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

Cross Asset Strategy

A Deep (big) Blue Wave will be bad for markets, empowering the Democratic left which will pursue an inflationary strategy that hurts equities. Despite Biden's seemingly widening lead in the polls, the likeliest outcome is a narrow presidential win and a Light Blue Wave, which obliges the Democratic Congress to hew to the centre (Biden's preference). After an initial sell-off amid uncertainty in November, a Light Blue Wave will be good for equities, bad for bonds as the yield curve steepens and growth prospects improve into 2021.  President Trump's Covid-positive diagnosis, and his subsequent behaviour in and upon leaving the Walter Reed military hospital, did not help his poll numbers. Instead, the undecided or swing voters have begun tilting toward Biden, raising the increased possibility of a "blue wave", with the Democrats winning the Presidency, Senate and the House, hence ending divided government. Biden's current national lead is 9.4 percentage points (3.6pp ahead of where Hillary Clinton was at this stage in 2016), and Biden leads in all the swing states (albeit narrowly in Ohio and Florida). Last week's rival townhalls also saw slightly higher viewership for the sedate and wonkish Biden than the always-colourful Trump. The bigger the Blue Wave, however, the worse for markets. A big Blue Wave will hand the initiative to the left of the Democratic Party, enabling more of the Green New Deal to be enacted, and for legislators to push for aspects of the Medicare for All proposals. And the Democrats would also seek to "pack the Supreme Court" (i.e., expand it beyond 9 members). Despite Biden's promised tax increases, such an agenda will be severely negative for markets and the economy -- likely resulting in a big Republican backlash in the 2022 mid-term Congressional election. The greater the Blue Wave, the more negative we would be about the outcome for markets (especially equities). However, the likelier outcome is a soft Blue Wave, i.e., with the Democrats winning no more than 51 seats in the Senate, and a narrow victory for Biden in the Electoral College. If that is the outcome, November will be a month of uncertainty and chaos, with a substantial sell-off in markets. But thereafter, once the electoral outcomes are clear, the narrow Senate majority (with the Class of 2020 dominated by moderate/centrist Democrats) will curtail any thoughts of a radical leftward shift. It would instead provide the ideal ground for a President Biden to govern from the centre -- in keeping with his natural instinct. Taxes on corporates and the top 1% of personal-income earners will rise sharply, but the moderate agenda will see enhanced spending on infrastructure, subsidies for green-technology, and a mild expansion/reform of Obamacare. While the program will be moderately inflationary (resulting in Fed Funds rates rising by mid-2021), it will be good for the economy and equities after the November sell-off. On a 3-6 month view, we would recommend switching from bonds to equities by the end of November.

A Deep (big) Blue Wave will be bad for markets, empowering the Democratic left which will pursue an inflationary strategy that hurts equities. Despite Biden's seemingly widening lead in the polls, the likeliest outcome is a narrow presidential win and a Light Blue Wave, which obliges the Democratic Congress to hew to the centre (Biden's preference). After an initial sell-off amid uncertainty in November, a Light Blue Wave will be good for equities, bad for bonds as the yield curve steepens and growth prospects improve into 2021.  President Trump's Covid-positive diagnosis, and his subsequent behaviour in and upon leaving the Walter Reed military hospital, did not help his poll numbers. Instead, the undecided or swing voters have begun tilting toward Biden, raising the increased possibility of a "blue wave", with the Democrats winning the Presidency, Senate and the House, hence ending divided government. Biden's current national lead is 9.4 percentage points (3.6pp ahead of where Hillary Clinton was at this stage in 2016), and Biden leads in all the swing states (albeit narrowly in Ohio and Florida). Last week's rival townhalls also saw slightly higher viewership for the sedate and wonkish Biden than the always-colourful Trump. The bigger the Blue Wave, however, the worse for markets. A big Blue Wave will hand the initiative to the left of the Democratic Party, enabling more of the Green New Deal to be enacted, and for legislators to push for aspects of the Medicare for All proposals. And the Democrats would also seek to "pack the Supreme Court" (i.e., expand it beyond 9 members). Despite Biden's promised tax increases, such an agenda will be severely negative for markets and the economy -- likely resulting in a big Republican backlash in the 2022 mid-term Congressional election. The greater the Blue Wave, the more negative we would be about the outcome for markets (especially equities). However, the likelier outcome is a soft Blue Wave, i.e., with the Democrats winning no more than 51 seats in the Senate, and a narrow victory for Biden in the Electoral College. If that is the outcome, November will be a month of uncertainty and chaos, with a substantial sell-off in markets. But thereafter, once the electoral outcomes are clear, the narrow Senate majority (with the Class of 2020 dominated by moderate/centrist Democrats) will curtail any thoughts of a radical leftward shift. It would instead provide the ideal ground for a President Biden to govern from the centre -- in keeping with his natural instinct. Taxes on corporates and the top 1% of personal-income earners will rise sharply, but the moderate agenda will see enhanced spending on infrastructure, subsidies for green-technology, and a mild expansion/reform of Obamacare. While the program will be moderately inflationary (resulting in Fed Funds rates rising by mid-2021), it will be good for the economy and equities after the November sell-off. On a 3-6 month view, we would recommend switching from bonds to equities by the end of November. 

