Category

Macro

Macro: Gold’s Building Blocks Giving a Buy Signal and more

By | Daily Briefs, Macro

In today’s briefing:

  • Gold’s Building Blocks Giving a Buy Signal
  • How Are Fed’s Rate Hikes Impacting EM?
  • EM Currencies Under Pressure – IDR Could Be The Next To Crack
  • Alpha Generating Trading Strategy of KOSDAQ150 Deletions & Additions in June 2022
  • CX Daily: The Troubling Balancing Act Facing Shanghai’s ER Doctors
  • UK: Cars Drive GDP Growth Back a Month
  • CX Daily: ‘Zero Covid’ Slams the Brakes on China’s Electric Car Industry

Gold’s Building Blocks Giving a Buy Signal

By Shyam Devani

  • Factors that typically impact Gold have, on average, reached an extreme
  • They include the USD, Bitcoin, and US TIPS Yields which have all trended strongly up till now
  • Are we about to see at least a minor but notable turning point that provides a buy signal for Gold?

How Are Fed’s Rate Hikes Impacting EM?

By Gautam Jain, PhD, CFA

  • Notwithstanding the economic uncertainties, with the Fed’s path better defined now than a few weeks ago, I expect the volatility of rates to peak in the coming weeks.
  • Uncertainty around the Fed’s rate hikes has been spilling over to the monetary policy paths of EM countries even though many of them have been raising rates since last year.
  • If the US rates volatility falls as I expect, then it will be supportive of the short ends of EM rate curves in Latin American and Central European countries.

EM Currencies Under Pressure – IDR Could Be The Next To Crack

By Nicholas Chia

  • There are more signs of stresses across EM economies. The Turkish Lira has crept past the TRY15-mark against the USD, spurring another bout of unconventional intervention by the authorities.
  • Sri Lanka has been rocked by protests and demonstrations, with the makings of macroeconomic mismanagement by the Rajapaksa family. PM Mahinda Rajapaksa’s resignation failed to soothe the anger of protestors.
  • Indonesia has benefitted from the upturn in commodity prices while inflation remains (relatively) manageable. But, the Rupiah could be poised for a meaningful correction.

Alpha Generating Trading Strategy of KOSDAQ150 Deletions & Additions in June 2022

By Douglas Kim

  • KRX is expected to announce the KOSDAQ150 rebalance in the next couple of weeks. 
  • An alpha generating trading strategy would be to focus on companies with higher probability of getting deleted in the next round of KOSDAQ rebalance in December.  
  • These 15 companies are those among the bottom 30 market cap in KOSDAQ150 that are ranked number 16 to 30 in terms of combined market cap and trading value range. 

CX Daily: The Troubling Balancing Act Facing Shanghai’s ER Doctors

By Caixin Global

  • Shanghai / In Depth: The troubling balancing act facing Shanghai’s ER doctors

  • Southeast Asia / Southeast Asian exporters step up as China locks down

  • China-France / Xi, Macron discuss Ukraine war in phone conversation


UK: Cars Drive GDP Growth Back a Month

By Phil Rush

  • UK GDP growth declined in March as new car deliveries got delayed until April. The trend also disappointed amid downwards revisions and unsustainably sourced strength.
  • Occasional jumps, mainly in the past, skew headline growth rates higher. GDP’s pace still seems to be quartered in Q2, now from 0.8% to 0.2% q-o-q.
  • Stagflationary pressures from extensive cost shocks sustain an uncomfortable policy trade-off. We still expect the BoE to hike in June and August before slowing the pace.

CX Daily: ‘Zero Covid’ Slams the Brakes on China’s Electric Car Industry

By Caixin Global

  • In Depth: ‘Zero Covid’ slams the brakes on China’s electric car industry

  • Shanghai’s Covid hospitals struggle to handle patients with other serious illnesses

  • Exclusive: China’s ‘Big Four’ banks to start pilot program for retirement savings products


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Macro: Optimal KOSPI200 P/B Value Screen: Growth (Ali) Vs. Value (Foreman) – Latter Is Winning in Korea and more

By | Daily Briefs, Macro

In today’s briefing:

  • Optimal KOSPI200 P/B Value Screen: Growth (Ali) Vs. Value (Foreman) – Latter Is Winning in Korea

Optimal KOSPI200 P/B Value Screen: Growth (Ali) Vs. Value (Foreman) – Latter Is Winning in Korea

By Douglas Kim

  • One of the optimal criteria for P/B screen has been to focus on the 150 lowest P/B stocks in KOSPI200. 
  • We provide five different time frames to assess how the investors are shifting to more value names (as evidenced by lower P/B stocks).
  • We compare the growth vs value stocks in Korea to Ali (growth) vs Foreman (value). Right now, value (as evidenced by lower P/B stocks) is winning in Korean stock market. 

