Daily BriefsMacro

Macro: China: Policy Moves Show Who’s Boss and more

In today’s briefing:

  • China: Policy Moves Show Who’s Boss
  • Singapore: Unusual Hints of a Major Shift in Policy
  • Bonds & Commodities – An Interesting Mix
  • The Week That Was in [email protected] – Indonesia’s Wave, Del Monte, and Grab’s Alliances
  • Alpha Bites: Receive Czech 5y Vs Pay Poland 5y Rate

China: Policy Moves Show Who’s Boss

By Manu Bhaskaran

The recent regulatory blitz on China’s technology/internet companies and now the edutech sector has significantly unnerved financial markets. The key takeaway from a macro standpoint is that the balance between the state and private enterprise has shifted even more in favour of the state, continuing a trend that had begun earlier. Private enterprises in China must now recognise that the Chinese state’s strategic priorities will take precedence over corporate interests to a greater extent than in the past. The blunt assertion of the state’s interests over private enterprise in China will raise the risk premium of investing in Chinese assets.

The crackdown on the online education sector indicates that the Chinese leadership sees the demographic trends as a serious threat to their ambitions for the nation: it is almost certain that they will reinforce these measures with more radical moves on the provision of childcare/infant care as well as parental leave and subsidies for child-raising.

There is also the view that the housing sector will be next in line for regulation. Our prior is that regulatory action on this front will be somewhat more calibrated, given the housing market’s centrality to the economy, and the relatively high level of financial vulnerabilities that have built up over time in certain pockets of the property sector.

We expect more forceful action in areas where regulators have been behind the curve, for instance in China’s financial markets where a number of financial and accounting scandals have hurt the credibility of its capital markets. To this end, the ongoing regulatory blitz could result in some positive changes to the structure of China’s economy over the long term.

Given this fundamental change, the business sector in China – especially domestic private firms – will rethink its strategy in various ways. The less high-profile wealthy could move more capital abroad. Hong Kong businesses would accelerate the diversification and restructuring of their businesses.

Singapore: Unusual Hints of a Major Shift in Policy

By Nigel Chiang

Emerging policy signals suggest that there has been a deep rethinking of fundamental policies.

Singapore appears poised to see potentially ground-breaking policy changes in areas where the government has long resisted change, such as the minimum wage and tax measures to redress increased inequality.

Bonds & Commodities – An Interesting Mix

By Shyam Devani

The developments taking place on Copper and the wider London Metals Exchange Index, indicate further gains from here in base metals. The corrections over the past couple of months seem to be over and we might even be ready to rally back to the trend highs.

Should that unfold, it would only bring inflationary pressures back to the fore and help push breakevens higher, which has already started to happen.

Combining that with the recent trouble in Chinese equities & the low nominal yields has resulted in the lowest ever print on US 10 year real yield today.

Unless one believes nominal yields are going to shoot up quickly (not a belief held here even if there seems to be little value in Bonds) then this picture should continue to provide a positive backdrop for precious metals and a negative one for the USD generally.

The Week That Was in [email protected] – Indonesia’s Wave, Del Monte, and Grab’s Alliances

By Angus Mackintosh

The week that was in [email protected] is filled with another eclectic mix of differentiated, substantive, and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.

We add below a NEW section, which includes emerging themes in ASEAN and selects important news flow or developments for commentary, which may impact SE Asian companies and markets.

Macro Insights

In CrossASEAN Indonesian Strategy – Peaks and Troughs, CrossASEAN insight provider Angus Mackintosh puts forward his Indonesia market strategy as COVID-19 cases swell but he takes a constructive view on the recovery.

In Malaysia: Growing Despair As Covid-19 Crisis Spirals Out of Control, Manu Bhaskaran takes a closer look at Malaysia’s political outlook as Malaysians are angry at how the government is handling the COVID-19 crisis.

Equity Bottom Up

In Arwana Citramulia (ARNA IJ) – Glazed Porcelain, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s leading tile producer post its recent results.

In ComfortDelgro (CD): Buy On (Temp) Weakness, Henry Soediarko returns to look at Comfortdelgro Corp (CD SP) after the Singaporean government placed a ban on dining-in as part of the stricter measures to handle the delta variant.  

In Del Monte Philippines IPO Initiation: Tempting Fruit, Arun George takes a closer look at Del Monte Philippines (1575316D PM) as the company is in the process of pre-marketing for its IPO.

In Del Monte Philippines IPO: Valuation First-Look, Arun George returns to look at Del Monte Philippines (1575316D PM)‘s potential valuations and present his forecasts on the company. 

In Bank Central Asia – Good, But New Credit Challenges Ahead, Thomas J. Monaco returns to look at Bank Central Asia (BBCA IJ) after the bank released a solid set of 2Q2021 results. 

In SCC: Expected Strong 2Q21E but Would Lose Momentum in 3Q21E, Country Group returns to look at Siam Cement (SCC TB) and expects a strong set of 2Q2021 results driven by its Packaging business expansion and better petrochemical prices. 

In BBL: 2Q21 Result Was in Line with Our Expectation, Country Group reports back on Bangkok Bank Public (BBL TB) after the company released a better than expected set of 2Q021 results. 

In PLANB: Expect Solid Recovery Period in Mid 4Q21, Country Group reiterates its BUY rating for Plan B Media (PLANB TB) but expects the company to report a net loss in 2Q2021. 

In KBANK: 2Q21 Result Was in Line with Our Expectation, Country Group circles back to Kasikornbank PCL (KBANK TB) after the analyst meeting came out with a positive tone after the bank posted a solid set of 2Q2021 results. 

In BEM: Expect Earnings to Remain Dull at Least in 2Q21 and 3Q21, Country Group takes a look at Bangkok Expressway and Metro (BEM TB) which is still experiencing contraction due to the 3rd wave of COVID-19. This has reduced average daily toll traffic to 770k trips/day (-21%QoQ -4%YoY) and MRT ridership to 119k trips per day (-44%QoQ -11%YoY). 

In Bukalapak IPO: Revenue Take Rate Moving Up, But Not Fast Enough, Oshadhi Kumarasiri returns to look at Bukalapak (BUKA IJ) as it priced its IPO at the top end of the range.

Credit Insights

In Morning Views Asia: ABM Investama, Evergrande Real Estate Group, Medco Energi, credit specialist Leonard Law, CFA revisits Medco Energi (MEDC IJ) after its announced a rights issue. 

In Morning Views Asia: ABM Investama, Evergrande Real Estate Group, Medco Energi, credit specialist Trung Nguyen takes a look at ABM Investama (ABMM IJ) after Moody’s assigned B1 rating to their Notes, and at the same time placed it on review for possible downgrade (in line with its other ratings).

In Morning Views Asia: Agung Podomoro Land, Bright Scholar Education, Lifestyle International Holdings, Trung Nguyen maintain his “Hold” recommendation on the Agung Podomoro Land (APLN IJ) 5.95 24 as he sees a high likelihood of the company’s notes 5.95 24 being restructured.

Alpha Bites: Receive Czech 5y Vs Pay Poland 5y Rate

By Gautam Jain, PhD, CFA

In this week’s Alpha Bites, we recommend receiving the 5-year rate in Czech Republic vs paying the 5-year rate in Poland via IRS. Poland’s rates have outperformed its regional peers on the back of the uber-dovish monetary policy stance of the central bank and the June CPI reading coming off slightly from May. We continue to find the nominal and real rates in Poland to be too low in comparison with other countries, particularly Czechia, and unlikely to sustain at current levels with inflation running hot on the back of easy monetary and fiscal policies.

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