Macro

In today’s briefing:

North Korea Fires Rockets Across NLL – First Time Since 1953
CX Daily: Will Fosun’s $2.2 Billion Steel Unit Sale Save The Conglomerate?
CX Daily: Yuan Gets More International Love As Dollar Rivalry Grows

North Korea Fires Rockets Across NLL – First Time Since 1953

By Douglas Kim

In the past few hours, it was reported that North Korea fired at least 23 missiles crossing the NLL (Northern Limit Line) for the first time in 1953.
KJU’s approval to fire missiles below NLL is likely to be part of a larger potential military confrontation in North Asia (including Korean Peninsula and Taiwan).
We do not believe KJU gave the orders to fire rockets below NLL on his own but likely to have received the support of Xi Jinping.

CX Daily: Will Fosun’s $2.2 Billion Steel Unit Sale Save The Conglomerate?

In Depth: Will Fosun’s $2.2 billion steel unit sale save the conglomerate?
Covid lockdowns stoke merchant concerns ahead of peak shopping season
Trending in China: Social media users hail the return of a top Chinese biologist from the U.S.

CX Daily: Yuan Gets More International Love As Dollar Rivalry Grows

Yuan / In Depth: Yuan gets more international love as dollar rivalry grows
China-Vietnam / Xi pledges supply chain stability with Vietnam
PMI / China’s manufacturing contracts for third straight month, Caixin PMI shows

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Nov 02

Daily Brief Macro: China: Imbalances In The Economy Rise To The Fore As Growth Slows and more

In today’s briefing:

China: Imbalances In The Economy Rise To The Fore As Growth Slows
CX Daily: The Evolution Of Crime In China
Brent Prices: Direction Of Travel Is Down In The Absence Of Additional Catalysts
Indonesia: Bright Portents From Influx Of FDI

China: Imbalances In The Economy Rise To The Fore As Growth Slows

By Nigel Chiang

The latest PMI surveys show that stimulus measures are taking effect but are unable to offset the drags from renewed lockdowns, weaker external demand and the deflating real estate sector.
The slowdown has now reached a point where the imbalances in the economy could be crystallised and so precipitate broader challenges to stability.
Financial imbalances are a key source of risk. Much focus has been on default risks in the over-leveraged property sector, but we highlight growing default risks at LGFVs as well.

CX Daily: The Evolution Of Crime In China

Crimes / Cover Story: The evolution of crime in China.
Seoul / Chinese nationals among scores dead in Seoul crush.
Personnel / Rising Communist Party star Yin Yong named acting mayor of Beijing. .

Brent Prices: Direction Of Travel Is Down In The Absence Of Additional Catalysts

By Manu Bhaskaran

Brent crude prices have traded sideways in recent weeks, despite OPEC’s decision to double down on the output cuts.
While global supply remains tight, our view is that oil prices will still trend down moving forward toward the USD80-USD100 range.
For the region, lower oil prices will lessen the squeeze on real incomes, and dampen price pressures. Lower import costs will also narrow trade imbalances.

Indonesia: Bright Portents From Influx Of FDI

By Nicholas Chia

Inflows of FDI into Indonesia jumped sharply in 3Q22 (+66.4%), by attracting significant investments in the nickel downstream refining sector.
There may also be green shoots of a manufacturing renaissance, given the growing share of FDI into Central and East Java.
The influx of FDI portends well for productivity growth via greater investments and foreign involvement, and stability through a positive basic balance (CA + FDI).

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Nov 01

Daily Brief Macro: A Sharp Likely Decline in Total Return (TR) ETFs in Korea Due to an Amendment in Regulations and more

In today’s briefing:

A Sharp Likely Decline in Total Return (TR) ETFs in Korea Due to an Amendment in Regulations
The Week That Was in ASEAN@Smartkarma – BFI Finance Indonesia, Ultrajaya Milk, and Thai Banks
EA: Flash, Bang, Inflation Fanned
The Commodity Report #75
CX Daily: Illuminating The Silver Screen For The Visually Impaired

A Sharp Likely Decline in Total Return (TR) ETFs in Korea Due to an Amendment in Regulations

By Douglas Kim

Chosun Business Daily reported that TR ETFs worth nearly 7 trillion won in Korea is in danger of losing demand from institutional investors due to an amendment to financial regulations.
The change in the regulations of not allowing reinvestment of dividends but requiring annual distribution of dividends will discourage many institutional investors from investing in TR ETFs in Korea.
The two biggest advantages of a total return ETF in Korea has been the automatic reinvestment of dividend distributions and tax deferral.

