This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Strategic Outlook 2025: Winter Is Coming, Can Asia Keep Itself Warm?
- With the US and China distracted from stabilizing the world geopolitical order, flare-ups and stresses will occur more frequently as various actors feel emboldened to undertake risky gambits.
- The world, including emerging Asia, will have to contend with “much higher for much longer” geopolitical risk and its aftereffects on global trade, investments, and financial markets.
- But most economies in the region retain agency to adapt to a more hostile environment by bolstering internal resilience and forming new coalitions of the willing to pursue shared objectives.
2. Investing During an Era of American Exceptionalism
- This year was one of American exceptionalism and asset return domination, led by the leadership of the Magnificent Seven.
- . We believe Magnificent Seven leadership is likely to fade in 2025.
- We expect that 2025 will be a year of transition from growth to value, large caps to small caps and paper to hard assets.
3. Here is what we told Hedge Funds this week – and how we’re trading it!
- Happy Friday! Every week, we dive deep into macro trends, analyze asset movements, and uncover the best value plays in the world of macro.
- These insights are shared with hedge funds and institutional clients, and each Friday, we’re bringing them directly to you.
- While the macro landscape can be complex, we believe it doesn’t have to be intimidating.
4. The US Dollar and the Only Chart that Matters!
- The US Net International Investment Position (NIIP) as a debtor country has ballooned since the GFC, attracting global demand for US assets, which feeds demand for the dollar.
- Historically high dollar demand has allowed the US to enjoy the benefits of low interest rates and created a historic bull market in US equities.
- As the US continues to use its currency for geopolitical purposes, countries have begun to question dollar hegemony. The US fights against any country that tries to weaken the dollar
5. Steno Signals #175 – 4 asymmetrical cases for Santa Powell
- Happy Sunday, everyone, and welcome to my weekly editorial on everything tradable in macro! I was confident heading into last week that the U.S. data releases would bring bond yields lower, and both ISM numbers and NFP aligned with our views.
- The NFP report was much weaker than it appeared, with the median duration of unemployment ticking up—a clear symptom of a low-hiring, low-firing labor market with little momentum for those who lost jobs in recent quarters to find new opportunities.
- Monthly job creation of around 225k is obviously decent, but this figure is skewed by employees returning from strikes and a lack of substantial positive revisions to the abysmal job creation in October.
6. The LLM Quant Revolution: From ChatGPT to Wall Street
- A Comprehensive Guide to Building AI-Powered Investment Systems: The application of Large Language Models (LLMs) in quantitative finance, focusing on the current state of LLM technology in financial applications
- I also cover: 1. Comparative analysis of leading models 2. Implementation frameworks for production systems 3. Risk management and quality control considerations
- Key Findings: 1. Multi-model approaches outperform single-model solutions 2. Production implementation requires robust quality controls 3. Model selection should be task-specific within the investment process
7. Bitcoin 100K: Buy or Fade the Animal Spirits?
- Now that Bitcoin has exceeded the psychologically important 100,000 mark, it is becoming evident that the FOMO risk-on stampede is in full force.
- Our review of market internals leads us to conclude that the risk-on FOMO stampede that’s driving the animal spirits is on the verge of becoming exhausted.
- Our base case calls for a brief period of consolidation or shallow weakness, followed by a rally into year-end.
8. Positioning Watch – Is the Santa Rally at risk of being canceled? Not yet..
- Hi everyone, and welcome back to our weekly positioning update.
- I’ve been puzzled over the past weeks of just how much risk assets have been denying the underlying macro trends, and it very much mimics the pattern we saw in Q4 2023.
- Markets are not really responding to macro unless there is a major surprise to either side of the economic consensus as this is the only scenario which can change the expected rate path of the Fed.
9. Geopolitical Flash Update: See you later Scholz!
On Dec. 4, Michel Barnier became only the second Prime Minister in French history to be ousted by a no-confidence vote.
Precisely one week later, the other major EU economy, Germany, submitted a motion of no-confidence of its own to be held on Dec. 16. What the heck is going on in Europe?!
The political chaos in France and Germany has the same root cause: a sluggish economy and insurmountable debt levels.
10. Globalisation: Same, Same but Different
- Contrary to popular belief, the upward trend in global US$ exports, which has been in place since 1948 remains intact. World trade openness too is higher today than pre-GFC.
- US consumers are the richest. However Asian affordability is growing quickly . The region’s share of the global imports is already on par with Europe’s.
- Globalisation is not reversing but evolving. Regional trade is driving world exports while world manufacturing production chains are transitioning from horizontal to vertical integrated.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. South Korean Parliament Lifts Martial Law Declared by the President Yoon
- Late Tuesday on 3 December, South Korean President Yoon Suk-Yeol declared a martial law. Several hours afterwards, the South Korean Parliament voted to lift President Yoon’s martial law order.
- By drawing so much attention to the “dangers of the communist party from within Korea and outside,” President Yoon is trying to align himself closer to President Trump.
- In the near term, the impact on the Korean stock market of the declaration and lifting of martial law is likely to be negative.
2. Potential Impeachment of President Yoon Suk-Yeol and Impact on the Korean Financial Markets
- In this insight, we discuss the potential impeachment of the South Korean President Yoon Suk-Yeol and the implications on the Korean financial markets.
