Macro

In today’s briefing:

CX Daily: China’s AI Charge Part 3: Short on Chips and Talent
Positive Month for All AFC Funds Led by the AFC Iraq Fund – April 2023 Update

CX Daily: China’s AI Charge Part 3: Short on Chips and Talent

AI /: China’s AI charge part 3: Short on chips and talent
China-Canada /: Tit-for-Tat: China expels Canadian diplomat after Ottawa’s move declaring a Chinese envoy as persona non grata
Gold /: China’s gold buying spree stretches into sixth straight month

Positive Month for All AFC Funds Led by the AFC Iraq Fund – April 2023 Update

By Asia Frontier Capital

The AFC Iraq Fund Class D shares returned +15.9% in April 2023 with a NAV of USD 1,005.88 versus its benchmark, the Rabee Securities RSISX USD Index (RSISUSD index), which gained 12.5% during the month.
For the year, the AFC Iraq Fund is up 47.9%, outperforming the index’s increase of 36.7%.
Since inception, the fund has gained 0.6% while the RSISUSD index is down 28.2%, an outperformance of 28.8%.

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May 10

Daily Brief Macro: A Reality Check on the Yuan’s Prospects as a Global Currency and more

In today’s briefing:

A Reality Check on the Yuan’s Prospects as a Global Currency
With May Elections, Thailand Approaches a Major Turning Point
China’s Two-Track Recovery Exposes Underlying Fragilities
Fed Lending Survey: Bad for Growth, Spreads, and Equities

A Reality Check on the Yuan’s Prospects as a Global Currency

The notion of “de-dollarization” is once again in vogue, with the yuan being floated as the dollar’s successor as a global currency. We are skeptical of such maximalist claims.
Bolstering the yuan so that it develops the necessary features of a global currency would require colossal, and ultimately unlikely, changes in Beijing’s economic and foreign policy.
Asian governments may complain about dollar hegemony but will ultimately stick to the devil they know while taking measures to manage the downsides.

With May Elections, Thailand Approaches a Major Turning Point

Parliamentary elections next week come as the military-royalist establishment faces internal divisions and voter ire. Thailand is ripe for a transition in government.
The Pheu Thai Party of ousted Prime Minister Thaksin Shinawatra is set to become the largest party, but the more radical Move Forward is also emerging as a formidable force.
A “grand coalition” between Pheu Thai and pro-establishment parties is likely. That could lead to the compromises needed heal Thailand’s deep divisions and end its long malaise.

China’s Two-Track Recovery Exposes Underlying Fragilities

A short-term unleashing of accumulated pent-up demand is insufficient to drive sustained economic recovery. Beyond the flashy headlines, the economy is struggling to regain pre-pandemic momentum.
Policymakers in Beijing have in mind the cyclical and structural economic headwinds, but constraints on public finances mean that a substantial degree of stimulus is unlikely.
However, the government’s continued pursuit of economic security may risk being a distraction, or worse, send signals over future policy that do not engender business confidence.

Fed Lending Survey: Bad for Growth, Spreads, and Equities

Tighter lending standards for Commercial & Industrial loans point to a US recession.
Tighter lending standards for Commercial & Industrial loans suggest the US high yield default rate should quadruple this year to above 7% from 1.7% last year.
Equity market valuation has recently increased, moving in the exact opposite direction of lending standards.

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May 09

Daily Brief Macro: Macro Watch: The Correct Calculations on How Severe This Banking Crisis Is.. and more

In today’s briefing:

Macro Watch: The Correct Calculations on How Severe This Banking Crisis Is..
Real Estate Watch: More Charts on the Real Estate Outlook
Asset Class Performance After the Final Hike – Part I Equities
The Week That Was in ASEAN@Smartkarma – Prodia Diagnosed, Bukalapak, and MAPI’s Omnichannel
Higher Uncertainty Poses Challenges to US Economic and Financial Outlook for Investors and the Fed
CX Daily: The Battle to Save Sea Life From an Ocean of Plastic
While Commodities sold off – we made profits // Some relief on the sugar front
WTI and Bloomberg Commodity Index

Macro Watch: The Correct Calculations on How Severe This Banking Crisis Is..

It is generally hard to argue that we are near the 2008-like systemic risk scenarios at this juncture
Our quantitative model based on empirical lead/lag studies of hundreds of recession indicators point to 75% risk of a recession starting in Q3
We find the timing increasingly opportune for a manufactured weakening of the CNY versus the USD

Real Estate Watch: More Charts on the Real Estate Outlook

Regional banks are likely going to suffer more as the real estate market looks vulnerable
Some parts of the real estate market are back at 2008 levels
Western states have taken the largest beating, which is likely to continue

Asset Class Performance After the Final Hike – Part I Equities

US equities have celebrated the end of more recent major Fed tightening cycles, realizing healthy returns after the final rate hike.
Things look pretty different after the first Fed rate cut following these major tightening cycles.
US equities also do well between the final Fed hike and the first rate cut. Stay tuned as we will expand this analysis to other asset classes.

