This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. 5 Things We Watch – Cyclicals, Baltimore Bridge, ECB, USDJPY & Sentiment
- Loads of stuff are going on in Global Macro, with global equities on the rise yet again, the JPY struggling a bit after unsuccessful attempts from policymakers, including the verbal FX intervention from MoF and BoJ today, and the Spanish HICP numbers, which we hit right on the mark! The benign base effects and dovish outlook has potentially paved the way for a cut in June, but what should you look out for in the meantime?
- We give you 5 topics from our watchlist.
- This week we are watching out for the following 5 topics within global macro.
2. Great Game – Moscow terror, Netanyahu Furious and Biden climbing polls
- Welcome to this week’s Great Game.
- We’re going to try out a slightly new format this time.
- Instead of unfolding one major topic, we will cover a couple stories more briefly, so you are covered on the most important stories in geopolitics right now.
3. Positioning Watch – Time to get out of the cyclical trade?
- Hello everyone, and welcome back to our weekly positioning watch! The weather in Copenhagen is sunny, and so is the mood in markets, with aggregate equity fund flows in the US reaching 2-year highs this week.
- Markets are certainly back into full risk-on mode, with the Fed promising rate cuts amidst reflationary trends in the US, which is a trend that is slowly but surely spreading to the rest of the world.
- The cyclical rebound is not truly there yet in Europe, which means that European indices are starting to get flagged as overpriced in our quant-models.
4. Energy Cable #62: Biden is selling crude straddles, while something is cooking in China
- Last week we took healthy profits in some of our global reflation bets.
- We got out of silver and copper, but remain in the broad materials ETF.
- Data out of China is a bit unclear with some prints being bullish and others bearish and then ambiguous data points such as the BOOMING copper stock.
5. Are Chair Powell and I on the Same Page?
- The ongoing Fed pause puts emphasis on the interactions between financial conditions and headline growth
- My proprietary measure of financial market conditions seems to be broadly consistent with the Fed Board’s indicator of financial conditions
- Chair Powell alluded to the prospect that financial conditions are currently “weighing on economic activity”
6. Explainer: the 3 faces of Chinese consumer pessimism
- Cautious but promising signs emerge from China’s consumer demand landscape.
- According to China’s statistics bureau, consumer prices saw a 0.7% increase year-on-year in February, marking the first rise since August.
- The extended Lunar New Year holiday period, spanning 8 days instead of the usual 7, nearly matched pre-pandemic domestic spending levels.
7. Steno Signals #92 – The head fake reflation?
- It is always lovely to get back on the road and meet a load of fund managers, and it is nice to see that a few reflation skepticals are still found out there.
- I went to London to meet with a bunch of the big funds in town, hot on the heels of Powell’s reflationary Fed meeting on Wednesday.
- It almost annoyed me how “vanilla” my analysis had to be on the back of it, as the Fed is moving the needle lower and lower and lower on the implied Real Fed Funds rate every meeting currently, no matter the underlying developments in inflation and/or growth.
8. Whither the Yen?
- The Bank of Japan is caught between a rock and a hard place
- The JPY’s only hope is a US recession and lower US interest rates
- Japan’s inflation problem to resume as imported inflation bites into purchasing power once again
9. India Deep Dive: Record Allocations Mask Growing Underweight
- Record Allocations Mask Caution: Record investments in India contrast with a rising underweight, as selected managers pare back exposure.
- Valuations Prompt Strategic Pause: Record underweights among Value funds reflect valuation concerns, with growth funds also seeing overweights decline.
- India vs. China: Allocation Shifts: The stark contrast in allocation trends underscores a strategic pivot within EM, highlighting record divergences between the two.
10. Ifo Nugget: What reflation in Germany?
Price expectations in services ex. real estate continued its downtrend and we now find ourselves at 2018-19 levels in what is pointing towards lower core inflation readings in the second half of the year.
Meanwhile price expectations in manufacturing climbed and looks like they have bottomed out at levels consistent with the price mandate of the ECB.
The drop in input prices, the global reflation story and expectations of ECB rate cuts seem to have had an effect and the question now becomes which of the two manufacturing and service price expectations will impact inflation come Summer and Fall the most.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. Jensen’s World: Compressing Reality
- “It is so much cheaper to do simulations than real experiments, so much more flexible in testing…we can even do things which cannot be done in any lab… So it’s inevitable this trend will continue for some time.” – Richard Hamming, The Art of Doing Science and Engineering.
- Richard Hamming said this to the President of Bell Labs in the 1950s. And I think this insight rings more accurate than ever. Simulations of reality are much more flexible and cheaper than observing and interacting with reality.
- I will assert that LLMs and “AI” are effectively the logical conclusion of this trend. A large language model is trained on the largest amount of data possible, often the entire crawlable Internet, all the books ever written, and so much more.
2. The First Semi-Micron to Guide 2Q24; All Good News Except MOI
- Earlier expectation on Micron will have rooms to raise becoming a reality, largely driven by over 30% q/q NAND bit price jump for storage business in 1Q24.
- 10ppts stronger 2Q24 sales guidance and 3-6ppts higher gross margin guidance are driving free cash flow improvement.
- AI server, PC, and smartphone driving DRAM bit demand and HBM3e/HBM4 and 1-gamma EUV DRAM slowing bit supply growth both are positive except MOI remains 15% above 5 years average.
