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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    On Target March 2021

    Thanks to Martin Spring for this edition of his letter which may be of interest to subscribers. Here is a section:

    Southeast Asia’s largest economy, Indonesia. is expected to see 67 per cent growth of its people becoming ultra-high-net-worth over the next five years, according to British property consultancy Knight Frank.

    That’s those with personal wealth, including the value of primary residence, of more than $30 million. It’s not just the super-wealthy who are doing well. According to the World Bank Indonesia’s middle-class consumption has grown at an average annual rate of 12 per cent since 2002 and now accounts for almost half all household consumption.

    The richer Indonesians get, the more they spend on cars, health, education and other services. Asia is the region where personal wealth is growing fastest and is already home to more billionaires than any other – 36 per cent of the world’s.

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    PBOC, BOJ May Be Driving Some of the Stock Rout Infecting Asia

    This article by Wes Goodman for Bloomberg may be of interest to subscribers. Here is a section:

    China hasn’t been this frugal in its cash offerings to banks in almost a year.

    The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.

    Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.

    Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities. 

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    Germany to Sell Record Debt of Up to $576 Billion in 2021

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The final decision on next year’s budget will be taken by the government that takes charge of Europe’s biggest economy after Chancellor Angela Merkel steps aside following the election.

    Merkel’s conservative CDU/CSU bloc is on track to lead the next administration and favors a return to frugality once the coronavirus recedes, while Scholz’s struggling SPD and the surging Greens have pledged to invest billions in technology and tackling climate change.

    As things stand, Merkel’s bloc could form a coalition with the Greens, though the outcome is far from certain with discontent increasing among citizens weary of virus restrictions and unhappy with the slow pace of Germany’s Covid-19 vaccine rollout.

    With the contagion rate on the rise again, Merkel is holding talks with cabinet ministers and regional leaders later on Monday to decide the next steps in the government’s pandemic strategy.

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    Vietnam is 'Most Preferred Frontier Market' HSBC Says

    This note quoting an HSBC report may be of interest to subscribers. Here it is in full:

    Vietnam is “more investable than many think,” with positive factors including accelerating FDI, a government push on infrastructure, structurally increasing purchasing power, and the rising profitability of the banking system, HSBC wrote in a note to investors.

    • “Profitability, attractive valuations, strong balance sheets and market reforms point to the likelihood of a multi-year bull run,” HSBC said
    • Likes Vietnam growth story, citing low inflation, a stable currency and healthy earnings
    • Disagrees with common perception that Vietnam’s equity market is too small; says Vietnam now has 11 stocks with market cap of more than $5b vs 2 in 2015, while daily trading value has come close to $1b
    • Says government has passed new laws that should reduce restrictions on overseas investors and put Vietnam in line for an upgrade to emerging-market status
    • Says covered warrants and new diamond index are helping foreign investors gain exposure to companies at their foreign ownership limits

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    ByteDance embarks on hiring spree in Singapore

    Thanks to a subscriber for this article from the Financial Times which may be of interest. Here is a section:

    Singapore is viewed as a neutral city by Chinese technology companies as tensions continue to rise between Washington and Beijing. Tencent and Alibaba both announced last year that the city would serve as a key international hub, with Alibaba spending half a billion dollars to buy a skyscraper in the heart of the financial district in May.

    ByteDance has not confirmed which of its international offices is its global hub outside China but its expansion in Singapore — it moved into a larger premises in a landmark office tower late last year — comes amid setbacks in India, the US and the UK, where it has been blocked or accused of breaching privacy regulations.

    “As we grow our presence in Singapore, we continue to look for the best global and local talents to support our business and augment local skills and capabilities,” the company said.

    The Financial Times reported last year that ByteDance could seek to separate TikTok and other units into a global business that was separate to its Chinese entity. Joe Biden’s administration is reviewing an executive order from former president Donald Trump that sought to force the sale of TikTok’s US operations.

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    BlackRock, Lombard Say Faster Inflation Calls Are Premature

    This article may be of interest to subscribers. Here is a section:

    “As the dust settles in the wake of today’s FOMC, we will be focusing upon whether any additional back-up in yields is accompanied by a further widening of breakevens,” said Richard McGuire, the head of rates strategy at Rabobank. “If so then this argues that the move higher in rates is sustainable.”

    But as long as U.S. yields don’t rise in a chaotic fashion, risk assets including emerging-market and high-yield corporate debt are expected to outperform, according to BlackRock’s Seth. “Rates can drift higher and still remain a positive backdrop for the risk assets, as long as the vulnerability is under control,” he said.

    A Bloomberg Barclays index on global credit returns has gained 11% over the past year, compared with a loss of 2% for a gauge tracking Treasuries. BlackRock switched to a neutral duration position in February from underweight. The fund likes notes sold by Chinese real estate companies and the nation’s onshore bonds.

    “The lack of correlation with the rest of the global developed markets also provides a diversification benefit,” Seth said of Chinese debt.

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    Lennar Shares Spike on Plan to Spin Off Startup Investments

    This article from Bloomberg may be of interest to subscribers. Here it is in full:

    Lennar Corp. soared after the homebuilder said it will create a spinoff with at least $3 billion in assets.

