Thematic (Sector/Industry)

• The plunge in medical beauty sector last week was due to the industry-wide overhaul and investigation resulting from the increase in business bribery/tax evasion/medical malpractice/customer complaints.
• We found an interesting phenomenon – Investors dare not buy biotech, opting instead for Traditional Chinese Medicine (TCM) companies, scientific research service companies and medical service companies.
• If investors still want to trade CXO, here are two suggestions.

• We may look back several months from now at the past week as the pivotal point where the market lost hope that the Fed could actually achieve a “soft landing” from the current monetary policy tightening cycle and instead began planning for how painful of a recession is coming.
• Before beginning the question and answer session of the Federal Reserve meeting on Wednesday, Fed Chair Powell clarified that “nothing had changed” from his hawkish message delivered during the Jackson Hole meeting back in August.
• However, things did change in that instead the Fed goalposts for rate expectations got ratcheted up yet again for 2023 via their internal “dot plot,” which is their survey of where each Fed member thinks rates should be.

In our next Webinar, we welcome Analyst Shifara Samsudeen, ACMA, CGMA , who will take us through the landscape of HR Tech and its investment opportunities.

The webinar will be hosted on Wednesday, 28 September 2022, 17:00 SGT/HKT.

Shifara Samsudeen, ACMA, CGMA, is a chartered management accountant with more than 10 years of rich experience in investment research and financial analysis. She has worked as an equity analyst for one of the world’s largest asset managers with USD2.5 trillion in AUM covering numerous sectors including chemicals, retail, tech, autos, telco, real-estate and banks, globally. She is experienced in fundamental equity research, industry research, commodity studies, forensic accounting, and due diligence reviews.

• China’s distressed property firms are scrambling for a share of a 200 billion yuan ($28.5 billion) government loan program
• The loan program planned by the central government aims to help developers resume construction of apartments that have already been bought but are unfinished due to an industrywide shortage of funds
• Developers have this month been urging their regional branches to file loan applications as soon as possible and local authorities are conducting audits to select the first batch of projects to finance

• Chinese exports of solar panels to Europe have surged this year as countries hunt for alternative energy sources to fill the gap left by Russian natural gas.
• In the first seven months of 2022, China shipped photovoltaic (PV) modules with a combined capacity of 51.5 gigawatts to Europe, 25.9% more than the whole of last year
• China is the world’s largest supplier of photovoltaic products and the trade with Europe, including non-European Union countries

• Japanese auto makers have agreed to pay patent fees for mobile technology in connected cars, a win for equipment vendors
• It is also positive for NTT’s DoCoMo, which is a global leader in network technology R&D (fourth overall and largest in Japan) despite being a network operator
• KDDI also benefits as it already generates meaningful IoT revenue supported in part by automobile connectivity

• Major wholesalers in food, pharmaceuticals and books continue to prosper due to their role in both serving and protecting fragmented distribution channels.
• Profits returned last year as clients picked themselves up after Covid, but as inflation sets in, these middlemen are being squeezed by both manufacturers and retailers and profits may slump.
• They now need to offer an ever increasing array of value-added services to continue to grow and not all have the capability. More M&A may be on the cards.

• 5G-Capable devices now account for 25% of total devices in Japan. So far, 5G take-up appears to be quicker than 4G although that doesn’t translate into higher revenue
• MVNO subscriptions continue to grow despite former leader Rakuten moving users to its own network. IIJ remains the segment leader
• Rakuten Mobile’s subscriber woes have been well-flagged but another issue may be ahead as the migration of MVNO subs to the MNO platform has slowed in recent quarters.

• China’s 20th Party Congress opens on the 16th October 2022. 
• The Party Congress can give Xi Jinping a third term as General Secretary; not confer him a third term as President as is often incorrectly reported in the media.
• The apparent confusion between Party and State positions requires some clarification, which hopefully this insight achieves.

• The Nikkei was down -3.4% over the past week (-4.3% YTD); the yen was flat at ¥142/$ (-24.1% YTD)
• Shares of travel and tourism related companies advanced on hopes for a rebound in inbound tourism as Japan aims to ease travel restrictions in October
• Shares of IHI slumped 9% in the week. We are interested in the energy segment that is geared to nuclear re-starts and longer-term, ammonia. 