3. Micron. Back In The Black & No Going Back
- Q224 revenues of $5.8 billion, up 23% QoQ and up 58% YoY. It also well above the high end of the guided range of $5.5 billion.
- Net income turned positive & amounted to $476 million. This compares to a loss of $1 billion in Q124
- Forecasting current quarter revenues of $6.6 billion & gross margin of 26.5% at their respective midpoints
4. Taiwan Tech Weekly: Nvidia Conference; Samsung to Hike NAND Prices; TSMC Adding Capex Due to Demand
- Nvidia GTC Conference This Week Likely to Create Newsflow for Many Tech Names
- Samsung Could Hike NAND Flash Prices by 20%; Silicon Motion for Exposure
- TSMC Reportedly Placing Orders for Additional Advanced Packaging Capacity, Likely In Response to Demand Strength
5. Taiwan Dual-Listings Monitor: TSMC Premium Slumped But Remains Extreme; UMC at a Discount
- TSMC: +15% ADR Premium; Likely to Trend Further Lower Over Time
- UMC: -2.3% Discount; Decent Level to Long the ADR vs. Short Local
- ASE: +11.6% Premium; Continue to Advocate Shorting the Spread Here
6. Micron Earnings: HBM Driving Price Increases in Other Sectors
- Micron Technology reported very positive revenues this quarter and a return to profitability
- A large part of this stems from the impact that HBM demand is constraining production of standard DDR5 DRAM, driving it into a shortage
- This is good news for Micron and its DRAM competitors Samsung and SK hynix
7. NEC (6701 JP): Generative AI (Part 2)
- CEO Jensen Huang’s keynote address at Nvidia’s GTC event on March 18 was a reminder that generative AI is about building secure and reliable systems, not chatting up the future.
- NEC has spent three years developing its own AI supercomputer, creating the best performing Japanese-language large language model (LLM), and testing new AI products in-house before delivering them to clients.
- The introduction of generative AI and LLMs into business- and industry-specific solutions should provide meaningful additions to NEC’s telecom services, social infrastructure, aerospace and national security related businesses.
8. TSMC (2330.TT; TSM.US): Raising Growth Target to 25%+ YoY in 2024F.
- Taiwan Semiconductor (TSMC) – ADR (TSM US) revenue growth target for 2024F is set at 25% or higher.
- TSMC’s dominance in the CoWoS market, with nearly 100% share, positions them well.
- TSMC’s plans to establish a new Fab in Chiayi, Taiwan, reflect the growing end demand.
9. Generative AI. Innovation Turns To Litigation, Licensing & Regulation
- The EU has just launched the World’s first AI Act
- OpenAI claims the NYT tried to hack ChatGPT in order to prove they used their archive material during one of its training phases.
- Google’s licensing of Reddit’s content in advance of the latter’s impending IPO is a win-win for both, and likely how content creators can expect to be rewarded in the future
10. Intel. CHIPS Act Funding Ceremony Overshadowed By Reports Of New Fab Delays
- Intel snags $8.5 billion in direct funding through the CHIPS and Science Act to advance its commercial semiconductor projects in Arizona, New Mexico, Ohio and Oregon.
- Investment Tax Credit (ITC) of up to 25% on > $100 billion in qualified investments and eligibility for federal loans up to $11 billion are also on offer
- Meanwhile, two separate reports suggest delays of up to two years in Ohio and suppliers in Arizona unable/unwilling to meet previous commitments to establish local supply chains. Ouch!
This weekly newsletter pulls together summaries of the top ten most-read Insights across Equity Capital Markets on Smartkarma.
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1. TCS US$1.1bn Placement – Relatively Small but Isn’t Well Flagged, Could Have Implications for Others
- Tata Sons, holding company of Tata Group, is looking to raise around US$1.1bn via selling a 0.65% stake in Tata Consultancy Svcs (TCS IN).
- The deal doesn’t appear to be well-flagged although it could be part of Tata Sons’ recent moves to avoid an RBI mandated listing next year.
- In this note, we talk about the deal dynamics and run the deal through our ECM framework.
2. ECM Weekly (18th Mar 2024) – ITC, Interglobe (Indigo), MS&AD, GlobalWafer, Belle, Auntea, Trial
- Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
- On the IPO front, Hong Kong appears to be heading towards its first US$100m+ IPO for the year.
- For placements, after a flurry of placements in the prior week, past week was relatively quiet with only the US$2bn ITC Ltd (ITC IN) block.
3. Akeso Biopharma Placement (9926.HK) – Would Investors Be Willing to Take a Gamble?
- Akeso’s product sales grew rapidly in 2023, mainly driven by off-label use of AK104. Since AK104’s commercialization potential on other indications was “overdrawn” in advance, sales growth would slow afterwards.
- The key investment logic of Akeso is whether/how much its BsAb pipelines would grab shares from PD-1. The high valuation has somewhat priced in AK112’s successful head-to-head trial with pembrolizumab.
- If AK112 does beat Keytruda, valuation will reach a new level. If AK112 fails in critical clinical trials, it would cast a shadow on the entire BsAb pipeline of Akeso.
4. Trial Holdings IPO: Trading Debut
- Trial Holdings (5882 JP) priced its IPO at JPY1,700 per share to raise gross proceeds of US$256 million. The shares will start trading on 21 March.
- We previously discussed the IPO in Trial Holdings IPO: The Investment Case and Trial Holdings IPO: Valuation Thoughts.