- We would put a 50-60% probability that there is more than 200 votes to impeach the South Korean President Yoon Suk-Yeol right now by the members of the Parliament.
- We would attach about 30-40% probability that at least six justices of the Constitutional Court vote in favor of impeaching President Yoon.
3. The Week Ahead – Give Thanks For
- Trump announced potential tariff policies on social media targeting Canada and Mexico, leading to a weakening in both currencies.
- Trump appointed key members to his economic team, setting the tone for his administration’s policies.
- Markets are anticipating the Fed meeting in December, with expectations of a dovish hold and strong labor market reports.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
4. Positioning Watch – Markets have NOT been Ready for Growth to Weaken in the US
- Happy Thursday, and welcome to our weekly positioning watch, brought to you just before the crucial NFP report tomorrow.
- From what we see across markets, it looks like participants are starting to take risk off the table in equity space ahead of the report.
- Markets have struggled this week to settle on a clear narrative for USD assets, especially USD rates.
5. Europe Flash Watch – The German 2025 bazooka!
- In Germany, “debt hawks” are slowly but surely waking up to the reality of their manufacturing industry being brought to its knees.
- In Angela Merkel’s recent book, she pleads for a softer stance on the debt brake, and the political landscape in Germany seems to be softening on the “Schwarze Null” in general, with also the Buba member Nagel now advocating for a softer stance.
- The future government would need a two-thirds majority in the Bundestag and Bundesrat to change the debt brake.
6. What Is the Real Purpose of President Yoon’s Martial Law – To Reveal Election Fraud?
- One of the most important questions about the martial law three days ago is why did President Yoon send special forces (297) to the National Election Commission?
- President Yoon may have ordered troops to be deployed to the NEC to get to the bottom of the election fraud since all the important election servers are stored there.
- It is EXTREMELY DIFFICULT to prove an election fraud. Even if President Yoon declares a war on election frauds, he must have extraordinary pieces of data to back this up.
7. Steno Signals #128- I thought Trump and tariffs were supposed to lead to a bond riot?
- Happy Sunday, friends, and welcome to my straight-to-the-point editorial on everything macro!Just as everyone had concluded that Trump and his (alleged) trade wars would be bond-unfriendly, the bond market has started performing much better—exactly as we suggested would happen following the election results.
- The first major difference compared to 2016, when bonds rioted after Trump’s victory, is that Trump was the clear base case this time around.
- The second major difference is that Trump’s policy mix is not inflationary this time—in fact, it’s quite the opposite.
8. The Week at a Glance: Manufacturing Rebound, Fed Liquidity Signals & Oil’s Fragile Balance
- Happy Monday!Each week, we collect the most important events in the week ahead and provide you with our direction going into them.
- Enjoy!Monday – ISM ManufacturingThe ISM Manufacturing data is due this afternoon, with consensus expecting a rebound from last month’s report, forecasting a figure of 47.6. After reviewing our model library, we see substantial risk/reward in betting on an upward surprise in manufacturing data.
- For instance, our regional PMI model—which uses regional manufacturing prints as inputs—indicates a material increase in the manufacturing PMI today.
9. Geopolitical Flash Update – Bye Bye Barnier
- France sovereign debt reached a record €3.228 trillion, amounting to 112% of GDP in June, well above the 60% cap set by EU regulations.
- France growing debt have slowly been chipping away at investors’ confidence in French bonds.
- After Macron called a snap election in June resulting in a hung parliament, risk premiums on French 10-year bonds have shot up.
10. Here is What We Told Hedge Funds This Week—and How We’re Trading It!
- Happy Friday! Every week, we dive deep into macro trends, analyze asset movements, and uncover the best value plays in the world of macro.
- These insights are shared with hedge funds and institutional clients, and each Friday, we’re bringing them directly to you.
- While the macro landscape can be complex, we believe it doesn’t have to be intimidating.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Here’s What We Told Hedge Funds This Week – and How We’re Trading It!
- Happy Friday! Every week, we dive deep into macro trends, analyze asset movements, and uncover the best value plays in the world of macro.
- These insights are shared with hedge funds and institutional clients, and today, we’re bringing them directly to you.
- While the macro landscape can be complex, we believe it doesn’t have to be intimidating.
2. Flash Liquidity Update: A USD liquidity PUT is now in place
- We just received the meeting minutes from the November FOMC meeting, which include two important takeaways on liquidity—both of which are positive.
- We have been highlighting for some time that markets are trading close to pain thresholds in USD liquidity (and below them in EUR liquidity).
- The Fed is now acknowledging the need for a “put” on liquidity levels.
3. The Next Four Years…
- The Republican sweep, both in Congress and the White House, seems to have sparked a risk-on attitude across financial markets of late
- But Republican presidencies have coincided more regularly with periods of post-war economic downturns
- And the disparate US equity market performance enveloping presidential cycles is a nagging puzzle
4. EM Fixed Income: Emerging Markets Outlook & Strategy for 2025
- US election outcome and policy proposals causing challenges for emerging markets in 2025
- Expectations for US exceptionalism and potential insularity affecting global trade and growth
- Potential impacts on inflation, monetary policy, fiscal dynamics, and investment environment for EM fixed income in 2025, with short-term opportunities amidst uncertainties.
