In today’s briefing:
- Valuation Watch – Are Equities Worth the Risk? a Look at Risk Premia
- Three Major Reasons Why Foreigner Are Pouring In So Much Capital into Korean Equities in 2023
- Political Risks in Asia: Where Could the Surprises Come From?
- Asian Currencies Face a Bumpy Ride Towards Recovery
- CX Daily: China’s Hunt for Strategic New Energy Minerals
- UK: Cyclical Turn Is Taking Too Long
- The Butterfly Effect
Valuation Watch – Are Equities Worth the Risk? a Look at Risk Premia
- Europe and China offer the best risk compensation in equity space, while the US is running at levels below 1% in extra “yield” from equities relative to risk-free rates
- Even if European equities look relatively cheap compared to US or Indian stocks, it is worth noting that risk premia are almost at record lows.
- We prefer US cyclicals over European as the repricing of US cyclicals looks lukewarm relative to what we have seen elsewhere around the world.
Three Major Reasons Why Foreigner Are Pouring In So Much Capital into Korean Equities in 2023
- In this insight, we discuss three major reasons why foreigners are pouring so much capital into the Korean stock market this year.
- In the first two months of 2023 (as of 13 February), foreigners net purchased 8.2 trillion won in KOSPI included stocks.
- These three major reasons include meaningful corporate governance improvements, increasing probability of South Korea being included in the MSCI developed country status, and overall turnaround in the global equity markets.
Political Risks in Asia: Where Could the Surprises Come From?
- Despite Xi’s dominance, the party-state will face subtle but substantial forms of dissent and pushback. Beijing, in turn, will double down on driving growth to keep anger at bay.
- Despite underlying risks, we are cautiously optimistic about political developments in Taiwan, Malaysia, and Thailand as pragmatism allows for navigating uncertainty.
- India and Indonesia are sources of potential downsides, with identity politics and economic and foreign policy nationalism being sources of potential turbulence.
Asian Currencies Face a Bumpy Ride Towards Recovery
- Asian currencies are likely to trend upwards against the Dollar in general, although the magnitude and timing of their movements will vary.
- China’s reopening provides tailwinds for Asia via export, commodity, and tourism demand. Countries that historically relied on Chinese demand will benefit more.
- Asian central banks are beginning to diverge in their policy stances as their respective inflation outlooks differ. A longer-than-expected tightening cycle will prop up their notes.
CX Daily: China’s Hunt for Strategic New Energy Minerals
Minerals / Cover Story: China’s hunt for strategic new-energy minerals
Covid-19 / China’s localities spent hundreds of billions of yuan on pandemic
Bonds / Chinese real estate companies test offshore bond markets
UK: Cyclical Turn Is Taking Too Long
- As expected, the UK unemployment rate remained at 3.7% in Dec-22 but will probably hit 3.8% in Jan-23 because the underlying 3-month trend rise has returned to 0.2pp.
- Demand remains too high, with weekly vacancies stabilising up at Sep-22 levels. Pay deals are also settling at 5%, boosting weekly pay despite workers off on strikes.
- Cyclical tightness and excessive inflation expectations push the BoE to keep raising rates, albeit by 25bps rather than a “forceful” 50bp now rates are so high.
The Butterfly Effect
- The Asian Dollar Index is down (US Dollar up) 1.7% from 1st -13th February.
- After the initial excitement of China reopening accelerating after the LNY holidays, the CNY weakened by 1.7%, and Yen weakened by nearly 3% during the same period in February.
- The Bloomberg Dollar index is up 1.78%, and the DXY index is up 2.57%.
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