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1. 5 Things We Watch – Freight Rates, Positioning, Liquidity, EUR-flation, Growth
- Welcome to the first 2024 edition of our ‘5 Things We Watch’, where we as always try to dissect global macro trends, how we see the world and how we trade it.
- The overall consensus this year seems to be locked in on a soft landing in the US, but in our view, risks of tail-end events are increasing, making macro more important than ever in order to navigate financial markets in 2024.
- Freight rates on routes with destinations in the Mediterranean (both shipments from Middle East and China) have generally been on the rise
2. Suez Watch: Massively Rising Container Freight Rates, While Dry Bulk, LNG and Crude Rates More Muted
- Takeaways upfront: No container shipping through Suez towards Europe and price increases ahead; Energy and dry bulk shipping is still alive; Expect transportation and apparel to see price increases in Europe; Hedging 2024 portfolios with long Shipping bets and/or long Energy bets make increasing sense.
- Happy New Year everyone! Things are escalating in the Red Sea as shipping giants such as Maersk and Hapaq-Lloyd haven’t been convinced by the military efforts in the Red Sea and have now completely avoided transporting goods from Asia to Europe through the Red Sea.
- That can be seen in prices which have seen one-way traffic the last week. Freight rates are up >100% this week, and we hear from sources that Maersk is now suggesting an all-in rate of USD 6000 TEU.
3. Charting Beyond the Near-Term Fed Pause
- The initial phase of Fed easing, from pre-Volcker to post-Greenspan, can differ, particularly on the magnitude
- Historical Fed pivots, from hiking to easing, tend to be sensitive to the state of the economy
- The extent of initial Fed easing around historical downturns was at least double the size when compared to episodes with no imminent recessions
4. Macro Regime Indicator: Liquidity is everything in January
- New month, new regime, which means a new asset allocation for the month ahead.
- The turn of the calendar once again calls for us to assess our outlook for the 3 main variables of interest: Liquidity, inflation and growth and feed them into our Regime Model and Asset Allocation tool that spits out the Sharpe Ratio optimizing portfolio given the assumptions about the variables of interest.
- Remember that you can feed the model with your own forecasts to see which baskets to put your eggs in.
5. A Bull Market With Election Year Characteristics
- Long-Term models are signaling the revival of a long-term equity bull.
- But the market may be vulnerable to some choppiness in the next few months.
- The intermediate-term outlook for stocks continues to be bullish and we expect a positive year for the S&P 500 in 2024.
6. EUR Inflation Watch – The ECB forecast is OFF by >1.5%-points for Q1
- The smallest German state, Saarland, sneaked out its preliminary December inflation this morning and it was another soft surprise.
- Saarland CPI increased a tad less than 0.1% on the month, which is below 0.2% in seasonally adjusted terms.
- This is if anything a SOFT print relative to consensus expectations and as Saarland CPI explains 78% of the variability in the nationwide German CPI, it leaves a 0.1% MoM inflation print most likely for the German CPI.
7. China Property And The Demand For Commodities Puzzle
- China’s crude steel production data behaved differently in the 2021-2023 downturn relative to new home sales and new starts, compared to the prior cycles.
- The 40% drop (12M vs prior 12M) at the low point for new starts compares with around 10% for the crude steel.
- In this note, we outline a few possible explanations, with some twists.
8. What the Politics of 2024 Tell Us About 2025
- What does the political and economic landscape of 2024 mean for investors in 2025 under a Biden oe a Trump administration?
- A Biden White House is more predictable using conventional economic analysis. Much depends on whether the Fed can achieve a soft landing of the economy.
- The effects of a Trump White House will be more difficult to predict. The only certain investment bet under a Trump administration may be to buy volatility.
9. Regional Economics: Episodic Stresses, Not Prolonged Crises for Asia in 2024
- While there will be economic and geopolitical shocks, we believe that these will cause episodic stresses, not lasting damage to the region’s growth or stability.
- Monetary policy, China’s economic performance, and geopolitical conflict will shape the economic outlook for the region, while government policy responses may provide economic upsides.
- Thus, we think that the Asia-Pacific region will exhibit commendable economic resilience and modestly improved growth compared to 2023.
10. EA: Inflation Springs as Energy Fades
- EA inflation undershot expectations for the fourth consecutive month but smashed the downtrend with a 0.5pp rise to 2.9% for Dec-23.
- The run of downward surprises means Dec-23 inflation is 0.8pp lower than expected in Oct-23. However, it is close to expectations a year earlier.
- Fading energy price disinflation drove the upside move in a timely reminder that all the EA’s other special aggregates remain well above 2%, discouraging ECB rate cuts.
