In today’s briefing:
- Major Fed Policy Error Ahead!?
- China Communication Services: Lowest Exposure on Record
- The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Changing Tide, GoTo’s Synergies, and Thai Hotels
- Climbing the Wall of Worry
- China: Policy And The Economy Nears An Inflexion Point
- CX Daily: Sichuan Power Crunch Sparks Calls for Rethink of Coal in China’s Energy Mix
- DXY: Dollar Strength May Have Peaked But This Is Not The End of It
- Indonesia Budget 2023 Offers A Credible Path To Consolidation
- The Commodity Report #65
Major Fed Policy Error Ahead!?
- Fed unlikely to ease policy rates quickly. Even with recession and rates on ‘hold’, QT (quantitative tightening) policy will probably continue
- US dollar liquidity already skidding badly. QT could reduce Fed Balance Sheet by one-third
- QT has highly non-linear effects on financial stability. A crisis could be brewing?
China Communication Services: Lowest Exposure on Record
- Communication Services allocations among active China managers are at their lowest levels on record. Average weights have drifted below 10% for the first time since 2013.
- Tencent was the driver of the declining sector weight, yet managers are keeping the faith. Asian managers cut exposure to Bilibili and China Mobile yet increased NetEase and Baidu.
- Versus the MSCI China index, active managers are underweight -6.69% on average, the largest among sector peers and offset by overweights in Industrials and Consumer Staples
The Week That Was in ASEAN@Smartkarma – Sea Ltd’s Changing Tide, GoTo’s Synergies, and Thai Hotels
- 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 South East Asia.
- The past week saw insights on Sea Ltd (SE US) following its recent results, GoTo (GOTO IJ) as its integrated GoFood to Tokopedia, and on Frasers Hospitality Trust (FHT SP).
- There were also insights on the Philippines Economy, Jardine Matheson Holdings after MSCI cuts, and Plan B Media, Erawan Group, and Central Plaza Hotel (CENTEL TB) in Thailand.
Climbing the Wall of Worry
- With the slow days of August coming to a close, markets are watching nervously for the seasonally volatile month of September, especially around the options expiry on September 16th – there is much embedded muscle memory of painful ends to Q3 over the years – and are starting to adopt a certain ‘back to school’ mentality, where investors are forced to focus on the – not very attractive – fundamentals.
- As such, we thought it worth getting to the school-books a bit early and discussing a few of the ‘known’ issues (as well as a few known unkowns) that markets are likely to concentrate on over the next few weeks and months
- This year has seen some significant headwinds for all markets, particularly those coming from de-leveraging and, as those headwinds fade, we see some stability emerging and a series of bear market squeezes that are hinting that the bear may be over and the new Bull can begin (see August Market Thinking).
China: Policy And The Economy Nears An Inflexion Point
- Now that the annual leadership retreat at Beidaihe has ended, there are signs that the top leadership may have decided to step up stimulus efforts.
- Besides, policy makers would not have anticipated the heatwave now affecting a large swathe of the country, which dampens activity further.
- We think China is at a policy turning point, as the authorities are likely to shift away from incremental measures to more aggressive ones to steady the fragile economy.
CX Daily: Sichuan Power Crunch Sparks Calls for Rethink of Coal in China’s Energy Mix
Cover Story: Sichuan power crunch sparks calls for rethink of coal in China’s energy mix
Suspects arrested as Hong Kong police crack down on cross-border job scam
Exclusive: Regulator moves to help struggling private developers with bond guarantees
DXY: Dollar Strength May Have Peaked But This Is Not The End of It
- Tracing the trajectory of the Dollar requires an understanding of where the US economy is in the current cycle, the inflation trajectory and the Fed’s plans for tightening.
- A US recession is not our baseline scenario, and peak inflation is finally in sight. The bad news is, services inflation, which is stickier and inertial, is on the rise.
- The Fed is staring down markets as senior fed officials reiterated ahead of this week’s Jackson Hole summit that rate cuts in 2023 are not on the table.
Indonesia Budget 2023 Offers A Credible Path To Consolidation
- There were no surprises in President Jokowi’s budget speech, as the administration sought to spell out a credible fiscal consolidation pathway as the 3% fiscal cap kicks in from 2023.
- The fiscal stance is deeply negative, amid the belt-tightening efforts alongside the robust tax mop-up. Macroeconomic assumptions and revenue projections appear credible.
- The authorities appear keen to consolidate the gains from recent reforms now that the administration is more than halfway through its second term.
The Commodity Report #65
- The benchmark, CRB Commodity Index, ended the week -0,5% lower EU CO2 Price to the moon The price of carbon in the EU’s emissions trading system hit a new all-time high on Friday.
- The key reason for the rise was the surge in gas contracts for delivery next year.
- That is making it more likely that increased burning of coal for power generation as an alternative to gas is more than a short-term blip to get the EU through a difficult winter.
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