Cosmetics … print your own or buy … matter of variety &/or cost?

VideoMay 7, 2014May 7, 2014 Asianmacro1 Comment

Really interesting proposition by ex-Harvard Business School alumni, Grace Choi, the founder of Mink .. that promise to ”3D print” pretty much any colour in the spectrum for face powder & other cosmetic product of your choice when finding the right shade was always a tough thing …. Asianmacro thinks anything that sells & appeal […]

Seasonality trades in Hang Seng Index (HSI) & Dollar Index (DXY)

May 7, 2014May 7, 2014 AsianmacroLeave a comment

Years ago when Asianmacro was about to graduate from university, he did well at interviews (or perhaps sufficiently lucky enough) to secure a position with a top Wall Street investment bank as a trader even before graduation. But thoughts of pursuing a PhD & even becoming a professor did cross my mind. However, the thought of forever needing to prove that your thesis & research is ‘right’ empirically or scientifically is way too much use of whatever brain-cells that was left in me … so Wall Street here I come more than 20 years ago!

Unlike Strategists, Economists, Analysts & other spin-masters from investment banks’, brokerages or asset management firms that can usually throw tonnes of information & justifications on why you need to buy, sell or hold … whatever that they want you to believe in; Asianmacro does not want to nor need to. It’s my money that I am risking & I can believe in the brevity of thought, analysis, decision & execution. Detailed & overly myopic empirical or scientific proof reminiscent of what a professor or PhD candidate needs to do might more often than not cloud the view of the forest from the trees.

Looking at the above heatmaps for Hang Seng Index (HSI) & the Dollar Index (DXY), you cannot help but notice that statistically speaking, HSI has fallen while DXY has risen in May over the last 10 years more often than not by a considerable margin.

Is it the ‘Sell in May & Go Away’ catalyst for risky assets at play … or is it something else? It’s really too much use of my brain-cells and perhaps just a sufficient bet in short HSI (which I did on the break of 22,000 for May14 futures) and DXY June14 futures now at 79.15 (from 79.20 to 78.90) that gives you participation if this seasonality happens again but without breaking the bank & your sleep if it does not.

India Elections: Modi muddles … NIFTY shudders … INR falters

May 7, 2014May 7, 2014 Asianmacro1 Comment

Asianmacro loves trading & positioning in the Indian markets across FX, rates, equities & credits from time to time when special situations & catalysts comes about in this country. As it has such a messy democratic process, coupled with unpredictable weather (*rainfalls & weather is such a big thing for such an agrarian society). India also has a superstitious & chart crazy technical driven domestic market (*the Indians religiously follow candlesticks & all forms of chart studies including financial astrology) … and it all comes to a boil every now & then!

The massive depreciation of INR from 52 against USD to about 70 in 2013 together with the appointment of the well respected Raghuram Govinda Rajan as the Reserve Bank of India (RBI) governor in September 2013 when $/INR was 70 marked the peak & turnaround of the FX pair. Indian stock market, NIFTY rallied strongly since as well.

Presently, Asianmacro is worried about the impending return of El Nino http://www.livemint.com/Politics/JpJfZbdhAmV1qT3qWkVeoO/El-Nino-alert-issued-by-Australia-as-event-seen-developing.html & also the Indian elections is really a muddling headache for India whichever way it goes, where Modi while serving well within India is not viewed favourably in the West, http://blogs.ft.com/beyond-brics/2014/05/05/india-elections-four-pitfalls-for-modi-and-the-bjp/

From the chart above, it just make sense to me that unless there is really some good news coming out in weather or politics; having a short INR and short NIFTY position will be my favoured play to wear diamonds soon!

Demise of trading revenues in banks & in hedge funds

May 7, 2014May 7, 2014 AsianmacroLeave a comment

Barclays announced earlier today a poor set of results mainly due to a 41% drop in revenues over at its FICC (Fixed Income Currencies & Commodities) business division. As reported here http://www.ft.com/intl/cms/s/0/f9dd1338-d4e6-11e3-adec-00144feabdc0.html#axzz30wtGgbfE & here http://www.ft.com/intl/cms/s/0/fe1c811c-d50a-11e3-9187-00144feabdc0.html#axzz30wtGgbfE in the Financial Times.

