Thematic (Sector/Industry)

• Semiconductor memories, the most volatile part of the chip market, have declined dramatically since June
• During downturns memory chip prices typically collapse until they hit cost
• NAND appears to be selling at or near cost, but DRAM still has room for further declines

• The newly released national medical insurance account reform will undoubtedly have a big impact on the development of China healthcare industry. We analyzed related impact on companies.
• In 2023, we think that CXO is not suitable for long-term hold any more but only for short-term trade. Comparatively speaking, the situation of pharmaceutical companies is better.
• Investment is a process of constantly recognizing and breaking through oneself. In fact, it is to use a large number of “certain costs” to exchange for a few “fuzzy earnings”.

• The six renewed licensees of Macau casinos have pledged US$15b to expand non-gaming attractions that will be difficult to monetize quickly.
• The challenges will have to be met by government as well in expanding the infrastructure of available flights from more originating points in and out of the Asia-Pacific.
• Macau GGR will recover and ramp beyond 2019 baseline GGR by 2025.27 but tourism as a key driver of that increase will pose more complex development initiatives.

• Recovery in face-to-face education stocks will accelerate as Chinese international students return on-campus
• International K-12 schools will perform strongly as hubs like Dubai and Singapore are booming.
• Service providers like IDP Education (IEL AU), Flywire Corp (FLYW US); schools like Taaleem; and tertiary China Education Group (839 HK) , Laureate Education (LAUR US),  and Icollege Ltd (ICT AU) will outperform.

• Japanese stocks ended the week down around 60bps. Global risk assets down on stronger US economic data and rate hike fears
• Japan posted its largest trade deficit since 1979. The Japanese yen weaker at 134.5/$
• We highlight the stocks that moved the market over the past week

• OVERSEAS.  SPX -1.4% post hot PPI print;  Fed’s Meister looking at 50bp hike; Tesla: Model Y sells out but Co issues big vehicle recall; AMAT after hours- looks good !
• JAPAN.  NKY Futs -0.7% vs Cash; USDJPY 133.95;  Japan set to give up yesterday’s gains but equities look good; Bridgestone earnings-solid; Good AMAT = Good TEL; Citi cuts Fujitsu
• DAILY NUGGET. Future looks bright for Panasonic, supplier of batteries to Tesla in the US. As the IRA takes effect, Tesla’s sales are going through the roof. 

• 3690HK：WeChat is testing delivery platform in Guangzhou and Shenzhen (-)
• Gaming Industry: China Game Industry Annual Conference (GIAC) is held（+）
• BEKE：Home price decline narrowed in Jan 2023, where first tier turn positive MoM, and new home outpace existing home (+)

• Liquidations continue at historically elevated levels. This week produced two more SPAC IPO pricings, with each IPO raising initial gross proceeds of $60 million.
• This brings the total number of pricings in February thus far to five, a number we have not seen since last May.
• However, the revolving door of SPACs continues to register far more exits in the form of liquidations than new entrants.

• OVERSEAS. SPX Rise as Cycicals/Tech bid; Higher Rates; Strong USD, No problem !   Market seems to have concluded that higher rates+strong economy is a workable outcome.
• JAPAN. NKY Futs +0.4% vs Cash; USDJPY weakens to 134.1; Weak Yen Narrative to dominate; Do not say to “Mr Yen” who sees 120 ;  BULLISH Inbound but priced in
• DAILY NUGGET. BayCurrent Consulting (6532) – Still lot of tailwinds..still BULLISH.

• Positive to PDD: Temu aired its commercial at the Super Bowl
• Negative to FUTU: Bright Smart Securities downsizing the mainland account
• Positive to BIDU: Updates on Baidu’s ChatGPT-similar product “ERNIE Bot”

• EMS – offers a four-fold opportunity over the medium term
• Know the risks and challenges to attaining this strong growth
• Read this note for opportunity, risks, incumbent positioning and valuations

• China’s Central Document No.1 emphasizes the need to boost the agricultural industry and improve well-being of the peasants. We see the directions positive for the agricultural sector.
• Direct beneficiaries are Sinofert Holdings (297 HK), China Xlx Fertiliser (1866 HK), First Tractor Co H (38 HK) and Xinjiang Tianye Water Saving Irrigation (840 HK). 
• Growing rural affluence is positive to BYD (1211 HK), Haier Smart Home (6690 HK) and Pinduoduo (PDD US), while cold chain network buildout is good to Shenzhen Intl (152 HK). 

