This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Absolute Principles of Stock Investment (주식투자절대원칙) – A Book Review
- This insight is a book review of 주식투자절대원칙 (Absolute Principles of Stock Investment), which was written by a famous Korean retail investor called Park Young-Ok.
- Park tries to capture his 30+ years of investing wisdom. I thought this book was excellent, especially because Park included a lot of local flavor of his mindset in investing.
- This insight provides 11 major highlights of the book ‘Absolute Principles of Stock Investment.’
2. The Week At A Glance: Recession or not?
- We are likely approaching the point where the squaring party triggered by USDJPY is starting to impact market pricing and sentiment in nonsensical ways, as deleveraging is ongoing, even if the dust has settled a little.
- Markets are pricing a small “insurance premium” for the September FOMC meeting, leaving more than 25bp in the forward pricing despite a week of mostly hawkish surprises last week.
- Everything this week is about watching USDJPY price action again, as it has the potential to impact all assets.
3. The Tipping Point for China’s Debt
- Concentration of debt, asset prices, and fiscal deficit will determine the tipping point of China’s debt.
- If China does not continue to work on debt de-concentration, prop up its asset prices, or rein in fiscal deficit, China may as well face a debt crisis.
- To examine the conditions for China’s debt situation, it is vital to look at three key indicators of debt sustainability: concentration of debt, currency stability, and fiscal budget.
4. Technically Speaking, Breakouts and Breakdowns: HONG KONG (July 31)
- The energy, materials and tech sectors have lost momentum, while telecoms and utilities sectors lead the market. Consumer sectors are lagging. HSCI has dipped below its 200 day moving average.
- Hong Kong & China Gas (3 HK) breaks to the upside as investors seek safety and yield.
- PetroChina (857 HK) has broken down relative to the MSCI China index and Travelsky Technology Ltd H (696 HK) breaks down from a triangle formation but downside is limited.
5. Nowhere to Run to Baby, Nowhere to Hide! Part 3
- A lack of institutional investor interest in Hong Kong is a positive for once as the market is less influenced by international flows
- Investors are disappointed by the lack of short-term stimulus plans after the Third Plenum session
- What to do after the 17,500 level breached on the Hang Seng index?
6. Nowhere to Run to Baby, Nowhere to Hide! Part 2
- Are we witnessing a short-term carry-trade unwind or a trend change?
- A short-term bounce in the USDJPY will provide an opportunity to reposition
- Industrial metals take the brunt of the unwind in the commodity sector
7. How to Trade the Great Unwind
- U.S. equity investors saw a sudden and violent rotation from growth to value stocks and from large to small caps. The risk unwind is also evident in the currency markets.
- In the short run, some of our short-term equity indicators are oversold and flashed buy signals.
- Our base-case scenario calls for a short-term relief equity rally into August, led by small caps and value stocks.
8. Positioning Watch – Metals bets are finally being squared, but retail is piling in
- Markets remain focused on 2-3 rate cuts from the Fed, growth not rolling over fully, and inflation continuing its downward trajectory.
- There seems to be no way to change this narrative among market participants.
- The slightly hawkish PCE in the US and today’s relatively high German inflation print (in harmonized terms) had a hard time moving rates markets, which are currently pricing more than 2.5 cuts from the Fed and more than 2 cuts from the ECB by year-end, with Fed September pricing even showing a tiny lean towards 50 bps.
9. Heading Towards a Currency War? US and Chinese Policy Outlooks Suggest Trouble Ahead
- The US election campaign has taken significant twists in recent weeks, culminating with the removal of President Biden. Wall Street cannot be ambivalent about who wins in November, unlike 2020.
- The People’s Bank of China (PBoC) has unexpectedly lowered key lending rates, following disappointing Q2 economic growth. More aggressive interest rate cuts could happen once the Fed begins easing policy.
- Exchange rate movements in Q4 could be key to diffusing protectionist sentiment against China. Easier monetary policy in Europe and the US will force the PBoC to support China’s exporters.
10. Asset Allocation Watch – What to buy in the upcoming Fed cutting cycle?
- Markets are currently busy preparing for the upcoming cutting cycle from the Fed, expected to start in September.
- The simple playbook is often used when markets face a “high probability event,” and markets are now acting as if they know what’s ahead.
- A Fed cutting cycle is triggered by a recession; therefore, buy bonds, sell risk assets, and buy gold, etc.
