HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sichuan-kelun-biotech-biopharm" target="_blank" data-smartkarma-citation="entities:40071:1" rel="noopener">Sichuan Kelun-Biotech Bio (6990 HK)</a>, <a href="https://www.smartkarma.com/entities/techtronic-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:4561:1" rel="noopener">Techtronic Ind. (669 HK)</a>, <a href="https://www.smartkarma.com/entities/vesync" target="_blank" data-smartkarma-citation="entities:31067:1" rel="noopener">Vesync (2148 HK)</a>, <a href="https://www.smartkarma.com/entities/chervon-holdings-limited" target="_blank" data-smartkarma-citation="entities:35309:1" rel="noopener">Chervon Hldgs (2285 HK)</a>, and <a href="https://www.smartkarma.com/entities/wuxi-apptec-co-ltd-bf4a1265-beef-48b6-b82d-29308426030f" target="_blank" data-smartkarma-citation="entities:27795:1" rel="noopener">WuXi AppTec (2359 HK)</a> have a very high reliance on the US market.</li>
<li>
<a href="https://www.smartkarma.com/entities/vtech-holdings-ltd" target="_blank" data-smartkarma-citation="entities:18812:1" rel="noopener">Vtech Hldgs (303 HK)</a>, <a href="https://www.smartkarma.com/entities/samsonite-international-sa" target="_blank" data-smartkarma-citation="entities:12790:1" rel="noopener">Samsonite (1910 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home (6690 HK)</a>, and <a href="https://www.smartkarma.com/entities/tcl-multimedia-technology" target="_blank" data-smartkarma-citation="entities:15654:1" rel="noopener">Tcl Multimedia (1070 HK)</a> ranked lower on the list, but consumer cutbacks will have a bigger impact. </li>
<li>The spillover effect of a US recession to other countries will pressurise companies that have low direct exposure, like <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> and <a href="https://www.smartkarma.com/entities/prada-s-p-a" target="_blank" data-smartkarma-citation="entities:889:1" rel="noopener">Prada S.P.A. (1913 HK)</a>.</li>
</ul>



Sichuan Kelun-Biotech Bio (6990 HK), Techtronic Ind. (669 HK), Vesync (2148 HK), Chervon Hldgs (2285 HK), and WuXi AppTec (2359 HK) have a very high reliance on the US market.

Vtech Hldgs (303 HK), Samsonite (1910 HK), Haier Smart Home (6690 HK), and Tcl Multimedia (1070 HK) ranked lower on the list, but consumer cutbacks will have a bigger impact. 
The spillover effect of a US recession to other countries will pressurise companies that have low direct exposure, like Orient Overseas International (316 HK) and Prada S.P.A. (1913 HK).


China & HK Strategy: Who Are the Victims of a US Recession?

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

<ul>
<li>In possibly the only Trump-Harris presidential debate, VP Kamala Harris clearly won, according to polls/focus groups conducted by FoxNews and CNN, as well as the vast majority of commentators. </li>
<li>Harris largely remained focused on centrist positions, and was able to bait Trump into angry outbursts and digressions away from his key talking points. The economy remained her Achilles Heel.  </li>
<li>Weakness on the economy, and the failure to highlight her "freedom" theme, meant that Harris didn't score a slam dunk. The race is a dead heat, Harris a nose ahead. </li>
</ul>


In possibly the only Trump-Harris presidential debate, VP Kamala Harris clearly won, according to polls/focus groups conducted by FoxNews and CNN, as well as the vast majority of commentators. 
Harris largely remained focused on centrist positions, and was able to bait Trump into angry outbursts and digressions away from his key talking points. The economy remained her Achilles Heel.  
Weakness on the economy, and the failure to highlight her "freedom" theme, meant that Harris didn't score a slam dunk. The race is a dead heat, Harris a nose ahead. 


US: Harris Wins the Presidential Debate Hands Down, but Impact on Race Still Mild

<ul>
<li>FOMC held rates steady at 5.25-5.5%, but emphasized that "a reduction could be on the table...in September". From inflation risks alone, the FOMC statement shifted focus to its dual mandate.  </li>
<li>0.9%YoY M2 growth (Jun'24) evidences restrictive monetary conditions. Withdrawing QT after Aug'23 led to Jan-Apr'24 shocks in MoM core PCE, but latter now reined-in by resumed QT since Mar'24.</li>
<li>Core PCE inflation likely to wane to 2.3%YoY by Sep'24, enabling rates to decline 25bp at each of the next 3 FOMC meetings, ignoring political threats regarding the Sep'24 cut.</li>
</ul>


FOMC held rates steady at 5.25-5.5%, but emphasized that "a reduction could be on the table...in September". From inflation risks alone, the FOMC statement shifted focus to its dual mandate.  
0.9%YoY M2 growth (Jun'24) evidences restrictive monetary conditions. Withdrawing QT after Aug'23 led to Jan-Apr'24 shocks in MoM core PCE, but latter now reined-in by resumed QT since Mar'24.
Core PCE inflation likely to wane to 2.3%YoY by Sep'24, enabling rates to decline 25bp at each of the next 3 FOMC meetings, ignoring political threats regarding the Sep'24 cut.


