Daily Brief Macro: Asian Equities: In Search of Earnings Estimate Uptrends and more

• A key medium-term driver of share price is earnings estimate trajectory – in particular, “earnings inflections” – i.e. the trajectory of earnings estimates changing directions. 
• Different Asian markets have had different estimate trajectories. But most suffered estimate cuts since August/September 2024, coinciding with the US Dollar appreciation and the spike in US yields.
• We argue that investors need to watch out for Taiwan, Indonesia, Malaysia and India for earnings estimate increases. India’s could decline in the near term and commence an uptrend later. 

• 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

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• Looking at the current polls, there’s no clear path to a functioning coalition in Germany.
• The three potential options are: CDU/CSU pairing with SPD – a move toward stability but lacking excitement; CDU teaming up with the Greens – a less likely scenario given weak polling and major ideological clashes; and finally, the Merz dream coalition of CDU/CSU and FDP, which remains far from reaching the crucial 50% mark.
• With all three options falling short, creativity (or desperation) might be the only way forward.

• The Drill: Could nuclear be the next Trump bet?
• This week’s The Drill examines commodities in the aftermath of Trump’s election, where calm has begun to return as risks were initially overestimated.
• Nuclear energy is likely an underappreciated theme in the new Trump administration, while tariff threats appear overblown.

• Upwards revisions to Euro area labour costs and a jump in negotiated wage settlements extend cost growth inconsistent with a sustainable return to the 2% inflation target.
• The ECB hopes this will subside swiftly in 2025, with productivity growth and squeezed profit margins helping contain inflation. But these hopes seem set to be disappointed.
• Persistent wage pressures should prevent a 50bp rate cut in December and limit further cuts. Less dovish fundamentals feed bullish Euro seasonality, magnified by positioning.

• The investment side in Malaysia over the post COVID years has really taken off.
• In Thailand, private investment contracted (-1.4%), reflecting political and economic challenges driving offshore investments.
• Bangkok has seen little progress in mobility since the mid-1990s.