Weekly Blotter

MAY 15, 2016

Of late, I have been accused of sounding more bearish than I actually am. Allow me to be clear. Risk
asset markets are heading lower for the next four weeks as we head into the June FOMC and the Brexit
referendum. DXY will trade back to 96-97, SPX should trade sub 1975 and commodities, emerging
markets and industrial equities will lag. That said, do not expect a collapse. We live in a world where
asset markets grind and the instant gratification of momentum investing is non-existent.
There is a lot for bears to be vindicated on as we enter the new week. Chinese data for industrial
production, exports and retails sales that were all released on Saturday, provide support for those of us
advocating that the bounce in activity in Q1 was nothing more than an inventory rebuild. The PBOCs
rare clarification on the reasons behind declining credit growth seemed like nothing more than excuses.
Given it was Chinese stabilization that was one of the main catalysts for risk assets to turn around in
February, it is tough not to conclude that Chinese economic weakness wont be a sizable drag on
emerging markets and commodities, especially early in the week. Throw in accelerating USD strength
off the lows and a Brazilian political narrative that has the stench of buy rumor / sell fact and it is
difficult to give you a fundamental scenario how EM isnt a near term source of stress.
That said, for a true risk off event to occur, you need aggressive selling in three areas, two of which are
unlikely. US High Yield continues to be resilient and while you could see some selling over the course of
the next four weeks, longer term investors with very limited alternate sources of yield will not be
forced to liquidate. USDJPY weakness would be a sign of an old school, risk off event but a deferral of
the consumption tax increase that was mentioned in an article in this weekends Nikkei, should be
taken positively by Japanese asset markets. Without a flight into Yen and Swiss Franc, en masse selling
of assets simply does not occur. Finally, oil has been remarkably resilient in the face of a stronger USD
and while I believe oil will touch $40 before it trades through $50, a disorderly move into the thirties is
very unlikely.
On the whole, this week should see a continuation of a stronger USD, especially against EM and China
proxies, weaker stocks and commodities. However, do not get enticed into narratives that this is the
beginning of something disruptive. Markets will meander lower into all the event risks that we have in
June and we will look to cover all negative equity and credit positions and sell our long USD exposures.
For those of you that are negative, you have four weeks to go. Enjoy it while it last but appreciate there
are limits to how far assets will fall. Fed wont hike in June and the odds are that the UK will stay in
Europe. This will turn the USD and put a floor in all risk assets.
We are not there yet but we are looking for levels to cover long USD if overshooting does occur. Sub
1.41 on the GBPUSD, north of 1200 in USDKRW and 1.40 in USDSGD are indicative targets. Our May SPX
short 2000 puts / long 3 time 2130 calls expire this week and we will look for similar lopsided exposure
to hedge our short global risk portfolio. If you are short, there is no better way to hedge than to take
advantage of SPX volatility so heavily skewed towards puts.
The week starts with YoY PPI from Japan, followed by Japanese Industrial production on the next day.
Also on Tuesday we have CPI numbers from the UK and US. Japanese GDP and EU CPI and ECB minutes
will be released on Wednesday. Well see GDP numbers from The Philippines and Singapore to start on
Thursday, and later The April Minutes from the Fed will be released. Canada will report on their CPI
Friday. Several members of the Fed will speak throughout this week, namely Kashkari, Williams,
Lockhart, Kaplan, and Dudley.
1
View from the Peak is published and distributed by IND-X Advisors Limited (IND-X). IND-X is regulated by the Hong Kong Securities and
Futures Commission and is a registered investment advisor with the U.S. Securities and Exchange Commission. Please refer to important
disclaimer and disclosures at the end of this report.

Figure 1: Chinese Industrial Production, YoY %: No sustainable rebound here

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10
9
8
7
6
5
Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Chinese Industrial Production (volume), YoY %

Figure 2: Inverse correlation between Oil and the USD has broken down near term
50

95.5

45

94.5

40

93.5

35
Apr-16

92.5
May-16
Generic First Crude Oil Future (lhs)

US Dollar Index (rhs)