- The peers have modestly re-rated since the prospectus was released on February 19. The IPO price remains attractive.
5. Trial Holdings IPO Trading – Demand and Valuation Are Towards the Higher Side
- Trial Holdings (5882 JP) (TH) raised around US$259m after pricing its IPO at the top-end in its Japan IPO.
- TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
- We have looked at the company’s past performance in our previous notes. In this note, we talk about the trading dynamics.
6. Tencent 4Q2023: Gaming Declines Yet Again, Margins Have Further Upside
- Tencent (700 HK) reported 4Q results today. Both revenues and OP increased 7.1% and 42.0% YoY, however, both revenue and OP fell below consensus estimates.
- The company also announced an increase to 2023 dividends and more than doublethe size of the company’s share buyback in 2024 compared to 2023.
- We expect Internet VAS to grow at single-digits in 2024, however, high-margin new products to help boost margins in 2024.
7. Ceigall India Pre-IPO Tearsheet
- Ceigall India (1605242D IN) is looking to raise at least US$100m in its upcoming India IPO. The deal will be run by IIFL Securities, JM Financial and ICICI Securities.
- Ceigall India is an infrastructure construction company with experience in undertaking specialized structural work such as elevated roads, flyovers, bridges, railway over bridges, tunnels, highways, expressways and runways.
- Its principal business operations are broadly divided into EPC and hybrid annuity model (HAM) projects, which are spread across ten states in India.
8. MIXUE Pre-IPO – Initial Thoughts on Valuation
- Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO.
- MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
- In our earlier notes, we have looked at the past performance and undertaken a peer comparison. In this note, we provide our initial thoughts on valuation.
9. Akeso Inc Placement – A Small One to Digest, Momentum Has Been Strong
- Akeso Biopharma Inc (9926 HK) is looking to raise US$155m from its primary placement.
- Proceeds from the deal would be geared towards R&D expenditure for its preclinical programs, expediting clinical trials, and towards commercializing its existing approved products.
- Accounting for 3% of shares outstanding, and representing 5.7 days of its three month ADV, the deal would be a relatively small one for the firm to digest.
10. Jeil Machine & Solution IPO Preview
- Jeil Machine & Solution is getting ready for an IPO in April in the Korean stock market. The IPO price range is 15,000 won to 18,000 won.
- The total offering amount ranges from 36 billion won to 43.2 billion won. The book building for the institutional investors will last from 5 to 12 April.
- According to the bankers’ assessment, the implied market cap of the company ranges from 309 billion won to 371 billion won.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. The Bigly March 2024 “Wednesday-Friday Trade” (Surprising Flows)
- Every year it’s the same trade. This year it is Wednesday and Thursday. There are risks to the analysis – notably allocation.
- But there may be ¥1.0-1.2trln+ to buy on one day into the close later this month, then ad hoc buys of ¥630bn and index sells of ~¥600bn 2 days later.
- Over the past ten years, the two day return on the March trade is great. This year the Nikkei funding trade makes things more complicated.
2. Fast Retailing (9983) – Now At Double Downweight Levels
- Fast Retailing (9983 JP) is the largest weight in the Nikkei 225. On Friday, it closed at 11.36% of the Nikkei 225, putting it well above the 10% cap level.
- If the stock is above 10% on a pro-forma basis on the base date of 31 July 2024, it will get a capping coefficient. 8.4mm shares (US$2.5bn) to sell.
- At Friday’s close, we were borderline above a double-downweight trigger. At Monday’s open, just below. 30mins later? Back well above. Lots of interesting issues and nuances here for a short.
3. JSR (4185 JP) – Launch of The Official Tender Offer (And the Double Arb)
- The Tender Offer is finally here. JIC announced the official launch after the close today.
- JIC appears to be taking on the SUNY RF risk as-is. The Tender Offer details vs the original expectations in the late June 2023 document are unchanged.
- Once started, unless a US court approves an injunction causing regulatory delay, this is done. But there are path events. And of course there is a double arb here.
4. Tokio Marine Cross-Shareholding – At Least US$18bn of Cross-Shareholding to Sell
- The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
- Tokio Marine Holdings (8766 JP) had a stake over US$100m in at least 33 listed Japanese stocks, amounting to a total of US$16.5bn.
- In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.
5. Quiddity Leaderboard S&P 500 Jun 24 Rebal: Many Intra-Review Changes Possible Due to M&A, Spin-Offs
- The S&P 500 index tracks the 500 largest names listed in the US and it is one of the most highly-tracked indices in the world.
- The index is reviewed quarterly. The next review will be in June 2024 and the evaluation date for the rankings for the constituent selection process is 6th June 2024.
- In this insight, we take a look at the Potential ADDs and Potential DELs for the June 2024 index rebal event and the intra-review ADDs/DELETEs.
6. Shinko Electric (6967 JP): Tender State of Play
- Shinko Electric Industries (6967 JP) pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread has narrowed from a high of 10.4% to the current 4.2%.
- The narrowing spread can be attributed to the JSR Corp (4185 JP) tender launch, which suggests likely China SAMR approval, and Ibiden Co Ltd (4062 JP) giving up recent gains.
- Like JSR, we expect China SAMR to allow JIC to withdraw its Shinko merger control filing. There is a good chance the tender launches before the guided late August start.
7. Giordano (709 HK): A Closer Look At The Shareholder Register Ahead Of The SGM
- Last month, a Cheng family vehicle with 24.06% of Giordano (709 HK), requisitioned an SGM to remove CEO Peter Lau, and install Colin Currie as CEO, plus three other NEDs/INEDs.