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
5. Asian Equities: Be Selective – Focus on The “ROE Winners”
- Asia is cheap relative to the US – trading at less than 40% of US’s P/BV – but that’s because Asia’s ROE has consistently declined relative to US’s.
- Over the next couple of years Asian ROEs are forecast to revive relative to the US’s but all Asian markets are not forecast to participate in this recovery.
- The “ROE Winners” (rising forecast ROEs) are Korea, Taiwan, India, Malaysia. Indonesia to stay flat but solidly higher than Asian average. We are skeptical of HK/China and Thailand’s ROE recovery.
6. Japan Funds: Extreme Stocks
- We screen for Japanese companies at the extreme ends of their positioning or momentum ranges among active Japan equity funds.
- Low Positioning coupled with Negative Momentum: Nissan Motor Corp and Misumi Group
- High Positioning coupled with High Momentum: ASICS Corp and Kyushu Railway
7. CHINA TARIFFS: Fact and Fiction
- The US has ramped up its tariff threats months before Trump even takes office. The newly appointed trade representative is a China hawk with some questionable policies ideas.
- China has reduced its dependency on US exports by half over the last several years and is better prepared to handle trade negotiations.
- Although previous trade negotiations during Trump’s first term lasted more than a year, most of the tariffs were never imposed.
8. Steno Signals #127 – We need a bit of bad news for liquidity to improve
- Hope you had a great weekend! Here’s this week’s sneak peek into my thoughts on liquidity trends and how they influence my approach to risk-taking.
- Watching the alt-season unfold from an incredibly wet and windy Copenhagen this weekend has been quite bizarre.
- The weather outside certainly doesn’t bring out my animal spirits, but there’s a certain smell of 2021 in the air in financial markets—especially if central banks decide to print more into this scenario.
9. Positioning Watch – The US Exceptionalism Story Is Back in Play!
- Main point: The current positioning picture is becoming increasingly uniform across asset classes: higher US growth, higher USD rates versus EUR/GBP rates, higher USD vs. peers, and higher US equity returns compared to Europe/Asia.
- The risk/reward of taking the opposite bet is starting to look appetizing.
We have been looking at the explosive increase in US equity positioning for a while, as multiple indicators show that equities are reaching stretched points positioning-wise — CFTC positioning among asset managers skyrocketing, our own data showing increased positioning in US vs. the rest of the world, and surveys starting to indicate that everyone is expecting equities to crawl higher.
10. Deciphering Trumponomics 2.0
- Looking to 2025, market returns are likely to be more uncertain than in the past. The degree of dispersion in the range of forecasts is wider than usual.
- There will be winners and losers. Deregulation should benefit the energy, AI-related technology, and financials.
- Losers include bonds, and construction stocks because of their sensitivity to both rising rates and heightened labour costs from deportation.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. 2025 High Conviction Idea: Gold
- Gold prices have staged multi-year breakouts in multiple currencies, indicating a long-term bullish outlook.
- In addition, gold is on the verge of staging relative breakouts against global equity markets that point to multi-year outperformance ahead.
- The U.S. macro outlook calls for a re-acceleration of inflation, which is also positive for gold.
2. Trump Watch: Possible U-Turn on Tariffs?
- Our Geopolitical team is wrapping up an analysis on the escalating Ukraine-Russia conflict.
- In the meantime, here’s a piece we believe markets might not yet be fully tuned into:With Donald Trump and Elon Musk seemingly forming a close alliance, their influence on trade and economic policies has become a hot topic.
- Notably, Vivek Ramaswamy and Musk have thrown their support behind Javier Milei’s economic strategy in Argentina, which includes radical measures such as aggressive spending cuts and a commitment to reducing trade barriers.
3. EM as an Asset Class 2024
- EM sovereign debt has seen significant changes since the pandemic, but no wave of defaults has occurred
- China’s debt numbers are higher than Europe’s for the first time, impacting the global market
- Sovereign debt restructuring remains a complex and idiosyncratic process, with challenges ahead for debt dynamics and growth in the EM market
This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.
4. The Week at a Glance – The largest company about to report – fuel for the Nasdaq bet?
- Happy Monday! Welcome to our “Week at a Glance” series, where we highlight the key events and trends to watch for the week ahead.
- Monday:BOJ Ueda – Volatility IgnitedBank of Japan Governor Ueda’s remarks today set the stage for rising yen volatility, as he dodged giving markets a decisive signal on December’s rate hike prospects.
- With Ueda emphasizing data-dependency and the challenge of gauging the weak yen’s impact, traders are left grappling with a coin toss for December – keeping uncertainty alive.
5. Overseas Equity ETFs Surpass Domestic Equity ETFs For the First Time in 17 Years
- One of the biggest trends impacting the fund flow in Korea this year has been the huge capital inflow into overseas equity ETFs.
- The net asset value of the listed ETFs in Korea investing in overseas stocks surpassed the ETFs investing in domestic stocks for the first time in 17 years.
- The ETFs that invest in overseas stocks were 35.8 trillion won on 12 November 2024, up 111% from 12 January 2024.
6. Steno Signals #126 – Where did all the liquidity go?
- Happy Sunday, everyone! If you can’t show it in a meme, then it’s not true.
- That’s my modus operandi in the research business, and I stumbled upon this tremendous meme of the business cycle and how JPoww and his ilk respond to it.
- This has been the Fed’s operating model for a while: exaggerating the business cycle in both directions.
