Thematic (Sector/Industry)

• US banks face more than just Silicon Valley risk, namely with net interest income
• Credit costs are also running substantially higher in January monthly data
• Bank loan data suggests a strong economy, not overly positive for rates

• 9926HK：Akeso and China’s 2nd largest pharmaceutical distributor signed collaborative R&D agreement（+）
• XPEV: Xpeng to officially unveils facelift of P7 on Friday (+)
• 981.HK/1347.HK/ACMR: Netherlands announces intention to ban only “state-of-the-art” ASML DUV tools (+/+/+)

• Risk-Off in global markets due to collapse of Silvergate Capital and Silicon Valley Bank
• Japanese stocks tumbled on Friday, but were still up for the week. BoJ Governor Kuroda has timed his exit to perfection. 
• No major moves in our universe, but can Japanese stocks remain relatively uncorrelated with global risk, given strong balance sheets and desire to lift shareholder returns

• OVERSEAS. Equity Risk-off ahead of NFP; Banks hit on default risk worries and Silvergate Collapse; Bitcoin hit hard (Silverate); Aggressive GM restructuring
• JAPAN. NKY Futs -2.2% vs Cash; USDJPY Strengthens to 136.1 as pare risk ahead of Kuroda’s final policy decision today;  MORE ACTIVIST WINS-Massive buyback from DNP;  Seven & I Restructuring.
• NUGGET. NISSAN, TAKING IT FROM ALL ANGLES. Nissan’s bonds downgraded to junk this week; but its worse than you think..company faces serious headwinds.

• After stellar growth in 2020, the e-commerce market grew much slower in 2021 but still outpaced all other channels and set the second highest increase in four years.
• At this rate, by 2025 e-commerce should become the largest retail channel, overtaking chain stores.
• Japan’s easy access to retail stores means shops aren’t about to disappear anytime soon and Japan will become a model for omnichannel retailing with stores still playing a key role.

• Due to the fluctuating levels of energy produced on an hourly basis by renewable energy sources, energy storage is required to smooth out supply and demand
• The grid is becoming increasingly unstable due to its old age and extreme weather conditions, and is not set up to accommodate a net-zero system
• Small and mid-cap players in the space are down over 60% since 2021, making today’s valuations a great entry point Intermittent Supply from Renewables Solar and wind energy cannot produce energy 24/7 since there is not constant sunshine or wind in most regions.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Devi Subhakesan as she shares more about her thoughts on the Top Opportunities in Indian Consumer Discretionary in the year 2023. From the trends in the industry, to its major players and catalysts, join us in this next installment as we dive deep into the topic alongside Devi.

The webinar will be hosted on Wednesday, 22 March 2023, 17:00 SGT/HKT.

Devi Subhakesan  is an Equity Analyst with an Asia Consumer Sector Focus. She has been part of Buy-side and Sell-side Institutions, and has covered Oil, Gas & Coal, Media, Textiles, and Consumer Discretionary sectors across ASEAN, India, and North Asia. 

• AI is an exciting area of technology that has the potential to change how industries operate and consumers live their lives
• There is a huge TAM, but it can be difficult for equity investors to gain meaningful exposure
• We identify 22 Japanese stocks that are engaged in AI. We have two top picks 

• On Monday evening in the US, Trip.com (TCOM US) reported Q422 results that beat low expectations, but shares in the US traded down about 3% in Tuesday’s session
• As for guidance, management offered few specifics but noted a sharp improvement in booking activity early in 2023, but also highlighted an outbound capacity bottleneck at the airlines
• Just as Covid’s negative impacts papered over the secular challenges facing Trip.com, the dramatic near-term recovery in travel activity also obscures longstanding threats

• OVERSEAS. Softer tone from Powell; US equities find support; BUT, Rates extend sell off; Yield Curve -1.08%..screams recession; Shocker from EU as Germany blocks legislation banning ICE sales from 2035.
• JAPAN. NKY +0.6% vs Cash; USDJPY 137.4;  Japan set to extend rally for 5th day on weaker yen; Asahi Kasei books ¥185bn impairment loss; Another BUY call on Fanuc
• NUGGET. Rakuten stock has been in the doldrums thanks deep losses in domestic mobile ops. Losses likely peaked. Now, Rakuten Symphony is clearly gaining traction. Time to revisit?

