Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

FAI (fixed asset investment) declined in 2Q 2021, a sensible response to China's massive industrial overcapacity. Net exports and consumption were the key drivers of 7.9% YoY real GDP growth in 2Q 2021, which took 1H 2021 growth to 12.7% YoY. TSF (total social financing) did decelerate in January-May 2021, but began re-accelerating in June 2021 as the PBOC turned more dovish, following through with an RRR cut (effective 15 July 2021). With China's monetary conditions easing, at a time when US monetary policy is gradually hardening, the RMB will depreciate further, continuing the trend depreciation that began at the start of June 2021. Even during the period of a strengthening RMB, China was experiencing large capital flight: in 1H 2021, China's foreign reserves declined (by a marginal US$3 billion) even as the trade surplus remained elevated at US$255 billion. Despite the persistence of capital controls, China's capital flight is likely to accelerate in the rest of 2021 as monetary policy eases. With limited support from easier monetary policy, FAI will continue to decline marginally, and private consumption will decelerate (as the underlying social causes of high savings remain). Net exports will be less helpful, as the impact of de-globalization and reshoring of manufacturing reduces the demand for China's exports. So real GDP will likely decelerate to 6.7% YoY in 3Q 2021, and to 5% YoY in 4Q 2021. Overcapacity issues will begin to exert a significant drag on bank asset quality by 4Q 2021. We would recommend being mildly underweight China equities, as political risk factors begin rising further.

FAI (fixed asset investment) declined in 2Q 2021, a sensible response to China's massive industrial overcapacity. Net exports and consumption were the key drivers of 7.9% YoY real GDP growth in 2Q 2021, which took 1H 2021 growth to 12.7% YoY. TSF (total social financing) did decelerate in January-May 2021, but began re-accelerating in June 2021 as the PBOC turned more dovish, following through with an RRR cut (effective 15 July 2021). With China's monetary conditions easing, at a time when US monetary policy is gradually hardening, the RMB will depreciate further, continuing the trend depreciation that began at the start of June 2021. Even during the period of a strengthening RMB, China was experiencing large capital flight: in 1H 2021, China's foreign reserves declined (by a marginal US$3 billion) even as the trade surplus remained elevated at US$255 billion. Despite the persistence of capital controls, China's capital flight is likely to accelerate in the rest of 2021 as monetary policy eases. With limited support from easier monetary policy, FAI will continue to decline marginally, and private consumption will decelerate (as the underlying social causes of high savings remain). Net exports will be less helpful, as the impact of de-globalization and reshoring of manufacturing reduces the demand for China's exports. So real GDP will likely decelerate to 6.7% YoY in 3Q 2021, and to 5% YoY in 4Q 2021. Overcapacity issues will begin to exert a significant drag on bank asset quality by 4Q 2021. We would recommend being mildly underweight China equities, as political risk factors begin rising further.  

China to Decelerate: Overcapacity Weakens FAI, Capital Flight Limits Monetary Ease

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

<ul>
<li>The biggest event in 2024 which will impact rates in 2025 is perhaps the victory of Donald Trump, who promised to cut taxes and raise tariffs.</li>
<li>We do not believe the US economy could continue to grow at 3% annually with expectation of a recession in 2026. For 2025, we see declining consumption and sticky inflation.</li>
<li>Elevated rates are positive on fixed rate USD bonds as long as there is no rate hike of which we believe for 2025. </li>
</ul>


The biggest event in 2024 which will impact rates in 2025 is perhaps the victory of Donald Trump, who promised to cut taxes and raise tariffs.
We do not believe the US economy could continue to grow at 3% annually with expectation of a recession in 2026. For 2025, we see declining consumption and sticky inflation.
Elevated rates are positive on fixed rate USD bonds as long as there is no rate hike of which we believe for 2025. 


Bond Market Monitor: 2025 as Another Year for USD Bonds

Debt Capital Markets

iShares MSCI Thailand / Debt Capital Markets

<ul>
<li>Our thesis has not changed even though the Federal Reserve (the Fed) appears to be more hawkish than many investors thought.</li>
<li>We expect countries with lagging rate cycles, such as China and Thailand, to suffer capital outflows and rising yields.</li>
<li>In Asia, the spotlights remain on Indonesia and India where macroeconomic fundamentals continue to improve.</li>
</ul>


Our thesis has not changed even though the Federal Reserve (the Fed) appears to be more hawkish than many investors thought.
We expect countries with lagging rate cycles, such as China and Thailand, to suffer capital outflows and rising yields.
In Asia, the spotlights remain on Indonesia and India where macroeconomic fundamentals continue to improve.


