Macro

• As concerns over China persist, Asia Ex-Japan managers are becoming more constructive on the ASEAN Region and appear amenable to increasing allocations.
• Indonesia and Singapore are the largest country allocations, Indonesia/Vietnam the key overweights and Malaysia/Thailand the key underweights. Only 20.4% of managers have any Malaysia exposure at all.
• Sea Ltd and Bank Central Asia are the key overweights in the region.  Recent activity has favoured Cisarua Mountain Dairy, Central Pattana Pub and Telekomunikasi Indonesia.

• Budgets / In Depth: The growing difficulty of balancing China’s local government budgets

• Crash / Caixin Explains: What we know so far about the crash of flight MU5735

• Audit / China’s securities watchdog mulls move to break audit deadlock with U.S.

• Trip.com / In Depth: Trip.com eyes post-pandemic tourism boom as rivals circle

• Bonds / Sunac China seeks two-year extension on $627.85 million bond

• Manufacturing / Economists explain why foreign investment in China’s manufacturing hasn’t returned to pre-pandemic levels

• BSP sees domestic growth gaining stronger traction
• BSP adjusts 2022 & 2023 inflation forecasts higher
• We now expect two +25bps hikes at end-3Q 2022 and end-4Q 2022 as monetary policy statement turns “hawkish” on inflation

• The U.S. stock market is undergoing a relief rally in the context of an intermediate-term downtrend.
• Investment-Oriented accounts should take advantage of market strength to rebalance to a position of minimum risk.
• Traders who are long should use a stop-loss to define their risk.

• Did the stock market make a meaningful bottom last week? Don’t be fooled, this is a bear market. The recent episode of stock market strength is a bear market rally.
• We are downgrading our Trend Asset Allocation Model from neutral to negative.
• Investment-Oriented accounts should shift to a maximum defensive posture. Traders could position themselves for a short but vicious bear market rally, but don’t overstay your welcome.

• Japan Financials have suffered a long-term decline in exposure.  Ownership has dropped from 56% of managers in December 2013 to just 31.2% today.
• However, there are signs that these ownership declines are starting to reverse course, led by manager buying in Japan Post Holdings, Ms&Ad Insurance and Sompo Holdings
• If recent activity suggests a shift in sentiment for Japan Financials stocks, there is plenty of room for ownership levels to move higher from here.

• Decline in labour force participation rate to 60.5%
• Agriculture the key driver of total employment loss
• Metro Manila shift to AL1 from 16 Mar 2022
• Maintain our 2022 unemployment rate forecast

• Saudi Arabia overtakes China is the largest country underweight among EM active investors.
• Despite exposure among active managers reaching all-time highs and new funds entering the market, index weights are outpacing active increases.
• Nearly 3/4 of the 246 funds in our analysis are still without Saudi Arabia exposure. In our view, the rising ownership trend has a long way to run.

• In Depth: Chinese firms bending over backward to offer foldable phones

• Shanghai says no plan to seal off entire city of 25 million

• Chinese stocks get another drubbing as uncertainty overwhelms investors

• In Depth: Market realities frustrate China’s efforts to clean up developer debt

• China vows to keep markets stable and resolve property risks

• U.S. accounting watchdog says it’s working with China on audit dispute

• Average holding weights in China & HK have fallen to their lowest levels since late 2019. From a peak of 38.26% in October 2020, exposure has dropped to 29.01%
• China underweights have contracted due to a combination of Russian overweights being displaced, and on the back of significant falls in the price of key index holdings.
• China is still the largest holding in EM by a margin, but was costly to EM managers over the last year.  Active managers may be tempted to reduce allocations.

• Russian overweight wiped out after initial phase of Russia drop.  China underweight contracts on the back of natural portfolio adjustments.
• South Africa takes on new role as the top pure EM play in the region.  Saudi Arabia underweight increases.
• Russian overweight causes underperformance of -0.64% for active managers compared to benchmark.  Saudi Arabia u/w is proving a costly position for active managers in the face of inflated oil prices.

• The Indonesian rupiah has outperformed most EM currencies, particularly other Asian currencies, and has done so with low volatility in contrast with the rising volatility of the EM FX index.
• Looking ahead, headwinds may be appearing with the interest-rate differential working against the currency as the Fed starts raising rates and higher inflation leading to lower real rates.
• While the rise in commodity prices is generating trade surpluses for now, the current account may turn negative from positive with a rise in imports accompanying the economy’s reopening.

• The UK unemployment rate fell by 11bps to 3.9% as the labour force shrunk enough to offset stagnant employment levels. Gaps are more critical to monetary policymakers.
• Unemployment is closing in on the BoE’s 3.8% forecast for Q1, historically consistent with the Bank rate at 0.75%, supporting another 25bps hike in March.
• Wage settlements are responding to the tight market and inflation driving real terms declines. That should encourage additional rate hikes this year.

For our next Webinar, taking place this week, we are excited to welcome back Michael J. Howell. Michael will look at the devastating implications of higher oil prices and China’s latest monetary squeeze on Global Liquidity and the markets.

The webinar will be hosted on Thursday, 17 March 2022, 17:00 SGT/HKT.

Michael J. Howell is Managing Director at CrossBorder Capital, an investment advisory firm specialising in macro-investing. Founded in 1996 with an international client base, CrossBorder focuses on monitoring and understanding global liquidity and capital flows.

• Two downside risks confront the global economy, with implications for Asia. The Ukraine crisis and the subsequent surge in energy and food costs is one and a slowdown in China. 
• We present scenarios for the impact of these risks on global growth. In our baseline scenario, global growth suffers a hit in 2Q22, before activity recovers a degree of momentum.
• Overall, we find that global growth diminishes moderately in 2022. The surge in inflation peaks in 2Q22, then eases.

• Asian economies ex-China should remain remarkably resilient in the face of the global supply shock. In most cases, we cut our 2022 growth forecasts by only 20-40 basis points. 
• China, however, is likely to suffer a severe slowdown. Even with policy makers turning to stimulus, we expect growth to come down to 3.8% in our baseline scenario (previously 5%) 
• In our downside scenario, China barely grows in 2022. A major consideration is that it will take time for China’s policy response to be effective due to contradictory policy aims.

• Malaysia’s ruling Barisan Nasional (BN) coalition led by UMNO won a sweeping victory in the Johor state elections.
• BN will almost certainly call an early election around mid-year which it has a good chance of winning with a solid majority. 
• That could provide some political stability which has been in short supply since the 2018 general election

• 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 Grab (GRAB US) post-results plus on Jardine Matheson Holdings (JM SP), as it completed its buybacks but it still looks inexpensive.
• There was also a commentary on Property Guru ahead of its listing and on the single stock futures launch by SGX (SGX SP) for Sea Ltd (SE US) and Taiwan Semiconductor.

• Cover Story: Why the wild ride for oil and gas prices isn’t over. 

• China ramps up curbs in race to contain local omicron outbreaks. 

• Analysis: The seven factors that’ll shape China’s economy this year.