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

The FY2021 Budget is unequivocally contractionary, with the fiscal deficit likely to contract from 4.5% of GDP in FY2020 (our estimate) to 3% in FY2021, with the overall fiscal position (including Special Transfers and Net Investment Return Contributions) going from a 13% of GDP deficit in FY2020 to near-balance in FY2021. Although real GDP should rebound to 6% growth in 2021, the glut of supply in the the residential property sector is likely to depress prices as global liquidity conditions tighten this year. We recommend being Underweight Singapore, but with relatively de-leveraged <a href="https://www.smartkarma.com/entities/singapore-airlines-ltd" target="_blank" data-smartkarma-citation="entities:74:1" rel="noopener">SIA (SIA SP)</a> well positioned to benefit disproportionately in its sector. Apart from the 8.8% YoY increase in total government spending, the Budget for FY2021 was solidly contractionary, with the fiscal deficit (operating revenue minus operating &amp; development expenditure) projected to decline from an estimated 6% of GDP (S$29.45 billion) in FY2020 to 5.1% (S$25.7 billion) in FY2021. Given that the actual fiscal deficit in Apr-Dec 2020 was only S$12.39 billion, and government revenue grew 17.3% YoY in Oct-Dec 2020 (even with real GDP still down 2.4% YoY), we estimate that the deficit for FY2020 will eventually be only 4.5% of GDP (as the economy returns to YoY growth in the Jan-Mar 2021 quarter). And the deficit for FY2021 will likely be about 3% of GDP, as the economy grows 6% in 2021, boosting government revenue further. The overall fiscal deficit (including the impact of Special Transfers and Net Investment Returns  Contributions) is officially projected to contract from 13% of GDP in FY2020 to 2.2% of GDP in FY2021, but we estimate that this overall balance will be largely balanced in FY2021. Given the extremely low base from March-December 2020 (except for manufacturing), real GDP should begin growing in the current quarter, and easily achieve 6% growth for all of 2021. Since tourist arrivals were near zero in 2Q 2020, they too will be "growing" YoY, although the pain in all tourism-related sectors will persist through 2021. So the FY2021 Budget focused on vaccination and further strengthening healthcare infrastructure, continued support to the aviation and tourism-related sectors, and incentives for employers to retain Singapore-resident employees. The latter has already borne results, with net employment of residents increasing slightly even in the 2020 recession; with many of the 195,900 foreigners laid off being obliged to leave Singapore (and hence its labour force) the unemployment rate moderated to 3.2% by 4Q 2020. With a leaner work force, 2021 will see a strong productivity-led recovery (good for Singapore's main employers, MNCs and GLCs). The manufacturing rebound from 2020 will likely be sustained through 2021; but after this year's 6% real GDP growth, Singapore will return to its recent trend of 2.5-3% annual growth. With global liquidity conditions likely to turn less favourable, the glut of residential property is likely to exert some downward pressure on residential prices in 2021. We recommend staying Underweight Singapore. <a href="https://www.smartkarma.com/entities/singapore-airlines-ltd" target="_blank" data-smartkarma-citation="entities:74:1" rel="noopener">SIA (SIA SP)</a> is likely to be a winner from the fiscal measures: it has cut its workforce by 20%, will receive subsidies for the rest of its workforce until at least September 2021, and will have a relatively less leveraged balance sheet than its global peers when the carnage ends, and be well-positioned strategically to benefit disproportionately once the global tourism industry begins a genuine recovery.

