Dollar shortage?
On Monday we were treated to the headline on Bloomberg: "South-East Asian Equities In Worst Rout Since 2016". The first thing to say is that if the year was 1986, 1997 or 2008 then we would have sat up and taken notice straight away but the worst "rout" in two and a bit years, is that really news? So we looked back at 2016 and, sure enough, it was a rough year for some Asean markets. Losses from peak to worst ranged from 6.1% (Indonesia) to 18.7% (the Philippines).But had we bought at the lows of 2016, and despite the ongoing sell-off at the moment, investors would be up 33.7% in Indonesia, 16.4% in Malaysia, 26.9% in the Philippines, 40.9% in Singapore and 45.3% in Thailand, all as of 30 April. So far this year the Philippines is down 13.5% and Indonesia is down 5.6%. Thailand is flat on the year and Malaysia and Singapore are up 4.9% and 6.2%, respectively. Do "routs" these days include stock markets that are up on the year? It would seem so.
In this month's Asianomics Group Strategy Report, Dollar Shortage?, we look at the factors that are supposedly disadvantaging emerging markets, higher interest rates in the Libor market and quantitative tapering. Our conclusion is that these countries have experienced much worse in the last 20 years and, currently, are growing strongly enough to shrug off tightening money market conditions. If this year's Southeast Asian equity rout is anything like the 2016 experience it is a buying opportunity all round.
Best for now
Jim
PS. Serious question: has any other sell-side research provider made, as one of their key calls this year, Overweight Malaysia (the best performing market in Asia in dollar terms) and Underweight the Philippines (the worst)?
We ask because, like all independent research providers, MiFID2 is proving to be a disaster. We no longer know what it takes to be valued by clients and if making out of the box calls (like Long India in late 2013 and Overweight China in late 2016) is of no value we need to find out what does matter pretty damn quick. We will be on roadshow in the US and UK in the next two weeks and asking that question then - admittedly, by definition we will be speaking to our Premium clients so maybe the wrong people altogether!!
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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