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

Exports were the key driver of China's acceleration in GDP in 4Q 2020, but FAI had been the key factor buoying the economy in April-December 2020. The low base will help power a substantial acceleration in YoY growth in 1Q 2021, but the impact of the FAI surge will hurt in 2H 2021, as export opportunities shrink once the rest of the world's production normalizes. In the interim, however, we recommend staying tactically overweight China. China's industrial growth of 7.3% YoY in December 2020 was the fastest in 3.5 years, while the 7.1% YoY growth in 4Q 2020 was the fastest since 3Q 2014. In turn, that powered the 6.5% YoY growth in real GDP during 4Q 2020, the fastest growth pace since 3Q 2018.  The key driver of the faster growth was a surge in fixed-asset investment (FAI) in April-November 2020 (+9.6% YoY), and a sharp acceleration in exports (+16.9% YoY) in 4Q 2020. The record trade surplus of US$212 billion in 4Q 2020 was accompanied by only a modest US$74 billion increase in foreign reserves, reflecting continued net capital outflow even amid the strengthening RMB. Given that China has massive industrial over-capacity, the sustainable response would have been to stimulate domestic consumption to take up that capacity. Retail sales did improve in 2H 2020, but still grew only 4.6% YoY in December and in 4Q 2020. Instead China added hugely to excess capacity (particularly physical infrastructure) with a boom in FAI, up 9.2% YoY in Apr-Dec 2020, the fastest pace since 1H 2016. This approach didn't hurt China in 2020, because the rest of the world's industrial capacity was inoperative, and China's exports consequently soared.      Full year real GDP growth was only 2.3% in 2020, the slowest in 3 decades, primarily because of the steep contraction in 1Q 2020 (the only quarter in which China was partially locked down on account of the Wuhan coronavirus). Consequently, 1Q 2021 will see spectacular YoY growth in all China's economic numbers -- exports, industrial output, FAI, retail sales, EPS growth -- helped by the artificially-depressed base. From 2Q 2021 onwards, real GDP growth will slow significantly (we estimate 5% YoY for 2Q-4Q 2021), as the reopening global economy reduces demand for China's exports, and industrial overcapacity resumes biting. In the near-term (1Q 2021) we recommend staying tactically overweight China.

Exports were the key driver of China's acceleration in GDP in 4Q 2020, but FAI had been the key factor buoying the economy in April-December 2020. The low base will help power a substantial acceleration in YoY growth in 1Q 2021, but the impact of the FAI surge will hurt in 2H 2021, as export opportunities shrink once the rest of the world's production normalizes. In the interim, however, we recommend staying tactically overweight China. China's industrial growth of 7.3% YoY in December 2020 was the fastest in 3.5 years, while the 7.1% YoY growth in 4Q 2020 was the fastest since 3Q 2014. In turn, that powered the 6.5% YoY growth in real GDP during 4Q 2020, the fastest growth pace since 3Q 2018.  The key driver of the faster growth was a surge in fixed-asset investment (FAI) in April-November 2020 (+9.6% YoY), and a sharp acceleration in exports (+16.9% YoY) in 4Q 2020. The record trade surplus of US$212 billion in 4Q 2020 was accompanied by only a modest US$74 billion increase in foreign reserves, reflecting continued net capital outflow even amid the strengthening RMB. Given that China has massive industrial over-capacity, the sustainable response would have been to stimulate domestic consumption to take up that capacity. Retail sales did improve in 2H 2020, but still grew only 4.6% YoY in December and in 4Q 2020. Instead China added hugely to excess capacity (particularly physical infrastructure) with a boom in FAI, up 9.2% YoY in Apr-Dec 2020, the fastest pace since 1H 2016. This approach didn't hurt China in 2020, because the rest of the world's industrial capacity was inoperative, and China's exports consequently soared.      Full year real GDP growth was only 2.3% in 2020, the slowest in 3 decades, primarily because of the steep contraction in 1Q 2020 (the only quarter in which China was partially locked down on account of the Wuhan coronavirus). Consequently, 1Q 2021 will see spectacular YoY growth in all China's economic numbers -- exports, industrial output, FAI, retail sales, EPS growth -- helped by the artificially-depressed base. From 2Q 2021 onwards, real GDP growth will slow significantly (we estimate 5% YoY for 2Q-4Q 2021), as the reopening global economy reduces demand for China's exports, and industrial overcapacity resumes biting. In the near-term (1Q 2021) we recommend staying tactically overweight China. 

China's 2021 Will Look Spectacular in 1Q, but Overcapacity Will Bite Thereafter

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.

Last week we wrote that accelerating economic integration in the Greater Bay Area is  lies at the heart of China’s strategy to win the battle for economic supremacy.  It is key to China’s future economic prosperity and, directly counters America’s China containment strategy. Beijing recognises China containment will remain the lynchpin of US foreign policy. A Biden US presidency ensures that development of the GBA is only set to speed up. Companies are investing in next generation industries to meet the wants of the GBA’s tech-savvy consumers and are optimistic about revenue growth over the next three years. For investors seeking superior returns the case for investing in GBA companies has never looked stronger.