The FY2021 Budget is unequivocally contractionary, with the fiscal deficit likely to contract from 4.5% of GDP in FY2020 (our estimate) to 3% in FY2021, with the overall fiscal position (including Special Transfers and Net Investment Return Contributions) going from a 13% of GDP deficit in FY2020 to near-balance in FY2021. Although real GDP should rebound to 6% growth in 2021, the glut of supply in the the residential property sector is likely to depress prices as global liquidity conditions tighten this year. We recommend being Underweight Singapore, but with relatively de-leveraged SIA (SIA SP) well positioned to benefit disproportionately in its sector. Apart from the 8.8% YoY increase in total government spending, the Budget for FY2021 was solidly contractionary, with the fiscal deficit (operating revenue minus operating &amp; development expenditure) projected to decline from an estimated 6% of GDP (S$29.45 billion) in FY2020 to 5.1% (S$25.7 billion) in FY2021. Given that the actual fiscal deficit in Apr-Dec 2020 was only S$12.39 billion, and government revenue grew 17.3% YoY in Oct-Dec 2020 (even with real GDP still down 2.4% YoY), we estimate that the deficit for FY2020 will eventually be only 4.5% of GDP (as the economy returns to YoY growth in the Jan-Mar 2021 quarter). And the deficit for FY2021 will likely be about 3% of GDP, as the economy grows 6% in 2021, boosting government revenue further. The overall fiscal deficit (including the impact of Special Transfers and Net Investment Returns  Contributions) is officially projected to contract from 13% of GDP in FY2020 to 2.2% of GDP in FY2021, but we estimate that this overall balance will be largely balanced in FY2021. Given the extremely low base from March-December 2020 (except for manufacturing), real GDP should begin growing in the current quarter, and easily achieve 6% growth for all of 2021. Since tourist arrivals were near zero in 2Q 2020, they too will be "growing" YoY, although the pain in all tourism-related sectors will persist through 2021. So the FY2021 Budget focused on vaccination and further strengthening healthcare infrastructure, continued support to the aviation and tourism-related sectors, and incentives for employers to retain Singapore-resident employees. The latter has already borne results, with net employment of residents increasing slightly even in the 2020 recession; with many of the 195,900 foreigners laid off being obliged to leave Singapore (and hence its labour force) the unemployment rate moderated to 3.2% by 4Q 2020. With a leaner work force, 2021 will see a strong productivity-led recovery (good for Singapore's main employers, MNCs and GLCs). The manufacturing rebound from 2020 will likely be sustained through 2021; but after this year's 6% real GDP growth, Singapore will return to its recent trend of 2.5-3% annual growth. With global liquidity conditions likely to turn less favourable, the glut of residential property is likely to exert some downward pressure on residential prices in 2021. We recommend staying Underweight Singapore. SIA (SIA SP) is likely to be a winner from the fiscal measures: it has cut its workforce by 20%, will receive subsidies for the rest of its workforce until at least September 2021, and will have a relatively less leveraged balance sheet than its global peers when the carnage ends, and be well-positioned strategically to benefit disproportionately once the global tourism industry begins a genuine recovery. 

Singapore Budgets for a Return to Normalcy Outside the Key Travel-Related Sectors

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Cathay Pacific Airways / Equity Bottom-Up

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After Hong Kong's government planned to impose a 14-day quarantine and seven-day medical surveillance on all aircrew, <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0125/2021012500513.pdf" target="_blank" rel="noopener">announced</a> it would have a "significant impact on our ability to service our passenger and cargo markets" and would add "a further increase in our cash burn of approximately HK$300-$400 million per month".
In effect, the uptick in cost from these new quarantine measures negates the cost savings from the cessation of Cathay Dragon announced last October.
Cathay has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0128/2021012800096.pdf" target="_blank" rel="noopener">announced</a> the issuance of a HK$6.74bn 2.75% convertible bond due 2026.
The conversion price is HK$8.57/share, a 30% premium to the last close of HK$6.59/share. Assuming full conversion, these shares represent 10.89% of shares out on a fully diluted basis.
Upon conversion, together with the exercise of warrants held by the Hong Kong government, <a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (A) (19 HK)</a> and <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a>'s effective stakes would decline to 37.91% and 25.27% respectively from 45.00% and 29.99% currently. 
Cathay's shares are up 25% in the past three months - before this latest fund-raising proposal - in line with a basket of peers of 28%. Year-on-year, Cathay is down 33%, bang in line with its peer basket.
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Separately <a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (A) (19 HK)</a>'s discount to NAV has narrowed to 43% from a low of 55% last November.
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As always, more below the fold.
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After Hong Kong's government planned to impose a 14-day quarantine and seven-day medical surveillance on all aircrew, Cathay Pacific Airways (293 HK) announced it would have a "significant impact on our ability to service our passenger and cargo markets" and would add "a further increase in our cash burn of approximately HK$300-$400 million per month".
In effect, the uptick in cost from these new quarantine measures negates the cost savings from the cessation of Cathay Dragon announced last October.
Cathay has now announced the issuance of a HK$6.74bn 2.75% convertible bond due 2026.
The conversion price is HK$8.57/share, a 30% premium to the last close of HK$6.59/share. Assuming full conversion, these shares represent 10.89% of shares out on a fully diluted basis.
Upon conversion, together with the exercise of warrants held by the Hong Kong government, Swire Pacific (A) (19 HK) and Air China Ltd (H) (753 HK)'s effective stakes would decline to 37.91% and 25.27% respectively from 45.00% and 29.99% currently. 
Cathay's shares are up 25% in the past three months - before this latest fund-raising proposal - in line with a basket of peers of 28%. Year-on-year, Cathay is down 33%, bang in line with its peer basket.