• We recently conducted a round of interviews of Chinese start-up gaming companies, and we see an overall loosening in the regulatory environment, although near-term hit titles are still absent.
• We are positive on Tencent because of the increasing possibility of DNF mobile launch. We raise NetEase’s TP to US$ 99, and it’s one of our top picks now
• Other gaming companies that have upward trends include Kingsoft, Lingxi Games (under Alibaba), Koei Tecmo, Nexon, and Mihoyo. Companies with a downward trend include BILI and Garena (under SEA).  

• (2821.SZ/6821.HK)/(1177.HK/SBHMY): F-Star cleared CFIUS investigation, suggesting US criteria on China investments (+) 
• ATAT: Corporate travel demand recover quickly in hotel sector (+)
• BILI/1024.HK/Douyin: People’s Daily criticizes vulgar internet slangs rampant in short videos. (-/-/-)

• OVERSEAS.  Powell Testifies. 50bp hike more likely  as inflation higher than expected. Sparks repricing in markets: US Equities hit, UST dumped, USD rises – Choas all round.
• JAPAN.  NKY Futs -0.4% vs Cash; USDJPY weakens to 137.1 as Powell tesimony digested;  H3 failure-blow to JP space hopes; “My Number” Use expanded;  Dentsu UK M&A; Many Rating D/Gs
• NUGGET. Carbon Capture is a key part of the decarbonization mix; Expect significant spend locally and globally. We look at the opportunity and the firms likely to benefit. 

• There has been a sharp increase in unsold housing units in Korea. There were 68k unsold housing units in Korea at the end of 2022, up 278% YoY
• Unsold housing units is likely to get worse in Korea in the coming months driven by higher housing units supply, stubbornly high interest rates, and increasing probability of global recession. 
• We believe there is a sound trading opportunity of shorting a basket of large construction stocks including Hyundai E&C, GS E&C, and Daewoo E&C over the next 6-12 months.

• Disappointing FY22 result from raw milk company AustAsia Group (2425 HK) should be well expected, but the issue is its guidance that FY23 industry outlook will stay challenging. 
• Raw milk price is still coming down and 1H23 dairy product demand recovery is slow. Capacity influx will disrupt demand-supply balance, but feed costs pressure seems to have moderated. 
• Consensus profit projections for the sector are overly optimistic and there is earnings downgrade risk after FY22 result announcement. We will shy away in the near term.

• China’s GDP growth target of 5% for 2023 is a “deliberate decision”.Chinese authorities may have seen potential downside risks of economy and hope to restore the credibility of growth target.
• If investors fantasize about low interest rates would continue in the future, they could be disappointed. This means that investors’ strategies and mentality may need to be changed in time.
• For China healthcare, the expansion of high-quality medical resources in grassroots markets would be a big opportunity, involving reform of State-owned Enterprise-run hospitals and increasing market penetration of medical device/TCM. 

• We recently conducted a round of interviews of several major Chinese online advertising agencies. We conclude that there has been slower-than-expected recovery in February.
• Among major advertisers, travel, local service, medical service, and eCommerce have better performances. Gaming, automobile, and FMCG remain weak.
• Tencent is still our top pick; maintain BUY to Baidu and Weibo; SELL to Kuaishou and BILI

• OVERSEAS.  SPX Clings to Positive gains – barely; Powell Testimony in Focus;  Commodities Weak on dissappointing China growth target; GS upgrade Apple to BUY; Telsa cuts prices (again)
• JAPAN. NKY Futs Flat vs Cash; USDJPY 136; Progress on Japan-S.Korea Relation normalization; Public increasingly supports nuclear restarts;  Toyota rolls out BEV in China; Win for Rakuten in “Open Ran”
• NUGGET. AI Development platforms are being rolled around across Japan’s manufacturing sector to improvement R&D efficiency. This has the potential to drive significant value, especially in Japan Big Pharma

• China’s defense budget will reach Rmb1.55trn in 2023, a 7.2% YoY increase and up from 7.1% in 2022. This also equals to 1.22% of GDP, vs. 1.2% in 2022. 
• AviChina Industry & Technology H (2357 HK) has the most direct exposure to China’s aerospace and defense developments given its holdings in A-share defense stocks.
• Avic Shenyang Aircraft (600760 CH) will benefit from its unique position as the key manufacturer of aircraft, parts and components for China’s combat fighter fleet.

