Macro

• There are some big changes to the capital gains taxes for Korean retail investors of domestic stocks in 2023 which could accelerate selling of domestic stocks by the local investors.
• The change in the way capital gains taxes are calculated starting 2023 for local investors will result in higher taxes overall for about 100k local investors.
• The overall change in capital gains tax is negative on the Korean stock market and many investors will likely accelerate their selling of domestic stocks in 2H 2022. 

• As the US dollar approaches its highest level in a decade in line with my expectation, I reiterate my view of the dollar remaining strong in the near term.
• The dollar spike coincides with the rise in US rates volatility, which makes sense as the market is trapped between Fed tightening and risk aversion arising from rising recession probability.
• As the year progresses, I expect the dollar to weaken and the environment to turn supportive of EM currencies. Until then, I recommend relative-value trades and hedging with the euro.

• Rebooting / Cover Story: Shanghai’s rocky road to rebooting.

• Covid-19 / Beijing starts mass Covid testing as it imposes lockdowns.

• Corruption / Graft probes ensnare college buddies who were top bankers.

• Five Things to Know About China’s Overarching Financial Stability Law

• Chinese citizens submitted 20% more requests for government information in 2021

• China’s Covid outbreaks take bite out of local economic growth

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

• We recently suggested a number of long/short pair trades, with inflation hedge vehicles forming the long portion of a number of pairs.
• Inflation hedge factors have begun to underperform, and the subsequent performance of the pairs is revealing of the factors driving the current market environment.
• We are inclined to give the long inflation hedge pairs the benefit of the doubt. They are being sold along in a panic liquidation where all correlations converge to 1.

• We still see relatively healthy demand for Asian technology exports as a handover from consumer to enterprise IT spending extends the current tech cycle. 
• Lead indicators such as Taiwan’s export orders show some slowing but to still-strong levels. This is despite a marked slowdown in orders from the Greater China region.
• End demand indicators also support the positive outlook: US new orders for IT goods slowed from multi-year highs to a still-high run rate; the outlook for IT capex looks solid.

• 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 Singapore’s economic outlook, Bank Central Asia (BBCA IJ), Adi Sarana Armada (ASSA IJ), GoTo (GOTO IJ), and SCG Packaging (SCGP TB).
• Daniel Tabbush also took a look and Philippine Banks highlighting China Banking (CHIB PM) as his top pick. We also comment on Astra International (ASII IJ) and Telekom (TLKM IJ). 

• China can no longer contain COVID-19 infection surges without significantly damaging its economy: there will be rolling lockdowns affecting more regions in China.
• Aside from further economic downgrades within China, watch out for political surprises as well. President Xi may need to make more compromises with his rivals than he had planned to.
• There could be geo-political consequences as well if President Xi needs an external distraction – Taiwan could endure more pressure.

• We believe Bank Indonesia’s tightening cycle will only commence in 2H22 so long as i) inflation is under control and ii) the IDR does not buckle under pressure.
• The economic outlook looks more promising. The unwinding of COVID-19 restrictions is likely to provide a fillip to the tourism earnings, which in turn will support the IDR. 
• We now pencil in 3 x 25bps rate hikes (as opposed to just 2 x 25bps), given the Fed’s now more aggressive tightening stance.

• Recession fears have arrived on Main Street. Google searches for “recession” have spiked and anecdotal evidence indicates that recession talk has hit the party circuit.
• Recession modeling depends on several moving parts, namely inflation, the supply chain effects of the war and war-related sanctions, as well as the Chinese zero-COVID lockdown and Fed policy.
• While the jury is still out on a recession call, we also offer two rough guideposts to a market bottom should a recession develop.

• AAII and Investors Intelligence surveys have become extremely bearish, which should be contrarian bullish, but we interpret the surveys as the bulls have capitulated but the bears haven’t.
• Investment-Oriented accounts should be positioned cautiously and take advantage of rallies to raise cash.
• Trading accounts should be aware that the market is short-term oversold and poised for a relief rally in the context of a downtrend.

• The difference in Indian exposures between Value and Aggressive Growth managers hits record wides of +10.5%.
• Value managers are increasing underweights, with today’s level of -5.52% below benchmark the lowest on record.  Key underweights are Reliance Industries, Infosys, HDFC Limited, Bajaj Finance and Bharti Airtel
• For Aggressive Growth funds, Infosys was a key driver behind the recent spike in exposure, with 8.6% of funds buying in to the stock and average weights increasing by +0.42%.

• After a decade long decline in Chilean allocations that stretched the entire twenty-tens, investment levels in Chile have started to reverse course.
• The shift in ownership among active managers confirms how a favorable and stable political environment can directly feed through to increased investment in a region.
• Active GEM managers have been buying Soc Quimica Y Minera Chile-B, Cencosud SA (CENCOSUD CI) and Empresas Copec Sa.