Separately Swire Pacific (A) (19 HK)'s discount to NAV has narrowed to 43% from a low of 55% last November.


As always, more below the fold.


Cathay Pacific (293 HK): Back To Terminal

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

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Data and anecdotes from a range of sources in December and January show the recovery in Chinese domestic travel demand has stalled. Looking forward, government estimates suggest travel activity over the Lunar New Year holiday in February will also remain muted. 
In the run up to the long holiday period, Chinese officials have responded aggressively to Covid19 outbreaks in several Chinese cities, most of them in Northern China. Until vaccines reach most of the population and prove effective against new variants of the virus, travel demand -- outbound and domestic -- will likely remain depressed. Even a Summer rebound now appears optimistic. 
A combination of hesitant consumers and necessarily aggressive government responses to new outbreaks leaves current travel demand far below normal (2019) levels. The stalled recovery in Chinese travel activity thus lags substantially the return of the Chinese consumer. With few signs of "pent-up" travel demand, it appears Chinese tourists may have altered spending priorities. 
The Chinese travel sector will enjoy easy YoY "comps" in early 2021 as we lap the worst of the Covid19 crisis in H120. However, in the medium-term, we see a "new normal" developing: non-essential travel has become riskier and less attractive, and thus a lower priority for consumers, and this will likely remain the case until Covid19 is put decisively in the rear-view mirror.




Data and anecdotes from a range of sources in December and January show the recovery in Chinese domestic travel demand has stalled. Looking forward, government estimates suggest travel activity over the Lunar New Year holiday in February will also remain muted. 
In the run up to the long holiday period, Chinese officials have responded aggressively to Covid19 outbreaks in several Chinese cities, most of them in Northern China. Until vaccines reach most of the population and prove effective against new variants of the virus, travel demand -- outbound and domestic -- will likely remain depressed. Even a Summer rebound now appears optimistic. 
A combination of hesitant consumers and necessarily aggressive government responses to new outbreaks leaves current travel demand far below normal (2019) levels. The stalled recovery in Chinese travel activity thus lags substantially the return of the Chinese consumer. With few signs of "pent-up" travel demand, it appears Chinese tourists may have altered spending priorities. 
The Chinese travel sector will enjoy easy YoY "comps" in early 2021 as we lap the worst of the Covid19 crisis in H120. However, in the medium-term, we see a "new normal" developing: non-essential travel has become riskier and less attractive, and thus a lower priority for consumers, and this will likely remain the case until Covid19 is put decisively in the rear-view mirror.  

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/179/973/original/BANNER-TourDec20.png?1608779882" class="editor-image img-responsive" data-smartkarma-image-id="179973"></figure></section>Outbound Chinese tourism activity remained dormant in November. Macau's recovery slowed, and the appearance of a new variant of the Covid19 virus suggests a potential recovery in Chinese outbound travel may be pushed back until at least the middle of 2021, maybe later. To our surprise, the recovery in domestic Chinese tourism also appears to have lost steam in November. Passenger counts at the three major national airlines fell YoY, and overall activity was well below that of October. Chinese consumers remain cautious towards discretionary travel. We believe Chinese travel demand will recover gradually in 2021, and that the recovery could gain momentum in the second half of the year. Still, the emergence of a new strain of the virus will likely cap outbound travel in the near-term, and it also appears the rebound in domestic demand is moderating. For now, we would avoid pricey travel-related stocks like <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a>.

