Category

Thematic and Strategy

Brief Thematic: Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker? and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker? and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  2. Japan Banks – Unloved for Many Reasons

1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

2. Japan Banks – Unloved for Many Reasons

1

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds – but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker? and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  2. Japan Banks – Unloved for Many Reasons
  3. Cashless Payments to Reach 60% of Japanese by 2027, Already Popular Among Young

1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

2. Japan Banks – Unloved for Many Reasons

1

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds – but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA. 

3. Cashless Payments to Reach 60% of Japanese by 2027, Already Popular Among Young

Cashless

Japan is embracing cashless payments wholeheartedly, and the government’s target to reduce the ratio of cash to other mechanisms to 40% by 2027 could be reached early. Even so, cash remains king for small retailers, restaurants and even convenience stores.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker? and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  2. Japan Banks – Unloved for Many Reasons
  3. Cashless Payments to Reach 60% of Japanese by 2027, Already Popular Among Young
  4. The Red Flag

1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

2. Japan Banks – Unloved for Many Reasons

1

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds – but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA. 

3. Cashless Payments to Reach 60% of Japanese by 2027, Already Popular Among Young

Cashless

Japan is embracing cashless payments wholeheartedly, and the government’s target to reduce the ratio of cash to other mechanisms to 40% by 2027 could be reached early. Even so, cash remains king for small retailers, restaurants and even convenience stores.

4. The Red Flag

Lyft facing class action lawsuits. Luckin Coffee just filed to go public on NASDAQ and raised a $150M Series B round. USDA pilots online grocery program for SNAP recipients in NY.

  • Lyft: The red flag we raised about Lyft’s market share is playing out as it is facing two class-action lawsuits from investors claiming it exaggerated its U.S. market share at 39% in its S-1.
  • Starbucks: Luckin Coffee just filed to go public on the NASDAQ and raised a $150M Series B+ round, raising the threat this disruptive new entrant poses to Starbucks’ China growth story.
  • U.S. Dollar Stores: The fortress surrounding U.S. dollar stores could start to crumble as the USDA just launched a two-year pilot program to enable SNAP recipients in New York to buy groceries online from Amazon and Walmart. 

One of the red flags that totally scared me off drinking Lyft’s Kool-Aid was the discrepancy I discovered with its reported U.S. market share. It turns out the skepticism I shared with you in my March 25 research report was warranted as Lyft is now facing two class-action lawsuits from investors claiming it exaggerated its U.S. market share at 39% in its prospectus. It will be interesting to see what happens, especially since Uber disclosed in its April 11 S-1 filing that it currently has over 65% of the ride-sharing category in the U.S. and Canada. But most red flags take much longer to play out. For example, back on January 15, I warned about the threat of the new disruptive entrant Luckin Coffee to Starbucks’ China growth story – but Starbucks’ stock has continued to climb since then, up 18.6% versus the 15.6% gain in NASDAQ. And the red flag just flashed brighter as in the past week, Luckin has raised a $150M Series B+ round, on top of the $200M it raised in December – and even more significantly, filed to IPO on NASDAQ. So it will be interesting to see whether its Starbucks’ China growth story comes under scrutiny from analysts when it reports its Q219 results today after market close. And a new red flag just developed for the U.S. dollar stores as the USDA has launched a two-year pilot program in New York state to enable SNAP recipients to buy groceries online from Amazon and Walmart.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: Japan & China Cross-Listing of ETFs Could Be Interesting and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. Japan & China Cross-Listing of ETFs Could Be Interesting

1. Japan & China Cross-Listing of ETFs Could Be Interesting

Screenshot%202019 04 24%20at%208.11.26%20pm

Late in October 2018, various Chinese media sources reported that the Shanghai Stock Exchange and the Tokyo Stock Exchange operated by Japan Exchange Group (8697 JP) were planning on cross-listing ETFs, with the deal cemented when Japan Prime Minister Abe met with Chinese President Xi Jinping in what was the first official visit by a Japanese PM to China in seven years.

