In this briefing:
- Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs
- What Would Happen If The Fed Cuts Rates?
- Budweiser Brewing Company APAC IPO: A Solid PHIP Update
- 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma
China News That Matters
- Do you hear the people sing?
- The deadline is in my head
- A wealth of data on people, governments and companies
- So stimulating: Beijing pushes funding for big infrastructure
- Stink Bug vs Armyworm, amid food inflation battle
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
As we look ahead to the FOMC meeting next week, the market has priced in three quarter-point rate cuts for 2019, with the first cut occurring at the July meeting.
A rate cut is not unexpected, as the bond market has pushed the Treasury yield curve down so far that only the 30-year Treasury bond is trading above the current Fed Funds target. It is likely too early for the Fed to cut rates at its June meeting next week, but if the market is discounting a July cut, the Fed is likely to signal it is either in agreement with that expectation or correct the market.
Rather than debate whether the Fed should cut rates, we consider the scenario of what might happen if it were to proceed with a July rate cut. What are the consequences for economic growth and the stock market?
We believe that while the Fed could decide to cut rates at its July FOMC meeting, the future path of interest rates and stock prices depends on the reasoning behind the rate cut. If the cut is in response to the eruption of a full-blown trade and economic cold war with China, it is likely to be the start of a protracted rate cut cycle, with bearish implications for equity prices. On the other hand, if the rate cut is an “insurance” cut designed to heed off further economic weakness in the face of a stalemated trade dispute, we expect the cut to be reversed relatively quickly because the global growth backdrop remains constructive. Equity prices would rise under such a scenario as the bullish implications of higher growth would overwhelm the bearish implications of higher interest rates.
Budweiser Hong Kong Holding (0338867D HK)/Budweiser APAC is Anheuser Busch Inbev Sa/Nv (ABI BB)’s Asian business and is the largest beer company by retail sales value based in the Asia Pacific, according to GlobalData. On Thursday, Budweiser APAC received HKEX approval for a Hong Kong IPO to raise $5-10 billion, according to press reports.
In our IPO initiation note, we concluded that Budweiser APAC fundamentals are strong. The PHIP update which outlines 1Q19 financials reinforces our view).
TW3 NORTH ASIA 10-16TH JUNE
Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials. Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.
Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.
Bullish Equity Bottom-Up comments were published on Nissan (7201 JP), Renesas Electronics (6723 JP), Rakuten (4755 JP), Hitachi (6501 JP), Modec(6269 JP), Nintendo (7974 JP), and Life (8194 JP). Only ZOZO (3092 JP) saw (another) bearish call.
Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.
EVENT DRIVEN: BULLISH
EVENT DRIVEN: BEARISH
IPOs & PLACEMENTS: BEARISH
EQUITY BOTTOM UP: BULLISH
EQUITY BOTTOM UP: BEARISH
THEMATIC & STRATEGY: BULLISH
THEMATIC & STRATEGY: BEARISH