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Impact Of PBOC (China’s Loose Monetary Policy)

BFM 89.9 asks Tony Nash from Complete Intelligence on how China’s PBOC adoption of looser monetary policy will affect the yuan and the broader Chinese economy. 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/impact-of-pboc-chinas-loose-monetary-policy on December 24, 2021.

Show Notes

SM: BFM 89 nine. Good morning. You’re listening to the morning run. I’m Shazana Mokhtar are together with Philip See. It is Christmas Eve, Friday, the 24 December 9:06 in the morning. But in the meantime, let’s take a look at the activity on Bursa Malaysia.

PS: It’s flat like Coke without any bubbles.

SM: Oh, no, that’s the worst kind of flat.

PS: Yes, the foot sabotage. Malaysia is flat slightly down .09% at 1515.

SM: So still above 1500.

PS: Still above 1500.

But it’s been yoyoing a bit green and red so far. But the rest of the markets across Asia are in green territory. The Straits time is up at 3100. Cosby also up 58% at 3015. Nikkei also up zero 6%, 28814. Now, just to bring your attention, looking at the crypto Bitcoin 5998.65 above the 50,000 mark. Theorem also uptrend 4114115.184. Now, if we shift over to the currencies, ring it to US dollar 4.11988. You’re seeing some strengthening there. But across the other two currencies pound and sing dollar, we’re seeing some weakness there.

Ring it to pound 5.62967. Ring it to Sing dollar 3.0922. Now, looking over to the value board. Really. Smattering of small caps actually driving it, but cost number one Ata IMS at .72 cent unchanged, followed by SM Track up 13% at .13, followed by Kajura Tran asphas flat at .26%.

SM: Okay, so that is the snapshot of Bursa Malaysia at 9:09 this morning. We’re taking a look now at how global markets closed yesterday.

So if we look at the US markets, they closed in the green. The Dow was up 0.6%. The S&P P 500 was up zero 6% as well. The Nasdaq was up zero 9%. So a lot of optimism going into the Christmas weekend. Joining us on the line for analysis on what’s moving markets. We have Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks for joining us today. Now 2022 is just a week away. And given the triple headwinds of Fed tapering, Omicron and a China slowdown, will there be a difference in how developed and emerging markets in Asia are going to be impacted?

TN: I think with the tightening in the Fed and with what emerging markets are going to have to do, meaning in the near term, like China is going to have to loosen. So I think you’ll have a strengthening dollar and more of a rush for capital into the US, so that should at the margin, kind of help US markets stay strong across debt and equity. Other things. I think in emerging markets it could eventually China loosening. The PVC loosening could help demand in emerging markets, but it’s going to be hard to get around the hard slowdown that started in China around Omicron.

PS: I see.


And so when you contrast that to the Fed tightening, right. You said China PBOC is adopting a looser monetary policy. How will this affect the UN in relation to those Asian currencies in which there’s a lot of trade between these two countries?

TN: Yeah. CNY has been strong for a protracted period, and it’s made sense on one level, so China can import the energy and food, particularly and some raw materials that it needs in a time of uncertainty. So the PVC has kept it strong through this period. What we’ve expected for some time. And what we’ve shown is that after Lunar New Year, we expect the PPOC to begin to weaken the CNA. We don’t think it’s going to be dramatic, but we think it’s going to be obviously evident. Change of policy, Chinese exporters, although they’ve been producing at not capacity, but then producing pretty.


Okay. China is going to have to devalue the CNY to help those exporters regain their revenues that they’ve lost over the last two years. So we’re in a strange period globally of moving from kind of state support back to market support, whether it’s the US, Europe, Asia, we’ve really had state supportive industries, state supportive individuals as we move beyond covet. Hopefully we’re moving more into a market orientation globally, and there will be some volatility with that.

PS: Yeah, but I was wondering for China, especially, I’m interested to know what the state of the Chinese consumer will be in 2022 because the government is worried for slow down. Right. And wouldn’t they want to expedite and give a bit more ammunition to the Chinese consumer?

TN: They would. But the problem is with Chinese real estate values declining, a lot of consumer debt is secured against real estate. And so the ability of Chinese consumers to expand the debt load that they’re carrying. Is it’s pretty delicate? It’s a fine balance that they’re going to have to run. So either the economic authorities in China push real estate markets up to allow Chinese consumers to keep debt with their real estate portfolios, or they make other consumer debt type of rules that allow Chinese consumers to hold more debt.

