Thematic (Sector/Industry)

• Despite the macroeconomic headwinds, Q3 results from the large medtech companies showed some encouraging signs including healthy procedure volume growth depicting recovery in the medtech sector globally.
• Amidst fear of recession, most of these companies reported healthy system placement and no order cancellation. Diabetes, with a large underpenetrated addressable population, remains one of the most resilient segments.
• Financial performances of APAC medtech companies are expected to be driven by healthy global procedure volume growth and Fx, partially offset by macroeconomic headwinds including inflation and supply constraints.

• Commodities have had a wild rally over the last two years, incentivising miners to go public amidst heightened investor enthusiasm.
• Despite this, markets have slept through the announcement of Glencore’s CSA Copper Mine being spun off through a $1.1 billion SPAC merger with Metals Acquisition Corp.
• The deal price implies a 4.5x multiple of 2022 EBITDA, which is a breath of fresh air in SPACland, where valuations have hovered at many multiples of sales that are three or four years out.

• To realize reunification of the motherland and great rejuvenation of the Chinese nation, China needs to have sufficient foundation- Some key industries would be prioritized in the great power game.
• The 20th National Congress raised the strategic capability to the highest level, which is to ensure security and emphasize bottom-line thinking. “Innovation” should serve the big goal of national strategic needs. 
• Every major shift and political guidance of the industry means opportunities and challenges on a large scale. Investors are advised to change the thinking mode and expectation on China healthcare.

• This past week, 10 year Treasury yields continued to march higher, with the 10 year Treasury yield eclipsing above 4.2% for the first time since 2008.
• Treasury yields have now gone up almost in a straight line the 12 straight weeks.
• After tough “Fed speak” for the past few months, the market appeared to pick up upon hints of dovish Fed commentary on Friday which was coupled by the “Fed whisperer” Wall St. Journal reporter indicating a “step down” from aggressive rate hikes may be soon on the horizon.

• 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: Indonesian interest rates and FX market intervention.
• Companies mentioned:Kakao Corp (035720 KS), Naver Corp (035420 KS), Ant Financial Services Group (6688 HK), Tencent (700 HK), MTN Group Ltd (MTN SJ) Infosys Ltd (INFO IN)

• Fujian will lead 27 provinces to launch the centralized procurement of electrophysiological medical consumables. Its scale is comparable to the national VBP. Unlike many people’s optimism, we see potential concerns.
• The centralized procurement of orthodontic materials and brackets led by Shaanxi Province has made new progress, which is beyond the expectations of many people since invisible braces are included.
• We analyzed China HPV market potential and valuation logic. We expected that the valuation of related companies would have a significant downward space ahead.

• “Common prosperity “ to replace GDP growth as development target. Development of the private economy to be guided by the government.
• Localization & substitution with Chinese software, hardware, chips, semiconductor & consumer companies, promote manufacturing along with autonomous control and real economy. Focus on domestic demand rather than being world factory.
• Energy independence through new energy facility, VPP, EV to increase, along with Chinese medicine and other Chinese consumer brands. A possible move to fortify Chinese economy against potential Western sanctions.

• The yen hit a fresh 32-year low of 151 against the dollar….and then surged 4 yen in an hour on Friday. BOJ Intervention?
• Toyota announced that it will not hit its plan to produce 9.7m units this year due to semiconductor shortages. 
• Japan core inflation hit 8-year high of 3% in September. Japanese Trade Union Confederation (Rengo) seeking 5% pay hikes. 

In our next Webinar, we welcome Analysts Chris Redl (SC Capital) and Sameer Taneja (Investics Research), who will be joined by Smartkarma CEO Raghav Kapoor in an exciting discussion on the EV landscape in China.

The webinar will be hosted on Friday, 21 October 2022, 11:00 SGT/HKT.

Chris Redl has over 20 years’ experience covering the global automotive industry both on the Sell-side (UBS & Morgan Stanley) and Buy-side (Och-Ziff). His current focus is on electric vehicle stocks & their supply chains, aiming is to identify the winners and losers from a long/short perspective. This includes close coverage of legacy automakers as well.

Sameer Taneja is the founder of Investics Research, a firm that engages in bottom-up sectoral research, fundamental research of publicly listed companies as well as forensic analysis. He started his career as a sell-side analyst in a stockbroking firm called B&K Securities (India) from 2004-07, covering the ferrous sector. From 2007-16 he worked as an investment analyst in a hedge fund called Kelusa Capital, covering the materials, utilities, construction & heavy machinery, and the auto sector. He continued to work on the buy-side from 2017-19 in a firm called Skale Investments (with similar sectoral coverage), before founding Investics Research in 2019.

Raghav is the co-founder and CEO of Smartkarma.

• The Ministry of Health Labor and Welfare is likely to allow funds transfer service providers (cashless apps) to support digital salary payments 
• That could boost user and transaction volume growth rates although there are challenges like remittance limits and direct access to cash that need to be addressed
• An expansion in utility is positive although comparable valuations from global peers remains under pressure

• Occupancy rate is improving on the cost of rental rate When Covid-19 restrictions were imposed,work from home was the only solution for companies in Bangkok to continue their operations in2020-2021
• FY3Q22 (End June 22) result slightly rose QoQ 2Q22 net profit surged to Bt114m (6 times YoY,4 times QoQ) mainly due to asset revaluation.Excluding the unrealized gains of Bt87m, 2Q22 
• LHPF (NR)is poised for growth and has cheap valuation The occupancy rate had bottomed out in 2Q20 and is increasing continuously from there while the rental rates have fallen significantly

• The recent rally in healthcare is mainly driven by medical device sector. But investors are advised to exit in time before the truth is revealed.
• For pharmaceutical sector, it may not be as lucky as medical device sector.Even if it has followed the positive momentum of medical device sector, stock price would diverge after that.
• We won’t take any chances on CXO due to geographical conflicts and overseas policy risks, with “no reversal signal”. We updated our top picks in various sectors. 

