Thematic (Sector/Industry)

• We explore the importance of the equity market in HK in this insight.  Despite all the volatilities in 2022, HK still achieved 3rd place in terms of capital raised globally.
• The Stock Connect (Northbound and Southbound), despite already seeing solid growth, still embeds huge potential, as China welcomes more foreign investor participation and Chinese investors aim to invest through HK 
• Overall, there is still huge growth potential in the equity market.  China has publicly stated that “One Country, Two System” will continue, hopefully enhancing investors’ confidence in the city.

• After countless delays, the first, and potentially biggest winner of the Japan IR license game is now reality as both MGM and its partner Orix begin development work.
• The US$9b to $10b property complex will debut in Osaka, by 2029. The area is already a top international tourist and business meeting center.
• Fears of dilution across Asia=Pacific casino countries are tempered by forward forecasts by researchers of healthy CAGR growth through 2030.

• In reality,  with 18A already sampling since Q4 ’22, it’s effectively a done deal already
• Despite being “manufacturing ready” since December 2022, the first product based on Intel 4 likely won’t hit the shelves until Q4 ’23
• “5 nodes in 4 years” is meaningless unless qualified with unit volume, ramp speed and yield metrics. These are where the real challenges lie.  

• In our view, the Korean government could allow a fourth major telco in Korea in the next 1-2 years. 
• The launch of the fourth major telco in Korea would have a significant negative impact on the three existing Korean telcos. 
• In the local media, the following companies have been mentioned as potential candidates to inject capital into the 4th telecom operator in Korea: Coupang, Naver, Kakao, Viva Republica, and Shinsegae.

• Major Chinese manufacturers’ new-energy vehicle (NEV) sales were all over the map in March, with companies that recently released budget-friendly cars outperforming their rivals amid a raging price war across the industry.
• Last month, NEV sales of BYD Co. Ltd., Guangzhou Automobile Group Co. Ltd., Li Auto Inc. and Nio Inc. grew 97.5%, 89.8%, 88.7% and 3.9% year-on-year, respectively, according to company statements.
• The NEV category mainly covers pure electric and plug-in hybrid vehicles.

• Record number of active EM funds overweight in Internet Retail, with 60.9% of funds overweight the iShares EEM ETF.
• Alibaba Group Holdings is the most widely held stock in Internet Retail, followed by JD.com Inc. and MercadoLibre.
• Growth investors remain optimistic about Internet Retail, while recent price declines prompt Value investors to raise allocations

• Working from home in the San Francisco Metro area is not extreme.  The office occupancy rate in all top ten US metro areas is 50% below pre-Covid levels.
• USD 2.5 trillion of CRE debt will mature in the coming five years and will have to be refinanced at much higher interest rates or doesn’t get refinanced at all.
• Value declines will force CRE borrowers to add capital or hand in the keys, which is bad news for US regional banks providing nearly 70% of CRE loans.

• 700 HK： < Metal Slug: Awakenings > officially launches（ + ）
• LEGN: CARVYKTI C1Q23 revenue rebounded QoQ but below our expectation(/)
• JD/BABA/VIPS/3690.HK: March NBS consumption strengthened, especially apparel and catering (-/+/+/+)

• HKD peg has been a financial cornerstone for HKSAR since 1983. The peg helps maintain financial stability, but it also ties Hong Kong’s monetary policy to the U.S. Federal Reserve.
• HKMA maintains a narrow band of 7.75 – 7.85 HKD per USD.  HKMA’s undertaking is to step in if the FX hits either strong or weak side of the band
• While there are (continued) discussions if HK should change or break the peg, HKMA ex-chief Norman Chan mentioned there are “4 essential conditions” for such consideration to take place

• OVERSEAS. Small Gains in Equities Industrials, Energy, Materials up on BTE China 1Q GDP Print; GS no so great  as earnings miss; NVIDIA up on final Sell->Buy capitalation
• JAPAN. NKY Futs flat vs Cash; USDJPY 134.1; BOJ may forecast 2% CPI in FY25;  Tokyo Condo px hit new records; S&i to resist VALUEACT board change demands
• NUGGET. BOJ to forecast 2% CPI in FY25. This is an interesting “leak” to the press.  Clearly BOJ is in no rush to tighten monetary policy

• XPEV:  Xpeng unveils next – gen technology architecture ( + )
• LKNCY: Hot weather supports new product sales, bodes well for 2Q23(+)
• 1211HK: Brazilian President Lula met with BYD CEO to promote opening of local EV plant (+)

• OVERSEAS. SPX closes with gains,  Financials and Industrials lead; TSMC to cut capex – hits global SPE stocks; Samsung to (partially) abondon Google ? 
• JAPAN. NKY Futs +0.3% vs Cash; USDJPY 134.5 as new Gov Ueda says he will stay the (dovish) course; Activists sharpen knives ahead of Japan AGM season
• NUGGET. Nissan decouples from Renault- but at what cost ?