• CXO sector plummeted after Biden has officially signed the National Biotechnology and Biomanufacturing Initiative. In our impression, all sharp declines of CXO were mostly due to geographical conflicts/overseas policy disturbances.
• We remain conservative about CXO’s outlook. If investors still choose to invest in CXO, there are some questions to ponder based on the general environment of Sino-US confrontation.
• As tensions between China and the US escalate, it may no longer be possible to think on the basis of “common sense”. Investors are advised to think “outside the box”. 

• This upcoming week, stock market and business news is anticipated to be dominated by the U.S. Federal Reserve and global central banks racing to hike interest rates in coordinated fashion in attempts to constrain demand and reel in inflation back to central bank target levels.
• Already, Wall St. Journal reported and Fed “whisperer” Nick Timiraos has indicated that yet another outsized interest rate hike of 75bps appears to be on the way as the Fed plays catch up to the 2 year Treasury yield.
• Fed Chair Jay Powell’s press conference commentary on Wednesday will again be scrutinized for any hints of the Fed’s plans to either slow or stop the pace of the current monetary policy tightening cycle.

• The Global Emerging Markets weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
• Macro data points: Chinese industrial production, retail sales, and fixed asset investment
• Companies mentioned:Tencent (700 HK), NetEase (9999 HK), Taiwan Semiconductor (TSMC) (2330 TT), Tencent Music (TME US)

• We still haven’t seen the “industry clearing”. When an industry no longer has entry barriers/first mover advantage, it will inevitably bring about the collapse of expectations for the future.
• If the total retail sales of consumer goods do not maintain well, the probability of endogenous growth problems is high, which will be reflected in the decline of companies’ valuation.
• It’s more reasonable for the share prices of those companies that have entered VBP to rise. For those that haven’t been included in VBP, the risk is much higher.

• Semiconductor revenues continue to fall. which appears to be a repeat of the collapse in 2019
• Spot market prices, a leading indicator, are soft for both DRAM and NAND flash
• It is likely that semiconductor revenues will end the year by returning to the trendline of their historical growth of 3.9%

• Chinese miner Zhejiang Huayou Cobalt has clinched a deal with the Indonesian nickel unit of Brazilian mining giant Vale S.A. to build a second plant in the country
• Huayou and PT Vale Indonesia Tbk plan to build the facility in Sorowako, Indonesia, where they will use the high-pressure acid leach (HPAL) process.
• The plant was designed with an annual production capacity of around 60,000 tons of nickel in MHP form.

• European customers have sparked a boom in Chinese exports of products such as electric blankets and heaters, as well as energy-intensive industrial goods
• The cost of electricity on the continent has shot sky high due to embargoes on Russian gas imports by numerous European countries and the U.K. following its invasion of Ukraine
• As a result, from January through July China’s exports of electric blankets to European countries jumped 97% year-on-year and electric heaters 23%

• We highlight 14 stocks in Asia that look interesting to us based on our FVMR methodology
• Six stock remains, and eight stocks added to our portfolio
• Since its inception, it has generated a before-fee total return of 93% versus the MSCI Asia ex Japan of 55%

• Most of the large Indian pharmaceutical companies have reported double-digit revenue growth in their respective U.S. business in Q1FY23. New launches are mostly offsetting the impact of price erosion.
• Although the companies are still facing price erosion in the U.S. market, the pace has slowed down. Price erosion seems to be near its bottom.
• Dr. Reddy’s Laboratories (DRRD IN) and Zydus Lifesciences Ltd (ZYDUSLIF IN) remain our top picks. Aided by new launches both the companies are seeing sustainable recovery in U.S. business.

• We highlight 14 stocks in ASEAN that look interesting to us based on our FVMR Methodology
• Portfolio changes: Six stocks remain, and eight stocks added to the portfolio
• Since its inception, the portfolio has generated a before-fee total return of 184% versus MSCI ASEAN’s 24%

• One theme going into 2022 was the expectation by many market participants that China COVID-19 cases would slow and lockdowns would be discontinued which would allow China’s economy to reopen and participate in the post-COVID global recovery.
• However, despite sitting here in September 2022, China’s “COVID zero” policy has continued and has baffled outside observers who have been attempting to understand why such harsh policies continue to exist.
• There have been shifting ideas of whether a reversal of China’s COVID zero policy would occur leading up to or after China’s National People’s Congress beginning October 16th where Xi Jinping is expected to secure a third term as China’s leader.