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

<ul>
<li>The 'trade recession' of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). </li>
<li>Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. </li>
<li>MoM gains in core PCE were lower than core CPI in Feb'24, and likely will be in Mar'24 also, allowing a glide to lower core-PCE inflation and Jul'24 rate cut. </li>
</ul>


The 'trade recession' of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). 
Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. 
MoM gains in core PCE were lower than core CPI in Feb'24, and likely will be in Mar'24 also, allowing a glide to lower core-PCE inflation and Jul'24 rate cut. 


US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

<ul>
<li>Real GDP grew 2.5% in CY23, helped by exports (+2.7%), PCE (+2.2%), government spending (+4.4%), and falling imports (-1.7%). Slower PCE and government-spending to reduce growth to ~1% in H1CY24. </li>
<li>Core PCE inflation (the Fed's target) eased to 2.93%YoY in Dec'23, the lowest in 33 months. More crucially, MoM annualized gains in core PCE averaged 1.85% in H2CY23. </li>
<li>13 months of M2 contraction, and deceleration in RGDP and core PCE, provide the perfect backdrop for a rate cut in Jun'24. Expect FOMC to hint at that this week. </li>
</ul>


Real GDP grew 2.5% in CY23, helped by exports (+2.7%), PCE (+2.2%), government spending (+4.4%), and falling imports (-1.7%). Slower PCE and government-spending to reduce growth to ~1% in H1CY24. 
Core PCE inflation (the Fed's target) eased to 2.93%YoY in Dec'23, the lowest in 33 months. More crucially, MoM annualized gains in core PCE averaged 1.85% in H2CY23. 
13 months of M2 contraction, and deceleration in RGDP and core PCE, provide the perfect backdrop for a rate cut in Jun'24. Expect FOMC to hint at that this week. 


US: On Track for a Rate Cut in Jun'24 as Core PCE Inflation Eases MoM and YoY

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>
<a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> will replace <a href="https://www.smartkarma.com/entities/walgreens-boots-alliance-inc" target="_blank" data-smartkarma-citation="entities:1118:1" rel="noopener">Walgreens Boots Alliance (WBA US)</a> in the <a href="https://www.smartkarma.com/entities/dow-jones-industrial-average" target="_blank" data-smartkarma-citation="entities:22887:1" rel="noopener">Dow Jones Industrial Average (INDU INDEX)</a> at the close on 23 February.</li>
<li>Passives will need to sell a lot of <a href="https://www.smartkarma.com/entities/walmart-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Walmart (WMT US)</a> following the 3:1 stock split and buy a lot of <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a>. </li>
<li>Given the ad hoc nature of the rebalances and the short timeline between announcement and implementation, the stocks could move over the rest of the week.</li>
</ul>



Amazon.com Inc (AMZN US) will replace Walgreens Boots Alliance (WBA US) in the Dow Jones Industrial Average (INDU INDEX) at the close on 23 February.
Passives will need to sell a lot of Walmart (WMT US) following the 3:1 stock split and buy a lot of Amazon.com Inc (AMZN US). 
Given the ad hoc nature of the rebalances and the short timeline between announcement and implementation, the stocks could move over the rest of the week.


Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

<ul>
<li>The FOMC unanimously (12-0) voted to raise the Fed Funds rate by 25bp to 3.75-4%, and chair Kevin Warsh emphasised his determination to achieve price stability (PCE inflation of 2%YoY). </li>
<li>The median forecast by FOMC members is 4.1% unemployment for the next 3 years, and another 25bp hike in FF rates this year, enabling 2027 inflation to moderate to 2.3%. </li>
<li>M2 is growing at a steady 5%YoY (following extreme volatility in Apr'20-Mar'24). Consequently, inflation is likely to moderate (barring oil shocks). No rate hikes in 2027, good for markets. </li>
</ul>


The FOMC unanimously (12-0) voted to raise the Fed Funds rate by 25bp to 3.75-4%, and chair Kevin Warsh emphasised his determination to achieve price stability (PCE inflation of 2%YoY). 
The median forecast by FOMC members is 4.1% unemployment for the next 3 years, and another 25bp hike in FF rates this year, enabling 2027 inflation to moderate to 2.3%. 
M2 is growing at a steady 5%YoY (following extreme volatility in Apr'20-Mar'24). Consequently, inflation is likely to moderate (barring oil shocks). No rate hikes in 2027, good for markets. 


