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

Taiwan's real GDP grew 3.1% in 2020 (faster than the PRC's 2.3%), and accelerated to 8.2% YoY growth in 1Q 2021, led by a capex surge. The latter should accelerate further as the global semiconductor shortage and surging demand for computers, parts and peripherals induce an investment boom in Taiwan. We recommend staying solidly Overweight Taiwan. Taiwan's real GDP accelerated to 8.2% YoY growth in 1Q 2021, after growing 3.1% in 2020 -- faster than the People's Republic of China's 2.3% -- including an acceleration to 4.7% YoY growth in 2H 2020. Over the latest 4 quarters, Taiwan has comfortably had the fastest-growing economy among the world's developed economies, with its real GDP expanding 4.5%, the rare economy without a solitary quarter of YoY contraction in 2020. The acceleration in 1Q 2021 was led by a surge in net external demand, bolstered by 8.3% YoY growth in gross investment. The global semiconductor cycle will continue to bolster net-external-demand-led growth through the rest of 2021, with 2Q 2021 likely to see close to 10% YoY growth. For the full year, Taiwan's real GDP will likely grow 7%.Exports expanded 27.3% YoY in March 2021 (and 24.5% YoY in 1Q 2021), led by soaring demand for semiconductors and computers (including parts like PCBs, for all of which Taiwan is a leading global manufacturer), and even stronger growth in smaller export categories like plastics and chemicals. Imports accelerated to 20.9% YoY growth in 1Q 2021, reflecting the strengthening of domestic demand, which broadened the economic recovery. The global electronics cycle will likely spur continued strength in Taiwan's economy through the rest of this year. The semiconductor shortage has played to Taiwan's core strength, and demand for computers &amp; parts (benefiting <a href="https://www.smartkarma.com/entities/acer-inc" target="_blank" data-smartkarma-citation="entities:15726:1" rel="noopener">Acer Inc (2353 TT)</a> and <a href="https://www.smartkarma.com/entities/asustek-computer-inc" target="_blank" data-smartkarma-citation="entities:13002:1" rel="noopener">Asustek Computer (2357 TT)</a>) should also remain strong. The major global winner remains <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-sp-adr" target="_blank" data-smartkarma-citation="entities:8587:1" rel="noopener">Taiwan Semiconductor Sp Adr (TSM US)</a> , which has taken a huge lead at the top end of the semiconductor chain (with 84% global market share in 5nm ICs), and is ploughing much of its US$20 billion profits last year (from US$48 billion revenue) into re-investment to widen its lead over its competitors. While any such capex surge in cutting-edge technology is inherently risky/uncertain, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-sp-adr" target="_blank" data-smartkarma-citation="entities:8587:1" rel="noopener">Taiwan Semiconductor Sp Adr (TSM US)</a> 's market positioning raises the probability of success, implying greater pricing power as its lead over rivals expands further. That Taiwanese corporates have been careful to ensure that the high end of their manufacturing (cutting-edge technology, capital-goods output, research and design) stays in Taiwan (creating an annual bilateral trade surplus of over US$100 billion with the PRC). Although the PRC is the largest destination for Taiwan's exports, the processing in the PRC can be gradually moved elsewhere (Vietnam, Malaysia, India) if it becomes politically/militarily threatened. The capex-led growth of Taiwanese corporates should hugely bolster Taiwan's economy this year, and we recommend staying solidly Overweight Taiwan.