Last week we wrote that accelerating economic integration in the Greater Bay Area is  lies at the heart of China’s strategy to win the battle for economic supremacy.  It is key to China’s future economic prosperity and, directly counters America’s China containment strategy. Beijing recognises China containment will remain the lynchpin of US foreign policy. A Biden US presidency ensures that development of the GBA is only set to speed up. Companies are investing in next generation industries to meet the wants of the GBA’s tech-savvy consumers and are optimistic about revenue growth over the next three years. For investors seeking superior returns the case for investing in GBA companies has never looked stronger. 

Biden Vs. Xi - What Are Businesses Doing?

Accelerating economic integration in the Greater Bay Area is  lies at the heart of China’s strategy to win the battle for economic supremacy.  It is key to China’s future economic prosperity and, directly counters America’s China containment strategy. A hub for high-tech advanced manufacturing and modern service industries the GBA is the laboratory for China’s innovation-driven development strategy, key to the success of President Xi’s Dual Circulation economic framework and Belt&amp;Road Initiative. Beijing recognises China containment will remain the lynchpin of US foreign policy. A Biden US presidency ensures that development of the GBA is only set to speed up. For investors seeking superior returns the case for investing in GBA companies has never looked stronger.

Accelerating economic integration in the Greater Bay Area is  lies at the heart of China’s strategy to win the battle for economic supremacy.  It is key to China’s future economic prosperity and, directly counters America’s China containment strategy. A hub for high-tech advanced manufacturing and modern service industries the GBA is the laboratory for China’s innovation-driven development strategy, key to the success of President Xi’s Dual Circulation economic framework and Belt&amp;Road Initiative. Beijing recognises China containment will remain the lynchpin of US foreign policy. A Biden US presidency ensures that development of the GBA is only set to speed up. For investors seeking superior returns the case for investing in GBA companies has never looked stronger. 

Our money is on Taiwan. The pandemic is behind, the economy is rebounding faster than anticipated. Underlying fundamentals of the 2019 business cycle upswing resuming. The damage to corporate profitability has been limited compared with regional peers Korean and Japanese companies and the investment upcycle has not be derailed. We expect Taiwan to among this year’s regional growth outperformers. The only downside risk is rising Taiwan-China tensions. But we suspect change is afoot.

Our money is on Taiwan. The pandemic is behind, the economy is rebounding faster than anticipated. Underlying fundamentals of the 2019 business cycle upswing resuming. The damage to corporate profitability has been limited compared with regional peers Korean and Japanese companies and the investment upcycle has not be derailed. We expect Taiwan to among this year’s regional growth outperformers. The only downside risk is rising Taiwan-China tensions. But we suspect change is afoot.  

India is between a rock and a hard place. The pandemic still rages and yet as a middle-income developing country it simply cannot afford another national lockdown. The economy, which was slowing well before the current crisis, has been severely hit. A quick economic recovery is not in the cards and the next investment-led business cycle upswing has been further delayed. Rising banking-sector NPLs and a burgeoning budget deficit pose additional downside risks. However, the government’s latest labour market and agriculture sector reforms have laid the foundations for a strong and resilient recovery, when it does take root.

India is between a rock and a hard place. The pandemic still rages and yet as a middle-income developing country it simply cannot afford another national lockdown. The economy, which was slowing well before the current crisis, has been severely hit. A quick economic recovery is not in the cards and the next investment-led business cycle upswing has been further delayed. Rising banking-sector NPLs and a burgeoning budget deficit pose additional downside risks. However, the government’s latest labour market and agriculture sector reforms have laid the foundations for a strong and resilient recovery, when it does take root.

China

The MSCI AC Asia ex Japan Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1987.

MSCI AC Asia ex Japan Index (MXASJ INDEX)

MSCI AC Asia ex Japan Index (MXASJ INDEX)

China's 2021 Will Look Spectacular in 1Q, but Overcapacity Will Bite Thereafter

FAI surge of 9.2%YoY in Apr-Dec 2020 will hurt once global economy normalizes in 2H 2021. But in the interim, 1Q 2021 will be spectacular for...

Prasenjit K. Basu

Biden Vs. Xi - What Are Businesses Doing?

The case for investing in GBA companies has never looked stronger. Companies are investing in next generation industries and are optimistic about...

Sharmila Whelan

Biden, US-China Relations & Xi's Plan

For investors seeking superior returns the case for investing in GBA companies has never looked stronger. Companies are investing in next...

Sharmila Whelan

Taiwan- Destined To Outperform

Our money is on Taiwan. The pandemic is behind, the economy is rebounding faster than anticipated. Underlying fundamentals are supportive of the...

Sharmila Whelan

India - Pushing Ahead with Reforms

India is between a rock and a hard place. However, the government’s latest labour market and agriculture reforms have laid the foundations for a...

Sharmila Whelan