Macro

• China’s reopening – which could happen as soon as next Spring – is likely to ease global inflation, according to a Morgan Stanley report.

• With the country removing strict Covid-19 restrictions, Asia is likely to see a rise in economic performance.

• The continent is projected to see a growth in gross domestic product from 3.4% in the first quarter of 2023 to 4.6% in the second half of the year.

• At the end of September 2022, Korean stocks accounted for 13.6% of total assets of the NPS whose target for domestic stock exposure is 15.9% by end of this year. 
• In recent months, NPS has been net increasing purchases of companies including Naver, Celltrion, POSCO Chemical, Samsung Life Insurance, and Krafton. 
• Although the allowable range for SAA by NPS is ±3%p, there is some leeway for NPS to add to the domestic equities given that they were much lower than target. 

• As my mentor always said: Alf, rule #1 as an investor is not to be stupid. And trust me, it’s not an easy rule to respect.
• As a long-term or tactical macro investor, the emotion-driven biases threatening to kill our performance are countless: recency bias, being in love with a macro narrative even when invalidated by price action, mis-sizing positions and so on.
• But over time I learnt the hard way that as a macro investor respecting 3 main principles is in most cases enough to avoid stupid mistakes.

• Flash EA inflation in Nov-22 was unusual for breaking the upside trend with an outcome that undershot expectations by a substantial amount (43bps for us).
• The reliance on energy prices in the Netherlands and Belgium weakens the fall’s significance. Other national news was relatively symmetrical, including in the core.
• ECB policymakers should be reassured by the lack of upside while slowing hikes against excessive underlying pressures. Risks to hiking 50bp in Dec-22 no longer skew up.

• On 28 November, the Korean FSC made a public presentation of potential changes to regulations related to dividends, IPOs, and foreign investors registration which could reduce the long-term “Korea Discount.” 
• FSC has announced that it will improve the dividend payment process of listed Korean companies by benchmarking more advanced countries such as the United States.
• With regards to IPOs in Korea, the potential expansion of the price limit on the first day of trading post IPO from 90-200% (current) to 60-400% (revised) has been proposed.

• Monetary policy was eased with a cut to the RRR rate and additional credit support is being planned for the real estate sector. 
• These moves show that policymaking is shifting from piecemeal actions to substantive pro-growth efforts. 
• However, headwinds to growth have grown and this latest move may not suffice to promote growth.

• Cover Story: China lines up yet more aid for the property sector, but will it be enough? (Part 1）

• Guangzhou spares homebound from mass Covid testing

• Cold snap in Northwest China leaves livestock trapped and herdsmen missing

• Reformist stalwart Anwar Ibrahim has finally achieved his ambition of becoming Malaysia’s prime minister. He now faces a formidable in-tray of political and economic challenges.
• He leads a coalition government of unlikely bedfellows. The politics of holding his coalition together will constrain certain aspects of economic policy. 
• However, cooperation between the former political enemies may pave the way for healing social divisions and longer-lasting economic reforms. 

• Ultra low rates did not cause inflation, a dramatic increase in the money supply during Covid did.
• Equally, the forthcoming recession will not be about higher rates, but about the equally dramatic collapse in money supply growth since April.
• Instead, ultra low rates stimulated the financial markets through cheap credit and low discount rates, that bubble is already unwinding as rates rise.

• Cover Story: China’s share markets back on the fundraising menu for ailing developers (Part 2)

• China steps up timetable for senior vaccinations as Covid cases surge

• China’s President Xi Jinping meets with Mongolian President

In the next webinar, we welcome Smartkarma Insight Provider Evelyn Zhang who will share with us her views on the current climate of investments in China, along with her top picks and insights for investors. Have any questions about the investing climate in China? Get your questions answered in the live Q&A session that will conclude the webinar.

The webinar will be hosted on Wednesday, 30 November 2022, 17:00 SGT/HKT.

With over a decade’s worth of experiences in Morgan Stanley, Bank of America Merrill Lynch, Agricultural Bank of China, Lenovo, Evelyn’s expertise includes research and investment into tech companies of all stages. Experienced in asset management, private equity, strategic investment, investment banking, equity research, corporate finance, Evelyn is particularly focused on emerging technology.