• The three companies we write about this week are CATL (A) (300750 CH) , Kimberly Clark (KMB US) and BlackBerry Ltd (BB CN) 
• For the twenty-one weeks since inception ended 14 April the combined innovation portfolio was +3.6%, versus DJIA +0.4%, S&P500 +4.3%, Nasdaq +8.8%, Russell2000 -3.7%, MSCI-ACWI-ETF +6.2%, all in US$ terms
• For the same period the small cap innovation portfolio was up +5.9%, the mid cap portfolio was up +4.4% and the large cap portfolio was up +3.4%

• It is the time to reassess the commercialization performance and the outlook of China biotech companies, including BeiGene, Innovent, Henlus, Zai Lab, Hutchmed, Junshi, RemeGen, Innocare, Akeso. 
• We summarized the data of these biotech companies’ product revenue and profit performance to judge whether their commercialization capability is sufficient to afford production, sales teams and long-term R&D activities. 
• Most China Biotech cannot be said to achieve “commercialization success”, but they have showed some difference.We hope investors could have a better understanding about China biotech and make better decisions. 

• Broad equity indexes booked their fourth straight week of positive returns, with the MSCI World Index and the S&P 500 up 1.23% and 0.79%, respectively.
• Small caps followed suit, with the Russell 2000 gaining 1.48% this week.
• Cannabis stocks slid for the sixth straight week, with the MSOS ETF declining 0.56%. It was shaping up to be a good week until the MSOS ETF fell 3.97% on Friday.

• OVERSEAS. SPX  up +0.8%WoW but slipped -0.2% Friday as Hawkish Waller came out amid weak US March Retail Sales data;  Musk jump’s into Generative AI; Boeing Production Woes
• JAPAN.NKY Futs flat vs Cash USDJPY 133.8; Security Concerns ahead of by-elections as PM Kishida smoke Bombed;  Panasonic to build 3rd US batt plant; JT ramps up heated stick products
• NUGGET. Elon Musk’s aggressive push into Generative AI to rival/beat ChatGPT; A boon for NDVIDIA and by extension, Japan’s Advantest(6857)

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Stanley Tsai, CFA as he will be sharing with us his insights on the performance and outlook of banks in China. Join us, as Stanley tackles topics like possible triggers for a banking crisis in China, to how the evolving regulatory environment will going to change investors’ risks / rewards, in the next live session. 

The webinar will be hosted on Wednesday, 10 May 2023, 17:00 SGT/HKT.

Stanley Tsai, CFA has over 20 years of experience as a financial sector specialist across equities and fixed income. He is currently an advisor to a private investment fund and a non-executive director of a US VC fund. He is also a member of the Value Investing Committee and Media Committee at the CFA Institute of Hong Kong.

• JPM and Citigroup results may imply radical divergence amongst US banks
• Deposit flows into big banks, out of small banks, may be just one feature 
• Commitment risk, loan contraction, and net interest income can surprise

• 9995HK: ADC gets heated up with another biotech license in biotech deal (-)
• 9926HK：Akeso’s JV with SinoBio signed exclusive distribution of PD-1 drug with SE Asia and Oceania distributor
• BGNE.US: Merck KGaA’s BTK inhibitor drug hit with FDA hold due to liver injury…Impact to BGNE nil

• With the upcoming first quarter earnings season taking center stage the next 3 weeks, there is yet again a well overdue reprieve from the back and forth focus on hiking, pausing, and cutting next steps of the Federal Reserve.
• The focus now goes back to company earnings and forward guidance and whether slowdowns picked up on ISM, PMI, and regional Fed surveys are now making its way through earnings reports.
• While still early, the first 22 S&P 500 Index companies reveal a 20% drop in earnings QoQ.

• March revenue numbers from the Taiwan semi ecosystem are surprisingly good.
• The sequential decline in Q1 2023 PC unit shipments was at the low end of the predicted range
• Quanta, a leading ODM Direct Server manufacturer,  had an unexpectedly strong first quarter. 

• 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 interest rates, Chinese CPI and trade data
• Companies mentioned:Alibaba Group (9988 HK), Softbank Group (9984 JP), Tencent (700 HK), Prosus (PRX NA), DiDi Global (DIDI US)

• Globally stocks were strong this week. Ditto for Japan where the Nikkei and Topix indexes finished the week 3.5% and 2.7% higher, respectively
• The biggest news of the week was that Warren Buffet visited Japan, met with trading companies that he owns, and said he may buy more 
• Fast Retailing was the standout performer this week, surprising the market with a strong Q2 report

• Full year 2022 annual results indicate that SOEs CRL and COLI are holding up, while smaller developers are still under liquidity pressure
• In terms of the physical market, contract sales rebound strongly in Q1, with SOEs to gain market share over POEs
• Sunac announced resume trading today (down 53%), but sector risk is still here.  Part of the risk is priced in at current valuation for sector, but SOEs are not cheap 

• Oligopolistic structures, market dominance doesn’t necessarily translate into pricing power.
• As some consumer focusing firms aren’t price takers and their business inherently cyclical – sustaining premium valuations are at risk.
• A dominant co., in a mega trend or amidst underlying structural change could be a formidable play to sustain both – pricing power and premium valuations. 