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Macro: India: This Is As Good As It Gets For the Economy and more

By | Daily Briefs, Macro

In today’s briefing:

  • India: This Is As Good As It Gets For the Economy
  • The Philippines: Too Much Pessimism over a Marcos Presidency
  • Is the Environment Supportive of EM FX Relative-Value Trades?
  • CX Daily: Why Is China’s Powerful Export Engine Losing Steam?
  • Persistent Risk Premium Threat
  • Stocks Down / Sales Estimates Up.  A Screen.
  • CX Daily: Coal, Once a Boon, Turns Chinese Rustbelt City Into a Bust

India: This Is As Good As It Gets For the Economy

By Nicholas Chia

  • Corporate India booked a robust earnings season for 1Q22, which is a product of the sanguine macro backdrop and the release of pent-up demand with the easing of most restrictions.
  • However, this may be as good as it gets for the economy amid several headwinds to growth. The recent heat waves threatens industrial activity and wheat crop yields.
  • Capacity utilisation rates remain low, holding back the capex drive and investment growth, despite the buoyant earnings season. Watch for growing pressure on the RBI to keep yields in check.

The Philippines: Too Much Pessimism over a Marcos Presidency

By Nicholas Chia

  • Ferdinand “Bongbong” Marcos secured a majority of votes, which is no mean feat, given that political parties are overshadowed by the familial elites who dominate Philippine politics. 
  • Marcos’ victory reflects the failure of the EDSA movement to deliver the economic goods, which chimes with President Duterte’s appeal, despite his War on Drugs and human rights record.
  • There is a material likelihood that Marcos could manage the inter-elite contestations to push through reforms that his predecessor failed to do, despite significant political capital on hand.

Is the Environment Supportive of EM FX Relative-Value Trades?

By Gautam Jain, PhD, CFA

  • In line with my view that the dollar remains strong in the near term, one of the trading strategies that I have suggested is relative-value trades within EM currencies.
  • The volatility of EM currencies continues to rise, which in theory is supportive of relative-value trades as such environments are usually accompanied by wide dispersion among EM currencies. 
  • However, I find that cross-correlations among EM currencies have risen, leading to a narrowing of dispersion between them, which means the environment is no longer supportive of relative-value trades.

CX Daily: Why Is China’s Powerful Export Engine Losing Steam?

By Caixin Global

  • Cover Story: Why is China’s powerful export engine losing steam?

  • How a nursing home resident in a body bag was found alive

  • Exclusive: Several Chinese regions to delay savings bond issuances to keep Covid at bay


Persistent Risk Premium Threat

By Phil Rush

  • Economies are increasingly facing stagflationary squeezes. A series of additional cost shocks would extend the pressures even without traditional second-round effects.
  • Adapting to a higher operational risk premium could create additional shocks as firms pursue shorter and simpler supply chains that reverse the benefits of globalisation.
  • Forecasts implicitly assume risk premia normalisation, as they erroneously did with other risks after the Great Recession. More stagflationary errors may occur.

Stocks Down / Sales Estimates Up.  A Screen.

By Eric Fernandez, CFA

  • Below is a screen of companies with rising sales estimates for 2022 and stocks that have fallen the most. 
  • This is somewhat “off-brand” from our short research, but we thought it could be helpful.
  • Contact us if you would like the Excel version, or a sub-sort (sector, cap, liquidity, multiple), or to hear about our short research.