The Week That Was in ASEAN@Smartkarma – BFI Finance Indonesia, Ultrajaya Milk, and Thai Banks

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 BFI Finance Indonesia (BFIN IJ), Kino Indonesia (KINO IJ), Mitra Keluarga Karyasehat (MIKA IJ), Ultrajaya Milk (ULTJ IJ), and BFI Finance Indonesia (BFIN IJ)
We also had commentary on the latest eConomy SEA report plus the end of the GoTo (GOTO IJ) lockup period and updates in Moya Holdings Asia and the Thai Banks.

EA: Flash, Bang, Inflation Fanned

By Phil Rush

Flash EA inflation rose with another bang in Oct-22 as it flew up by 0.7pp to 10.7%. That was near our well-above consensus forecast after volatile news in national releases.
A 1pp trouncing of the earlier monthly consensus means the consistent upwards forecast drift is not abating. The trend rise might yet extend for another couple of months.
If the forecast drift continues in November, the ECB will probably deliver another 75bps hike in December rather than slow to our current 50bps call.

The Commodity Report #75

By The Commodity Report

With the beginning of this week’s newsletter, I probably won’t make any new friends in my home country.
What makes me sad is that literally nobody is speaking about the untapped natural gas reserves we have underground in Germany that are indeed accessible.
A short calculation: In 2021 Russia delivered 55 billion cubic meters to Germany or 55% of the total German gas consumption.

CX Daily: Illuminating The Silver Screen For The Visually Impaired

Film / In Depth: Illuminating the silver screen for the visually impaired
Personnel / Beijing Mayor Chen Jining appointed Shanghai Party boss
Corruption / Graft crackdown at China’s biggest policy lender snares another official

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Oct 31

Daily Brief Macro: Global Equity: Consensus Positioning and more

In today’s briefing:

Global Equity: Consensus Positioning
Equity Market Expectations Ahead of FOMC Meeting
How to Trade the Fed Whisperer Rally
Global Supply Chains: Pressures Ease in 2022, but Geopolitical Forces Will Shape Their Future

Global Equity: Consensus Positioning

By Steven Holden

We analyse our Global fund universe to find out the consensus overweight and underweight exposures, together with the consensus and under-owned stock holdings.
Consensus overweights are led by Developed Europe, Health Care and countries in the EMEA region. On a stock level, Microsoft and Alphabet are the most widely held companies.
Consensus underweights are led by Asia and selected industry groups such as Telcos and Banks. Raytheon Technologies and Al Rajhi Bank are among the most under-owned stock in the world.

Equity Market Expectations Ahead of FOMC Meeting

Ahead of the upcoming FOMC, meeting, what is the equity market discounting? We conduct a factor and sector review for some answers.
We find the market is starting to discount a cyclical rebound, but much depends on Fed policy.
However, even if the Fed were to signal an imminent pause in rate hikes, that’s not necessarily very equity bullish.

How to Trade the Fed Whisperer Rally

How should investors interpret the recent risk-on episode? We call it the Fed Whisperer rally.
The S&P 500 continues to be inversely correlated to the USD Index, which is mainly driven by the expectations of a less hawkish Fed.
Tactically, the S&P 500 may have more upside as it regained its 50 dma, which gives it a shot at its inverse head and shoulders measured objective of about 4120.

Global Supply Chains: Pressures Ease in 2022, but Geopolitical Forces Will Shape Their Future

By Said Desaque

Hopes of ending China’s zero tolerance policy to COVID-19 were dashed by President Xi at the recent National Congress, thereby making further lockdowns and supply disruptions a distinct possibility.
Based on data calculated by the New York Fed, stress on global supply chains has eased significantly in 2022, suggesting a reduction in price pressures for traded goods in 2023.
Restrictions on technology transfers by the US could lead to the evolution of competing technological eco systems that will raise costs for Western companies wanting to do business with China.

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Oct 29

Daily Brief Macro: CX Daily: Indonesian Sovereign Wealth Fund’s Blueprint for Growth and more

In today’s briefing:

CX Daily: Indonesian Sovereign Wealth Fund’s Blueprint for Growth

CX Daily: Indonesian Sovereign Wealth Fund’s Blueprint for Growth

In Depth: Indonesian sovereign wealth fund’s blueprint for growth
Shanghai plans to build $221 million permanent quarantine center on island
Communist Party appoints new head of publicity department

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Oct 28

Daily Brief Macro: CX Daily: China to Support Domestic Share Trading of Foreign-Invested Companies and more

In today’s briefing:

CX Daily: China to Support Domestic Share Trading of Foreign-Invested Companies
ECB: Aiming Further and Rewriting Rules
A Sudden Change of Heart?

