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

Macroeconomics

Even in 2020, China's M2 grew more than the US and EU; thus, despite a soaring trade surplus, foreign reserves were largely unchanged, suggesting large capital flight. Once the US$ stops depreciating, China will have to tighten monetary conditions. And with the rest of the world returning to near-normal by mid-2021, China's ability to export the excess capacity to which it added in Apr-Nov 2020 (with 9.6% YoY growth in FAI) will increasingly be constrained. Real GDP will decelerate to below 5% YoY growth in April-December 2021. Trim China holdings. Total Social Financing (TSF) has expanded by RMB 33 trillion (US$5.05 trillion) in January-November 2020, 56% YoY faster than the pace of new TSF in Jan-Nov 2019. The massive expansion in TSF enabled fixed asset investment (FAI) to rebound sharply after 1Q 2020, growing 9.7% YoY in April-November 2020 (much faster than the pace of FAI growth in 2019).  China was thus adding to its mountain of overcapacity in infrastructure, industry and real-estate in 2020. With much of the rest of the world locked down (especially in April-June, and only partially reopening thereafter), China has had an excellent 2020 -- using its excess capacity to export PPE (personal protective equipment), electronics/computers/parts to enable work-from-home, and also fill other gaps in global demand that other nations were unable to fill for much of the year. Steel is illustrative: in April 2020, China's steel output expanded 0.2% YoY, while the rest of the world's steel output declined 28.7% YoY. In October 2020, China's steel output rose 12.7% YoY, while the rest of the world's increased 2.3% YoY; in November, however, China's steel output decelerated to 8% YoY growth, while the rest of the world's accelerated to 5% YoY (although steel output was still declining in the US, Japan and South Korea). In 2021, once the rest of the world begins to operate nearer normal capacity, China's ability to grow abnormally fast will be severely constrained. China's M2 has not only expanded nearly 5-fold since August 2008 (while the US's has only expanded 2.5-fold over that period), it has also expanded more in Feb-Nov 2020 (by US$3.9 trillion) than US M2 (which rose by US$3.58 trillion in Feb-Nov 2020) or EU M2 (up by only US$2.2 trillion). The continued debasing of the RMB has led to capital flight -- despite an appreciating RMB (which should have made foreign-currency assets unattractive); the symptom was that foreign reserves stayed largely unchanged despite an ever-widening trade surplus. Once the US$ resumes strengthening, the PBOC will be obliged to rein in TSF by 2Q 2021, causing an economic deceleration, particularly of FAI. As trading partners erect barriers to China's dumping of its excess capacity, China's economic problems will be exacerbated, and real GDP will grow less 5% YoY in 2Q-4Q 2021, with financial-sector problems rising anew.  We recommend trimming China's weight in investor portfolios by March 2021.

Even in 2020, China's M2 grew more than the US and EU; thus, despite a soaring trade surplus, foreign reserves were largely unchanged, suggesting large capital flight. Once the US$ stops depreciating, China will have to tighten monetary conditions. And with the rest of the world returning to near-normal by mid-2021, China's ability to export the excess capacity to which it added in Apr-Nov 2020 (with 9.6% YoY growth in FAI) will increasingly be constrained. Real GDP will decelerate to below 5% YoY growth in April-December 2021. Trim China holdings. Total Social Financing (TSF) has expanded by RMB 33 trillion (US$5.05 trillion) in January-November 2020, 56% YoY faster than the pace of new TSF in Jan-Nov 2019. The massive expansion in TSF enabled fixed asset investment (FAI) to rebound sharply after 1Q 2020, growing 9.7% YoY in April-November 2020 (much faster than the pace of FAI growth in 2019).  China was thus adding to its mountain of overcapacity in infrastructure, industry and real-estate in 2020. With much of the rest of the world locked down (especially in April-June, and only partially reopening thereafter), China has had an excellent 2020 -- using its excess capacity to export PPE (personal protective equipment), electronics/computers/parts to enable work-from-home, and also fill other gaps in global demand that other nations were unable to fill for much of the year. Steel is illustrative: in April 2020, China's steel output expanded 0.2% YoY, while the rest of the world's steel output declined 28.7% YoY. In October 2020, China's steel output rose 12.7% YoY, while the rest of the world's increased 2.3% YoY; in November, however, China's steel output decelerated to 8% YoY growth, while the rest of the world's accelerated to 5% YoY (although steel output was still declining in the US, Japan and South Korea). In 2021, once the rest of the world begins to operate nearer normal capacity, China's ability to grow abnormally fast will be severely constrained. China's M2 has not only expanded nearly 5-fold since August 2008 (while the US's has only expanded 2.5-fold over that period), it has also expanded more in Feb-Nov 2020 (by US$3.9 trillion) than US M2 (which rose by US$3.58 trillion in Feb-Nov 2020) or EU M2 (up by only US$2.2 trillion). The continued debasing of the RMB has led to capital flight -- despite an appreciating RMB (which should have made foreign-currency assets unattractive); the symptom was that foreign reserves stayed largely unchanged despite an ever-widening trade surplus. Once the US$ resumes strengthening, the PBOC will be obliged to rein in TSF by 2Q 2021, causing an economic deceleration, particularly of FAI. As trading partners erect barriers to China's dumping of its excess capacity, China's economic problems will be exacerbated, and real GDP will grow less 5% YoY in 2Q-4Q 2021, with financial-sector problems rising anew.  We recommend trimming China's weight in investor portfolios by March 2021.  

China Has Had a Great 2020, but Over-Capacity Will Cause Headaches in 2021