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

Since China's imports from the US are down in the year-to-date (and 15% lower than in 2017), the target of a US$64 billion increase in those imports in 2020 relative to 2017 is likely to be missed by a wide margin. Tariffs on US imports from China have, however, helped reduce China's exports to the US. So, October 2020 is likely to witness a ratcheting up of trade tensions, as the US widens the tariff net to a larger proportion of US imports from China. Taiwan, Vietnam, Singapore, Thailand are likely to continue gaining from the diversion of US imports from China.  China's imports of products covered by the Phase 1 trade deal for the year-to-date (January to August 2020) are just half the prorated level of imports required by that trade deal. Overall imports of goods and services were supposed to be US$200 billion higher than those of 2017 (goods imports US$63.7 billion higher), but China's total goods imports from the US are down 15% from 2017 (and also down from their 2019 levels), falling shambolically short of the agreed targets.The US' bilateral trade deficit with China is still down 18% YoY, but almost entirely because the existing tariffs on imports from China have caused China's exports to the US to decline 15% YoY in the year-to-date (similar to their 16% YoY decline in 2019). So the verdict is clear: China has fallen egregiously behind the targets for imports from the US that it agreed to in the Phase 1 trade deal, but the tariffs imposed by the US have helped reduce US imports from China -- and that alone has allowed the bilateral trade deficit to continue to decline in 2019 and in Jan-Aug 2020. The policy implication is obvious: since tariffs work, the US should widen the scope of those tariffs (partly as a punitive measure against China's failure to comply with the Phase 1 targets for increased imports from the US). While the scheduled time for any such action was expected only after the 3rd November presidential election, it is much more likely that a widening of tariffs will be announced in October 2020 -- given the egregious shortfall relative to the target. And were Biden to win the presidency, he is unlikely to withdraw the Trump tariffs, although his subsequent measures will be less onerous for China than they would be under a continuation of the Trump administration's current policies. The main beneficiaries from any diversion of trade from China will continue to be Vietnam and Taiwan -- plus other Southeast Asian economies like Singapore, Thailand and Malaysia -- which have continued to see increases in their exports to the US this year, aided by their relative success in fighting Covid-19.

Since China's imports from the US are down in the year-to-date (and 15% lower than in 2017), the target of a US$64 billion increase in those imports in 2020 relative to 2017 is likely to be missed by a wide margin. Tariffs on US imports from China have, however, helped reduce China's exports to the US. So, October 2020 is likely to witness a ratcheting up of trade tensions, as the US widens the tariff net to a larger proportion of US imports from China. Taiwan, Vietnam, Singapore, Thailand are likely to continue gaining from the diversion of US imports from China.  China's imports of products covered by the Phase 1 trade deal for the year-to-date (January to August 2020) are just half the prorated level of imports required by that trade deal. Overall imports of goods and services were supposed to be US$200 billion higher than those of 2017 (goods imports US$63.7 billion higher), but China's total goods imports from the US are down 15% from 2017 (and also down from their 2019 levels), falling shambolically short of the agreed targets.The US' bilateral trade deficit with China is still down 18% YoY, but almost entirely because the existing tariffs on imports from China have caused China's exports to the US to decline 15% YoY in the year-to-date (similar to their 16% YoY decline in 2019). So the verdict is clear: China has fallen egregiously behind the targets for imports from the US that it agreed to in the Phase 1 trade deal, but the tariffs imposed by the US have helped reduce US imports from China -- and that alone has allowed the bilateral trade deficit to continue to decline in 2019 and in Jan-Aug 2020. The policy implication is obvious: since tariffs work, the US should widen the scope of those tariffs (partly as a punitive measure against China's failure to comply with the Phase 1 targets for increased imports from the US). While the scheduled time for any such action was expected only after the 3rd November presidential election, it is much more likely that a widening of tariffs will be announced in October 2020 -- given the egregious shortfall relative to the target. And were Biden to win the presidency, he is unlikely to withdraw the Trump tariffs, although his subsequent measures will be less onerous for China than they would be under a continuation of the Trump administration's current policies. The main beneficiaries from any diversion of trade from China will continue to be Vietnam and Taiwan -- plus other Southeast Asian economies like Singapore, Thailand and Malaysia -- which have continued to see increases in their exports to the US this year, aided by their relative success in fighting Covid-19. 