- That SGM will be held on the 3rd April. The director resolutions – both the removal and appointments – are “ordinary”, requiring a simple majority vote.
- The outcome will likely pivot off how the shareholders under Halcyon Securities will vote. So I dug a little deeper as to who these shareholders are, with some surprising results.
8. Chilled & Frozen Logistics (9099) – Hostile Takeover Launched by AZ-Com Maruwa (9090)
- Chilled & Frozen Logistics Holdings (9099 JP) last week announced its “Action to Implement Management That is Conscious of Cost of Capital and Stock Price”.
- Today it announced AZ-Com Maruwa Holdings (9090 JP) had announced its intention to launch a Tender Offer on C&F Logistics without having contacted C&F first. A HOSTILE deal. Yum.
- The deal is proposed at a 50% premium, with the goal of getting to a minimum of 50.00%. This will be interesting.
9. IntelliCentrics (6819 HK): Delisting and Special Dividend
- On 9 February, IntelliCentrics Global Holding (6819 HK) announced the disposal of most of its assets to symplr software. On 19 March, the antitrust condition was satisfied.
- The consideration will be distributed to shareholders as a special dividend. The minimum and maximum special interim dividends are US$0.52 (HK$4.08) and US$0.55 (HK$4.30) per share.
- The key condition is EGM shareholder approval. Due to the irrevocables from key shareholders, the EGM vote should comfortably pass. This is a done deal.
10. Quiddity Leaderboard KOSPI 200 Jun 24: Up to Five Changes Possible
- KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
- In this insight, we take a look at the names leading the race to become ADDs and DELs during the upcoming semiannual review in June 2024.
- There could be up to five changes in the KOSPI 200 index during the June 2024 index rebal event.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. What Really Matters Is Global Liquidity…But It Looks Set to Zag Before It Zigs Higher
- The main driver of asset prices looks set to stall, albeit temporarily. Global Liquidity is at a new all-time peak, but it is flat-lining
- Global Liquidity compromised by a stumbling US Fed as it copes with the errant RRP and TGA, and by an erratic People’s Bank of China. Q2 could prove tricky
- Look to diversify elsewhere. Commodity markets are on the move. But strong economies do not always have strong financial markets
2. Korean Government Announces Tax Incentives for Shares Cancellation and Dividends
- On 19 March, Choi Sang-Mok announced that the Korean government plans to provide corporate tax reduction benefits to companies that cancel their treasury shares.
- The separate taxation of dividend income is also expected to be promoted. All of these are law amendment issues and must go through the legislative process of the National Assembly.
- At this time, the Korean government did not provide the entire details about the exact amount of corporate tax reductions from share cancellation and separate taxation of dividend income.
3. Back-Testing the Impact of National Assembly Elections on the Korean Stock Market
- In this insight, we provide a back-testing analysis of the impact of the National Assembly Elections on the Korean stock market.
- KOSPI tends to display positive price performance one month and three months prior to the election date leading up to the election date.
- On the other hand, KOSPI tends to decline one month and three months post the election date. We believe that post National Assembly Election, KOSPI could face greater headwinds.
4. Hong Kong: A Tale of Two Markets and When to Re-Enter
- The bad news is that Hong Kong will not have a V-Shaped recovery which will keep market sentiment subdued
- The good news is that Hong Kong will not have a V-Shaped recovery which will contribute to a reduction in overall market volatility
- After an epic bear market, Hong Kong will enter a secular bull market this year
5. Japan Removes Negative Interest Rate Policy – The End of an Era and Long Yen?
- Zooming out reveals that the Bank of Japan has not shifted to a different monetary policy regime.
- The negative relationship between total debt-to-GDP and interest rates has been confirmed once again.
- With the Federal Reserve poised to cut rates more than three times this year, the case for a short yen position is thin.
6. Federal Reserve Signals “Victory” over Inflation Setting the Stage for the Next Round of Inflation
- Three 25 bps rate cuts signaled for the remainder of 2024 and 175bps by the end of 2025
- Bank of Japan, despite a rate hike keeps monetary policy extremely accommodative
- Reported inflation will return making sector selection in equities key
7. Portfolio Watch: Markets sniffing out the Chinese resurgence case
- Macro Portfolio: Markets sniffing out the Chinese resurgence case. Our conviction in pro-cyclical trends have been confirmed in markets this week, and the case for a Chinese revitalisation is becoming increasingly stronger.
- The continued surge in Copper this morning is noteworthy, particularly given the buildup of inventory by China in the past few months.
- An increasing stockpile can be a positive indicator, especially if it results from a deliberate effort by China to restock in anticipation of an economic stimulus.
8. Steno Signals #91 – No more recessions ever!?
- Happy Sunday from Sunny Copenhagen and welcome to our flagship editorial! Is the business cycle dead?
- It is a fair question to ask after what seems like years of recession chasing once again ending in tears for the macro bears.
- This sublime graphic created by the great Lee Coppock is exceptionally telling.
9. Monday Macro – Asset allocation update, the Nvidia show, stubborn rates, and Gold
- I’ve promised to keep updating my asset allocation tables every couple of months – and, on cue, here they are!
- They come in two guises. The first, below, is my overall take on the range of asset classes. There aren’t any changes this time. I’m still wary of equities, especially US equities, though, paradoxically, if I must own US equities, I would rather own the really big mega-cap tech names.
