Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight. We continue to attribute much of EM’s outperformance to the intact downtrend in the US dollar (DXY). As long as weakness in the DXY persists we believe EM’s outperformance is likely to continue.

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight. We continue to attribute much of EM’s outperformance to the intact downtrend in the US dollar (DXY). As long as weakness in the DXY persists we believe EM’s outperformance is likely to continue.

EM Remains Global Leadership -- Remain Overweight

China and US Equity Analyst

Roger Xie

Cross Asset Strategy

<ul>
<li>China Asset Management industry has record year in 2020, with AUM approaching RMB 20 trillion, a 35% year-over-year growth. The total domestic mutual funds have reached about 8000. Equity-focused funds AUM stands at 10-year high RMB 6.4 trillion, accounting  10% of A-share free-float market-cap. This underscored that domestic institution funds have increasing participation and influence in A-share market. And investment positions and style have been re-shaped accordingly.</li>
<li>China Asset Management industry likely grows at 10% CAGR from 2018 to 2025 and to reach RMB 139 trillion by 2025. This is fueled by the increasing disposal income and stronger corporate balance sheet. It is estimated that the largest contribution for the larger market size is coming from saving deposit, which is constantly seeking higher yield and portfolio diversification. And the contribution to investing in A-share market will continue to rise.</li>
<li>This trend will be long-term positive for A-share market. It is also more important to look into local fund management's equity holding to get some hints on the market. The data shows local mutual funds’ position is currently at 4-year highs, as evidenced by their currently low cash ratio of 10.1% vs the past 5-year average of 13%. Retail investors, which account over 80% of daily liquidity and own ~60% of the free ﬂoat market cap, also appear constructively positioned in A shares based on several indicators, such as new brokerage account openings, margin financing, and fund flow. </li>
</ul>


China Asset Management industry has record year in 2020, with AUM approaching RMB 20 trillion, a 35% year-over-year growth. The total domestic mutual funds have reached about 8000. Equity-focused funds AUM stands at 10-year high RMB 6.4 trillion, accounting  10% of A-share free-float market-cap. This underscored that domestic institution funds have increasing participation and influence in A-share market. And investment positions and style have been re-shaped accordingly.
China Asset Management industry likely grows at 10% CAGR from 2018 to 2025 and to reach RMB 139 trillion by 2025. This is fueled by the increasing disposal income and stronger corporate balance sheet. It is estimated that the largest contribution for the larger market size is coming from saving deposit, which is constantly seeking higher yield and portfolio diversification. And the contribution to investing in A-share market will continue to rise.
This trend will be long-term positive for A-share market. It is also more important to look into local fund management's equity holding to get some hints on the market. The data shows local mutual funds’ position is currently at 4-year highs, as evidenced by their currently low cash ratio of 10.1% vs the past 5-year average of 13%. Retail investors, which account over 80% of daily liquidity and own ~60% of the free ﬂoat market cap, also appear constructively positioned in A shares based on several indicators, such as new brokerage account openings, margin financing, and fund flow. 


China Asset Management: Record-High AUM and User Growth, Set to Expand Further in 2021

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


<ul>
<li>There is no bubble in stock prices</li>
<li>P/Es are an inappropriate and misleading guide to assessing aggregate stock markets</li>
<li>Aggregate stock markets depend on liquidity and behavioral factors</li>
<li>
China and Emerging Markets have the most to gain from future equity investment</li>
</ul>


There is no bubble in stock prices
P/Es are an inappropriate and misleading guide to assessing aggregate stock markets
Aggregate stock markets depend on liquidity and behavioral factors