• Indigo and Spice Jet have turned to profits in Q3FY23.
• Indian Aviation sector is at infancy and the large market is consolidating. 
• However, rising ATF costs may restrict profit recovery, thus while valuations are reasonable and there is a long runway, it’s not yet the time to go aboard.

• WTR Sustainable Index: During the week ended March 3, 2023, the WTR Sustainable Index performed in line with the broader market, rising 2.0% W/W versus the S&P 500 Index (up 1.9%), the Russell 2000 Index (up 2.0%), and the Nasdaq Composite Index (up 2.6%).
• Energy Technology (8.5% of the index) drove the index performance, rising 4.4%, while Advanced Transportation Solutions (69.6% of the index) was up 1.2% and Industrial Climate and Ag Technology was up 3.4%.
• Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.0x versus 18.3x for the S&P 500.

• OVERSEAS. Strong Beta Close in US Markets, with SPX +1.6%; US 10YR Yield retreated to under 4%; Tech  w/SOX +1.5%, led by BroadCom. +5.7%;  Ford +4% on strong EV demand
• JAPAN. NKY Futs +0.9% vs Cash; USDJPY strenthens 135.8;  Expect follow on Beta/Semi bid on Broadcom sentiment lift; Govt to restrain EPCO px Hikes; Renesas, OAL, JAL added to NKY
• NUGGET: Advantest looks best positioned to benefit from the emerging boom in Generative AI.

• Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government’s conservative stance amid post-COVID recovery. 
• A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
• Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out – we have seen many cities planning to hand out consumption vouchers.

• 2M2023 retail sales of passengers vehicles down 21% yoy, the biggest decline in 10 years.
• Demand recovery is expected from March with signs of warming up starting in NEV segment after price cuts and local supportive police’s introduced 
• Cost friendly models would continue be preferred. i.e demand in mass market may be stronger than luxury market, PHEV segment may do better than BEV segment

• AI has been the talk of the town in 2023, and two products in particular, ChatGPT and Dall-E 2, have been making waves with their massive popularity and usage.
• ChatGPT hit the incredible milestone of 100 million users in just two months, so it’s no wonder investors and creators are excited about the productivity boosts and potential outcomes that AI can bring in the near future.
• Even mainstream media and tech leaders are heralding AI as the next big thing after the iPhone.

• One area that appears to be picking up steam is market participants increasingly seeking out alternative non-government published data to inform real time indicators on the health of the US economy, jobs, and inflation.
• There are many reasons alternative data sources are picking up importance including declining survey participation rates, significant and material revisions of prior published data, revisions to weightings or calculation methodologies, among others.
• In particular, the steady structural decline over the past decade of survey responses can lead to inaccurate signals and conclusions with high error rates.

• Shares of Chinese rare earth suppliers plunged Thursday after Tesla Inc. said it will reduce its use of the minerals in future electric vehicles to control costs.
• The leading electric-car maker is designing next-generation powertrain that will use a permanent magnet motor that doesn’t rely on rare earth materials, Colin Campbell, Tesla vice president for powertrain engineering, said at an investor meeting.
• The change reflects Tesla’s efforts to control material costs and reduce its involvement in the health and environmental risks of mining the minerals, Campbell said.

