Macro

In today’s briefing:

The Great Game – Will China Attack Taiwan?
China Macro: Loan Prime Rates Unchanged in Jan; Easing Bias Remains
CX Daily: The Questions Hanging Over Ant Group
The Two Buzzwords of Davos – And What We Can Learn from Them
UK: Unfestive Sales Volumes in 2022

The Great Game – Will China Attack Taiwan?

China will attempt to annex Taiwan before 2049, but no invasion pre-2030
China might, however, enforce a naval blockade of Taiwan at some point before 2030
Read our reasons and analysis as well as the geopolitical perspectives

China Macro: Loan Prime Rates Unchanged in Jan; Easing Bias Remains

By Stanley Tsai, CFA

China’s loan prime rates have held steady for a fifth month, with 1Y and 5Y benchmarks at 3.65% and 4.30%, respectively.
We expect to see a 15bp cut to the 5Y LPR as early as Feb. 20, in view of extremely weak domestic demand.
Even that may not be enough. Infrastructure spending will have to carry the load, fueled by a surge in local government bond issuance.

CX Daily: The Questions Hanging Over Ant Group

Ant Group / In Depth: The questions hanging over Ant Group
Davos / China-U.S. ties are more robust than people think, Bloomberg chief says
Personnel / Harvard-trained former PBOC deputy governor appointed Beijing mayor

The Two Buzzwords of Davos – And What We Can Learn from Them

The Globalization Elite is convening at Davos this week. The average passenger count is falling to 1.5 per airplane and top CEO’s seem to embrace Patagonia vests over Italian suits.
Other than that – what have we learned from the week in the Alps? Is Davos still relevant and what does this year’s edition tell us about the world markets?
The main takeaways boil down to “polycrisis” and “friendshoring”. Two terms that are threatening the very existence of the World Economic Forum.

UK: Unfestive Sales Volumes in 2022

UK retail sales massively undershot a naively optimistic consensus by crashing 1% m-o-m in Dec-22, extending its steep trend decline.
High inflationary impulses continue to squeeze real incomes, so retailer reports of high nominal spending still erode into falling festive sales volumes.
Depressed consumers anticipate another bleak year, but their attempts to avoid that with wage rises are stoking problematic second-round effects that push BoE rate hikes.

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Jan 20

Daily Brief Macro: Real Estate Watch – Which Markets Will Be Worst off in 2023? and more

In today’s briefing:

Real Estate Watch – Which Markets Will Be Worst off in 2023?
U.S Debt Ceiling Countdown – 6 Charts on How the Debt Ceiling Affects Markets
CX Daily: Lithium Tops Out
China’s Emergence From ‘Zero Covid’ May Spur Global Growth

Real Estate Watch – Which Markets Will Be Worst off in 2023?

We are beginning to see prices cooling but we expect no relief near term. In fact, our models predict a 15-20% decline (YoY) at the end of year 2023.
Nonfarm employment is evidently STARTING to give, and given its correlation to home prices, our conviction of further downside in residential is further strengthened.
Pending home sales are down some 41% since ATH, and that reluctance to buy is bound to hit owners HARD.

U.S Debt Ceiling Countdown – 6 Charts on How the Debt Ceiling Affects Markets

The debt ceiling is now in force in the US
The US Treasury will mainly issue short-term bills in the coming weeks
USD Liquidity will be added in SIZE from the US Treasury in February and March

CX Daily: Lithium Tops Out

Lithium / In Depth: Lithium tops out.
Davos / ‘China’s door to the outside will only open wider,’ Vice Premier Liu He says.
FDI / Charts of the Day: China’s FDI growth slowed but ‘steady’ in 2022.

China’s Emergence From ‘Zero Covid’ May Spur Global Growth

China’s emergence from three years of strict “zero-Covid” pandemic controls spurred optimism for the country’s economic outlook following disappointing growth in 2022.
China’s reopening and exit from the zero-Covid policy is the “most positive catalyst” for global markets this year, said Nicolas Aguzin, CEO of Hong Kong Exchanges and Clearing Ltd
China reported Tuesday that its economy expanded 3% in 2022, missing the official target by 2.5 percentage points, as strict controls under the now-abandoned zero-Covid strategy slowed economic activity for months.

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Jan 19

Daily Brief Macro: CX Daily: Liu He Says China’s Economy Will Get Back to Normal in 2023 and more

In today’s briefing:

CX Daily: Liu He Says China’s Economy Will Get Back to Normal in 2023
UK: Slower Inflation Is Still Excessive
EA: Energised HICP Drop into 2023

CX Daily: Liu He Says China’s Economy Will Get Back to Normal in 2023

New bank aims to shore up Chinese province’s corruption-plagued rural lenders
Liu He says China’s economy will get back to normal in 2023.
Chinese authorities seize fake Paxlovid anti-Covid pills.