Hedge funds were not spared as April 2014 was reportedly the worst month for many (http://www.zerohedge.com/news/2014-05-05/cruelest-month-april-was-bloodbath-most-hedge-funds) in a long while especially for CTAs & Macro strategy funds that rely on heightened volatility & gyrations in market with trends to serve them well. Even the legendary Paul Tudor Jones was lamenting last night at the Ira Sohn conference on the need for a ‘Central Bank Viagra’ to bring excitement back to the markets http://www.bloomberg.com/news/2014-05-05/-tudor-s-jones-said-macro-funds-need-central-bank-viagra-.html .

It is the recognition of such ‘dampened’ volatility and lack of trend breakouts or mis-pricings in the markets that saw Asianmacro laying low for a number of months. From the chart above, where the upper panel white line is the JPM G7 FX vols minus VIX; has gone back close to zero since H2 2013 till present. Typically VIX as a simple measure of S&P500 implied vols is usually much higher than FX vols especially during periods of financial market stress where equities tend to plunge faster & a lot more than FX directionality. The bottom panel in the above chart is the normalised vol price of VIX & JPM G7 vols from 2006 before the pre-2008 crisis period till present. FX vols is in fact going back to almost the lows in 2007 just before the onset of the financial crisis.

Are we facing once again the calm before the storm? We could well be when the last crowded positions capitulate & it seems like the consensus strong USD & short US Treasuries trades of 2013 going into 2014 are being forced to unwound at great loss by banks & hedge funds …. we are getting close to the last inning.

Where to on Social Media … Facebook, Tencent or Rakuten ?

May 6, 2014May 6, 2014 Asianmacro1 Comment

Before AsIanmacro takes his sip of this evening single malt whisky, time to snap a pic & share it on social media … Now wait, so should it be on Facebook, Whatsapp, Viber, WeChat, Instagram, …. the list goes on and it is definitely a chore these days on which to use!

I have always been a techie & have pretty much every other social media app installed across my iOS, Android & Windows devices. But when it comes to interacting with pretty much anybody in China, it’s Wechat (owned by Tencent – 700 HK)… forget about everything else.

Viber is just so sluggish eversince the recent updates & also the purchase by Rakuten (4755 JP) probably will turn it into another drive-by blasting of spam marketing everytime you use Viber in due course. Facebook (FB US) even with its purchase of Whatsapp is just so yesterday … good for recording your life-story everywhere else except China & that Whatsapp .. come on, does not even have VOIP calling now & other features available in so many other messaging apps. From above normalised charts of FB US, 4755 JP & 700 HK; you can see FB & 4755 skyrocketed & outperformed 700, probably due to the wider investor base due to the listing in USA & Japan chasing them exuberantly.

This brings me to a ‘gun-to-head’ showdown, where despite the lofty valuations applied to FB US,, 4755 JP & 700 HK; if I need to own just one social media company to ‘pay-to-play’ & get on the boat … it will be 700 HK! From the chart below, look at the decent 25% correction from the recent highs & it has real revenues that continue to grow with monetisation of all the services and paid extras that people foot up in China to use. It’s a no brainer .. except at what levels to jump onto the bandwagon.

For Asianmacro, it will be between 450-462 just shy of current 492 level. It can easily come with any ‘Sell in May & go away!” portfolio adjustments soon in markets. Stop loss sell will be < 425 not because I want to get out per se but purely from risk-management, but decent buying levels after will be 380-400 which I will be interested in getting back on again.

The Singapore Population Ponzi … Short SGD as funding FX

May 6, 2014May 6, 2014 Asianmacro3 Comments

Singapore has experienced the fastest rate of population growth anywhere in the world over the last 10 years. However, if you go back in history to examine its rate of population growth and also literature on Total Factor Productivity, you will realise that there have been arguments from early 1990s levelled on the unsustainable and also myopic and unproductive utilisation of pure increase in labour as an input in Singapore to drive economic growth. http://www.nber.org/chapters/c10990.pdf

Asianmacro as a trader believes in the brevity of my musing & you can click on the above link to read in detail if you are interested in the paper by Prof. Alwyn Young from MIT published in 1992. From the illustration above, we can see the close correlation between SGD appreciation and stock market (Straits Times Index – FSSTI) with Population growth % yoy. It makes you wonder with the announced deliberate slowing down of the influx of foreigners by the Singapore government that drove this unprecedented pop in population, what will happen to SGD and FSSTI?

