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Category - Global Middle Class

    Industrials Conference: Strategy Sector Views + Analyst Stock Picks

    Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

    A Legion of Day Traders Is Taking Over Korea's Stock Market

    This article by Heejin Kim for Bloomberg may be of interest. Here is a section:

    Known for their love of risk, individual investors appear to be changing the contours of South Korea’s broader market. They are the force behind the benchmark Kospi index’s 64% rebound from its March low -- the strongest performance in Asia in that period -- having bought a net 25.6 trillion won ($21.6
    billion) worth of stocks since then even as foreign funds and institutional investors sold. In the U.S., the Robinhood craze means that retail investors now account for roughly 20% of equity trading, up from 15% historically, according to Bloomberg Intelligence analysis.

    “Retail investors appear to be seeking short-term profits after hearing their next-door neighbors earned lots of money from stocks after the March selloff,” said You Seung-Min, chief strategist at Samsung Securities Co.

    The activity of Korean short-term traders in September hasn’t been limited to typical darlings like preferred stocks or shares of healthcare firms. They have also dominated trading in blue-chip companies like Samsung Electronic Co., about 81% of value traded this month through Sept. 8, and SK Hynix Inc.,
    almost 76%.

    “Unlike previously, they are trading large-cap stocks as well because they believe some large-size firms may be able to make a huge profit amid the spread of the Covid-19,” You said.

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    EU Considers Legal Action Over U.K. Plan for Brexit Breach

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

    The EU may have a case to seek legal remedies under the Brexit Withdrawal Agreement even before controversial provisions in the U.K. internal-market bill are passed by Parliament, and would have a clear justification once the bill becomes law, according to the bloc’s preliminary analysis of the U.K. legislation.

    Johnson is facing a backlash from the EU and from within his own ruling Conservative Party after his government said it is ready to break its commitments to the EU over the Irish border. With negotiations over a trade deal already deadlocked over state aid rules and fishing quotas, the controversy is fueling concern there may be no agreement by the year-end deadline, triggering tariffs between the U.K. and the world’s biggest single market.

    “A no-deal is becoming more likely every day,” Manfred Weber, head of the main center-right group in the European Parliament, said Thursday in an interview with Germany’s DLF radio. “We have the feeling that Britain wants a hard Brexit for ideological reasons and as Europeans we need to prepare for the worst.”

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    ASEAN Strategy

    Thanks to a subscriber for this report from CLSA which may be of interest. Here is a section:

    Boris Johnson's Taste for Brexit Danger Could Doom EU Trade Deal

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

    The prime minister could walk away this year and seek to re-open negotiations at a later date. “Our door will never be closed,” Johnson said. “We will of, course, always be ready to talk to our EU friends even in these circumstances.”

    Crucially, though, Johnson is a politician who has shown himself to be flexible and often keeps people guessing until the last moment. He says he wants a deal. His officials insist he does, too, and there are still almost four months to go before the real deadline at the end of the year.

    The leak of government plans to dilute parts of the Brexit withdrawal agreement sparked muted warnings from Brussels on Monday and private dismay from EU officials. There cannot be a trade deal if Johnson breaks his promises on the earlier divorce accord, the EU said.

    In London, the premier’s team worked to contain the damage and play down any threat to the carefully crafted exit agreement.

    After all, Johnson is a politician who loves to be loved. During a summer in which public pressure forced him to reverse plans repeatedly -- on issues including exam grading, wearing face masks, and local lockdowns -- Johnson has shown how much he cares about staying popular.

    Opinion polls are studied closely in his Downing Street office. Currently they show only limited backing for leaving without a deal. Only a quarter of voters think that would be, as Johnson says, a “good outcome,” according to YouGov. Half say such a result would be “bad” or “very bad.”

    How that sentiment shifts, or not, over the next four months may give the strongest clue to whether Johnson will change his mind.

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    Shippers' ocean freight budgets 'about to explode' as rates hit new highs

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

    Demand was strong enough to push rates up, even with cancelled sailings restored and carriers adding temporary and even new permanent services on the lane,” said Freightos CMO Eytan Buchman.

    “With reports of rolled shipments and container shortages out of China indicating the extent of the demand rush, carriers will likely introduce another China-US GRI for September, which would be the sixth in just three months,” said Mr Buchman.

    In his weekly US import update report, Jon Monroe, president of Jon Monroe Consulting and a representative for Worldwide Logistics, said the big US retailers were “experiencing a major surge in online orders”, and were converting many of their stores to fulfilment centres.

    He said, however, that the substantial freight price hikes were taking their toll.

    “Importers’ budgets are ballooning and, in some cases, about to explode from having to pay the extremely high cost of transport,” said Mr Monroe. “The record high rates will undoubtedly cause bankruptcies in the worst case, and major budget excesses in the best case, scenarios,” he warned.