7. US Politics: “Liquid Gold”
- Donald Trump is committed to reducing energy prices by 50% within a year.
- However, uncontrollable factors may hinder this goal.
- As such, he may only achieve a modest success, if any.
8. Macro Regime Watch: An In-Depth Look at Regime Trends Across Major Markets
- Welcome back to Macro Regime Watch, where we dive into our nowcasting models to analyze Growth, Inflation, and Liquidity trends.
- Over recent months, we’ve dedicated substantial time to upgrading our models and refining the data we use.
- But the core question remains: how do we interpret the complexities of the macro environment, and how can these insights inform financial market strategies?
9. Major M&A Rule Changes Approved by the Korean Government
- On 19 November, the Financial Services Commission (FSC) announced major rule changes on corporate mergers and acquisitions have been approved by the Korean government.
- Revised rules have three specific goals: Improve rules on calculating and determining merger prices when M&As take place between nonaffiliated business entities, strengthen disclosure duties, and improve external evaluation system.
- If the Korean government is really serious about making positive rule changes, they need to apply these new laws not just for NON-AFFILIATED companies but more importantly for AFFIILATED companies.
10. Portfolio Watch: Stay Composed—The Trump Trade Is Still ON
- Happy Friday and welcome to our weekly Portfolio Watch.
- Many have been puzzled by the weakness in US markets towards the end of the week, with explanations largely pointing to an exhaustion of the Trump trade.
- This trade had been roaring across USD, USD bond yields, USD equities, and Crypto.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Steno Signals #125: EUR Liquidity Overtakes USD Liquidity – A Historic Shift
- Happy Sunday from Copenhagen.
- Bear with me this week through this long read as we approach an extremely interesting crossroads in sovereign bond markets, impacted by very tight liquidity.
- This story has been somewhat masked by policy events in the US and Germany, but it may nonetheless be the most important narrative for Q4, which is why you need to pay attention to it.
2. New Tariffs and China: THE BARK IS WORSE THAN THE BITE
- Trump’s approach to China will be more transactional based on trade and technology.
- China’s dependence on the US for its exports has declined over the last 6 years. ASEAN and other emerging markets are the engines for China’s export growth.
- The average tariff on China’s exports to the US will increase from its current level of 20% but may be tempered by a reciprocal import agreement with the US.
3. Flash Macro Watch: The Fed has abandoned its 2% target
- Following another reasonably hot U.S. CPI report yesterday, it’s time to dust off the old sell-side charlatan chart comparing today’s inflation to the 1970s.
- Honestly, I find this comparison absurd in many ways, as the drivers of inflation are different now.
- Still, there is an interesting resemblance, which got me thinking…Inflation in the U.S. is trending around 3-3.5%, and the Fed has made no progress over the past 3-4 months toward the 2% target.
4. US Politics: Promises, Promises
- Donald Trump has consistently advocated for the use of tariffs to address what he perceives as ‘unfair’ trade practices causing US trade deficits.
- His stance, whether used as a bargaining chip or not, is based on a Hobbesian view.
- This viewpoint poses a significant threat to the global economy.
5. Second Trump Presidency: Growth Focus Will Support Equities, but Challenge the Fed
- The decisive outcome of the US presidential election has significantly reduced the uncertainty facing financial markets due to their familiarity with President-elect Trump’s policies during his first term.
- President-Elect Trump has a complex past relationship with the Fed. There are fears that pressure will be exerted on the Fed to boost growth at the cost of higher inflation.
- US fiscal policy conduct will be closely monitored by the Treasury market which is discounting fewer policy rate reductions by the Fed in 2025. Fed policy conduct will remain data-dependent.
6. How to Trade the Trump Euphoria Rally
- We expect the stock market to rally into January, driven by corporate tax cut expectations, FOMO performance chasing and buybacks as the post-earnings season window re-opens.
- Expect stock prices to consolidate or pull back just before Inauguration Day.
- That’s when many of the unknowns of the Trump Administration’s initiatives will be better defined.
7. The Drill: A Look at Trump’s Policy and Their Impacts
- Before we get to Trump, we need to quickly discuss OPEC and their recent cut in demand forecasts.
- This reduction hints at an unwillingness to increase production in the near future.
- Saudi Arabia is key here, as it holds the largest excess capacity, and a production hike from them could swing the market and send prices below $50 USD in the blink of an eye.
8. Asia Geopolitics: Dealing with a More Trumpian World
- Asia Pacific economies benefit from a global order which preserves their sovereignty and allows them to prosper. Trump’s return puts some of these benefits at risk.
- Washington under Trump will continue to pursue its rivalry with Beijing, but Trump’s responses to crises in Ukraine and the Middle East could leave instability in its wake. =
- Washington’s allies in Asia will start “Trump-proofing” their defence strategies. Countries will hedge between the US and China while ramping up military spending.
9. Steno Signals #126: Disentangling the ECB Schnabel Speech – How Will QT Develop from Here?
- We’re at a critical juncture in sovereign bond markets, with liquidity running razor-thin and the game changing fast.
- German Bunds, traditionally rock-solid, are now trading through swaps and nearing zero on cross-currency swaps (ESTRON/SOFR) – a first in modern market history.
- The takeaway? Major central banks, especially the ECB, are pressing too hard on QT, and the markets are about to hit back hard if they don’t ease up soon.
