Macro

In today’s briefing:

Geopolitics Raises Risks of Fed Policy Error as Sanctions Fallout Threaten Global Inflation
Prices Obliterating Forecasts
Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – March 2022
CX Daily: Hong Kong Cases Top 55,000, but Lam Rules Out Full Lockdown

Geopolitics Raises Risks of Fed Policy Error as Sanctions Fallout Threaten Global Inflation

By Said Desaque

Geopolitical events impacting oil prices in the 1970s and 1990 resulted in Fed policy mistakes. Current tensions complicate the path of Fed tightening, raising the risks of a policy error.
Russia’s exclusion from SWIFT makes servicing foreign debt more difficult. Exposure to foreign creditors via US dollar-denominated bank loans and debt securities has fallen sharply since 2014.
Energy markets will spread the fallout of sanctions on Russia, particularly in Europe. Food inflation could become an issue, while emerging markets will also face headwinds from Fed tightening.

Prices Obliterating Forecasts

Inflation has continuously exceeded expectations as traditional economic models fail to capture the regime shift. Prices are far below equilibrium and rising towards it.
We now incorporate this macro convergence at a micro-level, bridging the gap between approaches. This fix reflects the new distribution, including the higher median impulse.
The pull toward equilibrium cumulatively adds about 1pp to UK inflation over the year ahead, driving us further above the consensus. Second-round effects would extend it.

Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – March 2022

In my monthly recap note, I provide a performance update of my trade recommendations in emerging markets FX and rates.
Of the total of 35 trade recommendations made so far, I have recommended closing 25 of which 18 were in the money.
I also update my views on the open trade recommendations and go over the rationale behind those that I closed recently.

CX Daily: Hong Kong Cases Top 55,000, but Lam Rules Out Full Lockdown

Hong Kong cases top 55,000, but Lam rules out full lockdown
Wounded Chinese citizen in Ukraine ‘out of danger,’ ministry says
GDP target, budget deficit, housing controls: What to watch for at China’s ‘Two Sessions’

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Mar 04

Macro: Korea Vs Taiwan Amid Ongoing War Between Russia and Ukraine and more

In today’s briefing:

Korea Vs Taiwan Amid Ongoing War Between Russia and Ukraine

Korea Vs Taiwan Amid Ongoing War Between Russia and Ukraine

By Douglas Kim

As the war between Russia and Ukraine progresses further, one of the crucial issues facing the Asian markets is the potential for China to invade Taiwan.
There has been some capital shift from Taiwan to South Korea in the past week.
This has been evident in the outperformance of EWY (South Korea ETF) versus EWT (Taiwan ETF) in the past week.

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Mar 03

Macro: Oil Price Surge and Macro: Are We Near A Turning Point? and more

In today’s briefing:

Oil Price Surge and Macro: Are We Near A Turning Point?
Monetary Policy: Asia Will Not Tighten in Lockstep with the Fed
Contagion Risks from Russia to Other EM Currencies
CX Daily: The Murky World of High-Frequency Futures Trading in China
CX Daily: China’s CIPS Won’t Rescue Russian Banks from SWIFT Ban
EA: Inflation Trend Dominates Forecasts

Oil Price Surge and Macro: Are We Near A Turning Point?

By Manu Bhaskaran

As the supply picture remains stark, will buyers balk at higher prices? The prospect of stringent financial sanctions has left Russian crude in a limbo.
Higher oil prices will test the capital discipline of US shale producers and the restraint of OPEC+, which is still forecasting a surplus in global supplies.
Asia will not be spared, but some will be hit harder than others via higher inflation and widening imports.

Monetary Policy: Asia Will Not Tighten in Lockstep with the Fed

By Nicholas Chia

There are 3 reasons for Asian central banks to commence tightening of monetary policy soon.
Inflation risks are rising and there are signs of financial imbalances or asset price bubbles beginning to emerge.
The region also cannot be too far behind global central banks which are likely to start normalising monetary policy as soon as March for the Fed.

Contagion Risks from Russia to Other EM Currencies

With Russia invading Ukraine, my view of the dollar remaining strong and possibly appreciating further in the near term is playing out.
EM currencies have weathered the spillover from Russia and dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has increased.
Beyond the near term, the outlook for the dollar and EM currencies has become hazy given the uncertainty emanating from Russia’s invasion and the fallout of the sanctions.