US: Warsh Demonstrates His Hawkishness by Raising 25bp; FOMC Projects Another

Thematic (Sector/Industry)

<ul>
<li>Resumption of full-scale war last week has been followed by a US pause. But Iran has widened the conflict via proxies in Yemen and Iraq. Hormuz Strait fees are likely. </li>
<li>Hezbollah is isolated in Lebanon, where the official government and Israel's interests converge. Houthis don't control Bab al-Mandab, but can threaten passage near it. Iran therefore holds the keys. </li>
<li>Iran-Oman deal on Hormuz Straits will be interim positive. But the US-Iran gulf on nuclear issues is wide. US will need another major attack on Iran to change Iran's calculus. </li>
</ul>


Resumption of full-scale war last week has been followed by a US pause. But Iran has widened the conflict via proxies in Yemen and Iraq. Hormuz Strait fees are likely. 
Hezbollah is isolated in Lebanon, where the official government and Israel's interests converge. Houthis don't control Bab al-Mandab, but can threaten passage near it. Iran therefore holds the keys. 
Iran-Oman deal on Hormuz Straits will be interim positive. But the US-Iran gulf on nuclear issues is wide. US will need another major attack on Iran to change Iran's calculus. 


US-Iran War Resumes Amid Negotiations: Key Problem Still the Nuclear Stalemate

United States

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Dow Jones Industrial Average (INDU INDEX)

Dow Jones Industrial Average (INDU INDEX)

US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

Global trade volume grew 0.4% in 2023, but lead indicators suggest a strong 2024 recovery. Benign MoM rises in core PCE should enable YoY inflation...

Prasenjit K. Basu

US: On Track for a Rate Cut in Jun'24 as Core PCE Inflation Eases MoM and YoY

Real GDP grew 2.5% in CY23, but slower PCE and government spending will reduce growth to ~1% in H1CY24. Core PCE inflation eased to 2.93%YoY in...

Prasenjit K. Basu

Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

Amazon replaces Walgreen Boots in the Dow Jones Industrial Average at the close on 23 February following Walmart's stock split. There will be over...

Brian Freitas

US: Warsh Demonstrates His Hawkishness by Raising 25bp; FOMC Projects Another

Fed chair Warsh demonstrates his hawkishness, but FOMC projects inflation at 2.3% in 2027 after another 25bp hike in Q4CY26. With M2 growing just...

Prasenjit K. Basu

US-Iran War Resumes Amid Negotiations: Key Problem Still the Nuclear Stalemate

US pauses after resumed war. Iran widens conflict via proxies in Yemen/Iraq, but holds key in Bab al-Mandab. Wide US-Iran gulf on nuclear issues,...

Prasenjit K. Basu

US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

Global trade volume grew 0.4% in 2023, but lead indicators suggest a strong 2024 recovery. Benign MoM rises in core PCE should enable YoY inflation...

Prasenjit K. Basu

US: On Track for a Rate Cut in Jun'24 as Core PCE Inflation Eases MoM and YoY

​Real GDP grew 2.5% in CY23, but slower PCE and government spending will reduce growth to ~1% in H1CY24. Core PCE inflation eased to 2.93%YoY in...

Prasenjit K. Basu

Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

Amazon replaces Walgreen Boots in the Dow Jones Industrial Average at the close on 23 February following Walmart's stock split. There will be over...

Brian Freitas

US: Warsh Demonstrates His Hawkishness by Raising 25bp; FOMC Projects Another

Fed chair Warsh demonstrates his hawkishness, but FOMC projects inflation at 2.3% in 2027 after another 25bp hike in Q4CY26. With M2 growing just...

Prasenjit K. Basu

US-Iran War Resumes Amid Negotiations: Key Problem Still the Nuclear Stalemate

​US pauses after resumed war. Iran widens conflict via proxies in Yemen/Iraq, but holds key in Bab al-Mandab. Wide US-Iran gulf on nuclear issues,...

Prasenjit K. Basu

Real GDP grew 2.5% in CY23, but slower PCE and government spending will reduce growth to ~1% in H1CY24. Core PCE inflation eased to 2.93%YoY in...

US pauses after resumed war. Iran widens conflict via proxies in Yemen/Iraq, but holds key in Bab al-Mandab. Wide US-Iran gulf on nuclear issues,...