• President Xi is facing challenges to his authority in ways that have not been seen since Tiananmen. There will be domestic and international implications.
• The unrest is still on a scale that can be contained with the right strategy but may gain momentum in scale and scope if left unchecked.
• The administration is likely to engage in a strategy of calibrated repression, but we do not rule out the possibility of a forceful response. 

• The Week That Was in [email protected] is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia. 
• The past week saw insights on Grab, Sea Ltd, Cisarua Mountain Dairy, Integra Indocabinet, PT Surya Citra Media, GoTo, Keppel Corp, Total Access Communication, and Indo Tambangraya Megah.
• There was also some commentary on the Malaysian Election, the upcoming SET50 rebalance, Krung Thai Bank‘s normalization, Chularat Hospital, and Kawasan Industri Jababeka.

• The world economy will be as weak next year as it was in 2009 after the financial crisis as the conflict in Ukraine risks becoming a “forever war,” the Institute of International Finance said.
• Global growth is expected to slow to 1.2% in 2023, according to the IIF.
• The slowdown will be led by Europe, which is impacted most by the war, according to the IIF. 

• The inexperience of the current generation of central bankers towards fighting inflation was brutally exposed in 2022, but financial markets have been reluctant to punish them in an overly-harsh manner. 
• The extended period of global monetary accommodation had negative consequences for banking profitability, particularly in the Eurozone and Japan, but ending cheap money will have different outcomes across regions.
• Tighter monetary policies in the Asia Pacific region and softening external demand mean that banking systems could face asset quality concerns when profitability has not fully recovered to pre-pandemic levels. 

• Technical internals have been pointing to a shift in leadership to value and cyclical sectors, indicating the emergence of cyclical green shoots.
• Further analysis of technical internals, as well as the macro picture, indicate that hope of a cyclical rebound may be an illusion.
• Macro and valuation risk are weighing on equity prices and downside risk remains.

• The markets reacted with a minor risk-on tone after the release of the November FOMC minutes, but it could be an over-reaction.
• Fed Chair Jerome Powell is scheduled to speak on the economy and labour markets on November 30.
• That speech is likely to set the tone for the markets for the coming weeks.

• Without properly understanding money, it’s basically impossible to connect the countless dots of the global macro puzzle.
• Yet, we assume we know all about money: universities and mainstream economic courses teach us that governments need money to fund their spending, Central Banks have the authority to print money we use, and commercial banks lend and multiply customers’ money in a fractional reserve banking system.
• That’s literally all wrong. Our monetary and credit system envisages two distinct tiers of money: real-economy money (potentially inflationary) and financial-sector money (potentially asset-price inflationary).

• Markets are right to hail Anwar’s appointment as PM, as his multi-racial vision fits perfectly with the federalist ideas that Sabah-Sarawak desire, which will lend stability to his government. 
• Anwar should have been Malaysia’s 5th PM, not its 10th. But his multi-racial approach, and commitment to fighting cronyism, support of the poor and simplicity among ministers have been consistent.
• Anwar seeks a cleaner, more internationally-linked and fiscally responsible Malaysia. With the levers of power in his hand, he will deliver this during a single 5-year term. We are bullish. 

• In Depth: Cosco alters course in the face of shipping headwinds.

• China plans to put nuclear-powered base on the moon by 2028.

• China’s ‘Big Six’ state banks offer developers $130 billion in credit lines.

• Data / In Depth: China’s struggle for data security. 

• Covid-19 / China fleshes out ‘optimized’ Covid-19 response.

• Pension / China’s personal pension system nears launch as insurers’ rules finalized.

• Differential surprises in the Nov-22 PMI surveys still reinforced the global trend towards falling activity. The US drop crystallised the convergence risk we flagged last month.
• Levels are consistent with broad Q4 activity declines, which would confirm a technical recession in the UK. Unemployment lags but is showing some signs of deterioration.
• Although there is arguably enough recessionary evidence for tightening to slow slightly in December, unemployment will need to have definitively turned for hikes to end.

• As my mentor used to say, any market practicioner can make headlines by screaming something wildly out-of-consensus but conveniently leaving the details of his forecast out of the equation.
• How many times have you heard that ‘‘the US Dollar will fall apart’’ or that ‘‘the real estate bubble will burst’’ over the last 10-20 years, yet without a clear time horizon for this call to play out?
• If only you got 1 USD (pun intended) for every time you heard something like this, you’ll be rich by now.