• We suggest that AIGC will be a short-term driver for the major companies in the online gaming industry. It could assist the rise of small-to-mid-size companies in the long run.
• In the next 1-2 years, we expect that Tencent and NetEase’s EPS may improve by 13%/24% because of AIGC.
• By adding more AIGC functions, Unity may also increase customers’ retentions in the near term. Maintain BUY to Tencent, NetEase, and Unity.

• OVERSEAS. Inflation Benign but Fed Minutes point to (mild) recession with Hawkish bent for addl rate hikes;  US  Equities close in the red, giving up early CPI driven gains
• JAPAN. NKY Futs -0.6% vs CASH; USDJPY 133.1; Japan Population falls below 125 million in 2022 – increases worries on low birthrate/aging society; Activists gear up ahead of Japan AGM
• NUGGET. Japan Post (6178) – this low pbr stock is undergoing transformation in many areas – from balance sheet to operations. If they can execute….

• We highlight 14 stocks in ASEAN that look interesting to us based on our FVMR Methodology
• Seven stocks remain, and seven stocks added to our portfolio
• Since its inception, the portfolio has generated a before-fee total return of 177% versus MSCI ASEAN’s 27%

• We highlight 14 stocks in Asia that look interesting to us based on our FVMR methodology
• Four stock remains, and 10 stocks added to our portfolio
• Since its inception, it has generated a before-fee total return of 106% versus the MSCI Asia ex Japan of 61%

• Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. 
• With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. 
• Shenzhen International (152 HK), ENN Energy (2688 HK), Shenzhen Expressway (548 HK) and Kunlun Energy (135 HK) are key beneficiaries, while CIMC Enric (3899 HK) may turned into exchange losses.

• The market of biopharmaceuticals and CDMO keeps growing, with CAGR of about 10%. However, CGT is the “outlier”. The whole story of CGT business isn’t persuasive at the current stage.
• Lonza is still the leader.WuXi bio has secured the second place. Samsung Biologics is catching up in terms of profit margin. Different production capacity structures can bring about different changes.
• Industry concentration of CDMO would further increase, making it difficult for new entrants to seize orders from Top CDMOs.We advise investors not to spend too much time on small CDMOs.

• ASPs & bit shipments decreased by high single digits percent QoQ
• Anticipated recovery in H2 ’23 will be slow & gradual
• The potential for inventory write-downs remains a headwind but March revenue MoM increase is a hopeful sign

• NIO: Wait times for NIO ET5 shortened to 2 weeks (-)
• 700HK: Tencent games now able to buy traffic on Bytedance (+)
• BABA: Alibaba unveils implementation plans for its LLM AI and price cuts for Cloud (+)

• OVERSEAS.  SPX flat on the day as catalysts lacking; Tech down ahead Wed’s  CPI as momentum builds for rate hike;  Broad strength in cyclicals – underlying economic strength?
• JAPAN. NKY Futs +0.4% vs Cash; USDJPY  133.7;Buffet says he looking to raise Japan equity weighting; MHI awarded big defense contract for missiles: Denso gears up for EV transition
• NUGGET.  Toyota gets serious in BEVs – we are excited about the prospects for the supply chain, particularly Denso and Panasonic

• With food inflation exceeding 8% in December, prices have become the focus for all supermarket retailing. 
• This is good news for those that are set up for price competition but it presents a serious challenge to the majority of chains.
• The net result will be a widening gap in performance between the best and rest, with the former delivering both top line growth and rising margins.

• Semiconductor revenues remain in a decline, although that decline has slowed.
• Prices appear to have reached cost.  They should follow cost declines until a shortage returns.
• The timing of the next shortage is still in question.

• Just before Beijing lifted zero covid, proejctions for the 2023 year ranged from US$9B TO US$16B. Bothe have proven significantly below revised estimates now.
• Since the end of zero covid, JP Morgan and USB have lifted their Macu GGR projects to US$22b. Our analysis effective with end of 1Q23 ranges higher to ~US$24–US$25b.  
• Adding non-gaming revenue at 14% to expected GGR is above the historic 10% pre-covid. Moving more non-gaming revenue is mandated by Macau’s extension of concessions.

• Samsung’s Q1 2023 operating profit has collapsed to 0.6 trillion Korean won (TKW), down from 4.31 TKW in Q2 2022 and 14.12 TWK in Q1 2022
• A promise to “meaningfully lower” memory production sent competitor shares soaring, presumably in anticipation of a faster end to the current memory downturn.
• The memory production cut report is elusive and vaguely attributed. We don’t anticipate a return to meaningful profitability in the memory segment until Q1 2024. 

• BIDU ：More companies announce / release large language model projects（-）
• BABA / SE: Brazil cancels tax exemption for cross-border ecommerce (-)
• PDD: Shein begins inviting 3P merchants to its platform (-)