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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. TSMC (2330.TT; TSM.US): The 1Q24F Revenue Outlook and the Progress for Intel, MediaTek and Samsung.
- Taiwan Semiconductor (TSMC) (2330 TT)‘s revenue outlook for 1Q24F is expected to show a decline of around negative high single digits QoQ.
- Intel Corp (INTC US) aims to receive x86 CPU technology from TSMC 3nm in 1H24F.
- Mediatek Inc (2454 TT) plans to utilize 3nm technology for manufacturing smartphone SoCs in 2H24F, which will narrow the gap with Qualcomm Inc (QCOM US).
2. TSMC (2330.TT; TSM.US): If Intel Was Split Up, What Impact Will It Have on the Foundry Industry?
- We assume that Intel’s current business model is unable to fully meet the manufacturing needs in that case.
- As for the Intel Foundry Business, we believe that there is potential upside for growth.
- If Intel was doing great in Wafer Manufacturing Business, then why does it have to consider splitting up?
3. No Sign of Selling Advanced Scanners by ASML to China Customers, Implications
- The oversupply of 8″/12″ mature technology and price war especially within China for the next 5 years is inevitable, especially negative for SMIC and Hua Hong Semi.
- Production moving out of China semi demand might increase to 65-70% in next five years to benefit Globalfoundries, UMC, Vanguard, Powerchip mitigating impacts from rising domestic replacement in China.
- By building up in-house fabs, Huawei and HiSilicon supply chain vendors will be benefited the most like semiconductor equipment, material, fab construction, CoWoS interposer, and CoWoS packaging vendors.
4. Taiwan Dual-Listings Monitor: TSMC Premium at a Decent Short Level; ASE Short Interest Declining
- TSMC: 10.5% Premium — Still a Good Level to Short the Spread
- UMC: Trading at -1.1% Discount — Uncompelling, Wait for Deeper Discount
- ASE: 8.8% Premium — Still Wait for Lower Levels Before Going Long
5. KYEC (2449.TT): The Revenue Outlook Will Be an Upward Pickup in 2024F.
- It’s a greater chance that there will be an upward pickup in 2024F revenue for King Yuan Electronics Co, Ltd. (2449 TT), but the magnitude is hard to predict in 1H24.
- It is expected the revenue to decline by approximately -5% in 1Q24F.
- However, the demand for CoWoS at a corporate level is expected to increase by about 10% in 2024F .
6. MediaTek (2454.TT): The Revenue Is Likely Upside Around 10% QoQ in 1Q24F.
- For the upcoming revenue outlook, MediaTek Inc (2454 TT) is likely to reach an upside of around 10% QoQ in 1Q24F.
- MediaTek plans to release 12 million units of the Dimensity 9000 series in 2024F.
- Mediatek’s target markets include China, India, and Southeast Asia, with China remaining the primary market of focus.
7. Quantum Solutions (2338 JP): Look Again at Small Cap Play on AI Servers and Web-3.0 Gaming
- Quantum Solutions has given up 63% of its recent gain but has more NVIDIA GPU related orders in the pipeline. Keep an eye on the stock and the news flow.
- The recent upward revision to sales and profit guidance has been followed by the announcement of a capital and business tie-up with Hajime Tabata’s JP Games.
- The addition of Web-3.0 gaming to distribution of AI servers and Arm-based edge computing hardware could change the nature of the investment.
8. Micron. Earnings Puts & Takes. Take Your Pick
- Q1FY24 revenues of $4.7 billion, up 18% QoQ and up 16% YoY, and $100 million above guided high end, as already flagged on November 28
- Q2FY24 guidance of $5.3 billion, a ~13% increase QoQ. This will once again be loss-making quarter to the tune of an EPS loss of 28 cents.
- Things are looking up for Micron, but 2024 will still be a “recovery” year.
9. Power Semiconductor Specialist Will Benefit from AI Yet Lagging Key Customers’ Share Price Rallies
- UPI Semi is a specialist designer of electronic components and semiconductors for power management. Power management is a key performance factor for AI devices.
- UPI’s clients include most of the world’s largest leading technology companies for semiconductor distribution and AI products.
- UPI shares have lagged the strong performance of its clients — We see opportunity for UPI to now Outperform.
10. Delta Taiwan Vs. Thailand Monitor: Parent Could Sell More of Its Stake; Thai 50x PER Vs. Taiwan 20x
- Delta Thailand vs. Taiwan valuation differential has returned to an historically extreme level.
- For 2024E & 2025E growth expectations continue to be similar for the two companies, yet Delta Thailand’s FY2024E PER is 50x while Delta Taiwan’s is 20x.