The Week That Was in ASEAN@Smartkarma – Prodia Diagnosed, Bukalapak, and MAPI’s Omnichannel

By Angus Mackintosh

The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia
The past week nsaw insights on Prodia, Bukalapak, Mitra Adiperkasa, Pertamina Hulu Energi, Kimly Ltd, and Penguin International, Lian Beng, Oishi Group, and Golden Energy & Resources.
There were also macro insights on Singapore Macro and Malaysian politics from Manu Bhaskaran, as well as some Index rebalancing Insights on the SET50 and LQ45 from Brian Freitas.

Higher Uncertainty Poses Challenges to US Economic and Financial Outlook for Investors and the Fed

By Said Desaque

US investors’ expectations about future US economic activity remain fluid as investors continue not to buy the Fed’s forward guidance of interest rates remaining higher for longer.
Global economic dynamics are still reflecting legacy issues attributable to the COVID-19 pandemic, notably a less elastic aggregate supply curve and tighter labour markets.
Fed policy conduct remains data dependent after the federal funds rate was raised 25 basis points to 5%-5.25%, but a pause is likely as new economic and financial information unfolds.

CX Daily: The Battle to Save Sea Life From an Ocean of Plastic

Plastic /Cover Story: The battle to save sea life from an ocean of plastic
Summit /: President Xi Jinping to host summit to bolster Central Asian ties
Connect /: China to launch interest rate swap connect May 15

While Commodities sold off – we made profits // Some relief on the sugar front

By The Commodity Report

The wobbly first four months of the year are over, and it has become easier to detect clear trends in the market.
As you can see, our YTD performance has clearly picked up, and we’re confident that we’ll continue to clearly outperform the CRB Commodity Index.
Consultancy Datagro announced on Thursday that Brazil’s center-south region is anticipated to have a sugar output of 38.3 million tonnes in the current season, which began in April.

WTI and Bloomberg Commodity Index

By Untying The Gordian Knot

I posted this on the chat on Sunday but forgot click on send via Email button, so here Oil looked like we might bottom when OPEC+ cut production.
And we gapped up mentioned in the note “Ignoring Tailwinds 7th April 2023.”
“With a slower economy thesis, price hikes will likely be supply-driven constraints.

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May 08

Daily Brief Macro: As The Economic Outlook Gets Worse and more

In today’s briefing:

As The Economic Outlook Gets Worse, We’re Becoming More Upbeat
How Market Structure Tells the Story of a Market Top
How to Spot the U.S. Market Bottom
AFC Iraq Fund April 2023 Update: “Tag Ends of Currency Upheaval Sparks Market Rally”

As The Economic Outlook Gets Worse, We’re Becoming More Upbeat

By Michael J. Howell

Strong economies don’t have strong financial markets. Best time for equities is when policy-makers are trying to revive sluggish economies
Global Liquidity rises as economies slow, since slower real economies need less liquidity to operate and funds are shipped back into the financial sector. The cycle bottomed in October 2022
Equities should be valued against inflation not bond yields. Inflation is falling and it coincides with rising Global Liquidity

How Market Structure Tells the Story of a Market Top

By Cam Hui

Market structure analysis shows a late-cycle market with leadership concentrated in a few high-quality growth stocks.
This is the picture of a market top. New bull markets simply don’t start this way.
Investment-Oriented accounts should be cautious and use market strength to de-risk.

How to Spot the U.S. Market Bottom

By Cam Hui

A recession is likely on the horizon and historically stocks don’t bottom until the economy enters a downturn.
From a top-down perspective, investors can monitor macro indicators like PMI and employment statistics to spot the ultimate market bottom.
From a tactical perspective, alternative signals like insider buy can also be useful for timing low-risk entry points.

AFC Iraq Fund April 2023 Update: “Tag Ends of Currency Upheaval Sparks Market Rally”

By Asia Frontier Capital

The AFC Iraq Fund was up 15.9% in April, outperforming its benchmark, the Rabee Securities RSISX USD Index, which was up 12.5% for the month.
For the year, the AFC Iraq Fund is up an estimated 47.9% outperforming the index’s increase of 36.7%.
The market and the fund’s solid performance for the second month in a row on the back of February’s super performance enhanced by a revalued currency, underscores the underlying strength of the market’s recovery that has discounted the currency’s upheaval, as discussed here recently, and is beginning to discount its stability.