Taiwan's real GDP grew 3.1% in 2020 (faster than the PRC's 2.3%), and accelerated to 8.2% YoY growth in 1Q 2021, led by a capex surge. The latter should accelerate further as the global semiconductor shortage and surging demand for computers, parts and peripherals induce an investment boom in Taiwan. We recommend staying solidly Overweight Taiwan. Taiwan's real GDP accelerated to 8.2% YoY growth in 1Q 2021, after growing 3.1% in 2020 -- faster than the People's Republic of China's 2.3% -- including an acceleration to 4.7% YoY growth in 2H 2020. Over the latest 4 quarters, Taiwan has comfortably had the fastest-growing economy among the world's developed economies, with its real GDP expanding 4.5%, the rare economy without a solitary quarter of YoY contraction in 2020. The acceleration in 1Q 2021 was led by a surge in net external demand, bolstered by 8.3% YoY growth in gross investment. The global semiconductor cycle will continue to bolster net-external-demand-led growth through the rest of 2021, with 2Q 2021 likely to see close to 10% YoY growth. For the full year, Taiwan's real GDP will likely grow 7%.Exports expanded 27.3% YoY in March 2021 (and 24.5% YoY in 1Q 2021), led by soaring demand for semiconductors and computers (including parts like PCBs, for all of which Taiwan is a leading global manufacturer), and even stronger growth in smaller export categories like plastics and chemicals. Imports accelerated to 20.9% YoY growth in 1Q 2021, reflecting the strengthening of domestic demand, which broadened the economic recovery. The global electronics cycle will likely spur continued strength in Taiwan's economy through the rest of this year. The semiconductor shortage has played to Taiwan's core strength, and demand for computers &amp; parts (benefiting Acer Inc (2353 TT) and Asustek Computer (2357 TT)) should also remain strong. The major global winner remains Taiwan Semiconductor Sp Adr (TSM US) , which has taken a huge lead at the top end of the semiconductor chain (with 84% global market share in 5nm ICs), and is ploughing much of its US$20 billion profits last year (from US$48 billion revenue) into re-investment to widen its lead over its competitors. While any such capex surge in cutting-edge technology is inherently risky/uncertain, Taiwan Semiconductor Sp Adr (TSM US) 's market positioning raises the probability of success, implying greater pricing power as its lead over rivals expands further. That Taiwanese corporates have been careful to ensure that the high end of their manufacturing (cutting-edge technology, capital-goods output, research and design) stays in Taiwan (creating an annual bilateral trade surplus of over US$100 billion with the PRC). Although the PRC is the largest destination for Taiwan's exports, the processing in the PRC can be gradually moved elsewhere (Vietnam, Malaysia, India) if it becomes politically/militarily threatened. The capex-led growth of Taiwanese corporates should hugely bolster Taiwan's economy this year, and we recommend staying solidly Overweight Taiwan.   

Taiwan: The Rich World's Growth Star Continues to Shine

Trade data for February 2021 (due next week), the first for the Biden era, will be scrutinized for bilateral deficits. In 2020, the US' bilateral deficits with only 3 of its top-10 trade partners declined -- Canada, Japan and Germany -- suggesting that Trump tariffs on steel and aluminium had worked partially. The US deficit with China declined sharply in 2019 and in Jan-Oct 2020, but mysteriously widened in the next 3 months. The US suspects that big deficits with Vietnam, Taiwan, South Korea and Malaysia reflect transshipment of mainland-China products via those countries, and they are consequently already coming under some pressure. The trade war may not heat up further under Biden, but it will not cool down anytime soon. The US had a trade deficit of US$916 billion in 2020, 6% larger than in 2019, with exports down 14.1% YoY and imports down 6.6% YoY. But with net tourist and student inflows to the US down sharply, the current account deficit widened by as much as 35% to US$647 billion or 3.1% of GDP in 2020 (the largest in a decade, but much lower than the 2006 peak of 6% of GDP). US bilateral trade deficits with Canada, Japan and Germany (which are among top-5 trade partners) declined in 2020, suggesting that the impact of the steel and aluminium tariffs imposed early in the Trump term were beginning to finally pay off at least partly. Importantly, for the second consecutive year, the bilateral trade deficit with China declined (by a modest 3.6% YoY) to US$311 billion, the lowest since 2011. That bilateral deficit had widened in 2017 and 2018 (while Trump was only threatening but not actually imposing any tariffs). The imposition of tariffs on China's imports in 2019 (extended in 2020 to nearly half of goods imports from China) did contribute to reducing the US bilateral trade deficit with China. However, US imports from China increased 23.8% YoY in November-December 2020 (immediately after the US election), having declined in 9 of the first 10 months of 2020, and rose 17.5% YoY in Jan 2021.  The beneficiaries of export diversion from China were Vietnam, Switzerland, Taiwan, South Korea and Malaysia, who saw US imports from them rise significantly in 2020 -- thereby also widening the US' bilateral trade deficits with them in 2020. The US believes that at least some of these countries' widening trade surpluses with the US reflect Chinese exports being transshipped to the US via those countries. So the Biden administration is likely to pay increased attention not only to the bilateral trade deficit with China (which has mysteriously risen sharply again since the election), but also bilateral deficits with Vietnam, Taiwan, Malaysia, South Korea, etc., which may reflect the impact of transshipment of mainland-Chinese products into the US.

