Macro

In today’s briefing:

Thailand: Prayuth’s Suspension May Be A Net Positive for Political Stability
CX Daily: Breaking the Ice in the China-U.S. Audit Standoff
CX Daily: Washington’s Drive to Hobble Chinese Chipmaking

Thailand: Prayuth’s Suspension May Be A Net Positive for Political Stability

It has been a bad week for Prime Ministers. Thai Prime Minister Prayuth has been suspended by the Constitutional Court.
Counter-Intuitively, Prayuth’s suspension may be a net positive for political stability, if his detractors are appeased by the suspension, lowering the risk of political protests.
The impact on policy should be limited. Watch for a potential comeback by the opposition Pheu Thai party.

CX Daily: Breaking the Ice in the China-U.S. Audit Standoff

Audit / Cover Story: Breaking the ice in the China-U.S. audit standoff
Attackers / Eight Tangshan police officers detained in women’s assault case
Bankruptcy / Two rural lenders in northeastern China set to enter bankruptcy

CX Daily: Washington’s Drive to Hobble Chinese Chipmaking

Caixin Explains: Washington’s drive to hobble Chinese chipmaking
Communist Party’s 20th National Congress to kick off on Oct. 16
Shenzhen schools delay fall term as city braces for fresh Covid outbreak

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Aug 30

Daily Brief Macro: Jackson Hole – Takeaways for Asia and more

In today’s briefing:

Jackson Hole – Takeaways for Asia
Post-Jackson Hole: Don’t Fight The Fed… Euro Collapse Threatened?
Asian Electronics: Near-Term Bearish But Secular Trends Remain Solid
Malaysia: The Noose Tightens Around UMNO
The Week That Was in ASEAN@Smartkarma – Sido Muncul’s Inflationary Pinch, XL Axiata, and Thai Banks
The Commodity Report #66

Jackson Hole – Takeaways for Asia

First, the developed economies will persist with a more stringent pace of monetary tightening than expected.
Second, a more complex global environment is making it difficult to design monetary policy which is becoming less effective.
Finally, the US Dollar has strengthened even more following the event, with more pressure on Asian central bankers to follow suit even if downside risks to global growth have intensified.

Post-Jackson Hole: Don’t Fight The Fed… Euro Collapse Threatened?

By Michael J. Howell

Chairman Powell’s short and direct Jackson Hole speech emphasized the need to conquer inflation and (unusually) warned us to expect some economic pain
US monetary tightening is being front-end loaded. The Fed sees QT/QE operating like an ‘air conditioning unit’ whirring in the background. But we see QT as a wrecking ball
Too much liquidity is being sucked out of financial markets by Central Banks. Among other things it may trigger Euro instability? Will this force a policy pivot sometime in 2023?

Asian Electronics: Near-Term Bearish But Secular Trends Remain Solid

By Nigel Chiang

Lead indicators point to slowing global electronics demand which will inflict some short-term pain on Asian economies.
However, secular growth trends in electronics make for a soft landing for Asian electronics while long-term growth is likely to be stellar.
Within Asia, Malaysia and Taiwan are the most vulnerable to an electronics slowdown. India and Indonesia are the two economies least affected by the slowdown.

Malaysia: The Noose Tightens Around UMNO

By Nicholas Chia

Former Premier and UMNO leader Najib Abdul Razak was hauled to jail to start his 12-year prison sentence after his last-ditch attempt to stall proceedings was dismissed by the courts.
Tensions flared up within UMNO that reeked of desperation. PM Ismail Sabri was allegedly given an ultimatum to call for elections this year or risk being sacked by the party.
Budget 2023, brought forward to be tabled on 7 Oct 22, now looks likely to be an election budget with handouts and goodies to sweeten the ground.

The Week That Was in ASEAN@Smartkarma – Sido Muncul’s Inflationary Pinch, XL Axiata, 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 Sido Muncul as inflation bites, XL Axiata (EXCL IJ), Kalbe Farma (KLBF IJ) and Grab (GRAB US) plus the BA Airport Leasehold REIT IPO.
There we also insights on the KLSE rebalancing, Krung Thai Bank, and the Thai Banking sector as loan demand starts to accelerate in July.

The Commodity Report #66

By The Commodity Report

The benchmark, CRB Commodity Index, ended the week 2,4% higher
While natural gas made a higher high, the fertilizer complex remained in a sideways market for some time.
Last week fertilizer prices saw an awakening, as especially European natgas prices rallied further. US Gulf Urea futures jumped 20% while Middle East Urea futures jumped 18% w/w.