- We see substantial relative value in Delta Taiwan and expect likely reversion of relative valuation due to latest return to historically extreme mismatch.
This weekly newsletter pulls together summaries of the top most-read Insights across Equity Capital Markets on Smartkarma.
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1. Pre-IPO Concord Healthcare Group (PHIP Updates) – Some Points Worth the Attention
- Concord’s financial performance seems improving on the surface,but a closer look reveals that the sudden explosive revenue increase in 2021 was mainly due to an acquisition, with potential risks behind.
- We’ve doubts about Concord’s endogenous growth capability. If Concord’s hospitals cannot make a profit, then any further expansion is just a beautiful story and cannot bring expected returns to investors.
- Concord conducted a total of four rounds of financing, with a valuation of approximately RMB7.2 billion. However, based on our analysis, its valuation could be lower than peers.
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. Fujitsu General (6755) – Fujitsu Wants Out, May Force the Issue
- In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
- In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
- The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.
2. Japan – Increasing Shorts on Some Interesting Stocks
- There are a bunch of stocks that have underperformed the Nikkei 225 (NKY INDEX) and their peers and could be deleted from global passive portfolios early next year.
- The deletion from passive portfolios will lead to a liquidity event at the end of February where passive trackers will need to sell multiple days of ADV.
- Shorts have started to increase on some of the stocks and there will be further positioning as we near the liquidity event.
3. IJTT (7315 JP) – Truly Offensive Takeover Price Gets Bumped, Offensively
- IJTT Co., Ltd. (7315 JP) was perhaps one of the lower-priced parent takeovers (Isuzu remains central to the bidder post-buyout) at 0.46x book. Today, the last day, it got bumped.
- The new price is ¥850/share vs ¥812/share. +4.7% and a whopping 0.48x book now. ¥850 is where the stock traded just before the announcement. It immediately jumped to ¥875/share.
- It appears Isuzu is not getting any more money out of this, but they should be OK. They are buying back in at 0.48x book. With leverage.
4. Kum Yang: Announces Its Shares Will Be Listed on the US Stock Market Through ADRs
- On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
- The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
- Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued.
5. SBI To Buy Gumi (3903) Shares To Up Stake to Near 30% (And Try To Avoid Impairment)
- Today after the close, SBI Holdings (8473 JP) made an announcement it would buy (up to) 3.0mm shares of Gumi Inc (3903 JP) shares between tomorrow and end-March 2024.
- SBI already owns 8.8mm shares, and this would bring them close to 30.0%.
- SBI did not specifically say they would buy on market, but the next 400,000 shares would require a large shareholder filing amendment.
6. Meldia DC (1739 JP) – Open House Group Cleans Up Sanei Architecture Sub in TOB.
- Open House (3288 JP) took over Sanei Architecture Planning (3228 JP) this past autumn when banks forced the issue over the former CEO/owner’s mafia ties discovered in an investigation.
- Seedheiwa (1739 JP) now better known as Meldia DC, is ~60% held by Sanei Architecture Planning, and 3% by Mr Koike. It has debt. So it needs cleaning up too.
- This is too light for minorities, and even lighter for whole co, but it’s a done deal.
7. StubWorld: Swire Pac Trading “Rich” As Props Announces Big Write-Down
- Swire Pacific (19 HK)‘s NAV discount has narrowed, and implied stub widened, after announcing its latest buyback. Separately, Swire Properties (1972 HK) flagged a HK$4.5bn writedown on its investment property.
- Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
8. Investigating the Use of SSF Listing Events as Fresh Flow Trading Opportunities in Korea
- The spot prices of the newly listed SSFs generally exhibited a notable upward trend. This trend was consistently more pronounced in KOSDAQ-listed stocks compared to KOSPI-listed ones.
- Various factors, including actions by ETF operators, may contribute. Their SSF purchases could deepen contango, leading to temporary spot price increases through arb spread seekers anticipating this development.
- We should focus on a potentially consistent price pattern persisting before a sufficient learning effect accumulates. The tight schedule after July increases the likelihood of similar opportunities next March.
9. IRC Limited (1029 HK): A Wide Spread as the Conditional Offer Opens
- The Irc Ltd (1029 HK) IFA opines that a mandatory conditional offer from Nikolai Levitskii (Chairman and 30.61% shareholder) at HK$0.118 per share is fair and reasonable.
- The offer is open, with the first closing date of 12 January 2024. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
- While the offer is light, satisfying the minimum acceptance condition is possible. The risk/reward profile is favourable as the upside (25.5% spread) outweighs the downside (5.3% to the undistributed price).