UK: Slower Inflation Is Still Excessive

UK inflation eased in Dec-22 to 10.5% and 13.4% on the CPI and RPI, broadly matching expectations. Clothing and games cheapened, offset by hospitality prices.
High wage growth is stoking service prices, sustaining underlying inflationary pressures at levels consistent with a headline pace nearer 6% than the 2% target.
We still expect the BoE to keep forcefully leaning against problematic second-round effects with another 50bp rate hike in Feb-23 ahead of critical wage settlements.

EA: Energised HICP Drop into 2023

The final EA HICP inflation print confirmed the flash fall to 9.2% on German energy. Energy seems set to drive another decline in Jan-23, thereby surprising the consensus.
Inflationary pressures narrowed in Dec-22. Nonetheless, underlying inflation is consistent with the headline rate settling between two and three times the target.
Tight labour markets still threaten how swiftly this excess inflation might end. The ECB is naturally concerned and should hike by another forceful 50bp in Feb-23.

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Jan 18

Daily Brief Macro: Will Singapore Gain or Lose from Hong Kong and China’s Reopening? and more

In today’s briefing:

Will Singapore Gain or Lose from Hong Kong and China’s Reopening?
Pockets of Resilience in the Technology Sector
Gap Trades in Korean Prefs Vs Common Share Pairs in 1Q 2023
CX Daily: Where to Now for Alibaba in the Post-Jack Ma Era?
UK: Workers Demand Forceful Tightening
Monday Morning Musings
What’s Working on the Short Side?

Will Singapore Gain or Lose from Hong Kong and China’s Reopening?

By Manu Bhaskaran

Singapore has been a beneficiary of Hong Kong and China’s pandemic mismanagement and policy missteps, enjoying the relocation of businesses and high-worth individuals.
Singapore will face increased competition from Hong Kong’s efforts to reclaim some of its lost business and investment activity, but Singapore is well-placed to keep most of its gains.
The reopenings are a positive-sum game for both of Asia’s financial centres, but relying on its rivals’ mistakes is not a sustainable long-term economic strategy.

Pockets of Resilience in the Technology Sector

By Manu Bhaskaran

Macroeconomic headwinds are taking their toll on consumer sentiment. Intentions for big-ticket purchases are falling, and firms are experiencing smaller order books.
Enterprise technology investment will be supported by a range of long-run factors. Demand from this segment will provide a buffer against cyclical challenges.
The industry will face macroeconomic difficulties and slower growth, but opportunities exist in certain segments and geographies that can take advantage of secular trends.

Gap Trades in Korean Prefs Vs Common Share Pairs in 1Q 2023

By Douglas Kim

In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 1Q 2023.
The pref/common shares ratio of the 28 companies in this insight declined from 68.9% on 16 July 2022 to 65% on 16 January 2023, which is a short term reversal.
We see some attractive longer-term opportunities for Amorepacific Corp, Doosan Fuel Cell, LG H&H, and LG Chem, which have high discounts for the preferred shares versus their counterpart common shares.

CX Daily: Where to Now for Alibaba in the Post-Jack Ma Era?

Cover Story: Where to now for Alibaba in the post-Jack Ma era?
World elite return to Winter Davos as recession fears mount
China runs short of anti-immune deficiency drug as Covid panic buying clears shelves

UK: Workers Demand Forceful Tightening

The UK unemployment rate remained at 3.7% in Nov-22, and another rise into yearend no longer looks likely. Resilience should ease in Q1 amid vacancies’ renewed declines.
Relatively stable unemployment and rising wage settlements suggest the cycle is not yet burning out. Pay growth trends remain inconsistent with the inflation target.
Monetary policy faces a double threat from excessive inflation expectations and cyclical pressures. We still expect another forceful (50bp) response in February.

Monday Morning Musings

By Mark Tinker

We are re-introducing two regular posts, Monday Morning Musings and Friday Market Thinking to book-end the week, on the basis that regular postings are appreciated by readers, as well as providing a good discipline for ourselves.
Other posts will continue obviously. The idea of ‘Musings’ is that while none of the following might merit a full post of their own, they might perhaps add up to some interesting observations (of sorts).
This week, it is all back to ‘normal’ as Davos man hops on a Private Jet and returns to their snowy ancestral home to talk once again about climate change and world poverty for the World Economic Forum.

What’s Working on the Short Side?

