LIVE MARKETS Year of the Tiger: China uninvestable no more

  • European shares rise 1.3%
  • UBS scales 4-year-high after results
  • U.S. stock futures mixed

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Signs are emerging that the bad narrative surrounding the Chinese equity market is shifting to the good and after a torrid 2021, investment houses and investors are starting to look at the new year through different lenses.

"'Uninvestable' is an unfitting narrative for Chinese markets," wrote Rupal Agarwal, quant strategist at AB Bernstein, in a 172-pages note this month where she took a deep dive looking at opportunities for long-term investors.

"Despite the constant headline risks, global fund flow into China in 2021 was the highest since 2015. We argue the time is now to add China exposure as credit growth and earnings improve," she also said.

But Agarwal hasn't been the only voice in the last few days that has taken a favourable look at China Inc.

JPMorgan strategist Mislav Matejka, for example, believes risk-reward over China growth appears better now and anticipates possible upward surprises, as "policy is not tightening anymore... and credit impulse appears to be bottoming out".

And Credit Suisse even took the step to upgrade China to overweight, one year after the downgrade to neutral, citing easing monetary policy, an upturn in economic momentum, troughing earnings revisions and cheap valuations.

"The common prosperity policy is the big unknown, but recent rhetoric (especially President Xi’s speech at the World Economic Forum) appears easier... investors should look to be aligned with policy goals (i.e. dual circulation, consumer-focused and avoiding high-margin companies)," the Swiss bank wrote.

Its top China picks include China Resources Beer (0291.HK), Longi Green (601012.SS), Nio and PetroChina (601857.SS).

Finally, Jimmy Chen, Portfolio Manager at Comgest Growth China, is upbeat too, saying China remains home to "incredibly innovative companies" and that "common prosperity" can create opportunities among companies who sell to China's middle class.

Chen is invested in companies such as Tencent (0700.HK), his No.1 position, online group Netease (9999.HK), electric treadmill motor maker Bafang Electric (603489.SS), WuXi Biologics (2269.HK), jeweler Chow Tai Fook (1929.HK), sportswear brand Anta (2020.HK) and home appliance maker Midea (000333.SZ).

"The Year of the Tiger will not prove to be as terrible for investors as its predecessor," he wrote.


(Danilo Masoni)



There's a lot of movement on the diplomatic front of the Russia/Ukraine crisis today with Boris Johnson in Ukraine for talks with President Volodymyr Zelenskiy, who just signed a decree to boost his armed forces by 100,000.

That number happens to be same as the estimated Russian troops massed at the Ukrainian border while President Vladimir Putin demands the West addresses his country's security demands.

While markets are certainly not pricing war breaking out imminently, the likely outcome of the standoff remains uncertain.

Looking into the crisis, Amundi analysts have put a 60% chance for a peaceful compromise, a 30% probability for a limited military incursion and a 10% risk of a full scale invasion.

Investors should obviously expect relief for risk assets if peace prevails and buckle up if it doesn't.

Much would depend on the scale of any incursion and Amundi believes the Russian equity market is still pricing some sort of escalation going further.

A full-blown conflict would have bigger consequences.

"We expect, in the worst case, a major global, rather than local, issue could lead to significant volatility in risk assets", the Amundi notes reads.

"Continued rising energy prices in the case of an escalation of tensions, could create concern for a stagflationary scenario", it added.


"We believe investors should remain neutral in terms of risk allocation considering constructive earnings revisions in many sectors, but be ready to reduce risk should the situation materially deteriorate".

Here's a chart from the Amundi note showing how Russia's 5-year CDS has jumped along the crisis:


Some reading:

Ukraine announces plan to boost army as foreign leaders rally read more

(Julien Ponthus)



It's not the base case for many traders but an escalation of Russia-Ukraine tensions into a war-type situation is still a big risk which investors need to watch closely, especially as markets seem to have priced in little or nothing so far.

And for UBS it's time to consider ways to hedge.

According to strategists at the Swiss investment banks, it looks that markets have been following the "2014 template" which saw little impact to international assets through Crimea tensions & Russia sanctions. But this time could be different.

