Macro

• China relaxes restrictions on overseas loans so developers can repay dollar bonds. 

• Beijing scraps Covid test requirement for public places.

• Former Caixin deputy editor-in-chief Zhang Jin dies at 56.

• In this insight, we discuss the price performance actions of 31 stocks that have been rebalanced in both the KOSPI 200 and MSCI Korea Index in 2022.
• Of these 31 stocks, 18 of them are the KOSPI 200 index changes and 13 of them are for the MSCI Korea Index changes.
• Some alpha generating performances continue in terms of adding stocks to be included in the KOSPI 200 and MSCI Korea index rebalances and reducing stocks that could be excluded.

• Our monetary and credit system is USD-centric: the lion share of international debt, trade invoices, asset classes and FX volume is settled or denomnated in US Dollars.
• Funnily enough though, direct access to $ liquidity is only available to entities located in the United States but in a credit-based system the rest of the world also has an incentive to leverage in US Dollars to boost or enhance their global business models.
• That means European banks, Brazilian corporates or Japanese insurance companies which want to do global business will most likely get exposure to $-denominated assets and liabilities ($ debt) despite being domiciled outside the United States.

• Vietnam has been enjoying a strong post-COVID recovery, enabled by a successful vaccination drive and the easing of pandemic restrictions. Strong investments are also providing a boost. 
• However, slowing credit growth and risks in the real estate sector may derail growth prospects if not managed carefully. 
• Weakening export demand and domestic volatilities are further sources of economic risks. Uncertainty-induced underperformance in markets may have effects on households and the real economy. 

• Covid-19 / Cover Story: China’s ‘zero-Covid’ looks done. So, what to expect next?

• PMI / China’s services slump extends into third month, Caixin PMI shows

• Economy / Economists split over China’s 2023 outlook

• 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 Adaro Energy, Indocement, Saratoga Investama, Berli Jucker, Bumrungrad Hospital, Synnex Thailand, Singtel, and Chip Eng Seng Corp (CHIP SP).  
• We also had stocks to own in ASEAN from Dr Andrew Stotz, and sector views on Banks, IT, property, and hotels in Thailand from Pi Securities.

• Anwar’s cabinet reflects the complex realities of governing via a coalition of unlikely bedfellows. Compromises had to be made. 
• Assigning influential posts to UMNO’s pro-coalition faction helps ensure Barisan’s continued support for the coalition. GPS’ expanded cabinet presence should keep it satisfied.
• Appointments to key economics-related portfolios are a cause for cautious optimism that economic policymaking will be sound and rational.

• US manufacturing contracted in November for the first time since May 2020 as output weakened in the face of a third-straight month of shrinking orders.
• According to data released Thursday, the ISM’s gauge of factory activity slid to 49 from 50.2 in the prior month.
• The measure has fallen in five of the last six months and stands below 50, the threshold separating expansion and contraction, for the first time since the pandemic lockdowns.

• There is a tendency in the west to see China as an authoritarian monolith – in contrast to the supposedly highly accountable democratic west, albeit only those with the shortest of memories can look at the current protests against Covid taking place in China and think them somehow unique*.
• The reality is, of course, different, for while over the course of his first two terms Xi has certainly moved to consolidate more power to the centre, the reality is still that, in the words of the old Chinese proverb, “The mountains are high and the Emperor is far away”, ie the relative autonomy of the regions remains strong and thus the Covid restrictions – and by extension the protests – reflect a tapestry of different regional interpretations of central government policies.
• Right now, it seems that the centre is asking the regions to ease back on Covid restrictions, which is why, despite the headlines, the markets believe this is more about opening up than closing down again. 

• How should investors think about the current protests in China? 
• How risk appetite reacts to events such as the unrest in China depends on how they are perceived.
• We offer three templates to consider: A case of political instability; a case of financial or economic instability; and business as usual.

• A previous “can’t miss” breadth thrust indicator of a new bull market just flashed a buy signal. Though the last signal in August failed badly.
• Is the latest signal is a case of “second time lucky”, or “fooled me twice, shame on me”?
• We believe that much like the August buy signal, unfavourable top-down macro conditions argue against a sustainable advance in stock prices and the start of a new bull market.

