Charts today - asset allocation, jobless claims, flows, Saudi, weather & HK vs Singapore!

A fairly random selection this morning.

With perfect hindsight asset allocators would have identified a very interesting switch moment in July!

You have got to say this US jobless claims chart is pretty impressive...even if many of the jobs will be lower paid: 

Lots of interesting flow data out today (please check out this link, paywall however) including the biggest European equity weekly outflow from US investors Lipper has tracked.  That sounds like an opportunity to me...  Meanwhile in the bond and related space the flight to quality continues apace: 

Keep an eye on Saudi this Sunday as per this extract from today's Financial Times: 

Now we can see why retailers have been struggling this September!

And finally, Hong Kong versus Singapore.  In lieu of a lack of Asia today publications this week (markets have just made me too busy - hopefully returns next week) an interesting graphic to muse over: 

Asia today - price fixing, Japanese trade data, climate impacts, Big Mac index and is Ping An a buy?

Lots of interesting numbers out in Asia today including the Australian-listed Fortescue in the iron ore space who I wrote up here.

Before we get onto a couple of Hong Kong names, a touch of macroeconomics.  As this report noted
China found 12 Japanese auto-parts makers (including four bearings manufacturers) guilty of price fixing and imposed 1.24 billion yuan's worth (c. US$200 million) in fines.  My observation - akin to the conclusions of this recent Daimler piece - is that the amount per company seems...quite low.  Fear is higher than reality...

Otherwise, despite a rise in exports, Japanese trade data remained poor including higher imports (fuel) and a 25th consecutive deficit.  The yen did push down a little against the US dollar as shown below...good news for my recently doubled short position:

Another story doing the rounds today are the comments from the Asian Development Bank who are observing the potential longer-term climate impact on growth in South Asia.  Really longer-term observations...but 20%+ GDP declines should catch the attention! 

A reason to be avoiding the region?  No.  A reason to be worrying about global climate change impacts?  Yes.  Especially for your pension fund assets. 

Finally I liked this posting in the South China Morning Post on (all in Hong Kong dollar terms) how many Big Macs can be purchased for working for one hour on the local minimum wage...

Interesting to compare the US or Turkey/Poland versus Western Europe or even Mexico versus the US.  

Let's turn to these Hong Kong listed companies now.  I have talked positively about the insurer AIA a number of times before (most recent write-up here) and one of their peers Ping An produced some solid looking numbers today: 

'China’s second-largest insurer, said first-half profit grew 19 percent as premium income climbed and banking revenue increased. Net income rose to 21.4 billion yuan ($3.5 billion), or a diluted 2.55 yuan a share, from 17.9 billion yuan, or 2.26 yuan, a year earlier. A 34 percent profit increase at unit Ping An Bank Co. (000001) and higher premiums earned helped...boost profit'

This latter point is very important.  Ping An's profitability is just over 60% insurance and much of the rest is banking...

...and this is a 'proper' bank in the sense that loans are materially higher than deposits:

So what about bad loans which we are told to worry about in China?  Well usefully they provided this chart:

Now this is interesting because Bank of China numbers are also out and they observe that:

'The bank's non-performing loan ratio increased slightly to 1.02 percent at end-June compared with 0.98 percent at end-March, pushing it above the 1 percent maximum level that the Chinese banking regulator has said is healthy'

Hmm.  It has already been widely observed that Chinese banks appear 'cheap' on a global price-to-book basis.  The trouble is sometimes areas can be cheap for a reason.

I guess what I am trying to say is that insurance and not banking appears to be the way to access Chinese/Asian financial sector opportunities.  On this basis, as per the chart below, AIA remains less volatile and more interesting.

A level for Ping An?  A movement of HK$5 either way from here would increase my interest would be the only conclusion I would have.  

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!

Asia today - Indonesian election, themes for a lower yen, Indian monsoon and surprisingly new Korean productivity measures

Lots going on today in Asia.  As I write we await the results of the Indonesian elections which look relatively closely run.  A great set of graphics here from ThomsonReuters.

Turning to Japan which is playing a bit of catch-up today after a three day weekend, I was interested to see in The Financial Times the sheer size / direction of recent US dollar asset purchasing (with a notably more positive trend than other currencies):

Now logically this is due to the higher yields on offer and potentially a hope/anticipation of a weaker yen / stronger US dollar - a theme/direction I would agree with.