Figure 3: HYG US: No signs of an imminent collapse

86

82

78

74
Jan-16

Mar-16

May-16
HYG US

Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk

Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

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India Reform Victories

With a quiet week ahead for regional earnings, we take a look at some of the significant developments
in India over the last week.
It was a good week for Prime Minister Narenda Modi as the Upper House approved Indias first
bankruptcy law and India signed an amended tax treaty with Mauritius after ten years of negotiations.
The passage of the Insolvency and Bankruptcy Act is a huge political victory for Modi and is arguably his
most monumental economic reform to date. The law will make it easier to close failing businesses and
recover debts that, according to ICRA Ltd, have doubled in the last three years and now equal 6% of
total loans.
The law aims to simplify more than four overlapping sets of rules governing bankruptcies, create a new
set of procedural guidelines and establish a new entity, the Insolvency and Bankruptcy Board of India,
which will regulate insolvency professionals and collect corporate credit information.
Significantly, the new law introduces a time limit on the bankruptcy process. In the case of a default,
the banks and the impacted company have 180 days within which to complete a resolution. Also the
law empowers certain agencies to sell the companys assets to repay creditors.
Banking reform and clean-up have been priorities for Modi and this is a huge step toward working out
over $165bn of distressed loans. The inability to close these companies and collect any residual assets
has protracted the work-out process and has stymied loan growth.
Recovery rates are also low with India ranking 136 in the World Banks resolving insolvency ratings.
According to the World Bank, creditors in India only recover about 25 cents on the dollar over a 4 year
recovery time compared with 80 cents in the U.S. in two years time.
In another move to reform the banking sector, the Reserve Bank of India this week increased the stakes
that foreign banks could hold in Indias private banks. According to a statement issued by the central
bank, foreign banks will be allowed to own more than the current 10% limit in cases where an Indian
private-sector bank is undergoing restructuring, or where lenders are consolidating. This is an effort to
help weaker Indian banks improve their capital ratios to comply with Basel III requirements, but also
part of Modis plan to open up India to foreign businesses. It is intended that foreign banks will bring
expertise in credit analysis, other products and technology.

Mauritius Tax Treaty

The other major achievement this week was the completion of an amended tax treaty with Mauritius
that will limit foreign and domestic entities from using the island as a middle-man to avoid taxes on
Indian direct and portfolio investments.
Under the amended treaty, starting April 1, 2017, capital gains tax will be imposed at 7.5%, half of the
prevailing domestic rates and then at the full rate from April 1, 2019. There will be no taxes imposed
retroactively.
The revisions to the tax treaty are unlikely to impact market sentiment in any major way since there is
no retrospective impact of the changes, which will not lead to any forced selling by foreign funds,
according to tax experts,A similar tax amendment is being negotiated with Singapore.
Mauritius and Singapore are some of the top sources of investments into India. In the past 10 years
India has received $239 billion of foreign direct investment in the form of participatory notes (P-notes)
or overseas direct investments (ODIs). Of the $240 bn, 34% has come through Mauritius and 22% has
come through Singapore.
At the onset, the tax changes look reasonable as they do not start before April 2017, are implemented
over time, are not retroactive and only impact short term investors (there is no long-term capital gains
Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk
Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

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tax in India). However, in the short-term, the larger impact on the Nifty may be the announcement on
Friday that, further to the amendment in the Mauritius treaty, the Securities and Exchange Board of
India (SEBI) is likely to tighten regulations for P-Notes.
P-Notes are swap agreements issued by FIIs to foreign clients who want to invest in Indian securities,
but do not want to register with SEBI. The underlying asset could be shares, derivatives or debentures.
SEBI is planning to tighten, already stringent, due diligence requirements and put the onus on investors
to ensure compliance with anti-money laundering laws. The move will likely to be considered at the
SEBI board meet on May 20.
While there may be volatility over the next few weeks as investors await these new regulations, we
dont think they will materially impact the market over the long-term. The P-note mechanism has
deceased in importance over the last ten years with currently about $30 billion of FII holdings through
the P-note route. This equates to about 10% of FDI flows, down substantially from 50% in 2007.

Current Market Thoughts:

India is one of our preferred markets over the long-term because of the demographic dividend and the
belief that no matter which party is in power, there is an overriding acknowledgement that reform, in
some form, has to happen. India is the largest weighting in the 20 for 20 Portfolio and ICICI is the
largest long weighting in the Asian Absolute Portfolio.
However, despite these positive political victories and a belief that the changes in the P-Note market
will have minimal market impact, we have downgraded our assessment on the economy and on
earnings.
At the beginning of the year, we believed that India was about to see a cyclical uptick as multiple
interest rates cuts fed into the economy, the Budget would be more expansionary and that the full civil
servant wage increase would be implemented. However, the Budget was more conservative than we
anticipated and the wage increases will be implemented in stages, decreasing their economic impact.
Also, recent data suggest a more sluggish economy and a worrying increase in core inflation. On Friday,
India's industrial production growth slowed to 0.1% in March vs a 2.5% increase during the same month
last year. The manufacturing sector, which accounts for over 75 percent of the index, fell by 1.2% in
March against a growth of 2.7% in the same month a year ago. The capital goods segment which is a
good barometer of future capex, contracted by 15.4 percent in March compared to growth of 9.1%
year ago.
Also on Friday, the retail consumer price index, which is the preferred RBI target in setting rates, rose at
a faster-than-expected 5.39% last month vs. 4.83% in March. It was the first pickup in retail inflation
since January and even though the April number was driven primarily by higher food prices, there is a
pick-up across the board which some believe is a reversion to a fairly high level of inflation which could
reach 8% in the next few months.
Considering this back-drop of a slowing economy and an RBI certainly on hold until August, the outlook
for growth looks anemic and earnings expectations for FY17, currently at 19%, look too high. With the
Nifty close to 2% from its year to date high and the risk of lower growth and earnings going forward, we
will hedge our India equity exposure Monday morning.

Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk

Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

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Blotter
Figure 4: VFTP Execution levels for the model portfolios

Position / Security

Strategic
/ Tactical

Buy / Sell : Price / Target

Tactical to
close

Buy 7mm @ 15,610

Buy 7mm @ 15,510
Buy 7mm @ 15,410
Buy 7mm @ 15,310

The market will test the Bank of Japan over the

course of the next several weeks and will cover
into extreme weakness

Structural to
close

Buy $20mm @ 20.50

A continuation of our range trading thesis

Structural to
Open

Sell $50,000bp @ 99.10

Sell $75,000bp @ 99.15
Sell $100,000bp @ 99.20

Catalyst

Equities
Nikkei

XLF (US Financial ETF)

Fixed Income

September 2017 Eurodollar

Despite the dovish Fed, I remain convinced that

the Fed will raise rates in June and December

Currencies
AUD/USD

Tactical to
open

USDGBP

USDSGD

USD / KRW

Structural to
Open
Tactical to
Close

Sell $30mm AUDUSD @ 0.7550

Sell $35mm AUDUSD @ 0.7625
Buy $10mm USDGBP @ 1.4190
Buy $10mm USDGBP @ 1.4140
Buy $10mm USDGBP @ 1.4090
Buy $10mm USDGBP @ 1.4040
Buy $10mm USDGBP @ 1.3990
Buy $15mm USDSGD @ 1.3350
Buy $25mm USDSGD @ 1.3275
Buy $35 USDSGD @ 1.3200
Sell $15mm USDKRW @ 1195
Sell $15mm USDKRW @ 1215
Sell $20mm USDKRW @ 1235

Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk

Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

USD strength and commodity weakness to

reassert itself

Taking profit ahead of Brexit

Structural SGD weakness on the back of banking

concerns.
USD strength to continue into the Brexit
referendum.

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Earnings and Next Weeks Corporate Events

As discussed last week, MUFJ will report on their annual earnings this week. Furthermore, we will be
looking out for earnings from Tencent, Hon Hai, GLP, and Hotel Shilla. All these are part of Asia Equity
Absolute Return Portfolio. Samsung Electronics, LG Corp, State Bank of India, and Bank Mandiri, are
also reported. Quiet week from Europe and the US, with Merck, SABMiller, and Walmart the biggest
names for the week.

Event Calendars: May 16th May 20th

Figure 5: Economic data and Central Bank announcements / meetings: Hong Kong time.

Date/Time
16-May-16
7:50
17-May-16
7:00
8:30
12:30
16:30
20:30
18-May-16
0:00
1:15
7:50
16:30
17:00
19:00
19-May-16
2:00
7:50
9:30
10:00
18:00
19:30
22:30
20:30

20-May-16
20:30

Ctry

Event

Period

Survey

JP

PPI YoY

Apr

--

US
SI
JP
UK
US

Fed's Kashkari Holds Town Hall on TBTF in Minneapolis

Non-oil Domestic Exports YoY
Industrial Production MoM
CPI YoY / MoM
CPI MoM

Apr
Mar F
Apr
Apr

-6.50%
--0.40%

US
US
JP
UK
EC
US

Fed's Williams and Lockhart Discuss Economy at Politico Event

Fed's Kaplan in Moderated Q&A at Petroleum Club of Midland
GDP SA QoQ
ILO Unemployment Rate 3Mths
CPI YoY
MBA Mortgage Applications

1Q P
Mar
Apr F

0.10%
----

US
JP
AU
PH
MA
EC
US
US
ID
SG

U.S. Fed Releases Minutes from April 26-27 FOMC Meeting

Machine Orders MoM
Unemployment Rate
GDP YoY
BNM Overnight Policy Rate
ECB account of the monetary policy meeting
Fed's Dudley Speaks on Macroeconomic Trends in New York
Initial Jobless Claims
Bank Indonesia Reference Rate
GDP YoY

Mar
Apr
1Q

-5.80%
6.70%
3.25%

May
1Q F

----

CA

CPI YoY

Apr

1.70%

Source: Bloomberg, View from the Peak. Key events are highlighted
1: Event happening over the week starting from date specified; 2: Event happening over the weekend of 9-10 April; All times shown are in HK time