Real estate is the part that’s really tricky in this whole equation in China, because if real estate values are falling, the perceived wealth of those consumers is falling pretty rapidly as well, and the desire to consume excessively, it’s just tempt out.

SM: And I suppose still sticking to our view of China looking at metal commodities, what metals have been affected by the slowdown of demand in China? And do you foresee a recovery for them in early 2022?

TN: Yeah. We’ve seen industrial metals like copper and steel, and those sorts of things really slow down dramatically compared to where they were earlier in 2021. We’re seeing reports of, say, copper shortages at the warehouse level at the official warehouses in China, but that’s not real. What we’re seeing and I speak to copper producers in Australia and other places. What they’re telling us is that those copper inventories are being shifted to unofficial warehouses to create a perception of shortage. So we may see a run. We may see an uptick in, say, industrial metals prices in early 22, but we don’t expect it to last long because the supply of constraint is not real.


So until demand picks up for manufacturing and goods consumption. And the other thing to remember is we’ve had a massive durable goods wave through covet. Everyone’s talked up on durable goods. Okay, so there is almost no pent up demand for durable goods. And this is the stuff that industrial metals go into on the demand side, there are some real problems on the supply side. There seems to be plenty of supply in many cases. So we don’t necessarily see the pressure upward, at least in Q1 of 2022 on industrial metals.

PS: And that’s why I’m quite interested where you say that this demand is, I think slowly going to dissipate because yesterday key US inflation gauge sharpest rise in nearly 40 years, right? Personal consumption expenditure surged 5.7% in November. How long do you think this elevator level will last?

TN: Well, US consumers are pretty tapped out. So I think inflation happens for a couple of different reasons. Some people say it’s only monetary. Not necessarily true. We’ve seen real supply constraints that contribute to inflation. We’ve seen demand pulls because of overstimulating economies, and those two things together have accelerated inflation. And so we have to remember at the same time in 2020, we saw prices. If things go down pretty dramatically around mid year, say a third of the way through the year to mid year to just after mid year.

Some of these inflationary effects have been a little bit base effects because prices fell so hard in 2020. But we have seen consumption ticking up because of government stimulus. And we have to remember if the Fed is tightening things like mortgage backed securities, their purchases of mortgage backed securities will slow. Okay, so if people can’t refinance their house or buy new houses again, those wealth effects dissipate if you have a home. If your home price is rising, whether it’s the US or China or elsewhere, the wealth perception is there and people have a propensity to spend.

But if the Fed is pulling back on mortgage backed securities, then you won’t necessarily have that wealth effect that will dissipate. So government spending will decline marginally because build back better didn’t pass. We won’t have that sugar rush of government spending flowing into the economy early in 2002, although we may see something later. I believe governments love to spend money. So I believe the US government will come with some massive package later in the year to bring government spending back up.

SM: Tony, thanks very much for speaking to us. And an early Merry Christmas to you. That was Tony Nash, CEO of Complete Intelligence, giving us a quick take on what he sees moving markets in the final year. In the final weeks of 2021. Looking ahead to 2022.

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Podcasts

Awash with Cash and Jay Powell’s Continuation, Markets Look Up

Tony Nash joins BFM 89.9 and explained where markets are headed in the context of rumors that dovish Fed chief Jerome Powell might stay a second term, even as corporate earnings and cash-rich US tech giants might boost gains with share buybacks. He was also asked whether the US market is bullish right now — and what sectors should investors look at? Also discussed is the EU economy amidst the recent lockdowns.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/awash-with-cash-and-jay-powells-continuation-markets-look-up on July 22, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

Show Notes

 

SM: BFM 89.9. You are listening to the Morning Run I’m Shazana Mokhtar together in studio with Wong Shou Ning and Khoo Hsu Chuang as we always do in the early morning, we recap how global markets ended the trading day.

 

WSN: Yes, it was an excellent day in the U.S. The Dow and S&P 500 were up zero point eight percent. Nasdaq was actually up 0.9%. Nikkei 0.6%. Shanghai is up 0.7%. Hong Kong was down 0.1%. Singapore is up 0.3%. And week Abkhasia were down 0.2%.

 

SM: OK, then to get some insight into where global markets are headed, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Let’s start with the markets. They seem to be toggling between risk on and risk off. Which direction is it in? Is it a long bull or one that’s plateauing?

