A couple of new uploads

I wrote a piece titled...

"Hammerson to buy Intu - shopping centre madness?"

...which was uploaded just now to the ShareProphets website.  A link to the piece (free sign-up) is here.

I also wrote a piece titled...

"DS Smith - packaging up a nice present for investors"

...which was uploaded just now to the ShareProphets website.  A link to the piece (free sign-up) is here.

I wrote a piece titled...

"Office shocker by IWG (aka Regus)"

...which was uploaded just now to the ShareProphets website.  A link to the piece (free sign-up) is here. 

Stories out this morning (GMT)

Last day of the year...in an associated fashion this cartoon from today's Financial Times made me laugh:

So what news today before we flip over into 2015?  Well the Chinese manufacturing PMI numbers were not the greatest with new orders contracting for the first time since April 2014...

I note too that report authors Markit and HSBC call for 'further monetary easing in the coming months'.

Still, with the Chinese markets posting a 50%+ increase in 2014 another reminder that equities and GDP are rarely directly correlated.

A couple of other stories from China include the reasons for these crowds below in Shenzhen. As the People's Daily website noted that the city 'Starting from 6 pm Monday, only 100,000 new car plates will be allocated per year, a number which includes 20,000 electric cars.Upon hearing the sudden announcement, local residents made good use of the window of 20 minutes to rush to dealerships to buy a car'

Interesting to read what the China Daily website thought of this: 'the city of Shenzhen could have done a much better job when introducing its own quota system'.  Ouch!

One of my macro themes for 2015 was an observation that social stability/the anti-corruption crackdown and - to some extent - a growing cult of personality around President Xi may well be more influential than the growth numbers to the nearest decimal point per se. Along this theme I thought this graphic was interesting: the rising footprint of "mainland" firms in Hong Kong: 

 One other story of note in Asia and that is this editorial about the recent Japanese corporate tax changes from the normally relatively docile Nikkei Asian Review:

'The fiscal 2015 tax reform plan adopted by Japan's ruling bloc failed to address the difficult changes needed to mend the country's fiscal health, leaving Prime Minister Shinzo Abe's vision for change in the tax regime further from becoming reality'.

I would agree with that analysis.  

Anything else...well three broader charts for the US economy showing some good news via lower gas prices...

...but higher rents...

...and wage-busting house price rises too:

 The US economy may be headline doing well but the struggles of the masses continue...unfortunately I think this continues in 2015.

"Recent IPO smackdown: Zoopla vs AO World"

I wrote a piece titled "Recent IPO smackdown: Zoopla vs AO World" which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

Asia today - update on Japan and China plus an unfortunate newsreader in India

After a couple of busy days the return of Asia today...but little has changed.  Take a look at the Japanese yen against the US dollar...in the 109s now (or to put it another way back to the levels last seen in 2008):

A return to the 120 decade 'high' seems to me inevitable.  I remain short the yen.  

And more is needed.  As this report on Reuters notes:

'The (Japanese) government on Friday cut its view on private consumption, which accounts for about 60 percent of the economy, saying that consumer spending is seen pausing although a pick-up trend remains intact'

Remember what Mr Kuroda of the Bank of Japan said at the Jackson Hole summit a month or so ago?  As I noted here he said that:

"We at the Bank of Japan do not think it necessary to change our economic forecasts for coming years...if there is anything which could derail our course toward 2% inflation target we would not hesitate to change or adjust (but for now) we will continue our current monetary policy”

This thinking needs to change...more stimulus needed.  Of course this does not mean Japanese equities are not of interest.  On the contrary as shown below the scope for a shift to a 10 year high is a distinct possibility.  Of course what that means is that stock picking is going to matter...

Otherwise the debate about Chinese growth continues. I noted in yesterday's Wrap (link here) that the signal from the Chinese property market remained negative.  Stimulus and support at the margin is clearly going to be a sub-theme over the rest of the year (along with continuing microeconomic reform).  This chart from today's Financial Times was indicative of the former.

Similar to Japan I kind of feel that the Chinese markets also remain in a stock specific orientation.  Macro concerns combined with some strong performance over recent months has evolved the cheap orientation of these markets of earlier this year.  The Hang Seng remains nicely indicative of this: note the rollover/resistance at the 25,000 level on this 5 year chart: 

Finally...this was unfortunate in India:

'AN embarrassing faux pas has proved costly for a Doordarshan newsreader. This casual newsreader mistook ‘Xi’ in Chinese President Xi Jinping’s name to be the Roman letter for 11 and read the name as Eleven Jinping. The newsreader has been removed. The mistake happened during a late night bulletin which is generally read by casual newsreaders since the regulars do not prefer to work at that time'

Asia today - the falling yen, Australian property and Chinese regional tensions

Got to keep on watching Japan in Asia.  Following a set of poor consumer confidence numbers another slip in the yen has left those one decade lows at the 120 against the US dollar look like a target... (I remain short the yen):

Another exchange rate I have been looking at as a signal is the Australian dollar... 