• President Xi Jinping appears willing to make important changes now that he has consolidated his power at the Chinese Communist Party’s 20th Congress 
• Substantial policy shifts have been announced in recent weeks in several areas – pandemic management, real estate support, migrant workers and foreign policy. Expect further shifts in 2023
• We do not see a major push on liberalizing economic reforms, but Xi will be aiming to boost China’s economic resilience to withstand potential American hostility. 

• The latest federal parliamentary elections have produced a hung parliament. Intense negotiations are underway to form the next coalition government
• Perikatan Nasional’s heavily ethno-nationalist campaign worked, making it the biggest winner in the election. It is now positioned as a major player in national politics.
• Malaysia’s political system is more polarized along ethnic, religious, and socio-economic lines. Questions will be asked whether the social fabric can withstand such fissures.

• Inflation surprises continue to skew higher as prices remain far below where firms would like them. Additional cost shocks have prevented the gap from closing at all yet.
• Government policy encourages second-round effects that raise the equilibrium price and cost-push inflation towards it over the next 18 months.
• This macro story raises inflationary trends in our forecast to be almost 2pp above the consensus. That is less than the 4pp gap in March but could still rise again.

In the next webinar, we have Smartkarma Insight Provider Phil Rush who will be giving us the full picture of inflation in Europe and its effects on the European economy. Have your burning questions answered in the live Q&A session that will follow after Phil’s presentation. 

The webinar will be hosted on Wednesday, 23 November 2022, 17:00 SGT/HKT.

Philip Rush is the Founder and Chief Economist of Heteronomics. Until launching in November 2016, he was Nomura’s Senior European Economist and was the Chief UK Economist there since 2010. Before that, he was UK Economist at Barclays Wealth, where he also developed strategic asset allocation models for their market return portfolios. Philip started his career at Lehman Brothers covering the UK, Scandinavian and Swiss economies. A book on his fundamental framework was published in January 2018 as “Real Market Economics”.

• The Week That Was in [email protected] is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia. 
• The Past week saw insights on Selamat Sempurna (SMSM IJ),I-Tail (ITC TB), Grab (GRAB US), Sea Ltd (SE US),Bangkok Aviation Fuel Services (BAFS TB), and True Corp. 
• There were also macro insights on the Thai economy, Indonesia’s economy and the Malaysian elections.

• The Rabobank issued a research note last week where they forecasted that prices for agricultural commodities like coffee, feed grains and oilseeds could dip next year as many major economies enter recession, but also stated that they will remain high in historical terms.
• We think the general call is correct, but the timing isn’t. We already see this dip move playing out at the moment.
• Just take a look at coffee, cotton, oil, or copper. We believe this dip in the long-term cyclical bull market will end towards Q2 of 2022 before the rally in many commodity markets resumes again as demand strikes back.

• Covid-19 / China’s Covid caseload hits six-month high as big cities suffer flare-ups

• APEC / China, Japan to move quickly on maritime and air security hotline

• Caixin Summit / China’s growth is ‘too slow,’ says top state economist

• The better-than-expected October US consumer prices release has imparted hope in financial markets of a looming turning point in the conduct of US monetary policy. 
• History suggests the yield curve inversion since July indicates the onset of recession in 2023 H2, by which time the Fed should have an ample buffer to reduce interest rates. 
• The proponents of a higher Fed inflation target argue that the costs to the real economy of dogmatically pursuing a 2% goal are excessively high due to supply-side forces. 

• The recent risk-on episode is attributable to the combination of excessively bearish sentiment and a positive inflation surprise.
• Most of the effects of the buying stampede have likely dissipated.
• Technical conditions are weak and the bear market is poised to resume.

• The performance of balanced funds was challenging in 2022. You would have to go back to the Volcker Fed of 1980–1982 to see positive correlation between stock and bond prices.
• The good news is the inflection point should be just around the corner. 
• Positive correlation between stock and bond prices in 2022 should translate to a strong return recovery for balanced funds.

• In this business, we are often inundated by countless news headlines telling us all about what’s happening…now.
  
• It’s a never-ending process that invites market participants to spend time and energy dissecting how new information affects the investment landscape.
• For a macro investor though, every now and then taking a step back is crucial: with a 30,000-foot view, the macro big picture becomes increasingly clear.