The week's equity market movement seems to manifest on growth scare that is afoot.
There are some particular reasons for investors on why they dramatically reduce position in the going week: Delta variant, Fed tightening, fiscal dead-end stateside, and then ongoing Sino-US heat.
For the latter, Sucor's Jimmy and Mike updates that the ever growing trader wars have resulted in deglobalization that is pushed by shifts in multilateralism to unilateralism. Interestingly, as more and more governments are sounding that they are opting for "self-reliance policy", we think this phenomenon can easily jitter investors.
(Link to the report is at the end of article).
Capital market starts to find expression that was very similar to the mid-2020 when countries were largely cautious. We are seeing aggressive bond rally, and fading 2021's 'recovery trade', at the point of YTD gains seem to be missing here.
Strategist Adrianus Bias calls this "Death of Reflation" as he flags large declines in the reopening stocks "... to the levels when COVID-19 uncertainty is mushrooming and economic set up is in the rescue."
Of course, despite his overall tone is negative, he believes that it is important to hear on where we are in the cycle.
For Bias, despite the reopening economies is hampered by virus woes, he thinks we are "still way early in the cycle of recovery. Picture it as a first gear transmission, on our way to the second gear towards the mid-cycle," imagining stock market as a race car just about to go on after its one year 'pit-stop'.
Indonesia government policy responsiveness on "COVID handling and funding side" adds to Bias belief that the overall outlook is largely constructive.
Indeed, it's grim to put the word 'Death' on the side of 'Reflation' for Bias, but he leaves a very important caveat when trying to describe today's market bump, "We shouldn't treat this recovery story as a one time, flipping on switch. Reopening is not an event, but rather a process."
Similarly, I too agree with Bias that we seem to be repeating the previous reflation scare at the time hospitalization and fatality rate were skyrocketing, underwhelming vaccination progress and natural immunity.
But luckily for investors, share price dramatic reaction can be seen on the positive note: we seem to have more access for dip buying opportunity as delayed global reopening might be positive for pent up demand, inventory replenishment, which for the upstream industry this could mean rising profitability (especially for energy companies e.g. coal).
By the numbers, Adrianus Bias does have a strong opinion on Q2. "For us, we still see overall earning to deliver 42% in FY21, with JCI target of 6,700. Despite we are opening room for revision in this quarter by any chance of strong [profit] hiccups."
I'm reminded to see this market mood today similar to a movie Edge of Tomorrow (2014) by Tom Cruise and Emily Blunt, which I think Bias would have agreed. It's a "Live. Die. Repeat" for Reflation. Only that, we might just happen to be on our worse.
Speaking of which, we might can expect what comes after.
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More on Jimmy and Mike's report here
Cheers!
Boris, the Stock Broker 🐾
Sucor Sekuritas