CX Daily: The Murky World of High-Frequency Futures Trading in China

In Depth: The murky world of high-frequency futures trading in China
Moldova takes in Chinese students from neighboring Ukraine as war rages
China manufacturing recovers after weak January, Caixin PMI shows

CX Daily: China’s CIPS Won’t Rescue Russian Banks from SWIFT Ban

In Depth: China’s fintech plan part two puts data, risk control in driving seat
China considers ‘China-style’ strategy to coexist with Covid, top disease experts say
Analysis: China’s CIPS won’t rescue Russian banks from SWIFT ban

EA: Inflation Trend Dominates Forecasts

EA inflation’s rudely strong trend continued in Feb-22 with a 73bp rise to 5.8%. That was 0.3pp above our forecast, which was already 0.2pp above consensus.
Upside news remained broad-based across countries and types. Repeating the consistent forecast drift over the past several months implies inflation over 6.2% in March.
Although that is well above our current forecast, the shift in core inflationary pressures causes a substantial upside bias as prices get pulled back up towards their equilibrium.

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Mar 02

Macro: Russia Could Be Excluded from MSCI EM: Impact on the MSCI Korea EM & Trading Angle and more

In today’s briefing:

Russia Could Be Excluded from MSCI EM: Impact on the MSCI Korea EM & Trading Angle
China Pledges Stronger Economic Policies to Stabilize Growth

Russia Could Be Excluded from MSCI EM: Impact on the MSCI Korea EM & Trading Angle

By Douglas Kim

According to Reuters, there is a growing possibility that Russia could be excluded from the MSCI indices in the coming days.
This could result in an estimated inflow of nearly 8.4 trillion won ($7 billion) to the Korean equity market, according to numerous local Korean media outlets.
Some traders/investors may actually try to buy MSCI Korea (and other EM indices) ahead of this event (exclusion of Russia from MSCI EM) actually taking place.

China Pledges Stronger Economic Policies to Stabilize Growth

China’s Politburo vowed to strengthen macroeconomic policies to stabilize the economy this year
The Communist Party’s top officials at a meeting chaired by President Xi Jinping called for stronger prevention of financial risks to maintain stability
The 25-member Politburo reiterated the need to prioritize economic stability this year

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Mar 01

Macro: What the Ukraine Crisis Means for Asia and more

In today’s briefing:

What the Ukraine Crisis Means for Asia
Mid Feb 2022 – Additional Blow to Market Sentiment
The Week That Was in ASEAN@Smartkarma – XL Coverging, Kalbe Rebalancing, and SCB Refocusing
End of Mandatory Lock-Up Periods for 43 Stocks in Korea in March 2022
The Thailand Turnaround
Indian Financials: Momentum Returns to Key Overweight
Policy Rates Feeling for a Higher Neutral
Alpha Bites: Receive Poland 10y Vs Pay Eurozone 10y Local Rate
CX Daily: China’s Game Studios Face Long March as Titles Languish Unapproved

What the Ukraine Crisis Means for Asia

By Manu Bhaskaran

The world has entered a new era: it is a much more insecure world for Asia, marked by an enduring increase in global political risk which hurts Asia.
The short term economic impact on Asia is modestly negative, thanks to higher energy prices. A sustained surge in inflation is unlikely, however.
There will also be longer term economic impacts, such as acceleration in supply-chain reconfiguration, more defence spending and a shift away from imported hydrocarbons.

Mid Feb 2022 – Additional Blow to Market Sentiment

By Cappuccino Finance

Supply chain disruptions, labor shortages, re-emerging virus variants, interest rate hikes…one thing after another keeps disrupting the market.
The common belief is that war is good for the economy because the increased level of government spending boosts the economy
In the case of the current Russia-Ukraine conflict, the most immediate impact on the U.S. economy will be the oil price

The Week That Was in ASEAN@Smartkarma – XL Coverging, Kalbe Rebalancing, and SCB Refocusing

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 XL Axiata (EXCL IJ), Kalbe Farma (KLBF IJ), BFI Finance Indonesia (BFIN IJ), and Astra International (ASII IJ) post recent results.
We also take a close look at Siam Commercial Bank Pub Co (SCB TB) after its numbers but also look more closely at its upcoming restructuring.

End of Mandatory Lock-Up Periods for 43 Stocks in Korea in March 2022

By Douglas Kim

In this insight, we discuss the end of the mandatory lock-up periods for 43 stocks in Korea in March 2022.
Among these 43 stocks, 5 stocks are in KOSPI and 38 stocks are in KOSDAQ.
These 43 stocks could be subject to further selling pressures in March and could on average underperform relative to the market.