Bond Market Monitor: Prime Time Continues

CHINAGOV CDS USD SR 5Y D14 (CCHIN1U5 CORP)

Here, we have wrapped-up the recent fear on the Chinese debt bubble with our new periodical called “The Chinese Credit Chronicle (CCC)”. China is a bicycle economy which will fall down when the economy stops growing at a certain rate, in our view. We believe the minimum real GDP growth rate is c.5%. China’s real GDP growth was 2.3% in 2020, according to China’s National Bureau of Statistics. The 2.3% GDP growth achieved with the effective control of COVID-19 and without much government stimulus remains impressive, in our view, only if we believe this GDP growth is authentic.
Now comes the core of the problem. We have seen leverage in China being extended because of cheap funding costs rather than borrowers’ repayment capability.  Not to mention a shadow banking sector which the China Banking and Insurance Regulatory Commission (CBIRC) once estimated at RMB84.8trn in 2019 or 29% of total banking assets in 2019, leverage was injected officially into ineffective and poorly-managed borrowers such as local government financing vehicles (LGFV). In addition, with China’s urbanization, the demand for residential and commercial properties has risen in tandem with leverage of the Chinese property sector, hence concentrating the leverage in the sector.
Many market participants in China seem to have gambled that China’s growth music will continue playing and when loan growth continues, non-performing loans may not be a big problem. We believe the music has stopped and the Chinese government seems to have agreed with us.
Here, we have raised three anecdotes on the Chinese debt bubble and how we see the situation going this year: China Evergrande (<a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> , <a href="https://www.smartkarma.com/entities/hna-group-co-ltd" target="_blank" data-smartkarma-citation="entities:25987:1" rel="noopener">HNA Group (HNAGRZ CH)</a> , and <a href="https://www.smartkarma.com/entities/china-huarong-asset-management" target="_blank" data-smartkarma-citation="entities:968:1" rel="noopener">China Huarong Asset Management (2799 HK)</a> .

Here, we have wrapped-up the recent fear on the Chinese debt bubble with our new periodical called “The Chinese Credit Chronicle (CCC)”. China is a bicycle economy which will fall down when the economy stops growing at a certain rate, in our view. We believe the minimum real GDP growth rate is c.5%. China’s real GDP growth was 2.3% in 2020, according to China’s National Bureau of Statistics. The 2.3% GDP growth achieved with the effective control of COVID-19 and without much government stimulus remains impressive, in our view, only if we believe this GDP growth is authentic.
Now comes the core of the problem. We have seen leverage in China being extended because of cheap funding costs rather than borrowers’ repayment capability.  Not to mention a shadow banking sector which the China Banking and Insurance Regulatory Commission (CBIRC) once estimated at RMB84.8trn in 2019 or 29% of total banking assets in 2019, leverage was injected officially into ineffective and poorly-managed borrowers such as local government financing vehicles (LGFV). In addition, with China’s urbanization, the demand for residential and commercial properties has risen in tandem with leverage of the Chinese property sector, hence concentrating the leverage in the sector.
Many market participants in China seem to have gambled that China’s growth music will continue playing and when loan growth continues, non-performing loans may not be a big problem. We believe the music has stopped and the Chinese government seems to have agreed with us.
Here, we have raised three anecdotes on the Chinese debt bubble and how we see the situation going this year: China Evergrande (Evergrande Real Estate Group (3333 HK) , HNA Group (HNAGRZ CH) , and China Huarong Asset Management (2799 HK) .

The Chinese Credit Chronicle: The CCC Danger

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

CHINAGOV CDS USD SR 5Y D14 (CCHIN1U5 CORP)

China to Decelerate: Overcapacity Weakens FAI, Capital Flight Limits Monetary Ease

Real GDP to decelerate to 5% YoY growth by 4Q 2021, as FAI (already down in 2Q2021) weakens further, and rising capital flight limits the PBOC's...

Prasenjit K. Basu

Bond Market Monitor: 2025 as Another Year for USD Bonds

The impact of Donald Trump's victory in 2024 on rates in 2025, with expectations of a recession in 2026 and declining consumption but sticky...

Bondcritic

Bond Market Monitor: Prime Time Continues

Our thesis has not changed but the Fed appears to be more hawkish than expected. We believe inflation will remain sticky but declining consumption...

Bondcritic

The Chinese Credit Chronicle: The CCC Danger

Here is our first Chinese Credit Chronicle (CCC) to track the debt bubble in China. China Huarong could be the first domino to fall.

Bondcritic

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China to Decelerate: Overcapacity Weakens FAI, Capital Flight Limits Monetary Ease

Real GDP to decelerate to 5% YoY growth by 4Q 2021, as FAI (already down in 2Q2021) weakens further, and rising capital flight limits the PBOC's...

Prasenjit K. Basu

Bond Market Monitor: 2025 as Another Year for USD Bonds

​The impact of Donald Trump's victory in 2024 on rates in 2025, with expectations of a recession in 2026 and declining consumption but sticky...

Bondcritic

Bond Market Monitor: Prime Time Continues

Our thesis has not changed but the Fed appears to be more hawkish than expected. We believe inflation will remain sticky but declining consumption...

Bondcritic

The Chinese Credit Chronicle: The CCC Danger

Here is our first Chinese Credit Chronicle (CCC) to track the debt bubble in China. China Huarong could be the first domino to fall.

Bondcritic

The impact of Donald Trump's victory in 2024 on rates in 2025, with expectations of a recession in 2026 and declining consumption but sticky...