In today’s briefing:
- 44% of Korean Stocks Are Trading Below Book Value – FSC Wants to Improve This (Following Japan)
- Japan Taking a Trip Down Tightening Lane? Sure!
- China Official House Price Growth Rates Turn More Negative In December 2023
- [Counting Beans #5]: January WASDE Reaffirms Market’s Bearish Outlook
- EA: Trend To Target Ready To Resume
- 5 Things We Watch: US Recession, US Inflation, Euro Inflation, PCE Vs CPI, STIR Pricing
- Investment Ideas: Asset allocation for equity bulls, and investing in Alibaba
- EUR-Flation Watch: Why the ECB Is off by Miles in the Q1 Forecast
- UK: Inflation Stimulates Hawks
- USD Liquidity Watch: Treasury Selling Due to Bank Reserves Influx?
44% of Korean Stocks Are Trading Below Book Value – FSC Wants to Improve This (Following Japan)
- FSC Chairman Kim Joo-hyun mentioned that too many companies in Korea are trading below book value and the FSC plans to implement changes to improve upon this issue.
- According to Korea Exchange, 1,111 companies out of total listed in KOSPI and KOSDAQ in Korea (2,538) are trading at below 1x book value (PBR) (liquidation value).
- According to the Capital Group, about 39% of companies in the TOPIX trade below book value, compared to just 5% for companies in the S&P 500 Index.
Japan Taking a Trip Down Tightening Lane? Sure!
- Many economists expect the Bank of Japan, after systematically refusing to adjust its extremely loose monetary policy will be the only country to raise interest rates in 2024.
- If the Bank of Japan decides to raise interest rates, at the same time, global tightening momentum wanes, betting on a stronger yen is a sure thing.
- But with inflation dropping, the Manufacturing PMI below 50, consumer spending and real wages declining, the window for tighter monetary policy is closing rapidly, and hence a long yen position.
China Official House Price Growth Rates Turn More Negative In December 2023
- Today’s NBS data for house price growth (new homes and the secondary market) for 70 major cities in December 2023 indicates further declines
- Aggregate figures and averages may not reflect the ‘on-the-ground’ feel, but the relative performance of cities should give a good indication of city-level dynamics
- Chengdu, Shanghai, Xi’an, and Sanya finished with the relatively strongest growth rates year-on-year for the new home price growth
[Counting Beans #5]: January WASDE Reaffirms Market’s Bearish Outlook
- Latest WASDE report reaffirmed market’s bearish outlook. Inventories of corn, wheat, and soybean are ample.
- Asset managers are positioned heavily bearish on corn, wheat, and soybean. Wheat positioning is the least bearish.
- Futures for corn, wheat, and soybean fell after WASDE release with corn futures underperforming.
EA: Trend To Target Ready To Resume
- The final EA HICP inflation print confirmed the flash rise to 2.9% for Dec-23. Energy price base effects, primarily related to a German subsidy scheme, were responsible.
- Underlying inflation measures continued to slow, although their monthly impulse stayed close to a 2% annualised pace, consistent with converging towards the target.
- Our EA inflation forecast is close to the consensus, but we share the ECB’s concern that wage settlements could stoke a renewed overshoot, which delays rate cuts to Q3.
5 Things We Watch: US Recession, US Inflation, Euro Inflation, PCE Vs CPI, STIR Pricing
- This week we’ll cover US recession talks and financial conditions.
- We’ll also hone in on both US and European inflation and finally talk rates expectations.
- This week we are watching out for the following 5 topics within global macro: US recession talks and financial conditions, NFIB vs Core CPI, EURflation, PCE vs CPI, STIR pricing.
Investment Ideas: Asset allocation for equity bulls, and investing in Alibaba
- In my start-of-the-year note last week, I promised an updated asset allocation outline for investors with a strong equity focus, i.e. investors who are 100% exposed to equities with no diversification into bonds.
- There’s no great magic to this exercise, as there are reference points you can work off.
- Take the table below, which shows the mix of underlying assets in the All Global MSCI ACWI index (which includes emerging markets) and the Alliance Trust.
EUR-Flation Watch: Why the ECB Is off by Miles in the Q1 Forecast
- Welcome to this extremely table- and chart-heavy EUR-flation update.
- Based on extensive public demand, we have updated our inflation models for all of the big four in the Euro zone and we reach the conclusion that the ECB is off by >1%-point and potentially more by March-2024.
- After having updated our models, we see March HICP printing at 1.84% versus ECB at 2.9% (Q1-average) and a market pricing of 2.25% (or thereabout), which basically leaves inflation below target before the end of the quarter.
UK: Inflation Stimulates Hawks
- UK CPI inflation defied expectations by rising to 4% in December. The headline and core rates were 0.2pp above the consensus, while the 0.1pp upside for us was all non-core.
- Measures of underlying inflation broadly recovered after November’s weakness, as we expected, having identified it as a discount-related move using the microdata.
- Wage settlements are far too high to be consistent with a sustainable return to the inflation target. This keeps our inflation and Bank rate forecasts relatively high.
USD Liquidity Watch: Treasury Selling Due to Bank Reserves Influx?
- US Treasury liquidity conditions remain weak and the turmoil in Treasuries during the third quarter of 2023 probably played a major role in the Powell pivot in December in hindsight.
- There are signs of increasing liquidity stress in US Treasury markets again, but how is that possible during a regime of increasing bank reserves (USD liquidity).
- It all has to do with the mechanics of leverage ratios in regulation.
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