Trade data for February 2021 (due next week), the first for the Biden era, will be scrutinized for bilateral deficits. In 2020, the US' bilateral deficits with only 3 of its top-10 trade partners declined -- Canada, Japan and Germany -- suggesting that Trump tariffs on steel and aluminium had worked partially. The US deficit with China declined sharply in 2019 and in Jan-Oct 2020, but mysteriously widened in the next 3 months. The US suspects that big deficits with Vietnam, Taiwan, South Korea and Malaysia reflect transshipment of mainland-China products via those countries, and they are consequently already coming under some pressure. The trade war may not heat up further under Biden, but it will not cool down anytime soon. The US had a trade deficit of US$916 billion in 2020, 6% larger than in 2019, with exports down 14.1% YoY and imports down 6.6% YoY. But with net tourist and student inflows to the US down sharply, the current account deficit widened by as much as 35% to US$647 billion or 3.1% of GDP in 2020 (the largest in a decade, but much lower than the 2006 peak of 6% of GDP). US bilateral trade deficits with Canada, Japan and Germany (which are among top-5 trade partners) declined in 2020, suggesting that the impact of the steel and aluminium tariffs imposed early in the Trump term were beginning to finally pay off at least partly. Importantly, for the second consecutive year, the bilateral trade deficit with China declined (by a modest 3.6% YoY) to US$311 billion, the lowest since 2011. That bilateral deficit had widened in 2017 and 2018 (while Trump was only threatening but not actually imposing any tariffs). The imposition of tariffs on China's imports in 2019 (extended in 2020 to nearly half of goods imports from China) did contribute to reducing the US bilateral trade deficit with China. However, US imports from China increased 23.8% YoY in November-December 2020 (immediately after the US election), having declined in 9 of the first 10 months of 2020, and rose 17.5% YoY in Jan 2021.  The beneficiaries of export diversion from China were Vietnam, Switzerland, Taiwan, South Korea and Malaysia, who saw US imports from them rise significantly in 2020 -- thereby also widening the US' bilateral trade deficits with them in 2020. The US believes that at least some of these countries' widening trade surpluses with the US reflect Chinese exports being transshipped to the US via those countries. So the Biden administration is likely to pay increased attention not only to the bilateral trade deficit with China (which has mysteriously risen sharply again since the election), but also bilateral deficits with Vietnam, Taiwan, Malaysia, South Korea, etc., which may reflect the impact of transshipment of mainland-Chinese products into the US. 

US: Trump's Record Card on Trade Mixed; China Trade Already Challenging Biden

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>After a short period of optimism following the US elections, China-Taiwan tensions are escalating sharply again; we disaggregate the theme into multiple sub-components and geographic sources to find a spike in US coverage of Taiwan tensions at +2x STDEVs, a level last seen over a year ago</li>
<li>The spike in Taiwan coverage has been driven by multiple breaches of Taiwan's Air Defense Identification Zone by Chinese warplanes; a recent warning by US Asia Pacific Commander Philip Davidson that China could invade Taiwan "in the next 6 years"; recent developments in the Quadrilateral Security Dialogue; elevated US-Japan cooperation on "Taiwan emergency"; and a barrage of high-profile op-eds in recent weeks highlighting tensions over Taiwan</li>
<li>While 2020 did not see geopolitical risks factor into the performance of MSCI Taiwan or USD/TWD, the China-Taiwan tensions theme was strongly correlated with performance in 2018-2019</li>
</ul>