FOMC Waits; Despite Politics, 3 Rate Cuts Are Likely This Year as Inflation Abates

<ul>
<li>The 'trade recession' of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). </li>
<li>Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. </li>
<li>MoM gains in core PCE were lower than core CPI in Feb'24, and likely will be in Mar'24 also, allowing a glide to lower core-PCE inflation and Jul'24 rate cut. </li>
</ul>


The 'trade recession' of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). 
Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. 
MoM gains in core PCE were lower than core CPI in Feb'24, and likely will be in Mar'24 also, allowing a glide to lower core-PCE inflation and Jul'24 rate cut. 


US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>
<a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> will replace <a href="https://www.smartkarma.com/entities/walgreens-boots-alliance-inc" target="_blank" data-smartkarma-citation="entities:1118:1" rel="noopener">Walgreens Boots Alliance (WBA US)</a> in the <a href="https://www.smartkarma.com/entities/dow-jones-industrial-average" target="_blank" data-smartkarma-citation="entities:22887:1" rel="noopener">Dow Jones Industrial Average (INDU INDEX)</a> at the close on 23 February.</li>
<li>Passives will need to sell a lot of <a href="https://www.smartkarma.com/entities/walmart-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Walmart (WMT US)</a> following the 3:1 stock split and buy a lot of <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a>. </li>
<li>Given the ad hoc nature of the rebalances and the short timeline between announcement and implementation, the stocks could move over the rest of the week.</li>
</ul>



Amazon.com Inc (AMZN US) will replace Walgreens Boots Alliance (WBA US) in the Dow Jones Industrial Average (INDU INDEX) at the close on 23 February.
Passives will need to sell a lot of Walmart (WMT US) following the 3:1 stock split and buy a lot of Amazon.com Inc (AMZN US). 
Given the ad hoc nature of the rebalances and the short timeline between announcement and implementation, the stocks could move over the rest of the week.


Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

United States

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Dow Jones Industrial Average (INDU INDEX)

Dow Jones Industrial Average (INDU INDEX)

China & HK Strategy: Who Are the Victims of a US Recession?

Reliance on the US market varies among HK-listed companies, with some having high direct exposure to a recession. Those with low direct exposure...

Osbert Tang, CFA

US: Harris Wins the Presidential Debate Hands Down, but Impact on Race Still Mild

VP Kamala Harris was the debate winner, focusing on centrist positions and baiting Trump into angry outbursts. But her weakness on the economy,...

Prasenjit K. Basu

FOMC Waits; Despite Politics, 3 Rate Cuts Are Likely This Year as Inflation Abates

FF rate at a 23-year (real policy rate at 18yr high), M2 growth at 0.9%YoY in Jun'24, create conditions for steady decline in core PCE inflation to...

Prasenjit K. Basu

US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

Global trade volume grew 0.4% in 2023, but lead indicators suggest a strong 2024 recovery. Benign MoM rises in core PCE should enable YoY inflation...

Prasenjit K. Basu

Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

Amazon replaces Walgreen Boots in the Dow Jones Industrial Average at the close on 23 February following Walmart's stock split. There will be over...

Brian Freitas

China & HK Strategy: Who Are the Victims of a US Recession?

​Reliance on the US market varies among HK-listed companies, with some having high direct exposure to a recession. Those with low direct exposure...

Osbert Tang, CFA

US: Harris Wins the Presidential Debate Hands Down, but Impact on Race Still Mild

​VP Kamala Harris was the debate winner, focusing on centrist positions and baiting Trump into angry outbursts. But her weakness on the economy,...

Prasenjit K. Basu

FOMC Waits; Despite Politics, 3 Rate Cuts Are Likely This Year as Inflation Abates

FF rate at a 23-year (real policy rate at 18yr high), M2 growth at 0.9%YoY in Jun'24, create conditions for steady decline in core PCE inflation to...

Prasenjit K. Basu

US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

Global trade volume grew 0.4% in 2023, but lead indicators suggest a strong 2024 recovery. Benign MoM rises in core PCE should enable YoY inflation...

Prasenjit K. Basu

Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

Amazon replaces Walgreen Boots in the Dow Jones Industrial Average at the close on 23 February following Walmart's stock split. There will be over...

Brian Freitas

Reliance on the US market varies among HK-listed companies, with some having high direct exposure to a recession. Those with low direct exposure...

VP Kamala Harris was the debate winner, focusing on centrist positions and baiting Trump into angry outbursts. But her weakness on the economy,...