10. Merger Arb Mondays (25 Dec) – JSR, Benefit One, IRC, Adbri, Link, A2B, Probiotec, Lithium Power
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Shinko Electric Industries (6967 JP), JSR Corp (4185 JP), Adbri (ABC AU), Probiotec Ltd (PBP AU), Volpara Health.
- Lowest spreads – Tietto Minerals Ltd (TIE AU), A2B Australia (A2B AU), IJTT Co., Ltd. (7315 JP), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Pact Group.
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 That Could Wrongfoot Consensus in 2024
- The overwhelming consensus for 2024 continues to be a soft landing in the US with interest rates coming firmly down while growth continues on autopilot, which leaves a very decent, almost goldilocksy, outlook for risk assets.
- But what if we don’t end in a soft landing, but rather one of the tail-end scenarios of either 1) a boom driven by easier financial conditions, which would force the Fed to push back a bit on rate cuts or 2) a recession, which would imply rates much lower than what consensus currently is.
- We have chosen 5 “likely unlikely” scenarios for 2024, which are not as unlikely as current market pricing indicates.
2. 2024: Bold Predictions
- We may see a US recession, followed by eight or more Fed rate cuts, a boost in liquidity, and hence another blockbuster year for risky assets.
- In addition, we may see some credit rating downgrades of some major economies, emphasizing the question of how attractive (government) bonds are in a long-term multi-asset portfolio.
- 2024 may accelerate the Great Portfolio Rebalancing, seeing investors move out of traditional asset classes (bonds) into scarce and under-owned asset classes (gold, bitcoin.)
3. EM by EM #36: What Goldman got wrong about China in 2023
- Main conclusions up-front:It’s getting harder to disentangle politics from price movements in China, with the government becoming more involved in the equity market.
- In stark contrast to their U.S. counterparts, Chinese banks are grappling with the weight of growing savings from consumers and businesses.
- This surge is impacting their profitability, while the real estate sector’s challenges continue to linger.
4. Positioning Watch – How are markets positioned ahead of a turbulent 2024?
- The year has generally speaking been a forecasting challenge for most to say the least, and not a lot of people forecasted the ending that we’re left with, but how does the current price action and massive inflows into both equities and bonds leave us for 2024?
- Sentiment has been EXTREMELY bullish in Q3 and Q4 based on our z-score sentiment model but almost solely built on equity momentum, which is rarely a good sign.
- Both option ratios, credit-spreads and market breadth have turned bearish in Q4, which should leave markets vulnerable after the boost from positive liquidity trends dwindles during Q1 2024.
5. Bond Market Monitor: Time to Invest in EM Bonds
- Here we are checking our thesis on the bond markets we reconfirmed as bullish back in September.
- Declining inflation, as indicated by the November US Personal Consumption Expenditure (PCE) deflator, could lead to the 2% inflation target in 2024
- A rate cut and a peak of a rate hike cycle plots a scenario where fixed rate bonds will be the asset class of choice in 2024.
6. Hamas Rejects Ceasefire – Here’s Why It’s Actually Great News
- Welcome to a quick Holidays edition of Great Game – your weekly geopolitical update!
- Yesterday, reports emerged that Hamas and Islamic Jihad had rejected an offer of a permanent cease-fire brokered by the Egyptians with the aid of Saudi Arabia and Qatar.
- Reportedly, the deal would have involved a mass release of hostages, a permanent ceasefire and the formation of a transitional government in Gaza without the direct persecution or condemnation of Hamas and Islamic Jihad.
7. Steno Signals #79 – A Christmas present full of USD Liquidity from Powell and Yellen!
- Happy Sunday and welcome to a short and sweet version of our flagship editorial!
- Liquidity conditions have improved markedly over the past couple of months, and we are about to enter a QE-like liquidity environment unless trends reverse soon, which they are unlikely to.
- Liquidity has been improving at a $200bn a month pace since early November due to a pamphlet of tricks from BOTH the Fed and the US Treasury, and through the past weeks another sneaky “liquidity adding” factor has popped up! This is of major relevance to the overall risk sentiment.
8. Mint Macro Roundup: Inflation Cools in US, UK, & Japan Accentuating Central Bank Policy Divergence
- Inflation across the US, UK and Japan slowed sharply on the back of declining goods prices.
- Rapidly cooling inflation brings into focus the diverging central bank policies – BoJ remains ultra-loose, Fed has turned dovish, while BoE continues to remain hawkish.
- Personal spending in the US remains strong, providing upside to economic growth in Q4, but also risk of higher inflation.
9. Is Coinbase Rally Running Out of Steam?
- Outperformance during rallies is usually followed by sharper corrections during downturns. Buy the rumour and sell the news is common in crypto markets.