A "Blue Wave" Is Better than the Worst Outcome, but Won't Be Great for Markets

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

Buy levels for US equities remains just above pivotal breakout levels that represent fresh inflection support in the SPX, NDX and DJI.SPX 3,410 and NDX 11,600 remain the key inflection levels and supports to initiate buy levels above this support threshold. Below supports would be a negative.Delayed stimulus measures are the key risk factor in coming weeks that will provide buying opportunities for new highs in the US and outperforming Europe and Asia.

Buy levels for US equities remains just above pivotal breakout levels that represent fresh inflection support in the SPX, NDX and DJI.SPX 3,410 and NDX 11,600 remain the key inflection levels and supports to initiate buy levels above this support threshold. Below supports would be a negative.Delayed stimulus measures are the key risk factor in coming weeks that will provide buying opportunities for new highs in the US and outperforming Europe and Asia.

The presidential debates are usually totems of democracy's best features--as two (occasionally three) candidates lay out their arguments cordially before a national audience. The first debate of the Fall 2020 campaign was anything but a talismanic symbol of American democracy, doing little to change voters' minds. But it greatly heightened the risks of a chaotic November in the US, possibly the most chaotic post-election scenario since 1860-61. The first inter-party presidential debate of the 2020 election cycle was an ugly tie: there was no clear winner in an incoherent and undignified brawl that hardly aired any of the election's key issues. Trump's abrasive style likely strengthened the degree of support from his base. Biden's uneven performance (a few good lines, drowned in bouts of incoherence) did not enhance his appeal to the wider electorate, but he held his own (thus refuting Trump's suggestions that he is senile), and made no significant gaffes (apart from one false claim about the US-China trade deficit, and a brief defense of the Green New Deal, which he was soon obliged to repudiate). President Trump appeared intent on questioning the legitimacy of the election process -- particularly mail-in ballots. Asked by moderator Chris Wallace (from the conservative Fox News channel) to reassure voters of the integrity of the voting process, Biden complied--and made a strong, direct pitch to voters to go out and vote. Trump said the voting process is "a disaster", a "fraud and a shame". When asked if each candidate would wait until a result/outcome had been certified before declaring victory, and would tell his supporters to stay calm in the intervening period, Trump declined to do so--especially if it was "a fraudulent process".At this stage, President Trump appears to have decided he will lose the election, and is hence preparing his supporters to question the legitimacy of the election -- a dangerous and unprecedented situation that has not occurred in any election since the 19th century.  November 2020 was already looking like a terrible month for the US, but it has just become much more dangerous, as the sitting president has begun questioning the legitimacy of the entire electoral process. In the 1860 election, the refusal of many states to accept the outcome (a victory for Lincoln) led to a Civil War, as southern states unhappy with the outcome chose to secede. November 2020 will not necessarily signal a Civil War, but is likely to result in an ugly and chaotic month or two in US politics -- uncertainty that will be very negative for global equities and risk assets. The US dollar is likely to gain strength this quarter, as will gold prices.

The presidential debates are usually totems of democracy's best features--as two (occasionally three) candidates lay out their arguments cordially before a national audience. The first debate of the Fall 2020 campaign was anything but a talismanic symbol of American democracy, doing little to change voters' minds. But it greatly heightened the risks of a chaotic November in the US, possibly the most chaotic post-election scenario since 1860-61. The first inter-party presidential debate of the 2020 election cycle was an ugly tie: there was no clear winner in an incoherent and undignified brawl that hardly aired any of the election's key issues. Trump's abrasive style likely strengthened the degree of support from his base. Biden's uneven performance (a few good lines, drowned in bouts of incoherence) did not enhance his appeal to the wider electorate, but he held his own (thus refuting Trump's suggestions that he is senile), and made no significant gaffes (apart from one false claim about the US-China trade deficit, and a brief defense of the Green New Deal, which he was soon obliged to repudiate). President Trump appeared intent on questioning the legitimacy of the election process -- particularly mail-in ballots. Asked by moderator Chris Wallace (from the conservative Fox News channel) to reassure voters of the integrity of the voting process, Biden complied--and made a strong, direct pitch to voters to go out and vote. Trump said the voting process is "a disaster", a "fraud and a shame". When asked if each candidate would wait until a result/outcome had been certified before declaring victory, and would tell his supporters to stay calm in the intervening period, Trump declined to do so--especially if it was "a fraudulent process".At this stage, President Trump appears to have decided he will lose the election, and is hence preparing his supporters to question the legitimacy of the election -- a dangerous and unprecedented situation that has not occurred in any election since the 19th century.  November 2020 was already looking like a terrible month for the US, but it has just become much more dangerous, as the sitting president has begun questioning the legitimacy of the entire electoral process. In the 1860 election, the refusal of many states to accept the outcome (a victory for Lincoln) led to a Civil War, as southern states unhappy with the outcome chose to secede. November 2020 will not necessarily signal a Civil War, but is likely to result in an ugly and chaotic month or two in US politics -- uncertainty that will be very negative for global equities and risk assets. The US dollar is likely to gain strength this quarter, as will gold prices.  

