In this briefing:
- Asia Gaming Preview 2019: Part Two Picks: Galaxy, MGM China and Nagacorp
- Ten Years On – Asia Outperforms Advanced Economies
- Asian Credit Monitor: 2019 Portfolio Strategy, US Rate Trajectory, China Reform Pause
- Forecasting the Semiconductor Market
- The New Year’s Week that Was in ASEAN@Smartkarma – Indo Pharma, Industrials, and Weaker Oil
1. Asia Gaming Preview 2019: Part Two Picks: Galaxy, MGM China and Nagacorp
- Global and Asia headwinds still rattle the gaming sector, but these three companies remain undervalued despite market sentiment.
- Macau’s solid year end performance continues to defy projections, producing a 14% y/y GGR increase.
- Galaxy will benefit disproportionately from the HKMB bridge traffic growth, MGM’s single digit market share will ramp up to double digits and Nagacorp may be the single most siloed gaming operator in all of Asia.
2. Ten Years On – Asia Outperforms Advanced Economies
You might be surprised to learn that in the ten years to 2017 Asia has outperformed advanced economies. Despite extraordinary monetary and fiscal stimulus and the damaging dollar-demand deflationary policies of the ECB, BoJ and BoE, the region is 188% larger in US dollar terms compared with 2007 while US dollar GDP per capita income is 170% higher. The parallel numbers for the advanced countries – the US, euro-area and Japan combined- are 19% and 13%. Asian stock markets have underperformed since 2010 but we believe that investors are still to fully acknowledge Asia’s strong growth fundamentals. Combined with cheap valuations there is significant upside for Asian equity markets.
3. Asian Credit Monitor: 2019 Portfolio Strategy, US Rate Trajectory, China Reform Pause
If we had to make a base observation for Asia credit markets over 2018, it was certainly caught “wrong-footed” like most of its other risky asset counterparts. The combination of a more hawkish Fed in 2018, global quantitative tightening, late-cycle economic conditions, volatility and a strong USD have all served to impact almost all the asset classes negatively. According to some asset allocators, the only asset class which returned positive in 2018 was cash, every other traditional asset class saw losses.
USD direction will further dictate the impact on overall Asian risk, in our view, with many undervalued Asian currencies following their sharp declines in 2018. One of our scenarios includes a range-bound USD in 1H19, followed by a possible reversal in 2H19 on any dovish Fed policy/US economic weakness. In this case, it has the potential to attract incremental portfolio inflows back into Asian risk. We expect a slightly tighter bias in monetary policy in most Asia ex-Japan nations which is supportive for their respective currencies.
In 2019, risk-reward dynamics have improved particularly for Asian investment grade (“IG”) where we see more limited MTM pressure. We expect a more defensive market at least in 1H19 which supports our heavier IG bias. We suspect larger investors would continue to reallocate depending on the outcomes of the China-US trade dispute and their view on US risk (arguably near its last late-cycle expansion legs). We continue to be extremely selective in Asian high yield (“HY”) which have been impacted by idiosyncratic situations including credit deterioration and rising defaults. Exogenous factors such as the potential for “fallen angel” risk (i.e. a migration from issuers on the cusp of IG, “BBB-” into HY) as well as net portfolio outflows from HY, EM and leveraged loan funds are ongoing concerns. Despite cheaper valuations in Asian HY, we still see skewed risk-reward (with larger potential risks).
In the US, our base case expects the Fed to hike 1-2 times (quarter point each) for 2019, premised on still below-trend inflation and external factors. We think it is near the tail-end of its current tightening cycle, but we would continue to monitor the US supply-side (labour markets, employment gaps, prices) for further clues. A sustained upshot to the previous factors may have the potential to prolong the Fed’s tightening cycle.
