Macro

In today’s briefing:

CX Daily: As Mass Covid Testing Becomes China’s New Normal, Debate Grows Over Who Pays
NPS Reduces Asset Allocations for Domestic Equities and Fixed Income

CX Daily: As Mass Covid Testing Becomes China’s New Normal, Debate Grows Over Who Pays

In Depth: As mass Covid testing becomes China’s new normal, debate grows over who pays.
Climate issues shouldn’t bear political labels, U.S. envoy says.
China’s premier puts greater emphasis on growth.

NPS Reduces Asset Allocations for Domestic Equities and Fixed Income

By Douglas Kim

NPS plans to reduce the proportion of domestic equities in the fund to 14% by 2027, down from 16.3% at end of 2022.
Although the proportion of domestic stocks will be reduced to 14% by 2027, total investment in domestic stocks is expected to rise by 27.1 trillion won to 192 trillion won.
The decline in asset allocations for for domestic bonds is much steeper (from 34.5% of total at end of 2022 to 22.9% at end of 2027).

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May 27

Macro: UK: Fiscal Measures Against Inflation and more

In today’s briefing:

UK: Fiscal Measures Against Inflation

UK: Fiscal Measures Against Inflation

The UK government doubled down on its energy price support, subtracting 0.4pp from our Oct-22 inflation forecast. The risk of the ONS not counting it is now worth 0.8pp.
Other measures may follow later, like removing the 5% VAT on electricity bills. Changing the headline VAT rate is a risk attracting significant market attention.
A 2.5pp VAT cut would probably take almost 1pp off headline inflation within two months. Some firms may take the opportunity to restore their profit margins.

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May 26

Macro: CX Daily: China’s Plan to Overhaul Its $3.7 Trillion Mutual Fund Industry and more

In today’s briefing:

CX Daily: China’s Plan to Overhaul Its $3.7 Trillion Mutual Fund Industry
CX Daily: How China Took Another Step Forward on Genetically Modified Farming

CX Daily: China’s Plan to Overhaul Its $3.7 Trillion Mutual Fund Industry

In Depth: China’s plan to overhaul its $3.7 trillion mutual fund industry
Exclusive: Davos photo used by U.S. Congressman to criticize China didn’t show anyone Chinese
China pours on billions of dollars more in tax relief

CX Daily: How China Took Another Step Forward on Genetically Modified Farming

In Depth: How China took another step forward on genetically modified farming
China aims to beat its own emission targets, envoy says
November looms large for U.S.-traded Chinese stocks facing delisting

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May 25

Macro: China: Bear Case Materialising? and more

In today’s briefing:

China: Bear Case Materialising?
US-China Tensions: Taiwan Flashpoint Just Got A Bit Riskier
Singapore: Recalibrating Our Growth Forecasts Amid Cross-Currents
EM Asia: Taking Stock of Foreign Direct Investment in Asia
Services Smash into Inflationary Despair

China: Bear Case Materialising?

By Nigel Chiang

The consensus view is now coalescing with our bearish call on 8 April that risk aversion among local governments would bring about a protracted exit from zero-COVID, thereby impacting growth.
There are now more indications that the policy response would prove ineffectual in spurring a recovery in 2H22 – which underpins our bear case scenario of just 2% growth.
We expect infrastructure construction to be buffeted by rolling lockdowns, while declining confidence (and wherewithal to spend) among households mean that tax cuts to spur consumption could fall flat.

US-China Tensions: Taiwan Flashpoint Just Got A Bit Riskier

By Manu Bhaskaran

Biden appears to commit US to defend Taiwan against China.
China will not sit still – near-term, its response could raise tensions.
There is a higher chance than before of frictions growing between the US and China over Taiwan.

Singapore: Recalibrating Our Growth Forecasts Amid Cross-Currents

By Nigel Chiang

Supply disruptions abroad, a weaker outlook for financial services, and slower growth in real estate following macroprudential tightening prompt a 2022 GDP growth forecast downgrade to 4.4% from 5.4% previously.
We see these headwinds partially offset by an earlier-than-expected reopening of the economy, though the reopening impulse is also blunted by a recovery in outbound tourism.
The balance of risks to growth is tilted to the downside. growth will disappoint if the Ukraine-Russia conflict escalates further and/or the US capex engine loses momentum.

EM Asia: Taking Stock of Foreign Direct Investment in Asia

By Nicholas Chia

After declining sharply in 2020, FDI in Asia has recovered spiritedly. The robust recovery reflects continued investor confidence in the region.
FDI in Asia is poised to grow even further with the implementation of RCEP, an enduring emphasis on infrastructure and the relocation of supply chains from China.
Flows of FDI into high-tech economic sectors and FDI related to the secular trends of climate change and the digital economy will facilitate structural economic changes in the region.

