit’s investment lifts THG
SB Northstar fuels gains in ecommerce group’s shares by joining its $1bn placing
Also ‘The company also agreed to grant SB Northstar a call option to acquire a 19.9 per cent stake in THG Ingenuity, a unit that provides integrated ecommerce and logistics services for groups such as DIY retailer Homebase and consumer products group Nestlé, for $1.6bn.’
Reactions were mixed.
'James Grzinic at Jefferies said the Soft-Bank option “provided a powerful external validation of Ingenuity’s attractions”, while Wayne Brown at Liberum said it implied THG’s other businesses, mostly direct-to-consumer ecommerce operations in health and beauty and nutrition, were worth £2.7bn.
However, Clive Black at Shore Capital said there was a large element of “smoke and mirrors” surrounding the transaction, and THG in general, which he described as “very worrying”.
“There is a real problem around the lack of visibility on the underlying business performance at THG,” he said. “It is a buy-and-build operation and there seems to be a low level of stress-testing on the cash and capital returns of all these acquisitions.”'

Renault looks at fitting cars with battery swapping tech
Renault is considering introducing a battery-swapping capability in its electric cars, potentially becoming the first big carmaker to embrace the technology.
An interesting read; as I wrote yesterday this is like VCR vs Betamax
Also of interest is the importance of the home market, Renault in France and Nio in China. Key to making it really successful will be having standard batteries that can fit in any vehicle in any country. That is what the battery makers should strive for, although I doubt it will happen. Anyone remember years ago the phone makers were going to make a standard charger to cut down waste etc…. then Apple came out with the thunderbolt!

Thyssenkrupp buoyed by steel’s recovery
Looks at yesterdays results. Key was the demand from and economic recovery in China.
Worth a read; Jefferies notes that the forecast is conservative. I still think that the recovery in China is not assured.

Raw materials boom propels shipping costs to decade highs
China’s ‘insatiable appetite’ for iron ore is crucial factor in surge for Baltic Dry index
An interesting read.
'A host of other factors have contributed to squeezing the shipping market, from record high US coarse grain exports to the trade dispute between China and Australia, which has tied up vessels with coal and other materials outside the ports of the world’s biggest commodity importer.
“The stars are aligned for dry bulk,” said Lasse Kristoffersen, chief executive of Norwegian carrier Torvald Klaveness.'
But it’s not all good news and comes after shipping has had a tough decade. Now helped by the low numbers of new bulk vessels as the industry grapples with what type of engines to fit to meet new emission standards to be announced in 2023 and last years increase in orders for container ships (meaning that yards have little capacity) the industry is trying to work out if this will last.
Sceptics note that unlike last super cycle there isn’t a ‘sustaining force like the rise of China, which drove the last period of high prices, and whose imports now make up almost half of the dry bulk shipping market.’
Still for the moment it is good. Worth also noting that the out look for the ship builders is also good another positive for the specialist steel makers.

LEX Shipping: catching a wave ‘There is a risk that the shipping industry will revert to its normal pattern of over-ordering when times are good.
The dry bulk sector is vulnerable to this, because it does not have the system of alliances that control capacity in the container market.
But uncertainty over the energy transition is holding back new orders. It is unclear whether ammonia, hydrogen or another candidate will prove the best low-carbon fuel. The order book-to-fleet ratio has fallen from nearly 80 per cent at the time of the financial crisis to under 10 per cent. That should smooth the passage ahead.’

Digital currency offers a boon to central banks. By Nicholas Gruen chief executive of Lateral Economics and visiting professor at King’s College London’s Policy Institute
Worth a read about how using a digital currency would benefit the system and because private digital currencies are on the increase it is an opportune moment to do it.
The losers would be the banks who currently have the near monopoly on money creation.

Dogecoin’s jokiness gives away the crypto game
A very good read for why you shouldn’t buy crypto except for the fact that many crypto currencies do have a purpose that is linked to blockchain. When thinking and talking about crypto there are two key areas; the dogecoin jokes and then those like Etherum that grease the wheels of the block chain.

LEX Hitachi: crack spot Cracks in the railcars underscores long-running reputational problems at the Japanese industrials group.
'Yet for future deals to succeed, it will need to clear up persisting doubts over its reliability, which have hit profits in the past. Hitachi may have to pay compensation for UK rail disruptions. None of this helps it complete its transformation into an IT company. Clearly Hitachi has further to travel.'

LEX Thematic investing: over indexed
A good read about how the trend seems to have got ahead of itself ‘Data from Morningstar illustrate the pitfalls. More than two-thirds of thematic funds outperformed the broad MSCI ACWI index in the year to end March. But go back five years and that drops to below a third. One-fifth of thematic funds did not even survive. Over a decade, just 4 per cent outperformed. As themes go, this one does not inspire much confidence.’

White House confronts western disunity over the pandemic
By Edward Luce
The struggle for US democracy
As Trump’s grip on the Republican party tightens, Biden is playing for huge stakes — and he knows it
By Martin Wolf