- Coinbase is a top ranking performer. The crypto exchange stock is up a whopping 454% YTD outperforming BTC by almost 3x.
- While Coinbase may do well in a continued cryptocurrency bull market, it is worth considering whether the rally has already played out.
10. Credit Watch: Nothing in the credit impulse speaks in favour of a 2024 comeback
- The equity market has been celebrating over the past couple of months and it seems like the economic consensus is moving towards a soft landing or even a no landing / re-acceleration at lightning speed.
- Equities tend to trade closely connected to the cyclical components of the US economy with a strong correlation between ISM Manufacturing and annual returns in the S&P 500.
- Most recent trends partially represent a bet on a rebound in the economic cycle in 2024, which looks unlikely in most of our medium-term forward looking models.
1. TSMC Chairman to Retire, + or — Impacts to Shareholders
- Chairman 69 years old Dr. Liu will retire and 70 years old CEO Dr. Wei will step up. What story do we believe? Will TSMC to regain its strong outperperformance?
- Positive impacts: we expect Arizona fab equipment move-in and ramp up might be further delayed if no subsidies are granted; two teams competing to one voice/team/direction.
- Three risks: 1. Dr. Wei at his age of 70 without a strong management backup; 2. Dr. Wei might make a wrong decision deeply; 3. absolute power corrupts.
2. The First Semi Micron to Guide 1Q24; Conservative Now but Likely Raise Later
- Driven by stronger PC/networking DRAM sales, Micron reports 5% stronger 4Q23 sales, 10-13ppts q/q margin improvement and 34% y/y decline in MOI to 5.2 months;
- Micron guides 1Q24 sales growth 8-16% q/q and 38-49% y/y and gross margin of 12%, beating Bloomberg consensus estimates by 6ppts;
- Rooms to raise: 1. 1Q24 sales of 18% q/q likely; 2. Turning profits sooner than expected; 3. +Free cash flow in 2024; 4. HBM3E for GH200/H200 to improve mix, margin.
3. Intel’s AI Everywhere In New York
- Intel’s “AI Everywhere” event turned out to be little more than last minute launches client and server products promised for 2023
- While these products have little new in the way of ground-breaking AI hardware, the entire event was infused with AI marketing to the highest degree
- Ostensibly Intel’s great hope in AI hardware acceleration, Gaudi, featured solely as a last minute gimmick announcing that Gaudi3 was “out of the fab and into the lab”. Yawn!
4. Marvell Industry Analyst Day
Marvell reported earnings recently, and I wanted to mention that at least before I continued onwards because that is a good context-setting event for the industry day.
Revenue exceeded expectations, but the mix beneath the results was illustrative.
- Datacenter revenue grew 20% QoQ, cloud over 30% QoQ; while networking was strong, they guided for a 40% QoQ decline, consistent with networking OEM results.
5. Micron Analysis, Industry Takeaways: Memory Market TAM New Highs into 2025; SK Hynix Trade
- Relative Value Trade in Micron Has Worked Since Our Last Piece; Results Blow Away Expectations
- Memory Pricing Improvement Continues, Management Expects Pricing Increases Through Calendar Year 2024 and 2025
- We Remain Structurally Long Memory; Now See Relative Value in SK Hynix
6. 2024 High Conviction: Low Semiconductor Growth
- Objective Analysis has released its 2024 semiconductor forecast, calling for growth of below 5%
- Other forecasters currently call for 11% to 17% growth, which would require another super cycle to accomplish
- We do not see any event that will drive a 2024 super cycle, even with the current rapid adoption of AI in the data center
7. Sox Index Broke New High; Nov US SEMI Equipment and Oct SIA Sales Showed Y/Y Improvement
- As expected, SOX index broke a new high, in line with Nov US semi equipment billings and Oct SIA/WSTS global sales y/y improvement.
- SEMI reports Nov front/back end equipment billings decline of 9% and 11% y/y, respectively, which was improved from 14% and 17% y/y decline in Oct, implying recovery intact.
- WSTS/SIA earlier reported Oct sales of US$46.6bn, up 3.8% m/m and down only 1% y/y (vs. 16% decline in June), suggesting semi sales y/y improvement and clearly pass the trough.
8. Why Subsystems Now
Semicap is strong, Subsystems are not. That will change.
- I think Mks Instruments (MKSI US), Ultra Clean Holdings (UCTT US), and Ichor Holdings (ICHR US) are likely good 12+ month longs as NAND spending increases, and they blow out estimates for multiple quarters in a row.
- The factor-driven size difference drives the opportunity, and they should benefit well on a relative basis next year.
