Daily BriefsMacro

Macro: US Economy – How Low Is Low? and more

In today’s briefing:

  • US Economy – How Low Is Low?
  • The Week that Was in [email protected] – Sea Ltd’s Runway, Telkom’s Digital Edge, and Astra Intl
  • Asia Ex-Japan Positioning:  India & Tech at Record Highs
  • Alpha Bites: A Beta-Neutral 5s10s Flattener in Thailand

US Economy – How Low Is Low?

By Shyam Devani

One degree of frustration over the past several weeks and months for Bond market bears is the lack of strong follow through relative to expectations in US economic data. This has raised questions about the credibility of the US recovery.

It has partly, or perhaps largely, explained the low levels on yields we see at the long end of the curve, both in nominal and real terms.

However, no trend lasts forever.

The chart below gives an idea where we might stand with regards to this underwhelming data. What is indicates is that the worst of it might be now or already behind us, either because expectations have been lowered and are thus easier to beat, and/or that we are approaching another turning point in the economy with a brighter outlook.

The Week that Was in [email protected] – Sea Ltd’s Runway, Telkom’s Digital Edge, and Astra Intl

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 Malaysia: Further Export Deceleration Will Hurt but Things Could Improve Thereafter, Manu Bhaskaran discusses Malaysia’s economic and political outlook as the country continues to face near-term headwinds. 

Equity Bottom Up

In Sea Ltd (SE US) – The Runway Just Got Longer, CrossASEAN Insight Provider Angus Mackintosh takes a closer look at Sea Ltd (SE US) after the company announced that it aims to raise US$6.3bn in the largest equity offering of 2021. 

In Telekomunikasi Indonesia (TLKM IJ) – Dancing with the Digital Economy, CrossASEAN insight provider Angus Mackintosh circles back to Telekomunikasi Indonesia (TLKM IJ) after the company released its 1H2021 results. 

In Blue Bird (BIRD): New Distribution Channel and Limited Downside, CrossASEAN Insight Provider Henry Soediarko revisits Blue Bird (BIRD IJ) following the news that it will collaborate with the Airport Railway on taxi bookings. 

In SEA Ltd Placement -Momentum Is Very Strong but Last Deal Didn’t Do Well and It Doesn’t Need the Cash, Sumeet Singh returns to look at Sea Ltd (SE US) after the company announced its plan to raise around US$3.5bn via an equity offering, along with another US$2.5bn via a convertible offering. 

In Bank Rakyat Indonesia (BBRI)’s Mega Rights Issue – Plenty of Opportunity Short-Term and Long-Term, Travis Lundy returns to look at Bank Rakyat Indonesia Persero (BBRI IJ) after Indonesia’s largest bank sees its shares go ex a very large Rights Offering. He highlights a number of interesting trades around this issue. 

In CIMB Group Placement – Has Sold Before, past Deals Did Just About Ok, Sumeet Singh revisits CIMB Group Holdings (CIMB MK) as Khazanah aims to raise around US$119m via selling 1% of the company. This is not the first selldown by Khaznah and most of the past deals have managed to hold above the deal price. 

In MREIT IPO – Needs to Be Priced a Whole Lot Lower, Sumeet Singh reports back on Megaworld Real Estate Investment Trust (MREIT PM)‘s IPO plans, where he thinks it should trade in line with its peer’s average valuation, which would imply a share price of close to PHP15/share.

In SCB: Largest Retail Loan Portfolio Amongst Big Banks, Country Group provides their initial view on Siam Commercial Bank Pub Co (SCB TB) and expect loan growth acceleration post-COVID-19 next year. 

In Sea Ltd Follow-On Offering: Asking Permission From Investors to Burn $4.0bn Per Year, Oshadhi Kumarasiri provides his comments on the recent placement by Sea Ltd (SE US).

Sector and Thematic 

In Indonesia’s Banking Sector: Data Shows Improvements (Positive), Alvin Cornelis discusses Indonesia’s banking sector after data from Indonesia’s Financial Authority (OJK) showed some improvements in the banking industry outlook.

Asia Ex-Japan Positioning:  India & Tech at Record Highs

By Steven Holden

In this analysis, we provide a detailed overview of investor positioning among 96 active Asia Ex-Japan funds with combined AUM of $80bn.  Highlights:

  • The big four of China & HK, Taiwan, South Korea and India dominate holdings in Asia Ex-Japan.  The 4 countries combined account for 85.4% of total allocations, though all but India are held underweight versus the MSCI Asia Ex-Japan index.
  • China & HK’s weight in Asia Ex-Japan funds stands at a 4-year low of 42.96% having fallen heavily from the high of 52% back in August 2020.
  • Allocations in Indian stocks hit a new all-time high last month of 13.54%.  India has been the go-to overweight holding since the election of Narendra Modi in 2014, though managers are much more closely aligned to benchmark today.
  • Indonesian allocations are close to their lowest levels on record.  Only 82.8% of the Asia Ex-Japan managers in our analysis have exposure to Indonesia,  with Comgest, Barings and Vontobel closing exposure over the last 6-months.

  • Information Technology dominates the holdings picture, being both the largest sector holding and the largest sector overweight by some distance.  Opposing this are net underweights in Health Care (-1.61%), Materials (-1.25%) and Financials (-1.17%). 
  • The key antagonist in China’s tech crackdown, Consumer Discretionary weights have fallen from a high of 21.35% in October 2020 to 16.84% today.  In tandem, active managers have moved from an overweight of 2.18% to an underweight of -0.12%.  Confidence has certainly taken a knock.

Also analyzed in more detail:  Thailand, Health Care, Indian Financials, South Korean Consumer Staples, China Financials, Baidu (BIDU US) , Sea Ltd (SE US) , Midea Group Co Ltd A (000333 CH) and JD.com Inc (ADR) (JD US).

Analysis taken from our Asia Ex-Japan research, covering 96 active Asia Ex-Japan funds with combined AUM of $80bn.

Alpha Bites: A Beta-Neutral 5s10s Flattener in Thailand

By Gautam Jain, PhD, CFA

In this week’s Alpha Bites, we recommend receiving the 10-year rate vs paying the 5-year rate in Thailand. Rate curves in Asia have lagged the rest of EM and the US in flattening since March-end, partly because curves in Asia did not steepen as much in the first place as other EM curves did earlier this year. Also, Asian countries lag in monetary tightening cycles. Among Asian countries, we like a flattener in Thailand as the curve is already pricing in a very weak growth scenario. More recently, the prospect of the government raising its debt ceiling cap has led to the long end underperforming relative to the belly, which we believe should be impacted similarly.

Before it’s here, it’s on Smartkarma