Ugly, Disorderly Debate Raises the Spectre of 1824, if Not 1860

Macroeconomics

Since China's imports from the US are down in the year-to-date (and 15% lower than in 2017), the target of a US$64 billion increase in those imports in 2020 relative to 2017 is likely to be missed by a wide margin. Tariffs on US imports from China have, however, helped reduce China's exports to the US. So, October 2020 is likely to witness a ratcheting up of trade tensions, as the US widens the tariff net to a larger proportion of US imports from China. Taiwan, Vietnam, Singapore, Thailand are likely to continue gaining from the diversion of US imports from China.  China's imports of products covered by the Phase 1 trade deal for the year-to-date (January to August 2020) are just half the prorated level of imports required by that trade deal. Overall imports of goods and services were supposed to be US$200 billion higher than those of 2017 (goods imports US$63.7 billion higher), but China's total goods imports from the US are down 15% from 2017 (and also down from their 2019 levels), falling shambolically short of the agreed targets.The US' bilateral trade deficit with China is still down 18% YoY, but almost entirely because the existing tariffs on imports from China have caused China's exports to the US to decline 15% YoY in the year-to-date (similar to their 16% YoY decline in 2019). So the verdict is clear: China has fallen egregiously behind the targets for imports from the US that it agreed to in the Phase 1 trade deal, but the tariffs imposed by the US have helped reduce US imports from China -- and that alone has allowed the bilateral trade deficit to continue to decline in 2019 and in Jan-Aug 2020. The policy implication is obvious: since tariffs work, the US should widen the scope of those tariffs (partly as a punitive measure against China's failure to comply with the Phase 1 targets for increased imports from the US). While the scheduled time for any such action was expected only after the 3rd November presidential election, it is much more likely that a widening of tariffs will be announced in October 2020 -- given the egregious shortfall relative to the target. And were Biden to win the presidency, he is unlikely to withdraw the Trump tariffs, although his subsequent measures will be less onerous for China than they would be under a continuation of the Trump administration's current policies. The main beneficiaries from any diversion of trade from China will continue to be Vietnam and Taiwan -- plus other Southeast Asian economies like Singapore, Thailand and Malaysia -- which have continued to see increases in their exports to the US this year, aided by their relative success in fighting Covid-19.

Since China's imports from the US are down in the year-to-date (and 15% lower than in 2017), the target of a US$64 billion increase in those imports in 2020 relative to 2017 is likely to be missed by a wide margin. Tariffs on US imports from China have, however, helped reduce China's exports to the US. So, October 2020 is likely to witness a ratcheting up of trade tensions, as the US widens the tariff net to a larger proportion of US imports from China. Taiwan, Vietnam, Singapore, Thailand are likely to continue gaining from the diversion of US imports from China.  China's imports of products covered by the Phase 1 trade deal for the year-to-date (January to August 2020) are just half the prorated level of imports required by that trade deal. Overall imports of goods and services were supposed to be US$200 billion higher than those of 2017 (goods imports US$63.7 billion higher), but China's total goods imports from the US are down 15% from 2017 (and also down from their 2019 levels), falling shambolically short of the agreed targets.The US' bilateral trade deficit with China is still down 18% YoY, but almost entirely because the existing tariffs on imports from China have caused China's exports to the US to decline 15% YoY in the year-to-date (similar to their 16% YoY decline in 2019). So the verdict is clear: China has fallen egregiously behind the targets for imports from the US that it agreed to in the Phase 1 trade deal, but the tariffs imposed by the US have helped reduce US imports from China -- and that alone has allowed the bilateral trade deficit to continue to decline in 2019 and in Jan-Aug 2020. The policy implication is obvious: since tariffs work, the US should widen the scope of those tariffs (partly as a punitive measure against China's failure to comply with the Phase 1 targets for increased imports from the US). While the scheduled time for any such action was expected only after the 3rd November presidential election, it is much more likely that a widening of tariffs will be announced in October 2020 -- given the egregious shortfall relative to the target. And were Biden to win the presidency, he is unlikely to withdraw the Trump tariffs, although his subsequent measures will be less onerous for China than they would be under a continuation of the Trump administration's current policies. The main beneficiaries from any diversion of trade from China will continue to be Vietnam and Taiwan -- plus other Southeast Asian economies like Singapore, Thailand and Malaysia -- which have continued to see increases in their exports to the US this year, aided by their relative success in fighting Covid-19. 