That was the MOU. Early last week there were news articles previewing the news, and a couple of days ago we got an announcement from the TSE with a small description of the agreement signed (with no small ceremony in Shanghai). 

data source: JPX announcement

The basic construct of how a China-based investor would see it is that an ETF would be listed in Shanghai – let’s call it the Shanghai Nomura TOPIX ETF – and that ETF would put at least 90% of its AUM in an ETF already listed on the Tokyo Stock Exchange – say Nomura ETF Topix (1306 JP).

The China-based investor trading on the Shanghai Stock Exchange would simply buy shares in this “Shanghai Nomura TOPIX ETF” (which is used as hypothetical example) using RMB in their account. The Shanghai Nomura TOPIX ETF would trade in RMB prices all day long, tracking the RMB-denominated performance of the TOPIX Index, more or less. When the Shanghai investor wanted to buy more, they’d spend RMB to buy a Chinese ETF holding a Japanese ETF. When they sell, they will get RMB back. 

For a potential Japanese investor, they could buy a TSE-traded Japanese jurisdiction ETF which held a Chinese ETF, and they’d get yen pricing in a domestic brokerage account, Japanese-language documentation and support, but underlying Shanghai index exposure.

The actual dynamics of how this will work is interesting, and tells you a bit about how this might work compared to how the Hong Kong-Shanghai Connect worked in its early stages.

It is not clear when this link will open, but Japanese articles out prior to the official announcement suggested that because all the MOUs between the relevant oversight bodies have been signed, the link will be operational “this year” and possibly as early as May 2019.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: May Departs Unlamented: The Trouble Starts Now, with Real Brexiteers Likely in Charge and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. May Departs Unlamented: The Trouble Starts Now, with Real Brexiteers Likely in Charge
  2. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)
  3. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  4. Bitcoin, Revisited
  5. Landslide Triumph for Modi Prepares the Ground for Economic Transformation

1. May Departs Unlamented: The Trouble Starts Now, with Real Brexiteers Likely in Charge

Theresa May’s prime ministership has come to an ignominious end, with her last throw of the dice — a revised version of her Withdrawal Agreement that she wanted to present to the Commons with many elements favoured by Labour — drawing a complete blank. Her revised draft had included the possibility of a Second Referendum (a no-no to Brexiteers) but mainly entailed elements of a permanent Customs Union. The hedged plan was quickly rejected by almost all those to whom it was aimed at appealing. Apart from ceremonial roles, May’s prime ministership is over: she will resign as Conservative Party leader on 7th June (a fortnight hence), following which the party will choose a new leader through a potentially lengthy process.   

Boris Johnson is the favourite to become the UK’s next Prime Minister, with other Brexiteers (Dominic Raab and Michael Gove) seen as his most credible rivals. With the time-table requiring the negotiations with the EU to be completed well before the next Leave date of 31st October 2019, the probability of a No-Deal Brexit is high. The main problem arising from that will be the need for a new border between Northern Ireland and the Republic — something that is very unpopular in Northern Ireland, and will likely trigger demands for a referendum on Irish Re-unification (given that Northern Ireland voted to Remain in the EU, by a 56-44 margin).  Scotland (another Remain region) too is likely to trigger moves to leave the UK if it is leaving the EU without a deal. 

This is extremely negative news for Sterling and UK equities. The only slight hope for Sterling (GBP) is that no front-runner has won the Tory party leadership in the past 30 years. The downside is that, even if Boris fails again, most of the other alternatives are Brexiteers too. Remainers in the Conservative Party are too singed by Theresa May’s experience over the past 3 years to want to take up the poisoned chalice she is bequeathing. But amid the extreme uncertainty — and high probability of a No-Deal Brexit, with all the chaos that will engender — the GBP is a clear Sell. 

2. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)

Screen%20shot%202019 05 23%20at%2019.06.38

Following on from our original note on the Guangdong – Hong Kong – Macau Greater Bay Area (GBA) from the day of the blueprint announcement on February 18, we are presenting the highlights from our inaugural ‘Baywatch’ report focused on the housing markets on the mainland of the GBA. For the essentials on the GBA, see Bondcritic’s China’s Greater Bay Area: The Essential

3. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights13

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

4. Bitcoin, Revisited

Bitcoin volatility ratio of bitcoin volatility to stocks volatility chartbuilder 3

Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

5. Landslide Triumph for Modi Prepares the Ground for Economic Transformation

Prime Minister Narendra Modi has been re-elected in a landslide victory, with his BJP party leading in 300 constituencies (up from 282 in 2014) in the 543-seat Lok Sabha, giving the BJP a robust majority. The BJP-led National Democratic Alliance (NDA, despite losing a few of its 2014 allies) leads in 345 seats. And, unlike in 2014, the NDA will have a majority in the Rajya Sabha (upper house, which has important legislative clout on non-fiscal issues) with the help of a couple of reliable non-NDA parties (BJD and YSRC) who have also done well in their states. India’s next-largest party, Congress, is leading in merely 50 seats (less than a tenth of the Lok Sabha seats!).  

The election result is a massive shot in the arm for PM Modi, and puts crucial wind in his sails. The NDA won 48% of the national vote, more than the Congress (or any alliance led by it) has won in any election (apart from the 1984 “sympathy wave” after Indira Gandhi’s assassination, when it won 48%). The BJP saw a huge increase in its seat count in West Bengal and Odisha, retained its hold on north, central and western India, and gained in Karnataka and Telangana in the south. Anti-incumbency is usually one of the enduring features of Indian elections; but Modi has secured a nearly 10 percentage point swing for the NDA (and 7pp for the BJP), easily the biggest pro-incumbent swing that any Indian prime minister has ever received.   

Having made the hard decisions of painstakingly reforming the banking system and bankruptcy code, bringing inflation down to well below 3% on a sustainable basis, stabilising the rupee amid global instability, unifying India as a national market through the GST (which will now be rationalised further), universalised access to banks (thereby enabling government benefits to be directly delivered to the poor without leakages), Modi will now concentrate on further transformative change. In particular, labour market reform (reducing protections for “organized” labour in order to increase employment, while introducing basic protections for the unorganized worker, so that she has a more civilized existence), rational changes to the land laws, and better-honed incentives for manufacturing will transform India’s economic prospects over the next 5 years. We are Maximum Bullish on India, which will see 9% annual real GDP growth over the next 5 years — and over 10% in the 2022-24 period after these reforms are enacted. India’s time has come!  

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA) and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)
  2. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  3. Bitcoin, Revisited
  4. Landslide Triumph for Modi Prepares the Ground for Economic Transformation
  5. Five Property Acquisitions Expected to Boost REIT Yields

1. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)

Screen%20shot%202019 05 23%20at%2019.08.24

Following on from our original note on the Guangdong – Hong Kong – Macau Greater Bay Area (GBA) from the day of the blueprint announcement on February 18, we are presenting the highlights from our inaugural ‘Baywatch’ report focused on the housing markets on the mainland of the GBA. For the essentials on the GBA, see Bondcritic’s China’s Greater Bay Area: The Essential

2. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights15

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

3. Bitcoin, Revisited

Screenshot%202019 05 23%20at%2020.26.51

Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

4. Landslide Triumph for Modi Prepares the Ground for Economic Transformation

Prime Minister Narendra Modi has been re-elected in a landslide victory, with his BJP party leading in 300 constituencies (up from 282 in 2014) in the 543-seat Lok Sabha, giving the BJP a robust majority. The BJP-led National Democratic Alliance (NDA, despite losing a few of its 2014 allies) leads in 345 seats. And, unlike in 2014, the NDA will have a majority in the Rajya Sabha (upper house, which has important legislative clout on non-fiscal issues) with the help of a couple of reliable non-NDA parties (BJD and YSRC) who have also done well in their states. India’s next-largest party, Congress, is leading in merely 50 seats (less than a tenth of the Lok Sabha seats!).  