Weekly Top Ten Tech Hardware and Semiconductor
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1. 2024 IPOs Pipeline Worldwide (Top 100 Companies)
- This is our 5th annual edition of the IPOs Pipeline Worldwide (Top 100 Companies) report.
- After weak global IPO markets in 2022 and 2023, the near term trend for global IPOs continues to remain lackluster.
- For those investors that closely monitor the global IPO opportunities, this is a good reference insight to check out the largest potential IPOs that could get completed next year.
2. REPT BATTERO Energy IPO Trading – Needs to Correct by 20-30%, at Least
- REPT BATTERO Energy (REPT) raised around US$270m in its Hong Kong IPO.
- REPT is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs.
- We have covered various aspects of the deal in our previous note. In this note, we will talk about the demand and trading dynamics.
3. Midea (000333 CH): Positive Read-Through From Gree’s Profit Alert
- Gree Electric Appliances (000651 CH) announced a profit alert for FY22 yesterday. Net profit is expected to increase 10.2% – 19.6% yoy for the whole year.
- The resilient result of Gree should alleviate concerns of the market that Midea is too correlated with China’s new home sales.
- The stock is trading at 10x 2024E earnings compared to an average of 13x over the last 10 years, with earnings likely growing at a high-single-digit pace.
4. Muthoot Microfin IPO – RHP Updates, Quick Peer Comparison and Thoughts on Valuation
- Muthoot Microfin (1363943D IN) is looking to raise up to US$116m in its Indian IPO, after downsizing from an earlier reported float of US$163m.
- Muthoot Microfin (MMF) is a microfinance institution providing micro-loans to women customers with a focus on the rural regions of India.
- In our previous note, we looked at the company’s performance. In this note, we talk about the company’s RHP updates and share our quick thoughts on peer comp and valuation.
5. Embassy Office Parks REIT Block – Likely Well Flagged and Overhang Will Be Removed
- Blackstone (BX US) is looking to raise around US$834m through a secondary block deal. This will be a clean-up as Blackstone fully exits from Embassy Office Parks REIT (EMBASSY IN).
- The deal is a large one to digest, at approximately 397.2 days of three month ADV and 20.7% of current mcap.
- In this note, we will talk about the selldown and run the deal through our ECM framework.
6. India Shelter Finance IPO Trading – Subscription Pulled by Strong Insti Demand
- India Shelter Finance (0570670D IN) raised around US$144m from its India IPO.
- India Shelter Finance (ISF) is a retail-focused HFC targeting the self-employed customer with a focus on first time home loan takers in the low and middle income group.
- We have covered various aspects of the deal in our previous note. In this note, we will talk about the demand and trading dynamics.
7. UBTech Robotics IPO – Quick Thoughts on Valuation – Too Hefty a Premium for Slowing Growth
- UBTech Robotics (9880 HK) is looking to raise about US$168m in its upcoming HK IPO, after downsizing from an earlier reported float of up to US$700m.
- UBTech Robotics is engaged in artificial intelligence (AI)-empowered robotics in China, dedicated to the innovation of humanoid robots and development and sales of smart service robotic solutions.
- In our previous note, we looked at the company’s performance and its PHIP updates. In this note, we share our quick thoughts on valuation.
8. Credo Brands Marketing IPO- Forensic Analysis
- Credo Brands (Mufti) (CREDO IN) IPO opens as a full OFS worth INR 5.5 bn.
- The company operates ‘Mufti’ which is one of the renowned brands in Indian Men Casual Fashion category.
- CMBL faces several questions including employee pay vs KMP, accounting for unsold inventory, delay in important payments, conflict of interest with BoD/SMPs etc.
9. Octillion Energy Holdings Pre-IPO Tearsheet
- Octillion Energy Holdings (OE HK) is looking to raise US$400m in its upcoming Hong Kong IPO.
- Octillion Energy Holdings (OE) primarily designs, manufactures and markets tailor-made battery systems for electric vehicles (EVs), and to a lesser extent, electric storage systems (ESS) and battery management systems (BMS).
- As per F&S, OE had a 9.6% market share and was ranked the third largest EV battery system provider for passenger battery EVs (BEVs) in China by FY22 shipment units.
10. ECM Weekly (24th Dec 2023) – Embassy REIT, Muthoot Microfin, India Shelter, Inox, UBTech
- 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, things started to cool down into the year end with some smaller issuers still trying their luck to get listed before the year ends.
- On the placement front, most of the action continued to come from India.
Weekly Top Ten Equity Capital Markets
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1. Allkem+Livent=Arcadium : Expected Index Flows
- Yesterday during the day, Allkem Ltd (AKE AU) shareholders approved the Scheme and Livent (LTHM US) shareholders approved the merger. The deal is done. Allkem last trades 21 Dec.
