Daily Brief Macro: China's Twin Crises: Overlending to Frontier Markets & Domestic Property Sector and more

In today’s briefing:

China’s Twin Crises: Overlending to Frontier Markets & Domestic Property Sector
MSCI Korea Index Rebalancing Results & Top Five MSCI Korea Exclusion Candidates in 2023

China’s Twin Crises: Overlending to Frontier Markets & Domestic Property Sector

Like the US banks confronted dual crises in 1990 (Latin American debt, domestic S&Ls), Chinese banks face a crisis of overlending to 50+ frontier markets, compounding the domestic property crisis.
Just as US banks were the main lenders to Mexico until its Aug’1982 default, recent defaulters (Zambia, SriLanka) are heavily indebted to China. The property crisis already burdens China’s banks.
Dearth of macroeconomic expertise in the PBSC is alarming at a time when foreign reserves are down US$200bn YTD, despite YTD trade surplus of US$742bn. Dampened credit growth precludes evergreening.

On 10 November, MSCI announced the MSCI Korea Standard Index additions (1 company) and deletions (10 companies).
With MSCI announcing the inclusions and deletions for MSCI Korea Index, we highlight the five stocks that are the most likely MSCI Korea index exclusion candidates in 2023.
These 5 potential deletions in 2023 (MSCI Korea) include S1 Corp, Lotte Shopping, CJ Corp, SD Biosensor, and Meritz Securities. We believe that these stocks on average could underperform KOSPI.

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