Anyway, the Monetary Authority of Singapore (MAS) recently concluded its semi-annual policy meeting in April 2014 without much fanfare http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/2014/Monetary-Policy-Statement-14-Apr-14.aspx . For the longest time since 2008, SGD has unfailingly appreciated into and after each and every MAS policy meeting as a strong SGD policy (which is also the only policy tool MAS has that it uses) is trumped out time and again. However, such an antiquated policy is long past its use-by date and it has been a case of weak USD against all major currencies in recent months rather than a strong SGD that resulted in $/SGD at 1.25 today.

Asianmacro will be very keen to established short SGD against GBP, AUD and EUR (*actually Asianmacro already have these positions for awhile and will add to them) on any potential SGD appreciation in May/summer if some mistaken belief by portfolio flows in SGD as a safe haven results in inflows over May/summer driving $/SGD to 1.2350-1.2450 levels.

Sell in May & Go Away … the question is what?

May 6, 2014May 6, 2014 Asianmacro2 Comments

It is May now and the famous ”Sell in May & Go Away!” mantra always resonate in financial markets. The question this time is a challenging, what to really sell?

The top 10 & bottom 10 performers in global equity indices are shown here. You will notice that the top performers are really those marginal frontier markets mostly that nobody really invest in a big way. While the bottom performers are some of the bigger markets that have sold down substantially already like Nikkei 225 (Japan) and Hang Seng (Hong Kong).

Similarly in currencies below, besides NZD (New Zealand dollar) & Gold that have gained more than 5% against USD, the best spot returns are from relatively illiquid currencies that nobody owns much of; while major currencies like EUR, GBP, CHF are only 1% up for the year which is almost a rounding error.

If there is something that I want really want to sell or short in May, I guess I am now looking at cheap downside bets in NZD, Gold and IDR. Asianmacro never like the frothy levels of milk anyway and prefers soy latte rather than regular milk latte coupled with an exuberant Kiwi banking sector holding up the economy http://blogs.wsj.com/economics/2014/05/06/new-zealand-banks-arent-playing-ball-with-rbnz/ . For Gold, I can find more things that glitters like LED lights & the safe haven bid due to the Russian / Ukraine fears are overplayed. Lastly in the case of IDR, well the Jokowi feel good effect in Indonesia is all but played out. The follow on Presidential elections will take on a more complex Javanese shadow puppet play that will mean more uncertainty http://www.thejakartapost.com/news/2014/05/05/prabowo-desperately-seeking-partners-jokowi-flexes-muscles.html that the markets will not like soon.

Scrapping the bottom-of-the-barrel for yields

May 6, 2014May 6, 2014 Asianmacro2 Comments

It has been a profitable ride especially for Asian credit investors buying into rated and unrated high yield bonds issued by a plethora of Asian companies over the last 2 years. Credit spreads have tightened significantly from the wides in 2008 but are still higher than the pre-2008 crisis levels. A number of friends who have been doing well ”earning the carry” and had never sold out during the number of scares when credit spreads widened temporarily have asked me whether it’s time to exit.

I have always believed that credit trading is not trading in the real sense as it’s about getting the multi-year credit cycle correct and being lucky more often than smart. It’s also about being able to ride through a long enough period for the ‘carry’ and ‘slide’ to compensate for any ‘marked-to-market” valuation gyration loss in capital in the interim before maturity or pre-mature exit.

As such, I do not think that we will revert to the pre-2008 crisis ”Old Normal” in Asian credit spreads (*as seen in the illustration). We are in the zone of the post-2008 crisis ”New Normal” in Asian credit spreads with perhaps another 30 b.p. tightening vis-a-vis the Credit Suisse Asian Bond Index Credit Spread Index as a reference.

But are we scrapping the bottom-of-the-barrel in this? Just like leaving a good tip at a restaurant after an excellent meal as an appreciative diner … perhaps it will be more prudent to exit early, leaving some money on the table for others chasing yields and sleep better at night ! (*Although it is not an Asian practice to leave tips in restaurants … perhaps it might prove to be penny wise, pound foolish for those who insist in staying till the very end)

No Fear!

VideoMay 5, 2014May 6, 2014 AsianmacroLeave a comment

I have but one opponent. And it is Fear. You motivate me. You drive me. You elevate me. You define me. With fear, I am fearless … I have not commented on the financial markets or the world in general for almost a year. And for good reasons as there is nothing much to opine […]

AsianMacro

Musings on Asian macro economic trends and financial markets

Month: May 2014