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May 07

Daily Brief Macro: Weekly Market Monitor (18) – The Bank Domino Continues and more

In today’s briefing:

Weekly Market Monitor (18) – The Bank Domino Continues

Weekly Market Monitor (18) – The Bank Domino Continues

Regional banks with cash and assets exceeding the value of their uninsured deposits being sold off is a clear signal that the regional banking crisis may be getting systemic.
Stock market investors living in ‘central bank and earnings lalaland’ underestimate the indirect impact of the banking crisis on lending and economic activity.
Big Tech valuation and slower earnings and revenue growth pose a risk to the overall stock markets, while Bitcoin and Gold offer additional diversification.

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May 06

Daily Brief Macro: TPW Advisory May Monthly: Forward and more

In today’s briefing:

TPW Advisory May Monthly: Forward

TPW Advisory May Monthly: Forward

By TPW Advisory

It’s a strange time; the calendar says May but the NYC weather feels like March; time is passing but we don’t seem to be making much headway.
The Fed likely feels the same – the most aggressive rate hike cycle in 50 years and inflation remains above target.
Recession calls, as they have for the past year, continue to dominate the economic outlooks.

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May 05

Daily Brief Macro: Powell Press Conference: Persistent and Painful and more

In today’s briefing:

Powell Press Conference: Persistent and Painful
ECB: More Ground to Cover Over Months
CX Daily: Chinese Firms Flock to Saudi Arabia in Middle East Gold Rush
CX Daily: Why Time Banks Haven’t Caught On in China

Powell Press Conference: Persistent and Painful

The Federal Reserve raised interest rates by another 25 basis points, expecting inflation to come down ‘not so quickly.’
Powell feeds the overly-enthusiastic market narrative by betting against history, anticipating that the current Fed tightening cycle will not significantly push up the US unemployment rate.
Powell and the Fed dodged accountability back in February, and the PacWest collapse hours after stating banking ‘conditions have broadly improved’ is very painful and disturbing.

ECB: More Ground to Cover Over Months

By Phil Rush

The ECB raised its policy rates by 25bps in May, as we expected. A 50bp step was resisted, but APP reinvestment will end. The ECB sees more ground to cover.
Emphasis on the plural of decisions signals an intent to hike more than once more, depending on the data. We still expect 25bp deposit rate hikes in June and July.
Monetary policy is now deemed restrictive, implying a neutral rate with a 2-handle. Demand is being deferred to a time when it may discourage future cuts.

CX Daily: Chinese Firms Flock to Saudi Arabia in Middle East Gold Rush

In Depth: Chinese firms flock to Saudi Arabia in Middle East gold rush
Trending in China: About two dozen women accuse prominent screenwriter of sexual harassment
China’s factory activity contracts amid weak demand, Caixin PMI shows

CX Daily: Why Time Banks Haven’t Caught On in China

Time banks / In Depth: Why time banks haven’t caught on in China
Digital banks / Top Chinese digital banks report more bad loans but higher earnings
Banking / In Depth: China’s banks look to bolster bottom line after lending binge

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May 04

Daily Brief Macro: With Inflation Untamed and more

In today’s briefing:

With Inflation Untamed, More Fed and ECB Rate Hikes Ahead Despite Recession
The Failure of First Republic: A Systemic Crisis in the Making?
Regional Bank Watch: On Balance Sheets, The Collateral Damage, and The Spillovers to USD Liquidity
CX Daily: China’s AI Charge
Us Equity Watch: A Rotations Game

With Inflation Untamed, More Fed and ECB Rate Hikes Ahead Despite Recession

By Prasenjit K. Basu

With ISM manufacturing new orders below 50 for 8 months, the US will join the Eurozone in recession this quarter. PCE buoyed Q1 GDP, but will weaken as unemployment rises.
Core PCE inflation at 4.6%YoY (MoM annualised gains of 4.7% in Q1CY23) will oblige the Fed to hike the FF rate another 50bp. Mar’23’s 4%YoY contraction in M2 proved insufficient.
ECB and BoE need to hike much more, given that CPI inflation is at 6.9%YoY and 10.1%YoY respectively vs their 2% target. Advanced Economies to grow just 0.5% in 2023.

The Failure of First Republic: A Systemic Crisis in the Making?

A banking crisis is systemic when two conditions are met: Significant signs of financial distress and significant banking policy intervention measures in response.
To determine financial stress, we look at bank failures, deposits, spreads, and market performance. In addition, the US banking system’s market value of assets is USD 2.2 trillion below book.
Next, we examine the size of the policy response and reveal it is getting close to the levels seen during systemic banking crises.