The election result is a massive shot in the arm for PM Modi, and puts crucial wind in his sails. The NDA won 48% of the national vote, more than the Congress (or any alliance led by it) has won in any election (apart from the 1984 “sympathy wave” after Indira Gandhi’s assassination, when it won 48%). The BJP saw a huge increase in its seat count in West Bengal and Odisha, retained its hold on north, central and western India, and gained in Karnataka and Telangana in the south. Anti-incumbency is usually one of the enduring features of Indian elections; but Modi has secured a nearly 10 percentage point swing for the NDA (and 7pp for the BJP), easily the biggest pro-incumbent swing that any Indian prime minister has ever received.   

Having made the hard decisions of painstakingly reforming the banking system and bankruptcy code, bringing inflation down to well below 3% on a sustainable basis, stabilising the rupee amid global instability, unifying India as a national market through the GST (which will now be rationalised further), universalised access to banks (thereby enabling government benefits to be directly delivered to the poor without leakages), Modi will now concentrate on further transformative change. In particular, labour market reform (reducing protections for “organized” labour in order to increase employment, while introducing basic protections for the unorganized worker, so that she has a more civilized existence), rational changes to the land laws, and better-honed incentives for manufacturing will transform India’s economic prospects over the next 5 years. We are Maximum Bullish on India, which will see 9% annual real GDP growth over the next 5 years — and over 10% in the 2022-24 period after these reforms are enacted. India’s time has come!  

5. Five Property Acquisitions Expected to Boost REIT Yields

  • Singapore’s REITs are characterised by comparatively high and stable distribution yields, in addition to potential for portfolio growth. While REIT managers are known to be cautious with balance sheets, acquisitions and secondary fund raisings continue to advance in 2019.
  • In the month of May, five REITs have either announced or completed property acquisitions for their portfolios & include Frasers Centrepoint Trust, AIMS APAC REIT, Sasseur REIT, Manulife US REIT and EC World REIT. The acquisitions span Singapore, Australia, China and the US.
  • In all five acquisitions, Managers have highlighted that the acquisitions would be yield accretive, i.e. boost the overall distribution yield of their respective portfolios. Currently the 34 REITs and six stapled trusts average a 6.5% distribution yield.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: FTSE 100 Long/Short: No 2 No Deal and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. FTSE 100 Long/Short: No 2 No Deal

1. FTSE 100 Long/Short: No 2 No Deal

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The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging “No-deal” option. In this regard investors have been more far-sighted than right-wing Conservative politicians.

So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage “Sell in May and go away” comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.

In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Thematic: GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  2. Bitcoin, Revisited
  3. Landslide Triumph for Modi Prepares the Ground for Economic Transformation
  4. Five Property Acquisitions Expected to Boost REIT Yields
  5. A Second Look at Thai REITs

1. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights15

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

2. Bitcoin, Revisited

Bitcoin volatility ratio of bitcoin volatility to stocks volatility chartbuilder 3

Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

3. Landslide Triumph for Modi Prepares the Ground for Economic Transformation

Prime Minister Narendra Modi has been re-elected in a landslide victory, with his BJP party leading in 300 constituencies (up from 282 in 2014) in the 543-seat Lok Sabha, giving the BJP a robust majority. The BJP-led National Democratic Alliance (NDA, despite losing a few of its 2014 allies) leads in 345 seats. And, unlike in 2014, the NDA will have a majority in the Rajya Sabha (upper house, which has important legislative clout on non-fiscal issues) with the help of a couple of reliable non-NDA parties (BJD and YSRC) who have also done well in their states. India’s next-largest party, Congress, is leading in merely 50 seats (less than a tenth of the Lok Sabha seats!).  

The election result is a massive shot in the arm for PM Modi, and puts crucial wind in his sails. The NDA won 48% of the national vote, more than the Congress (or any alliance led by it) has won in any election (apart from the 1984 “sympathy wave” after Indira Gandhi’s assassination, when it won 48%). The BJP saw a huge increase in its seat count in West Bengal and Odisha, retained its hold on north, central and western India, and gained in Karnataka and Telangana in the south. Anti-incumbency is usually one of the enduring features of Indian elections; but Modi has secured a nearly 10 percentage point swing for the NDA (and 7pp for the BJP), easily the biggest pro-incumbent swing that any Indian prime minister has ever received.   

