In this briefing:
- China’s New Semiconductor Thrust – Part 1: Why and How?
- The Week that Was in ASEAN@Smartkarma – Elections, Trade War Beneficiaries, and Indonesian Textiles
- Bull Or Bear? Latest Global Liquidity Readings
- Risk of Future LNG Supply Glut as Bubble of New Projects Grows
- 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate
1. China’s New Semiconductor Thrust – Part 1: Why and How?
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.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
2. The Week that Was in ASEAN@Smartkarma – Elections, Trade War Beneficiaries, and Indonesian Textiles
This week’s offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
The highlights of this week are comments on the Thai elections with differing perspectives from CrossASEAN Economist Prasenjit K. Basu, Thailand based Athaporn Arayasantiparb, CFA, and Dr Jim Walker. Dr Jim Walker also gives us his views on the key beneficiaries and the ongoing US-China trade dispute and singles out Indonesia and Vietnam. On this theme, Kevin O’Rourke highlights a potentially significant announcement of a US$400m investment in Kendal, Central Java by a Chinese Textile company of its intention to relocate a shirt manufacturing facility there from China. Kawasan Industri Jababeka (KIJA IJ) and Sembcorp Industries (SCI SP) have a JV industrial estate there, which stands potentially to benefit should this move should it transpire. More importantly, it could signal the start of a more promising future for Indonesia’s manufacturing sector.
Macro Insights
In Prayuth Accomplishes a Clear-Cut Victory, Assuring Stability (If Not Rapid Growth), CrossASEAN Insight Provider Prasenjit K. Basu comments on the result of the recent election in Thailand.
In Thai Election 2019: Defeat in Parliament, Victory in Senate, Thai Guru Athaporn Arayasantiparb, CFA comments on the results on the Thai elections and the consequences for decision making in that country.
In a follow-up Insight on the recent election in Thailand, Political Pit Stop (April): An Election Gridlock, Athaporn Arayasantiparb, CFA deals with some unfinished business post the election.
In Elections, Coups and Constitutions: Thailand’s Reckoning, Dr. Jim Walker looks at Thailand’s political history with the recent election in mind and concludes that Thai politics looks set to become fractious and interesting once again.
In his insight, 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate, Kevin O’Rourke looks and the most important political and economic developments over the past week and provides his value-added comment.
In Vietnam Picks up the China Baton, Dr. Jim Walker lays out his thoughts on which countries are set to benefit the most from the ongoing trade dispute between the US and China. Indonesia and Vietnam would seem to be the most obvious beneficiaries.
Equity Bottom-Up Insights
In his most recent on-the-ground insight, Shaky Situations at DEMCO and Pranda, Athaporn Arayasantiparb, CFA lays out his thoughts post visits to two companies with very different trajectories, namely renewable power specialist Demco Pcl (DEMCO TB), which is struggling, despite doing really well in the past and jeweller Pranda Jewelry Pub (PRANDA TB), once struggling but now on a recovery path.
In Golden Agri Bull Pivots to Get Involved, technical specialist Thomas Schroeder works his magic on this leading Singapore listed plantation company.
For a fundamental view on the above situations please refer to last week’s insight, Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR, from commodities specialist Charles Spencer who zeros on the potential positive impact from an impending El Nino event on Golden Agri Resources (GGR SP).
Sector and Thematic Insights
In Small Cap Diary: Rajthanee Hospital, CAZ, Athaporn Arayasantiparb, CFA lays out his thoughts post visits to these two small-cap companies from totally different industries Rajthanee Hospital (RJH TB) and CAZ Thailand PCL (CAZ TB).
3. Bull Or Bear? Latest Global Liquidity Readings
- Global Liquidity bottoming out, but Central Banks not yet easing
- US Fed only withdrew $30bn in Q1, versus $350 bn in Q4
- PBoC still tightening through OMOs
- ECB on ‘pause’
- QE4 is coming in 2019, but no evidence it has started yet
4. Risk of Future LNG Supply Glut as Bubble of New Projects Grows
The rapidly improving outlook in the LNG industry over the last few years, reinforced towards the end of 2017 by the unexpected growth of demand from China, has set off a proliferation of new LNG projects especially from the US (Exhibit 1).