• Data / Five things to know about China’s mega East-West data center plan

• Futures / China to scrutinize foreign businesses in the new futures market

• Fintech / Ant Group to acquire Singaporean payment platform 2C2P

• In the first fortnight of April, mobility bounced back, particularly for retail and recreation, although workplace mobility slowed – most likely on account of holidays.
• Active cases declined by ~22% over the previous fortnight while incremental deaths .
• However, the incremental number of fully vaccinated people sustained the slowing trend and was down by 32% from the previous fortnight….(continued).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

• In depth: China’s planned revamp of trust bailout fund draws questions

• Shanghai’s elderly Covid patients have a hard time coping with centralized quarantine

• Private equity funds slow pace amid rising uncertainties

• Oil has posted clear weekly reversals and has a bullish setup that indicates significant gains
• Expect a rally to, and through, the highs seen in March this year
• This is likely to have negative implications for other financial markets including equities. Trade ideas included at the end

• Three factors argue for more monetary tightening in October. First, inflationary expectations need to be anchored.
• Second, gGlobal inflation will remain elevated because of continued supply chain disruptions and upward pressures on energy and food prices. 
• There will be less slack in the economy due to strong growth in the domestic sectors. 

• In this insight, we discuss the continued outperformance of the major Korean pref shares versus common shares in 2022.
• There has been a continued closing of the pricing gaps between the major Korean common and preferred shares this year.
• The 28 Korean preferred stocks experienced an average shares prices decline of 3.2% YTD, outperforming their common shares counterparts which were down 5.4% in the same period. 

• Recent inversion of the US Treasury yield curve indicates investors are nervous about a potential policy mistake by the Fed. Complacency about inflation resulted in overly-generous liquidity provisions requiring removal.
• Observers believe the Fed lacks courage to tighten aggressively due to recession risks.  Attention has shifted to the timing of the inflation peak, but housing sector strength complicates the task.
• The Fed should concentrate its efforts to cool housing inflation with higher long-term interest rates, because inflation in this sector is largely determined by domestic economic forces.   

• 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 Mitra Adiperkasa (MAPI IJ), Ace Hardware Indonesia (ACES IJ), and Bukalapak (BUKA IJ), as well as rapidly transforming Sido Muncul (SIDO IJ). 
• We also look at the IPO debut of GoTo (GOTO IJ), slower cement sales in Indonesia, and the end of an era for Singapore Press Holdings (SPH SP). 

• In the ‘80s, independent economist Yardeni coined the term ‘‘bond vigilantes’’ to refer to fixed income investors disciplining authorities for running inflationary fiscal and monetary policies and ultimately restoring order through the bond market.
• In 2022, we are witnessing the first preliminary signs of the return of the global macro vigilantes
• Amongst others, George Soros is an eminent member of this selected group of macro investors who challenge policymakers across countries and relentlessly chase regime-change narratives once they see a good opportunity

• Animal spirits are clearly in short supply in the Indian elephant, going by the rather lacklustre factory output figures.
• Consumption and investment demand remain tepid while monetary tightening and power shortages will exert a drag.
• Inflation remains a concern, and surging CPI/WPI inflation will force the RBI’s hands to move in June, with further tightening from August. 

• Shanghai / Cover Story: The disrupted lifelines of the Shanghai outbreak

• GDP / China’s first-quarter GDP growth beats expectations with 4.8% rise

• Banking / China Merchants Bank president removed from his position

• YoY OFWR growth slowed for the third month
• Caveat to OFWR outlook now is global economic outlook

Overseas Filipino Workers Remittances (OFWR) growth slowed for the third month in a row in Feb 2022 to +1.3% YoY (Jan 2022: +2.5% YoY). Currently, our 2002 OFWR growth forecast is +4.2% to USD32.75b (2M 2022: +1.9%; 2021: +5.1%) while BSP expects +4% growth. Caveat to OFWR outlook now is the global economic impact of Russia-Ukraine war, especially if the conflict drags Europe which accounts for 12% of 2021 OFWR vs a miniscule 0.008% share for Russia and Ukraine.

• The S&P 500 is facing the twin macro risks of a hawkish Fed and deteriorating fundamentals
• Based on the current 10-year yield of 2.8% and the current earnings outlook, the historical downside risk is between -10% and -30%.
• Arguably, the 10-year yield should be much higher in light of recent core CPI readings, which would have even greater dire consequences for equity valuation.

• The U.S. equity market outlook is undergoing an unusual bifurcated condition.
• Intermediate-Term technical indicators remain bearish but survey-based sentiment indicates crowded short conditions, which is contrarian bullish. 
• As long as our pairs trading factors remain in uptrends, we are inclined to remain cautious on the equity outlook.