Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

PK Basu has 34 years experience covering Asia's economies and markets (equities, fixed income and currencies), including 20 years covering the global economy. He was Chief Economist (SE Asia & India) at Credit Suisse First Boston for 5 years, and Chief Asia (x-Jpn) Economist at Daiwa Securities for a similar period. Among other roles, he was global head of research at Maybank Kim Eng, Malaysia equity research head and chief ASEAN economist at Macquarie, ASEAN economist at UBS and the first chief economist at Khazanah Nasional (where he was co-head of research, and led all agri-business initiatives). PK Basu started his career in the Asia Service of WEFA (Wharton Econometrics) in Philadelphia in 1990, rising to be Director of their Asia Service in June 1994. 
PK's book, "Asia Reborn: A continent rises from the ravages of Colonialism and War to a New Dynamism" won the Tata Literature First Book Award (non-fiction) for 2018. It is the first single chronicle of the modern economic and political history of the whole of Asia (from Iraq and Turkey to Korea and Japan, and everything in between), told from an Asian perspective.

Chief Economist & Political Strategist

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CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

The FOMC's insistence that inflation is "transitory" looks increasingly delusional. Over the latest 3 months (March-May 2021), the core PCE price index has increased at an annualized pace of 6.4% -- and the core CPI has increased at an annualized 7.6% in those 3 months. While the Fed's median inflation forecast for 2021 rose by 1 percentage point between March and June (to 3.4% YoY), and real GDP growth is projected to be far above trend in 2021 and 2022 (which would normally trigger inflation), the FOMC remains sanguine about inflation in 2022, and hence promises to persist with US$120 billion of asset purchases monthly. 
In our view, the persistence of aggressive monetary expansion is the key cause of the spurt in inflation, and will boost inflation further in the months ahead. M2 money supply grew consistently more than 20% YoY in April 2020-March 2021 (more than double the pace in 2009-10), and was still up 14.5% YoY in April 2021 and 12.9% YoY in May 2021 on a very high base. However, despite the FOMC promising to purchase US$120 billion of bonds monthly, the monetary base declined marginally in May 2021 (admittedly after very rapid increases in the previous 3 months), suggesting that the FOMC is turning more pragmatic in its monetary expansion than its official statements suggest. 
Equity valuations are extremely stretched, as exemplified by a CAPE (cyclically-adjusted P/E) ratio of 38x -- levels only reached once in the past 140 years (in the run-up to the "dot com bubble" that peaked in March 2000). As the inflation prints continue to stay elevated, we expect the Fed to be obliged to incrementally withdraw its monetary accommodation -- first by "tapering" (reducing the size of asset purchases, arguably begun in May 2021), and then by raising the Fed Funds rate to 0.25% (up 12.5bp) by the 2-3 November 2021 FOMC meeting. Incremental tightening actions will cause the over-valued equity market to decline 10% over the next 3-6 months. We recommend being underweight equities and risk assets (including emerging markets). Cyclicals, consumer cyclicals and high-yielding defensive stocks will provide refuge from the storm.

The FOMC's insistence that inflation is "transitory" looks increasingly delusional. Over the latest 3 months (March-May 2021), the core PCE price index has increased at an annualized pace of 6.4% -- and the core CPI has increased at an annualized 7.6% in those 3 months. While the Fed's median inflation forecast for 2021 rose by 1 percentage point between March and June (to 3.4% YoY), and real GDP growth is projected to be far above trend in 2021 and 2022 (which would normally trigger inflation), the FOMC remains sanguine about inflation in 2022, and hence promises to persist with US$120 billion of asset purchases monthly. 
In our view, the persistence of aggressive monetary expansion is the key cause of the spurt in inflation, and will boost inflation further in the months ahead. M2 money supply grew consistently more than 20% YoY in April 2020-March 2021 (more than double the pace in 2009-10), and was still up 14.5% YoY in April 2021 and 12.9% YoY in May 2021 on a very high base. However, despite the FOMC promising to purchase US$120 billion of bonds monthly, the monetary base declined marginally in May 2021 (admittedly after very rapid increases in the previous 3 months), suggesting that the FOMC is turning more pragmatic in its monetary expansion than its official statements suggest. 
Equity valuations are extremely stretched, as exemplified by a CAPE (cyclically-adjusted P/E) ratio of 38x -- levels only reached once in the past 140 years (in the run-up to the "dot com bubble" that peaked in March 2000). As the inflation prints continue to stay elevated, we expect the Fed to be obliged to incrementally withdraw its monetary accommodation -- first by "tapering" (reducing the size of asset purchases, arguably begun in May 2021), and then by raising the Fed Funds rate to 0.25% (up 12.5bp) by the 2-3 November 2021 FOMC meeting. Incremental tightening actions will cause the over-valued equity market to decline 10% over the next 3-6 months. We recommend being underweight equities and risk assets (including emerging markets). Cyclicals, consumer cyclicals and high-yielding defensive stocks will provide refuge from the storm.  

Dow Jones Industrial Average (INDU INDEX)

3 Months of MoM Inflation Oblige Stealth Tightening; Overvalued Equities to Fall