On China’s side, we have seen a critical reversal in policy towards selective expansion/accommodation again as economic reforms instituted 3 years ago have been reprioritized. China’s difficult task to balance growth targets and restructure its economy is a perennial issue. We would also expect defaults to remain elevated domestically/internationally as a new paradigm of credit investing takes root in China.
Finally, we would like to wish our readers luck in investing and trading in the year ahead.
4. Forecasting the Semiconductor Market
This is the time of year that Objective Analysis releases its semiconductor forecast. This post is based upon a video posted on the WeSRCH website that explains the Objective Analysis 2019 semiconductor forecast.
Although accurate semiconductor forecasts are straightforward to produce, the consistently-accurate methodology spelled out in this Insight is rarely used.
The forecast predicts that the downturn that the industry is currently entering will be longer than most, with profits eluding chip companies until 2022.
5. The New Year’s Week that Was in ASEAN@Smartkarma – Indo Pharma, Industrials, and Weaker Oil
This pre and post-Hogmanay 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 top three Equity Bottom-up ideas this weak come from CrossASEAN Insight Provider Jessica Irene on Indonesian pharma and consumer health play Kalbe Farma (KLBF IJ), CrossASEAN Insight Provider Angus Mackintosh on high-quality industrial Selamat Sempurna (SMSM IJ), and Daniel Tabbush‘s Insight on high ROA Indonesian finance company PT BFI Finance Indonesia (BFIN IJ). In the Sector and Thematic section, Athaporn Arayasantiparb, CFA presents his top picks in Thailand on the back of the weaker oil price.
Macro Insights
In Strong Revenues / Benign CPI / Indrawati’s Award / Prabowo’s Arabic / Scandals Mount / Tsunami Toll, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.
Equity Bottom-up Insights
In Kalbe Farma (KLBF IJ): Navigating Through the New Pharma Dynamics, CtossASEAN analyst, Jessica Irene zeros in on Indonesia’s largest pharma company as its consumer health division overtakes pharmaceuticals as a source of revenue and asks whether now is the time to revisit the stock.
In Selamat Sempurna (SMSM IJ) – Truly Industrious, former Jakartan Angus Mackintosh circles back to Indonesia’s largest filter manufacturer, which he sees as one of the country’s best quality listed industrials.
In Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance, banking specialist Daniel Tabbush circles back to PT BFI Finance Indonesia (BFIN IJ), which he suggests is an attractive prospect.
In Reality Check 2019: What Premium Does Thanachart Deserve from TMB’s Takeover? , out Thai guru Athaporn Arayasantiparb, CFA takes a look at Thanachart Capital (TCAP TB) as TMB Bank PCL (TMB TB) comes close to concluding its takeover.
In Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?, Johannes Salim, CFA takes another looks at US-listed South East Asian e-commerce player Sea Ltd (SE US) and sees the company gaining ground in Indonesia, which is its most important growth market.
In Jardine C&C (JCNC SP): Close the Stub Trade, Curtis Lehnert revisits his recommendation on Jardine Cycle & Carriage (JCNC SP) and suggests now is the time to close the trade idea.
In M1 Offer Coming – Market Odds Suggest a Bump But… Travis Lundy investigates that the take over of Konnectivity Pte. Ltd. by leading Singapore telecoms firm M1 Ltd (M1 SP).
In Tuan Sing: Beneficiary of Exuberant Demand for Prime Office Investment Properties, Property Specialist Insight Provider Anni Kum suggests that recent large office acquisition by Gaw Capital in Singapore should benefit office player Tuan Sing Holdings (TSH SP).
In Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer, event-driven specialist David Blennerhassett zeros in on Hotel Properties (HPL SP) after a recent change in shareholding.
Sector and Thematic Insights
In Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand, Thai guru Athaporn Arayasantiparb, CFA searches for beneficiaries of the weaker oil price in Thailand.
In The Four Vulnerabilities in Thai Property, Athaporn Arayasantiparb, CFA looks takes a step back to look at the Thai Property Sector and explores a number of vulnerabilities.
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