Services Smash into Inflationary Despair

Services activity crashed in the UK and US as high inflation destroyed demand. Although the EA move was relatively modest, it suffers the same crisis in consumer confidence.
EA vacancies are booming beyond the decline in unemployment, indicating a mismatch, while productivity languishes below trend. Both are inflationary fundamentals.
The ECB is getting pushed to respond with a rate hike in July, contrary to our view that it would end asset purchases then and start hiking in September.

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May 24

Macro: The Week That Was in ASEAN@Smartkarma – Sea Ltd and more

In today’s briefing:

The Week That Was in ASEAN@Smartkarma – Sea Ltd, Utrajaya, and Grab’s Results
CX Daily: China’s Safety Problem With Illegal Buildings

The Week That Was in ASEAN@Smartkarma – Sea Ltd, Utrajaya, and Grab’s Results

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 Sea Ltd, Grab, and Ultrajaya Milk Industry & Trading post results plus an update on Frasers Hospitality Trust as borders reopen.
We also saw insights on GoTo‘s index inclusion, the Total Access Communication and True Corp merger plus Central Retail Corp post its results.

CX Daily: China’s Safety Problem With Illegal Buildings

Safety / Cover Story: China’s safety problem with illegal buildings
Davos / Climate envoys from China, U.S. expected to meet at Davos
Shanghai / Shanghai’s economy pounded in April by Covid lockdowns

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May 23

Macro: Last Major Currency Peg: Hong Kong’s Fate Could Be Determined by the Fed and Geopolitics and more

In today’s briefing:

Last Major Currency Peg: Hong Kong’s Fate Could Be Determined by the Fed and Geopolitics
Washed Out Enough?
From FOMO to GIDOT (Glad I Don’t Own That)

Last Major Currency Peg: Hong Kong’s Fate Could Be Determined by the Fed and Geopolitics

By Said Desaque

Prior to 1983, Hong Kong experienced economic overheating and high inflation. The currency peg’s inception coincided with the rising anti-inflationary credibility of Fed policy conduct.
Hong Kong is, however, now totally exposed to any draconian attempts by the Fed to recoup lost credibility via tighter policy settings.
China needs its own sovereign-controlled financial hub. Hong Kong could be China’s financial centre, but recent currency weaponisation implies tenability of the currency board becomes increasingly driven by geopolitics.

Washed Out Enough?

By Cam Hui

A review of different sentiment metrics indicates an atmosphere of heightened fear.
The intermediate path of least resistance for U.S. equity prices is still down.
We continue to believe the risk/reward is tilted to the upside in the short run.

From FOMO to GIDOT (Glad I Don’t Own That)

By Cam Hui

The U.S. equity outlook is highly dependent on an uncertain economic outlook.
P/E multiples are adequate if the economy sidesteps a recession, but the risks are skewed to the downside.
If the Fed becomes more hawkish, the economy collapses into recession, or if further supply chain disruptions pressure inflation, downside risk could be considerably higher.

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May 22

Macro: What’s Driving The Bear Market … Lower? and more

In today’s briefing:

What’s Driving The Bear Market … Lower?

What’s Driving The Bear Market … Lower?

By Michael J. Howell

World Stock Markets are being battered by weak US Fed Liquidity and by weakening World economic activity
Central Bank tightness increasing driven by US Fed who are slated to drain US$2 trillion from markets
Chinese economy struggling under C-19 lockdowns and tight People’s Bank (PBoC)

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May 21

Macro: UK: Consumers Drown Their Sorrows and more

In today’s briefing:

UK: Consumers Drown Their Sorrows
Crypto: Perfect Storm on Stablecoin Infrastructure
Let The Macro Polar Stars Guide You

UK: Consumers Drown Their Sorrows

The bleak retail performance of the previous two months reversed to a surprising extent as sales surged by 1.4%. Demand for booze dominated falling non-food store sales.
GDP seems only slightly less weak in Q2 as this bounce will probably prove short-lived around Easter. Falling real incomes squeezes sale volumes rather than raising values.
Crashing consumer confidence has now reached record lows in contrast to the business optimism that seems set for a rude awakening as customers baulk at higher prices.

Crypto: Perfect Storm on Stablecoin Infrastructure

By Roger Xie

Stablecoin TerraUSD (UST CURNCY) has de-pegged from USD; the implosion put pressure on Tether (USDT CURNCY). This resembled the confidence crises that precede bank runs.
The incident happened under macro headwind such as tech stock sell-off, rising benchmark interest rates and TerraUSD specific algorithm design.
The bigger worry of de-pegging has investors to re-assess the reserve behind stablecoin in the crypto ecosystem; we expect the ripple impact will continue for some time before settling down.