By Eric Fernandez, CFA

Over the past 30 days, the best shorts underperformed the universe by -19.5%, (-19.1%, vs. 0.4%, ) Compared to the universe, they
Were $1,889mn smaller cap, had 57% higher beta, had higher long term forecast earnings growth,
Had higher next 12M sales growth yet had lower next 12M EPS growth,

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Jan 17

Daily Brief Macro: Bond Watch – Will Japan Pull the Rug from Under the Yield Curve Control? and more

In today’s briefing:

Bond Watch – Will Japan Pull the Rug from Under the Yield Curve Control?
Steno Research Signals – The Recession that EVERYONE Agrees Upon
U.S Debt Ceiling Countdown – USD Liquidity to Be Added Before the Big Political Stand Off
The Great Game – Is India the Next Super Power?
The Week That Was in ASEAN@Smartkarma – JCNC Overstretched, Cimory Raises Funds, and AKRA’s Growth
The Commodity Report #86

Bond Watch – Will Japan Pull the Rug from Under the Yield Curve Control?

Markets price more than 35 bps ahead of the BoJ meeting. Is that too much?
BoJ is not scared of inflation. They fear a lack of market functioning in JGB markets.
JPY may be overbought into the meeting, while USTs are oversold

Steno Research Signals – The Recession that EVERYONE Agrees Upon

Everyone (61% of economists) agrees on a recession starting in Q2
Will the Chinese reopening wreak havoc with the Western recession narrative?
We lay out the case for a postponed recession compared to consensus

U.S Debt Ceiling Countdown – USD Liquidity to Be Added Before the Big Political Stand Off

USA defaults on its federal debt in Q3-Q4 unless Congress raises the debt ceiling. Upcoming negotiations are looking potent as Democrats seek a ‘clean’ deal, while Republicans demand spending cuts.
The recent House Speaker elections gave hardcore fiscal Conservatives crucial institutional privileges ahead of the upcoming debt negotiations. Funding to key programs including military support for Ukraine is at risk.
USD liquidity will be added in February/March as a consequence of the political soap opera. This is typically USD negative and positive for risk assets on the margin.

The Great Game – Is India the Next Super Power?

Right about now, India surpasses China as the world’s most populous nation.
However, India is nowhere near the status of China in global affairs. What does India lack and how much will come in the coming years?
We point to three areas where India need to (and will!) invest to become a truly global player: the defense industry, soft power influence, and joining the UNSC.

The Week That Was in ASEAN@Smartkarma – JCNC Overstretched, Cimory Raises Funds, and AKRA’s Growth

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 saw insights on Jardine Cycle & Carriage (JCNC SP), which look expensive relative to its underlying holding and on Bangchak‘s takeover of Esso Thailand (ESSO TB).
We also saw commentary on Cisarua Mountain Dairy, as it saw General Atlantic take a stake, and AKR Corporindo (AKRA IJ), as it provided positive guidance for 2023.

The Commodity Report #86

By The Commodity Report

Commodity trading houses have shown a stunning performance since 2020.
So far, there are only a few arguments for why this should change in the near future.
But also precious metals miners are shining – nevertheless, they have quite some performance to pick up compared to other miners as well as the broad commodity market.

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Jan 16

Daily Brief Macro: Positioning Watch – How Are Traders Positioned? and more

In today’s briefing:

Positioning Watch – How Are Traders Positioned?
How Investable Is China?
Key Tests of Resistance Ahead of Earnings Season
US Equity Valuations: Less Expensive, but Not Indicating the Emergence of Deep Value

Positioning Watch – How Are Traders Positioned?

Copper (industrial metal) longs continue to look interesting, while long Energy remains a consensus story
JPY positioning is still WAY too short if BoJ continues to widen the band, while AUD positioning is also TOO negative, if China truly reopens.
Market may still be (clearly) too bearish in the recession doesn’t arrive until Q2 while China reopens. We like to have net equity risk currently.

How Investable Is China?

By Cam Hui

The MSCI Asia Pacific Index rose 20% from its October low and technically entered a new bull market. It’s time to revisit the question, “How investable is China?”
A short-term analysis of the leadership internals of the re-opening trade shows little conviction that the re-opening will succeed.
Longer-Term, the challenges of the debt overhang from infrastructure-led growth remains and a pivot to consumer-led growth is not evident, which is a recipe for slow growth and rising risks.

Key Tests of Resistance Ahead of Earnings Season

By Cam Hui

The S&P 500 faces a key technical test at trend-line resistance of about 4000 while exhibiting strong overbought conditions.
The bull-case consists of strong price momentum, which historically has led further gains.
The bear case rests on a combination of a high correlation with VVIX, which is a tactical warning sign and the risks from earnings disappointment from Q4 reporting season.