The Thailand Turnaround

By Steven Holden

The long-term decline in Thailand allocations among Asia Ex-Japan funds appears to be stabilising.
Over the past 6-months, Thailand weights have increased by 0.29%, with 6.5% of the funds in our analysis adding exposure, though managers remain underweight and underinvested.
CP ALL PCL is the most widely held stock, but recent fund activity has favoured Central Pattana Pub, Bangkok Dusit Medical Services and Asian Sea.

Indian Financials: Momentum Returns to Key Overweight

By Steven Holden

Exposure in Indian Financials has reached peak levels among Asia Ex-Japan managers. A key overweight, 77% of Asia Ex-Japan managers are now positioned above benchmark.
HDFC Bank Limited is the most widely held stock, with Housing Development Finance Corp, ICICI Bank Limited and Kotak Mahindra well held stocks and net overweights in Asia Ex-Japan portfolios
HDFC Bank Limited is a key holding for many investors, with the bulk of allocations above 2% and high conviction positions well above that

Policy Rates Feeling for a Higher Neutral

Monetary policymakers are rapidly back-peddling with the BoE hiking at consecutive meetings. Markets price this pace continuing to far higher levels than reached recently.
UK forward rates imply a neutral setting near 1%, whereas our macro estimates suggest it is nearer 1.5%. The US appears to be unwinding some of the Great Recession’s drop.
The BoE needs to feel where the neutral rate lies by watching the economy. If neutral feels high, policy can follow, but then it need not fall so far afterwards.

Alpha Bites: Receive Poland 10y Vs Pay Eurozone 10y Local Rate

Long-End rates in Central European (CE) countries are close to the highest in five years due to inflationary pressures arising from overheating economies and highly negative real rates.
The spread between CE and the eurozone is close to its widest in at least a decade because, unlike the eurozone, these countries have been hiking rates aggressively.
The spread is a function of the inflation differential between the regions. With inflation peaking in the coming months and the eurozone yet to start hiking, the spread should narrow.

CX Daily: China’s Game Studios Face Long March as Titles Languish Unapproved

In Depth: China’s game studios face long march as titles languish unapproved
Cover Story: The beginning of the end of the post-Cold War world order
China Merchants Bank to join Greater Bay Area testing ground for fintech

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Feb 28

Macro: War Is Equity Bullish and more

In today’s briefing:

War Is Equity Bullish, But There’s A Catch…
We’ll Never Complain About A Lack of Panic Again

War Is Equity Bullish, But There’s A Catch…

By Cam Hui

A buy the war dip is the order of the day in the absence of risk of a total loss of capital from war and rebellion.
Macro conditions still dominate the equity outlook in the long run
Buy the market panic for a tactical rebound, but don’t overstay your welcome.

We’ll Never Complain About A Lack of Panic Again

By Cam Hui

A short-term panic bottom is probably in, but it’s difficult to predict short-term market fluctuations in the current circumstances.
The situation on the ground in Ukraine is highly fluid and a jittery market is highly sensitive to headline risk.
Investors could focus on agriculture (MOO), aerospace and defense (ITA), and cyber security (HACK) for outperformance opportunities in the current heightened geopolitical risk environment.

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Feb 26

Macro: Elevated Commodity Prices and Stagflation: Nuanced Conditions in Play Across Different Markets and more

In today’s briefing:

Elevated Commodity Prices and Stagflation: Nuanced Conditions in Play Across Different Markets

Elevated Commodity Prices and Stagflation: Nuanced Conditions in Play Across Different Markets

By Said Desaque

Commodity prices are sensitive to monetary conditions and their upward movement after aggressive easing by the Fed from early-2020 should not have been a surprise.
Tight oil inventories helped to underpin rising oil prices in 2021, but gradual supply increases from OPEC + and the US should alleviate supply-demand imbalances.
Commodity prices should cool as the gap between aggregate demand and supply dissipates. ESG interests could still produce higher inflation by limiting the flow of capital to traditional commodity sources.

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Feb 25

Macro: CX Daily: Could Pfizer’s Drug Paxlovid Change China’s Covid Policy? and more

In today’s briefing:

CX Daily: Could Pfizer’s Drug Paxlovid Change China’s Covid Policy?
Risks to Russian Bonds from Escalating Sanctions
CX Daily: Oil Prices Surge Amid Russian Assault on Ukraine

CX Daily: Could Pfizer’s Drug Paxlovid Change China’s Covid Policy?

