In today’s briefing:
- Pairs Monitor: Are Correlations Converging to 1?
- Asia Tech Exports: Slowing Momentum, but Underlying Demand Remains Resilient
- The Week That Was in ASEAN@Smartkarma – BCA’s Transactional, ASSA & Anteraja, and Philippine Banks
- What Risks Does China Pose?
- Commodity Windfall Allows Bank Indonesia To Tighten Policy On Its Own Terms
Pairs Monitor: Are Correlations Converging to 1?
- We recently suggested a number of long/short pair trades, with inflation hedge vehicles forming the long portion of a number of pairs.
- Inflation hedge factors have begun to underperform, and the subsequent performance of the pairs is revealing of the factors driving the current market environment.
- We are inclined to give the long inflation hedge pairs the benefit of the doubt. They are being sold along in a panic liquidation where all correlations converge to 1.
Asia Tech Exports: Slowing Momentum, but Underlying Demand Remains Resilient
- We still see relatively healthy demand for Asian technology exports as a handover from consumer to enterprise IT spending extends the current tech cycle.
- Lead indicators such as Taiwan’s export orders show some slowing but to still-strong levels. This is despite a marked slowdown in orders from the Greater China region.
- End demand indicators also support the positive outlook: US new orders for IT goods slowed from multi-year highs to a still-high run rate; the outlook for IT capex looks solid.
The Week That Was in ASEAN@Smartkarma – BCA’s Transactional, ASSA & Anteraja, and Philippine Banks
- The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.
- The past week saw insights on Singapore’s economic outlook, Bank Central Asia (BBCA IJ), Adi Sarana Armada (ASSA IJ), GoTo (GOTO IJ), and SCG Packaging (SCGP TB).
- Daniel Tabbush also took a look and Philippine Banks highlighting China Banking (CHIB PM) as his top pick. We also comment on Astra International (ASII IJ) and Telekom (TLKM IJ).
What Risks Does China Pose?
- China can no longer contain COVID-19 infection surges without significantly damaging its economy: there will be rolling lockdowns affecting more regions in China.
- Aside from further economic downgrades within China, watch out for political surprises as well. President Xi may need to make more compromises with his rivals than he had planned to.
- There could be geo-political consequences as well if President Xi needs an external distraction – Taiwan could endure more pressure.
Commodity Windfall Allows Bank Indonesia To Tighten Policy On Its Own Terms
- We believe Bank Indonesia’s tightening cycle will only commence in 2H22 so long as i) inflation is under control and ii) the IDR does not buckle under pressure.
- The economic outlook looks more promising. The unwinding of COVID-19 restrictions is likely to provide a fillip to the tourism earnings, which in turn will support the IDR.
- We now pencil in 3 x 25bps rate hikes (as opposed to just 2 x 25bps), given the Fed’s now more aggressive tightening stance.
Before it’s here, it’s on Smartkarma
