India

In this briefing:

1. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand
2. India: Retail SIP Inflows Show Sharp Slowdown
3. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited
4. Asia’s External Balances Signal Safety for Investors
5. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

1. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

2. India: Retail SIP Inflows Show Sharp Slowdown

• 62% of small cap funds, 38% of mid cap funds have negative 3-year SIP returns
• 33% of large cap funds have 3-year SIP returns lower than FD rate
• AMFI data shows 50% of SIP accounts were registered since April-17
• Discontinued SIP accounts in 9MFY19 are 24% higher than those over entire FY18. Net SIP additions are down 70% in last 6 months.
• Even though gross SIP inflows are holding up, industry experts indicate net inflows have fallen from 70% of the gross in mid-2018 to 40% currently.

3. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.

But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.

Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.

If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.

4. Asia’s External Balances Signal Safety for Investors

Asian currencies are, in general, well supported by economic fundamentals in the form of external surpluses and interest rate differentials. Indeed, most Asian currencies display an appreciating bias, contrary to perceptions in 2018 when all of them lost ground to the US dollar. Over the last year the underlying external strength has been reflected in Asian currency appreciation against the US dollar.

5. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

In this briefing:

1. India: Retail SIP Inflows Show Sharp Slowdown
2. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited
3. Asia’s External Balances Signal Safety for Investors
4. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.
5. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

1. India: Retail SIP Inflows Show Sharp Slowdown

• 62% of small cap funds, 38% of mid cap funds have negative 3-year SIP returns
• 33% of large cap funds have 3-year SIP returns lower than FD rate
• AMFI data shows 50% of SIP accounts were registered since April-17
• Discontinued SIP accounts in 9MFY19 are 24% higher than those over entire FY18. Net SIP additions are down 70% in last 6 months.
• Even though gross SIP inflows are holding up, industry experts indicate net inflows have fallen from 70% of the gross in mid-2018 to 40% currently.

2. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.

But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.

Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.

If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.

3. Asia’s External Balances Signal Safety for Investors

Asian currencies are, in general, well supported by economic fundamentals in the form of external surpluses and interest rate differentials. Indeed, most Asian currencies display an appreciating bias, contrary to perceptions in 2018 when all of them lost ground to the US dollar. Over the last year the underlying external strength has been reflected in Asian currency appreciation against the US dollar.

4. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

5. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.

We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.

In this briefing:

1. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited
2. Asia’s External Balances Signal Safety for Investors
3. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.
4. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt
5. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

1. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.

But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.

Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.

If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.

2. Asia’s External Balances Signal Safety for Investors

Asian currencies are, in general, well supported by economic fundamentals in the form of external surpluses and interest rate differentials. Indeed, most Asian currencies display an appreciating bias, contrary to perceptions in 2018 when all of them lost ground to the US dollar. Over the last year the underlying external strength has been reflected in Asian currency appreciation against the US dollar.

3. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

4. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.

We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.

5. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

In this briefing:

1. Asia’s External Balances Signal Safety for Investors
2. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.
3. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt
4. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
5. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

1. Asia’s External Balances Signal Safety for Investors

Asian currencies are, in general, well supported by economic fundamentals in the form of external surpluses and interest rate differentials. Indeed, most Asian currencies display an appreciating bias, contrary to perceptions in 2018 when all of them lost ground to the US dollar. Over the last year the underlying external strength has been reflected in Asian currency appreciation against the US dollar.

2. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

3. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.

We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.

4. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

5. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

In this briefing:

1. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.
2. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt
3. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
4. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
5. UK Trip – Wake up to Deflation Risk

1. Sharp MoM Decline In January Semi WFE Sales Casts A Spanner In Second Half Recovery Works.

According to SEMI, North American (NA) WFE sales for January 2019 fell to $1.9 billion, down ~10% sequentially and ~20% YoY. This was an abrupt reversal of the recovery trend implied by the December 2018 sales of $2.1 billion and is the biggest monthly sales YoY decline since June 2013.

Just as declining monthly WFE sales preceded the current semiconductor downturn by some six months, the continuation of December’s MoM WFE decline reversal trend was a prerequisite for a second half recovery in the broader semiconductor sector. With that trend well and truly broken,  we now anticipate a more delayed, gradual and prolonged recovery, one which is now unlikely to materialise until late third, early fourth quarter 2019. 

2. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.

We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.

3. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

4. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

5. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

In this briefing:

1. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt
2. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
3. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
4. UK Trip – Wake up to Deflation Risk
5. Silent Alarm: Promoters Flock To Pledge Shares

1. Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

Vedanta Resources (VED LN) (Vedanta)’s net debt of USD6.4bn for six months ended 30 September 2018 results in a net debt/EBITDA ratio of 3.2x compared to 2.4x a year earlier. We are worried about the company’s rising debt amidst new court orders in India barring it from reopening its subsidiary’s controversial copper plant in the southern state of Tamil Nadu. Vedanta’s subsidiary Vedanta Ltd (VEDL IN) (VL) has also witnessed a sharp decline in its stock price over the past three months due to uncertainty over the plant. Vedanta’s 1HFY19 revenues of USD7.1bn saw a 4% increase compared to the same period last year as a result of higher aluminium sales as well as rising commodity prices. Vedanta’s EBITDA for 1HFY19 stood at USD1.7bn, a 1% increase compared to the same period the year before, driven by the higher oil prices as well as better operating efficiencies. Average production metrics increased across the board, including higher production of oil, aluminium, and steel.

We reiterate our OVERWEIGHT recommendation for the VEDLN complex (21s, 23s and 24s) on its attractive yields versus Indian quasi-sovereign peers and the company’s consistent operating performance.

2. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

3. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

4. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

5. Silent Alarm: Promoters Flock To Pledge Shares

In 2009, when Satyam Computers case unraveled it was revealed that a large portion of promoter shares were pledged with lenders and a substantial portion of that was sold by lenders. Responding to the situation then the Market regulator Securities and Exchange Board of India (SEBI) asked all the listed companies in the country to make disclosures on shares pledged by promoters within seven days and also amended the relevant regulations for the same.

In this briefing:

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID
2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
3. UK Trip – Wake up to Deflation Risk
4. Silent Alarm: Promoters Flock To Pledge Shares
5. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

1. Another US LNG Project Goes Ahead: Positive for the Contractors; Negative for Others Looking to FID

US private LNG company Venture Global is starting construction on its 10 million ton per annum (mtpa) US LNG export facility in Louisiana after gaining approval from the US Federal Energy Regulatory Commission (FERC). This is positive for the LNG contractor market and we discuss the companies involved in the project. 

This follows final investment decision taken on Golden Pass (Exxon and Qatar Proceed with US$10bn Golden Pass LNG Terminal: Positive for Chiyoda and MDR US) and supports our thesis of a large wave of new projects that will be sanctioned in the coming months (A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). This was viewed as a relatively speculative project and with aggressively low cost and timing estimates.

2. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

3. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

4. Silent Alarm: Promoters Flock To Pledge Shares

In 2009, when Satyam Computers case unraveled it was revealed that a large portion of promoter shares were pledged with lenders and a substantial portion of that was sold by lenders. Responding to the situation then the Market regulator Securities and Exchange Board of India (SEBI) asked all the listed companies in the country to make disclosures on shares pledged by promoters within seven days and also amended the relevant regulations for the same.

5. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

In this briefing:

1. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
2. UK Trip – Wake up to Deflation Risk
3. Silent Alarm: Promoters Flock To Pledge Shares
4. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
5. India Monthly Report: Jan’19 – Feb’19

1. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

2. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

3. Silent Alarm: Promoters Flock To Pledge Shares

In 2009, when Satyam Computers case unraveled it was revealed that a large portion of promoter shares were pledged with lenders and a substantial portion of that was sold by lenders. Responding to the situation then the Market regulator Securities and Exchange Board of India (SEBI) asked all the listed companies in the country to make disclosures on shares pledged by promoters within seven days and also amended the relevant regulations for the same.

4. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

5. India Monthly Report: Jan’19 – Feb’19

Indian indices were the least performing among the select global indices with S&P BSE Sensex and Nifty 50 generating returns of 0.01% and negative 0.73% in domestic terms respectively. In Dollar terms they fell by 2.18% and 2.89% respectively. Indian Rupee witnessed deprecation of 2.18% during the period and fell from 69.40 USD/ INR to 70.95 USD/ INR. Among the select indices, Hang Seng was the best performer with dollar returns of 10.89% and among the select currencies, South African Rand was the best performing with an appreciation of 7.88%.

Among the Sectoral indices, Nifty Pharma was the best performing with returns of 4.91% in dollar terms and Nifty Realty was the worst performing with falling by 17.41%

In this briefing:

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?
2. Indian Housing Finance Companies-Series 2- LIC Housing Finance
3. India: Outlook on Capex Recovery Continues to Brighten
4. Gold: Dovish Central Banks May Sustain Rally; Closing Our GLD Short
5. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

1. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.