CX Daily: China to Support Domestic Share Trading of Foreign-Invested Companies

China to support domestic share trading of foreign-invested companies
Civil service to recruit record numbers next year, including more graduates
Trending in China: Social media users cheer Rishi Sunak’s appointment as U.K.’s prime minister

ECB: Aiming Further and Rewriting Rules

By Phil Rush

The ECB hiked by another 75bps in October, taking the total change to 200bp. Guidance of more hikes now extends beyond neutral, consistent with our forecast.
Terms for the TLTRO-III are being rewritten to remove the arbitrage potential between it and the rising deposit rate. Extra repayment windows reduce the punitive effect.
We still expect the ECB to slow its hiking pace in December to 50bps, then 25bps in February and March 2023 to a 2.5% peak in the deposit rate.

A Sudden Change of Heart?

By The Macro Compass

Over the last two weeks, several G10 Central Banks came across as ready-to-pivot.
Australia, Canada and now Europe are starting to weigh pros and cons of calibrating monetary policy with a single objective: bringing inflation down to 2%, as soon as possible.
Instead, they are beginning to consider a slowdown in the pace of hikes and most likely a complete pause relatively soon.

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Oct 27

Daily Brief Macro: China: Headwinds Persist and more

In today’s briefing:

China: Headwinds Persist, but a Turnaround Is Not off the Cards
CX Daily: The World’s No. 1 EV-Battery Maker Juices Up Global Expansion
Malaysia: Local and Foreign Investors Are Fleeing Despite the Commodity Boom
Mexico Moves to Top EM Overweight

China: Headwinds Persist, but a Turnaround Is Not off the Cards

By Manu Bhaskaran

The economy rebounded in the third quarter, but renewed lockdowns are putting the brakes on the economic recovery.
Simultaneously, downward pressures are intensifying in other sectors of the economy.
An easing of policy measures that have been a drag on the economy is not off the cards.

CX Daily: The World’s No. 1 EV-Battery Maker Juices Up Global Expansion

In Depth: The world’s No. 1 EV-battery maker juices up global expansion
China and the Vatican extend deal on appointing bishops
Beijing calls for local governments to facilitate entry for foreign business executives

Malaysia: Local and Foreign Investors Are Fleeing Despite the Commodity Boom

By Prasenjit K. Basu

Expansionary fiscal and monetary policy have bolstered growth at the expense of a 13%YoY depreciation of the ringgit and capital flight reflected in shrinking FX reserves amid surging trade surpluses.
Elevated crude-oil and palm oil prices boosted the trade surplus, but the current account surplus shrank to less than 1% of GDP in 1H2022, as foreign-worker remittances soared.
Despite 24 years of current account surpluses, Malaysia’s reserves provide just 4.6 months’ import cover. Net FPI outflows persisted even when global equities were soaring. Kleptocracy is inducing capital flight.

Mexico Moves to Top EM Overweight

By Steven Holden

Mexico overweight reaches record levels among active GEM investors, moves to top country overweight.
Mexico a beneficiary from a rotation out of Russia, Turkey and Tech, alongside Brazil and some of the MENA nations.
Grupo Financiero Banorte and Wal-Mart de Mexico are widely held and have been instrumental in Mexico’s rise up the ranks over the past couple of years.

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Oct 26

Daily Brief Macro: US-China: New US Chip Ban Will Have Far-Reaching Consequences Beyond Just Chips and more

In today’s briefing:

US-China: New US Chip Ban Will Have Far-Reaching Consequences Beyond Just Chips
Xi’s Regime Change in China Creates Dangers for Itself and the World
India: Opposition Congress Party Struggles To Re-Invent Itself
Is US tax driving Chinese stocks?
CX Daily: Why The Yuan Is Suddenly Gaining International Traction

US-China: New US Chip Ban Will Have Far-Reaching Consequences Beyond Just Chips

By Nigel Chiang

The latest American technology sanctions on China show that the two powers are engaged in a struggle in which the time of half-hearted measures is over.
China faces a formidable task both in maintaining its current progress in fabrication and chip design, while also reconfiguring manufacturing capacity to remove reliance on external equipment and components.
Non-Aligned countries such as those in Southeast Asia may find their balancing act increasingly hard to maintain. Choosing a side, however, will not be an easy task.