 

TN: It really all depends on the Fed. I think we expect to see things continue to rise through Q3. Well, they should continue to rise gradually. Doesn’t mean we won’t see volatility. We do expect to see further fallout. But by the end of the quarter, we expect things to continue to march higher, even through the volatility and some of the uncertainty. The Fed meeting in August in Jackson Hole really should give us a bit of clarity around what some of their future plans are. But beyond that, we do expect the Fed to be pretty calm and markets to proceed accordingly.

 

KHC: There’s some news, of course, unconfirmed at this point in time that Jerome Powell might seek a second term. What might that mean for markets and investors, given that he’s more of a dove than a hawk?

 

TN: I think it’s continuity, I think the White House has talked about other people to take that role, but I think keeping Powell right now is actually important for continuity because a really tricky situation. So I actually think I’m not a huge Powell fan, I’m not a huge detractor, but I actually think it would probably be a good idea to keep him in order to to reassure the markets with continuity.

 

WSN: Meanwhile, its results season. So far so good, except maybe for financials and Netflix. But we already see some strategists upgrading the S&P 500 year end targets. Do you think they’re a little bit too premature?

 

TN: No, I don’t think so. I think we’ll continue to march higher. We’ll have a few scares before the end of the year. But I think we will continue to march higher. The thing that I think is will be a little bit worrying for people toward the end of the year will be, you know, will the risk of keeping things in be enough? You know, will you get enough reward for keeping your money in the market?

 

Because I think things will get riskier the further way we go along in the year. All of this is assuming there isn’t more Covid aid and Fed stimulus and all this other stuff like increased rate of stimulus. But assuming everything is the same as it is now, we’ll hit toward the end of the kind of benefits of that stimulus toward the end of the year, at least the perceived benefits. And I think people really start to wonder whether the reward is there for them to to keep their money in the markets.

 

WSN: But, Tony, if I ask you to look into your crystal ball, what sectors do you think might surprise on the upside then?

 

TN: I think we’ll start to see things like travel and tourism do well. There are mumblings of efforts in the US that certain people want to close down parts of the economy. Again, we’ve seen California start to take some steps in that direction. But I just don’t think that anybody here wants things closed down again. Texas has said today that he will not reinstate a massive mandate in Texas.So Americans really want to get out. They want to travel. They want to see other parts of the country in the world. So I think we’ll see some things in tourism and travel do really well.

 

KHC: What you’ve just mentioned obviously reflects the economic fundamentals and a reflection in terms of those sectors. But JP Morgan, I think a couple of days ago talked about the S&P hitting 40, 600 points, is about 200 of the plus points from here on, and not because of the economy returning, but because of the share buybacks. What do you think about that particular development?

 

TN: Look, companies have a lot of spare cash and and how are they going to get EPS growth if they don’t buy back shares? The economy is awash with cash right now. If you’re the CFO for a publicly traded company and you have a lot of cash on the side, you really have to do that calculation to understand how is it going to hit your share price if you do buybacks. I think that’s definitely a part of the equation, at least of the end of the year, if not in the second half of ’22.

 

KHC: So names wise, who pop out obviously Berkshire with over 200 billion and Apple a notable cash hoarder’s, what are the names pop out to you.

 

TN: I can’t think of any right now to be honest, but I think it’s just a matter of looking at balance sheets and looking at who has that cash and then also, doing some research on the CFO and the board and look at their previous behavior. Some companies want to sit on cash or they want to say invest it. Others want to do share buybacks are typically technology companies do a lot of share buyback services. Companies do a lot of share buybacks. So I think those are the sectors that you would want to be looking at, banking, services, technology, those sorts of things.

 

SM: All right, Tony, let’s squeeze in one more question. Looking across the pond to Europe in 2020. Europe’s economy struggled with the pandemic. What’s your outlook on the E.U. this year, particularly in terms of an export led recovery?

 

TN: You’re getting a lot of pushback among EU citizens around lockdown’s, especially with the current variant that’s going through. And there’s a lot of discussion about the efficacy of the virus. And, you know, all this a lot of public health debate. But the problem of Europe has is well, on its on the plus side, China will likely keep the CNY strong into 2022, so that should help European exports. But when you look on the down side, Chinese PMI and consumer spending really haven’t been aggressive in recent months and we don’t really expect that to come roaring back in the next six months or 12 months.