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Aug 29

Daily Brief Macro: Six Reasons Why This Was Just A Bear Market Rally and more

In today’s briefing:

Six Reasons Why This Was Just A Bear Market Rally
China’s State Capitalism Created Real Estate Excesses and Limits Remedial Options to Reduce Stress
Will Europe Drag the World Into Recession?

Six Reasons Why This Was Just A Bear Market Rally

There appear to be some superficial reasons to support the case for the start of a bull market
An analysis of market internals, valuation and monetary policy backdrop indicates that the bear market isn’t over.
Investors should watch for a re-test of the June lows and make a decision then about downside risk based on sentiment, technical conditions and insider behaviour.

China’s State Capitalism Created Real Estate Excesses and Limits Remedial Options to Reduce Stress

By Said Desaque

Residential property investment as a % of GDP in China stands at much higher levels compared to the US peak in 2006 before the global financial crisis.
Selling state-owned housing stock in 1988 at artificially low prices created a class of buyers who believed that home ownership was a one-way bet in terms of wealth creation.
Considerable uncertainty prevails about the consequences for mortgage strikers due to lack of personal bankruptcy law in China, The government’s priority is to facilitate project completions to ensure social stability.

Will Europe Drag the World Into Recession?

It’s finally happened — the euro fell decisively below par against the U.S. Dollar. The weakness can be attributable to a combination of Fed hawkishness and European economic weakness.
European equities are lagging badly on a relative basis, but the relative performance of the other regions is largely unaffected by European weakness.
Investors are advised to avoid Europe, but monitor the region based on the FIFO principle. If European stocks begin to outperform, it could be the bullish signal of global recovery.

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Aug 26

Daily Brief Macro: BoE Remit Reforms and more

In today’s briefing:

BoE Remit Reforms
CX Daily: Four Things to Know About China’s Power Crunch

BoE Remit Reforms

The UK’s probable next Prime Minister is channelling frustration about high inflation towards a review of the Bank of England, raising the risk of a remit change.
Alternatives like average inflation and nominal GDP targeting remain undesirable, so a credible review will probably support the 2% inflation target.
Removing the distraction of supporting green objectives would be sensible politics. Restricting non-state dependent guidance would be more beneficial but is less likely.

CX Daily: Four Things to Know About China’s Power Crunch

Power crunch / Four things to know about China’s power crunch
Covid-19 / Trending in China: Police scorned online for punishing men attending funeral during lockdown
Economy / China rolls out more measures to stabilize economy

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Aug 25

Daily Brief Macro: CX Daily: How Chinese Private Equity Firms Got Scammed by Their Own Sales Teams and more

In today’s briefing:

CX Daily: How Chinese Private Equity Firms Got Scammed by Their Own Sales Teams
Singapore Financials: Surging Higher
CX Daily: Abuse Victims’ Convictions for Bigamy Highlight Hurdles to Divorce in China

CX Daily: How Chinese Private Equity Firms Got Scammed by Their Own Sales Teams

In Depth: How Chinese private equity firms got scammed by their own sales teams
Southwest China grapples with wildfires during record heat wave
Another Henan official probed for links to rural banking scandal

Singapore Financials: Surging Higher

By Steven Holden

Allocations in Singapore Financials continue their turnaround. From a low of 0.67% in early 2021, average weights have soared to 1.81%, closing in on the highs of 2%+ in 2018
Clear active rotation, with the percentage of managers exposed to the sector increasing from 45.2% in 2021 to 63.4% today.
Strong ownership growth seen in DBS and UOB, with +10.75% and +6.45% of managers opening positions over the last 6-months. SGX also saw ownership rise.

CX Daily: Abuse Victims’ Convictions for Bigamy Highlight Hurdles to Divorce in China

In Depth: Abuse victims’ convictions for bigamy highlight hurdles to divorce in China
Huawei founder Ren declares a battle for survival
Singapore’s leader urges China, U.S. to avoid mishaps as regional tensions escalate

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Aug 24

Daily Brief Macro: An Accretion of Big Power Tensions in Asia and more

In today’s briefing:

An Accretion of Big Power Tensions in Asia
Global Output Dip Deepening

An Accretion of Big Power Tensions in Asia

A slow drip-drip of developments is increasing tensions among the big powers in Asia.
Relations between China on one side and the US, Europe, Japan, India and South Korea are worsening.
That keeps the tinder dry on the ground and raises risk of escalating frictions.