Xi’s Regime Change in China Creates Dangers for Itself and the World

By Manu Bhaskaran

President Xi has effected a substantive regime change that fundamentally alters how China is governed.
It presages a shift in how China interacts with, and impacts the rest of the world.
These developments will increase the risk of policy errors in managing China’s economy and also spells trouble for relations with big powers such as the US.

India: Opposition Congress Party Struggles To Re-Invent Itself

By Nicholas Chia

The opposition Congress Party made its job of returning to power harder by electing an 80-year old loyalist of the Gandhi family to head the party.
In a nutshell, the credibility of the Congress Party is diminished by the perceived fact that the Gandhi family is not able to truly relinquish control of the party leadership.
That is not to say that the Congress party will disappear from India’s political map altogether, although regional parties will be key in future general elections.

Is US tax driving Chinese stocks?

By Mark Tinker

In this part of the world (Hong Kong) there has definitely been a sense over the last few months that, once the CCP conference was out of the way, only then would things start to happen.
Rightly or wrongly, there was a belief that nobody was prepared to take any risks until the issue of Xi’s third term was resolved.
We ourselves commented that we believed Xi would indeed secure the third term back in August (see all eyes should be on the 20th Party Congress) in part because at the time there were some quite high profile western analysts asserting that the probability of it not happening was as high as 30%, perhaps not coincidentally leading to some subsequent dramatic social media posts appearing about Xi being under house arrest and there being a faction close to former leader Hu Xintao taking over.

CX Daily: Why The Yuan Is Suddenly Gaining International Traction

Cover Story: Why the yuan is suddenly gaining international traction
China names new top Communist Party leadership for next five-year term
A younger generation is now the majority in Communist Party’s elite body

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Oct 25

Daily Brief Macro: Global Recession Beginning and more

In today’s briefing:

Global Recession Beginning
The Week That Was in ASEAN@Smartkarma – Ciputra Development, Matahari Department Store, and BliBli.
The Commodity Report #74

Global Recession Beginning

By Phil Rush

Global manufacturing returned to its downtrend in October, with the US, EA and UK all appearing to face falls. All their services sectors are also now declining.
Unemployment has not yet turned higher. Until that happens, any easing of wage pressures will only come from demand where there is a backlog of vacancies.
Monetary policymakers are reconciled to the fact that a recession may be needed to curb inflation. Rate hikes should slow when success is evident, hopefully soon.

The Week That Was in ASEAN@Smartkarma – Ciputra Development, Matahari Department Store, and BliBli.

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 published on Ciputra Development, Arwana Citramulia, Matahari Department Store, Blibli, Total Access Communication, and Singapore Medical.
There were also insights on Siam Makro Public, Plan B Media, and the upcoming SET rebalancing in December which should benefit Berli Jucker.

The Commodity Report #74

By The Commodity Report

Inventories of copper in warehouses run by exchanges such as the LME do not provide a complete picture of copper stocks in the supply chain since many industrial users will hold their own reserves of the metal.
But visible stocks can have a significant influence on sentiment in the market.
It’s just striking how negative the financial markets are about this industry, yet the physical market is so tight.

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Oct 24

Daily Brief Macro: Fear of being out replaced by fear of being in (anything but $ cash) and more

In today’s briefing:

Fear of being out replaced by fear of being in (anything but $ cash)
Why Inflation Is A Game Changer For Portfolios
Five Constructive Signs of a Short-Term Bottom

Fear of being out replaced by fear of being in (anything but $ cash)

By Mark Tinker

The most crowded trade in markets at the moment is $ cash.
Fear rather than greed is dominating sentiment for both retail and professional investors and, with yields approaching 4%, cash is back as an asset class once more.
Of course, this time last year, there was also fear driving the markets, except then it was a case of FOMO, Fear of Missing Out ; of ARKK, or Crypto, or meme stocks, or SPACs.

Why Inflation Is A Game Changer For Portfolios

Rising inflation has played havoc with 60/40 portfolios as bond prices haven’t provided a counterweight to falling stock prices.
A study reveals that underlying inflation trends are decelerating which should be positive to risk appetite expectations.
We believe that the inflation and market pivot is just around the corner and it may be closer than the market expects.

Five Constructive Signs of a Short-Term Bottom