Macro

• We are now ready to present our Macro Regime Indicator framework
• We base our tactical allocation indicator on three major variables: Liquidity, inflation and growth
• We find liquidity to be added short-term, inflation to be waning and growth to be somewhat bouncing. All-in-all BETTER than feared.

• We disagree with the rush to aggressively upgrade growth forecasts for China and continue to expect economic growth this year to be around 4.5%. 
• The drag from the property sector and diminished space for policy support will restrain the strength of the economic rebound. 
• Nevertheless, China’s rebound, however partial, will have positive effects on other economies via outbound tourism, commodity tailwinds, and looser financial conditions.

• In Depth: What’s worrying regulators about China’s mutual fund boom

• China calls balloon incident a ‘test’ for U.S. to improve relations

• China stock exchanges appoint IPO review committees to clean up listings

• The S&P 500 golden cross signal is an intermediate-term bullish signal for stock prices.
• However, the market is extended and the risk of a near-term pullback is high.
• The most likely peak-to-trough downside risk for the S&P 500 is about -5%.

• In Depth: Why medical students in China are faking their way to a doctor’s license

• China to send $6 million in emergency aid to quake-hit Turkey

• Beijing tells Taipei that mainland is ready to resume cross-strait flights

• The bizarre incident of a Chinese surveillance balloon into US airspace is a temporary setback in US-China relations, but long-run factors limit the downsides. 
• Domestic politics are a moderating force against careless misjudgments by President Xi, even as US political dynamics point to more hawkish posturing from Washington.
• China will not revert to “wolf-warrior” diplomacy after the strategic setbacks it has suffered, and efforts to modulate its foreign policy approach will be largely unaffected.

• The Modi administration’s latest budget will have a mildly contractionary stance for the economy. This is broadly appropriate to balance consolidation and growth concerns. 
• The boost in public capital spending is welcome given the growing demands on India’s infrastructure, while consolidation is largely helped by a reduction in expected subsidy spending.
• The budget also shows signs of subtle shifts in the government’s economic and political strategy as it aims to boost both India’s growth and Modi’s electoral prospects.

• We stay net long equities but remain on high alert for a potential “crowdening” of the view
• Crowded EUR longs makes for decent risk/reward in JPY and AUD versus the USD
• Stay long copper, shy away from gold and ponder some risk in long palladium. Energy longs remain saturated. 

• January started the year strong in markets as the mean reversion trades we suggested likely in our year ahead piece all seem to have happened, with markets in January producing pretty much the inverse of 2022, in other words a month in which almost everything went up, except for the $, as shown in the following chart, courtesy of Redburn.
• Last year, the traders beat the asset allocators hands down.
• So far this year, it’s the other way around, with some extremely painful moves for some of the short term traders and some welcome relief for the 60:40 crowd.

• The AFC Iraq Fund was down 0.5% in January, outperforming its benchmark, the Rabee Securities RSISX USD Index, which was down 5.0% for the month.
• For the third month in a row, the decline in the parallel market’s price of the Iraqi Dinar (IQD) versus the US Dollar (USD) negatively affected the market’s performance by reversing the index’s 5.5% increase in IQD terms to a decline of 5.0% in USD terms, and the fund’s 9.0% increase in IQD terms into a 0.5% decline in USD terms.
• However, unlike the prior two months, the market has started looking through and discounting the currency’s volatility as seen from the market action and, in particular, those of banks and industrial stocks – two groups that stand out as net beneficiaries of the depreciation of the market price of the IQD vs the USD.

• 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 saw insights on Siam Commercial Bank, Bank Mandiri, Ace Hardware Indonesia, Bukalapak (BUKA IJ)  and GoTo, as well as significant coverage of Pertamina Geothermal pre-IPO.
• There were also macro pieces on the Philippines economy 6 months into the new regime plus Malaysian politics and insights on Q & M Dental, Halcyon Agri and Lippo Karawaci.

• Economic data is currently all over the place, but the bottom-line is clear – no recession yet
• This is in sharp contrast to sentiment entering 2023 and not least positioning
• Will the market continue to rally due to the “postponed” recession fears?

• Glencore said last week that its copper production fell 12% in 2022.
• The miner and trader said it produced 1.06 million tonnes of copper last year and kept its 2023 outlook unchanged at around 1.04 million tonnes.
• Many miners revise their copper output lower, as extreme weather, labor issues, or lower grades have caused companies to deal with problems and limit the output accordingly.

