Live Markets: Year of the Tiger: China uninvestable no more

China Resources Beer Holdings

01/02/2022 12:39

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

    Feb 1 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com  
    
    
    YEAR OF THE TIGER: CHINA UNINVESTABLE NO MORE (1239 GMT)
    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  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)
    *****
    
    
    TALKING ABOUT UKRAINE, WHAT ARE THE ODDS? (1205 GMT)
    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. 
    Conclusion? 
    "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  urn:newsml:reuters.com:*:nL1N2UC0JX
    
    (Julien Ponthus) 
    *****     
    
    
    
    RUSSIA-UKRAINE RISKS: LOOKING FOR HEDGES? (1101 GMT)
    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 REBOUND, UBS BEST PROFIT IN 16 YEARS (0848
GMT)
    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.  urn:newsml:reuters.com:*:nL1N2UB27P
    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.  urn:newsml:reuters.com:*:nL8N2UC1OR urn:newsml:reuters.com:*:nL8N2UC0NT
    
    (Joice Alves)
    *****
    
    
    BETTING ON A "VERY UNLIKELY" ECB RATE MOVE (0820 GMT
    Reserve Bank of Australia governor Philip Lowe stood firm on
Tuesday https://www.reuters.com/markets/rates-bonds/australias-central-bank-ends-bond-buying-no-rush-hike-rates-2022-02-01
 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 https://www.reuters.com/markets/europe/inflation-stations-five-questions-ecb-2022-01-31
 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 https://www.reuters.com/world/europe/german-inflation-eases-january-not-enough-real-relief-2022-01-31
 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 https://www.reuters.com/business/finance/ubs-plans-boost-profitability-posts-q4-net-profit-fall-2022-02-01
 the latest bank to post forecast-beating profits and a bumper
buyback programme.    
 
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 https://www.reuters.com/markets/europe/view-india-unveils-higher-spending-infrastructure-growth-budget-2022-02-01
 in budget 
-UK house prices post strongest start to year since 2005:
Nationwide  urn:newsml:reuters.com:*:nL8N2UC1EI
-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 SHARES SEEN TRACKING WALL STREET RALLY (0725 GMT)
    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.  urn:newsml:reuters.com:*:nL1N2UB27P
    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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When will euro zone inflation peak?    https://tmsnrt.rs/3o2w4Fc
Russia    https://tmsnrt.rs/3GkptfQ
China vs World    https://tmsnrt.rs/32MKJwS
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