• The Nikkei and Topix indexes finished the week 1.73% and 1.57% higher
• A more flexible BOJ will be a good thing…just don’t expect too much too soon
• Mitsubishi Chem is looking to divest non-core assets….could they make use of more tax-efficient spin-offs

• 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 PMI data, South Korean exports, India GDP growth
• Companies mentioned:Naver Corp (035420 KS), Mediatek Inc (2454 TT), Foxconn Technology (2354 TT), Hon Hai Precision Industry (2317 TT)

• SPACs are still heading for the exits in droves.
• While the six IPO pricings that occurred last month would ordinarily be nothing to write home about, February 2023 happened to be the most active month for SPAC IPOs since May 2022, which was the last time a month produced six IPOs.
• However, while the six IPOs last May raised a total of $915 million in gross proceeds, last month’s IPOs raised about half that amount (~$500 million), reflecting the tougher prevailing fundraising environment.

• OVERSEAS. US Equities rise, defying higher yields and further yield curve inversion;  Fed’s Bostic out again – talking of a summer pause; Telsa Day: Musk’s Master Plan lacking details
• JAPAN. NKY Futs +0.7% vs Cash; USDJPY Weakens to ¥136.8 on stronger USD;  Expectations rise  BOJ Policy Change in June;  Invidual invetors shifting to risk assets; Strong Retail SSS
• NUGGET:Japan Video Streaming Wars: U-Next(9418) well positioned to flourish as consolidation kicks off in earnest.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Alec Tseung as he shares more about his thoughts on the Insurance Opportunities in China. From the trends in the industry, to its major players and catalysts, join us in this next installment as we dive deep into the topic alongside Alec.

The webinar will be hosted on Wednesday, 8 March 2023, 17:00 SGT/HKT.

Alec Tseung is a Fintech & EM-focused Analyst. He previously spent time with Tencent, where he was responsible for the group’s investments in the overseas markets (Southeast Asia, the Middle East, and Europe). Prior to Tencent, he was in the Principal Investments team at Swiss Re, where he focused on driving the group’s investments into financial services and Fintech sectors in APAC. He has been responsible for a wide range of investments and transactions (venture/growth, buyout, direct secondaries, etc.) totalled >$5 billion.

• The metals and mining market took a breath after a strong January with gold and copper pulling back 5% and 3%, respectively
• As full-year earnings roll in, the effects of inflation are taking hold with costs rising dramatically and earnings missing expectations
• Despite the February slowdown, we anticipate 2023 to be a standout year for both precious metals and base metals and encourage investors to position themselves accordingly

• OVERSEAS. US Equities down again as Bostic, Kaskari call for higher rates; US10 Yr touches 4%; China Drives Energy and Materials Bid; Awaiting TESLA IR Day (as we write)
• JAPAN. NKY Futs flat vs Cash; USDJPY 136.2 flat; Japan caught btw US rate hike Narrative vs China Recovery;  JP firms to hire more; ARM listing: UK loses to US
• NUGGET.  As Tesla’s Investor day in Focus;  Time to Refocus on their premier US battery supplier Panasonic, and the MASSIVE impact that IRA will have on earnings

• ZLAB: Merck’s Keytruda received repeated setbacks on treating prostate cancer, but the result cannot benefit ZLAB(/)
• 9995HK: RemeGen preannounced 2022 results, which is slightly better than our estimate
• 1877HK: JUNSHI preannounced 2022 result, which was worse than we expected

• OVERSEAS. SPX close near Feb lows as US 2Y hits 4.82%; Inflation –   Mkt sees higher for longer; AMAT disrupt ASML Monopoly? ;  GS gets thumbs down; TESLA DAY
• JAPAN. NKY Futs flat vs Cash; USDJPY 136.2;  Toshiba Deal in Doubt; Bullish Calbee Investment Plan; Chinese Real Estate Mkt looking up: + Daikin/Toto; Broker Sell D/G: Makita, Nippon Steel
• NUGGET:  Cyberagent – Loss Making Media business set for a turnaround. Looking discounted and the sell off since late 2021,  and given the outlook for its 3 businesses.

• Improved connectivity has led to an increase in leisure travel, resulting in reduced seasonality of the hotel business.
• Premium branded hotels have seen an increase in ARR due to an increase in customers’ spending power and demand for value.
• While entering the industry poses no major challenges, running a hotel is becoming increasingly difficult due to rising costs and competition.