After a short period of optimism following the US elections, China-Taiwan tensions are escalating sharply again; we disaggregate the theme into multiple sub-components and geographic sources to find a spike in US coverage of Taiwan tensions at +2x STDEVs, a level last seen over a year ago
The spike in Taiwan coverage has been driven by multiple breaches of Taiwan's Air Defense Identification Zone by Chinese warplanes; a recent warning by US Asia Pacific Commander Philip Davidson that China could invade Taiwan "in the next 6 years"; recent developments in the Quadrilateral Security Dialogue; elevated US-Japan cooperation on "Taiwan emergency"; and a barrage of high-profile op-eds in recent weeks highlighting tensions over Taiwan
While 2020 did not see geopolitical risks factor into the performance of MSCI Taiwan or USD/TWD, the China-Taiwan tensions theme was strongly correlated with performance in 2018-2019


TMI Snapshots:  Taiwan Tensions Rising, Will Geopolitics Return to the Forefront in 2021?

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

It is widely believed that a Biden win will be a boon for China, while a Trump victory will be negative for China – and consequently a boon for Taiwan. We believe this is too simplistic: while a Biden win will help China on the trade front (since Biden will likely focus less on bilateral pressure, and resume multilateral trade negotiations), China will soon face increased pressure on human rights (in Xinjiang, Tibet and Hong Kong). In the low-probability event of a clear win for Trump on 4th November (in Asia), Taiwan equities will receive a boost (and China equities will see a knee-jerk sell-off): a good way to position for this would be to go long SGX FTSE Taiwan Index Futures. A good way for investors to position themselves for a Biden win would be to be long the SGX FTSE China A50 Index Futures: we would recommend going long the latter now, in anticipation of the likely electoral outcome. However, once the dust settles, we would recommend switching to the SGX FTSE Taiwan Index Futures – as Taiwan’s underlying fundamentals are more robust than China’s. From a sectoral standpoint, a Biden win should also be more favourable to Asia’s technology sector (Alibaba, Baidu, Tencent, Samsung Electronics, TSMC) as antitrust action (already initiated against Google last week) likely spreads to Facebook and Amazon under a Biden administration.The key factor pointing to a Biden victory is the massive surge of early voting (in person and via mail-in ballots). Reuters reports that 80 million Americans (i.e., 58.5% of the total number of voters who cast their ballot in 2016) have already voted. Informal exit polling suggests that a large majority of these are Democrats or Democratic-leaning voters, while Trump voters are likelier to vote on 3rd November. This could sow chaos, as Trump may initially be reported as leading in key swing states like Pennsylvania and Michigan on Election Day, only to have this reversed after mail-in votes have been counted (something that Trump says he will challenge in the courts). Biden has led in the polls by 6-9 percentage points consistently since August; if more than half of all voters have already cast their ballot, this suggests that Biden already has a massive lead nationwide even before Election Day. Biden’s gaffe on fossil fuels in the final debate (which would normally cost him votes in Pennsylvania, Ohio and Texas) will be much less costly if half of the electorate had already cast their ballots by the time of that debate. Similarly, Trump is unlikely to be able to benefit from the 33.1% QoQ (saar) recovery announced for the US economy in 3Q 2020.The greatest danger to Taiwan in the immediate aftermath of a Biden victory lies in the possibility of China taking military action – i.e., going a step beyond the many provocative military actions China took in October 2020, to an actual attack on Taiwan. The time of confusion for the US between the defeat of an incumbent and the inauguration of the president 11 weeks later (with a possibly uncertain electoral outcome adding fuel to the fire in November) would be the ideal time for China to attack Taiwan. While that would have a disastrous immediate impact on Taiwan’s economy, in the long term it will destroy China’s relationship with the incoming Biden administration, and provoke Democrats in Congress to go even further in legislating against China’s human rights record. If there is no such military attack on Taiwan in November 2020, it will be time to switch to the SGX FTSE Taiwan Index Futures by the end of that month.