10. Overview #12 – Not Another Trump Trade!Time to Fade?
- A review of recent events/data impacting our investment themes or outlook
- In the markets we follow, China, Gold and the JPY most impacted
- Which ones should we fade and where has the trend changed?
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. OVER THE HORIZON: Thematic Review Year-To-Date
- Our most prominent theme this year has been to BUY HK/China markets. We are still very bullish on these SECULAR BULL markets.
- We have been Bullish on gold and discussed the asymmetry of its price movements given the global tightening starting in 2021/22. Gold will continues to benefit from negative real rates.
- We have been Bearish on Japan since publishing Technically Speaking: Japan Meets Resistance and Hong Kong Finally Breaks Downtrend on April 2nd. Japan’s market is facing significant headwinds going forward.
2. Technically Speaking, Breakouts and Breakdowns: HONG KONG (OCTOBER 14)
- Hong Kong Dollar continues to trade at the strong end of its band resulting in upward pressure on HIBOR in turn causing a further unwind of the HKD carry trade.
- HSI shows the strongest market breadth in 15 years as nearly all members trade above 200 DMA.
- Xtep International (1368 HK) , Xiaomi Corp (1810 HK) and China Education Group (839 HK) all had breakouts to form uptrends. All are part of the consumption sector in China
3. GEM Funds Underperform in Q3.
- Active EM Funds delivered an average return of +6.85% in Q3, underperforming the iShares MSCI Emerging Markets ETF by 0.83%, with 38.8% of funds beating the index.
- Morgan Stanley Developing Opportunity and Aikya Emerging Markets topped the performance charts for the quarter.
- Underweights in Alibaba Group Holding and Meituan, and overweights in SK Hynix and cash holdings hurt performance.
4. HK/China: DOOM AND GLOOM? DON’T GET FOOLED AGAIN
- As HK/China markets complete their retracements after the best rally in more than a decade, the exaggerated pessimism from the media and analysts returns.
- The government continues to roll out measures to relieve the pressure on the property market in what is a multi-year process with no quick fix.
- Even after a historic rally, the HSI still trades at a significant valuation discount which will narrow in the coming months.
5. China Watch: Time to play briefing bingo again..
- Welcome to our China Watch series, where we look at the Chinese case through the lens of Western investors.
- Tomorrow, we will have another briefing aimed at boosting the property market, which is one of those tricky conundrums to deal with.
- Housing starts have already dropped back 20 years, and the value of unsold homes and projects is sky-high.
6. Steno Signals #121: Whatever It Takes—In the US, but NOT in China
- Happy Sunday from Copenhagen!I spent most of Saturday morning discussing the fiscal briefing with clients.
- Even though I’m admittedly not as actively involved in business with China as I was a few years ago, I still feel relatively comfortable assessing the ramifications of the briefing.
- It was exactly what I feared: a big nothing burger.
7. Portfolio Watch: China needs to deliver, or it could end in tears
- The fiscal briefing in China tomorrow will be crucial, as inflows into the country have significantly diminished in recent days.
- This highlights the need for a constant stream of positive news to sustain the rally.
- Given the expectations building around the message from Chinese authorities, we don’t have high hopes that they will exceed market consensus.
8. The Week at a Glance: No Bazooka from China (Yet) – Over to You, ECB
- The recent Chinese fiscal briefing was underwhelming, as expected.
- China continues to focus on supply-side measures, which remain ineffective in addressing the pressing need for increased demand.
- Instead of stimulating consumption across the economy, China is attempting to incentivize asset demand and reshuffle credit profiles—approaches unlikely to produce meaningful results.
9. Comparison Between China and Japan Debts
- China housing crisis will likely mean that household debt/GDP flat lines in the coming years like Japan after 1990 and be a headwind for consumption.
- Meanwhile, the downturn in residential construction is already greater than that experienced by Japan after 1990 and in itself will be remain a structural headwind for China GDP.
- Though China corporate debt/GDP ratio is higher than Japan in 1990, China LGFV debt is 50% of GDP and will be swapped for local and central government debt.
10. CrossASEAN Ground Zero – Bukalapak, Astra International, OhHaju, and Sea Ltd
- This week we look at Bukalapak, as Emtek increases its direct stake, Astra‘s latest healthcare push into cardiology, and Ohhaju (OKJ TB), Thailand’s latest organic food IPO.
- We also look at Sea Ltd (SE US)‘s latest move to apply for a digital banking licence in Thailand, which will help to further increase the platform’s regional footprint.
- CrossASEAN Ground Zero is a thematic weekly product that focuses on key Southeast Asian themes and technology trends with a core focus on Indonesia.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. HK/CHINA: Market Pullback and Investors’ Cognitive Dissonance
- The investment community’s response to the historic rallies in HK and China markets over the last couple of weeks unsurprisingly continues to be pessimistic.
- China’s objective of changing market sentiment is beginning to bear fruit as mainland investors open stock accounts at a record pace. Household wealth has increased by 20T yuan last month.
- Technical market indicators point to continued high volatility during this leg of the secular bull market.
2. Stay Calm and Don’t Panic! Overbought Conditions Meet an Overhyped Meeting.
- A correction was natural after the fast, strong move up
- Any detailed fiscal stimulus plan will come from the State Council or the MoF
- Capital market reforms moving in the right direction with continued focus on consumption.