...where I still see the 0.95 level against the US dollar being a huge resistance area due to the some of the growing challenges in the local economy as China slows.  Beyond knock-on effects from the mining sector the Australian property sector has long worried me.  The Australia Property Forum (@OzPropertyForum) highlighted the continued boom in property lending as a proportion of total lending with the observation that 'Investors are entering uncharted waters; national housing speculation has never been higher'

Or as @brookecorte put it:

'First home buyers cont to disappear from the housing market. Loan figures today show they account for record low 12.2%'. 

Not good.  

Finally, China.  I have talked a lot here about the ongoing microeconomic reform that enables the below more strategic/macroeconomic opportunity to be embraced:

(h/t @wef)

As I have mentioned before I follow the People's Daily (@PDChina) and found this observation from them interesting:

'People in China & Japan see the 2 side’s relation hit the worst in 10 years: 

The 10th China-Japan Public Opinion Poll'

• 

Unfortunately the implied potential for regional tension is very clear.  Of course, to finish where we started, the Chinese yuan is in a completely different place versus the yen as evidenced by the observation via Bloomberg earlier today that: 

'China’s yuan rose to a six-month high as the central bank raised its fixing by the most in almost four years after the nation reported a record trade surplus. The People’s Bank of China boosted the currency’s daily reference rate by 0.3 percent to 6.1520 per dollar, the biggest increase since November 2010 and the strongest level in four weeks'

Asia today - iron ore and the Aussie $, Chinese property and the Shanghai bourse

A few charts and then some company analysis - the earnings season certainly is not over in Asia!

First, lots of continued discussion on the iron ore price which is falling to a very interesting level:

I have struggled recently to justify some of these moves and earlier this month doubled my Rio Tinto short (link here) following headline 'good' results.  I have also been looking for an opportunity to augment my Australian index short with one in the Australian dollar.  As this excellent chart via @vicbatch shows any correlation between the Australian dollar and the commodity price index has completely broken down this year...

Another interesting anomaly is the reasonably good performance of the Chinese property stocks, as shown below, via the Shanghai Property index whilst...

...the metrics on the Chinese property companies (as nicely summarised here in a chart highlighted by @MktOutperform) are getting worse:

In clearly related news also no surprises to read via Fast FT that 'Country Garden, one of China's largest property developers dropped more than 6 per cent after it launched a 1-for-15 rights issue, giving investors new shares at a 31 per cent discount to the last closing price. Country Garden raised $410m in the offering, to pay debts and lower its leverage as the country's property slowdown deepens'

Chances of a tactical 'swoon' in the Chinese property market looks pretty clear to me...which is why (as noted here) stimuli options are being considered/implemented specifically and...more generally, unsurprising to read this earlier today:

'The Chinese government launched a "fresh round of mini-stimulus"...The measures aim to support the agricultural sector, boost investment in public facilities and improve environmental protection...The People's Bank of China (PBOC) has given banks a larger re-lending quota at lower rates to support the farm sector. It granted a 20 billion yuan ($3.26 billion) re-lending quota to its local branches to guide rural financial institutions to step up lending support to the sector, it said on its website late Wednesday'

The general Shanghai bourse is running into resistance too.  Clearly the transition of Chinese equities from 'cheap' to 'a stock picker's market' is complete.  Harder going from here versus the last few months.

On that basis company earnings analysis becomes more important...and some more reviews are coming up in the next posting.  

Asia today - Chinese technological changes and reforms, Asian land/office prices and the RICE bucket challenge

Asian markets are generally in the red today with no huge stories grabbing all the headlines.  The first story that caught my attention was this one observing that:

'China is planning to take on Apple and Google with a new homegrown operating system that will launch this year, as Chinese government seeks to distance itself from imported rivals. The new operating system created by the Chinese government will hit desktops first when its released in October...and will hopefully supplant Windows, OS X and Chrome OS as the top desktop operating system in China within one to two years, with a mobile version planned as well.

