Macro

In today’s briefing:

India: Stagflation Woes Rear Its Ugly Head
China: Taking the Pulse of the Economy Heading into 2Q22
Which EM Currency Has Suffered the Most Since Russia’s Invasion of Ukraine?
India Bans Wheat Exports; Baby Formula & Diesel Shortage in US: Repeat of Beggar Thy Neighbor Policy
UK: Labour Market Cycles Inflation Up

India: Stagflation Woes Rear Its Ugly Head

By Manu Bhaskaran

Lacklustre capital goods production points to weak investment activity. We remain unconvinced on the self-sustained capex upturn, and hew to our bearish forecast of +7% y/y growth in FY23.
Headline inflation climbed further, which comes on the heels of the RBI’s off-cycle meeting. Today’s WPI print also points to stirring price pressures.
The RBI comes under competing pressures to act after the authorities pressure the central bank to keep yields in check. This runs counter to the global tightening of financial conditions.

China: Taking the Pulse of the Economy Heading into 2Q22

By Nigel Chiang

Lockdowns are taking a toll on the supply-side while depressing domestic demand.
Monetary data shows that credit easing channels are not working smoothly, despite policymakers’ efforts to steer credit to the real economy.
At best, therefore, we expect a relatively soft rebound in 2H22, and full-year GDP growth at 3.5%, below the consensus of 4.2%.

Which EM Currency Has Suffered the Most Since Russia’s Invasion of Ukraine?

By Gautam Jain, PhD, CFA

The dollar has strengthened significantly since Russia’s invasion of Ukraine, which has led to a broad risk-off environment. Among EM currencies, the worst performer has been the Hungarian forint.
Adding to the economic woes resulting from Russia’s aggression, the forint has suffered as the central bank has signaled less aggressive monetary tightening even with inflation hitting a two-decade high.
PM Orban has worsened the situation with his pre-election spending and by going against the EU by resisting further sanctions on Russia. Relatedly, funding from the EU is at risk.

India Bans Wheat Exports; Baby Formula & Diesel Shortage in US: Repeat of Beggar Thy Neighbor Policy

What is the common theme for beggar thy neighbor policies and higher inflation rates as evidenced by surging wheat prices, higher diesel prices, and infant formula shortages?
These factors are likely to continue to favor value stocks which have outperformed the growth stocks in the past six month globally, including in South Korea.
Value-Oriented sectors including financials, telecom, F&B, and oil refineries have been outperforming the growth sectors in Korea in the past six months and we believe this trend could continue.

UK: Labour Market Cycles Inflation Up

By Phil Rush

Employment increased ahead of April’s jobs tax hike, and vacancies since then stayed high. Hours have also recovered despite depressed self-employment levels.
Firms appear to be focusing on retention, with bonus payments surging while regular pay growth slows. Nonetheless, wage settlements have been their highest since 2008.
This combination of rising wage deals and falling unemployment looks to be around a cyclical peak in underlying inflation pressures, probably pushing the BoE to hike in June.

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May 17

Macro: China On The Brink … Commodities Set To Be Crushed! and more

In today’s briefing:

China On The Brink … Commodities Set To Be Crushed!
The Collapse of Luna – Big Negative Impact on 200k Investors In Korea
The Week That Was in ASEAN@Smartkarma – Philippines Election,Thai Bev, and XL Axiata
CX Daily: China’s Race to Provide for Its Aging Population

China On The Brink … Commodities Set To Be Crushed!

By Michael J. Howell

Emerging Market Liquidity Index (EMLI™) skids to 29.3 (range 0-100) as EM Central Banks tighten led by renewed Chinese PBoC squeeze
China struggling to stabilize Yuan under USD attack and forced to sharply tighten domestic monetary conditions
Added to an economy hit by C-19 lockdowns, monetary squeeze will further hit activity and lead to World recession , so crushing World commodity prices

The Collapse of Luna – Big Negative Impact on 200k Investors In Korea

The local media have mentioned that nearly 200,000 people in Korea have invested in Terra (Luna) and TerraUSD.
The combined market caps of Luna and TerraUSD at their peaks were nearly $60 billion and nearly $57.4 billion has been wiped out in the past week.
Consequently, in the coming weeks there could be some domino effect of people in Korea that have borrowed money to invest in these risky cryptos selling other assets.

The Week That Was in ASEAN@Smartkarma – Philippines Election,Thai Bev, and XL Axiata

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 Thai Beverage as it looks to spin off its BeerCo plus on XL Axiata both post results on Link Net which will complete soon.
There were also insights on Mitra Keluarga and Raffles Medical plus a piece on Singapore Banks from Daniel Tabbush highlighting their safe-haven status, and commentary on the Philippines Election.