• Rising US inflation since 2021 H2 has not produced the same prolific P/E multiple compression witnessed in the 1970s,  based on the premise that higher inflation will not be protracted.
• Since the end of the last recession, companies have resorted to price increases to preserve operating margins, thereby generating economy-wide inflation and some downward pressure on P/E multiples.
• Sticky US inflation raises the spectre of equity returns being earnings-driven, while only those companies enjoying positive real earnings growth will be considered for higher valuations.

• After 9.7%YoY growth in 1HFY23, we expect real GDP growth of 7.5% for the full FY23, led by investment spending, which is being crowded-in as the fiscal deficit stays contained. 
• Nominal GDP grew 16.2%YoY in 2QFY23, bolstering government revenue and corporate earnings. The fiscal deficit in Apr-Oct’22 was 45.6% of the FY23 target, having already exceeded budget targets in Apr-Oct’19&’18.
• With Brent crude prices falling below US$85/bbl, CPI inflation is likely to be below 6% YoY in Jan-Mar’23. We expect 7.3% real GDP growth in FY24 despite the OECD recession. 

• Especially at turning points, looking beyond the main headlines in macro data can make the difference in understanding where do we really stand in the macro cycle.
• The last US payroll report was tagged as very strong – but if you look deeper you realize the current state of the US labor market is far from ‘‘hot’’.
• Job creation is clearly trending down, alternative real-time and forward-looking labor market indicators point to a sharp deterioration ahead and statistical inconsistencies are artificially boosting non-farm payrolls to the point the US government reached out to ask if I could help them look into it.

• Markets are often driven by liquidity. 2022 has seen a collapse in Global Liquidity, but there are signs that the cycle could turn higher in 2023?
• We evidence 5 reasons for optimism, including positive signs from the US Fed and China’s PBoC; a US$ peak and rising market depth in the US Treasury market
• We expect interest rates to stay higher for longer, but predict liquidity will be reinjected. It is not ‘Risk On’ yet, but it may be the end of ‘Risk Off’ 

• The FSC announced a mandatory disclosure information in English for listed Korean companies (with assets of more than 10 trillion won) starting 2024 to improve information accessibility for foreign investors.
• The lack of information in English among listed companies has been one of the repeated complaints among many institutional investors about the Korean stock market.
• A major improvement on providing timely information in English by the public Korean companies will eventually accelerate Korea’s efforts to reach developed country status by the MSCI.

• Accounting : In Depth: U.S. audit row dims big accounting’s prospects in China
• Covid-19: China targets seniors in renewed Covid vaccination drive
• PMI: China’s manufacturing activity contracts again, Caixin PMI shows

• China’s reopening – which could happen as soon as next Spring – is likely to ease global inflation, according to a Morgan Stanley report.

• With the country removing strict Covid-19 restrictions, Asia is likely to see a rise in economic performance.

• The continent is projected to see a growth in gross domestic product from 3.4% in the first quarter of 2023 to 4.6% in the second half of the year.

• At the end of September 2022, Korean stocks accounted for 13.6% of total assets of the NPS whose target for domestic stock exposure is 15.9% by end of this year. 
• In recent months, NPS has been net increasing purchases of companies including Naver, Celltrion, POSCO Chemical, Samsung Life Insurance, and Krafton. 
• Although the allowable range for SAA by NPS is ±3%p, there is some leeway for NPS to add to the domestic equities given that they were much lower than target. 

• As my mentor always said: Alf, rule #1 as an investor is not to be stupid. And trust me, it’s not an easy rule to respect.
• As a long-term or tactical macro investor, the emotion-driven biases threatening to kill our performance are countless: recency bias, being in love with a macro narrative even when invalidated by price action, mis-sizing positions and so on.
• But over time I learnt the hard way that as a macro investor respecting 3 main principles is in most cases enough to avoid stupid mistakes.