- NEWCO starts trading 4 January in the US but the Arcadium Lithium CDIs start trading 22 Dec in Australia. S&P/ASX announced they will replace Allkem in the ASX200.
- But I have been asked for a breakdown of flows and timing again, so I have put it into a handy table which I hope makes it less confusing.
2. Dai-Ichi Life “Decides” Tender Offer Price and Buyback Price at ¥2,123 and ¥1,491/Share
- Today, Dai Ichi Life Insurance (8750 JP) came out with a cover letter and an amended Announcement of Intention to Commence a Tender Offer on Benefit One Inc (2412 JP).
- The cover letter says they have obtained information from Pasona Group (2168 JP) and Benefit One allowing them to calculate a Tender Offer of ¥2,123/share for minorities, and buyback at ¥1,491/share.
- Now we wait. Again. Dai-Ichi Life “intends” to start a tender in mid-Jan 2024 (19 Jan likely earliest start possible) but it is not clear timing will come that early.
3. Allkem/Livent Merger Vote Tomorrow: Will Vote Get Past?
- The vote is tomorrow. It is slightly contested. Shareholder proxies have recommended approving. Some others say Allkem is going too cheap.
- It probably should get done because of scale benefits, and if it breaks, it might be good for Allkem, which is “good risk arb risk”
- But the trade here is some combination of lithium rebound and index event, with index impact details here.
4. A/H Premium Tracker (To 15 Dec 23): Time To Go Long Hs Vs As.
- The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND and NORTHBOUND flows were both sells, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 100+bp. Liquidation by overseas investors feels finished.
- Time to go long Hs vs As for the new year at 52wk wide discounts. 3 Short H/A pairs now switched to long. 3 new pairs long this week.
5. JSR (4185) – Deal Approval Unexpectedly Delayed, As Expected
- Today after the close, JSR Corp (4185 JP) announced that the expected “end-December” commencement of JIC’s Tender Offer to take the company private would be delayed.
- This was somewhat expected to widely expected based on initial FUD which then gave way to “specialised reporting” a couple of weeks ago which indicated as much.
- Here I look at potential implications, spreads, and risks. And it still looks like one has to let it run (and buy a dip).
6. Kurabo (3106) – Bigly Buyback And Share Cancellation for A Valueful Value Trap With Hidden Value
- Kurabo announced a bigly buyback on Tuesday. At last price it is equivalent to 8+% of shares out. Most likely to target buybacks from cross-holders.
- The company is not cash-rich, but it is financial asset and real estate-rich. And it trades at cheap multiples without even thinking about those assets (themselves worth the market cap).
- The TSE’s “PBR1 OR BUST” movement combined with starting low valuation, high payout, excess assets, mean this value trap has room to move.
7. Arb Trading with Stock Rights in Korea: A Basic Guide Featuring LG Display Offering
- Unlike typical Korean stock rights arbitrage, LG Display’s significant equity offering and active stock futures trading anticipate a spread opening, akin to the recent Hanwha Ocean scenario.
- In contrast to Hanwha Ocean, the absence of major sellers, like KDB, sets this event apart. LG Electronics, the major shareholder with a 37.9% stake, intends to participate.
- Despite differences from Hanwha Ocean, LG Display’s high retail shareholder presence implies a substantial likelihood of stock rights overhang, even without players like KDB.
8. Yuanta/P-Shares Taiwan Div+ ETF: Day 1 Flows & Stock Moves
- The Yuanta/P-shares Dividend Plus ETF (0056 TT) started to rebalance its holdings on Friday and will continue to do so for the next 4 trading days.
- Stocks with buy flows dropped 0.51% on average on Friday while the stocks with sell flows dropped 0.92%. On a flow weighted basis, the numbers were -0.21% vs -0.75%.
- Since the start of November, the adds have outperformed the deletes and the TWSE INDEX. There has been significant outperformance in just the last week.
9. Toyo Construction (1890) – Everyone Hits Pause
- In September, YFO (Yamauchi Family Office) upped its Tender Offer proposal to ¥1,255/share. YFO presented. The Toyo Special Committee met, interviewed, examined, deliberated, then last week rejected YFO’s proposal.
- The rejection was a three-parter. First, they rejected YFO for not bringing management/ownership experience. Second, they said the proposal didn’t add enough value. Third, the price was too low.
- There were no metrics against which to measure anything. And now Toyo has apparently decided to withdraw its Tender Offer Proposal.
10. Comprehensive List: 359 Companies on KOSPI & KOSDAQ Deferring Yearend Dividend Record Dates
- The data is crucial for year-end dividend arbitrage. We can strategically target Single-stock futures’ spread basis widening due to information timeliness disparities, focusing on companies with high dividend yields.