    The new company, which will have $3 to $5 billion in assets and no debt, will include Lennar’s technology investments, according to an earnings call Wednesday.

    Lennar, which said it made about $470 million on its investment in Opendoor Technologies Inc., jumped as much as 9.5% to $97.09 in New York. The stock had gained 16% this year through Tuesday’s close.

    Miami-based Lennar reported orders on Tuesday that beat estimates as it benefited from the pandemic housing market. It got also a boost from Opendoor, which began trading in December.

    Lennar said two other “technology-driven” companies it has invested in also have announced agreements to go public through mergers with special purpose acquisition corporations, or SPACs.

    Those companies are Doma, formerly known as States Title, and Hippo, the home-insurance startup that’s merging with a blank-check company led by Zynga Inc. founder Mark Pincus and LinkedIn co-founder Reid Hoffman

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    Remit For The Monetary Policy Committee (MPC)

    This letter and response between the UK’s Chancellor of the Exchequer and the Governor of the Bank of England may be of interest to subscribers. 

    To achieve this objective, the government’s economic strategy consists of:

    • operationally independent monetary policy, responsible for maintaining price stability and supporting the economy;
    • a credible fiscal policy, maintaining sustainable public finances, while providing the flexibility to support the economy;
    • structural reform to level up opportunity in all parts of the UK and to transition to an environmentally sustainable and resilient net zero economy, including through regulation, and an ambitious programme of investment in skills, infrastructure and innovation, in order to sustain high employment, raise productivity and improve living standards;
    • maintaining a resilient, effectively regulated and competitive financial system that supports the real economy through the provision of productive finance and critical financial services, while protecting consumers, safeguarding taxpayer interests and supporting the transition to a net zero economy. 6

    ACCOUNTABILITY
    The Monetary Policy Committee is accountable to the government for the remit set out in this letter. The Committee’s performance and procedures will be reviewed by the Bank of England’s Court on an ongoing basis (with particular regard to ensuring the Bank is collecting proper regional and sectoral information). The Bank will be accountable to Parliament through regular reports and evidence given to the Treasury Committee. Finally, through the publication of the minutes of the Monetary Policy Committee meetings and the Monetary Policy Report, the Bank will be accountable to the public at large.   

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    Worst-Performing Asia Stock Index Turns Winner on Value Love

    This article by Ishika Mookerjee for Bloomberg may be of interest to subscribers. Here is a section:

    “Singapore stocks look attractive because of their relatively better valuations and high dividend yields,” said Stuart Rumble, a multi asset investment director at Fidelity International. The large share of property firms and banks also make the market “highly geared” to economic re-opening, he added.

    The Straits Times Index closed up 1.2% on Tuesday to the highest in more than a year. The gauge is trading at 14.7 times 12-month forward earnings, behind most of its regional peers and the MSCI Asia Pacific Index’s 16.8 multiple, according to Bloomberg-compiled data. The Singapore gauge’s dividend yield is estimated at 3.8% for the next 12 months, higher than the regional benchmark’s 2.3%.

    The export-oriented economy suffered its biggest contraction since independence last year due to the global pandemic. Now, new daily Covid-19 infections locally are hovering near zero and the government expects growth to rebound to between 4% and 6% in 2021.

    The three local banks -- DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. -- that make up nearly half of the index’s weight, contributed the most to the benchmark index’s rise amid higher yields, climbing more than 10% each this year. Investors are awaiting the easing of a regulatory cap on bank dividends introduced last year.

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    Email of the day on China and the coronavirus:

    I am shocked at your remarks about China. It is not the China I know, and have seen develop over the last 40 years. A country where Harvard (Ash Center 9 July 2020) surveys found 95.5 percent of respondents were either “relatively satisfied” or “highly satisfied" with their government compared with 38% in the US.

    The article from Politico is am interesting read, but does not mention that a partner of the Wuhan Institute was the US Galveston National Laboratory, of whose activities we know very little too.

    Bad things happen in every country, including China and the US, but it behooves us to have a sense of proportion and get the facts both right and complete. Take one example: you mention a man in China who altered a gene to suppress HIV - he ended up in jail for breaking the rules.

    I am sure you would embrace Deng Xiao Ping's instruction "find the truth through facts", and please recognize that most of the almost 1.5 billion people in China have just finished a perfecting satisfactory day!

    And this from David Brown:                 

    Thank you for this article and comment Eoin. On February 13 2020 I gave a presentation at my company's All Hands meeting about the viral epidemic in China. I made slides describing the evidence trail going back many years that indicated it was manufactured in the Wuhan lab. I removed those slides at the last moment as the meeting organiser gave me just 10 minutes for a 30 minute presentation - as you can imagine, the remaining content of the 1 hour meeting was trivia. Staff reaction to my presentation could be described as 'has he gone crazy!' They thought I was exaggerating. Nevertheless, I had them practice 3 days working from home, and we have not returned to the office since those days. I am sad to say that woke culture has come into the company as it has expanded over the past year with naive virtue-signalling new recruits, and I would be causing a storm if I now presented those slides showing the likely origin of the virus or showed them your comments. It's a sad world that has emerged in the past couple of years. I am glad I do not have many years to live.
     

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