Archive for category Economics
Japanese Yen – Is It Finally Giving Up Its Strength Or Is It Just The Return Of The Carry Trade?
Posted by jeffreyyap in Economics, Japan, Money, Strategy on February 3, 2013
The fall in Japanese Yen for the past 3 months has caught many people by surprise and with its magnitude of fall (-15% against major global currencies) is it undoubtedly one of the best/worst performing investment assets for many people in the same period. Why is it falling the way it did? Is it because the world’s economy is picking up again? Is it because risk appetite is back again? Is it investors selling yen because they think its over-value? Is it the return of the carry trade? All these reasons might explain the fall in Japanese yen we have seen recently. But then again from 2003 to 2007 when the global economy was ragging and risk assets globally appreciated in value, the Japanese yen actually held its value against major currencies. So what could be different now? Despite the fall in the value of the Japanese yen in the past 3 months, the currency is still 25% stronger against USD, 10% stronger against EUR and almost 35% stronger against KRW in the past decade and that is the root of the cost. The carry trade is a result and not the cause if you like deeper. One would get similar cheap funding monies from EUR/USD/HKD/SGD/CHF etc
The strong yen in the past 10 years has caused a huge imbalance for Japanese corporations causing their competitiveness to fall against global peers. We have seen the rise of German automakers, Korean electronics and European consumer care companies in the expense of Japanese counterparts during this period. The strength of the yen has also discourage Japanese companies’ investments overseas in favor of a more domestic strategies during this period. With this strategy in mind, Japanese companies and financial institutions have in the pass decade favor a “long” yen position naturally.
With burst of the US subprime bubble and the European Sovereign Debt Crisis, the global imbalances have started to correct itself and with the natural force of nature and economics this would reverse the strength of yen we have seen in recent times. I would expect yen would at least need to fall by the magnitude it has risen against USD, EUR and KRW over the next few years for its products to be competitive against in the global landscape. At the same time it would encourage financial institutions in Japan to expand their business overseas and lend a higher proportion of their money outside Japan as well. Therefore, eventhough the yen has fallen 15% recently…it might have a long way to go if one is to take a longer term view..
The Trends And Shape Of The World’s Economic And Financial Markets in 2013…Part 3 –10 biggest events and industry trends
Posted by jeffreyyap in China, Economics, Equity Market, Fixed Income Market, Global, Hong Kong, Money, Strategy, United States, Words of Wisdom, World on January 8, 2013
This is the 3rd and final part of my overview of the trends and shape of this year’s global economy and financial markets. The 10 biggest investment trends that are likely to be feature and standout in 2013 are as follows:
1. China will become more global and powerful than before
2. The world would start to re-focus on emerging markets but frontier markets will be the most talk about
3. In 2012 it all about global government debt and currency but in 2013 country, sector and company picks would be back in vogue
4. Equities will see more inflows than bonds in the 2nd half of 2013
5. Commodities prices will rise, talk of global inflation will be back and so will the speculation of end of quantitative easing
6. Geo-political risk will pick up led by domestic dissatisfaction with income gap and low growth
7. The talk of hard landing in China and fallout of Europe fails to happen
8. Investors and corporates start to gear-up again
9. Technological advancement will be key driver of productivity instead of cost management
10. The new era of tech bubble will start to build as cheap money chase innovations/dreams and hopes
Before i moved into the long waited sectoral views for those that miss the Part 1 and 2 earlier on you can review it with the links below
Given what has been said thus far, we are in a new era of which Mohamed El-Erian says a new normal. In his context he refers to the global economy from financial and political perspective. I look at it more from a microscopic level, what would it mean to our day-to-day life and it is the day-to-day activities of the seven billion people in the world which will shape the world’s economy.
Some of you have probably read this week, many countries in the world faced one of the worst winter in many decades and as i said in part 1 of this analysis extreme weather is something we should all start to get use to. As a result of extreme weathers, urbanisation will speed up even more and as a result create more demand for urban homes. What would be implications? This would leave fewer people farming for crops for example.In a similar deduction, cities with moderate weather such as Hong Kong, Sydney, and Singapore will attract more affluent professionals and businessmen to house their families.
The industrial sectors which will see most technological advancement this year would be robotics, green energy and online commercialisation. There are many successful stories in 2012 on retail automations. This was helped partly by the growth in smart phone usage and mobile technology. I am sure many of us have noticed the use of Iphone in order taking in restaurants, Ipad usage for browsing of products in shops etc. The year of 2013 is the year of robotics with rising cost of labour and shrinking pool of cheap labour. Robotics is the way forward to maintain or increase productivity globally. On green energy, given the extreme weather and governments pressure to contain inflation and pollution with rising population green energy has to be the sector of focus for most large nations. Cost of production came down substantilly in recent years and the commercial viability is slowly becoming reality. Online commercialisation is another key theme this year. In 2013 we will see more people purchasing songs (not CDs) tv series (not DVDs) clothing (not shops), services (not in person). Have you used online personal trainers and dieticians? Is it coming our way big time. Consider this; will you learn to play golf from Tiger Woods and soccer from Lionel Messi online if they were available? Answer would be yes no matter how impersonal it may be. This wall of awkwardness is coming down EVERYWHERE.