Global Output Dip Deepening

Global manufacturing’s down-trend continued in August to a decline, especially in the UK, where the output index crashed by another 6.5 points to 42.4.
The shock is less advanced for services, with more dispersion, but many countries suffer declines. The US experience is especially severe amid aggressive tightening.
Unemployment has ceased declining, but the deteriorating demand environment should cause it to turn for the worse soon as the global cycle rolls towards recession.

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Aug 23

Daily Brief Macro: Major Fed Policy Error Ahead!? and more

In today’s briefing:

Major Fed Policy Error Ahead!?
China Communication Services: Lowest Exposure on Record
The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Changing Tide, GoTo’s Synergies, and Thai Hotels
Climbing the Wall of Worry
China: Policy And The Economy Nears An Inflexion Point
CX Daily: Sichuan Power Crunch Sparks Calls for Rethink of Coal in China’s Energy Mix
DXY: Dollar Strength May Have Peaked But This Is Not The End of It
Indonesia Budget 2023 Offers A Credible Path To Consolidation
The Commodity Report #65

Major Fed Policy Error Ahead!?

By Michael J. Howell

Fed unlikely to ease policy rates quickly. Even with recession and rates on ‘hold’, QT (quantitative tightening) policy will probably continue
US dollar liquidity already skidding badly. QT could reduce Fed Balance Sheet by one-third
QT has highly non-linear effects on financial stability. A crisis could be brewing?

China Communication Services: Lowest Exposure on Record

By Steven Holden

Communication Services allocations among active China managers are at their lowest levels on record. Average weights have drifted below 10% for the first time since 2013.
Tencent was the driver of the declining sector weight, yet managers are keeping the faith. Asian managers cut exposure to Bilibili and China Mobile yet increased NetEase and Baidu.
Versus the MSCI China index, active managers are underweight -6.69% on average, the largest among sector peers and offset by overweights in Industrials and Consumer Staples

The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Changing Tide, GoTo’s Synergies, and Thai Hotels

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 Sea Ltd (SE US) following its recent results, GoTo (GOTO IJ) as its integrated GoFood to Tokopedia, and on Frasers Hospitality Trust (FHT SP).
There were also insights on the Philippines Economy, Jardine Matheson Holdings after MSCI cuts, and Plan B Media, Erawan Group, and Central Plaza Hotel (CENTEL TB) in Thailand.

Climbing the Wall of Worry

By Mark Tinker

With the slow days of August coming to a close, markets are watching nervously for the seasonally volatile month of September, especially around the options expiry on September 16th – there is much embedded muscle memory of painful ends to Q3 over the years – and are starting to adopt a certain ‘back to school’ mentality, where investors are forced to focus on the – not very attractive – fundamentals.
As such, we thought it worth getting to the school-books a bit early and discussing a few of the ‘known’ issues (as well as a few known unkowns) that markets are likely to concentrate on over the next few weeks and months
This year has seen some significant headwinds for all markets, particularly those coming from de-leveraging and, as those headwinds fade, we see some stability emerging and a series of bear market squeezes that are hinting that the bear may be over and the new Bull can begin (see August Market Thinking).

China: Policy And The Economy Nears An Inflexion Point

By Nigel Chiang

Now that the annual leadership retreat at Beidaihe has ended, there are signs that the top leadership may have decided to step up stimulus efforts.
Besides, policy makers would not have anticipated the heatwave now affecting a large swathe of the country, which dampens activity further.
We think China is at a policy turning point, as the authorities are likely to shift away from incremental measures to more aggressive ones to steady the fragile economy.

CX Daily: Sichuan Power Crunch Sparks Calls for Rethink of Coal in China’s Energy Mix

Cover Story: Sichuan power crunch sparks calls for rethink of coal in China’s energy mix
Suspects arrested as Hong Kong police crack down on cross-border job scam
Exclusive: Regulator moves to help struggling private developers with bond guarantees

DXY: Dollar Strength May Have Peaked But This Is Not The End of It

Tracing the trajectory of the Dollar requires an understanding of where the US economy is in the current cycle, the inflation trajectory and the Fed’s plans for tightening.
A US recession is not our baseline scenario, and peak inflation is finally in sight. The bad news is, services inflation, which is stickier and inertial, is on the rise.
The Fed is staring down markets as senior fed officials reiterated ahead of this week’s Jackson Hole summit that rate cuts in 2023 are not on the table.

