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In this issue of Macro that Matters we look at recent leading indicators (LEI) released by the Economic Cycle Research Institute, the OECD, country specific sources, as well as select business and consumer confidence surveys. The results all point to slower growth in the second half. Whether or not this develops into a permanent slowdown, a double dip or a mid-cycle pause in global growth, investors will be watching anxiously.
20.07.2010
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In this issue of Macro that Matters we examine the prospects for Indonesia over the medium term. There are essentially three countries that matter in Asia: China, India and Indonesia. Most investors would exclude Indonesia, while some would also exclude India. But Indonesia has a number of attributes that are consistent with the stuff of equity dreams. Clearly, there is no certainty, but equity market participants love stories. Below is the Indonesian story:
02.07.2010
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In this issue of Macro that Matters we provide an updated presentation that we used during our recent marketing trip in the US. In short, this is the difficult part of the cycle for investors in equities and particularly for those who invest in Asian equities. The global growth cycle is peaking and looks likely to slow down through 2011.
25.06.2010
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In this issue of Macro that Matters we examine the liquidity trends across Asia. Liquidity is a key driver of equity markets. Asia’s rapid BoP adjustment following the global meltdown post-Lehman Brothers set the stage for the massive equity rally of 2009. This year, against the backdrop of Europe’s PIGS crisis, risk aversion has hit global markets and those across Asia particularly hard as questions surrounding the sustainability of economic growth have been moved to the front burner. Rising regional inflation will reinforce the headwinds to Asia’s liquidity cycle. I have asked John Wadle, head of our banks research unit, to add his perspective.
03.06.2010
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In this issue of Macro that Matters we examine the potential impact of the turmoil in Europe on Asia’s trade performance. We expect the consensus to lower growth rates for the EU over the next few weeks from the 1.1% in 2010 and 1.7% next year. The impact of slower growth in the EU will directly hit Asian shores through the trade, financial and sentiment channels and its direct impact on the rest of the world reinforces the impact.
25.05.2010
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In this issue of Macro that Matters we examine the potential impact of the turmoil in Europe on Asia’s economic performance via a reduction in G-3 bank exposure. First quarter GDP growth will be the high water mark for Asia’s economic rebound. Europe’s credit shock directly hits Asian shores through the trade (the drop in EU import demand), financial and sentiment channels. Europe’s impact on the rest of the world reinforces the direct impacts on Asia.
24.05.2010
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In this issue of Macro that Matters we examine the prospects for Asia’s tech sector. We have been structurally bullish on the sector due to underinvestment in the tech space over the past decade reminiscent of the underinvestment in the commodities sector pre-2000. But channel checks by our tech team suggest the rapid pickup in output could lead to an unwanted buildup in inventories, especially within the hardware sector. Consequently, we are cautious about the near-term prospects for tech stock prices after examining the global backdrop affecting the prospects for the tech sector.
14.05.2010
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In this issue of Macro that Matters we examine the likely impacts of the turmoil in Greece and other PIIGS economies on Asia. Coming into the year we had argued that volatility would likely rise due to debt and deficit problems in Europe, the UK and the US. Volatility would rise when the debt and deficit concerns heightened and ebb based on the timing of fixes that temporarily satisfied the market. We are a bit more concerned that the current situation has raised the bar for calm and will be hard to resolve quickly.
07.05.2010
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We are a lot more concerned that globally, growth leading indicators are falling in unison - and that stocks and sectors most sensitive to this impending downturn remain oblivious. So our call is simple: if you are long the KOSPI, the Taiex, the BDI, the Aussie dollar, basic materials stocks, emerging markets, semiconductors and even retailers (our favored sector from bottom-up work), you need to buy protection, sell, or get short depending on your investment objective/mandate. Recollect that we have been “maximum bullish” on global growth for almost a year now, in line with the indicators. Now the indicators are headed south, and we are changing our minds. Action is required to protect capital.
05.05.2010
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The attractive combination (cheap valuations and robust free cash flow) is dominated by Europe and the US, and few Asians reside there (only telecoms and consumer durables). In the unattractive north-west quadrant (expensive and poor free cash flow), ex-Japan Asia is dominant while Europe and the US have little market capitalization represented.
28.04.2010
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In this issue of Macro that Matters we follow the evolution of our key macro themes as we move into the middle of the year. We note that our above-consensus expectation for global growth is playing out while the stellar recovery seen in global manufacturing is broadening out by both country and sector, which, as we have argued previously, is a boon for Asia. As a final bit of positive news, the global services sector is also beginning to show signs of improvement. Key takeaways are highlighted below.
15.04.2010
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Risk-Love is at levels where markets stall out, or correct especially during earnings season. Postponing buying decisions or buying protection until the end of the US earnings season, and/or some cycling down in Risk-Love makes sense. EPS expectations in the US are high at 37% for 1Q2010, while pre-announcements have been quite positive, raising expectations.
14.04.2010
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Relative valuations versus other regions are exceptionally
attractive. Japanese sectors now dominate the world’s cheapest
sectors, and have scarce representation in the world’s most
expensive sectors. For the past two decades, except for a brief
period in early 2008, Japan has dominated the world’s most
expensive sectors and had a scarce presence in the cheap
sectors. Conversely, ex-Japan Asia, which along with anti- global
warming sentiment, mother’s milk, and love of chicken tikka
masala, is a must-have consensus position, is now egregiously
expensive, relative to other regions. We downgraded it to underweight from neutral.
30.03.2010
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Technology spending is led by cash, confidence, credit, corporate profitability growth, corporate excess returns on capital, (low) capacity utilization and the gap between new tech orders and inventories. These are all improving dramatically. Stay long tech, especially software.
03.03.2010
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In this issue of Macro that Matters we argue that Asian domestic demand growth will be stronger and more durable than market expectations. While asset price gains are being impeded by a wall of worry ranging from the PIIGS to a double dip, the domestic demand recoveries in Asia ex-China are going virtually unnoticed. Against this backdrop of strong global manufacturing demand into mid-2010 at least, Asia’s domestic demand cycles will continue to gather momentum. Key takeaways are highlighted below.
01.03.2010
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