Chief Investment Office 18 Oct 2021


Stocks notched their best week since July as solid corporate earnings and a surprise increase in retail sales spurred a rally in companies that are more likely to benefit from an economic rebound. Treasuries fell.

Equities rose on Friday (15 October) even after data showing that consumer sentiment dropped in early October. Retailers and banks led gains in the S&P 500. Goldman Sachs Group climbed after posting a surge in its trading business, while broker Charles Schwab Corporation jumped on record earnings. Trucking giant J.B. Hunt Transport Services Inc and Alcoa Corporation – the biggest US aluminium producer – also soared on better-than-estimated results.

The world’s most crucial metals continued on a breakneck surge as energy shortages forced more production cuts and piled pressure on manufacturers – fuelling concerns about inflation. Brent oil hovered near USD85.00 a barrel amid a global power crunch that has seen prices jump. – Bloomberg News.

On Friday, the S&P 500 Index climbed 0.75% to 4,471.37, the Dow Jones Composite Index advanced 1.09% to 35,294.76, and the Nasdaq Composite Index jumped 0.50% to 14,897.34.


European stocks climbed to the highest level in five weeks, posting their best weekly gain since March, as early earnings reports boosted investor confidence that the recovery can continue.

The Stoxx Europe 600 Index gained 0.74% to 469.39 by the close in London, bringing the week’s (ended 15 October) advance to 2.7% and led by travel, banking, and retail sectors. European banking shares closed at the highest level since February 2020, within 0.1% of erasing their pandemic losses, as the sector is seen as an inflation hedge and benefits from higher rates.

Equities in the region are rebounding in October as concerns about various risks, including China’s real estate sector and inflation, ease. Investors, flush with cash and struggling to find alternatives to stocks, are now turning their focus to what’s expected to be a strong earnings season, despite rising energy prices and supply constraints.

The main European benchmark is down about 1.4% from its August record high but has now posted two consecutive weekly gains for the first time in two months. The Stoxx 600 is up 18% this year.

The UK’s FTSE 100 Index climbed to the highest level since February 2020, buoyed by oil and banking shares.

Among individual stocks, Temenos AG fell 14% after quarterly earnings that analysts said were a “mixed bag”. Deutsche Lufthansa AG jumped 4.6% after analyst upgrades at Stifel and Deutsche Bank. Airlines also gained after the White House said the US will open its borders to vaccinated foreigners on 8 November. HSBC Holdings Plc gained after an analyst upgrade. – Bloomberg News.


Toyota Motor cut its global car production target for November by around 15% from an earlier plan as a shortage of parts continues to weigh on the world’s No 1 automaker.

The Japanese company had initially planned to make 1m cars next month but now expects to do only around 850,000 to 900,000 units, it said in a statement Friday (15 October).

“Since we are still experiencing a shortage of some parts and will be unable to make up for previous production shortfalls, we have adjusted our initial production plans for November,” Toyota said. “This adjustment will affect approximately 50,000 units in Japan, and between 50,000 units and 100,000 units overseas.”

Toyota’s full-year production target of 9m vehicles for the 12 months ending March 31, 2022 will be maintained however “due to the easing of restrictions on Covid-19 in Southeast Asia.” Smaller-than-expected production cuts in September and October also helped, it said.

Toyota, long lauded as one of the best in the business due to its just-in-time supply chain, has had a rough trot over the past few weeks. Last month, it said that power shortages in China were impacting output and it could not provide further visibility as the situation is “still in flux.”

Earlier in September, Toyota trimmed its production outlook for this year by about 3% because the spread of coronavirus in Southeast Asia was disrupting access to semiconductors and other key parts. And last week, supplier Nippon Steel Corporation sought an injunction against the automaker to prevent it from manufacturing and selling electric and hybrid vehicles that use a type of steel critical for the performance of motors. – Bloomberg News.

The Nikkei 225 Index opened 0.28% higher at 7,382.30 on Monday, after slipping 0.13% to 29,029.05.


Hong Kong’s primary listing market is going through a dry patch in what is normally the busiest time of the year.