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    Volatility Markets Brace for Election Drama Like Never Before

    This article by Katherine Greifeld and Liz Capo McCormick for Bloomberg may be of interest to subscribers. Here is a section:

    Traders across major asset classes are sending the same message: Prepare for what could be the most-contentious U.S. presidential elections in decades.

    One measure of hedging in the stock market is higher than at any point in the past three presidential elections. In the interest-rates market, implied volatility is well above levels reached in 2016 or 2012. And three-month implied volatility in the dollar-yen pair -- a classic haven trade -- has risen above the two-month tenor by the most in two decades, signaling demand for protection from turbulence near Election Day.

    Trades protecting against election-induced volatility have been around all year, with “unprecedented” levels of hedging seen as early as January. Yet the potential for drama has only grown since then as the coronavirus leaves the U.S. mired in a recession and President Donald Trump rages against mail-in voting, raising concerns about a prolonged dispute over vote tallies. That uncertainty is complicating more conventional topics, such as how the results will affect tax policy and the trade war with China.

    “You have a global pandemic as your backdrop, which speaks for itself, and then you have a president that’s in a term, volatile, and you have the things going on with the Postal Service,” said Zachary Griffiths, a rates strategist at Wells Fargo. “All these factors that don’t typically play into an election are impacting things now and that’s clearly got people concerned. And vol has bid up tremendously in rates and equities.”

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    Equity Insights: EU's 'Hamilton Light' Recovery Plan Marks a Paradigm Shift, and Markets Cheered

    This article by Anik Sen for PineBridge Investments may be of interest to subscribers. Here is a section:

    The EC’s paradigm shift

    By becoming the borrower through its issuance of €750 billion of debt, the EC sets a new precedent while becoming a major new force in the sovereign debt markets. It is also expected to demonstrate maximum flexibility in managing its debt to achieve the most favorable terms for the member states. The bonds are expected to be repaid through the EU budget through the end of 2058. New tax revenues have been proposed, such as a plastic levy, a digital tax, and a review of the EU Emissions Trading System.  

    The recovery plan marks a significant moment in which EU Leaders recognized the need to create a new structure for raising funds under the auspices of the EC and funded by the EU budget. This structure has a strong likelihood of becoming a permanent funding mechanism at the EU level for emergency programs and other funding needs for the fiscally weak member states. They have also acted swiftly to stem the risks to the eurozone’s stability from alarmingly high fiscal deficits, and to front-load the raising of funds in order to plug the enormous fiscal gaps into the future. They have recognized the need to move away from the failed austerity approach of the past and to adopt a pro-growth policy through grants and loans on attractive terms with light conditionality – a major departure from the past.

    ‘Hamilton light’ plan is an auspicious beginning

    The recovery plan could well become a permanent feature for the EU, serving to underpin the debt issued by the periphery member states. This has enormous significance for the EU banking industry, which has become reliant on the ECB’s QE programs for its stability and capital adequacy. If the fear of default is truly removed for any eurozone sovereign debt, without assuming intervention by the ECB, there could be broader implications for financial system integration within Europe, with cross-border mergers and acquisitions within the EU finally taking place. This is sorely needed to drive greater scale in a banking system that has poor profitability compared to that of the US.

    The recovery fund may not be quite as far-reaching as Alexander Hamilton’s re-ordering of the financial system in the newly born United States. However, the progress made by EU leaders this summer points to a measured yet pivotal step toward very similar ends. 

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    Barnier Planning a Brexit Book After Four Years of Negotiations

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

    In his speech, Barnier also hinted that negotiations over the EU and U.K.’s future relationship may stretch beyond a meeting of the bloc’s leaders scheduled for mid-October as the two sides struggle to reach an agreement.

    “If we want to ensure the ratification of this new treaty at the end of the year, we need an agreement around Oct. 31,” Barnier said. “The clock is ticking.”

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    A Robot Tried to Fix Value Investing and Ended Up Buying Amazon

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

    The top three holdings of the machine-guided fund in July were Amazon.com Inc., Alphabet Inc. and Facebook Inc. Those are far from the kind of undervalued stocks typically favored by a value strategy. But to Qraft, it’s just value 2.0.

    “Intangible assets have become a more important factor in the actual value of the company due to the development of information technology,” founder Hyungsik Kim wrote in an email.

    “It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).”

    It’s the rallying cry for many remaining proponents of value: The factor isn’t dead, it’s simply plagued by outdated accounting rules that treat intangible investments such as research as expenses rather than capital.

    As a result, knowledge-intensive firms end up with much lower book values and higher costs, which make them look more expensive than they actually are.

    The new ETF’s eye-catching backtests also speak to the variety of methods underlying even the best-known equity factors. One study estimated there are well over 3,000 different ways to define a value strategy.

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