Outbound Chinese tourism activity remained dormant in November. Macau's recovery slowed, and the appearance of a new variant of the Covid19 virus suggests a potential recovery in Chinese outbound travel may be pushed back until at least the middle of 2021, maybe later. To our surprise, the recovery in domestic Chinese tourism also appears to have lost steam in November. Passenger counts at the three major national airlines fell YoY, and overall activity was well below that of October. Chinese consumers remain cautious towards discretionary travel. We believe Chinese travel demand will recover gradually in 2021, and that the recovery could gain momentum in the second half of the year. Still, the emergence of a new strain of the virus will likely cap outbound travel in the near-term, and it also appears the rebound in domestic demand is moderating. For now, we would avoid pricey travel-related stocks like Trip.com (TCOM US).

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

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On December 26th, Beijing’s municipal government responded to a fresh outbreak of Covid19 by ordering residents to stay at home during the upcoming Lunar New Year (LNY) holiday. LNY falls on February 12th next year, barely six weeks from now.  
The bad news out of Beijing highlights an important risk to Chinese travel-related companies: that yet another important holiday period could effectively be lost to Covid19. If the restrictions put in place by local authorities in Beijing extend to other large cities or provinces, it could push back a recovery in Chinese travel demand until Summer 2021 or even Golden Week, in October 2021.
In this note we explain why LNY travel matters, and why we now believe normal levels of LNY travel may again be lost in 2021. We also point to the example of Macau, which continues to see sub-par tourism demand five months after it eased travel restrictions for some Chinese visitors.




On December 26th, Beijing’s municipal government responded to a fresh outbreak of Covid19 by ordering residents to stay at home during the upcoming Lunar New Year (LNY) holiday. LNY falls on February 12th next year, barely six weeks from now.  
The bad news out of Beijing highlights an important risk to Chinese travel-related companies: that yet another important holiday period could effectively be lost to Covid19. If the restrictions put in place by local authorities in Beijing extend to other large cities or provinces, it could push back a recovery in Chinese travel demand until Summer 2021 or even Golden Week, in October 2021.
In this note we explain why LNY travel matters, and why we now believe normal levels of LNY travel may again be lost in 2021. We also point to the example of Macau, which continues to see sub-par tourism demand five months after it eased travel restrictions for some Chinese visitors.

Dreams Deferred: Looks Like Lunar New Year Travel Demand May Be Lost

Singapore

Singapore Airlines Limited provides air transportation, engineering, pilot training, air charter, and tour wholesaling services. The Company's airline operation covers Asia, Europe, the Americas, South West Pacific, and Africa.

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Singapore Airlines (SIA SP)

Cathay Pacific (293 HK): Back To Terminal

Vaccine rollout and a hard turnaround in global tourism/air travel appear highly optimistic. I think Cathay has further to fall from here.

David Blennerhassett

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

The recovery in domestic travel demand stalled again in December, and we believe improvement will be muted in the near-term as officials battle...

Tracking Traffic

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

It appears the nascent recovery in Chinese domestic tourism activity began to stall in November. Outbound travel activity remains dormant, and even...

Tracking Traffic

Dreams Deferred: Looks Like Lunar New Year Travel Demand May Be Lost

We now believe there is a better than even chance that much of the Chinese travel demand normally associated with LNY will be lost in 2021.

Tracking Traffic

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Singapore Budgets for a Return to Normalcy Outside the Key Travel-Related Sectors

Despite an 8.8% YoY increase in total spending, the fiscal impulse will be contractionary in FY2021. Real GDP will grow 6%, but stay Underweight,...

Prasenjit K. Basu

Cathay Pacific (293 HK): Back To Terminal

Vaccine rollout and a hard turnaround in global tourism/air travel appear highly optimistic. I think Cathay has further to fall from here.

David Blennerhassett

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

The recovery in domestic travel demand stalled again in December, and we believe improvement will be muted in the near-term as officials battle...

Tracking Traffic

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

It appears the nascent recovery in Chinese domestic tourism activity began to stall in November. Outbound travel activity remains dormant, and even...

Tracking Traffic

Dreams Deferred: Looks Like Lunar New Year Travel Demand May Be Lost

We now believe there is a better than even chance that much of the Chinese travel demand normally associated with LNY will be lost in 2021.

Tracking Traffic