Thread by @Trinhnomics

Good morning. I know, I know, many of u have asked me to opine on Evergrande contagion etc. But let's first start with this: Happy Mid Autumn Festival! 🏮 Meaning, eating a lot of moon cakes. That means mainland China is off so if u're waiting for partial bailout, gotta wait🤗

Let's see what has happened & priced. This is month to date (September) that has plenty of news from crackdowns (education, entertainment, property, casinos, tech) to slowdown (retail sales on Delta) & of course the latest is how Evergrande is going down, orderly or disorderly.👈🏻

You can see that at first it was rather contained to just Evergranded and then to high yield and then spreading a bit. But what are markets saying:
* No contagion to systemic (meaning banking sector) as in no Lehman Brothers
* But uncertainty on bailout/scale of it + sector & eco

So if you ask me, and no, I do not have the answers, and no one does, we all just have educated guesses based on the past & expectations of tolerance level of contagion & wait for how that will happen.

If u think tolerance for systemic is low or zero, then what's the best case?

Note what everyone is saying: This is not China's Lehman Brothers' moment.

If it isn't, what is it? What form will that take? Irrespective, what is everyone saying?

Well, growth decelerated and very likely to slow further. So what?

What does the FX market tell us? Usually much less volatile than equities because FX is dictated by both financial and real capital flows. So it is less volatile by nature.

Irrespective, China contagion is priced via China expectation of lower growth or a certain kind of growth.

Sorry I am rather busy lately so will cut this thread here. But did you see IDR, it's #2 this month. Is it a safe haven? A low trader (exports as a share of GDP low). And what it trades is commodity, namely palm oil, coal & natural gas. All doing rather well due to supply shocks.

Remember my ASEAN supply shock stories? The country w/ the LEAST manu goods as a share of total exports is now a WINNER.

Covid does that. Cyclical natural gas + higher demand for coal too. And so we are here today: A China slowdown story. Take it as u may & think of contagion.