In Depth: Could Pfizer’s drug Paxlovid change China’s Covid policy?
Shackled mother was sold into forced marriages at least three times, probe finds
China loosens new mobile payment rules to put small businesses at ease

Risks to Russian Bonds from Escalating Sanctions

Following the invasion of Ukraine by Russia, it is only a matter of time before the US and other western allies impose a new set of economic sanctions on Russia
A directive from the US Treasury this week expanded the restrictions on Russian bonds as it prohibits participating in the secondary market of new bonds, thereby cutting financing for Russia.
With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different scenarios.

CX Daily: Oil Prices Surge Amid Russian Assault on Ukraine

Oil prices surge amid Russian assault on Ukraine
China’s annual rural policy road map urges better protection for women and children
Exclusive: China’s banks told to stop taking liberties with ‘agreement deposits’

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Feb 24

Macro: Russia: Echoes of the Past. Crimea Analysis and Positioning Update and more

In today’s briefing:

Russia: Echoes of the Past. Crimea Analysis and Positioning Update
EA: Solid Core in Jan-22 Supports Hawks

Russia: Echoes of the Past. Crimea Analysis and Positioning Update

By Steven Holden

Russia suffered a significant reallocation of capital during the Crimea Annexation in 2014. Average weights fell by -3.36%, 7.9% of funds closed positions and investors shifted from overweight to underweight
EM investors were well positioned in Russia heading in to 2022, not perhaps as heavily exposed as pre-Crimea, but enough to significantly effect portfolio returns for many funds.
Given the scale of the Ukraine conflict and the uncertainty surrounding western sanctions, this doesn’t feel like the time for catching a falling knife.

EA: Solid Core in Jan-22 Supports Hawks

EA HICP inflation was confirmed at 5.1% y-o-y for Jan-22, while the ex-tobacco print matched our 5.2% forecast (110.3). We expect another rise in Feb-22.
The impulse in core inflation picked up even further above target-consistent levels and continues to pose upside forecast risks.
We still expect the ECB to start hiking this year.

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Feb 23

Macro: Singapore Budget 2022: Expect Medium-Term Adjustments to Raise Inflation and more

In today’s briefing:

Singapore Budget 2022: Expect Medium-Term Adjustments to Raise Inflation
Thailand: A Good Chance of Upside Surprise in 2022
Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?
CX Daily: How a Fortune 500 Company Built a Commodity Colossus on a Shell Game
CX Daily: How the Balance of Power Over Ukraine Shattered Overnight

Singapore Budget 2022: Expect Medium-Term Adjustments to Raise Inflation

By Nigel Chiang

The budget signalled a shift in the government’s priorities from cushioning the economy against COVID-19 to addressing longer-term imperatives: enhancing productivity, labour force upskilling, and Singapore’s nascent green transition.
The slightly negative fiscal impulse notwithstanding, the meaningful step up in direct transfers to households to offset cost-of-living increases and efforts to raise low wage incomes could boost domestic demand.
On the revenue front, policymakers introduced several adjustments to their tax policies. This, tighter controls on foreign labour, and an ambitious carbon tax hike imply moderately higher medium-term price pressures.

Thailand: A Good Chance of Upside Surprise in 2022

By Manu Bhaskaran

We estimate GDP growth at 4.7% in 2022, with the chance of an upside surprise if foreign tourist arrivals reach past the projected 5.6 million tourists to 10 million tourists.
Global demand conditions and revved up government spending render the manufacturing and construction sector bright spots for the economy in 2022.
Crucially, the revival of tourism will lift the Thai Baht from its prolonged weakness throughout the duration of the pandemic.

Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

In an environment marked by uncertainty with regards to the dollar’s next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.
The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.
If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.

CX Daily: How a Fortune 500 Company Built a Commodity Colossus on a Shell Game

Cover Story: How a Fortune 500 company built a commodity colossus on a shell game
Analysis: Why Singapore could coexist with Covid, but not Hong Kong
China moves to protect vulnerable services sector from excessive local Covid control measures

CX Daily: How the Balance of Power Over Ukraine Shattered Overnight

In Depth: How the balance of power over Ukraine shattered overnight
Hong Kong can stock up on anti-Covid drugs to tackle omicron outbreak, top infectious disease expert says
ByteDance looks to exit securities business as fintech rules tighten

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