Brief Indonesia: Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL and more

In this briefing:

1. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL
2. Indonesia Bull Wedge Targets New Highs
3. Asian Telecom Tower Trends: A General Improvement with China Tower Leading the Way
4. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
5. GEM Active Funds:  Big Q1 Outperformance

1. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL

• Asset Quality recognition is something of a black art with varied definitions for non-performing loans (“NPLs”).
• Firstly, we analyse what a NPL is.
• We then evaluate provisioning changes across Asia. We rank countries.
• We further analyse specific underlying NPL recognition issues in China.
• We then rank a sample of regional banks and countries by NPL recognition.
• Later, we take a look at how different systems come under NPL stress and how they cope often in a crisis environment.
• Finally, we wrap things up with some concluding insights about the cultural backdrop which defines systemic asset quality.

2. Indonesia Bull Wedge Targets New Highs

We have held a bullish/long position in Indonesia from 6,080 after the breakout above 6,000 resistance and continue to see the macro cycle in a positive light to challenge and clear the 2018 highs.

Bull energy is brewing once again for a bull breakout of the noted wedge that will open the way for the macro bull cycle to resume. Lower wedge support is our preferred buy zone to add to our long position with clear wedge breakout resistance and bull inflection point.

For those not long this offers an excellent risk to reward entry with a controlled stop.

Buy volumes remain healthy and supportive of the macro bull cycle.

Indonesia is our top pick within SE Asia.

3. Asian Telecom Tower Trends: A General Improvement with China Tower Leading the Way

In our latest Asian Tower Trends report, Chris Hoare looks at the listed telecom tower industry across the region. During 4Q18, we became more optimistic on the Asian tower space. 

• China: Last December, we upgraded what is by far the largest towerco globally, China Tower (788 HK), after it became clear the story was much better than disclosed at the time of the IPO (still a mystery as to why this happened),
• The Indian tower business has been buffeted by rapid industry consolidation but we think it is now near a bottom, and recently raised Bharti Infratel (BHIN IN) to Neutral, and
• Growth is improving in Indonesia with increased investment ex Java from the smaller operators. Protelindo (TOWR IJ) our preferred name, but Tower Bersama (TBIG IJ) has lagged badly recently and may be due some catch up. 

With the 5G investment cycle a key theme for coming years, we are now more constructive on the telecom tower space in general. 

4. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success

China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities.  This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.

This second part of the series explains how China chose commodity semiconductors (DRAM and NAND flash memory chips) as the best technology to pursue.

5. GEM Active Funds:  Big Q1 Outperformance

Global Emerging Market funds made a strong start to 2019, with just over two-thirds of funds outperforming the benchmark, generating an average alpha above the IShares MSCI Emerging Markets Indx (ETF) (EEM US) of 1.3%.

In this report, we look at the performance of 180 global emerging market strategies over the first quarter of 2019 and analyse the countries, sectors and stocks that helped generate that outperformance.  We also take a look at the longer-dated outperformance of active GEM funds.