Several potential billion-dollar initial public offerings (IPOs) ranging from supermarket owner WM Tech Corporation to health care startup We Doctor Holdings have let their applications lapse in recent weeks as regulatory scrutiny and stock market weakness crimps listings.

Large IPOs falling by the wayside are a further sign of how China’s regulatory onslaught is causing a downturn in the financial hub’s market for first time share sales. President Xi Jinping’s push to align companies with his vision of “common prosperity” has caused a roadblock and Hong Kong equity benchmarks are the world’s worst this year.

After a stellar first half, the value of IPOs dipped to just USD6.2b in the third quarter – the lowest since the start of the pandemic and behind South Korea for the first time in four years. To be sure, 2021 will still likely rank highly in terms of IPO proceeds thanks to the sheer volume of issuance in Hong Kong in the six months. With USD37.7b raised so far, this year is on track to be one of the best of the last decade.

We Doctor’s planned float – which could have raised as much as USD3b – got caught up in China’s tightening oversight of how its tech giants manage the data they collect. The Tencent-backed company plans to refile for a Hong Kong listing but any deal will not be quick given the time needed to update financial numbers as well as regulatory uncertainty, according to people with knowledge of the matter.

Meanwhile WM Tech, which is behind the Wumart chain and Metro AG’s outlets in China, faced questions from the bourse about its business operations, Bloomberg News reported. The company, which had been seeking to raise as much as USD1b, is no longer actively pursuing an IPO, people with knowledge of the matter have said.

Anjuke, backed by online classified marketplace Inc, had also been targeting a USD1b IPO, IFR reported. However, the combination of falling investor enthusiasm for tech stocks as well as the current travails of China’s debt-ridden property sector mean the timing was not opportune. Anjuke may re-attempt a listing next year if the market sentiment improves, people with knowledge of the matter said. – Bloomberg News.

On Friday (15 October), the Hang Seng Index climbed 1.48% to 25,330.96 while the Shanghai Composite Index rose 0.40% to 3,572.37.


Indonesia’s finance minister narrowed her projection for the budget deficit this year and next, as an economic rebound, tax reforms, and rising commodity prices lead to higher revenue.

The fiscal gap is set to reach 5.3-5.4% of gross domestic product (GDP) in 2021, compared with an earlier estimate for 5.8%, Finance Minister Sri Mulyani Indrawati said at the Washington office of Bloomberg News after participating in annual meetings of the International Monetary Fund and World Bank.

Next year, the deficit could be lower than the 4.85% of GDP set out in the state budget, Indrawati added.

“For Indonesia luckily, with the commodity price increase, we have quite an overshoot in revenue, a strong upside,” she said. The country’s quick turnaround from its worst Covid-19 outbreak means third quarter GDP growth may have reached as high as 5%, and may pick up again this quarter, she added. Indonesia will report third quarter GDP data on 5 November.

Southeast Asia’s largest economy pledged to return its budget deficit to below the legal limit of 3% of GDP by 2023, after temporarily removing that cap last year to fund stimulus measures to help people and businesses weather the pandemic. The nation recently passed a tax overhaul, which adds a top income bracket, carbon tax, and an amnesty programme, could help it reach that goal faster.

The changes will earn the government an extra 1% of GDP in revenue next year. “Then in the medium term we hope it will continue to increase,” Indrawati said, as the tax reform is meant to improve tax compliance over the next few years, rather than collect immediate earnings only.

The new measures are expected to elevate the country’s tax-to-GDP ratio beyond 10% in less than five years, while without them, the ratio would remain as low as 8.4%. With a 115m-strong aspiring middle class population bidding to join the 52m economically secure Indonesians, the government wants to shift its tax base to rely more on consumption and personal income, rather than corporate earnings.

That is why the government will continue to focus its spending on human capital, including education, health and social safety nets, in addition to infrastructure and a transition to a greener economy, she said. “That is going to be critical for Indonesia to recover in a much more green and resilient way,” Indrawati said.

Indonesia became the second Southeast Asian country, after Singapore, to impose a carbon tax despite criticism that the rate is too low. Coal-fired power plants will be the first to be taxed next year, as the government develops a carbon market and tests how well the regulation is working.

