Smartkarma Daily Briefs

• Japan endured years of economic stagnation due to an impaired banking system following the bursting its real estate bubble and some commentators currently fear a repeat experience in China.
• Despite the potential for debt swaps with local government, regional banks will bear the brunt of loan restructuring to local government financing vehicles via higher loan-loss provisions.
• The main of objective of central government in 2024 will be stabilising home sales in Tier-1 cities via easier policy measures. Bank lending to private property developers will remain tight.    

• We are making U.S. financials a high conviction buy idea for the following reasons
• Positive macro backdrop from falling yields and steepening yield curve.
• Sector shows strong technical strength and strong contrarian buy signals.

• The Fed’s decision to potentially cut interest rates in June instead of July may have significant implications for emerging markets (EM) assets.
• The shift in the Fed’s stance is proactive and not a response to a sudden downturn in data, suggesting a soft landing scenario for emerging markets.
• This change in the Fed’s policy may alter the recommendations and views for next year, potentially leading to a more bullish outlook for EM assets.

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• The U.S. stock market appears to be undergoing a seasonal rally into year-end and January. Warning signs of froth are starting to appear and traders should exercise caution.
• We believe stock prices may advance further into a possible blowoff top.
• In particular, the market may be poised for a Gamestop-style short-covering rally. Hedge funds were caught offside in a crowded short when low-quality names began to rally.

• Risk reward favours a shift in allocation between these markets.
• Hong Kong washed out from a sentiment, valuation and positioning perspective.
• Minimal investor expectations  and continual disappointment  have set the stage for a rally in 2024.

• US retail sales and inflation rates are retreating, and industrial activity is slowing.
• Europe’s economic decline is accelerating compared to the US.
• Oil prices are dipping in anticipation of weaker demand amidst a slowing economy signal.

• Powell invited for a yuuuge risk asset party this week by allowing the market to continue to chase the narrative of material rate cuts in 2024.
• This is (again) reminiscent of the 2006-2007 pause when the Fed allowed financial conditions to ease materially in the run-up to the recession.
• During a hiking cycle, loads and loads of USDs are parked in cash-like setups due to a sudden better relative yield premium in almost risk-free structures.