US Equity Valuations: Less Expensive, but Not Indicating the Emergence of Deep Value

By Said Desaque

Rising valuations during the COVID-19 pandemic reinforce the view of an inherent capacity to overshoot to the upside, but it is too early to conclude that subsequent compression is over.
Compression in US equity prices in 2022 lowered secular valuation indicators, but they are not indicating the emergence of the deep long-term value that occurred in the 1970s and 1980s.
The prolonged period of P/E multiple compression in the aftermath of the internet bubble bursting meant that US equity returns became earnings-driven, an outcome that is likely to repeat.

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Jan 15

Daily Brief Macro: Valuation Watch – What’s Cheap and What’s Expensive in Equity Space? and more

In today’s briefing:

Valuation Watch – What’s Cheap and What’s Expensive in Equity Space?

Valuation Watch – What’s Cheap and What’s Expensive in Equity Space?

What is cheap and what is expensive in equity space?
We have taken a look across sectors, geographies and styles in equity space.
Here is what is cheap and what is expensive. .

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Jan 14

Daily Brief Macro: Global Liquidity Has Bottomed … and more

In today’s briefing:

Global Liquidity Has Bottomed …
UK: Resilient GDP Raises Work for BoE
US Inflation Watch – a Consensus Print, but Decently Dovish Beneath the Surface
Putting (some) chips back on the table

Global Liquidity Has Bottomed …

By Michael J. Howell

Global Liquidity Index (GLI) moves higher to 17.5 (normal range 0-100). Most national liquidity indexes bottomed around October 2022
Global Liquidity will reverse its recent fall and rebound to US$174 trillion. Rising Central Bank Liquidity is a common theme. Financial dominance driving a return to Central Bank QE.
More liquidity is consistent with future stabilisation and moderate gains in World asset markets. Rebound investment phase. Emerging Markets and Cyclicals favoured. Gold, commodities and crypto also could be winners

UK: Resilient GDP Raises Work for BoE

UK GDP was surprisingly resilient in Nov-22 as it grew by 0.1% m-o-m, about 0.3pp above forecasts. The World Cup helped, but services trends are broadly less bleak.
Further downward revisions from the national accounts don’t negate existing evidence of excess demand. Delaying GDP falls means inflationary pressures persist for longer.
The BoE will need to squeeze demand more if inflation doesn’t achieve that itself amid second-round effects. More rate hikes and a recession are still coming in 2023.

US Inflation Watch – a Consensus Print, but Decently Dovish Beneath the Surface

Inflation printed right on consensus despite another jump in shelter costs.
Several goods categories cooled quicker than anticipated by many. .
This is net/net a dovish report after all. USD remains a sell.

Putting (some) chips back on the table

By Mark Tinker

After a blow out year in 2022, the CTA macro funds are being careful how they place their chips for 2023 and while some are trying to push equities and bonds lower, continuing last year’s winning trades, more focus is currently on their more traditional ‘noise markets’ of FX and Commodities, where if anything most of the trades being put on are now the opposite of last year!
However, this is evidently harder work than last year, when it was ‘easy’ to create forced buyers and distressed sellers.
Thus, after being long energy in 2022, with early commentary emphasis on a big slowdown in GDP, the traders tried to flip and push Oil lower from the top of its trading band (around $85 on Brent).

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Jan 13

Daily Brief Macro: CX Daily: Why Countries Are Putting Curbs On Travelers From China and more

In today’s briefing:

CX Daily: Why Countries Are Putting Curbs On Travelers From China

CX Daily: Why Countries Are Putting Curbs On Travelers From China

Covid-19 / Caixin Explains: Why countries are putting curbs on travelers from China
Village banks / Henan village banks start reimbursing large depositors
Regulator / China’s banking regulator appoints first vice chairwoman

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Jan 12

Daily Brief Macro: CX Daily: Behind the Massive Sell-Off in Chinese Wealth Management Products and more

In today’s briefing:

CX Daily: Behind the Massive Sell-Off in Chinese Wealth Management Products
UK: Expectations Still Need Re-Anchoring
Malaysia: Anwar Well-Positioned to Spur Economic Recovery as Capital Flows Back
What’s Working? High Stock Price, Leverage, High Value-Add Companies and Shorting

CX Daily: Behind the Massive Sell-Off in Chinese Wealth Management Products

In Depth: Behind the massive sell-off in Chinese wealth management products.
Pfizer CEO dismisses reports of a Paxlovid generic for China.
Local governments set to borrow $146 billion in first quarter.

UK: Expectations Still Need Re-Anchoring