Regional Bank Watch: On Balance Sheets, The Collateral Damage, and The Spillovers to USD Liquidity

The underlying root cause of the “deposit flight” is the monetary policy.
When depositors leave small and medium-sized banks for either money market funds or another bank – something must give on the asset side of the balance sheet.
When credit growth declines, Real Estate is the sector that is hit the most.

CX Daily: China’s AI Charge

AI / Special Report: China’s AI charge. OpenAI’s ChatGPT has taken the world by storm.
Bridge / Mainland roads opened to more cars from Hong Kong
Soccer / Two more former top China soccer officials ensnared in corruption dragnet

Us Equity Watch: A Rotations Game

The macroeconomic environment has left us confident that spill-overs from financial turmoil are to further impact markets.
The below relationship between USD liquidity and SPX further strengthens our conviction for rotating towards defensives as well as net decreasing overall exposure to mitigate portfolio risk.
The reallocation towards defensives makes sense, but the question is, whether that narrative is already fairly exhausted and the upside thus likewise.

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May 03

Daily Brief Macro: Singapore’s Latest Property Measures Only a Partial Solution and more

In today’s briefing:

Singapore’s Latest Property Measures Only a Partial Solution
EA: HICP Surprises Rebalanced in Apr-23
Spending Watch: Looking into the Balance Sheet of US Households
AFC Uzbekistan Fund April 2023 Update: Earnings Season Starts off Strong!
Takeover Plots No Cause for Alarm on Malaysian Government Stability
Recession fears scare commodities again & World Banks forecasts major drop

Singapore’s Latest Property Measures Only a Partial Solution

The government’s latest measures to cool housing inflation will be only partially effective. Stringent demand management can provide only limited relief to rising prices.
There is a broader problem of asset price inflation beyond just the housing sector.
Without a more holistic assessment that untangles the diverse underlying drivers of rising prices, there will be more episodes of spikes in home prices.

EA: HICP Surprises Rebalanced in Apr-23

By Phil Rush

Flash EA inflation increased by another 0.1pp to 6.99% in Apr-23, despite weakness in Germany as upside news in Italy offset it. Overall, food and energy undershot for us.
Reassuringly, the surprise distribution across all member states was relatively balanced this month after regularly skewing higher, and core pressures eased slightly.
Underlying inflation remains too high, so the ECB should keep hiking, but the lack of upside news supports a 25bp step rather than reverting to another 50bp jump.

Spending Watch: Looking into the Balance Sheet of US Households

If you were to take the US consumer at face value, their conditions look solid
Consumers earn more than they spend (also relatively now) and they save more money than they obtain new debt
If the trend of better living conditions for US households continues, the economy could rebound

AFC Uzbekistan Fund April 2023 Update: Earnings Season Starts off Strong!

By Asia Frontier Capital

April saw the start of the first quarter 2023 earnings season, where several of the companies the AFC Uzbekistan Fund owns, have filed reports with impressive results, providing continued confirmation that the fund is invested in the right publicly traded companies, which give us ample leverage to Uzbekistan’s robust GDP growth, which came in at 5.5% in the first quarter 2023. The April 2023 fund NAV rose to an estimated USD 1,775.3 (+1.4%) or +77.5% since inception on 29th March 2019.
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
The above quote from George Soros is fitting in the current investment environment on the Tashkent Stock Exchange as we have experienced cycles, from very exciting (as we saw in 2020 and 2021 when the AFC Uzbekistan fund’s performance was +22.69% and 49.82% respectively), to very dull as we await the next phase of the multi-year re-rating.

Takeover Plots No Cause for Alarm on Malaysian Government Stability

The opposition Perikatan coalition is reportedly engineering an attempt to take over the government via parliamentary defections, causing concern about political turbulence.
Any such plot will face formidable barriers given the coalition government’s large majority and the levers available to Anwar Ibrahim to pre-empt and stymie such efforts.
A more realistic threat comes from a potential underperformance in the six state assembly elections, but the coalition’s combined strength should deliver a sufficient performance.

Recession fears scare commodities again & World Banks forecasts major drop

By The Commodity Report

In its latest Commodity Markets Outlook report the World Bank said last week that global commodity prices are expected to decline this year at the fastest pace
The agency expects prices to fall 21% compared to last year during 2023.
For 2024 the World Bank expects prices to remain stable.

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May 02

Daily Brief Macro: Money Supply-Driven Excess Liquidity Unveils 20% S&P 500 Downside Blog and more

In today’s briefing:

Money Supply-Driven Excess Liquidity Unveils 20% S&P 500 Downside Blog
The Week That Was in ASEAN@Smartkarma – GoTo CM Breakeven, Siloam Hospitals, and BNI in Better Shape

Money Supply-Driven Excess Liquidity Unveils 20% S&P 500 Downside Blog