Now we all know that the pace of technological change is phenomenal in China and, when combined with the lure of national champions, the above story cannot be that surprising.  China has, of course, been a difficult market (for differing reasons) for both Apple and Google to get traction in.  This pace of technological change however transcends more than just 'foreign' players as this extract from an article in today's Financial Times shows:

Such campaigns are, of course, part of the ongoing microeconomic reforms and a source such as the People's Daily (@PDChina) is an interesting source of comments.  Earlier today, for example, they noted:

'Average annual salary of SOEs’ chairmen was US$140,000 in 2013. Draft rules will adjust executives’ salary to 30 percent of current level'

and

'China Southern Airlines renamed some First Class seating to Business Class after civil servants banned fm First Class'

The overt reform agenda continues.   

Reform however is within the context of export assistance as shown in the chart below.  It is interesting to contrast the differential compared to India but what is perhaps the most striking is the G7 ex US line.  Who would have thought that?

A couple of final graphics, first a surprising selection of south asia capitals have the highest year-to-date land/office price appreciation (and look at Hong Kong at the bottom of the pile)...

...whilst India has a whole new take on the Ice Bucket Challenge as per this link:

Asia today - Kuroda at Jackson Hole, renminbi use and South Korea's long-term challenge...

Asia today starts with a couple of interesting comments, over the weekend, by the Bank of Japan governor Haruhiko Kuroda at the Jackson Hole meeting:

"We at the Bank of Japan do not think it necessary to change our economic forecasts for coming years...if there is anything which could derail our course toward 2% inflation target we would not hesitate to change or adjust (but for now) we will continue our current monetary policy”

An interesting comment and suggests that more stimulus may be NOT around the corner.  Look though at the signalling from the currency markets...the yen is falling back down to a big level:

I think this continues (which is why I am short the yen).  From a Japanese stock selection perspective staying long the exporters such as Sony and Toyota would be my instinct.  

If Abenomics have proved ultimately slightly disappointing it is still insightful that there has been a more than subtle shift in Japanese economic labo(u)r force participation rates which is a social / cultural change.  Not quite a 'third arrow' but getting there...

What else is of interest today in Asia?  Well @chloechotv notes on the mixed-at-best Chinese housing market that:

'Yikes! Beijing sees first 0 down payment property promotion. Developers’ 1H sales lower than expected, more companies may follow, Reorient'

Meanwhile the growth and growth of renminbi settlement and usage continues apace:

(h/t @aaroncareaga)

Finally, as per this report, "South Korea’s fertility rate is so low that the country’s population could go the way of the dinosaurs by 2750, according to a new simulation commissioned by the National Assembly in Seoul". 

2750 is a suitably longer-term focused theme! 

Asia today - China property, carry trades and microeconomics plus Australia's high misery index

Much attention today in China on the new data disclosures this morning:

'Chinese House Prices (YoY): 2.5% Previous: 4.2% Chinese FDI: -0.35% Previous: 2.20%'

You can feel the wailing and gnashing of teeth with the above.  As Fast FT noted:

'new homes in 70 Chinese cities fell by an average 0.9 per cent between June and July - the sharpest tumble in three straight declines. Sixty four of the 70 cities saw monthly prices fall, versus just 55 in June'

My personal view remains that this is a healthy slowdown and that not only does stimulatory options remain (recall the actions noted in this posting in Shenzhen for example) but fundamentally - and especially outside the top tier cities - economic development continues.  Meanwhile that great signalling mechanism - the Shanghai bourse's property index - is hardly flat on its back:

Staying in China I liked this chart on different carry returns from FX pairs derived from this Bloomberg story .  Assuming no extraordinary imbalance 'excitements' in the Chinese economy I doubt whether there will be a sufficient devaluation of the Chinese yuan (CNY) to offset such potential returns.

 (h/t @fion_li)

I am continually argued that the key to understanding China is the extent of the ongoing microeconomic reforms.  No surprises then that early Monday reports noted that: 

'Daimler AG's luxury brand division Mercedes-Benz has been found guilty of manipulating prices of after-sales services, China's official Xinhua news agency reported on Sunday, citing authorities in Jiangsu province'.

My instinct would be that such actions represent more of an opportunity to buy depressed western names than a threat per se (akin to the baby food companies in the last year).  Good news for Chinese consumers however in terms of lower prices...which is really what all this is about.  

