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.
We also explored online groceries in South-East Asia as we see increasing interest in the space plus Nicolas Van Broekhoven also lays out his top picks for 2022 performance.
I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which currencies may offer opportunities this year.
The currencies to track this year for opportunities to buy are Chilean peso and Peruvian sol, and to sell are Colombian peso and South African rand.
Among currencies that already look appealing to buy are the Indian rupee and the Thai baht, while the Chinese yuan and the Czech koruna appear expensive.
Inflation is running hot. As a consequence, the Fed made its hawkish pivot and signaled that it is on pace to end its QE program by March 2022.
FANG+ stocks are the new defensive positioning under such a scenario. In a growth-starved world, investors will bid up the prices of cash generative growth companies.
The expected large-cap growth leadership should begin to fade when inflation pressures start to abate in the latter part of 2022.
Don’t get overly complacent about the party that the bulls are throwing. Sufficient warning signs are appearing that it’s time to edge toward the exit.
Investment-Oriented accounts should begin to de-risk their portfolios by reducing their equity weights and lowering the beta of their equity portfolios.
Short-Term traders may want to stay at the bulls’ party a little longer and wait for a sell signal to turn bearish.
Prospects for global growth in 1Q2022 are clouded by a severely contagious Fourth Wave of Covid-19, reflected in a 56% week-on-week rise in new cases to 8.274mn this week.
Asia is less affected. With the exception of Vietnam, ASEAN too has contained the spread of Covid, after becoming the global epicentre in Aug-Sep2021.
With the US and EU the epicentres, regionally-focused movement restrictions will hurt domestic growth prospects in the OECD in 1Q 2022, although trade will likely continue to boom.
By Eleanor Olcott, China Policy Analyst at TS Lombard
Washington’s political drive to block Chinese access to US high-end tech is creating uncertainty in the industry
The immediate effect is the redirection of Chinese VC money away from the US to Asian and European rivals
The long-term trend is of two rival centres of technology production- one focused on Shenzhen, the other on Silicon Valley
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The government has lost its second attempt to secure support for its Brexit deal by 149 votes, versus 230 first time. A Wednesday vote is set to reject no deal before one on Thursday leads the government to request an Article 50 extension.
A third meaningful vote may arise as the cost of EU conditions is compared. An expensive extension to the summer is likely, though that may not thaw relations. An unlikely general election wouldn’t help, but a new Conservative PM might.
Intransigent positions among an arguably incompetent current crop of political actors have significantly raised the risk of no deal. I now see the relative probabilities of a deal, no deal, and no Brexit at 45:35:20, versus 55:25:10.
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By Lawrence Brainard, Chief Emerging Market Economist at TS Lombard
In a Chinese version of QE the PBoC is flooding markets with liquidity
Commercial banks will be slow to use it to boost lending to SMEs
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In Vietnam Picks up the China Baton, we said that Vietnam was ready to take off with the China trade baton. Outside of China/Hong Kong/Taiwan, the VN Index, up 10.3% year to date, is the best performing market in the Asian region. But is the economy on the ground in Vietnam as good as the data suggests? We are upbeat although there are some concerns about its EU style paradox – a two tier economy that could create problems down the road. If you can buy Vietnam, it is well worth doing so.
UK monthly GDP stayed surprisingly strong in Feb-19, growing 0.2% m-o-m after 0.5% in Jan-19. Services matched my bullish forecast and show no signs of matching the collapse in the PMI, but finance’s downward trend looks to be re-establishing.
Manufacturing and construction caused the upside surprise and are set to be highly supportive of GDP growth. With the economy firing on all cylinders, despite the prophecies of doom, I raise my bullish 1Q19 GDP growth forecast by 0.1pp to 0.5%.
Despite the recent and transient inversion of the yield curve, incoming US economic data suggests continued growth as the most likely baseline outlook for risky assets.
Easier financial conditions due to the Fed’s dovish tilt in 2019 should be supportive for the real economy and risky assets, but they have not prevented a decline in real yields on Treasury Inflation Protected Securities (TIPS) and a flatter yield curve.
Hitherto, despite a flattening yield curve, US bank lending standards have not tightened significantly due to a rise in net interest margins, an outcome at variance with recent history.
US corporate bond market and leverage loan conditions have improved since 2018 Q4, thereby easing concerns about the credit cycle, while legislative changes in Japan could impact liquidity in the AAA-rated collateralised loan obligations (CLO) market.
President Trump continues to exert pressure on the Fed by demanding an immediate policy shift towards easing, as well as nominating political allies to serve on the Board of Governors, thereby raising the ante on Chair Powell.
India is in an election year. Sensibility has gone out of the window, replaced by fantastical promises and irresponsible spending. If the Modi government is desperate hold on to power, the Congress Party is equally determine to wrest power away. And then there is the RBI, which working hand in glove with the government, cut policy rates again this month. We hope that cooler heads and more importantly objectivity will prevail once the elections are over, but further interest rate cuts cannot be ruled out at this stage. It follows that the rupee is vulnerable. We reiterate our underweight Indian equities call.
The European Council will consider the UK’s latest request for an extension at its 10 April meeting. It is not a soft touch seeking to reward failure, so I expect an extension to be longer and conditional on passing a substantive vote soon.
Fundamental market-relevant factors have changed little over the past fortnight, in my view, despite all the domestic political noise. I still subjectively see the routes and relative probabilities of a deal, no deal, and no Brexit at 45:35:20.
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UK monthly GDP exceeded all expectations by surging 0.5% m-o-m in Jan-19. Construction rebounded by even more than I expected, as did manufacturing, while services remained resilient relative to the biased surveys.
The level of GDP is already 0.35% above the 4Q18 average, so I raise my forecast for 1Q19 by 0.1pp to 0.4% q-o-q. The BoE’s 0.2% forecast is looking woefully gloomy, although Brexit remains critical to the policy outlook.
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UK monthly GDP exceeded all expectations by surging 0.5% m-o-m in Jan-19. Construction rebounded by even more than I expected, as did manufacturing, while services remained resilient relative to the biased surveys.
The level of GDP is already 0.35% above the 4Q18 average, so I raise my forecast for 1Q19 by 0.1pp to 0.4% q-o-q. The BoE’s 0.2% forecast is looking woefully gloomy, although Brexit remains critical to the policy outlook.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.