The euro does not offer particularly higher yields but one of the Japanese banks notes that continuing material QE by the Bank of Japan is likely to lead to one outcome and draws on a trading observation from a hedge fund guru to make their point:

'The euro will surge to a six-year high against the yen by the end of 2014 as the European Central Bank isn’t printing money as fast as the Bank of Japan, according to Daiwa Securities Co. The CHART OF THE DAY shows the ratio of Japan’s monetary base to Europe’s jumping to a record. Japanese traders and investors refer to this gauge as a “Soros Chart,” after billionaire investor George Soros correctly predicted in the 1990s that the yen would weaken because of Japan’s burgeoning money supply'

As one correspondent noted very correctly on Twitter (h/t @MarkBrant1KM)

'Also, Soros' power can effect reflexive feedback into euroyen, hence "reflexivity".'


A couple of final stories...

We all forget how big China is:

'China had 632 million Internet users as of the end of June, just slightly more than double the entire estimated population of the U.S. The year-to-date growth alone is more than 14 million users, roughly equivalent to all the residents of New York City, Los Angeles and Chicago combined. Just as interesting is the tremendous mobile-internet penetration -- a full 83%, or about 527 million'

Some interesting information on the Indian monsoon:

Finally...Korean productivity as you have never seen it before!

Asia today - Chinese inflation and the yuan, Japanese bonds...and earthquakes

Inevitably many Asian markets were fairly muted today following falls in the European/US markets yesterday.  Elsewhere Chinese inflation data was quite interesting and I would agree with these insights from Fast FT (with emphasis added by me):

New data showed China's consumer price index rose just 2.3 per cent from a year earlier in June, down from 2.5 per cent in May and well below Beijing's 3.5 per cent target.

The producer price index remained in deflation for a 28th straight month. Factory gate prices were down 1.1 per cent from a year ago, versus estimates of a slower, 1 per cent fall.

Liu Li-Gang, chief economist at ANZ, said the two indices highlight a "risk of deflation" but should provide room for Beijing to "launch more targeted stimulus policies in the second half of this year." 

The below chart from Markit has not been updated for the latest data but it puts into context the Chinese data.  The key insight is the 3.5% target - and underlying growth of nominal wages (particularly focused in more rural areas) of more than double that:

I came across this chart (h/t @SandyHendy) which nicely captures the importance geopolitically of the recent decline in the yuan...raising tension/volatility in the global FX markets ('no one wants a strong currency etc)

A couple of final stories.  I thought this was interesting on Japan which has helped push JGBs to a one year plus low:

'Cheap funds supplied by Japan’s central bank to boost lending are ending up in government bonds, say traders, exposing persistently weak demand for credit across the world’s third-largest economy'.

QE is no panacea BUT more stimulus seems to me to be needed.  Perhaps they need to talk to the ECB about TLTROs and the like...

Finally, Indonesia votes today which is clearly a potential political earthquake - more on this tomorrow as results are declared.  Talking about earthquakes, I thought this was a great 'ring of fire' chart - something (unfortunately) all Asia/Pacific investors have to think about.

Asia today - Abenomics, Australian confidence, Chinese correlations and why Mrs Merkel is visiting China

Asia today kicks off with this great chart via @auaurelija showing that 'Abenomics' mention intensity lagged the Japanese Yen's fall.  They need to do more...

Interesting divergence in Australian confidence indicators:

Who do you have more faith in?  The trouble is if businesses are 'beating up' workers via suppressed wage increases and other corporate margin enhancement measures this will ultimately impact the economy.

The corruption/GDP trade-off in China is different from anywhere else (if you believe the numbers):

Staying with China another interesting correlation this time coal and CO2 emissions:

Links nicely with this article.  'Having declared "war on pollution", China is arming itself with tougher weapons from new courts to daily fines and shutting down offenders altogether, in what analysts call promising steps but no guarantee of progress'.

In a chart why Mrs Merkel is in China

(h/t @rishaadtv)

Finally this tweet/picture speaks for itself!

Josh Noble @JoshTANoble  

The new Hechi airport in the Guangxi mountains looks fun.

Asia today - Japan regional data, mining insights and the big storm

A few stories in Asia today worthy of note.

First the regional economic report in Japan.  Fascinating similarity in the direction shown in the original report which inevitably led to the conclusion (with my emphasis added):

'Compared with the last assessment in April 2014, all regions reported that their economic assessments regarding the pace of economic improvement had remained unchanged'

Actually it was not quite as neutral as that with the report going on to conclude:

'They reported that the economy had continued to recover or had been recovering moderately as a trend, while the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike had been observed. The background to these reports included the fact that domestic demand had been firm, production had been on a moderate increasing trend, and the employment and income situation had been improving'.