Sectors which i like in terms of investment this year are as follows:
1. Retail Sector – Companies with mega brands with huge brand value as Porter’s five forces are less prominent these days. Companies using technology to reach global consumers with rising income in an aging population. Look at most of the countries where there is aging population which sector continue to flourish? Retail!
2. Green energy - solar, wind and water will prove to be winning sectors with potential rising crude oil price and technological advancement and governments backing globally to support this sector in 2013
3. Property - I am not a big fan of developers. Nevertheless, given the whole world is getting more centralized than before – seen the rise in density in global cities lately?? I like companies with good portfolio of investment properties as consumption growth and rising replacement cost would make these companies attractive. Look for those with huge landbank and solid properties in prime location
4. Healthcare – In here i am talking about pharmaceutical industry which produces drugs, vaccines, supplements for this growing aging global population. I am talking about companies that make technological breakthrough in terms of medical machinery Have you seen doctors and nurses in hospitals holding the latest IPhone and Samsung Galaxy but hospitals still running on old medical equipments?
5. Banks – As the number of players shrunk the survivors post Lehman with global franchise will do good in this less borderless world. I am talking about those facilitating cross border financing and investment business not propriety trading here..
6. Services - Education, Social Network, Nursing and Retirement homes are some of the services which will see an increase in importance. Everyone would want their child to go Harvard, MT, Oxford or Cambridge. Everyone would want feel connected through Facebook, Twitter or LinkedIn. Everyone would hope their retirement home is like staying in Fourseasons or Mandarin. If anyone can achieve that kind of stigma or following the world its their oyster.
The Trends And Shape Of The World’s Economic And Financial Markets in 2013…Part 2
Posted by jeffreyyap in China, Economics, Equity Market, Fixed Income Market, Global, Hong Kong, Money, Strategy on January 3, 2013
The financials market got off to a great start in 2013 as expected. Please refer the articles i have written in the past 3 months calling for this
Risk Asset Cooled ahead of Hurricane Sandy? Opportunity to buy for 2013!
China PMI rose above 50 – signs of sustained recovery to come?
Divergence In China Related Equities Recently – How To Read Into It?
The financial markets are likely to see a very strong year as equity risk premium for major economies such as EU, Japan, China, Hong Kong, South Korea are all over 10%. The fall in risk free rate plus the major compression of credit spread in 2012 has made equity markets one of the cheapest asset class out there. The other 2 asset class which could also perform well would be convertible bonds and high yield bonds as global default rate continue to fall on the back of quantitative easing.
Furthermore, in 2013 we are likely to see a repeat of 2003 and 1993 of which in 2003 the money that came out of the Nasdaq bubble fueled global risk assets including US subprime and asset backed markets which burst in 2007 . In 1993, the money that came out of post Japan bubble also fueled the markets in Asia ex Japan which resulted in the 1997 Asian Financial Crisis later on. I believe we are seeing a repeat here as globally central banks has embarked on massive quantitative easing and this year onwards the money is going to flow out of government bonds and money market funds to fueled risk assets especially those markets trading above historical risk premiums.
Stay tune for Part 3 of this article – as I analyze sectoral performance globally.
The Trends And Shape Of The World’s Economic And Financial Markets in 2013…Part 1
Posted by jeffreyyap in China, Economics, Equity Market, Fixed Income Market, Global, Money, Strategy, United States, Words of Wisdom on January 1, 2013
2012 marked a year of uncertainty from a global political and economic perspective led by China’s leadership changes, US and Japan Elections, US fiscal cliff, EU sovereign debt crisis and fear of China’s economic slowdown. Notwithstanding as well the Mayan’s end of the world prediction. In 2013 we will face a year with more normality than 2012. But how will the world look like?
Few things for sure, population will continue to grow led by the South Asia and the Sub Africa region while the mortality level continue to rise with growing aging population in the developed nations. Technological advancement will continue to drive our daily lives in 2013 with the advancement in mobile technology; more people will make internet part of their lives in areas such as social networking and online shopping. Income disparity will widen further unless we have a re-socialisation of current capitalism society (don’t see this happening just yet). Weather will get more extremes than ever and food prices will continue to rise with urbanisation and growing population. Water and arable land which have been basic necessities in the olden age of mankind will become more scare.
In terms of political situations, global governments are likely to work closer against the “new” common enemy of the internet. The threat of internet will tip preference towards social benefits against corporate capitalism. You will see more corporate backlash on top of the recent financials institutions bashing. Tensions among super power nations and regions will ease as they face more pressure internally and over the web over the issues which rose to prominence in the last decade.
Moving over to financial markets, on the back of the key developments highlighted above, key financial trends for the next few years would start to emerge in 2013. For details of my forecasts and predictions of key financial markets for 2013, please lookout for the second part of this 3 parts series.