CX Daily: China’s Race to Provide for Its Aging Population

Cover Story: China’s race to provide for its aging population
Shanghai lays out plan to end lockdown and reopen business by June
Chart of the Day: China’s record-breaking unemployment rates amid Covid lockdowns

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May 16

Macro: The Crypto Contagion Threat to the Stock Market and more

In today’s briefing:

The Crypto Contagion Threat to the Stock Market
The Commodity Canary in the Coalmine Is Falling Over

The Crypto Contagion Threat to the Stock Market

The recent crypto meltdown was a disturbing indicator of bearish risk appetite.
Signs of possible stabilization in crypto assets and speculative growth stocks are pointing to an imminent equity relief rally.
Investment-Oriented accounts should be cautiously positioned and sell into market strength. Traders can try to position for a relief rally, but don’t overstay the party.

The Commodity Canary in the Coalmine Is Falling Over

Weakness in commodity and equity prices is signaling a global slowdown and possible recession.
Conventional wisdom calls for cautiousness in portfolio positioning, which is sensible.
However, investors should be prepared for good news, either in the form of a cessation in Russia-Ukraine hostilities, or a turn in the Fed’s tightening policy.

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May 15

Macro: Angst of Rising Real Interest Rates Haunts US Financial Markets as Profit Forecasts Fail to Impress and more

In today’s briefing:

Angst of Rising Real Interest Rates Haunts US Financial Markets as Profit Forecasts Fail to Impress

Angst of Rising Real Interest Rates Haunts US Financial Markets as Profit Forecasts Fail to Impress

By Said Desaque

The future trajectory of US Treasury yields depends on investors’ perceptions whether the Fed has taken the necessary steps to quell inflation. Significant quantitative tightening will not occur until September.
The Fed engineered lower real yields over the past forty years, albeit at varying speeds. Lower real yields since 2008 have boosted leverage in the corporate and federal government sectors.
US equities are facing the perfect storm in the form of rising interest rates and uncertainty about the economic and corporate profit outlooks. Investors are not trusting corporate profit forecasts.

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May 13

Macro: Gold’s Building Blocks Giving a Buy Signal and more

In today’s briefing:

Gold’s Building Blocks Giving a Buy Signal
How Are Fed’s Rate Hikes Impacting EM?
EM Currencies Under Pressure – IDR Could Be The Next To Crack
Alpha Generating Trading Strategy of KOSDAQ150 Deletions & Additions in June 2022
CX Daily: The Troubling Balancing Act Facing Shanghai’s ER Doctors
UK: Cars Drive GDP Growth Back a Month
CX Daily: ‘Zero Covid’ Slams the Brakes on China’s Electric Car Industry

Gold’s Building Blocks Giving a Buy Signal

By Shyam Devani

Factors that typically impact Gold have, on average, reached an extreme
They include the USD, Bitcoin, and US TIPS Yields which have all trended strongly up till now
Are we about to see at least a minor but notable turning point that provides a buy signal for Gold?

How Are Fed’s Rate Hikes Impacting EM?

By Gautam Jain, PhD, CFA

Notwithstanding the economic uncertainties, with the Fed’s path better defined now than a few weeks ago, I expect the volatility of rates to peak in the coming weeks.
Uncertainty around the Fed’s rate hikes has been spilling over to the monetary policy paths of EM countries even though many of them have been raising rates since last year.
If the US rates volatility falls as I expect, then it will be supportive of the short ends of EM rate curves in Latin American and Central European countries.

EM Currencies Under Pressure – IDR Could Be The Next To Crack

By Nicholas Chia

There are more signs of stresses across EM economies. The Turkish Lira has crept past the TRY15-mark against the USD, spurring another bout of unconventional intervention by the authorities.
Sri Lanka has been rocked by protests and demonstrations, with the makings of macroeconomic mismanagement by the Rajapaksa family. PM Mahinda Rajapaksa’s resignation failed to soothe the anger of protestors.
Indonesia has benefitted from the upturn in commodity prices while inflation remains (relatively) manageable. But, the Rupiah could be poised for a meaningful correction.

Alpha Generating Trading Strategy of KOSDAQ150 Deletions & Additions in June 2022

KRX is expected to announce the KOSDAQ150 rebalance in the next couple of weeks.
An alpha generating trading strategy would be to focus on companies with higher probability of getting deleted in the next round of KOSDAQ rebalance in December.
These 15 companies are those among the bottom 30 market cap in KOSDAQ150 that are ranked number 16 to 30 in terms of combined market cap and trading value range.