In its latest LNG Outlook report, Royal Dutch Shell (RDSA LN) is projecting from 2023 onwards a significant gap between the future LNG demand and the existing supply including the capacity under construction that could require up to 100mtpa of new LNG project sanctions by 2023.
The race to gain market share in the projected LNG demand-supply gap has produced an aggregated capacity of proposed new projects of up to 475mtpa, a number larger than the total LNG traded volume in 2018 of 319mtpa and way above the capacity required to meet the future growth in LNG demand.
Exhibit 1: Funnel of proposed LNG projects getting bigger
![](https://static-prod.smartkarma.com/images/media/000/083/551/original/bubblechart.png?1553833376)
5. 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate
Two new and credible polls show Widodo leading by margins of 18-19 percentage points over Prabowo. This mitigates — but does not entirely eliminate — risks surrounding the 17 April election outlook. Polls show PDI-P and Gerindra gaining at the expense of Islamic parties. The 4th debate on 30 March could help Prabowo draw slightly closer. The planned US$400 million relocation of a textile plant from China to Central Java bodes well, but whether central government policies are supportive remains to be seen. Two SOEs are under corruption scrutiny: Krakatau Steel Persero Tbk (KRAS IJ) and Pupuk Indonesia. A reasonable MRT tariff is in place.
Politics: Coordinating Security Minister Wiranto threatened to invoke the Terrorism Law on those who advocate abstaining on election day. He may believe that high turnout will benefit President Joko Widodo – but the draconian threat will harm Widodo’s image more than it helps (Page 2). The next presidential debate on 30 March will likely feature discussion of Widodo’s proposal to place active military officers in civilian bureaucratic posts (Page 2). Vice‑presidential nominee Sandiaga Uno promised fisheries operators that he and Prabowo Subianto would overturn a ban on dragnet trawling (p. 4). Constitutional Court justices will prioritize the resolution of legislative election disputes (p. 5).
Surveys: With less than three weeks remaining until the 17 April election day, two more new polls show the lead for President Joko Widodo remains intact. A poll by the Center for Strategic and International Studies (CSIS) took place from 15-22 March; it shows Widodo ahead by 18 percentage points, with 15 percent undecided. Similarly, a poll by Charta Politik showed Widodo leading by 19 points; it also implies that Islamic and Islamic‑oriented parties will shrink by a third on aggregate. Both polls indicate that the reform‑minded Solidarity Party (PSI) is unlikely to pass the four‑percent threshold required to occupy parliamentary seats; incumbent parties at risk of falling short are Hanura, the National Mandate Party (Pan) and the United Development Party (PPP) (p. 6).
Justice: Investigators from the Anti-Corruption Commission (KPK) made arrests in cases involving the state enterprises PT Krakatau Steel Tbk and PT Pupuk (p. 10).
Jakarta: Policymakers finally decided upon a reasonable tariff for the new Mass Rapid Transit (MRT) – Rp10,000 per 10 kilometers, with a maximum fare of Rp14,000 (p. 11).
Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. Delivered electronically every Friday, Reformasi Weekly is written by Kevin O’Rourke, author of the book Reformasi. For subscription information contact <[email protected]>. Reformasi Weekly is a product of PT Reformasi Info Sastra. |
Economics: Plans to relocate a sizeable Chinese textile plant in Central Java send a positive signal about manufacturing – but whether central‑government policies will be adequately supportive remains to be seen (p. 12).
Outlook: Plentiful poll data shows that Widodo has a comfortable margin of 55‑60 percent, with few factors likely to alter circumstances in the final three weeks. But his opponent is brazen and risks therefore exist. Widodo winning by only a very narrow margin is a scenario with a low probability – but a high potential impact. Prabowo has a penchant for protesting angrily, hard‑line supporters can inundate Jakarta and the Constitutional Court has a protracted schedule for resolving disputes (its deadline is 8 August) (p. 14).
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