• The EU traditionally imported a large number of intermediate goods from China, however, as EU economies slow down, the slowing consumer demand will also reduce the demand for intermediate goods.
• EU’s manufacturers traditionally focus on high end, high margin products while China provides daily consumer products, the substitution effect is limited.
• China does have advantages in products such as textile, metallurgy and office communication supplies, the business case is subject to prevailing geopolitical factors.

• One of the most interesting developments the past 6 months I have observed is the current power struggle between central bankers, the bond market, and politicians.
• Given the global inflation situation, central bankers this spring have reversed themselves on their previous notion of “transitory” inflation and have led an unprecedented monetary tightening regime by stopping quantitative easing, reducing central bank balance sheets, and raising target interest rates.
• The result of this regime change has led to historical volatility in bond markets as bond markets attempt to price in the terminal rate in which the central banks will raise interest rates to in order to reduce inflation.

• Black Bear Value Fund returned -2.4% in September and +0.7% YTD.
• This is the kind of environment where the ability to play offense and invest for the future is advantageous to our partnership.
• Valuations between what we own and the “market” are still very wide.

• 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: South Korean exports and interest rates, Chinese inflation
• Companies mentioned:Taiwan Semiconductor (TSMC) (2330 TT), Samsung Electronics (005930 KS), SK Hynix (000660 KS), Wipro Ltd (WPRO IN)

• The Palm Valley Capital Fund invests in small cap stocks. While our Fund is new, its underlying absolute return-based investment strategy is not. We have practiced the same strategy throughout our careers in investment management.
• The combination of falling stock prices and attractive small cap multiples appears to present a powerful case for buying aggressively. We do not share this view.
• Non-cash share-based compensation accounts for roughly one-third of the collective free cash flow of small caps in the S&P 600 Index.
• The current 33x median price-to-free cash flow multiple for better quality small caps (S&P 600) is the highest this cycle.
• Market volatility is important to Palm Valley’s absolute return strategy.

• The State Council decided to support renovation of medical equipment with special refinancing/financial interest subsidy, which has promoting effect in short-term. Investors are advised to look at it dialectically. 
• The draft for comments on the centralized procurement of liver function biochemical reagents led by Jiangxi was released. The rules are better than the market expected.
• We saw some new changes in VBP. For investors, since VBP is inevitable, it is better to accept it – There are still good opportunities in some cases.

• The Nikkei 225 closed the week +0.2% higher after sharp gains on Friday
• The Japanese yen dropped to a 32-year low on Thursday, trading at around 147.65 against the dollar, hitting its weakest point since August 1990
• Higher rates and weakening economic growth are proving a stern headwind for tech stocks; Yaskawa cut full year OP guidance

• Unsubstantiated reports of Beijing tourism blackball threat to Philippines ignite Manila POGO crackdown. 175 sites closedd, 50,000 Chinese to be deported. Sector shrugs it off.
• Outlook for Manila casinos remains highly bullish, as key headwind issues are resolved.
• Speeding growth of GGR rebound, resolution of ownership legal mess at Okada and recovering GGR at Solaire (Bloomberry Resorts) support higher guidance for sector ahead.

• Low demand and slightly higher unemployment during the pandemic dampened the rising cost of part-time employees but that short respite is now over. 
• Hourly wages hit a new high in August and are set to rise further in coming months, renewing pressure on sectors like hospitality, retailing and logistics.
• Retailers with high ratios of part-time wages such as the 100 Yen retailers like Seria Co Ltd (2782 JP) and apparel retailers, will be hit particularly hard.

In our next Webinar, we welcome Analyst Scott Foster , who will take us through the Japanese IT landscape and his top picks and opportunities.  

The webinar will be hosted on Wednesday, 26 October September 2022, 17:00 SGT/HKT.

Scott is a securities analyst covering electronics, precision equipment & robotics, engineering, construction, transport and other sectors for more than 25 years in Japan and 3 years in Korea.

• Long Cast Advisers, LLC, is an independent registered investment adviser investing on behalf of individuals, family offices and endowments. It is concentrated on long-term investing, focused on small-cap companies.
• For the 3Q22 quarter (ended Sept 30, 2022), cumulative net returns increased 14%. YTD returns are down 16%.
• Since inception in November 2015 through quarter end 3Q22, LCA has returned a cumulative 130% net of fees, or 13% CAGR.
• I continue the effort to upgrade our portfolio by consolidating around whatI believe will be the highest IRR ideas.

• Ukraine “miraculously” turned the tide of war, making Russia to consider whether they’re facing Ukraine or the Pentagon/NATO? There could be “entry of new members”. The balance could tilt again.
• The Russia-Ukraine war is also a cruel world economic war. We analyzed the impact on healthcare industry (both opportunities and challenges).
• Overall, the first episode of the Russia-Ukraine war has ended and entered a serious new phase. The game between the US and Russia would last for a long time.