Indonesia Budget 2023 Offers A Credible Path To Consolidation

By Nicholas Chia

There were no surprises in President Jokowi’s budget speech, as the administration sought to spell out a credible fiscal consolidation pathway as the 3% fiscal cap kicks in from 2023.
The fiscal stance is deeply negative, amid the belt-tightening efforts alongside the robust tax mop-up. Macroeconomic assumptions and revenue projections appear credible.
The authorities appear keen to consolidate the gains from recent reforms now that the administration is more than halfway through its second term.

The Commodity Report #65

By The Commodity Report

The benchmark, CRB Commodity Index, ended the week -0,5% lower EU CO2 Price to the moon The price of carbon in the EU’s emissions trading system hit a new all-time high on Friday.
The key reason for the rise was the surge in gas contracts for delivery next year.
That is making it more likely that increased burning of coal for power generation as an alternative to gas is more than a short-term blip to get the EU through a difficult winter.

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Aug 22

Daily Brief Macro: Just A Flesh Wound and more

In today’s briefing:

Just A Flesh Wound, or A Deep Cut?
“Price Leads Fundamentals”, Or “Don’t Fight the Fed”?
Supply-Side Developments Raise the Spectre of Structurally Higher Inflation

Just A Flesh Wound, or A Deep Cut?

The S&P 500 has paused its advance after a breadth thrust, but not all breadth thrusts are the same.
To be sure, most breadth thrusts have strong bullish implications. But this time may be different.
A variety of market internals indicates that the pause is likely to resolve in a deeper pullback rather than a more benign sideways consolidation.

“Price Leads Fundamentals”, Or “Don’t Fight the Fed”?

A wide gulf is opening between technical analysts, who are bullish, and macro analysts, who are bearish. A study of past major bear market bottoms suggests two possibilities.
The benign outcome will see the market undergo some choppiness for several months in the manner of the 2010 and 2011 bottom.
The more bearish scenario calls for a second leg down in the manner of the post-9/11 rally as the full effects of the recession reach culmination.

Supply-Side Developments Raise the Spectre of Structurally Higher Inflation

By Said Desaque

Poor productivity and rising unit labour costs since 2021 Q4 have raised the ante on companies to increase selling prices in order to preserve operating margins.
The current environment presents the Fed with an opportunity to wrest control of setting US financial conditions by remaining focussed on restoring price stability.
Geopolitical tensions have raised inflation pressures via food and energy supply disruptions, while China’s future willingness to satiate Western consumer demand at any cost should be questioned.

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Aug 20

Daily Brief Macro: UK: Sales Pumped by Prime Day and more

In today’s briefing:

UK: Sales Pumped by Prime Day
CX Daily: SPACs Appear to Lose Shine in Singapore and Hong Kong

UK: Sales Pumped by Prime Day

Total UK retail sales volumes increased slightly in July, but only because of online sales by firms without stores. Record Amazon Prime Day sales appear to be responsible.
Underlying sales declined a few tenths, and the total level should normalise in August as that retail event passes. The downward trend is unbroken amid confidence at new lows.
High inflation and rates are crushing real incomes to record declines, depressing retail trends irrespective of the successful sales in July.

CX Daily: SPACs Appear to Lose Shine in Singapore and Hong Kong

SPACs / In Depth: SPACs appear to lose shine in Singapore and Hong Kong
Taiwan / Chinese envoy warns U.S. against further escalating tensions over Taiwan
Flood / Northwest China flash floods leave 16 dead, 36 missing

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Aug 18

Daily Brief Macro: Changes in Korean Regulations for Listed Companies: 5% Ownership & Overheated Short-Selling Stocks and more

In today’s briefing:

Changes in Korean Regulations for Listed Companies: 5% Ownership & Overheated Short-Selling Stocks
UK: Inflation’s Food Poisoning Worsens

Changes in Korean Regulations for Listed Companies: 5% Ownership & Overheated Short-Selling Stocks

By Douglas Kim

In this insight, we discuss the impact of the Korean financial regulators announcing numerous important changes related to 5% ownership and overheated short-selling stocks.
The changes in the 5% rule could have a greater impact on the smaller companies, especially those that could be potential M&A candidates.
The FSC also provided revised regulations for stocks that are designated as overheated short selling candidates.

UK: Inflation’s Food Poisoning Worsens