Daily Brief Thematic (Sector/Industry): Roving Around Riyadh – A Look into a Kingdom Forging its Future Through Reform (Part 2) and more

From September to October, Desertfox spent 1 month in Riyadh, the capital of Saudi Arabia. This is the final piece concluding a two-part Series covering Desertfox’s recent trip to Riyadh, during which he gained interesting insights into how Saudi Arabia’s soft power push translated to real life experience working with the Saudi public sector, how this might benefit a Hong Kong-listed proxy, and the notable rise of Chinese automakers on the Kingdom’s streets.

• Overseas: SPX +2.5% on week; Equities notch seven consecutive weeks of gains
• Today: NKY Futs -1% v cash. JPY 142; Japan capex surges to record; Tax incentives for wage hikes
• Japan: Japan, Italy, and the UK sign a treaty for the Global Combat Air Programme, crafting a supersonic stealth jet. Key Japan partners – MHI & Mitsubishi Electric

• The CSI 300 Index and MSCI China Index are down 14% YTD, the third consecutive year of decline, and is the world’s worst-performing major market
• Many high-quality stocks trade at bargain valuations, but investors ignore earnings and focus on news flow and policy clarity 
• High yielding stocks could be the best defensive shelter while waiting for sentiments to improve and for fundamentals to take center stage in investment decisions again  

• The latest China housing metrics remain weak, ‘less negative’ by some 12M measures, in line with our forecast from December 2022 data, but watch out for some major data twists
• The expanding easing of policies is still far from a major stimulus, and the ‘whitelist’ to support certain developers indicates a selective approach by the policymakers, focused on “risk prevention”
• The market for new home sales (mostly pre-sales) diverges from the secondary market, and the policy steers toward affordable housing, public facilities, urban village renovation

• Looking back, March 2023 presented a significant “wobble” to the U.S. Federal Reserve’s monetary policy tightening campaign as the sudden bank failures, the largest since the 2008 financial crisis, of Signature Bank and Silicon Valley Bank in particular, caused the Fed to step in as customers rushed to withdraw their deposits while these banks did not have enough liquid funds on hand to satisfy those customers’ cash requirements.
• One reason for these bank failures was that normally safe investments in U.S. Treasuries, purchased at the highs, began losing money due to their duration mismatch as interest rates were rapidly increased by the Federal Reserve.
• In came the Fed’s BTFP program to the rescue which was setup to eliminate a financial institution’s need to rapidly sell securities, and is open to federally insured banks, savings associations, and credit unions, as well as the U.S. branches of foreign banks.