I personally still don't think it is enough and that more stimulus is highly likely before the end of the year.  In the shorter-term GDP numbers are not going to be the best due to the distortion of the tax increase as noted here: 

Emerging Equity @EM_Equity 

Barclays Stunner: Japan Q2 GDP Likely To Fall 7.3% On-Quarter

What other news in Asia?  Well a couple of mining/related stories.  This surprised me from BHP Billiton as reported by the Financial Times' commodities editor:

Neil Hume @humenm 

As FTAV would say: "This is nuts when's the crash?".BHP considering reactivating its stalled $20bn outer harbour project at Port Hedland

And then there is this on gold which I still like both tactically and strategically.  Chinese demand remains strong albeit slightly off the highs of earlier in the year:

Finally, back to Japan, I noted this story about the weather...or maybe a metaphor?

'A super typhoon described as a "once in decades storm" was heading north for Japan on Monday, set to rake the southern Okinawa island chain with heavy rain and powerful winds before making landfall on Kyushu, Japan's westernmost main island'

Good luck to all those in the storm's path.  

Charts today - invested assets, poor lending trends and Arctic Ice build up

Charts today start with this interesting observation from the GaveKal Capital blog (link here):           ' The previous two peaks in equity mutual fund assets as a percent of total money market assets occurred in the 2.6-2.7x range. Today equity mutual fund assets are 3x money market assets and have leapt all the way to 3.75x when we include ETF assets'

Over-allocation?  Or a lack of alternatives.

Clearly Developed markets - aided by cheap money - have been strong over the last few years...but frontier markets have recently been stronger.

All these excitements have really impacted risk averse assets with volatility low and gold (when viewed as a ratio divided by the S&P) at its lowest point since last 2008...

 

Not everything is perfect though...whilst UK house prices this morning may be showing their highest growth since mid-2007 (hmmm), general lending trends to companies remain poor:

 



And across Europe the build-up of deposits which are not being lent out is a very clear theme.  This is why Mr Draghi has to act on Thursday:

Finally, something different.  Arctic Ice levels...

Asia today - data, Chinese banks, climate control and interrelated internet giants

Final day of the financial quarter - and in some countries like Japan and India the final day of the financial year for many companies.  Given this, it is relatively quiet in the major Asian time zone bourses.  Yes, the Chinese yuan offshore rate is pretty much at new one year lows...

 

 

...and Japanese factory output was pretty poor in some of the major variables/data but neither observation on their own is that ground breaking.  China is still weakening their currency to alleviate some pressure on the economy and Japan probably needs more stimulus. 

 



 

Talking about the Chinese economy and related there were a couple of interesting pieces in today's Financial Times with effectively contrasting views.  First a good piece of reporting on Chinese banks and bad debt levels including some interesting observations/statistics concerning the growth of writedowns. 

The second piece was by an actual Chinese banking system insider, namely Peter Sands the CEO of Standard Chartered who wrote a useful piece entitled 'China's debts do not indicate imminent explosion' which reflects on both the challenges of transition...plus the structural opportunities too.  Clearly this debate will run and run.  For what it is worth, the Shanghai banking index - like the overall bourse - remains a few per cent above recent lows.

Here is a good chart though for the structural bulls on China:

 

 

A couple of final charts.  The UN have warned that climate control issues will be "severe, pervasive and irreversible".  I will be picking that up elsewhere but this report highlights not only a major storm in Hong Kong overnight but also overt warming there, as shown below.  Region-wide if there is one impediment to greater Asian economic dominance it may be the weather/related economic balance issues.   

Finally, we will also be hearing lots more about the Chinese internet giants over the next few years.  Here is a good (but complex) chart showing how they are...interrelated:

 

FedEx: despite the weather excitements, patience

The weather...is a glorious catch-all for many companies as I have already noted with this fantastic chart from Factset:

FedEx have played the weather card today for their fiscal Q3 results which consequently were a little below hopes:

Were the numbers that bad though?  The critical chart was this one where I struggle to see too many bottom-line differences between Q3 and the 9 month period on a revenue, operating expenses or operating income basis on a year-on-year basis. 

Back in December when I last formally reviewed FedEx I concluded that:

'So what value logistics?  If you believe the company's guidance they are trading a little over x12 EV/ebit for their FY15.  That seems pretty full to me even if rising e-commerce flows and general trade increases continue to kick in...I want to embrace some volatility...and that's nearer US$125 for FedEx'

Given the share price chart - and the share trading just below US$139 currently - only one word applies...and that's patience.