David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Stronger enforcement, improving cashflow

    Thanks to a subscriber for this report from Deutsche Bank focusing on the Chinese Environmental sector. Here is a section:

    The sector’s valuation looks attractive at current levels compared with its own trading history and also with the index. The P/Es of most stocks are below/close to their average minus one standard deviation since 2015, in terms of both their own PE and also relative PE to MSCI China. We think that the sector’s current valuation offers decent safety margins to buy into most stocks.

    China usually strengthens environmental enforcement during the last three years of Five-Year Plan periods as the country gets closer to assessment deadlines. We expect the same to take place from 2018, especially as the CPC's 19th National Congress recently mentioned that China plans to set up a "National Natural Resources and Ecology Administration" soon. We expect these factors to benefit this laggard sector, together with improving cashflow profile/earnings quality with selective companies over the next few years


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    Russell Napier: Debt Deflation Worries Are Starting to Rise Again

    Thanks to a subscriber for this article from Financial Sense which may be of interest to subscribers. Here is a section on the Velocity of Money: 

    Though there is an overall tendency for velocity of money to fall over time, Napier noted, the accelerated decline we’ve seen in recent years is due to the nature of the money that is being created. This money primarily takes the form of bank reserves, which are not inherently fungible and are now stuck in the banking system.

    Banks have chosen not to increase the size of their balance sheets and create deposits, which is the money that circulates in the actual economy, as opposed to the asset economy. This is why Napier thinks the velocity of money has fallen.
    “There’s a form of money there that is stuck in the ‘asset ghetto,’ if you like, and not yet spreading out to normal GDP,” he said.

    This plays in part into the assumption most people make that the world is awash in money. While there is a lot of money in the asset markets, the reality is that M2 growth in the United States is 5 percent, which is one of the lowest levels recorded in the past 30 years, Napier noted. Apart from the 2008 to 2009 crisis, we’re back to very low levels of total money creation.
    This is true of other countries, as well. China is close to a new record low in the growth of its money supply. India is also showing levels of growth in its money supply not seen since 1963.


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    Surprising Airbnb Adoption Slowdown in US/EU, and What It Means for Hotels and OTAs

    Thanks to a subscriber for this report from Morgan Stanley which may be of interest to subscribers. Here is a section: 

    Two Reasons Adoption Is Slowing... First, the benefits of growing awareness among online consumers in the US/Europe are slowing/topping out, as Airbnb awareness among our survey respondents increased by only 800bps to 80% in '17 (vs. a 2,000bps increase in '16). We see awareness as a smaller driver going forward. Second privacy/safety are material and growing barriers to adoption, as the percent of non Airbnb users citing these factors to not use it increased by ~700bps/400bps, and the absolute number of people concerned about these issues increased by 10%/25% Y/Y. This, in our view, could speak to two potential truths: 1) How Airbnb/sharing lodging could be more niche than previously expected, and 2) How the lobbyists/opponents of Airbnb may be gaining traction.

    ...Causing Us to Lower Our Airbnb Forecast...This slowing adoption causes us to reduce our forward user/room night forecast for the US/Europe, now expecting ~12% '16-'20 room night growth, vs 29% previously. We now model Airbnb to grow to 6% of lodging demand across US/Europe by '20, vs. 9% previously.

    ...Making Us Incrementally More Bullish on the Lodging Space... While surveyed hotel cannibalization inched up slightly to 51% from 49% (and expected to be 54% in '18), a slowing user adoption curve suggests Airbnb is less of a threat to hotels. We estimate that Airbnb had a 50bps impact to '17 RevPAR growth across US/Europe, down from our prior estimate of 90bps. We now forecast it will have another 50bps impact on '18 RevPAR growth, down from our prior 80bps impact. As such, we expect US RevPAR to be relatively stable at +2.3% and +1.6% growth in '18 and '19, respectively.


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    House Passes Tax Bill in First Step Toward Historic Overhaul

    This article by Anna Edgerton for Bloomberg may be of interest to subscribers. Here is a section:

    The Senate plan also departs from the House bill by delaying the corporate tax-rate cut by one year. And it includes a proposal to repeal a key provision of the Obamacare law -- saving the government $318 billion over 10 years to help pay for the tax cuts, but leaving 13 million Americans uninsured by 2027, according to official estimates.

    Many of the Senate provisions are designed to cut the bill’s cost and meet budget rules that will allow GOP leaders to pass a bill with only Republican votes. Differences between the House and Senate legislation will have to be worked out between the chambers -- and then both the House and Senate will have to approve the final result.

    House Ways and Means Chairman Kevin Brady said he’s going to focus on preparing for a conference committee with the Senate. He added that lawmakers were working to improve provisions related to international taxation, address specific industries’ concerns and try to work with lawmakers from high- tax states.

    “This is certainly not the last step in our tax reform journey,” Brady said after the vote. But he pledged lawmakers will “make this better every step of the way.”


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    World's Biggest Wealth Fund Wants Out of Oil and Gas

    This article by Sveinung Sleire for Bloomberg may be of interest to subscribers. Here is a section:


    Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

    “Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”

    The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.

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    Russia used Twitter bots and trolls "to disrupt" Brexit vote

    This article from The Times may be of interest to subscribers. Here is a section:

    Most of the tweets seen by this newspaper encouraged people to vote for Brexit, an outcome which Russia would have regarded as destabilising for the European Union. A number were pro-Remain, however, suggesting that the Russian goal may have been simply to sow division. “This is the most significant evidence yet of interference by Russian-backed social media accounts around the Brexit referendum,” said Damian Collins, the Tory MP who chairs the digital, culture, media and sport select committee. “The content published and promoted by these accounts is clearly designed to increase tensions throughout the country and undermine our democratic process. I fear that this may well be just the tip of the iceberg.”

    On Monday Theresa May accused Moscow of using fake news to “sow discord” and of meddling directly in elections. President Trump has said that he believes Mr Putin’s denial that Russia interfered in the American presidential race.

    The Swansea and Berkeley paper says that a “massive number of Russian-related tweets was created a few days before the voting day, reached its peak during the voting and the result and then dropped immediately afterwards”. Tho Pham, one of the paper’s authors, said that “the main conclusion is that bots were used on purpose and had influence”.


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