In today’s briefing:
- India: Record Exposure Gives Rise to Caution
- US Crude Oil Output at Risk as Rig Count Plummets
- Mexico: GEM Funds Wrong-Footed After Election Results.
- The Week That Was in ASEAN@Smartkarma – Prodia’s Cure, Ace Hardware, and Erajaya’s Growing Volumes
- Strengthening Risk Management in the Booming Private Credit Market
- France: Redefining ‘The Right’
- Energy Cable: Bullish Oil, Bearish Nat Gas, and Especially Metals! Here’s Why!
- Fund Managers Reduce Commodities Again
- China’s Excess Production over Domestic Demand
- The Week At A Glance: Time to bet against the USD?
India: Record Exposure Gives Rise to Caution
- The average Indian allocation among active GEM funds broke through the 15% barrier at the start of 2024, despite an increasing underweight versus the benchmark index.
- Valuation-Driven Underweight: The average weight versus the iShares MSCI EM ETF hit record underweights of -2.44%, with only 27.6% of funds positioned overweight. EM Value funds hit record -8.7% underweight.
- HDFC Bank is the most widely held stock, owned by 60.5% of funds, while a majority of Indian names, such as Reliance Industries, are underweighted by active GEM funds.
US Crude Oil Output at Risk as Rig Count Plummets
- US oil rig count falls to 485 as of the week ending on 21/June, its lowest since January 2022.
- US oil and gas rig count is falling as producers prioritize shareholder returns over increasing output.
- Rising labour and equipment costs along with macroeconomic uncertainties further discourage producers from adding rigs.
Mexico: GEM Funds Wrong-Footed After Election Results.
- Mexico has seen increased inflows and exposure over the past 3-4 years, with funds invested reaching an all-time high of 94.6% and average holding weights climbing to 3.93%.
- The percentage of active EM funds overweight the benchmark rose from 20% in 2011 to over 69% last month, making Mexico the largest overweight compared country peers.
- Grupo Financiero Banorte and Wal-Mart de Mexico are key contributors to the net Mexican overweight, with Banorte seeing increased exposure of +4.26% of funds in the last 6 months
The Week That Was in ASEAN@Smartkarma – Prodia’s Cure, Ace Hardware, and Erajaya’s Growing Volumes
- The past week saw insights on Ace Hardware Indonesia (ACES IJ), Prodia (PRDA IJ), Erajaya Swasembada (ERAA IJ), and Barito Renewables Energy (BREN IJ).
- There was also a macro insight on Indonesia macro, as BI elected to keep interest rates on hold, and an insight looking at Saingapore’s biggest movers in 2Q2024.
- The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across Southeast Asia.
Strengthening Risk Management in the Booming Private Credit Market
- Private credit’s rapid growth necessitates enhanced risk management due to increased capital inflows and limited high-quality investment opportunities.
- Focus on credit risk, liquidity risk, and interest rate risk, ensuring thorough due diligence and stress testing.
- Employ advanced risk models, foster strong risk culture, leverage technology, and stay updated on regulatory changes for sustainable market positioning.
France: Redefining ‘The Right’
- The centre maintained its position in the European Parliament elections.
- The unexpected general election in France is contributing to the rise of the ‘far right’.
- The EPP’s post-election negotiations in Brussels are also strengthening the ‘far right’, which is reshaping conservatism in Europe.
Energy Cable: Bullish Oil, Bearish Nat Gas, and Especially Metals! Here’s Why!
- We start with crude oil, where positions in crude oil futures have returned to Covid-19 pandemic levels, which we believe is overly bearish.
- The economy is normalizing with rising travel and growing consumer energy demand.
- Despite this, the futures market’s bearish sentiment seems misaligned with these positive economic indicators.
Fund Managers Reduce Commodities Again
- Fund managers recently reduced their broad commodity position as well as energy position, compared to last month, according to the latest BofA survey.
- Compared to the long-term z-score, fund managers are now heavily under-positioned in energy but close to neutral positioned in broad commodities.
- In a recent note, Goldman Sachs explained their views about commodities if inflation would re-accelerate again – or in detail beat the market estimates and lead to an inflation upside surprise.
China’s Excess Production over Domestic Demand
- Classical economist believes in what is called the “Say’s Law” i.e. supply creates its own demand. But the case of China’s excess production disproves this law.
- Industry output far exceeds demand and inventory is piling up over the last decade.
- Heavy industries such as steel, aluminium, cement, coal, and shipbuilding, are particularly prone to over-capacity as China has been over-stretching its infrastructure development since 2008.
The Week At A Glance: Time to bet against the USD?
- Greetings from Europe! The Week At A Glance replaces our Morning Report each Monday as it allows for a deep dive into the economic releases and major tradeable themes for the week ahead.
- We see a couple of major tradeable themes in the week(s) ahead.
- First, the Euro area data, which is still improving in forward-looking indicators, while spot data remains relatively soft, probably in part due to a plethora of (potential) election risks.
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