2. Indian Housing Finance Companies-Series 2- LIC Housing Finance

We have recently written a report on Housing Finance Industry (please click here) where we delved on the outlook of the industry that has witnessed significant support from the government as it opened up the funding stream for the NBFC sector including HFCs who in the past relied heavily on banks. In addition, the government has also focussed on improving the housing demand through reforms like RERA, Housing For All etc. that has helped revive sales in the recent quarters.

We concluded the report by saying that the forthcoming articles in the form of a series will elaborate on some HFCs that are likely to be the key beneficiaries of an expected revival of the residential real estate. These HFCs have shown high corporate governance standard and their asset quality has not been compromised for growth. And this could be ascertained by the highest credit rating of AAA awarded to these HFCs by the noted credit rating agencies in India.

In continuation of the series, this article provides detail on Lic Housing Finance (LICHF IN) , the second largest HFC in the country. The company has witnessed robust growth in the past with an asset quality that is among the best in class. We initiate coverage on the company through this report that would delve on the outlook of the company along with some glaring risks that have lately emerged and may likely have an impact on the asset quality going forward.

3. India: Outlook on Capex Recovery Continues to Brighten

As per the CSO, gross fixed capital formation (GFCF) has grown above nominal GDP for 4 consecutive quarters now (latest data for September quarter). This, after GFCF grew slower than nominal GDP in 20 of the preceding 21 quarters. Capex cycle is thus picking up. And there are good reasons to expect this continue in the foreseeable future. Capacity utilisation is increasing in a broad-based manner. Liquidity conditions have improved, and cost of capital is likely to fall. Corporate profit cycle is no longer a headwind, although it is not yet a strong tailwind. The nascent signs of a recovery in the capex cycle are thus likely to get stronger in the months ahead.

4. Gold: Dovish Central Banks May Sustain Rally; Closing Our GLD Short

Central banks around the world have signaled their willingness to return back to the Easy Money Playbook in their quest to re-stimulate economic growth and inflation. This significant shift in market expectations has been the key factor driving the recent rally in Gold (GOLD COMDTY) prices, and it appears to have legs.  As such, we are closing our Spdr Gold Shares (GLD US) short.

5. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

In this briefing:

1. UK Trip – Wake up to Deflation Risk
2. Silent Alarm: Promoters Flock To Pledge Shares
3. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)
4. India Monthly Report: Jan’19 – Feb’19
5. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

1. UK Trip – Wake up to Deflation Risk

By Bo Zhuang, Chief China Economist

• London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
• There is still little awareness about the rising deflation risk
• Interest in the trade war has subsided

2. Silent Alarm: Promoters Flock To Pledge Shares

In 2009, when Satyam Computers case unraveled it was revealed that a large portion of promoter shares were pledged with lenders and a substantial portion of that was sold by lenders. Responding to the situation then the Market regulator Securities and Exchange Board of India (SEBI) asked all the listed companies in the country to make disclosures on shares pledged by promoters within seven days and also amended the relevant regulations for the same.

3. Confluence of Politics – China Bans Australian Coal Imports (Flash Note)

• China implements coal import caps specifically targeting Australian producers
• Unclear as to how widespread these restrictions will eventually be
• Thermal and metallurgical coal exports affected
• Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
• Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
• Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
• Actions appear to be a response to blocking Huawei bidding for the 5G network
• Recent Chinese cyber-attacks harden Australian Government’s resolve
• Expect similar Chinese measures (in time) to be applied to other commodities and industries

4. India Monthly Report: Jan’19 – Feb’19

Indian indices were the least performing among the select global indices with S&P BSE Sensex and Nifty 50 generating returns of 0.01% and negative 0.73% in domestic terms respectively. In Dollar terms they fell by 2.18% and 2.89% respectively. Indian Rupee witnessed deprecation of 2.18% during the period and fell from 69.40 USD/ INR to 70.95 USD/ INR. Among the select indices, Hang Seng was the best performer with dollar returns of 10.89% and among the select currencies, South African Rand was the best performing with an appreciation of 7.88%.

Among the Sectoral indices, Nifty Pharma was the best performing with returns of 4.91% in dollar terms and Nifty Realty was the worst performing with falling by 17.41%

5. Foldable Smartphones to Debut in 2019; Will It Aid an Industry Turnaround?

Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.

The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.