3. HK/China: THE BIG SHORT (SQUEEZE)
- Although the tech sector in Hong Kong has surged over the last couple of weeks there appears to be minimal short covering in US-listed China tech names.
- The performance of the “Magnificent 5” China tech names has led the rally as we outlined in Hong Kong: The Glass Is Half Full, Time to BUY Beta .
- The combination of of large outstanding short positions and a significant underweight of HK/China in international funds will lead to further upside in the tech sector.
4. Positioning Watch: Hedge Funds Caught in the China Storm, While Retail Investors Keep Piling In
- Hello everyone, and welcome back to our weekly positioning watch.
- What a week it has been in global macro once again, with Chinese equities collapsing earlier this week after the Chinese stimulus frenzy fizzled out.
- However, we are now starting to hear that Chinese authorities are taking matters seriously, planning a new round of stimulus on the 12th of October.
5. Steno Signals #120 – Liquidity and rate cuts are incoming in an already OK economy
- Just a few hours after the release of a much stronger-than-expected jobs report, Goolsbee of the FOMC highlighted the risk of undershooting inflation in the US.
- While Goolsbee is a dovish, soft-leaning member of the committee, it goes to show that you don’t turn around a supertanker like the Fed just because the NFP printed a bit better than expected.
- The Fed has set a direction, and it will take a lot to convince them not to continue cutting interest rates back toward neutral, around 3%.
6. Ministry of Finance Press Conference – First Take
- Heavyweights attended as per previous conferences. Finance Minister (FM) Lan Foan and his three deputies
- Economists’ and market expectations damped down to RMB 1.5 – 2 Trillion in stimulus.
- Some major positive points we believe, but will be a disappointment to some
7. China: Lessons from the 1997-98 Asian Crisis
- Overall, the warning from slow real credit growth on reduced credit supply and demand is the main lesson from the Asia crisis 1997-98.
- China High FX reserves; low borrowing overseas and dominance of domestic investors in Yuan markets argues against a currency crisis.
- Asia widespread banking crisis are also unlikely to repeat in China, though we see growing stress among rural banks that in the worst case could be a rural banking crisis.
8. China Economics: Is Beijing Finally Abandoning Policy Inaction?
- Beijing’s latest policy announcements show that it is no longer content with a managed slowdown. They are now committed to more energetic policy support for the economy.
- Given the slowdown’s entrenched roots, partly due to Beijing’s prior reluctance, we do not think that the current package alone will turn things around.
- But with Beijing taking the cyclical slump more seriously, further support measures are likely, which, cumulatively, may be sufficient to stabilize short-term economic conditions.
9. Examining the Bear Case for China
- Change in strategy by the Chinese authorities mean this is more than a trade
- Sentiment, valuations and positioning are still supportive despite the rally
- Overbought conditions in the very short-term and the technical picture is mixed
10. Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 11 Oct 2024
- China’s economic policy remains focused on investment, with low expectations for a significant stimulus from the Ministry of Finance.
- International reserves are generally increasing across Asia, supporting currency appreciation, except for Indonesia.
- Japan’s recent data shows rising cash earnings but declining real wages and household spending, highlighting concerns in the real economy.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. CHINA: Why so Many Investors/Analysts Got It Wrong and What’s Really Happening
- HK/China stock markets are re-rating quickly sentiment became overly pessimistic.
- A stock market bottom precedes a property market bottom by years.
- China’s markets have languished due to the government’s focus on supply-side solutions. That focus has now shifted to include demand-side stimulus efforts as the PBOC Put accelerates.
2. Portfolio Watch: The outlook is brightening into October
- Everything is about the ongoing rally in Chinese equities at the moment, with China now being the best yielding country in the world in equity space after both the PBoC and the Politburo coming through with stimulus proposals, which has caught all China bears on the wrong side of the trade.
- We learned today that the PBoC is cutting the standing lending facility rates by 20 bps, a move not seen since the pandemic broke out.
- They have normally cut the interest rates in the lending facility by 10 bps at a time, so this is likely a sign that they’re truly willing to do something about the slump in growth / real estate.
3. Gap Trade Opportunities in Korean Prefs Vs Common Share Pairs in 4Q 2024
- In this insight, we discuss numerous gap trade opportunities involving Korean preferred and common shares in 4Q 2024.
- Among the 27 major pair trades (prefs vs. common shares), 16 of the pref stocks outperformed their common shares counterparts so far this year.
- The 27 Korean preferred stocks’ average prices increased by 8.3% from end of 2023 to 2 October 2024 (excluding dividends), outperforming their common counterparts which were up on average 5.4%.
4. EM Fixed Income Focus: The impact of geopolitics on EM
- Macro backdrop evolving with upcoming US elections and Middle East tensions impacting EM assets
- Mixed bag on macro side with softer inflation in EM, better revisions in US growth but soft manufacturing PMIs
- China as tiebreaker with further policy support, rally in equities, and implications for Fed and commodities prices; geopolitical risks and US election as wild cards to watch
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5. China Liquidity Watch: USD easing allowed China to ease, but there is a caveat..
- The USD market will be flooded with liquidity in Q4, accompanied by rate cuts, providing Chinese authorities with a window of opportunity to ease policy.