CX Daily: The Troubling Balancing Act Facing Shanghai’s ER Doctors

Shanghai / In Depth: The troubling balancing act facing Shanghai’s ER doctors
Southeast Asia / Southeast Asian exporters step up as China locks down
China-France / Xi, Macron discuss Ukraine war in phone conversation

UK: Cars Drive GDP Growth Back a Month

By Phil Rush

UK GDP growth declined in March as new car deliveries got delayed until April. The trend also disappointed amid downwards revisions and unsustainably sourced strength.
Occasional jumps, mainly in the past, skew headline growth rates higher. GDP’s pace still seems to be quartered in Q2, now from 0.8% to 0.2% q-o-q.
Stagflationary pressures from extensive cost shocks sustain an uncomfortable policy trade-off. We still expect the BoE to hike in June and August before slowing the pace.

CX Daily: ‘Zero Covid’ Slams the Brakes on China’s Electric Car Industry

In Depth: ‘Zero Covid’ slams the brakes on China’s electric car industry
Shanghai’s Covid hospitals struggle to handle patients with other serious illnesses
Exclusive: China’s ‘Big Four’ banks to start pilot program for retirement savings products

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May 12

Macro: Optimal KOSPI200 P/B Value Screen: Growth (Ali) Vs. Value (Foreman) – Latter Is Winning in Korea and more

In today’s briefing:

Optimal KOSPI200 P/B Value Screen: Growth (Ali) Vs. Value (Foreman) – Latter Is Winning in Korea

Optimal KOSPI200 P/B Value Screen: Growth (Ali) Vs. Value (Foreman) – Latter Is Winning in Korea

One of the optimal criteria for P/B screen has been to focus on the 150 lowest P/B stocks in KOSPI200.
We provide five different time frames to assess how the investors are shifting to more value names (as evidenced by lower P/B stocks).
We compare the growth vs value stocks in Korea to Ali (growth) vs Foreman (value). Right now, value (as evidenced by lower P/B stocks) is winning in Korean stock market.

Before it’s here, it’s on Smartkarma

May 11

Macro: India: This Is As Good As It Gets For the Economy and more

In today’s briefing:

India: This Is As Good As It Gets For the Economy
The Philippines: Too Much Pessimism over a Marcos Presidency
Is the Environment Supportive of EM FX Relative-Value Trades?
CX Daily: Why Is China’s Powerful Export Engine Losing Steam?
Persistent Risk Premium Threat
Stocks Down / Sales Estimates Up. A Screen.
CX Daily: Coal, Once a Boon, Turns Chinese Rustbelt City Into a Bust

India: This Is As Good As It Gets For the Economy

By Nicholas Chia

Corporate India booked a robust earnings season for 1Q22, which is a product of the sanguine macro backdrop and the release of pent-up demand with the easing of most restrictions.
However, this may be as good as it gets for the economy amid several headwinds to growth. The recent heat waves threatens industrial activity and wheat crop yields.
Capacity utilisation rates remain low, holding back the capex drive and investment growth, despite the buoyant earnings season. Watch for growing pressure on the RBI to keep yields in check.

The Philippines: Too Much Pessimism over a Marcos Presidency

By Nicholas Chia

Ferdinand “Bongbong” Marcos secured a majority of votes, which is no mean feat, given that political parties are overshadowed by the familial elites who dominate Philippine politics.
Marcos’ victory reflects the failure of the EDSA movement to deliver the economic goods, which chimes with President Duterte’s appeal, despite his War on Drugs and human rights record.
There is a material likelihood that Marcos could manage the inter-elite contestations to push through reforms that his predecessor failed to do, despite significant political capital on hand.

Is the Environment Supportive of EM FX Relative-Value Trades?

By Gautam Jain, PhD, CFA

In line with my view that the dollar remains strong in the near term, one of the trading strategies that I have suggested is relative-value trades within EM currencies.
The volatility of EM currencies continues to rise, which in theory is supportive of relative-value trades as such environments are usually accompanied by wide dispersion among EM currencies.
However, I find that cross-correlations among EM currencies have risen, leading to a narrowing of dispersion between them, which means the environment is no longer supportive of relative-value trades.

CX Daily: Why Is China’s Powerful Export Engine Losing Steam?

Cover Story: Why is China’s powerful export engine losing steam?
How a nursing home resident in a body bag was found alive
Exclusive: Several Chinese regions to delay savings bond issuances to keep Covid at bay

Persistent Risk Premium Threat

By Phil Rush

Economies are increasingly facing stagflationary squeezes. A series of additional cost shocks would extend the pressures even without traditional second-round effects.
Adapting to a higher operational risk premium could create additional shocks as firms pursue shorter and simpler supply chains that reverse the benefits of globalisation.
Forecasts implicitly assume risk premia normalisation, as they erroneously did with other risks after the Great Recession. More stagflationary errors may occur.

Stocks Down / Sales Estimates Up. A Screen.

By Eric Fernandez, CFA

Below is a screen of companies with rising sales estimates for 2022 and stocks that have fallen the most.
This is somewhat “off-brand” from our short research, but we thought it could be helpful.
Contact us if you would like the Excel version, or a sub-sort (sector, cap, liquidity, multiple), or to hear about our short research.