CX Daily: Coal, Once a Boon, Turns Chinese Rustbelt City Into a Bust

By Caixin Global

  • In Depth: Coal, once a boon, turns Chinese rustbelt city into a bust

  • Former China Supreme Court judge handed 14-year prison sentence for corruption

  • PBOC encourages banks to set deposit rates based on market signals


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Macro: QT Is Already Here And The 2022-23 Bear Market Is Now Well Underway and more

By | Daily Briefs, Macro

In today’s briefing:

  • QT Is Already Here And The 2022-23 Bear Market Is Now Well Underway
  • Can Asia Ex-China Continue to Be Resilient?
  • Egyptian Equities Are Approaching a Bottom
  • The Week That Was in [email protected] – Indonesia & CPO, ROTI, and Siam Cement

QT Is Already Here And The 2022-23 Bear Market Is Now Well Underway

By Michael J. Howell

  • Bear market underway in World equities and likely to see one-third peak to trough decline
  • Trigger is US Fed QT, but US Fed is NOT about to start QT. It has already been underway since Dec 15th 2021
  • Each $100 billion of QT, costs the SPX index around 60 points. Therefore expect S&P500 to test 3250, or 20% lower

Can Asia Ex-China Continue to Be Resilient?

By Manu Bhaskaran

  • Asia ex-China has been relatively resilient this year despite the harsher global environment. 
  • We believe that the re-opening of the developing Asian economies ex-China will outweigh the headwinds, allowing this resilience to continue.
  • China is the single biggest risk: it can succeed in suppressing covid infections but only at a high economic cost. Overall, growth in developing Asia can remain relatively resilient

Egyptian Equities Are Approaching a Bottom

By Dylan Waller

  • Egyptian equities are beginning to enter a bottoming out phase, although there is likely more economic pain this year and no near-term stock market catalysts are present.
  • However, with MSCI Egypt trading at circa six times forward earnings, a near 50% discount to MSCI Emerging Markets, Egypt appears to be positioned very well in terms of relative value
  • Some of the major headwinds approaching include food/energy inflation, declining tourism, and Egypt’s entry into another IMF program this year

The Week That Was in [email protected] – Indonesia & CPO, ROTI, and Siam Cement

By Angus Mackintosh


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Macro: Profit Opportunities in the Coming Global Recession and more

By | Daily Briefs, Macro

In today’s briefing:

  • Profit Opportunities in the Coming Global Recession
  • Top 20 Best Performers in KOSPI (Week of 6 May)
  • Making Sense of the H&S Breakdown

Profit Opportunities in the Coming Global Recession

By Cam Hui

  • A survey of the world economic outlook shows the increased risk of a global recession. 
  • An analysis of the global regions indicates the U.S. is no longer a safe haven in the latest downturn.
  • Relative valuations of non-U.S. markets have converged and the best opportunity is appearing in non-German eurozone.

Top 20 Best Performers in KOSPI (Week of 6 May)

By Douglas Kim

  • This is the first weekly series on the “Top 20 Best Performers in KOSPI Adjusted for Trading Value & Mkt Cap.” 
  • This Korean weekly is aimed at providing a better framework for spotting the big potential winners in the Korean stock market as well as changing sectoral and company trends.
  • These 20 stocks are up on average 13.9% from 28 April to 6 May, significantly outperforming KOSPI which is down 0.9% in the same period. 

Making Sense of the H&S Breakdown

By Cam Hui

  • Our assessment of the bull and bear debate is really a debate of differing time horizons.
  • The bullish factors are mainly short-term in nature, while bearish factors tend to be more intermediate term.
  • Our base-case scenario calls for a short-term bottom and a bear market rally of unknown magnitude, followed by a greater decline into an ultimate low in the coming months.

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Macro: New Global Monetary System Will Evolve and more

By | Daily Briefs, Macro

In today’s briefing:

  • New Global Monetary System Will Evolve, as Sanctions and Current Conventions Worsen Supply Shortages

New Global Monetary System Will Evolve, as Sanctions and Current Conventions Worsen Supply Shortages

By Said Desaque

  • Seizure of Russia’s external assets is prompting countries to think about protecting economic security via alternative payment mechanisms for commodities. The dollar’s role as the leading reserve currency remains intact. 
  • Foreign exchange reserve management could change following seizure of Russian assets. Politicisation of SWIFT could impact flows into banking systems due to fears of potential seizures without legal recourse.
  • High transaction costs for foreign trade never featured prominently during the globalisation era.  New lockdowns in China and Russian sanctions accentuate supply shortages and inflation under current global monetary arrangements.