China and Emerging Markets have the most to gain from future equity investment


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

Even in 2020, China's M2 grew more than the US and EU; thus, despite a soaring trade surplus, foreign reserves were largely unchanged, suggesting large capital flight. Once the US$ stops depreciating, China will have to tighten monetary conditions. And with the rest of the world returning to near-normal by mid-2021, China's ability to export the excess capacity to which it added in Apr-Nov 2020 (with 9.6% YoY growth in FAI) will increasingly be constrained. Real GDP will decelerate to below 5% YoY growth in April-December 2021. Trim China holdings. Total Social Financing (TSF) has expanded by RMB 33 trillion (US$5.05 trillion) in January-November 2020, 56% YoY faster than the pace of new TSF in Jan-Nov 2019. The massive expansion in TSF enabled fixed asset investment (FAI) to rebound sharply after 1Q 2020, growing 9.7% YoY in April-November 2020 (much faster than the pace of FAI growth in 2019).  China was thus adding to its mountain of overcapacity in infrastructure, industry and real-estate in 2020. With much of the rest of the world locked down (especially in April-June, and only partially reopening thereafter), China has had an excellent 2020 -- using its excess capacity to export PPE (personal protective equipment), electronics/computers/parts to enable work-from-home, and also fill other gaps in global demand that other nations were unable to fill for much of the year. Steel is illustrative: in April 2020, China's steel output expanded 0.2% YoY, while the rest of the world's steel output declined 28.7% YoY. In October 2020, China's steel output rose 12.7% YoY, while the rest of the world's increased 2.3% YoY; in November, however, China's steel output decelerated to 8% YoY growth, while the rest of the world's accelerated to 5% YoY (although steel output was still declining in the US, Japan and South Korea). In 2021, once the rest of the world begins to operate nearer normal capacity, China's ability to grow abnormally fast will be severely constrained. China's M2 has not only expanded nearly 5-fold since August 2008 (while the US's has only expanded 2.5-fold over that period), it has also expanded more in Feb-Nov 2020 (by US$3.9 trillion) than US M2 (which rose by US$3.58 trillion in Feb-Nov 2020) or EU M2 (up by only US$2.2 trillion). The continued debasing of the RMB has led to capital flight -- despite an appreciating RMB (which should have made foreign-currency assets unattractive); the symptom was that foreign reserves stayed largely unchanged despite an ever-widening trade surplus. Once the US$ resumes strengthening, the PBOC will be obliged to rein in TSF by 2Q 2021, causing an economic deceleration, particularly of FAI. As trading partners erect barriers to China's dumping of its excess capacity, China's economic problems will be exacerbated, and real GDP will grow less 5% YoY in 2Q-4Q 2021, with financial-sector problems rising anew.  We recommend trimming China's weight in investor portfolios by March 2021.

Even in 2020, China's M2 grew more than the US and EU; thus, despite a soaring trade surplus, foreign reserves were largely unchanged, suggesting large capital flight. Once the US$ stops depreciating, China will have to tighten monetary conditions. And with the rest of the world returning to near-normal by mid-2021, China's ability to export the excess capacity to which it added in Apr-Nov 2020 (with 9.6% YoY growth in FAI) will increasingly be constrained. Real GDP will decelerate to below 5% YoY growth in April-December 2021. Trim China holdings. Total Social Financing (TSF) has expanded by RMB 33 trillion (US$5.05 trillion) in January-November 2020, 56% YoY faster than the pace of new TSF in Jan-Nov 2019. The massive expansion in TSF enabled fixed asset investment (FAI) to rebound sharply after 1Q 2020, growing 9.7% YoY in April-November 2020 (much faster than the pace of FAI growth in 2019).  China was thus adding to its mountain of overcapacity in infrastructure, industry and real-estate in 2020. With much of the rest of the world locked down (especially in April-June, and only partially reopening thereafter), China has had an excellent 2020 -- using its excess capacity to export PPE (personal protective equipment), electronics/computers/parts to enable work-from-home, and also fill other gaps in global demand that other nations were unable to fill for much of the year. Steel is illustrative: in April 2020, China's steel output expanded 0.2% YoY, while the rest of the world's steel output declined 28.7% YoY. In October 2020, China's steel output rose 12.7% YoY, while the rest of the world's increased 2.3% YoY; in November, however, China's steel output decelerated to 8% YoY growth, while the rest of the world's accelerated to 5% YoY (although steel output was still declining in the US, Japan and South Korea). In 2021, once the rest of the world begins to operate nearer normal capacity, China's ability to grow abnormally fast will be severely constrained. China's M2 has not only expanded nearly 5-fold since August 2008 (while the US's has only expanded 2.5-fold over that period), it has also expanded more in Feb-Nov 2020 (by US$3.9 trillion) than US M2 (which rose by US$3.58 trillion in Feb-Nov 2020) or EU M2 (up by only US$2.2 trillion). The continued debasing of the RMB has led to capital flight -- despite an appreciating RMB (which should have made foreign-currency assets unattractive); the symptom was that foreign reserves stayed largely unchanged despite an ever-widening trade surplus. Once the US$ resumes strengthening, the PBOC will be obliged to rein in TSF by 2Q 2021, causing an economic deceleration, particularly of FAI. As trading partners erect barriers to China's dumping of its excess capacity, China's economic problems will be exacerbated, and real GDP will grow less 5% YoY in 2Q-4Q 2021, with financial-sector problems rising anew.  We recommend trimming China's weight in investor portfolios by March 2021.  