- I have a neutral position overall in equities, which implies a 60/40 equities/bonds balance, which hasn’t changed for a while – I wouldn’t be racing to put even more money to work in equities.
10. Chinese Momentum: Driving Markets or a Crowded Consensus?
- China’s government is targeting an economic expansion of approximately 5% again this year.
- A challenging objective considering the myriad of challenges facing the world’s second-largest economy.
- These challenges include weak consumer spending, a real estate sector in turmoil, efforts by the US to limit its technological advancements, unprecedented youth unemployment rates, and significant debt levels among local governments.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Tech Hardware and Semiconductor on Smartkarma.
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1. Taiwan Tech Weekly: TSMC Surge Leads Taiwan Stocks Higher; Advanced Chip Packaging in Focus
- Massive TSMC Rises 13.8% in Just a Week; Mediatek a Top 10 Gainer for Second Week in a Row
- TSMC (2330.TT; TSM.US): Sales Should Be Gradually Increasing QoQ in 2024F; IPhone 16 Is on Schedule.
- PC Monitor: Long Dell Vs. Short Acer Update; Dell & HPQ Results Indicate Opportunity in Asus
2. Advantest (6857 JP): AI Speculation Discounted
- Advantest has dropped back 11.5% from its recent high but is still up 43% year-to-date and up 2.3X from a year ago. Consolidation is likely to continue.
- Demand for High Bandwidth Memory (HBM) for use with AI processors could lift sales, profits and profit margins to new highs within the next two years.
- That could bring the projected P/E ratio down from 75.5x FY Mar-24 EPS guidance to 31x FY Mar-26 EPS in a favorable but not unreasonably optimistic scenario.
3. Semiconductor 2023 Key Indicators In Review, 2024 Forecasts
- Forecasting PC & Smartphone unit shipments to increase 5% YoY on the back on “AI Enablement”
- Server unit shipments declined ~20% in 2023 but overall revenues remained flat, a consequence of higher ASPs associated with AI-accelerated servers
- Server shipments will return to growth in 2024, likely +10% YoY. Server ASPs will increase yet again YoY as AI-server mix grows.
4. NEC (6701 JP): Generative AI Is the Spark, Not the Driver
- The P/E ratio has risen above 20x this fiscal year from no more than 13x in the previous four years, reflecting successful restructuring and investor enthusiasm for AI.
- Profit margins are rising, but remain moderate in absolute terms with room for further improvement. The shares may consolidate, but they do not look overvalued.
- Management is aiming for generative AI sales of ¥50 billion in three years time. This is less than 2% of total sales, but a positive indicator for NEC’s software business.
5. Factors and Semiconductors
- Markets always act erratically, but I thought I would highlight one aspect that disproportionately impacts semiconductors.
- Factor investing is not new, but we are in a unique period where Momentum has quite a period of outperformance and short-term outperformance.
- This matters because semiconductors are (as far as my memory holds) the most significant weight in Momentum I’ve ever witnessed.
6. Silergy (6415.TT): Expecting a Seasonal Decline In 1Q24F, and Likely Another Growth Year in 2024F.
- The short-term recovery momentum observed in China and consumer markets.
- The Gen 3 in 4Q23 accounts for about 50% of the production, expected to increase to around 60-70% in 4Q24F.
- Expecting to improve quarter by quarter after reaching the bottom in 1Q24F, and the growth is expected to recover to around 20%+ YoY in 2024F.
7. Hon Hai: Beat & Raise; Further Valuation Upside; AI Server Product Announcements Next Week
- Hon Hai’s 4Q23 profit beat consensus and management has become more bullish on 2024E revenue thanks to demand for AI servers.
- Guided 40% YoY growth expected for AI servers; Separately, Hon Hai reportedly could have won a major AI server order from HP Enterprise according to Digitimes.
- Hon Hai shares are finally moving; We see room for continued upside based on re-rating of the company’s valuation. Positive news flow potential through Nvidia’s GTC conference next week.
8. Vanguard (5347.TT): 1Q24F Could Be the Recent Bottom, and 2Q24F Should Be an Upside 10% QoQ.
- We anticipate that the guidance upper limit for 1Q24F results may be reached.
- The outlook is expected to see approximately a 10% QoQ increase in 2Q24F.
- The recent stock market performance may reflect enthusiasm for Vanguard, despite temporary disregard for the name.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Equity Capital Markets on Smartkarma.
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1. ITC $2bn Placement – Very Well Flagged but Still Won’t Be an Easy One to Digest, Won’t Do an Indigo
- In Feb 2024, BAT’s management stated that they were reviewing their stake in ITC Ltd (ITC IN). The news of a possible selldown by BAT was leaked again earlier today.
- BAT has owned its stake in ITC for over a century and remains its largest shareholder.
- In this note, we talk about the deal dynamics and run the deal through our ECM framework.
2. Ola Electric Pre-IPO – Initial Thoughts on Valuation
- Ola Electric is looking to raise about US$1bn in its upcoming India IPO.
- Ola Electric Mobility is a vertically integrated pure EV player in India with manufacturing capabilities for EVs and EV components, including cells.
- In our previous note we looked at the company’s past performance and undertook a peer comparison. In this note, we will talk about valuations.