"Troops are amassed on both sides of the Russia-Ukraine border; NATO is pushing back harder than in 2014; the US and EU are threatening much more punitive sanctions that could cut trade and financing flows to/from Russia; energy and metals markets are already very tight. Given that the market can arguably be surprised only in one direction, it's wise to look for hedges," they wrote.

Here's what they recommend looking at for protection.

(1) DAX put spreads

(2) SXEE (European Oil & Gas) call, SX7E (European Banks) put spreads

(3) JPY call, ZAR put

(4) USD call, PLN put

(5) Buy Schatz (2y Germany) vs EUR swaps

(Danilo Masoni)



European stocks are trading higher with all the top regional bourses in positive territory, rebounding from a gloomy January, after some optimism from the U.S. boosted global equities.

U.S. inflationary pressures should ease in 2022 due to weaker demand for goods, easing supply bottlenecks and a receding coronavirus pandemic, a U.S. Treasury's top economist said. read more

After hitting its worst month since late-2020, the pan-European STOXX 600 (.STOXX) index has jumped to a 12-day high, up 1.2%, with financial services (.SXFP), tech (.SX8P) and basic resources (.SXPP) leading the gains all up between 2.5% and 2%.

In terms of single stocks, Swiss bank UBS (UBSG.S) is the top performer, with shares up 6% after posting its best annual profit since 2006.

(Joice Alves)



Reserve Bank of Australia governor Philip Lowe stood firm on Tuesday against markets pricing several interest rate rises this year, showing he was adamant that rates would not rise until inflation is "sustainably" within the target range.

That hasn't shaken markets' conviction any, with a RBA rate rise priced for as early as May.

A similar drama may play out in Europe, where markets are wagering the European Central Bank will raise interest rates by 10 basis points, almost three times this year. Bets are starting to be placed in fact on a July move as well.

To quote ECB boss Christine Lagarde, a 2022 rate rise does seem "very unlikely". That's what she said last month but since then, she will have watched robust Q4 economic readings trickle in, including German annual inflation on Monday at 4.9%.

Chances are euro area price growth will overrun the ECB's 3.2% average forecast for this year.

With ECB rate rise bets piling up and four-five Fed rate hikes discounted already for 2022, the euro bounced off 19-month lows against the greenback and German bond yields rose to the highest since 2019.

If jobs data later on Tuesday shows wage pressures on the rise, Lagarde will, like Lowe, find herself battling markets at the Feb. 3 ECB meeting.

Meanwhile, is it time to call time on the equity selloff? On the last day of January, global stocks managed a 1.7% rebound, led by a 3.5% jump in the Nasdaq.

For now, a firmer session appears to lie ahead. In Europe, good news continues to trickle in on the earnings front, with UBS the latest bank to post forecast-beating profits and a bumper buyback programme.

When will euro zone inflation peak?

Key developments that should provide more direction to markets on Tuesday:

- German retail sales dropped 5.5% in December as COVID curbs bit

-Russia’s Vladimir Putin meets Hungary’s Victor Orban

- India unveils higher infrastructure spending in budget

-UK house prices post strongest start to year since 2005: Nationwide read more

-Germany retail sales Dec.

-PMIs everywhere

-US construction spending/ISM PMIs/JOLTs

-Riksbank governor Stefan Ingves speaks

-U.S. earnings: UPS, Sirius, Exxon Mobil, General Motors, Gilead, Google, Starbucks

(Sujata Rao)



European futures are on the rise, pointing for a opening in the black for bourses across the region after U.S. shares climbed higher amid new optimism from the Treasury's top economist.

In a statement released alongside the Treasury's quarterly borrowing estimates, Assistant Secretary for Economic Policy Ben Harris said that inflationary pressures should ease in 2022 due to weaker demand for goods, easing supply bottlenecks and a receding coronavirus pandemic. read more

European STOXX and Dax futures are rising 1.3% and 1.1%, respectively. FTSE futures are 0.8% up.

That brings some relief to investors after concerns over policy tightening, inflation and geopolitical tensions saw the STOXX 600 mark its worst month since late-2020.

(Joice Alves)


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