Having made the hard decisions of painstakingly reforming the banking system and bankruptcy code, bringing inflation down to well below 3% on a sustainable basis, stabilising the rupee amid global instability, unifying India as a national market through the GST (which will now be rationalised further), universalised access to banks (thereby enabling government benefits to be directly delivered to the poor without leakages), Modi will now concentrate on further transformative change. In particular, labour market reform (reducing protections for “organized” labour in order to increase employment, while introducing basic protections for the unorganized worker, so that she has a more civilized existence), rational changes to the land laws, and better-honed incentives for manufacturing will transform India’s economic prospects over the next 5 years. We are Maximum Bullish on India, which will see 9% annual real GDP growth over the next 5 years — and over 10% in the 2022-24 period after these reforms are enacted. India’s time has come!  

4. Five Property Acquisitions Expected to Boost REIT Yields

  • Singapore’s REITs are characterised by comparatively high and stable distribution yields, in addition to potential for portfolio growth. While REIT managers are known to be cautious with balance sheets, acquisitions and secondary fund raisings continue to advance in 2019.
  • In the month of May, five REITs have either announced or completed property acquisitions for their portfolios & include Frasers Centrepoint Trust, AIMS APAC REIT, Sasseur REIT, Manulife US REIT and EC World REIT. The acquisitions span Singapore, Australia, China and the US.
  • In all five acquisitions, Managers have highlighted that the acquisitions would be yield accretive, i.e. boost the overall distribution yield of their respective portfolios. Currently the 34 REITs and six stapled trusts average a 6.5% distribution yield.

5. A Second Look at Thai REITs

REITs are fairly new asset class in Thailand. Today, we met with CPN, a sponsor of some of Central Group’s most important commercial REITs, and FTREIT (Fraser), an industrial REIT from the TCC Group. Here’s the key takeaways:

  • Very stable business but not much growth for both firms. Earnings grew 10% for FTREIT and only 3% for CPN. However, it should be noted that both firms eked out some top line growth, and CPN’s earnings were somewhat depressed by the additional debt it incurred to buy out GLAND from BAY Group.
  • Geography mattered a lot for FTREIT. It was able to raise rental fees by 3% at the Bangplee estate in Bangkok that served e-commerce firms like Lazada, but for the northern estate (Ayuthya/Pathumthani), they largely kept existing rates in order to retain tenants.
  • Low gearing of 0.35x for CPN and 0.23x for FTREIT is a competitive advantage for both. Their high credit ratings (A for FTREIT and AA for CPN) gives them a super low cost of funding only slightly higher than 3%.
  • Opportunities and customers. FTREIT still sees its future primarily in Japanese rather than Chinese customers. Its three locations are respectively dominated by electronics (North), e-commerce (Bangplee), and autos (EEC).

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Brief Thematic: Manifestonomics: Effect of Promises Made by Congress & BJP and more

By | Daily Briefs, Thematic and Strategy

In this briefing:

  1. Manifestonomics: Effect of Promises Made by Congress & BJP

1. Manifestonomics: Effect of Promises Made by Congress & BJP

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India is going through the biggest democracy festival i.e. the General Elections. Both the national parties, ruling & opposition, have made big promises through there manifestoes. While the Congress manifesto, titled “Congress Will Deliver” was propelled on April 2, the BJP manifesto titled “Sankalpit Bharat, Sashakt Bharat” was revealed on April 8. 

 The two parties have used two different approaches to define their manifestoes and the difference can be seen in their priorities and direction. We looked at the two manifestoes. The Congress manifesto is focused on financial modifications while the BJP has given prime importance to national security. We have tried to analyze the economic impact on the government’s health if these parties fulfill their commitments.

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