Birkoa Newsletter (3rd week December '22 updates)
Dear Birkoa LPs:
Wanted to provide you with a quick recap of last week, as a follow up to last Sunday's newsletter.
The 2 double bonanza events from the past week were as expected, including the results in the markets -
Tuesday - CPI numbers came in slower than expected, which is good news that means inflation might be going down
Wednesday - Fed slowed down its pace of rate hike to 50 bps instead of 75 but indicated a stricter stance on remaining with their tightening regime. They indicated they will tighten for longer, and as explained last Sunday, the only real debate being whether the terminal rate is 4.6% or over 5%, it seems likely that they're gunning for somewhere around 5-5.25%.
Due to #2, despite good news from #1, the markets took a dip below which increased U.S. Dollar strength bringing everything except for our Chinese holdings down. This was expected and might continue around the edges on and off for the next month and half or two. While we await for the non-Chinese equities part of our portfolio to stabilize from this synchronized beating, I expect China to continue to do well albeit the pace might not be as great as over the past month.
We gave back about 5% overall to settle around where we were 2 weeks ago and I utilized this opportunity to load up more on some specific semiconductor names like ASML (a major monopoly that services the lithography part of the fabrication business - I had been eyeing ASML for a very long time thinking I'll buy next when it dips). On Tuesday, Chinese property markets were dipping unusually so I increased my allocation, and that at least temporarily has been worthwhile because the Chinese government has only reaffirmed its stance on boosting and supporting its property sector, while continuing to spur up the economy as the country comes out of lockdowns.
I'm not very good at short-term forecasts, but if I had to guess, we will probably keep making progress with a quick recovery on non-China whenever the markets feel confident that the Fed has tightened enough (and I expect that to be sometime around January-early Feb before the next FOMC meeting). In the meantime, I've availed opportunities to buy on our long-term holdings to take advantage of dips, much like I did when China was going down 2-3 months ago.
I'll keep you posted with more updates as they come.
Sincerely,
Pranjit Kalita
CIO