Let The Macro Polar Stars Guide You

By The Macro Compass

Powell’s remarks in the Wall Street Journal interview this week were quite interesting, and markets seem to have noticed: we have seen quite some wild moves, but again the most relevant price action is happening under the surface.
In such a choppy market environment, systematic risk management techniques and a data-driven investment approach are key to tell the forest from the trees and reduce drawdowns in your portfolio.
Powell played the hawkish horn again, and markets are reacting in quite some interesting ways.

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May 20

Macro: Sri Lanka Defaults on Debt: South Korea Is the Biggest Investor & Domino Effect on Other Countries? and more

In today’s briefing:

Sri Lanka Defaults on Debt: South Korea Is the Biggest Investor & Domino Effect on Other Countries?
Yields in Asia Are Far from the Peak – Part II
CX Daily: Localities Push Ahead With Personal Bankruptcy Pilots as National Efforts Stall
CX Daily: China Eases Covid-19 Test Rules for Air Travelers From More Countries

Sri Lanka Defaults on Debt: South Korea Is the Biggest Investor & Domino Effect on Other Countries?

By Douglas Kim

Sri Lanka defaulted on its debt for the first time in its history.
South Korea is the biggest investor in Sri Lanka. About 20% of foreign companies entering Sri Lanka are Korean companies.
Other emerging/frontier market countries including Turkey, Pakistan, South Africa, Russia, Ukraine, Belarus, El Salvador, Lebanon, Ethiopia, Ghana, Kenya, Egypt, Tunisia and Peru also face potential debt defaults.

Yields in Asia Are Far from the Peak – Part II

By Gautam Jain, PhD, CFA

Even as the US 10y yield has come off the peak, rates in emerging markets – including in Asia – have been selling off as they remain under pressure.
Rates in Asia are vulnerable as they are expensive vis-à-vis the rest of EM, rising inflation should result in further rate hikes in the region, and debt profiles have deteriorated.
I thus expect rates in Asia to underperform and prefer selling bonds in the region paired with long bond positions in countries in other regions.

CX Daily: Localities Push Ahead With Personal Bankruptcy Pilots as National Efforts Stall

In Depth: Localities push ahead with personal bankruptcy pilots as national efforts stall
China’s tax revenue sinks amid rollout of new VAT refund policy
Three tough-to-crack housing markets relax homebuying controls

CX Daily: China Eases Covid-19 Test Rules for Air Travelers From More Countries

China eases Covid-19 test rules for air travelers from more countries
Global investors continue to dump yuan bonds as Treasurys, dollar rise
Chinese President Xi Jinping pledges to open door wider to world

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May 19

Macro: US-ASEAN Summit Shows The Limits Of US Outreach To Region and more

In today’s briefing:

US-ASEAN Summit Shows The Limits Of US Outreach To Region
UK: Inflation Breaks Upside Streak
CX Daily: PBOC Isn’t Done With Fintech As Ethics Governance Regulations Loom
EA: Less Energy but More Inflation

US-ASEAN Summit Shows The Limits Of US Outreach To Region

By Manu Bhaskaran

The substance of the US-ASEAN summit fell short of what was needed to strengthen America’s capacity to offset China’s growing influence in ASEAN.
The small scale of US offerings to ASEAN relative to China likely confirmed in many ASEAN leaders’ minds that the US is structurally unable to match China economically.
Domestic politics makes it virtually impossible for the Biden Administration to get any kind of free trade agreement giving ASEAN wider market access through Congress.

UK: Inflation Breaks Upside Streak

UK inflation broke its six-month streak of upside surprises by “only” jumping to 9% on the CPI and 11.1% on the RPI. Food prices were surprisingly high for us.
Underlying inflation measures failed to keep pace with the headline change this month but remain far above levels consistent with the inflation target in the medium term.
Household energy bills remain a critical differentiator between forecasts. Inflation may not live up to the BoE’s cautiously extreme forecast yet not block near-term hikes.

CX Daily: PBOC Isn’t Done With Fintech As Ethics Governance Regulations Loom

In Depth: PBOC isn’t done with fintech as ethics governance regulations loom
China detects new omicron subvariant considered more infectious
China’s developers slash investment for first time since 2020

EA: Less Energy but More Inflation

EA HICP inflation was revised slightly lower again in the final print for Apr-22, so it is flat on the month at 7.44%. The ex-tobacco index still rounded to 7.6%.
We expect the headline rate to rise further, although the peak looks relatively flat around the current painfully elevated levels for several months.
The outlook is supported through the medium-term by price levels converging with their equilibrium. We extend this approach across the EA19, lifting our forecast further.

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