- However, there is one issue: CNY liquidity is tightening now.
- Welcome to our weekly China Watch, where we examine Chinese assets through the lens of Western investors and markets.
6. The Winners and Losers From Central Bank Stimulus
- Markets have taken on a risk-on tone on the news of global central bank stimulus. Gold has rallied the most as real rates fell, equities rose and bond prices fell.
- But the market’s risk-on psychology appears to be stretched and fragile.
- While the long-term bullish trend is quite real, the consensus is susceptible to reversals should growth disappoint in the near-term.
7. US Rates: Cash on the sidelines or just cash?
- Money fund balances have continued to grow despite Fed rate cuts due to attractive yields relative to other liquidity products
- Most of the cash in money funds is liquidity money, making them a compelling place to park cash
- Money funds tend to see inflows heading into an easing cycle and persist even as the yield curve begins to disinvert or steepen, with outflows only occurring once the curve stabilizes.
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8. Week at a Glance – Squuuuuuuuuueeeeeeze!
- Happy Monday, let’s dive into the most critical stuff we are on the look out for this week.
- Morning moves: It seems like physical commodities markets are catching up to the China stimulus story from last week, in tandem with the Hang Seng.
- Over the end of last, Japan’s elections pushed USD/JPY lower, leading investors to sell the Nikkei rather aggressively due to a clear hawkish expected lean from the new PM Ishiba.
9. China’s Serial Rate Cuts: What Are Them and Are They Effective in Reviving the Falling Economy (2)
- Our earlier articles state the natures and description of several monetary actions by PBOC last week, highlighting a possibility of stock rallly
- This article on the other hand dicussess the economic benefits of the monetary policies, which are more relevant from the authority’s point of view.
- For stock market still, we believe the RMB 800 billion fund, given a RMB 2-3 trillions daily transaction volume and 60% LTV leverage , has long been dumped into market.
10. Asia Economics: Despite Geopolitical Risks, Emerging Asia Is at an Upward Turning Point
- Economic policy in the US and China, the two most important economic partners for emerging Asia, is turning more supportive of global growth.
- Oil prices are also entering a period of “lower for longer”; Saudi Arabia’s signal of reversing its production cuts will exert downward pressure on oil prices, largely to Asia’s benefit.
- The overall result of these developments is to open up more scope for policy loosening, strengthen export demand and encourage more investments, to emerging Asia’s benefit.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Korea Value Up Index – Surprising Inclusions and Exclusions
- There are some major surprises (both inclusions and exclusions) in the Korea Value Up index.
- In particular, the telecom sector (SK Telecom and KT) and large cap holding companies (Samsung C&T and LG Corp) are surprising exclusions in the index.
- There are many surprising inclusions in the Korea Value Up Index. We provide 30 companies are surprising inclusions in the Korea Value Up Index (19 KOSDAQ and 11 KOSPI listed).
2. Global Commodities: All systems go for precious metals
- Gold prices have been supported by rising interest rates and central bank demand, but investor flow is now becoming the key driver for further sustained rally.
- Physical demand in China has decreased, but investor demand, particularly in ETFs, has been increasing over the past four months.
- The upcoming direction of gold prices will depend on the pace of Fed cuts and the shift in investor ownership from money market funds to gold ETFs.
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3. Overview #10 -China Knocks It Out of the Park
- A review of recent events/data impacting our investment themes or outlook
- China announces a barrage of fiscal and monetary stimulus plans
- New LDP leader and Japan Prime Minister impacts the markets
4. Direct-reduced iron: India carving its path to meet ‘green’ steel ambitions
- Direct Reduced Iron (DRI) is playing a significant role in India’s steel industry, accounting for 33% of total steel output
- India’s DRI market is characterized by rapid growth driven by steel production targets and sustainable steel making practices
- DRI production is concentrated in central and eastern parts of India, with states like Chhattisgarh and Odisha being prominent producers and trade hubs.
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5. Indonesia: Sentiment Weakens as Key Sectors and Stocks Lose Ground
- Indonesia’s exposure among EM funds is beginning to taper, with 2.3% of funds closing positions and 6.3% shifting to underweight over the past six months
- Bank Central Asia and Bank Rakyat reached record ownership highs this year but have since faced closures by select funds
- On the fund level, closures have outpaced openings, led by Aubrey and BlackRock, with the majority of funds now holding allocations below 5%.
6. Toby Rodes – Unlocking Value in Japan (EP.407)
- Toby Rhodes became interested in Japan due to his grandfather’s stories about the country and its culture
- Toby is the co-founder and managing partner of Konami Capital, a value and quality oriented manager of small cap Japanese equities
- He discusses the past false starts of Japanese activism, recent changes in corporate governance, and Konami’s process for taking advantage of opportunities in the Japanese market
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7. OVER THE HORIZON: HK/CHINA No Longer the Stock Market Pinata!
- HK/China markets have entered a Bull market trend which was sparked by Beijing’s multi-faceted stimulus program.
- An overhang of extreme pessimism on China’s economy and markets will gradually dissipate as the media/analyst narrative will follow the market higher.
- As discussed in previous insights, a turn in sentiment is the key to not only moving the market but also to reviving the Chinese consumer.
8. Positioning Watch – Markets Are Moving Away from the US (in FI)
- Hello everyone, and welcome back to our weekly positioning update!