CX Daily: Coal, Once a Boon, Turns Chinese Rustbelt City Into a Bust

In Depth: Coal, once a boon, turns Chinese rustbelt city into a bust
Former China Supreme Court judge handed 14-year prison sentence for corruption
PBOC encourages banks to set deposit rates based on market signals

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May 10

Macro: QT Is Already Here And The 2022-23 Bear Market Is Now Well Underway and more

In today’s briefing:

QT Is Already Here And The 2022-23 Bear Market Is Now Well Underway
Can Asia Ex-China Continue to Be Resilient?
Egyptian Equities Are Approaching a Bottom
The Week That Was in ASEAN@Smartkarma – Indonesia & CPO, ROTI, and Siam Cement

QT Is Already Here And The 2022-23 Bear Market Is Now Well Underway

By Michael J. Howell

Bear market underway in World equities and likely to see one-third peak to trough decline
Trigger is US Fed QT, but US Fed is NOT about to start QT. It has already been underway since Dec 15th 2021
Each $100 billion of QT, costs the SPX index around 60 points. Therefore expect S&P500 to test 3250, or 20% lower

Can Asia Ex-China Continue to Be Resilient?

By Manu Bhaskaran

Asia ex-China has been relatively resilient this year despite the harsher global environment.
We believe that the re-opening of the developing Asian economies ex-China will outweigh the headwinds, allowing this resilience to continue.
China is the single biggest risk: it can succeed in suppressing covid infections but only at a high economic cost. Overall, growth in developing Asia can remain relatively resilient

Egyptian Equities Are Approaching a Bottom

By Dylan Waller

Egyptian equities are beginning to enter a bottoming out phase, although there is likely more economic pain this year and no near-term stock market catalysts are present.
However, with MSCI Egypt trading at circa six times forward earnings, a near 50% discount to MSCI Emerging Markets, Egypt appears to be positioned very well in terms of relative value
Some of the major headwinds approaching include food/energy inflation, declining tourism, and Egypt’s entry into another IMF program this year

The Week That Was in ASEAN@Smartkarma – Indonesia & CPO, ROTI, and Siam Cement

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 PT Nippon Indosari Corpindo (ROTI IJ), AEM (AEM SP) in Singapore, as well as Rex International Holding (REXI SP), and Siam Cement (SCC TB).
There was also an interesting macro commentary on Indonesia’s economy as it banned CPO exports but it is seeing a significant pick up in FDI.

Before it’s here, it’s on Smartkarma

May 09

Macro: Profit Opportunities in the Coming Global Recession and more

In today’s briefing:

Profit Opportunities in the Coming Global Recession
Top 20 Best Performers in KOSPI (Week of 6 May)
Making Sense of the H&S Breakdown

Profit Opportunities in the Coming Global Recession

A survey of the world economic outlook shows the increased risk of a global recession.
An analysis of the global regions indicates the U.S. is no longer a safe haven in the latest downturn.
Relative valuations of non-U.S. markets have converged and the best opportunity is appearing in non-German eurozone.

Top 20 Best Performers in KOSPI (Week of 6 May)

This is the first weekly series on the “Top 20 Best Performers in KOSPI Adjusted for Trading Value & Mkt Cap.”
This Korean weekly is aimed at providing a better framework for spotting the big potential winners in the Korean stock market as well as changing sectoral and company trends.
These 20 stocks are up on average 13.9% from 28 April to 6 May, significantly outperforming KOSPI which is down 0.9% in the same period.

Making Sense of the H&S Breakdown

Our assessment of the bull and bear debate is really a debate of differing time horizons.
The bullish factors are mainly short-term in nature, while bearish factors tend to be more intermediate term.
Our base-case scenario calls for a short-term bottom and a bear market rally of unknown magnitude, followed by a greater decline into an ultimate low in the coming months.

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May 08

Macro: New Global Monetary System Will Evolve and more

In today’s briefing:

New Global Monetary System Will Evolve, as Sanctions and Current Conventions Worsen Supply Shortages

New Global Monetary System Will Evolve, as Sanctions and Current Conventions Worsen Supply Shortages

By Said Desaque

Seizure of Russia’s external assets is prompting countries to think about protecting economic security via alternative payment mechanisms for commodities. The dollar’s role as the leading reserve currency remains intact.
Foreign exchange reserve management could change following seizure of Russian assets. Politicisation of SWIFT could impact flows into banking systems due to fears of potential seizures without legal recourse.
High transaction costs for foreign trade never featured prominently during the globalisation era. New lockdowns in China and Russian sanctions accentuate supply shortages and inflation under current global monetary arrangements.

Before it’s here, it’s on Smartkarma