3. ECM Weekly (11th Mar 2024) – Oriental Land, ARM, Tuhu, Wiwynn, Macrotech, Zomato, Trial Holding
- Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
- On the IPO front, Trial Holdings (5882 JP) was hoping for better luck with its listing this time around.
- For placements, it was a very busy week for a change with most regions, apart from Hong Kong, chipping in.
4. Astera Labs IPO Preview
- Astera Labs (ALAB US) is scheduled to debut its IPO on 20 March. The company is offering 17.8 million shares at a price of $27 to $30 per share.
- Founded in 2017, Astera Labs is a fabless semiconductor company headquartered in Silicon Valley. The company designs and sells semiconductor technology, but the production is outsourced.
- Astera Labs’ major competitors include Montage Technology (688008 CH), Parade Technologies (4966 TT), Broadcom (AVGO US), Credo Technology Group Holding (CRDO US), and Marvell Technology (MRVL US).
5. Gopal Snacks Ltd IPO- Forensic Analysis
- Gopal Snacks (1592789D IN) IPO worth INR 6.5 bn is live on the bourses.
- The company is a prominent snacks manufacturer in India, especially in the state of Gujarat. It boasts one of the highest fixed asset turnover ratio and high ROCEs.
- On the flipside, caution must remain on its dull revenue growth post F22 and on its related party transactions, especially with promoter companies.
6. Belle Fashion Pre-IPO – Refiling Updates
- Belle Fashion (BF) aims to raise up to US$1bn in its Hong Kong listing. The company recently refiled its application proof after a gap of two years.
- As per F&S, it was the largest player in China’s fashion footwear market with a 12.3% market share, based on 2022 retail sales.
- We have looked at the company’s past performance based on its earlier filings in 2022. In this note, we talk about the updates from its recent filings.
7. Astera Labs IPO Valuation Analysis
- Our base case valuation is market cap of US$5.4 billion or target price of US$35.9 per share, which is 20% higher than high end of the IPO price range (US$30).
- We estimate Astera Labs (ALAB US) to generate revenue of $221.3 million (up 91.1% YoY) in 2024 and $304.5 million (up 37.5% YoY) in 2025.
- Many investors are willing to take extra risk to invest in companies such as Astera Labs that could generate strong sales growth amid rush to aggressively expand AI capabilities.
8. Angel Robotics: IPO Bookbuilding Results Analysis
- Angel Robotics reported exceptional IPO bookbuilding results. Angel Robotics’ IPO price has been determined at 20,000 won, which is 33% higher than the high end of the IPO price range.
- A total of 2,067 institutional investors participated in this IPO book building. The demand ratio was 1,157 to 1. Angel Robotics will start trading on 26 March 2024.
- We remain positive on Angel Robotics. There is likely to be a sharp overshooting of its share price relative to its intrinsic value on the first day of trading.
9. Pre-IPO PegBio Co., Ltd. – This GLP-1 Biotech Has Gloomy Outlook
- PB-119 (T2DM) has the fastest R&D progress, but this is a highly competitive market.China’s diabetes drug market is dominated by traditional drugs. It’s not easy for PegBio to break through.
- Since the future competitive landscape of GLP-1s (obesity) would present a very different situation.If PB-119 fails to have better weight loss effect, it would be eliminated due to fierce competition.
- PegBio’s IPO on SSE STAR Market was rejected. We’re not optimistic about its future commercialization performance. Together with cash-flow issues, we doubt whether PegBio would bring expected returns to investors.
10. Samhyun IPO Bookbuilding Results Analysis
- Samhyun reported excellent IPO bookbuilding results. Samhyun’s IPO price has been determined at 30,000 won per share, which is 20% higher than the high end of the IPO price range.
- A total of 2,168 institutional investors participated in this IPO book building. The demand ratio was 649 to 1. Samhyun will start trading on 21 March 2024.
- Our base case valuation of Samhyun is implied market cap of 396 billion won or target price of 37,402 won, which is 25% higher than the IPO price.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Keisei Electric (9009) Share Buyback – Interesting Dynamics & Opportunity
- In late February, Keisei Electric Railway Co (9009 JP) announced a 5.0mm share (2.96%) ¥33bn buyback, to be executed in the following 3 months. That meant likely ToSTNeT-3.
- I thought that mildly bullish. Shares rose 0.05% the next day. Then we got an OLC offering announcement. I thought that bearish. The stock popped early but fell hard.
- Today the announcement. It IS a ToSTNeT-3. tomorrow. At ¥6,320/share. But it is an Accelerated Share Repurchase. Which changes things. Or it doesn’t. But it bears watching closely, maybe acting.
2. MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade
- Emerald Resources Nl (EMR AU) will be added to the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in March while there are 3 deletions for the index.
- The constituent changes along with float and capping changes result in an estimated one-way turnover of 6.4% and a one-way trade of US$263m.
- There are 9 stocks with more than US$10m to trade and 9 stocks with over 2x ADV to trade.
3. Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux
- At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
- I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
- I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24.
4. WisdomTree Indexes Special Rebalance: ESG Considerations Dropped
- WisdomTree has dropped ESG considerations while selecting stocks for the EMXSOE, CHXSOE and WTEMXC indices.
- That results in a lot of inclusions and fewer deletions across indices that will be implemented at the close on 15 March.
- The round-trip trade across the indices will exceed US$500m with Tencent (700 HK) as the largest buy.