 

So China is going to have some real pressure. Europe is going to have some real problems with goosing exports into China. I think the U.S. is fine and number two, export market for Europe. But I think there are some difficulties between the U.S. and Europe right now. And it may not necessarily outside of maybe automotive, it may not necessarily be a roaring market for Europe. So I think they have some serious headwinds and I think they’re going to struggle.

 

SM: All right, Dan, thank you so much, Tony. That was Tony Nash of complete intelligence, giving us his outlook for European exports and not looking particularly rosy at this point.

 

WSN: Yeah, but still very bullish on the U.S. markets. Right. He does suggest that S&P 500 might inches we up, but the risk of what may be the easy money has been made. So it’s not going to see some stellar jumps. But he likes tourism and travel. He thinks that Americans don’t stay home anymore.

 

KHC: No brainer. I mean, people have been stuck at home for 15 months, right? They want to go traveling.

 

WSN: But I don’t know if your infection cases rise. I mean, will you curb your own behavior? You might write especially I think in America, Delta is now 80, 80 percent of all the infections.

 

KHC: Don’t forget, America is the land of the free and the brave, the brave.

 

WSN: I like that word.

 

KHC: be the first of the Marcellus. And then, you know, Bob’s your Uncle Gene. I mean.

 

WSN: OK, well, we’ll watch this space, but I think its results season.

 

SM: That’s right. We’ve got a few results on our docket to look at this morning. Let’s start with Coca Cola’s. Coca Cola reported a second quarter revenue that surpassed twenty nineteen levels, prompting the company to hike its full year outlook. So Coke reported a net income of two point six billion dollars. That’s up forty six percent on year. Of course, there was a low base last year. Net sales rose forty two percent to ten point one dollars billion, topping expectations of nine point thirty two billion dollars.

 

WSN: Well, the. Good news is that the company said that the away from home channels, so like restaurants and movie theaters were actually rebounding in some markets like China and Nigeria. However, India and Southeast Asia were the only areas that did not see any sequential volume acceleration on a two year basis this quarter. Surprise, surprise, because I think India, particularly by covid-19 in Southeast Asia, was still in some form of lockdown, especially Malaysia. But all is doing segments reported double digit volume growth for the quarter.

 

Sparkling soft drinks units, including, of course, its namesake soda did particularly well.

 

KHC: I saw net sales rise by 42 percent. That is incredible. You know, this is a 245 billion dollar company, right, for net sales in one quarter. The rise with 40 percent. You know, I think lest we forget, a lot of people, they don’t care about diabetes. You know, they don’t care about high blood pressure.

 

WSN: No, but I think that’s why Coke is venturing into other drinks. So you do see high drinks. They do like growing five percent and even coffees significantly.

 

KHC: So there’s a developed market bias, which is obviously to grow more healthy. And there’s an emerging market base which is aspirational. Coca-Cola is aspirational. You cannot I mean, for people who have grown up on Cichon and warm water, right. They want to have Coke.

 

WSN: By the way, for those who are wondering what says is Chinese to eat.

 

KHC: Yeah, the chips drink you can find in a coffee shop.

 

I should know I’m from Penang.

 

WSN: But the street clearly loves it, right? I mean, when I’m looking at Bloomberg, the consensus price target is sixty U.S. dollars and twenty six cents. Current share price is fifty six dollars and fifty five cents. Still nineteen buys nine holes five times current earnings.

 

SM: Well when you think about it, this is probably super cash generative. So not surprising. It’s perfect. Right.

 

WSN: All right. I’m looking at another company that has its earnings out. Johnson and Johnson reported earnings and revenue that beat Wall Street’s expectations. Revenue rose up twenty seven percent to two point three billion U.S. dollars, beating the twenty two point two billion expectations.

 

Well, this is the pharmaceutical industry business, right? They developed the single shot covid-19 vaccine generating twelve point six billion in revenue, a seventeen percent year on year increase. Global sales just this quarter, 164 million. And I think that’s just just the beginnings of it, right?

 

KHC: Yeah. I mean, I recall a few weeks ago Pfizer talked about how they’ve seen they expect billions and billions of decades of billions of dollars in top line. And Pfizer’s it’s a very long tail. Pharmaceutical sales.

 

SM: There we go, 719 in the morning. Up next, we’re going to bring to you the major headlines in today’s papers and portals. Stay tuned. BFM eighty nine point nine.