Asian Economist

Kok Peng Chan

Thematic (Sector/Industry)

<ul>
<li>By tracking chip sales, sector earnings and ICT profit margins our analysis point to an early-to-mid-cycle AI expansion, not an AI-bubble about to implode</li>
<li>WSTS data show AI demand in a de-synchronised mode, revealing a multi-speed chip cycle with AI in the fast lane and legacy end-markets still digesting past booms</li>
<li>Tech and communication stocks dominate the S&amp;P 500, but unlike 1999 their market and earnings share are broadly matched, suggesting elevated but not irrational pricing provided AI monetisation holds up</li>
</ul>


By tracking chip sales, sector earnings and ICT profit margins our analysis point to an early-to-mid-cycle AI expansion, not an AI-bubble about to implode
WSTS data show AI demand in a de-synchronised mode, revealing a multi-speed chip cycle with AI in the fast lane and legacy end-markets still digesting past booms
Tech and communication stocks dominate the S&amp;P 500, but unlike 1999 their market and earnings share are broadly matched, suggesting elevated but not irrational pricing provided AI monetisation holds up


Cross Asset Strategy

<ul>
<li>China’s bank-centric funding model is an under-reported risk that appears to be lost amidst the current rally in Chinese stocks</li>
<li>While it powered China’s investment boom previously, this model now misallocates capital, warehouses property losses on bank balance sheets, blunts PBoC easing, prolongs deflation risks and echoes Japan-style balance-sheet stagnation</li>
<li>Without credible bank clean-up and a shift toward bond, equity and REIT funding, China’s rally risks remaining tactical rather than structural. The current rally does not signal a multi-year bull-run</li>
</ul>


China’s bank-centric funding model is an under-reported risk that appears to be lost amidst the current rally in Chinese stocks
While it powered China’s investment boom previously, this model now misallocates capital, warehouses property losses on bank balance sheets, blunts PBoC easing, prolongs deflation risks and echoes Japan-style balance-sheet stagnation
Without credible bank clean-up and a shift toward bond, equity and REIT funding, China’s rally risks remaining tactical rather than structural. The current rally does not signal a multi-year bull-run


China’s Bank-Centric Funding: An Under-Reported Risk

FX & Rates

The U.S. Dollar Index(USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and  major world currencies.  The ICE US computes this by using the rates supplied by some 500 banks. FOR REAL TIME SEE EIS ICEA<GO>. 

<ul>
<li>Investors are under-appreciating a sharp narrowing of the US current account deficit in 2Q25. This is a sustainable trend as net government borrowing normalises to around 5% of GDP</li>
<li>The US is not losing its ability to attract long term capital flows. In 2Q25, net foreign direct investment reached $121b, the strongest since 3Q22</li>
<li>The result is a sharp improvement in the basic balance. Investors should monitor this indicator to assess whether Trump's policy mix of fiscal consolidation and re-shoring is succeeding or not</li>
</ul>


Investors are under-appreciating a sharp narrowing of the US current account deficit in 2Q25. This is a sustainable trend as net government borrowing normalises to around 5% of GDP
The US is not losing its ability to attract long term capital flows. In 2Q25, net foreign direct investment reached $121b, the strongest since 3Q22
The result is a sharp improvement in the basic balance. Investors should monitor this indicator to assess whether Trump's policy mix of fiscal consolidation and re-shoring is succeeding or not


Beyond the Current Account Deficit: What Drives the US Dollar?

Macroeconomics

<ul>
<li>The current neglect on the role played by money supply and the monetary base is, in our view a serious analytical gap</li>
<li>In a nutshell, we think private money growth - defined as M2 minus monetary base- is right now in a Goldilocks phase. This augurs well for US inflation</li>
<li>With the Fed inclined to ease rather than tighten, and with inflation shocks likely to prove one-off, risk assets remain supported</li>
</ul>


The current neglect on the role played by money supply and the monetary base is, in our view a serious analytical gap
In a nutshell, we think private money growth - defined as M2 minus monetary base- is right now in a Goldilocks phase. This augurs well for US inflation
With the Fed inclined to ease rather than tighten, and with inflation shocks likely to prove one-off, risk assets remain supported


<ul>
<li>BNM’s heavy reliance on FX forwards created $29 billion in off-balance sheet liabilities, masking true reserve strength and exposing future repayment risks if inflows weaken.</li>
<li>This is further compounded by a narrowing current account surplus, while capital outflows and rising foreign currency deposits reflect persistent financial account weakness, undermining long-term support for the ringgit.</li>
<li>While China is Malaysia’s largest trade partner, the U.S. is the main source of trade surpluses. Worryingly, the U.S. recently imposed a 19% tariff, threatening this critical surplus engine.</li>
</ul>


BNM’s heavy reliance on FX forwards created $29 billion in off-balance sheet liabilities, masking true reserve strength and exposing future repayment risks if inflows weaken.
This is further compounded by a narrowing current account surplus, while capital outflows and rising foreign currency deposits reflect persistent financial account weakness, undermining long-term support for the ringgit.
While China is Malaysia’s largest trade partner, the U.S. is the main source of trade surpluses. Worryingly, the U.S. recently imposed a 19% tariff, threatening this critical surplus engine.


Kok Peng has over three decades of experience covering the global economy and financial markets. He spent the bulk of his career in top global investment banks where he covered the Asian economies and stockmarkets. During this period, he travelled extensively to meet clients that cut across business lines. They include fund managers, hedge fund managers, private banking clients, corporates, and fixed income investors in the US, Europe, Japan, Singapore, Hong Kong and Australia. He is well liked by clients because of his commitment to a consistent framework and the ability to explain economic and financial developments with actionable investment recommendations. As a result he was ranked among top 3 economists in many surveys and polls conducted by financial magazines.