• The bulk of maturing corporate debt in 2023 is investment grade (IG), but speculative borrowers will begin to refinance debt due in 2025 later this year.
• Lingering uncertainty over US monetary policy should favour IG bonds over SG, but SG bonds have benefitted from supply shortages due to various primary markets shutting down during 2022.
• Fed Chair Powell believes policy has reached restrictive territory. Markets are discounting a policy rate cut in November, but the arrival of sticky inflation could easily prevent this optimistic outcome.

• Last week was a very data-heavy week, the market gods smiled on the bulls as most of the events resolved in bullish fashions.
• In the short run, the S&P 500 advance appears extended and it can pull back at any time.
• While the intermediate-term trend looks bullish, don’t be surprised to see a period of pullback and consolidation before stock prices can rise in a sustainable manner.

• The main event last week for U.S. investors was the FOMC decision. As expected, the Fed raised rates by a quarter-point but Powell sounded like a dove in hawk’s clothing.
• The markets responded with a risk-on reaction. The combination of excitement over China’s re-opening and the dovish pivot by the Fed is sparking a risk-on rally.
• A successful China re-opening would translate into a surge in global demand and raise inflationary pressures, which could force the Fed to pivot to more rate hikes.

• Global Liquidity Cycle bottomed last October. Noticeable acceleration, particularly in US dollar terms at near 30% annualized clip
• China and Japan are the key Central Banks leading the charge. Yet, even the US Fed is stirring, with net liquidity injections seeming targeting stable bank reserve levels
• Financial markets have already felt this liquidity boost, particularly liquidity-sensitive instruments like tech shares, gold and Bitcoin. The World economy too is stirring

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, David Coloretti, CMT as he will share more on the H1 2023 global market outlook from a technical analysis perspective. 2008 and 2022 were his most profitable trading years of the past 3 decades. This was possible due to a razor sharp focus on momentum confirmation and the correct use of freely available momentum indicators. In this webinar he will use these same techniques to provide a high probability outlook for global markets in H1 2023

The webinar will be hosted on Wednesday, 8 February 2023, 17:00 SGT/HKT.

David Coloretti is a Chartered Market Technician (CMT) and a full member of the Market Technicians Association of New York. David is the Managing Director of The Markets Academy Pty Ltd (TMA), an independent research firm based in Australia. TMA delivers a technical analysis / strategy subscription service in G10 and Asian financial markets, primarily to Asia’s leading hedge funds and banks. David’s career spans 30+ years as a technical analyst across senior trading, sales and strategy roles. Prior to establishing TMA in 2013, David worked for BP, Credit Suisse, Citi, Barcap and RBS in Australia and Singapore. 

• IPO / Five things to know about China’s latest IPO system overhaul

• Missing / Police say student missing for 100 days hanged himself

• Politics / China completes provincial leadership reshuffle ahead of ‘Two Sessions’

• The AFC Uzbekistan Fund began 2023 in positive territory even though the economy suffered a setback due to a “once-in-a-generation” cold snap which spiralled into a domestic energy crisis.
• Aside from the cold, during the month, Clearstream paid a visit to Uzbekistan to advance discussions on establishing a custody link for foreign investors, and the over-the-counter stock exchange “Elsis-Savdo” was brought under the management of the Tashkent Stock Exchange.
• Relative to the past twelve months, with a lack of news flow, January was a busy and positive month for Uzbekistan’s capital markets. The January 2023 fund NAV rose to an estimated USD 1,762.8 (+1.5%) or +76.3% since inception on 29th March 2019.

• We have focused on speed as a concept since Covid back in Spring 2020.
• Long time readers will recall Covid Speed – speed of spread, speed of policy response, speed of market reaction etc.
• We followed that up with a piece on Climate Speed which led us to conclude that Climate is the single biggest global macro theme of the decade with every country in the world spending money on it between now & 2030.

• The core Adani Group stocks have gone down 35.7% in the last 5 days
• The -35.7% hit to Adani Group came just as the company was gearing up to a high-profile follow-on public offering of shares owned personally by the Adani family.
• As China has reincarnated, data suggests it’s time for India to hand back the manufacturing reins.

• The BoE hiked by another 50bps in Feb-23, as expected. Pay settlements and services inflation are too high to tolerate, although two members voted for no change again.
• Inflation’s forecast fall below the target is insufficient to stop hikes when the skew is so high. Stable energy prices could keep inflation above 2% in 2-3 years. 
• We maintain our call for two more 25bp rate hikes, leaning against excessive wages. Reanchoring expectations depends on monetary policy’s path, justifying frontloading.