China Has Had a Great 2020, but Over-Capacity Will Cause Headaches in 2021

<ul>
<li>According to FT, <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> digital currency project, Libra, is preparing to launch as early as January 2021 and its value will be backed by a single currency, the US dollar. This project is still awaiting approval from FINMA (the Swiss-based Financial Market Supervisory Authority) and will works as a stablecoin, which is much less volatile than cryptocurrencies such as Bitcoin. </li>
<li>We view the slim-down version of Libra, now called Diem, as a feasible alternative to original proposal. The full-blown version 2.0 of Libra is backed by multiple currencies (such as USD, EUR, and GBP). And 1 Libra is proposed to be calculated as 0.5 LibraUSD, 0.3 LibraEUR, and 0.2 LibraGBP. However, multiple currency reserve will pose addition regulatory obstacles, as how much weights and what currency will be determined. With Libra is backed by USD only now, there is not much road blocks for Libra to be launched next year. </li>
<li>China is accelerating its efforts to launch its sovereign digital currency. In October, the People’s Bank of China published a draft law that would give legal status to the Digital Currency Electronic Payment (DCEP) system, and for the first time the digital yuan has been included and defined as part of the country’s sovereign fiat currency. The broad acceptance and launches of digital currency is the high conviction idea for 2021, such as China's Digital Currency Electronic Payment (DCEP) system and <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> Libra/Diem projects. We have highlighted China's race to digital currency in the following: <a href="https://www.smartkarma.com/insights/china-a-share-strategy-leading-the-race-for-digital-currency" target="_blank" rel="noopener">China A-Share Strategy: Leading the Race for Digital Currency</a>
</li>
</ul>


According to FT, Facebook Inc A (FB US) digital currency project, Libra, is preparing to launch as early as January 2021 and its value will be backed by a single currency, the US dollar. This project is still awaiting approval from FINMA (the Swiss-based Financial Market Supervisory Authority) and will works as a stablecoin, which is much less volatile than cryptocurrencies such as Bitcoin. 
We view the slim-down version of Libra, now called Diem, as a feasible alternative to original proposal. The full-blown version 2.0 of Libra is backed by multiple currencies (such as USD, EUR, and GBP). And 1 Libra is proposed to be calculated as 0.5 LibraUSD, 0.3 LibraEUR, and 0.2 LibraGBP. However, multiple currency reserve will pose addition regulatory obstacles, as how much weights and what currency will be determined. With Libra is backed by USD only now, there is not much road blocks for Libra to be launched next year. 
China is accelerating its efforts to launch its sovereign digital currency. In October, the People’s Bank of China published a draft law that would give legal status to the Digital Currency Electronic Payment (DCEP) system, and for the first time the digital yuan has been included and defined as part of the country’s sovereign fiat currency. The broad acceptance and launches of digital currency is the high conviction idea for 2021, such as China's Digital Currency Electronic Payment (DCEP) system and Facebook Inc A (FB US) Libra/Diem projects. We have highlighted China's race to digital currency in the following: China A-Share Strategy: Leading the Race for Digital Currency



Digital Currency: Still Remember Facebook Libra/Diem ?

China

The MSCI China Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1992.

MSCI China Index (MXCN INDEX)

EM Remains Global Leadership -- Remain Overweight

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight.

Vermilion Research

China Asset Management: Record-High AUM and User Growth, Set to Expand Further in 2021

China Asset Management industry has record year in 2020, with AUM approaching RMB 20 trillion, a 35% year-over-year growth. They will account 10%...

Roger Xie

Is This The Greatest Bubble of All Time?

P/Es are a misleading and wrong way to value aggregate stock markets. What works at the individual security level does not work well in aggregate....

Michael J. Howell

China Has Had a Great 2020, but Over-Capacity Will Cause Headaches in 2021

TSF (Jan-Nov 2020) expanded by 56% YoY, enabling FAI to grow 9.6% YoY in Apr-Nov20. But this exacerbated excess capacity. By mid-'21, tighter...

Prasenjit K. Basu

Digital Currency: Still Remember Facebook Libra/Diem ?

The broad acceptance and launches of digital currency is the high conviction idea for 2021, such as China's Digital Currency Electronic Payment...

Roger Xie