Daily Macro: Recession/Trade War/ Consumers/Shares/Perpetual Bonds and more

In this briefing:

1. Recession/Trade War/ Consumers/Shares/Perpetual Bonds
2. Resource Export Earnings Repatriated / Sulawesi Flood / BTP Free / Tax IT / MRT / Electoral Agencies
3. India Equity CY18 Update and Outlook for CY19
4. Migrant Workers and Employment
5. India: Unimpressive Data on Organised Sector Job Creation

1. Recession/Trade War/ Consumers/Shares/Perpetual Bonds

China News That Matters

• China´s weakest growth for 28 years 
• Talk to me; Liu He comes to town
• Consumers – still packing the engine room?
• Pork king stirs stocks as Nasdaq nears
• Perps. Billions of ‘em

2. Resource Export Earnings Repatriated / Sulawesi Flood / BTP Free / Tax IT / MRT / Electoral Agencies

Politics: Corruption moved to the fore of campaign sparring, as National Mandate Party (Pan) founder Amien Rais accused President Joko Widodo of “crimes of omission”.  The attack may reflect mounting grounds for concern about the poll position of Pan, which risks suffering exclusion from the next parliament.  Prabowo Subianto and his campaigners continue to issue vague insinuations, rather than highlighting the plain fact that four active investigations are embroiling Widodo‑government ministries (Page 2).  Basuki Purnama left prison and asked to be called ‘BPT’.  Megawati’s cool treatment of the former Jakarta governor reflects her diffidence about championing pluralism (p. 3).   

Disasters: Flooding has killed dozens and displaced thousands in 10 districts of South Sulawesi, including Makassar.  The governor faults past management of watersheds (p. 4). 

Electoral System: Yet again, the State Administrative Court (PTUN) has contradicted the General Election Commission (KPU), putting the latter at odds with the Election Oversight Agency (Bawaslu) in a case pertaining to Oesman Sapta Odang (OSO), the Hanura chair who is speaker of the Regional Representatives Assembly (DPD).  Although OSO is disreputable, Hanura is tiny and the DPD virtually powerless, the case nonetheless poses risks for the KPU’s prestige and effectiveness (p. 5). 

Justice: The spiritual leader of the former terrorist organization Jemaah Islamiyah (JI), Abubakar Baasyir, has not yet won release.  He must first issue a written statement declar­ing loyalty to the Republic of Indonesia and the pluralist state ideology Pancasila (p. 7).

Policy News: The president finally enacted a long-planned regulation to require natural-resource exporters to recycle their foreign-exchange earnings through domestic banks.  Some coal producers complain that the move conflicts with the terms of their offtake-and-financing agreements.  But the measure holds promise for rectifying the tight onshore dollar liquidity that has long rendered the rupiah highly volatile (p. 9).  A new tax IT system is undergoing procurement, with full deployment targeted for 2023 (p. 11).

Jakarta: The March opening of the MRT – and all 13 stations – is on schedule (p. 12).

3. India Equity CY18 Update and Outlook for CY19

Equity markets across emerging countries in 2018 faced significant headwinds primarily due to rising US Fed rates that led to a capital outflow as well as higher commodity prices including crude oil that affected the profitability of companies. India was no exception.

The corporate results in India were a mixed bag. While sales have finally recovered from the impact of demonetization and GST transition, the profitability was impacted due to high commodity prices and rising provisions due to higher bad loans for the banks.

On a positive note though, a number of  things seem to have fallen in place in 2018 like NCLT lead NPA resolution, bank management changes, increased capacity utilization, lower inflation, falling commodity prices. If the same trend were to continue in 2019, we are confident that macros will turn more favorable and improved corporate sales can translate into better earnings growth.  This we believe may augur well for Indian equities.

We examine all these factors in detail

4. Migrant Workers and Employment

Recently, we have profiled a spat of news items focusing on China’s employment numbers and efforts to better handle migrant workers. On Monday, some updated data on employment numbers and migrant workers was released. Much of the focus on Monday was on GDP, but there are some gems among the employment data that can shed light on the China’s employment numbers and the impact it could have on the wider economy.

5. India: Unimpressive Data on Organised Sector Job Creation

One of the important ongoing debates in the country has been on the topic of Job creation. In the absence of a official household survey, the government has been releasing data on new retirement accounts with EPFO as a proxy for formal sector job creation. That data though is subject to significant limitations and is most likely over-stating job creation currently due to the ongoing tax incentives. That said, even taken at face value, the EPFO data by itself is not suggestive of strong job creation in the economy. The EPFO data at best suggests a total of 8 million jobs being created in the organised sector when the total number of jobs required to be created outside Agriculture is probably 2x of that. Thus, unless a clear assessment of the performance of the unorganised sector can be made, any rigorous assessment of the labour market cannot be made. There is a urgent need for a formal, household survey to assess the labour market. And there is no reason why a country like India cannot commission and successfully execute a survey once a quarter.