Daily BriefsMacro

Macro: NPS Plans to Expand Domestic Equity Benchmark from KOSPI200 to KOSPI250 and more

In today’s briefing:

  • NPS Plans to Expand Domestic Equity Benchmark from KOSPI200 to KOSPI250
  • Commodity Prices Cycling Around
  • The Week That Was in [email protected] – Indonesia’s Peak, Mayora Indah, and IPOs
  • China: Growth Is Not the Problem, Worry About the Savings Conundrum
  • Alpha Bites: A 2s5s Flattener in India with Receiving Bias

NPS Plans to Expand Domestic Equity Benchmark from KOSPI200 to KOSPI250

By Douglas Kim

NPS (National Pension Service of Korea) announced that it will expand the number of companies included in the domestic equity benchmark. As of end of April 2021, NPS managed (directly and outsourced combined) 178 trillion won of domestic equities, representing 20.1% of its total managed assets. Currently, the main domestic equity benchmark is KOSPI200.

According to NPS, one of the major reasons why it is trying to expand the number of companies included in its core domestic portfolio benchmark is because it believes the proportion of large cap stocks in the NPS’ domestic stock portfolio is too high and it wants to add more mid-cap/small cap stocks. 

Commodity Prices Cycling Around

By Phil Rush

  • The latest spike in commodity prices has been supported by an upswing in global growth, as vaccination programmes have rolled out in the developed world and economies have reopened.
  • Even quite pronounced cycles in commodity prices should not affect the path of consumer price inflation over the medium term, as long as inflation expectations remain stable.
  • We see momentum in the global economy slowing in H2. Combined with a shift in consumption patterns towards services, this should take some of the heat out of commodity demand in H2.

The Week That Was in [email protected] – Indonesia’s Peak, Mayora Indah, and IPOs

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 The Philippines: An Uninspiring Recovery Fuelled Mainly By Base Effects, Nicholas Chia provides his current views on the Philippine economy. 

Equity Bottom Up

In Mayora Indah (MYOR IJ) – Lovely Biscuits, CrossASEAN insight provider Angus Mackintosh presents an initial view on Indonesian consumer staples company Mayora Indah (MYOR IJ) after a post-results call with the management.

In AKR Corporindo (AKRA IJ) – Freeport Smelter a Boon for JIIPE, Angus Mackintosh circles back to  AKR Corporindo (AKRA IJ) after Freeport Mcmoran (FCX US) announced it will not proceed with plans to build a new copper smelter with China’s Tsingshan Holding Group in Indonesia but will focus on its JIIPE smelter. 

In Bank Negara Indonesia (BBNI IJ) – Digitally Remastered in Style, Angus Mackintosh takes a look at Bank Negara Indonesia Persero (BBNI IJ) after a call to discuss the bank’s digital strategy and what really makes it stand out from competitors.

In Kimia Farma (KAEF): Legitimate Pharmacy, Henry Soediarko returns to look at Kimia Farma Persero (KAEF IJ) as the COVID cases in Indonesia are on the increase. Kimia Farma Persero (KAEF IJ) carries the majority of what are thought to be COVID-19 related medications, such as Favipavir, Chloroquine, Hydroxychloroquine, Azithromycin, and Immunomodulator. 

In Bukalapak IPO – Peers & Valuation – Betting on Its Potential, Zhen Zhou, Toh looks at Bukalapak (BUKA IJ)‘s valuations as the company moves towards its IPO.  

In Filinvest REIT IPO – Almost like a Single Asset REIT, COVID Hasn’t Been Kind, Sumeet Singh takes a closer look at Filinvest Reit (FILRT PM) (FREIT), a subsidiary of Filinvest Land (FLI PM) as it aims to raise USD240m in its Philippines listing.

In Filinvest REIT IPO – Hard to Get Excited, Despite the Yield, Sumeet Singh returns to look at Filinvest REIT (FILRT PM)‘s and puts its IPO valuations through his ECM framework.

In Bukalapak IPO Initiation: Island Shopping, Arun George provides his view on Bukalapak (BUKA IJ) as the company prepares for its Jakarta IPO.

In ADVANC: Expect 2Q21 Earnings to Drop Both YoY and QoQ, Country Group maintains BUY rating for Advanced Info Service (ADVANC TB) due to growth potential from 5G, given it has the largest total spectrum of bandwidth compared to peers.

In GPSC: 34% Capacity Expansion from New Overseas Investment, Country Group revisits Global Power Synergy Company Ltd (GPSC TB) after it announced an investment of THB30bn in an overseas renewable energy project, including THB15bn for 41.65% stake in Avaada energy India (1.6GWe) and another Bt15bn for 25% stake in Ci Changfang & Ci Xidao Taiwan (149MWe).

In DELTA: Expected 2Q21E Recurring Profit at Bt531m (-21%YoY, +6%QoQ), Country Group maintains a SELL rating for Delta Electronics Thai (DELTA TB) but do expect stronger profitability in 2H2021 due to Baht depreciation, better efficiency and more balancing raw material supply. Delta Electronics Thai (DELTA TB) would also benefit from the rise of the EV industry and order relocation from China due to US-China trade tension.

In AUCT: Expect 2Q21 Earnings Should Be the Bottom Quarter of the Year, Country Group revisits Thailand’s largest car auction company ahead of its results and continue to take a positive view of the company. 

Sector and Thematic 

In Energy Sector Outlook 3Q21, Country Group takes a closer look at the energy sector outlook for the 3Q21.

Credit Insights

In Morning Views Asia: Agung Podomoro Land, China South City, credit specialist Trung Nguyen maintains his “Hold” recommendation on the Agung Podomoro Land (APLN IJ) 5.95 2s after Moody’s downgraded ratings onthe company from B3 to Caa1.

Smartkarma Webinar

In Smartkarma Webinar | Overweight and Underweight in Indonesia Amidst the Covid Crisis, Henry Soediarko will host a webinar on overweight and underweight in Indonesia as the country’s healthcare system has been overwhelmed due to COVID-19. This raises questions about hospital operators such as Mitra Keluarga Karyasehat Tbk (MIKA IJ) and Siloam International Hospital (SILO IJ), while tighter testing and vaccination regulations could bode well for Prodia (PRDA IJ) as the only listed entity in Indonesia with expertise on testing. The webinar will be hosted on Wednesday, 21 July 2021, at 17:00 SGT/HKT.

China: Growth Is Not the Problem, Worry About the Savings Conundrum

By Nigel Chiang

  • China’s economy is normalising, not slowing in a way that demands a policy reversal. It is returning to its trend growth rate of around 5.5% to 6%, which is in line with its fundamentals. 
  • The worry is how reticent consumers are: despite the economic recovery, spending has barely picked up. This higher savings rate makes sense, given the limited social safety net, the distortions caused by the housing market and demographics.
  • However, higher savings could also be partially explained by psycho-social changes in China, as evidence mounts of growing alienation, particularly among the young.

Alpha Bites: A 2s5s Flattener in India with Receiving Bias

By Gautam Jain, PhD, CFA

In this week’s Alpha Bites, we recommend receiving the 5-year rate vs paying the 2-year rate in India. India’s 2s5s curve slope is close to its steepest in a decade and among the steepest in EM. The Reserve Bank of India (RBI) continues to emphasize growth uncertainty over high inflation, leading the curve to push out rate hikes and keeping it steep. We expect the RBI to tighten earlier than currently priced in and given the steepness of the curve, recommend a flattener. We recommend keeping a receiving bias though because of RBI’s dovish leaning.

Before it’s here, it’s on Smartkarma