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Macro: A Mistaken Attempt at Sounding Dovish and more

By | Daily Briefs, Macro

In today’s briefing:

  • A Mistaken Attempt at Sounding Dovish

A Mistaken Attempt at Sounding Dovish

By The Macro Compass

  • How do you assess whether the outcome of a Central Bank meeting was hawkish or dovish? Simple: you look at the delivered outcome against the probability distribution which was priced in before the meeting.
  • It’s not an absolute but a relative assessment.
  • Yesterday, the Fed delivered a 50 bps rate hike and a balance sheet run-off schedule which closely met expectations but the press conference turned to surprise expectations on the dovish side – and it was a mistaken attempt at sounding dovish, in my opinion.

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Macro: GEM Fund Performance.  April Compounds Woes for Active Managers and more

By | Daily Briefs, Macro

In today’s briefing:

  • GEM Fund Performance.  April Compounds Woes for Active Managers
  • BoE: Keeping Pace Until August
  • Asia Ex-Japan:  MediaTek, Sea Ltd and China Banks Weigh on Performance
  • Treasury Shares as % of Total Outstanding Shares: Screening for Potential Activist Candidates
  • India’s “Surprise” Rate Hike Was Overdue
  • Local Governments Again Break Out the Coupons to Boost Consumer Spending
  • CX Daily: Five Things To Know About China’s Draft Rules On Local Financial Institutions
  • CX Daily: How the War in Ukraine Is Rattling China’s Energy Transition

GEM Fund Performance.  April Compounds Woes for Active Managers

By Steven Holden

  • Average returns among GEM active managers came in at -7.02% for April, lower than the MSCI EM Index by -1.46% with 21.2% of funds outperforming.
  • This year’s underperformance of -3.69% ranks as the worst start to the year for over a decade, worse than the first 4 months of both 2009 (-2.70%) and 2015 (-2.71%).
  • Russian Financials (overweight) and Saudi Arabian Financials (underweight) accounted for nearly 1% of the performance deficit, with Singapore Comm’ Services, Taiwan Technology and Indian Utilities further dragging on relative returns.

BoE: Keeping Pace Until August

By Phil Rush

  • The BoE delivered another 25bps rate hike to 1.0%, as widely expected. Not only did all members vote for a hike, as we thought, but three dissented for 50bps.
  • Some MPC members were unhappy with maintaining hawkish guidance. However, most were, and with three already backing 1.25%, we now expect another hike on 16 June.
  • Forecasts appear inconsistent with maintaining this sequential pace. Forthcoming asset sales in September now make that likely to be the month gradualism slows the pace.

Asia Ex-Japan:  MediaTek, Sea Ltd and China Banks Weigh on Performance

By Steven Holden

  • April was another tough month for active Asia Ex-Japan managers. Average returns of -6.18% lagged the MSCI Asia Ex-Japan index by -1.02%, with just 27.8% of funds beating the benchmark.
  • On the year so far, more than 80% of Asia Ex-Japan funds are underperforming the benchmark. Returns are largely correlated to Style, with Value outperforming Growth by +6.5%.
  • Overweights in both Mediatek Inc and Sea Ltd  have been the most costly on the year, in addition to a number of underweights in the key state run China banks

Treasury Shares as % of Total Outstanding Shares: Screening for Potential Activist Candidates

By Douglas Kim

  • In this insight, we provide a ranking of all the KOSPI 200 stocks, in terms of their treasury shares as a percentage of total outstanding shares.
  • We highlight 29 companies whose treasury shares/outstanding shares are more than 10%. These companies’ values could be improved significantly if treasury shares are cancelled. 
  • The potential implementation of compulsory tender offer in the next 2-3 years is likely to put increased focus on Korean companies with especially large levels of treasury shares/total outstanding shares. 

India’s “Surprise” Rate Hike Was Overdue

By Gautam Jain, PhD, CFA

  • The Reserve Bank of India roiled the market yesterday with an unexpected inter-meeting policy rate increase, leading to rates moving higher across the curve.
  • I have been arguing for a few months that the RBI needs to start raising rates based on the high inflation and narrowing rate differential with the US.
  • Despite the move higher in rates in India, I continue to like paying rates in India, particularly against receivers in other countries to hedge against the volatile US rates.