- Everything is about China these days, with both the PBoC and the Politburo preparing stimulus packages to save the Chinese economy from its nasty downturn.
- While the stimulus initiatives are not very large, relatively speaking (roughly a percentage of GDP on average across stimulus packages), markets clearly see the heavy amounts of proposed stimulus as a “whatever it takes” signal, sparking a strong momentum trend in the Hang Seng and China proxies.
9. Indonesia Strategy – Caught in a Perfect Updraft?
- Indonesia has been the recipient of significant investment flows for foreign investors with more of a “risk on” environment with a large portion flowing into Indonesian banks.
- Indonesia stacks up from an investment perspective with a stable political environment, solid GDP growth of around 5% YoY, rising flows of FDI, and a more stable IDR.
- Despite the JCI knocking on all-time highs, valuations continue to look attractive with prospects of a better 2H2024 and lower interest rates. Top picks: Banks, property, consumer, and selective elsewhere.
10. China Steps Up Monetary Support, But Not a Game Changer
- China has surprised and cut the 7 day reverse repo rate by 20bps to 1.5%, with a 50bps cuts in the RRR rate.
- Combined with other measures this is a step-up in support and could help GDP on the margin, but the measures are not game changers as monetary policy is currently ineffective.
- While further fiscal easing will likely arrive in the next few weeks, we still maintain our forecast of 4.0% GDP growth for 2025.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Announcement of Value-Up Index in Korea on 24 September
- The Korea Exchange is expected to announce its long awaited KRX Korea Value-Up index on 24 September. However, the actual launch of this index will begin on 30 September.
- It is expected to produce two types of indices including a basic price index (PR) and a total return index (TR) under the name of KRX Korea Value-Up index.
- In this insight, we also provide a list of 20 small cap stocks that could be included in the Korea Value Up index.
2. Steno Signals #117 – 25bp equals mayhem, while 50bp equals panic?
- After a major dash for cash at the start of September, markets regained some optimism last week (much to my surprise, in all transparency).
- A weak USD, soft USD rates, and soaring precious metals characterized the week, especially after Mr. Fed source #1, Nick Timiraos, wrote an article suggesting that a 50bp cut is in play.
- USD weakness is something we often observe when the Fed begins cutting rates, as they are perceived to be much more reactive and aggressive than their peers.
3. Just when I Thought I Was Out, They Pull Me Back In – Time for Another Tradeable Rally in the HSI?
- Sentiment, positioning and valuation provide a similar setup to January 2024
- External macro events leading to a better fundamental environment for China
- Foreign Investors’ disappointment in minimal fiscal stimulus provides an asymmetric opportunity
4. Portfolio Watch: Buy Bonds, Wear Diamonds (or Gold)?
- We’ve generally experienced a “softer” September than anticipated in terms of interest rates.
- The typical September issuance seasonality takes a back seat to the upcoming first Fed cut in this cycle.
- Nick Timiraos has hinted that some officials are seriously considering going big already next week, so we may be in for a ride.
5. The Week at a Glance – Is a 50bps Cut Good if Paired with Economic Weakness?
- Good morning from Copenhagen.
- It’s make-or-break this week with Powell taking the stage on Wednesday to reveal whether the rumors from Nick Timiraos about the Fed considering a 50bps cut were actually true after all.
- Markets have been desperately hoping for the 50bps cut, as evidenced by the price action where Fixed Income is being bought regardless of the economic news.
6. The Drill: The Party Seems Over In Freight Rates
- Take aways: Freight rates dropped for the first time since 2022, signaling a slowdown in factors driving rate increases.
- Trade tariffs may have minimal impact on the USD and inflation, with fiscal policies playing a larger role.
- A BRICS monetary union could create instability, while Trump’s policies may push the U.S. toward economic risks.
7. In China: THE SKY FALLING? In the US: TREES GROW TO THE SKY?
- China continues to be the outcast of the investment community even though its GDP is still projected to grow by 4.5% to 5% this year.
- China’s economy has substantial hurdles to overcome but is not in the dire situation portrayed by most commentators and not headed for “Japanification”.
- On the other hand, the US economy has steadied itself but is not in the “Goldilocks” period implied by the media.
8. US Rates: Schrodinger’s Cut
- The Fed is expected to cut rates by 50 basis points on Wednesday, with additional cuts expected in November and December
- There is uncertainty in the markets with regards to the size of the rate cut, with equal probabilities for a 25 or 50 basis point cut
- Near term uncertainty is high, leading to bullishness on volatility in the markets
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9. Fed: 50bps Cut and 175bps More to Follow
- The 50bps cut in the Fed Funds rate to 4.75-5.00% will likely be followed with two 25bps cuts in November and December.
- For 2025, we now look for 125bps rather than 150bps, given our soft landing view and also the 50bps being delivered at the September meeting.
- This would be a 3.00-3.25% Fed Funds rate and just above the revised long run estimate of 2.9%.
10. The Slow March to Fiscal Dominance
- The sovereign debt levels of major developed economies are well on the path to fiscal dominance, underpinned by the U.S. fiscal trajectory.
- Mario Draghi’s proposals for European competitiveness also highlighted a need for debt-financed investments that will also substantially raise EU debt to GDP ratios.
- Investors should expect a regime shift toward higher term premiums on bonds and from paper assets to hard assets in the coming years.