In this briefing:
- Much Ado About Credit
- Political Pit Stop (January): Election Delay!
- Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat
- The Week that Was in ASEAN@Smartkarma – Twin Deficits, Bank Mandiri, and the M1 Bid
- Leong Hup IPO Preview: A Game of Chicken
1. Much Ado About Credit
- Global financing conditions could tighten further
- Credit demand is deteriorating; credit risks are rising; Eurodollar costs are edging higher
- A de-escalation in trade tensions and a Fed pause could ease the pain
- Will Fed recently turning more dovish (possible shift to slower QT & Fed rate cut in 2019?) + concomitant USD drift provide sufficient respite to put a floor under risk assets?
2. Political Pit Stop (January): Election Delay!
The regime announced that elections will be delayed from the seemingly ‘rock solid’ date of Feb 24, 2019 as there are concerns it would interfere with the coronation ceremony in early May. While the other political parties (Dems, Thaksinites) are generally understanding, there is a group of pro-democracy group that has marched out to protest and demand that the regime stick to the old timeline. Apart from this, there are some observations regarding:
- Short tenure. The Dems pointed out that given a possible Parliamentary minority (despite Senate majority), the Army faction’s new government could find itself unstable, something which the Army faction itself has not denied. Perhaps, the next government won’t last four years like this one.
- Differences and similarities in policies. From our standpoint, almost all the three major factions adhere to populist policies, such as straightforward money handouts. However, the Army faction has some advantages such as hotlines, which assume they stick to power for a while.
- Greater potential for violence. The protest against election delays has dragged on for two weeks, increasing the risk of armed conflict and instability.
3. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat
We noted in Ten Years On – Asia Outperforms Advanced Economies Asia’s economies and companies have outperformed advanced country peers in the ten years to 2017. Growing by 6.8%, real, through the crisis the region is 188% larger in US dollar terms while US dollar per capita incomes 170% higher compared with 2007. In this note we argue even though Asian stock markets have underperformed since 2010 and the bulk of global capital flows have gone to advanced countries, Asia’s time is coming. Valuations are cheap. Growth fundamentals strong. There are few external or internal imbalances. Macroeconomic management has been better than in advanced economies and the scope to ease policy to ward off headwinds in 2019 is greater. China has already started.
4. The Week that Was in ASEAN@Smartkarma – Twin Deficits, Bank Mandiri, and the M1 Bid
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.
Macro Insights
In Widodo, PDI-P Lead / Siregar to DC / Tobin Tax Unlikely / KPK Bomb Scare / Industry Minister Eyed, Kevin O’Rourke comments on the most significant economic and political developments over the last week.
In his economic insight, Philippines: Time to Mull over the Risks of the ‘twin Deficit’ Syndrome, Jun Trinidad comments on the selling macro imbalances in the Philippines and the risks posed for the economy.
In Philippines: Another CPI Downside Surprise in December, Jun Trinidad comments on the lower than expected inflation figures coming out of the Philippines.
Equity Bottom-up Insights
In Bank Mandiri (BMRI IJ) – Shape Shifting and Millenial Mortgages, circles back to Bank Mandiri Persero (BMRI IJ) following a meeting with management in Jakarta. He sees Bank Mandiri Persero (BMRI IJ) as a key proxy for the Indonesian banking sector, with an increasingly well-diversified portfolio and growing exposure to the potentially higher growth areas of microlending and consumer loans.
In Accordia Golf Trust (AGT SP): MBK + ORIX + AGT = Time for Outperformance? 9.5% Dividend Yield, Nicolas Van Broekhoven circles back to this golfing play and suggests now it a good time to revisit.
In IPS Securex (IPSS SP): Micro-Cap Could Benefit from SG Gov’t HDB Upgrade Program, Nicolas Van Broekhoven revisits this small cap which is a play on Housing Development Board upgrades in Singapore.
In M1 Offer Despatched – Dynamics Still Iffy, Travis Lundy comments on the ongoing offer by Konnectivity for M1 Ltd (M1 SP) and whether we should expect a “bump” in the shares or to sell into the market.
In M1 Ltd (M1 SP): Take the Offer, Axiata Unlikely to Start a Bidding War, Arun George comments on Konnectivity’s bid for M1 Ltd (M1 SP) and suggests taking up the offer.
In PCI Ltd – All Over Before It Starts, Ballingall event-driven specialist David Blennerhassett comments on the ongoing bid for Pci Ltd (PCI SP) and sees it as a done deal.
5. Leong Hup IPO Preview: A Game of Chicken
Leong Hup International (LEHUP MK) is one of the largest producers of poultry, eggs and livestock feeds in Southeast Asia. After an unusually quite 2018, Malaysia’s equity capital market is set for rebound with at least three issuers looking to raise up to $500 million from IPOs. Leong Hup is set to the be the first as it has started the search for cornerstone investors.
Helped by the current imbalance between available Malaysian IPOs and the dry powder among investors, Leong Hup is seeking a premium rating. However, our analysis suggests the ability of Leong Hup to command a premium rating faces challenges.
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