Daily China: RRG Global Macro Weekly – Dramatic Brexit Defeat A Positive for Markets? We Are Not So Sanguine and more

In this briefing:

1. RRG Global Macro Weekly – Dramatic Brexit Defeat A Positive for Markets? We Are Not So Sanguine
2. Wanted: A 21st Century Monetary Theory
3. Maoyan Entertainment (猫眼娱乐) IPO: Turning Profitable, Thoughts on Valuation
4. Weekly Oil Views: US, China Shore up Oil Market Sentiment
5. Pinduoduo (拼多多) Lock-Up Expiry – A Bug with Overhang

1. RRG Global Macro Weekly – Dramatic Brexit Defeat A Positive for Markets? We Are Not So Sanguine

The dramatic defeat of PM May’s Brexit arrangement with the EU was seen by the markets as a positive development. Apparently the markets believe that this could result in Britain remaining in the EU.

While we agree this would be good news we consider it unlikely without many more months or years of uncertainty as another referendum is organized and implemented.

Romania: GDP in Q3 grew 4.4% y/y, up from 4.1% in Q2. The country’s economy is doing better than most EU countries.
Brazil: The CPI in Dec rose 3.7%, down from 4.05% in Nov. Lowest rate since May, as prices slowed for food and fuel.
India: The trade deficit in Dec narrowed to $13.1 bn. Exports rose a meager 0.3% and imports fell 2.44%. GDP growth of 7% is expected for this year and next..

2. Wanted: A 21st Century Monetary Theory

The globe is facing more than an ordinary business cycle.

Joseph C. Sternberg, editorial-page editor and European political-economy columnist for the Wall Street Journal’s European edition, recently interviewed Claudio Borio, head of the Monetaryand Economic Department of the BIS. Mr. Borio said that politicians have relied far too much on central banks, which are constrained by economic theories that offer little meaningful guidance on how to sustain growth and financial stability. The only tool they have is an interest rate that can affect output in the short run but ends up affecting only inflation in the end.

3. Maoyan Entertainment (猫眼娱乐) IPO: Turning Profitable, Thoughts on Valuation

Maoyan Entertainment (formerly Entertainment Plus) launched its institutional book building last Friday. We covered the company’s background, industry backdrop, financials, shareholders and the regulatory overhang in our previous two notes.

In this note, we will look at the recent development of the company, based on the data from the prospectus and our channel checks. We will also discuss the valuation of the company. 

Our Previous Insight on Maoyan Entertainment:

• Entertainment Plus (猫眼娱乐) IPO: The Engineered Movie Ticketing Leader that Runs Out of Steam (Part 1)
• Entertainment Plus (猫眼娱乐) IPO: The Coming Regulatory Bang Isn’t That Bad (Part 2)

4. Weekly Oil Views: US, China Shore up Oil Market Sentiment

Reports of overtures and concessions from both Washington and Beijing were coming thick and fast by the time last week came to a close, providing a big boost to stock markets across the globe as well as crude. 

The US-China trade spat has hung like an ominous and growing cloud over the prospects of global economic growth in 2019, becoming one of the major reasons for increasing risk aversion among investors since last October. As stock markets plummeted amid a sustained and steep sell-off, oil was dragged along for the ride.

If the US and China manage a rapprochement in the coming days and weeks, investor sentiment will recover, stocks will rebound, and so will crude prices. 

Benchmark Brent and WTI crude futures settled at two-month highs on January 18, having retraced 24% and 27% respectively from their 52-week lows hit on Christmas eve. However, they are still 27% and 30% below the four-year peak hit on October 3. 

How much further does crude have to go? In the next few days and weeks, it could claw back some more of its Q4 losses, especially if the US and China take concrete steps to unwind their bruising trade war. Once this big pressure is removed (excepting any last-minute surprises that stall or worsen the tensions), leading to a rosier outlook for global oil demand growth, crude will reconnect with its fundamentals. That could put OPEC back in the driver’s seat, and see market sentiment recovering as the OPEC/non-OPEC cuts mop up surplus barrels. Our most bullish scenario for the first quarter sees Brent climbing from the low-$60s towards $70/barrel. We see WTI $8-10 below Brent.

5. Pinduoduo (拼多多) Lock-Up Expiry – A Bug with Overhang

Just as Pinduoduo (PDD US) lock-up expiry date (22nd January) is approaching, there was news of a massive bug that could result in an RMB20bn loss for PDD. According to the company’s official Weibo account, the bug has already been rectified and a police report has been filed. 

In this insight, we will analyze the potential impact of the bug and the number of shares that could potentially be sold upon lock-up expiry.