• Flash EA inflation in Nov-22 was unusual for breaking the upside trend with an outcome that undershot expectations by a substantial amount (43bps for us).
• The reliance on energy prices in the Netherlands and Belgium weakens the fall’s significance. Other national news was relatively symmetrical, including in the core.
• ECB policymakers should be reassured by the lack of upside while slowing hikes against excessive underlying pressures. Risks to hiking 50bp in Dec-22 no longer skew up.

• On 28 November, the Korean FSC made a public presentation of potential changes to regulations related to dividends, IPOs, and foreign investors registration which could reduce the long-term “Korea Discount.” 
• FSC has announced that it will improve the dividend payment process of listed Korean companies by benchmarking more advanced countries such as the United States.
• With regards to IPOs in Korea, the potential expansion of the price limit on the first day of trading post IPO from 90-200% (current) to 60-400% (revised) has been proposed.

• Monetary policy was eased with a cut to the RRR rate and additional credit support is being planned for the real estate sector. 
• These moves show that policymaking is shifting from piecemeal actions to substantive pro-growth efforts. 
• However, headwinds to growth have grown and this latest move may not suffice to promote growth.

• Cover Story: China lines up yet more aid for the property sector, but will it be enough? (Part 1）

• Guangzhou spares homebound from mass Covid testing

• Cold snap in Northwest China leaves livestock trapped and herdsmen missing

• Reformist stalwart Anwar Ibrahim has finally achieved his ambition of becoming Malaysia’s prime minister. He now faces a formidable in-tray of political and economic challenges.
• He leads a coalition government of unlikely bedfellows. The politics of holding his coalition together will constrain certain aspects of economic policy. 
• However, cooperation between the former political enemies may pave the way for healing social divisions and longer-lasting economic reforms. 

• Ultra low rates did not cause inflation, a dramatic increase in the money supply during Covid did.
• Equally, the forthcoming recession will not be about higher rates, but about the equally dramatic collapse in money supply growth since April.
• Instead, ultra low rates stimulated the financial markets through cheap credit and low discount rates, that bubble is already unwinding as rates rise.

• Cover Story: China’s share markets back on the fundraising menu for ailing developers (Part 2)

• China steps up timetable for senior vaccinations as Covid cases surge

• China’s President Xi Jinping meets with Mongolian President

In the next webinar, we welcome Smartkarma Insight Provider Evelyn Zhang who will share with us her views on the current climate of investments in China, along with her top picks and insights for investors. Have any questions about the investing climate in China? Get your questions answered in the live Q&A session that will conclude the webinar.

The webinar will be hosted on Wednesday, 30 November 2022, 17:00 SGT/HKT.

With over a decade’s worth of experiences in Morgan Stanley, Bank of America Merrill Lynch, Agricultural Bank of China, Lenovo, Evelyn’s expertise includes research and investment into tech companies of all stages. Experienced in asset management, private equity, strategic investment, investment banking, equity research, corporate finance, Evelyn is particularly focused on emerging technology.

• President Xi is facing challenges to his authority in ways that have not been seen since Tiananmen. There will be domestic and international implications.
• The unrest is still on a scale that can be contained with the right strategy but may gain momentum in scale and scope if left unchecked.
• The administration is likely to engage in a strategy of calibrated repression, but we do not rule out the possibility of a forceful response. 

• 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 Grab, Sea Ltd, Cisarua Mountain Dairy, Integra Indocabinet, PT Surya Citra Media, GoTo, Keppel Corp, Total Access Communication, and Indo Tambangraya Megah.
• There was also some commentary on the Malaysian Election, the upcoming SET50 rebalance, Krung Thai Bank‘s normalization, Chularat Hospital, and Kawasan Industri Jababeka.

• The world economy will be as weak next year as it was in 2009 after the financial crisis as the conflict in Ukraine risks becoming a “forever war,” the Institute of International Finance said.
• Global growth is expected to slow to 1.2% in 2023, according to the IIF.
• The slowdown will be led by Europe, which is impacted most by the war, according to the IIF.