Local Governments Again Break Out the Coupons to Boost Consumer Spending

By Caixin Global

  • China’s local governments have begun offering billions of yuan worth of coupons to boost consumer spending, in an effort to help businesses feeling the pain of China’s Covid-19 outbreaks over the past two months.
  • The measure comes as China’s economy faces some of the greatest strain it has experienced since the initial wave of outbreaks in early 2020 as strict lockdowns across the country have disrupted business and everyday life
  • This time, local governments have also chosen coupons or vouchers as the form of their demand-side stimulus policy. The coupons will be good for discounts on products like cars and electronics, as well as services such as admission into local tourist sites.

CX Daily: Five Things To Know About China’s Draft Rules On Local Financial Institutions

By Caixin Global

  • Five things to know about China’s draft rules on local financial institutions

  • Beijing shortens quarantines for inbound travelers, close contacts

  • Shrinking capital investment drags down Caixin New Economy Index


CX Daily: How the War in Ukraine Is Rattling China’s Energy Transition

By Caixin Global

  • In Depth: How the war in Ukraine is rattling China’s energy transition

  • Regional bank under corruption probe faces more trouble after online savings accounts frozen

  • China’s services sector slumps further as Covid battle intensifies, Caixin PMI shows


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Macro: EA: Activity Towards Gradual Exit and more

By | Daily Briefs, Macro

In today’s briefing:

  • EA: Activity Towards Gradual Exit
  • CX Daily: Global Food Crisis Stalks the Starving as War, Covid Choke Supplies

EA: Activity Towards Gradual Exit

By Phil Rush

  • Services activity remains relatively robust in the Euro area, consistent with ongoing expansion. The consumer confidence crash is likely to bind business pricing power.
  • Unemployment’s steep trend decline still suggests a tightening that exceeds the experience of many countries with far more hawkish policy outlooks.
  • The ECB remains likely to respond soon after finishing QE, with an initial hike in Sep-22. We still see a demand squeeze encouraging a more gradual cycle than markets price.

CX Daily: Global Food Crisis Stalks the Starving as War, Covid Choke Supplies

By Caixin Global

  • Food / Cover Story: Global food crisis stalks the starving as war, Covid choke supplies

  • Covid-19 / Shanghai eases restrictions in six districts

  • PMI / China manufacturing slump deepens as Covid curbs bite, Caixin PMI shows


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Macro: China: Mounting Challenges to Compel Far-Reaching Policy Changes and more

By | Daily Briefs, Macro

In today’s briefing:

  • China: Mounting Challenges to Compel Far-Reaching Policy Changes
  • Indonesia: Policy Twists and Turns Will Hurt Investment Climate
  • How Well Is Hedging EM Currencies with the Euro Working?
  • Singapore: Upside Risks to Inflation Imply Possible Further Policy Tightening in October

China: Mounting Challenges to Compel Far-Reaching Policy Changes

By Manu Bhaskaran

  • Near term: There has been a clear shift in favour of greater stimulus, with the focus not on maximizing growth but on ensuring stability.
  • There are four reasons why the announced measures lack potency. The changes do not go far enough to restore consumer confidence.
  • Longer term: China will place greater emphasis on securing its geo-strategic position rather than on prioritizing growth.

Indonesia: Policy Twists and Turns Will Hurt Investment Climate

By Nicholas Chia

  • Investment data show that Indonesia is progressing in its efforts to accelerate economic growth.
  • FDI has risen sharply in 1Q22, particularly in the mining downstream sector.
  • But policy flip-flops such as the ban on palm oil exports could undermine confidence in policy making.  

How Well Is Hedging EM Currencies with the Euro Working?

By Gautam Jain, PhD, CFA

  • In line with my view of the dollar remains strong in the near term, one of the trading strategies that I have suggested hedging an EMFX portfolio with the euro.
  • I show that the hedge has performed well by breaking down and comparing the return of the hedged portfolio with the unhedged version.
  • For me to recommend taking off the euro hedge, we would need to see the volatility of US rates and the probability of recession falling. 

Singapore: Upside Risks to Inflation Imply Possible Further Policy Tightening in October

By Nigel Chiang

  • Price pressures firmed in March after pausing in February; MAS more hawkish on inflation yet confident that growth fundamentals remain intact with Russia-Ukraine drag offset by earlier reopening of economy
  • We rule out an inter-meeting hike for now; MAS likely views the risk of a wage-price spiral as limited after the cumulative pre-emptive tightening moves since January. 
  • The trajectory of inflation will be key to watch for the October monetary policy decision. Core CPI breaching 4.5% in July and/or a sluggish inflection afterward would make tightening probable.

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