The Trade War Is Set to Worsen, as China Falls Far Short of Meeting Phase 1 Targets

There is no global "second wave" of Covid, but the Schiller CAPE ratio is at levels it has rarely exceeded in the past 150 years, while the "Buffett Indicator" of market-cap to GDP is at an all-time high of 1.78x. Both valuation measures suggest the equity market is ripe for a significant sell-off, aided by the growing uncertainty surrounding the US election. The global market sell-off this month (especially since 16 September) has been attributed to a "Second Wave" of new Covid cases, but this simply reflects the over-representation of Britons (and British newspapers) in the global business media. There is an undoubted second wave in the UK and France, but no discernible second wave globally. Among the 10 worst-hit countries globally, #8 Spain has had a second wave that isn't quite over, and Russia has a mild second wave that is barely at half its mid-May peak. But the top-3 Covid-hit countries (the US, India, Brazil) are past their peaks, with Brazil and the US now well below their end-July peak in new cases.   The sell-off in equity markets, however, owes primarily to the sell signal from two of the best long-term measures of equity value -- the Schiller CAPE (cyclically adjusted P/E ratio) and Buffett's favourite indicator, market-cap to GDP.  The CAPE has rarely been above 30 in the past 150 years -- but it was above that level at the end of August 2020 (and also at end-February 2020). The equity market invariably sells off when valuations are this rich. Similarly, the US market capitalization to GDP ratio is now at an all-time high of 1.78x -- and this is the reddest of red flags, suggesting the market is ripe for a sell-off. Given the uncertainties over the US election, and particularly the fact that the likely winner of the US election (Joe Biden) is poised to raise the corporate tax rate to 28% (and to 30.8% for any corporate that outsources any manufacturing or services outside the US), US corporates' post-tax earnings will suffer. Consequently, we recommend that investors should Underweight Equities in the runup to the US presidential election.

There is no global "second wave" of Covid, but the Schiller CAPE ratio is at levels it has rarely exceeded in the past 150 years, while the "Buffett Indicator" of market-cap to GDP is at an all-time high of 1.78x. Both valuation measures suggest the equity market is ripe for a significant sell-off, aided by the growing uncertainty surrounding the US election. The global market sell-off this month (especially since 16 September) has been attributed to a "Second Wave" of new Covid cases, but this simply reflects the over-representation of Britons (and British newspapers) in the global business media. There is an undoubted second wave in the UK and France, but no discernible second wave globally. Among the 10 worst-hit countries globally, #8 Spain has had a second wave that isn't quite over, and Russia has a mild second wave that is barely at half its mid-May peak. But the top-3 Covid-hit countries (the US, India, Brazil) are past their peaks, with Brazil and the US now well below their end-July peak in new cases.   The sell-off in equity markets, however, owes primarily to the sell signal from two of the best long-term measures of equity value -- the Schiller CAPE (cyclically adjusted P/E ratio) and Buffett's favourite indicator, market-cap to GDP.  The CAPE has rarely been above 30 in the past 150 years -- but it was above that level at the end of August 2020 (and also at end-February 2020). The equity market invariably sells off when valuations are this rich. Similarly, the US market capitalization to GDP ratio is now at an all-time high of 1.78x -- and this is the reddest of red flags, suggesting the market is ripe for a sell-off. Given the uncertainties over the US election, and particularly the fact that the likely winner of the US election (Joe Biden) is poised to raise the corporate tax rate to 28% (and to 30.8% for any corporate that outsources any manufacturing or services outside the US), US corporates' post-tax earnings will suffer. Consequently, we recommend that investors should Underweight Equities in the runup to the US presidential election.   

There's No Global "Second Wave" Of Covid, but Long-Term Valuations Are Very Elevated

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)

A "Blue Wave" Is Better than the Worst Outcome, but Won't Be Great for Markets

A big Blue Wave will be bad for markets, empowering the left's radical agenda. But the likelier outcome is a light Blue Wave, with 50-51 Dem...

Prasenjit K. Basu

US Equity Buy Levels

Buy levels for US equities remains just above pivotal breakout levels that represent fresh inflection support in the SPX, NDX and DJI and will...

Thomas Schroeder

Ugly, Disorderly Debate Raises the Spectre of 1824, if Not 1860

The first president

Prasenjit K. Basu

The Trade War Is Set to Worsen, as China Falls Far Short of Meeting Phase 1 Targets

China's imports f

Prasenjit K. Basu

There's No Global "Second Wave" Of Covid, but Long-Term Valuations Are Very Elevated

The

Prasenjit K. Basu