5. Outsourcing (2427) – The OTHER Arb – That One Neat Trick And Its Weird Risks
- Outsourcing Inc (2427 JP) has been an “interesting” risk arb situation. It was launched as a Cheeky, Opportunistic, Low-Priced MBO. Some bumps after launch turned out to be BAU.
- The stock has not traded above terms since early on in the trade. I expect people are happy to get out. But there is ANOTHER ARB to do here.
- The OTHER ARB is something quite particular to high float, low activism risk arb trades. In some ways better than the traditional arb, but it has some risks.
6. Li Ning (2331 HK): Value Trap Play?
- As the Hong Kong bourse languishes, recent Hong Kong privatisation include mainland Chinese firms such as Vinda International (3331 HK) and China Traditional Chinese Medicine (570 HK) .
- Reportedly (Reuters) Li Ning (2331 HK) is now in the crosshairs. Shares are up 7.8% as I type.
- Olympic champion Li Ning holds ~10.5% in his self-named company, which was recently in the news after acquiring a HK$2.2bn commercial building from Henderson Land (12 HK) as its headquarters.
7. MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow
- There are no constituent changes for the MVIS Australia Equal Weight Index at the March rebalance.
- Float and capping changes will result in a one-way turnover of 4.4% and in a round-trip trade of A$195m.
- We had Lendlease Group (LLC AU), IDP Education (IEL AU) and nib holdings (NHF AU) as close deletes and they will now have inflows due to capping.
8. Nippon Express (9147 JP) – Buying the Overhang
- The Offering priced today at ¥7,338/share vs ¥8,039/share traded at the close on the day of the announcement. That’s an 8.7% discount for no dilution.
- Compared to a broad basket of Peer Baskets (yes, a basket of baskets), the stock has underperformed by 4.2%, and the 3% discount today puts it at 7+% move.
- Given the relative cheapness, one should be comfortable putting this on if it gets sold off. This is not different to my initial opinion.
9. New Information on Korea Value-Up Index Scoring System & Constituent Weighting
- KRX considers a comprehensive change to the Value-up Index scoring system. Weightings emphasize ROE, PER, and FCF while reducing PBR weight.
- KRX considers adopting scoring-based constituent weighting to prevent JPX Prime 150’s issues, but NPS opposes. Float market cap weighting like JPX Prime 150 is contemplated to address concerns.
- Momentum trading in the Value-up initiative will favor low PER and high ROE stocks over low PBR. The semiconductor sector is anticipated to benefit significantly from float market cap-based weighting.
10. Roland DG (6789) – Brother (6448) Launches Hostile Overbid to Taiyo MBO – You Love To See It
- A month ago, Engagement Investor Taiyo Pacific Partners launched an MBO on Roland DG Corp (6789 JP) after having done a takeover of their former sub years ago.
- I said it was too cheap. Machinery company Brother Industries (6448 JP) has decided the same, and has announced a hostile/unsolicited overbid 3.3% higher. Tender to start in May. Fun!!!
- This will almost certainly get bid even higher as people would expect the MBO bidders won’t simply give up. More below.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. Steno Signals #90 – More Liquidity to the Most Hated Rally in Recent History
- Welcome to our flagship editorial! Is it the year 2021, 2007 or 1995?
- These historical analogies are often used in sell-side reports, and we are going to jump the bandwagon with a few semi-fishy analogies today.
- I do get some vibes that are reminiscent of melt-up years ahead of crisis years.
2. China Moves to Directly Support the Market
- China has now moved from supporting its economy to directly target its markets.
- Market demand and volume is supported through government buying and company buybacks.
- New regulatory measures will substantially decrease selling pressure going forward.
3. The Bank of Japan Plays Footsie with the Market-Will They or Won’t They?
- US economic data while surprising on the upside fails to buoy the USD vs the JPY
- BOJ awaiting shunto talks for more evidence of a sustained move out of deflation
- What are the implications for global markets if mass repatriation of Japanese capital
4. Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments | 8 Mar 2024
- Gold Prices Surge: Gold reaches all-time highs against the US dollar and fiat currencies worldwide, signaling skepticism towards central bank policies.
- Economic Indicators: India maintains strong economic activity despite political uncertainties, while China’s export performance exceeds expectations.
- Corporate Profits and Currency Impact: Japan’s corporate profits fall short of expectations, highlighting vulnerabilities to external factors like currency values.
5. 5 Things We Watch – US CPI, Japan, China, Germany & Central Banks
- Welcome back to our weekly 5 Things We Watch, where we go through 5 things that we keep an eye on in the world of global macro.
- With Japanese wage negotiations and the US CPI report out, there are plenty of things to shed some light on, so let’s get to it!This week we are watching out for the following 5 topics within global macro: US CPI, Japan, China, Germany, Central Banks.
- 1) US CPI Report leaves the Fed in a difficult situation. Yesterday’s CPI report revealed that the inflation outlook is not as benign as the Fed would have hoped, with energy / transportation services dragging the MoM figure higher.
6. Positioning Watch – Bye Bye Japanese Consensus Case?
- Hello everyone, and welcome back to our weekly positioning watch, which today will start at the growing number of BoJ officials who are now supporting an exit from NIRP possibly already in March, sending Nikkei 225 down >2% in Asia hours yesterday, while China and China-proxies were bid – quite a surprising dynamic in Asian equities, which we won’t rule out to continue over the next weeks, as markets are likely shifting away from Japanese equities if a hike actually comes through.