China needs to stay competitive of course because its traditional lower labour cost angle has materially abated.  Even with slightly old data the clear scope (as witnessed by various shifts by corporations over the last few years) to source significantly lower cost labour is clear.  China is very correct to focus on productivity enhancing measures via microeconomic reform: 

Finally, Australia.  I was struck by this piece on the excellent Australian Property Forum site who noted some recent research which observed:

“Our research shows 42% of young people under the age of 24 have between $10,000 and $30,000 of personal debt, not including a mortgage...Australians aged 24 and under are also four times more likely to get a weekly cash advance from their credit card than were their parents’ generation.”

Scary stuff...and not helped by an Australian economy which this Bloomberg report observes is suffering:

'Australia’s misery index -- the sum of unemployment and inflation rates -- is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression'

The Australian benchmark index may be at 5 year plus highs but it is surely going to need a much stronger world economy - or much weaker Australian dollar - to regain anything close to those pre global financial crisis levels.  

Charts today - gold, high yield, UK property and a slip again into negative UK real wages

Charts today starts with an important reminder from Robert Main's latest research (link here) that the gold miners index (GDX) is at an important level...

As discussed late last week, Randgold Resources remains my favourite.

Not much favouriting going on in the high yield bond market.  Amazing how this market has slipped away into the biggest bear run seen to date (but note prices adjusted further in shorter historic sell-offs).  Interesting.  I am still generally sticking to equities albeit acknowledging their volatility...and call option upside (over time) via stock picking / theme selection.

Henry Pryor (@HenryPryor) put together a series of interesting UK housing market tweets over the weekend.  This was one of my favourites:

 Possibly something linked with the above is the push back again (after a brief positive flirtation) of negative real wages in the UK.  Hmm.

Asia today - China special including inflation, property, Facebook, construction prowess and...Hong Kong's strange geography (as per CNN)

Given the US market's bounce on Friday, no surprises that the Asian bourses are generally recovering today.

Some pieces of interesting news - today mostly focused on China and related.  On Saturday China posted some relatively benign inflation data which Reuters wrote up as:

'Data from the National Bureau of Statistics (NBS) showed that the consumer price index (CPI) held steady at 2.3 percent year-on-year in July, while the producer price index (PPI) fell 0.9 percent for the 29th consecutive month...Both indicators matched analyst forecasts...Analysts attributed the steady CPI to slides in prices for fresh fruit and vegetables, which offset rises in other categories'

This is important as relatively benign inflation gives the option/potential of room for more stimulus if required...and on that front this report from MacroBusiness was fascinating on the Chinese property market...and potential first tier city boosts:

'The Shenzhen government recently held a closed door meeting with developers to discuss the trend in the market. Reports say that Shenzhen has already prepared real estate tax cuts and lower down payments on a second home (down 10% to 60%), but hasn’t announced easing of buying restrictions. According to a government official, the policies may not be implemented, but it shows the state of the government’s state of mind'

This report was sufficient to bump up certain property development companies...all a bit low quality.  To me such stimulus goes hand-in-hand with on-going microeconomic reform and the two cannot live without each other.  Worthwhile reading the link on the requirement/potential benefits of reform from yesterday's 'Stories...' email (link here).  

A couple of other China stories...a slightly scurrilous one on President Xi and Facebook...

...and an indicator of relative prowess as the Great Beijing Outer Ring Highway at a mere 590 miles will be fully opened in 2016:

(H/t @taniabranigan, @PDChina)

Certainly could not get this done in the UK at such speed...

And finally...it looks as if CNN's geographic radar was a bit off: 

Charts today - high yield flows, FX changes, German exports to Russia, global property prices and...radical US weather

Charts today has to start with the bond market.  On a day when sovereign bond yields in the US and Germany continue to compress...but high yield fund flows continue to worsen.  That's risk-aversion for you.  Amazing that it was just a few weeks ago that 'cov-lite' bond sales were rampant...

So more volatility in the bond markets, what about the currency markets?  That bout of recent US dollar strength is not so material (yet), ditto euro weakness.

(h/t @ReutersGMF)

Nice chart from Berenberg Economics today on the trend in German exports to Russia...I think we can guess the next iteration here...

The South China Morning Post was feeling a bit sore about selected Hong Kong property prices BUT on average the HK property market is not as crazy as certain others...step forward London in particular in my view

Finally, I like this autumn weather chart prediction - all that is missing is pestilence I think!

Charts today - UK houses, energy consumption and mobile app use

Relatively slim pickings for charts today after the epic 'Stories we should be thinking about' on Sunday evening...

From today's Financial Times...the UK needs to build more houses (no wonder property prices are high)...

...from the OECD some interesting insights into the realities of energy consumption...

...and no surprises which age group spends more time on mobile apps than any other: