Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

With the rest of the world still in various stages of lock-down, China has returned to its traditional export- and investment-driven economy -- fueled by a surge of TSF (which rose 56.9% YoY faster in Jan-Jul 2020), implying a new burst of shadow-financing. Exports rose 9.5% YoY in August, and China's steel production rose 9.1% YoY (while the rest of the world's declined 16.1% YoY) in July. So it is worth staying Overweight China for now. But its imports contracted 2.1% YoY in August, and retail sales have declined YoY each month of 2020, illustrating the continuing slump in domestic demand; once the rest of the world has no need to absorb the massive new capacities China has added in the past 4 months, China's imbalances will become a major dampening factor for its financial system in 2021.   China's total social financing (TSF) has increased by RMB22.39 trillion  (US$3.26 trillion) in January-July 2020, 56.9% faster than for the same period in 2019, with shadow-banking seeing a powerful rebound. This boosted FAI (fixed asset investment), albeit mainly public FAI (+3.8% YoY in the year-to-date), while private FAI declined 5.7% YoY. But after a severe decline in 1Q 2020, FAI began growing in April, and was up 9.3% YoY in April-July 2020, resuming its role as the main driver of China's economy. Retail sales, meanwhile, declined YoY in every month of 2020. As the originator of Covid-19 (or the "Wuhan Coronavirus"), China had a two-month headstart on dealing with the crisis, and was able to contain it within Hubei province (of which Wuhan is the capital), the only part of China that was fully locked down in January and much of February. Once the rest of the world began to lock down, China was in position to reopen, and its exports have consequently accelerated steadily, growing 7.2% YoY in July and 9.5% YoY in August 2020. The rebound in FAI is, for now, being partly validated by the rebound in global demand for China's exports, at a time when much of the rest of the world is partially locked down.  This is well illustrated in the steel industry, where China's output has increased 5.9% YoY in the past 3 months (May-July 2020) while the rest of the world's steel output has declined 20.5% YoY. As long as the rest of the world's economy remains in various stages of lock-down, China's relatively undisrupted economy will gain global market-share. During this phase (likely to last at least through October 2020), investors should remain Overweight China. The weakness of private consumption means that any setback to China's exports (likely once the rest of the world's supply-chains begin normal functioning by November-December 2020) will be impossible to counter with domestic demand. The imbalances of excess capacity built up over the past 4 months of strong FAI (particularly public FAI) will then rebound on China.

With the rest of the world still in various stages of lock-down, China has returned to its traditional export- and investment-driven economy -- fueled by a surge of TSF (which rose 56.9% YoY faster in Jan-Jul 2020), implying a new burst of shadow-financing. Exports rose 9.5% YoY in August, and China's steel production rose 9.1% YoY (while the rest of the world's declined 16.1% YoY) in July. So it is worth staying Overweight China for now. But its imports contracted 2.1% YoY in August, and retail sales have declined YoY each month of 2020, illustrating the continuing slump in domestic demand; once the rest of the world has no need to absorb the massive new capacities China has added in the past 4 months, China's imbalances will become a major dampening factor for its financial system in 2021.   China's total social financing (TSF) has increased by RMB22.39 trillion  (US$3.26 trillion) in January-July 2020, 56.9% faster than for the same period in 2019, with shadow-banking seeing a powerful rebound. This boosted FAI (fixed asset investment), albeit mainly public FAI (+3.8% YoY in the year-to-date), while private FAI declined 5.7% YoY. But after a severe decline in 1Q 2020, FAI began growing in April, and was up 9.3% YoY in April-July 2020, resuming its role as the main driver of China's economy. Retail sales, meanwhile, declined YoY in every month of 2020. As the originator of Covid-19 (or the "Wuhan Coronavirus"), China had a two-month headstart on dealing with the crisis, and was able to contain it within Hubei province (of which Wuhan is the capital), the only part of China that was fully locked down in January and much of February. Once the rest of the world began to lock down, China was in position to reopen, and its exports have consequently accelerated steadily, growing 7.2% YoY in July and 9.5% YoY in August 2020. The rebound in FAI is, for now, being partly validated by the rebound in global demand for China's exports, at a time when much of the rest of the world is partially locked down.  This is well illustrated in the steel industry, where China's output has increased 5.9% YoY in the past 3 months (May-July 2020) while the rest of the world's steel output has declined 20.5% YoY. As long as the rest of the world's economy remains in various stages of lock-down, China's relatively undisrupted economy will gain global market-share. During this phase (likely to last at least through October 2020), investors should remain Overweight China. The weakness of private consumption means that any setback to China's exports (likely once the rest of the world's supply-chains begin normal functioning by November-December 2020) will be impossible to counter with domestic demand. The imbalances of excess capacity built up over the past 4 months of strong FAI (particularly public FAI) will then rebound on China. 

China: Investment-Driven Growth Exacerbates Imbalances--For the Future

Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Consumer inflation pressures remain well contained in Asia for now. Asian money supply growth has accelerated appreciably as regional central bankers ease monetary policy to combat the Covid-19 economic shock but in eight of the ten countries we track CPI is running at or below year earlier levels. Importantly producer prices, are falling in most countries, implying that there are few pipeline inflation pressures. India is the exception.

Consumer inflation pressures remain well contained in Asia for now. Asian money supply growth has accelerated appreciably as regional central bankers ease monetary policy to combat the Covid-19 economic shock but in eight of the ten countries we track CPI is running at or below year earlier levels. Importantly producer prices, are falling in most countries, implying that there are few pipeline inflation pressures. India is the exception.

Asia was relatively quick to contain the Covid-19 virus outbreak. Most economies did not go into the full lockdown and if they did, are back to normal operations levels. India is the exception. Nonetheless consumers have been slow to return, and exports are plummeting. Understandably corporate profits have been hit across the region. The June Japan Tankan Survey offers some interesting insights, which we rather suspect are shared by many companies in Asia – that there is no V-shaped recovery in the offing and the business operating environment is going to tough.

Asia was relatively quick to contain the Covid-19 virus outbreak. Most economies did not go into the full lockdown and if they did, are back to normal operations levels. India is the exception. Nonetheless consumers have been slow to return, and exports are plummeting. Understandably corporate profits have been hit across the region. The June Japan Tankan Survey offers some interesting insights, which we rather suspect are shared by many companies in Asia – that there is no V-shaped recovery in the offing and the business operating environment is going to tough. 

Hong Kong has been in economic downturn since 2Q19 but is starting to show signs of recovery. An expected surge in Chinese company listings, the introduction of the wealth management connect and China’s determination to push ahead with the rollout of the Belt&amp;Road and Greater Bay Area initiatives should lend additional impetus. Tellingly despite concerns about the new security bill global multinationals are staying put and not giving up on the island economy.

Hong Kong has been in economic downturn since 2Q19 but is starting to show signs of recovery. An expected surge in Chinese company listings, the introduction of the wealth management connect and China’s determination to push ahead with the rollout of the Belt&amp;Road and Greater Bay Area initiatives should lend additional impetus. Tellingly despite concerns about the new security bill global multinationals are staying put and not giving up on the island economy.

Hong Kong’s economy is in deep downturn and her future uncertain. The passage of the new national security bill has made sure that the island is not going back to the pre-protests Hong Kong. However Beijing will be hard pushed to replace Hong Kong. Aside from its dependence on the island’s financial markets, services industry, independent legal system and the central role it plays in China’s GBA and BRI initiatives, it is not in Beijing’s interest to do so. For now China will want to continue to leverage off Hong Kong’s international reputation. The introduction this week of the Hong Kong-Greater Bay Area wealth management connect is a case in point. There are no immediate alternatives. Five years out from now is a different story.

Hong Kong’s economy is in deep downturn and her future uncertain. The passage of the new national security bill has made sure that the island is not going back to the pre-protests Hong Kong. However Beijing will be hard pushed to replace Hong Kong. Aside from its dependence on the island’s financial markets, services industry, independent legal system and the central role it plays in China’s GBA and BRI initiatives, it is not in Beijing’s interest to do so. For now China will want to continue to leverage off Hong Kong’s international reputation. The introduction this week of the Hong Kong-Greater Bay Area wealth management connect is a case in point. There are no immediate alternatives. Five years out from now is a different story.

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China Treasury (CHINA GOVT)

China: Investment-Driven Growth Exacerbates Imbalances--For the Future

China's total social financing has increased by

Prasenjit K. Basu

Asian Inflation Risks Contained

Consumer inflation pressures remain well contained in Asia for now. Asian money supply growth has accelerated appreciably as regional central...

Sharmila Whelan

Corporate Asia - Tough Times Ahead

Asia was relatively quick to contain the Covid-19 virus outbreak. Most economies did not go into the full lockdown and if they did, are back to...

Sharmila Whelan

Hong Kong: Its Not All Gloom

Hong Kong has been in economic downturn since 2Q19 but is starting to show signs of recovery. An expected surge in Chinese company listings, the...

Sharmila Whelan

Hong Kong: Uncertain Times But...

Hong Kong’s economy is in deep downturn and her future uncertain. The passage of the new national security bill has made sure that the island is...

Sharmila Whelan

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