Figure6: Corporate earnings VFTP

Date

Time

Ctry

Ticker

16-May-16
16-May-16
16-May-16
17-May-16
18-May-16
19-May-16

15:00

JP
SK
SK
TW
HK
SG

8306 JP
005930 KS
008770 KS
2317 TT
700 HK
GLP SP

Bef-mkt

Company

Period

(C) Mitsubishi UFJ Financial Group Inc

(P) Samsung Electronics Co Ltd
(P) Hotel Shilla Co Ltd
(C) Hon Hai Precision Industry Co Ltd
Tencent Holdings Ltd
Global Logistic Properties Ltd

Y 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Y 2016

EPS Estimate
74.959

1.783
1.01
0.052

Source: Bloomberg, View from the Peak;

All times shown are in HK time; (C) Consolidated, (P) Parent

Figure 7: Corporate earnings US & Europe

Date
16-May-16

Time

Ctry

Ticker

FR

ILD FP

Company

Period

Iliad SA

Q1 2016

Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk

Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

EPS Estimate

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17-May-16
17-May-16
17-May-16
18-May-16
19-May-16
19-May-16
19-May-16
20-May-16
20-May-16

Bef-mkt
14:00
14:00
19:00
13:00
4:00
Bef-mkt

US
UK
UK
UK
US
GE
GE
US
US

HD US
VOD LN
BTG LN
SAB LN
WMT US
MRK GR
WDI GR
AMAT US
DE US

Home Depot Inc/The

Vodafone Group PLC
BTG PLC
SABMiller PLC
Wal-Mart Stores Inc
Merck KGaA
Wirecard AG
Applied Materials Inc
Deere & Co

Q1 2017
Y 2016
Y 2016
Y 2016
Q1 2017
Q1 2016
Q1 2016
Q2 2016
Q2 2016

Company

Period

(C) Mitsubishi UFJ Lease & Finance Co Ltd

(C) Daewoo Securities Co Ltd
(P) Hyundai Motor Co
(P) KCC Corp
(P) Kia Motors Corp
(C) LG Corp
(P) AMOREPACIFIC Group
(P) KISCO Corp
Bank Mandiri Persero Tbk PT
Alliance Global Group Inc
Bangkok Airways Co Ltd
Merck Sharp Dohme Pharma Tbk PT
Hanson International Tbk PT
Jakarta Kyoei Steel Works Tbk PT
Indonesia Transport & Infrastructure Tbk PT
Tower Bersama Infrastructure Tbk PT
GT Capital Holdings Inc
Lenovo Group Ltd
(C) Tokio Marine Holdings Inc
(P) ITC Ltd
(P) State Bank of India

Y 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Q1 2016
Y 2016
Y 2016
Y 2016
Y 2016

1.34
0.046
0.187
2.202
0.883
1.424
0.325
0.319
1.482

Source: Bloomberg, View from the Peak;

All times shown are in HK time; (C) Consolidated, (P) Parent

Figure 8: Corporate earnings - Asia

Date
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
16-May-16
17-May-16
17-May-16
17-May-16
17-May-16
17-May-16
17-May-16
19-May-16
20-May-16
20-May-16
20-May-16

Time

12:20

Ctry

Ticker

JP
SK
SK
SK
SK
SK
SK
SK
ID
PH
TH
ID
ID
ID
ID
ID
PH
HK
JP
IN
IN

8593 JP
006800 KS
005380 KS
002380 KS
000270 KS
003550 KS
002790 KS
104700 KS
BMRI IJ
AGI PM
BA TB
SCPI IJ
MYRX IJ
JKSW IJ
IATA IJ
TBIG IJ
GTCAP PM
992 HK
8766 JP
ITC IN
SBIN IN

EPS Estimate
58.2
243.13

1263.24
1439.95
229.94
0.36

45.8
-0.014
311.641
12.353
14.188

Source: Bloomberg, View from the Peak

All times shown are in HK time; (C) Consolidated, (P) Parent

Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk

Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

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Disclaimer
Note: The terms of this Report are subject to and qualified by the terms of the Subscription Agreement between IND-X Advisors Limited (INDX) and client receiving this report. Unless otherwise specified herein, in the event of any conflict between the terms of this Disclaimer and the
terms of the Agreement, the terms of the Agreement shall govern. Defined terms not otherwise defined herein shall be as defined in the
Agreement.
All Sources Bloomberg unless stated
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with regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the
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Required Disclosures
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Additional information will be made available upon request.
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2016 IND-X Advisors

Paul Krake, +852-6205-9620, paul@viewfromthepeak.com.hk

Cindy Ponder-Budd, +1-303-350-8950, cindy@viewfromthepeak.com.hk;

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