The Trade War Is Set to Worsen, as China Falls Far Short of Meeting Phase 1 Targets

Cross Asset Strategy

There is no global "second wave" of Covid, but the Schiller CAPE ratio is at levels it has rarely exceeded in the past 150 years, while the "Buffett Indicator" of market-cap to GDP is at an all-time high of 1.78x. Both valuation measures suggest the equity market is ripe for a significant sell-off, aided by the growing uncertainty surrounding the US election. The global market sell-off this month (especially since 16 September) has been attributed to a "Second Wave" of new Covid cases, but this simply reflects the over-representation of Britons (and British newspapers) in the global business media. There is an undoubted second wave in the UK and France, but no discernible second wave globally. Among the 10 worst-hit countries globally, #8 Spain has had a second wave that isn't quite over, and Russia has a mild second wave that is barely at half its mid-May peak. But the top-3 Covid-hit countries (the US, India, Brazil) are past their peaks, with Brazil and the US now well below their end-July peak in new cases.   The sell-off in equity markets, however, owes primarily to the sell signal from two of the best long-term measures of equity value -- the Schiller CAPE (cyclically adjusted P/E ratio) and Buffett's favourite indicator, market-cap to GDP.  The CAPE has rarely been above 30 in the past 150 years -- but it was above that level at the end of August 2020 (and also at end-February 2020). The equity market invariably sells off when valuations are this rich. Similarly, the US market capitalization to GDP ratio is now at an all-time high of 1.78x -- and this is the reddest of red flags, suggesting the market is ripe for a sell-off. Given the uncertainties over the US election, and particularly the fact that the likely winner of the US election (Joe Biden) is poised to raise the corporate tax rate to 28% (and to 30.8% for any corporate that outsources any manufacturing or services outside the US), US corporates' post-tax earnings will suffer. Consequently, we recommend that investors should Underweight Equities in the runup to the US presidential election.

There is no global "second wave" of Covid, but the Schiller CAPE ratio is at levels it has rarely exceeded in the past 150 years, while the "Buffett Indicator" of market-cap to GDP is at an all-time high of 1.78x. Both valuation measures suggest the equity market is ripe for a significant sell-off, aided by the growing uncertainty surrounding the US election. The global market sell-off this month (especially since 16 September) has been attributed to a "Second Wave" of new Covid cases, but this simply reflects the over-representation of Britons (and British newspapers) in the global business media. There is an undoubted second wave in the UK and France, but no discernible second wave globally. Among the 10 worst-hit countries globally, #8 Spain has had a second wave that isn't quite over, and Russia has a mild second wave that is barely at half its mid-May peak. But the top-3 Covid-hit countries (the US, India, Brazil) are past their peaks, with Brazil and the US now well below their end-July peak in new cases.   The sell-off in equity markets, however, owes primarily to the sell signal from two of the best long-term measures of equity value -- the Schiller CAPE (cyclically adjusted P/E ratio) and Buffett's favourite indicator, market-cap to GDP.  The CAPE has rarely been above 30 in the past 150 years -- but it was above that level at the end of August 2020 (and also at end-February 2020). The equity market invariably sells off when valuations are this rich. Similarly, the US market capitalization to GDP ratio is now at an all-time high of 1.78x -- and this is the reddest of red flags, suggesting the market is ripe for a sell-off. Given the uncertainties over the US election, and particularly the fact that the likely winner of the US election (Joe Biden) is poised to raise the corporate tax rate to 28% (and to 30.8% for any corporate that outsources any manufacturing or services outside the US), US corporates' post-tax earnings will suffer. Consequently, we recommend that investors should Underweight Equities in the runup to the US presidential election.   

There's No Global "Second Wave" Of Covid, but Long-Term Valuations Are Very Elevated

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

Given high conviction bear pattern breakdowns in Europe and Asia, we are assuming the US cycle has more downside per our cycle timeline toward October 19. Core shorts are in SPX and RTY. DJI is a fresh underperform and short candidate on a bounce.Europe's impulsive break down out of bear triangulation patterns is in line with our short call from Eurostoxx 50 3,400. Euro banks leading the route with the periphery in pursuit.In Asia, we were short for breakdowns in Korea, Taiwan and HK. Japan is just starting to see the macro cycle peak and turn south. Singapore, Malaysia have been high conviction shorts and now we are seeing the stronger horses break down.Fresh sell levels are outlined in Asia with primary downside targets.