- Our 250-day prediction from our PCA-tool (the blue line) has also been flagging the rally in Japanese equities, and now see a major divergence in the trend relative to the macro fundamentals, which has left a >2 standard deviations fair value gap, which seems likely to be closed via a retracement lower in Nikkei.
- Chart of the week: Our models have been bearish Japan since early 2024It looks like some parts of the markets had already sniffed out the slight overpricing of Japanese equities given risks of substantial moves in JPY-rates, and inflows into US-traded Japan ETFs have decreased since early February, while China ETFs began to see modest inflows, but has now went back into negative territory.
7. US Inflation: Bad Enough for Powell to Change Course?
- For the second consecutive month, inflation has exceeded expectations, raising questions about the ‘stickiness’ of core inflation.
- The real shocker was the Core Services, excluding Housing CPI, which increased to an eye-popping 6.8% on a three-month annualized basis.
- Most likely, the latest CPI numbers aren’t the catalyst that ends the stock market rally.
8. Energy Cable #60: Copper getting some help from China?
- Take aways: Chinese deflation and high USD rates really putting a damper on copper. Interesting divergence in the USD and crude oil. Russia not sticking to its production cuts pledge. The risk/reward in commodities is getting increasingly compelling across the board, but it is early days. Since the beginning of last year when the world had all its chips on the Chinese reopening copper has been range bound between USD 360 and 390.
- In other words copper has almost been as boring as watching paint dry.
- It hasn’t gotten much help either up until now.
9. Monday Macro – a deep dive into housing plus Trump Vs2 and the markets
- When I first started writing for Money Week, I found myself in a slightly awkward position.
- At the time – this was many years ago – editors Merryn Somerset Webb and John Stepek were notably bearish on the UK housing market.
- I think it fair to say they were the masters of doom and gloom, not for entirely unfair reasons (you can guess all the rational drivers they focused on).
10. US Inflation Watch: OER a one-off?
- We see US inflation printing at 0.37% MoM in headline terms and 0.26% MoM in core terms.
- That leaves us in line with consensus, but with a bias/tilt towards an 0.1%-points surprise on the low side of consensus.
- The re-acceleration of owners equivalent of rent to levels close to 0.6% in January looked odd, but on a “good day” we should likely expect a reversal to the trend just above 0.4% MoM in February (see chart 1).
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1. Why HBM is the Hottest Thing in Memory
Investing in semiconductors can be pretty simple if you let it be.
At a high level, I believe you want to invest in the secular at a decent price or invest in places where there are unwarranted dislocations.
Sometimes the entire ecosystem says one thing and the stocks say another. Usually, the ecosystem is right.
2. TSMC (2330.TT; TSM.US): Sales Should Be Gradually Increasing QoQ in 2024F; IPhone 16 Is on Schedule.
- Taiwan Semiconductor (TSMC) (2330 TT) is ramping up its CoWoS capacity, with the aim of increasing new capacity by 32k wafer/month in the end of 2024F.
- In the second half of 2024F, the Apple (AAPL US) iPhone 16 will contribute to revenue from shipments.
- The semiconductor industry is expected to rebound in 2024F, with TSMC being one of the leaders.
3. Global Semi Sales Decline 2.3% MoM In January
- It’s the first MoM decline in semi sales since February 2023, but it’s a seasonal thing & YoY comparisons continue to grow stronger.
- Forecasting 10% YoY growth in 2024 semiconductor sales, in line with TSMC’s outlook
- $1 trillion in annual semiconductor sales will likely happen in 2032 based on a 7.7% CAGR over the coming decade.
4. Taiwan Dual-Listings Monitor: Long TSMC Taiwan Shares Vs. ADR on Historically High Spread; UMC, ASE
- TSMC: +22.9% ADR Premium is Near an All-Time High; Long Taiwan Shares vs. Short the ADR
- UMC: 2.2% Premium; Flipped Positive From a Discount; Likely to Contract
- ASE: +13.3%; Short the Historically High Spread at the Current Level
5. GlobalWafers (6488.TT): 1Q24F Is a Down Quarter; Anticipating a Much Better Growth Rate in 2025F.
- The sales in January 2024 were the lowest during the period of 2022-2024, indicating a likely downtrend for the first quarter of 2024.
- Demand is expected to be flat or slightly increase in 2Q24F for GlobalWafers, which is encouraging.
- The market for 12″ raw wafers is expected to have a more stable demand-supply balance, while raw wafers of 8” and smaller sizes could experience reduced demand in 1H24F.
6. Silicon Wafers Area Shipments Decline 14.3% YoY in 2023
- Silicon wafers area shipments (in MSI) declined by 14.3% YoY in 2023
- Wafer revenues also declined by 10.9% to $12.3 billion over the same period
- We expect Q124 revenues to be down ~20% QoQ and anticipate a further 5% YoY decline in full year 2024 shipments
7. PC Monitor: Long Dell Vs. Short Acer Update; Dell & HPQ Results Indicate Opportunity in Asus
- Dell has outperformed Acer and other Taiwan PC names Asus and MSI by a wide margin. Close Long Dell vs. Short Acer. Dell’s value gap has dissipated.
- Latest indications from Dell and HP highlight that the AI PC’s will drive upgrades from customers, but the PC recovery remains soft. AI PC impact only in 2025E.
- Dell and HPQ’s recent results provide positive color for upcoming Asus, Acer, and MSI results. Trade: Long Asus into its upcoming earnings results.