“This doesn’t mean that it will stop there, but we have to be very mindful on the implementation of this instrument given that Indonesia is still in a very early stage of the recovery from Covid,” she said. – Bloomberg News.

Australia’s S&P/ASX 200 Index slipped 0.03% to 7,359.80 at the open on Monday. It gained 0.69% to 7,362.00 on Friday.

South Korea’s Kospi Index fell 0.68% to 2,994.63 at the open on Monday, after advancing 0.88% to 3,015.06 on Friday.

The Taiwan Stock Exchange Weighted Index jumped 2.40% to 16,781.19 on Friday.


Oil advanced at the open of trading in Asia after an eighth weekly gain with the market facing a global energy crunch ahead of winter.

Futures in New York climbed near USD83.00 a barrel after adding 3.7% last week (ended 15 October), capping the longest run of weekly gains since 2015. A shortage of natural gas and coal from Asia to Europe is driving additional demand for oil products in power generation. That has coincided with key economies rebounding from the pandemic, leading to a significant tightening of the market.

Oil has rallied to the highest level since October 2014, in part also due to a supply disruption in the Gulf of Mexico from Hurricane Ida, following a period of demand uncertainty stemming from the delta variant of the virus. Asian demand for US crude is rising as the energy crisis boosts prices for other grades that are priced against global benchmark Brent.

West Texas Intermediate for November delivery rose 1.19% to USD82.28 a barrel on Friday (15 October). Brent for December settlement added 1.02% to close at USD84.86 a barrel on Friday.

The prompt time spread for Brent was 71 cents in backwardation – a bullish market structure where near-dated contracts are more expensive than later-dated ones. That compares with 73 cents a week earlier.

Oil demand is rebounding across the globe as nations recover from the pandemic. India’s diesel consumption is gathering pace with the onset of annual festivals, boosting sales to about pre-virus levels in the first half of October. The US, meanwhile, will open its borders to vaccinated foreigners on 8 November, providing a boost to the battered aviation sector. – Bloomberg News.


Central banks’ longstanding strategy of hiking interest rates to defend currencies is failing to work its magic in Emerging Markets (EM) this time.

A gauge of developing-nation currencies has sunk to the weakest level since March 2020 relative to average local bond yields. That suggests investors are discounting the appeal of rising interest rates, fretting instead over the toxic combination of slower global growth and faster inflation. 

As a supply crunch rips through their economies, firing up consumer prices, EM central banks are rushing to minimise the damage with higher rates. But that also risks choking off a fragile recovery from the pandemic-driven slowdown. That dilemma will resonate with policymakers in Russia, Indonesia, Turkey, and Hungary this week (ending 22 October) as they decide on rates.

Central banks are finding out that rate increases alone will not bring back investors when growth is a question mark. Brazil’s real has plunged 4.2% since 22 September when its policymakers raised their benchmark rate. Poland’s zloty has lost value both against the euro and dollar after borrowing costs were lifted 6 October. The Czech koruna is also lower since a 30 September increase.

Emerging economies are expected to post a combined growth of 6.5% in 2021, recovering from a 0.6% contraction last year. However, that would narrow their growth lead over developed economies to 1.2 %pts, from 3.1 %pts. Some investors see this narrowing gap as damping the case for buying riskier assets.

Developing nations have already lost their growth advantage during Covid-19 lockdowns, as they provided much smaller stimulus packages to their economies than the US or Europe. Now the rate hikes threaten to erode economic expansion even further.

So, what makes an ideal emerging market in these turbulent times? Most investors say Russia has the answers.

The nation has a widely respected central banker in Elvira Nabiullina, whose determination to fight inflation is common knowledge in markets. It also has a Current Account surplus and one of the world’s biggest piles of foreign-exchange reserves. And when the windfall from oil-price surge is added to the mix, investors begin to see the ruble as irresistible. The currency has gained almost 2% this month and is the best performer this year in EM. – Bloomberg News.

The US Dollar Index slipped 0.02% to 93.937, the euro climbed 0.03% to USD1.1601, the pound gained 0.57% to USD1.3751, and the yen weakened 0.48% to 114.22 per dollar.