Daily Macro: Are US Stocks A Buy Yet? and more

In this briefing:

1. Are US Stocks A Buy Yet?
2. Taiwan: Manufacturing Still Rules the Roost
3. Reforms/US-Canada-China/ Economic Gloom/Bike Crash/Stocks
4. IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates
5. India Monthly Report Nov-Dec 2018

1. Are US Stocks A Buy Yet?

• 5%-like rallies on Wall Street are signs of a bear market not a bull market
• Bull markets require strong liquidity and low risk appetite, neither yet apply
• Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
• Recent large fall in risk appetite consistent with upcoming economic recession

2. Taiwan: Manufacturing Still Rules the Roost

“No longer is Taiwan the isolated, renegade province. Increasingly it is an integrated part of the Greater China economy.”
–Asianomics Report, No. 5/2013, Taiwan: Paradox Island, 11 June 2013

Famous last words. Five years ago all the talk was of the Economics Co-operation Framework Agreement (ECFA) between Taiwan and Mainland China brokered by the then Kuomintang Government led by President Ma Ying-jeou and the Xi Jinping Administration. The main focus at that time was on the services sector deal which would allow Taiwanese banks, insurance companies and other service industries greater access to a market that the manufacturing sector had penetrated years before.

There was opposition on the island to the opening (there would have been opposition even if it hadn’t been China) but the whole deal went into abeyance as soon as Tsai Ing-wen, then the leader of the pro-independence Democratic Progressive Party (DPP), won the presidency in 2016 (Tsai resigned as party leader after the DPP’s defeat in this November’s local elections). Today, Taiwan is in the deep freeze as regards China relations and feeling increasingly bullied and bribed by the Mainland (see Taiwan Politics: Bullied and Bribed by the Mainland). The country, as ever, is reliant on the global trade cycle although, truth be told, that is a millstone of its own making. There are great companies listed on the Taiwan Stock Exchange and investors should be heavily positioned in them but, increasingly, they have nothing to do with what is going on in Taiwan itself. That looks unlikely to change in the near future.

3. Reforms/US-Canada-China/ Economic Gloom/Bike Crash/Stocks

China News That Matters

• No one dictates to China but me
• US targets Chinese hackers as rift widens
• Weak data raise pressure for stimulus
• After high-speed climb, bike-share giant collapses
• A brighter new year for China’s stock market?

4. IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates

Prabowo has yet to dent Widodo’s 20-point lead in polls and, meanwhile, certain key macro-economic figures are finally swinging in the incumbent’s favor.  Jakarta and Surabaya are linked by toll road — after decades of work.  The Freeport mine nationalization went through, benefiting Widodo (but possibly no one else).  The Efta Cepa bodes well for other trade agreements in the works.  The Lippo Group scandal is escalating, but not yet affecting James Riady.  PT Toba Sejahtera Tbk suffered damaging NGO scrutiny.  Electoral authorities set the presidential debate schedule. 

Politics: Recent economic trends, such as inflation, the exchange rate and the price of oil, are benefiting President Joko Widodo.  Employment is an area where the president remains vulnerable, but Prabowo Subianto’s new television ads on the topic may be backfiring.  Prabowo has focused on lamenting the lack of professional careers for college graduates – a remote concern for the bulk of voters (Page 2).  The General Election Commission (KPU) has secured agreements from the two presidential campaigns regarding topics and formats for televised debates in the coming months.  The challenge for Widodo will be to shield his running mate from questions on matters beyond his narrow field of Islamic jurisprudence (p. 2).  After prolonged wrangling with Gerindra, the Islamic Justice Welfare Party (PKS) finally named two nominees for vice governor of Jakarta; neither seem dynamic (p. 4). 

Surveys: President Joko Widodo’s 20 percentage-point lead remained intact through the second week of December, according to a credible poll (p. 5).  

Justice: Anti-Corruption Commission (KPK) officials are scrutinizing State Minister for Sports and Youth Imam Nahrawi, after having arrested a deputy state minister for alleged kickbacks on grants to the National Sports Committee (Koni).  The affair could become an embarrassment for Widodo (p. 5).  KPK officials indicated the likelihood of pursuing a former Lippo Cikarang president director, but they have not yet conveyed any such signals about investigating group owner James Riady (p. 6).  An NGO alliance highlights conflicts of interest on the part of Coordinating Maritime Affairs Minister Luhut Panjaitan (p. 7).

Policy News: Officials signed a comprehensive partnership (Cepa) with four European states (including Switzerland and Norway) (p. 9).  The transaction to nationalize the Freeport mine concluded on 21 December.  The deal will benefit Widodo (and perhaps him alone) (p. 10). 

Infrastructure: The linkage of the Trans Java Toll Road – first envisioned in 1978 – finally occurred on 20 December.  Opposition figures, noting that previous administrations had put the plans in place, dispute how much credit should accrue to Widodo; in fact, he was the first to expedite land acquisition and thereby overcome the chief obstacle (p. 12).  

5. India Monthly Report Nov-Dec 2018

The Indian indices have been seeing an ebb and flow with bearish indicators accounting for market dips with a recovery towards the end of the period. Overall the Indian indices have outperformed the global market this month with positive returns across sectors except for pharma and the metal sector.

Returns in USD