• In Depth: A metal tycoon’s liquidity woes disrupt China’s copper trade

• China warns incoming Czech leader over call with Taiwan’s Tsai

• China’s factory activity shrinks for sixth straight month, Caixin PMI shows

• The International Monetary Fund (IMF) raised its estimate for China’s GDP growth this year to 5.2% from a 4.4% projection made in October
• The expected rebound will moderate in 2024 however, with the pace of expansion slowing to 4.5% before settling at under 4% over the medium term amid shrinking business dynamism and slow progress on structural reforms
• China’s GDP rose 3% in 2022, the first time in over four decades that the country’s growth fell below the global average according to the IMF.

• The ECB followed through with another 50bps rate hike and restated a pre-commitment to do so again in March. Underlying inflationary pressures remain too high. 
• Upside inflation risks have become more balanced in the EA, unlike the UK, but the high modal outlook justifies more tightening. Subsidised energy prices are no reason to stop.
• We maintain our call for March’s 50bp ECB hike to be the last forceful one, with a 25bp deposit rate hike in May taking it to a 3.25% peak.

• Flash EA inflation plummeted by 74bp in Jan-23 to 8.46% y-o-y. That was 20bps below our forecast, which was already about 0.4pp under the consensus.
• Germany’s postponed release left Eurostat to estimate an even lower outcome than we assumed. An update 0.6pp less weak next week would prompt an 18bp EA revision.
• The headline’s roll into a downward trend has also shifted surprises. Still, it has not dented the hawkish underlying pressures pushing further ECB rate hikes.

• Drugs / In Depth: Where do fake Covid drugs come from?

• Debt / Local Chinese governments paid $148 billion in interest in 2022

• Economy / IMF raises China’s 2023 growth forecast to 5.2% as economy reopens

• We discuss end of the mandatory lock-up periods for 52 stocks in Korea in February 2023, among which 3 are in KOSPI and 49 are in KOSDAQ.
• These 52 stocks on average could be subject to further selling pressures in Febraury and could underperform relative to the market. 
• Among these 52 stocks, the top 5 market cap stocks include Rainbow Robotics, SillaJen, SOCAR, Sebitchem, and Yunsung F&C.

• We identify stocks in the EMEA region that are filling the void created by Russia’s removal from financial markets in 2022.
• MENA stocks have benefitted from rotation, led by Saudi Aramco,  Emaar Properties and Saudi Basic Industries
• Outside of MENA, South Africa remains an important destination, whilst Dino Polska SA (DNP PW) and MOL are favoured in Eastern Europe

• Cover Story: The vision of Singapore’s next prime minister.

• Missing for 100 days, teenager found dead behind school.

• China’s provinces target household spending in plans for post-‘zero Covid’ recovery.

• The Marcos administration has emphasized its focus on growth, backing it up by pursuing measures such as ratifying RCEP, infrastructure spending, and liberalizing reforms. 
• However, we caution readers against premature optimism; structural weaknesses such as crony capitalism, debt concerns, and poor public investment management persist.
• Compounding the long-term shortcomings are near-term macroeconomic challenges in tackling stubbornly-high inflation. Monetary tightening may also induce financial risks.

• The global economy is slowing: our lead indicator predicts a further downturn in Asian exports. However, the global outlook may turn out better than expected for Asia.
• While one can be sceptical of Chinese data reporting low infections and deaths, consumer sentiment has rebounded.  Beijing is also pursuing growth with zealous fervour.
• Slower global inflation has helped ease fears of excessive monetary tightening. Business optimism is also making a slow but steady recovery.

• We take you through all of our leading indicators on growth, inflation and liquidity ahead of the Fed meeting
• Inflation and growth is coming down, while liquidity is currently improving 
• Bottom-Line: The Fed is close to pausing but QT will remain in place until the early Autumn at least

• EA GDP growth defied expectations by growing again in Q4, albeit by only 0.1% q-o-q and reliant on Ireland’s ongoing boom. Its performance still sits between the UK and US.
• Resilient activity remains both a matter of output and employment. The ECB still needs labour market slackening for underlying inflation to become consistent with the target.
• Spain’s stronger core inflation provided a timely reminder of the hawkish pressure, even if weighting and methodological changes compounded the effect.

Malaysia’s once-dominant party has sacked popular former health minister Khairy Jamaluddin, depriving itself of one of its proponents for rejuvenation and reform. Khairy is now left pondering the next steps for his political career, but there are no straightforward options. 

• Analyst sentiment was flat to down slightly.  A net 27% of companies are seeing raised estimates.  The average estimate revision is a raise of +0.7%.
• Analyst sentiment is crowded and bullish for Precious Metals, Restaurants, Internet Retail, Computer Processing Hardware, IT Services, Packaged Software, Advertising & Marketing Services and Specialty Telecom.
• Notable reversals in estimates occurred in Distribution Services, Broadcasting and Investment Banks (from cuts to new raises) and in Utilities and Engineering & Construction (new cuts).