Given high conviction bear pattern breakdowns in Europe and Asia, we are assuming the US cycle has more downside per our cycle timeline toward October 19. Core shorts are in SPX and RTY. DJI is a fresh underperform and short candidate on a bounce.Europe's impulsive break down out of bear triangulation patterns is in line with our short call from Eurostoxx 50 3,400. Euro banks leading the route with the periphery in pursuit.In Asia, we were short for breakdowns in Korea, Taiwan and HK. Japan is just starting to see the macro cycle peak and turn south. Singapore, Malaysia have been high conviction shorts and now we are seeing the stronger horses break down.Fresh sell levels are outlined in Asia with primary downside targets.

US Downside Targets with European and Asia Breakdowns

Biden still remains on course for victory. But vulnerable on China, he has proposed a 30.8% corporate tax rate for companies that outsource manufacturing/services overseas. The improving economy will help Trump tighten the polls in October, and Biden is likely to lose ground after the three debates. Delayed postal/absentee ballots will likely mean an uncertain outcome on Election night, raising the likelihood of a protracted dispute about the result that makes 2000 seem tame. We recommend taking profits on equities by early-October, and being underweight equities through November. As expected, the presidential polls narrowed after the party conventions, particularly after the more slick Republican convention (much of it held in person with several speeches from the White House), which President Trump used to change the conversation from Covid-mismanagement to "law and order", particularly the issue of urban protests (against the killings by police of largely innocent black men) turning toward violence, vandalism and looting. Both conventions sought to reach out to the centrist voter, Biden by showcasing Republican supporters (ex-Gov. John Kasich, who was Trump's last rival in the 2016 race, ex-Secretary of State Colin Powell, and the family of the late Sen. John McCain), and Trump unusually showcasing black and women supporters in an unorthodox bid to appeal to centrists who may have thought he was racist/sexist. The actual polling "bump" that Trump received from the convention was modest (about 2 percentage points, albeit better than Biden's bump of less than 1pp in the average poll), but the betting odds narrowed sharply in the week after the Republican convention (with Trump coming within 1pp of Biden).Since then, however, the race has returned to where it was in mid-August, with Biden having a handsome lead (average over 7.5 percentage points) in nationwide polls (and the betting odds), and retaining a solid lead in battleground states (Pennsylvania, Michigan, Wisconsin, Arizona, North Carolina, Florida) that Trump won in 2016. Trump leads narrowly in Ohio. But Biden has built a sizable lead in Arizona (where his closeness to late Sen. John McCain (R-Az) -- highlighted in the Democratic convention -- has helped) and North Carolina; the latter has been carried by a Democrat only twice in the last 52 years, the former only once in the past 72 years. If the election were held today, Biden would win by a wide margin in the Electoral College and popular vote. However, the race will likely tighten in October, as the economy continues to recover (with a big QoQ rebound likely in 3Q 2020 GDP growth, announced at October-end), the US Covid curve continues to flatten (new-case numbers have averaged 39K in the past week, from a peak of 69K in the final week of July), and Trump gains a bit from the debates. Biden, vulnerable on the fact that China-trade was omitted from his convention, has a rash plan to impose a 30.8% corporate tax rate on companies that outsource manufacturing/services overseas (likely to hit all large companies). Biden remains likely to win; but first, there will be uncertainty on Election night because postal/absentee ballots likely will not be counted that day -- exaggerating Trump's vote share, and seemingly tightening the election even more in the swing states. The uncertainty will make for a more volatile November in markets: with the likely winner calling for a 30.8% corporate tax rate, amid calls for insurrection from the losing side, we now expect an even larger sell-off (7-10%) in the market in November amid the growing uncertainty.

