Category

Korea

Brief Korea: A Pair-Trade Between Korean Air Corp & HanjinKal (In-Play) and more

By | Daily Briefs, Korea

In this briefing:

  1. A Pair-Trade Between Korean Air Corp & HanjinKal (In-Play)
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. A Pair-Trade Between Korean Air Corp & HanjinKal (In-Play)

Chowontae

In this report, we provide a pair trade idea between Korean Air Lines (003490 KS) and Hanjin Kal Corp (180640 KS). Our strategy will be to go long Korean Air Lines and to go short on Hanjin Kal. Hanjin Kal Corp’s stock price is near its one-year highs and Korean Air Lines’ stock price is near its one-year lows. 

Our base case valuation of the company is 1.8 trillion won 30,476 won, which is 53% below the current share price. Some of the investors may be asking this question, “How can Hanjin Kal shares rise so much higher than its intrinsic value?” At this point, there are three major scenarios:

  • First, Hanjin Kal Corp shares may be valued correctly while Korean Air, Jin Air, and other Hanjin affiliates may be vastly underpriced and need to catch up to Hanjin Kal Corp.
  • Second, Hanjin Kal Corp shares may be overvalued right now while Korean Air, Jin Air, and other Hanjin affiliates may be fairly priced. (Our view)
  • Third, it could be a combination of the first two scenarios.

The key wildcards in this M&A fight have been Delta Air Lines and the Bando Group as both companies have been increasing their stakes of Hanjin Kal in the past several weeks. In the midst of this M&A fight, the COVID-19 has become a serious issue and likely to get worse in the coming weeks. Therefore, in the midst of a severe further downturn in the overall economy, especially in the construction sector (especially in the southeastern part of Korea), can the Bando Group continue to remain such a strong ally to KCGI and Cho Hyun-ah? This remains very shaky, in our view. 

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | Daily Briefs, Korea

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Governments and Policies Adapting to Critical Known Unknown
  3. Costs of and Response to COVID-19
  4. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants
  5. Fault Lines and Positive Surprises: Buy Car Makers

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

Buffett 2

The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

3. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

4. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants

Airlines debtratio

In this report, we analyze Korean Air Lines (003490 KS) with regards to the global COVID-19 outbreak which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout. 

South Korea’s government has already pledged loans of 300 billion won ($250 million) for the entire airlines in Korea. However, this is a TINY amount compared to the total amount needed to save this industry. This is also less than 1% of the $60 billion that the U.S. government has promised to its own air transport industry. 

Going forward, a question mark about Korean Air is guessing which airliner that the Korean government will bail out since it seems clear that it will not be able to bail out all the airlines in Korea. Because of the dire situation right now, there has also been an idea of a potential merger  between Korean Air Lines (003490 KS) and Asiana Airlines (020560 KS)

COVID-19 is a beast that will likely have the greatest-ever negative impact on the global airline industry in the past century. Many airlines are likely to become bankrupt in the next couple of years. There will be an intense industry consolidation. Korean Air faces an enormous challenge in the midst of this global COVID-19 pandemic, which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout.

5. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, Korea

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, Korea

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  2. Pair Trade Set-Ups in Korea (Closing the Gap)

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

2. Pair Trade Set-Ups in Korea (Closing the Gap)

Orion

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 38 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have noticed in the past that the pair trade strategy can particularly bear fruits after/during periods when the market volatility is relatively high, which is the case right now so it may be worthwhile to pay particular attention to some of these pair trades. 

We have provided 3 months price chart comparisons of all the 38 pair trade set-ups below. Of these, the five set-ups that are particularly noteworthy (the ones that have shown the biggest gap in the past 3 months) are as follows:

  • LG Corp vs. LG Chem
  • Hanjin Kal vs. Korean Air Lines 
  • Halla Holdings vs. Mando Corp 
  • SK Telecom vs. SK Hynix 
  • Hanwha Solutions vs. Hanwha Corp

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: Governments and Policies Adapting to Critical Known Unknown and more

By | Daily Briefs, Korea

In this briefing:

  1. Governments and Policies Adapting to Critical Known Unknown
  2. Costs of and Response to COVID-19
  3. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants
  4. Fault Lines and Positive Surprises: Buy Car Makers
  5. Tracking the Daily COVID-19 Cases for 10 Major Countries

1. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

2. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

3. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants

Koreanair a

In this report, we analyze Korean Air Lines (003490 KS) with regards to the global COVID-19 outbreak which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout. 

South Korea’s government has already pledged loans of 300 billion won ($250 million) for the entire airlines in Korea. However, this is a TINY amount compared to the total amount needed to save this industry. This is also less than 1% of the $60 billion that the U.S. government has promised to its own air transport industry. 

Going forward, a question mark about Korean Air is guessing which airliner that the Korean government will bail out since it seems clear that it will not be able to bail out all the airlines in Korea. Because of the dire situation right now, there has also been an idea of a potential merger  between Korean Air Lines (003490 KS) and Asiana Airlines (020560 KS)

COVID-19 is a beast that will likely have the greatest-ever negative impact on the global airline industry in the past century. Many airlines are likely to become bankrupt in the next couple of years. There will be an intense industry consolidation. Korean Air faces an enormous challenge in the midst of this global COVID-19 pandemic, which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout.

4. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

5. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: Costs of and Response to COVID-19 and more

By | Daily Briefs, Korea

In this briefing:

  1. Costs of and Response to COVID-19
  2. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants
  3. Fault Lines and Positive Surprises: Buy Car Makers
  4. Tracking the Daily COVID-19 Cases for 10 Major Countries
  5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

1. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

2. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants

Koreanair a

In this report, we analyze Korean Air Lines (003490 KS) with regards to the global COVID-19 outbreak which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout. 

South Korea’s government has already pledged loans of 300 billion won ($250 million) for the entire airlines in Korea. However, this is a TINY amount compared to the total amount needed to save this industry. This is also less than 1% of the $60 billion that the U.S. government has promised to its own air transport industry. 

Going forward, a question mark about Korean Air is guessing which airliner that the Korean government will bail out since it seems clear that it will not be able to bail out all the airlines in Korea. Because of the dire situation right now, there has also been an idea of a potential merger  between Korean Air Lines (003490 KS) and Asiana Airlines (020560 KS)

COVID-19 is a beast that will likely have the greatest-ever negative impact on the global airline industry in the past century. Many airlines are likely to become bankrupt in the next couple of years. There will be an intense industry consolidation. Korean Air faces an enormous challenge in the midst of this global COVID-19 pandemic, which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout.

3. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

4. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: Pair Trade Set-Ups in Korea (Closing the Gap) and more

By | Daily Briefs, Korea

In this briefing:

  1. Pair Trade Set-Ups in Korea (Closing the Gap)

1. Pair Trade Set-Ups in Korea (Closing the Gap)

Orion

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 38 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have noticed in the past that the pair trade strategy can particularly bear fruits after/during periods when the market volatility is relatively high, which is the case right now so it may be worthwhile to pay particular attention to some of these pair trades. 

We have provided 3 months price chart comparisons of all the 38 pair trade set-ups below. Of these, the five set-ups that are particularly noteworthy (the ones that have shown the biggest gap in the past 3 months) are as follows:

  • LG Corp vs. LG Chem
  • Hanjin Kal vs. Korean Air Lines 
  • Halla Holdings vs. Mando Corp 
  • SK Telecom vs. SK Hynix 
  • Hanwha Solutions vs. Hanwha Corp

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: Bank M&A in Asia – a Decade in Review and more

By | Daily Briefs, Korea

In this briefing:

  1. Bank M&A in Asia – a Decade in Review

1. Bank M&A in Asia – a Decade in Review

Image 268452452991581932023726

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Korea: Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants and more

By | Daily Briefs, Korea

In this briefing:

  1. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants
  2. Fault Lines and Positive Surprises: Buy Car Makers
  3. Tracking the Daily COVID-19 Cases for 10 Major Countries
  4. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  5. Active Vs. Passive Investing Post COVID-19 Coronavirus World

1. Korean Air Lines: COVID-19 Could Lead to Breach of Debt Covenants

Koreanair 1

In this report, we analyze Korean Air Lines (003490 KS) with regards to the global COVID-19 outbreak which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout. 

South Korea’s government has already pledged loans of 300 billion won ($250 million) for the entire airlines in Korea. However, this is a TINY amount compared to the total amount needed to save this industry. This is also less than 1% of the $60 billion that the U.S. government has promised to its own air transport industry. 

Going forward, a question mark about Korean Air is guessing which airliner that the Korean government will bail out since it seems clear that it will not be able to bail out all the airlines in Korea. Because of the dire situation right now, there has also been an idea of a potential merger  between Korean Air Lines (003490 KS) and Asiana Airlines (020560 KS)

COVID-19 is a beast that will likely have the greatest-ever negative impact on the global airline industry in the past century. Many airlines are likely to become bankrupt in the next couple of years. There will be an intense industry consolidation. Korean Air faces an enormous challenge in the midst of this global COVID-19 pandemic, which is likely to lead to a breach of debt covenants resulting in a need for a massive capital raise and government bailout.

2. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

3. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

4. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

5. Active Vs. Passive Investing Post COVID-19 Coronavirus World

Funds c

  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Korea: Fault Lines and Positive Surprises: Buy Car Makers and more

By | Daily Briefs, Korea

In this briefing:

  1. Fault Lines and Positive Surprises: Buy Car Makers
  2. Tracking the Daily COVID-19 Cases for 10 Major Countries
  3. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  4. Active Vs. Passive Investing Post COVID-19 Coronavirus World
  5. Hyundai Glovis/Mobis Pairs Trading: Now At -2.7σ & A New 2-Yr Low, Too Harsh to Miss Out

1. Fault Lines and Positive Surprises: Buy Car Makers

Image 16957330731585274683132

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

2. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19c

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

3. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

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When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

4. Active Vs. Passive Investing Post COVID-19 Coronavirus World

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  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

5. Hyundai Glovis/Mobis Pairs Trading: Now At -2.7σ & A New 2-Yr Low, Too Harsh to Miss Out

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Hyundai Glovis/Mobis pair generally makes an excellent duo for pairs trading. The 2-yr correlation coefficient is 0.76. As shown in the below scatter plot, the duo has a highly cointegrated relationship.

The pair is currently at -2.7σ on a 20D MA. The price ratio is now hitting a new 2-yr low at 0.52577.

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