It is widely believed that a Biden win will be a boon for China, while a Trump victory will be negative for China – and consequently a boon for Taiwan. We believe this is too simplistic: while a Biden win will help China on the trade front (since Biden will likely focus less on bilateral pressure, and resume multilateral trade negotiations), China will soon face increased pressure on human rights (in Xinjiang, Tibet and Hong Kong). In the low-probability event of a clear win for Trump on 4th November (in Asia), Taiwan equities will receive a boost (and China equities will see a knee-jerk sell-off): a good way to position for this would be to go long SGX FTSE Taiwan Index Futures. A good way for investors to position themselves for a Biden win would be to be long the SGX FTSE China A50 Index Futures: we would recommend going long the latter now, in anticipation of the likely electoral outcome. However, once the dust settles, we would recommend switching to the SGX FTSE Taiwan Index Futures – as Taiwan’s underlying fundamentals are more robust than China’s. From a sectoral standpoint, a Biden win should also be more favourable to Asia’s technology sector (Alibaba, Baidu, Tencent, Samsung Electronics, TSMC) as antitrust action (already initiated against Google last week) likely spreads to Facebook and Amazon under a Biden administration.The key factor pointing to a Biden victory is the massive surge of early voting (in person and via mail-in ballots). Reuters reports that 80 million Americans (i.e., 58.5% of the total number of voters who cast their ballot in 2016) have already voted. Informal exit polling suggests that a large majority of these are Democrats or Democratic-leaning voters, while Trump voters are likelier to vote on 3rd November. This could sow chaos, as Trump may initially be reported as leading in key swing states like Pennsylvania and Michigan on Election Day, only to have this reversed after mail-in votes have been counted (something that Trump says he will challenge in the courts). Biden has led in the polls by 6-9 percentage points consistently since August; if more than half of all voters have already cast their ballot, this suggests that Biden already has a massive lead nationwide even before Election Day. Biden’s gaffe on fossil fuels in the final debate (which would normally cost him votes in Pennsylvania, Ohio and Texas) will be much less costly if half of the electorate had already cast their ballots by the time of that debate. Similarly, Trump is unlikely to be able to benefit from the 33.1% QoQ (saar) recovery announced for the US economy in 3Q 2020.The greatest danger to Taiwan in the immediate aftermath of a Biden victory lies in the possibility of China taking military action – i.e., going a step beyond the many provocative military actions China took in October 2020, to an actual attack on Taiwan. The time of confusion for the US between the defeat of an incumbent and the inauguration of the president 11 weeks later (with a possibly uncertain electoral outcome adding fuel to the fire in November) would be the ideal time for China to attack Taiwan. While that would have a disastrous immediate impact on Taiwan’s economy, in the long term it will destroy China’s relationship with the incoming Biden administration, and provoke Democrats in Congress to go even further in legislating against China’s human rights record. If there is no such military attack on Taiwan in November 2020, it will be time to switch to the SGX FTSE Taiwan Index Futures by the end of that month.  

Biden Vs Trump: How Best to Play the Impact on Taiwan and China

Taiwan

The MSCI Taiwan Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31 1987.

MSCI Taiwan Index (TAMSCI INDEX)

Taiwan: The Rich World's Growth Star Continues to Shine

Taiwan has been the rich-world's growth star, with real GDP up 4.5% in the last 12 months, including 8.2% YoY growth in 1Q2021. With capex set to...

Prasenjit K. Basu

US: Trump's Record Card on Trade Mixed; China Trade Already Challenging Biden

The US bilateral trade deficit with China declined in 2019 & Jan-Oct 20, but rose in the 3 post-election months. Focus is turning to transshipment...

Prasenjit K. Basu

TMI Snapshots: Taiwan Tensions Rising, Will Geopolitics Return to the Forefront in 2021?

Quantifying the magnitude of news flow on China-Taiwan tensions, we see a +2x STDEV spike in coverage of the topic. Markets may reassess risks as...

Elan Gore

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

Biden Vs Trump: How Best to Play the Impact on Taiwan and China

One way to look at Biden vs Trump is that a Trump win benefits Taiwan, a Biden win is better for China. We suggest ways of using low-cost SGX...

Prasenjit K. Basu