- Furthermore, it offers valuable insights into assessing the December-March spread levels, potentially leading to a rollover distortion in KOSPI 200 futures’ calendar spread trading.
- Postponed yearend dividend record dates to March may clash with first-quarter dividends, offering a new trading opportunity. this unique situation could significantly impact spot and futures prices.
Weekly Top Ten Event-Driven and Index Rebalance
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1. The 2024 Liquidity BOOM?
- US policy makers signal the peak in Fed Funds rates and to imply rates cut cuts as soon as March 2024
- Fed Liquidity has risen by a whopping US$534 billion or 16.6% since the start of 2023
- These moves are consistent with our long held view that the Global Liquidity cycle bottomed in October 2022 and is expanding towards a new peak in 2025.
2. 2024 High Conviction Idea: The Case for a Rotation Out of Japan into Hong Kong – Part 2
- Risk reward favours a shift in allocation between these markets.
- Hong Kong washed out from a sentiment, valuation and positioning perspective.
- Minimal investor expectations and continual disappointment have set the stage for a rally in 2024.
3. Five Things We Watch For In 2024
- We’ll start today’s 5 things with a look at the central bank outlook for in 2024, then we’ll address the troubles for OPEC.
- We move over to talk about China and afterwards Ukraine for some geopolitics.
- Finally, we’ll end this year’s last 5 things with a crypto outlook.
4. Positioning Watch – Buy everything seems to be consensus
- Hello everyone, and welcome back to our weekly positioning watch following the surprisingly dovish FOMC meeting last Wednesday, which smells of a slight policy mistake given what we have been writing about forward-looking price and wage indicators over the past weeks now starting to tick upwards again.
- Despite a couple of Fed members trying to retrace after the meeting, pushing back on rate-cut expectations, market positioning has turned VERY bullish over the past week, and oh boy has equity markets positioned themselves for a binary outcome.
- The USDs parked at money-market funds have taken the spotlight since the FOMC meeting, as inflows in MMFs have continued despite 3-month T-bill yields reaching what looks to be a top after Powell’s remarks Wednesday.
5. Steno Signals #78 – Santa Powell Handing Out Gifts Even to the Naughty!
- Powell invited for a yuuuge risk asset party this week by allowing the market to continue to chase the narrative of material rate cuts in 2024.
- This is (again) reminiscent of the 2006-2007 pause when the Fed allowed financial conditions to ease materially in the run-up to the recession.
- During a hiking cycle, loads and loads of USDs are parked in cash-like setups due to a sudden better relative yield premium in almost risk-free structures.
6. Sentiment Nugget: Central Bank Divergence Into Year-End
- Into year-end we have noted a number of key shifts in what Central Bank language is actually telling us from a quantitative point of view.
- We regularly track and update our measure of positivity/negativity of Bank language contained in statements, outlooks and speeches on a scale of -1 to +1 in our DataHub for premium subscribers.
- There you can access full histories and dig deeper into the underlying drivers.
7. Mint Macro Roundup: BoJ Maintains Loose Policy Yet Yen Remains Strong
- BoJ stuck to its ultra-loose monetary policy at its policy meeting on 19/Dec. It continues to maintain an extremely dovish stance to encourage economic growth.
- Governor Ueda stated that the prospects of inflation declining sustainably to target and wages rising and propping up demand remain high.
- Yen initially weakened following continued easing however it has recovered losses and stands 1.7% stronger than its level before Fed’s dovish stance on 13/Dec.
8. Interest Rates and Oil: Crossroads Ahead
- US retail sales and inflation rates are retreating, and industrial activity is slowing.
- Europe’s economic decline is accelerating compared to the US.
- Oil prices are dipping in anticipation of weaker demand amidst a slowing economy signal.
9. Avoiding a Lost Decade: China’s Real Estate Adjustment Reaches Critical Juncture in 2024
- Japan endured years of economic stagnation due to an impaired banking system following the bursting its real estate bubble and some commentators currently fear a repeat experience in China.
- Despite the potential for debt swaps with local government, regional banks will bear the brunt of loan restructuring to local government financing vehicles via higher loan-loss provisions.
- The main of objective of central government in 2024 will be stabilising home sales in Tier-1 cities via easier policy measures. Bank lending to private property developers will remain tight.
10. Keep Buying the Japanese Yen
- While the Bank of Japan didn’t change monetary policy -it just delays the inevitable.
- Rate differentials have only one way to go and will benefit the JPY.
- Position now for a strong JPY as the market anticipates the change.
Weekly Top Ten Macro and Cross Asset Strategy
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