Biden still remains on course for victory. But vulnerable on China, he has proposed a 30.8% corporate tax rate for companies that outsource manufacturing/services overseas. The improving economy will help Trump tighten the polls in October, and Biden is likely to lose ground after the three debates. Delayed postal/absentee ballots will likely mean an uncertain outcome on Election night, raising the likelihood of a protracted dispute about the result that makes 2000 seem tame. We recommend taking profits on equities by early-October, and being underweight equities through November. As expected, the presidential polls narrowed after the party conventions, particularly after the more slick Republican convention (much of it held in person with several speeches from the White House), which President Trump used to change the conversation from Covid-mismanagement to "law and order", particularly the issue of urban protests (against the killings by police of largely innocent black men) turning toward violence, vandalism and looting. Both conventions sought to reach out to the centrist voter, Biden by showcasing Republican supporters (ex-Gov. John Kasich, who was Trump's last rival in the 2016 race, ex-Secretary of State Colin Powell, and the family of the late Sen. John McCain), and Trump unusually showcasing black and women supporters in an unorthodox bid to appeal to centrists who may have thought he was racist/sexist. The actual polling "bump" that Trump received from the convention was modest (about 2 percentage points, albeit better than Biden's bump of less than 1pp in the average poll), but the betting odds narrowed sharply in the week after the Republican convention (with Trump coming within 1pp of Biden).Since then, however, the race has returned to where it was in mid-August, with Biden having a handsome lead (average over 7.5 percentage points) in nationwide polls (and the betting odds), and retaining a solid lead in battleground states (Pennsylvania, Michigan, Wisconsin, Arizona, North Carolina, Florida) that Trump won in 2016. Trump leads narrowly in Ohio. But Biden has built a sizable lead in Arizona (where his closeness to late Sen. John McCain (R-Az) -- highlighted in the Democratic convention -- has helped) and North Carolina; the latter has been carried by a Democrat only twice in the last 52 years, the former only once in the past 72 years. If the election were held today, Biden would win by a wide margin in the Electoral College and popular vote. However, the race will likely tighten in October, as the economy continues to recover (with a big QoQ rebound likely in 3Q 2020 GDP growth, announced at October-end), the US Covid curve continues to flatten (new-case numbers have averaged 39K in the past week, from a peak of 69K in the final week of July), and Trump gains a bit from the debates. Biden, vulnerable on the fact that China-trade was omitted from his convention, has a rash plan to impose a 30.8% corporate tax rate on companies that outsource manufacturing/services overseas (likely to hit all large companies). Biden remains likely to win; but first, there will be uncertainty on Election night because postal/absentee ballots likely will not be counted that day -- exaggerating Trump's vote share, and seemingly tightening the election even more in the swing states. The uncertainty will make for a more volatile November in markets: with the likely winner calling for a 30.8% corporate tax rate, amid calls for insurrection from the losing side, we now expect an even larger sell-off (7-10%) in the market in November amid the growing uncertainty.   

Trump's "Law & Order" Message Tightens the Polls, but Biden-Harris Still Well Ahead

US daily RSI spike risk still from the 40 area. Rally bet from 3,320 met 3,400-40 target zone but secondary push failed. Flat range risk of breaking down after rally failed at underside of trendline.DJI 27k and NDX 10,900 pivots to hold or break as lead action points. We are trading a tactical bounce from just above these supports to test the trendline break point.If NDX breaks below 10,900 after failing to re take broken trendline support, it will take the SPX and global cycle with it.SPX weekly cycle illustrates some macro concerns with a weekly bear reversal set up and MACD turn down from key resistance. Macro pivot lies at 3,220. Ideal short zone on a bounce near 3,400+ where we faded.

US daily RSI spike risk still from the 40 area. Rally bet from 3,320 met 3,400-40 target zone but secondary push failed. Flat range risk of breaking down after rally failed at underside of trendline.DJI 27k and NDX 10,900 pivots to hold or break as lead action points. We are trading a tactical bounce from just above these supports to test the trendline break point.If NDX breaks below 10,900 after failing to re take broken trendline support, it will take the SPX and global cycle with it.SPX weekly cycle illustrates some macro concerns with a weekly bear reversal set up and MACD turn down from key resistance. Macro pivot lies at 3,220. Ideal short zone on a bounce near 3,400+ where we faded.

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)

The Trade War Is Set to Worsen, as China Falls Far Short of Meeting Phase 1 Targets

China's imports f

Prasenjit K. Basu

There's No Global "Second Wave" Of Covid, but Long-Term Valuations Are Very Elevated

The

Prasenjit K. Basu

US Downside Targets with European and Asia Breakdowns

Given high conviction bear pattern breakdowns in Europe and Asia, we are assuming the US cycle has more downside per our cycle. Core shorts are in...

Thomas Schroeder

Trump's "Law & Order" Message Tightens the Polls, but Biden-Harris Still Well Ahead

As expected, the presidential polls narrowed after the party conventions, particul

Prasenjit K. Basu

SPX and NDX Trendline Breach Test

US daily RSI spike risk still from the 40 area. Rally bet from 3,320 met 3,400-40 target zone but secondary push failed. Flat range risk of...

Thomas Schroeder