2 months ago I made this call on Chinese Equity Markets and Currency – Equity markets defied the fall last night to rally to new highs this month…What about other indicators?
Posted by jeffreyyap in China, Economics, Equity Market, Fixed Income Market, Money, Offshore RMB, Strategy on December 25, 2012
2 months ago I made this call on Chinese Equity Markets and Currency. Since then the benchmark indices have rallied more than 10% to recoup all losses this year while the currency has hit a new 19 year high against USD
How Much Will Chinese Yuan Appreciate Against USD in 2013?
Posted by jeffreyyap in China, Economics, Fixed Income Market, Global, Money, Offshore RMB on December 22, 2012
How Much Will Chinese Yuan Appreciate Against USD in 2013?
Poll Result! How Much Will Chinese Yuan Appreciate Against USD in 2013
Dear readers, It seems that Linkedin members are expecting a much stronger RMB against USD in 2013 compare to most economist and media. The strength of currency in most cases are determined by people who believes in it and if this sample is representative of people’s expectation of the Chinese currency, we are in for another strong year ahead. Please not among the sample, non Asians are the most bullish surprise again!
Rising Debt Offering Guaranteed By Asian Banks – The Latest, China Cosco Debt Offering
Posted by jeffreyyap in China, Economics, Fixed Income Market, Money, Offshore RMB on December 1, 2012
Debt offerings by weak/low credit standing companies guaranteed by Asian Banks have started to picked up recently. For example Doosan’s debt guaranteed by Korea Development Bank, China Cement debt guaranteed by DBS Bank and the latest the debt offering by China Cosco guaranteed by Bank of China.
Please click on the link below for full report by Bloomberg.
“If Cosco was on a standalone credit they would probably struggle to raise any money from the market,” Jeffrey Yap, the Hong Kong-based head of Asia fixed-income trading at Mizuho Securities Asia Ltd. said in a telephone interview yesterday
Still, the banks are taking on off-balance sheet risk by guaranteeing the debt, which could create problems if more lower-quality companies’ bonds are protected, according to Mizuho’s Yap. That could lead to a number of claims on the bank for funds, he said.
“The authorities need to watch out if the banks are putting on a lot of risky credit onto the book by guaranteeing the credit of those companies,” he said. “If we start seeing smallish companies, or even property companies, getting bank guarantees that’s what we need to watch out for.”
Divergence In China Related Equities Recently – How To Read Into It?
Posted by jeffreyyap in China, Economics, Equity Market, Hong Kong, Money, Strategy on November 27, 2012
Domestic Chinese A-shares fell to 4-year low today, however many Chinese equities or China related equities listed overseas are rising in value. This include H-shares in Hong Kong as well as China related shares in US, Japan, Hong Kong and Singapore. How do we read into it? In my recent conversations with onshore and offshore investors, there seems to be a reverse in terms of their outlook this time around. Domestic investors are less convince on the performance of the equity market going forward due to the fact for the pass 4 years China has registered above 30% in accumulated growth and property prices have doubled but we have seen flat performance in its equity markets. Foreign investors on the other hand are beginning to turn bullish on Chinese equities and its currency on the back of cheaper valuation on a global comparison. It is therefore a very smart move by investors to purchase Chinese companies and China related companies listed overseas. By the act itself, investors are buying cheap call option on the performance of Chinese equities and currency in the medium term.
Global Quantitative Easing On Full Speed – What Is It Doing To Our Money? Unorthodox View Here!
Posted by jeffreyyap in Economics, Global, Hong Kong, Money, Strategy, Words of Wisdom on November 24, 2012
Global major economies are implementing quantitative easing in a scale never seen before in human history, is it necessary? Is it because global growth is sub-par compare to the last 5 decades? I believe it’s partly due to global aging population and with aging population sub-par growth would be inevitable unless we have a huge jump in productivity.
The question is what does it do to our money? I had a colleague which came back from an art auction today in Hong Kong and he told me investors were grabbing up art pieces at prices significantly higher than 6 months ago. Furthermore, it was reported in the media recently, average car park prices in prime locations in Central Hong Kong have risen to HKD5,000,000 ($630,000!). Why is this happening when more than half the global economies such as Europe/US/Japan are barely growing? This is because quantitative easing reduces opportunity cost of capital which inversely appreciates anything which has finite supply such as paintings and car parks?
What should one do facing such a tsunami of easing? Don’t go against it is what I would advise (for now!). For those that followed me, this has always been my advice for the last 4 years post Lehman. There are morale hazards that come with quantitative easing and money printing and leveraging up but is more debt bad when the growth is likely to remain low due to global ageing population? If you work your math it is not. Just look at yourself right now, if a bank said to you, “you can have more money, but you only need to make the same repayment” would you say no? You probably would if you know your repayment will rise one day. What I am telling you now is the “repayment or cost of money” probably won’t be rising anytime soon but meanwhile your food, property, clothing, child education, university tuition fees, watches, handbags, cosmetics and even paintings and car parks will continue to rise……