• This note addresses the Business Institutional Furniture Manufacturers Association’s (BIFMA) Monthly Market Pulse (MMP) of incoming orders and sales for December 2022.
• Normally, ~50+ BIFMA member companies voluntarily submit monthly sales and orders to a national accounting firm that aggregates and reports composite data.
• Neither BIFMA nor any individual member ever has access to the raw data.

• WTR Sustainable Index: During the week ended February 10, 2023, the WTR Sustainable Index outperformed the broader market, rising 0.2% W/W versus the S&P 500 Index (down 1.1%), the Russell 2000 Index (down 3.4%), and the Nasdaq Composite Index (down 2.4%). Advanced Transportation Solutions (70% of the index) drove the outperformance, rising 1.7% , while Energy Technology (9% of index) was down 5.0% and Industrial Climate and Ag Technology was down 2.2%.
• Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 24.5x versus 18.4x for the S&P 500.
• Consensus estimates changes: During the week ended February 10, 2023, there were five increases (three in Energy Technology and two in Industrial Climate and Ag Technology) 2022 revenue estimates. There were decreases in 2022 revenue estimates for two companies each in Advanced Transportation Solutions and Industrial Climate and Ag Technology.

• OVERSEAS.  SPX close flat and keeps the 4100 support; CPI inline but Rates higher; USD stronger as Fed Hawks back out; Telsa +7% Bullish Initiation; Boeing Again-massive India order.
• JAPAN.  Nikkei Futures +0.5% vs Cash; USDJPY weakens to 133. 15;  BOJ Governor designate nominated but with weak GDP print, don’t expect much chg ST; Massive ShareBuyback  from  Idemetsu Kosan
• DAILY NUGGET. Global EV Sales in 2022  was $388 billion, +58%YoY. Is this what it will take to get to Japanese OEM to step on the gas ?

• Japanese consumer households continues to face significant barriers to spending post-Covid although there are clear signs of higher spending on categories like luxuries.
• The biggest barrier is inflation, particularly in essential categories like food where there were 20,743 item price rises in the 11 months to November 2022.
• Although wages have increased, much of the bounty is going into savings rather than higher spending.

• OVERSEAS. Beta Roars back as SPX regains 4100 support; All SPX sector positive(ex-Energy); CPI in focus as US 2Yr Yields still at 4.5%; Fed Pause or Acceleration-is the question
• JAPAN. NKY Futs +1.0% vs Cash; Yen Weakens to 132.45 vs US;  JGB at 2% next year ? So says Koll; Citizen Watch shakes things up with Massive Buyback
• DAILY NUGGET.  Buybacks been been certainly improving in Japan. But this action from Citizen Watch takes it to another level.

• Inbound tourism only got going again from October but the pent up demand to visit Japan has meant a surge in visitors. 
• Since many tourists also have stuffed wallets due to curtailed spending during the pandemic and the Yen is at very low levels, there is much higher spending. 
• Key beneficiaries are listed below among department stores, premium fashion stores and drugstores.

• Thirteen important departments formulated the “Work Plan for Supporting the High-quality Development of State-owned Enterprise (SOE)-run Medical Institutions”(the “Work Plan”), which reflects a significant change in government’s attitude towards SOE-run hospitals.
• The core goal of “Work Plan” is to make public medical system bigger and stronger.Changes will occur with the participation of central enterprises. It’s time to change the thinking mode.
• Government-Run hospitals/SOE-run hospitals are still the main force of China’s medical service market. Their status will be higher than that of private hospitals, whose development space would be further squeezed.

• OVERSEAS.  SPX  stays positive; Energy leads as Russia cuts oil production; CPI print in focus – as market looks for Fed Pause clues; TEREX – solid print/outlook..what Recession?
• JAPAN. NKY Fut -0.3% vs Cash;  USDJPY 131.36; Shock at Professor Ueda as BOJ Gov; Yen rallies then weakens post his Presser;  Govt to guarantee 15% margins for Defense suppliers?
• DAILY NUGGET. Fun take – ChatGPT on BOJ Governor to be Kazuo Ueda.

• We welcome the regulators’ formalization of financial asset classifications. This will gradually remove regulatory arbitrage and pave the way for further bank reintermediation.
• The new rules will likely have limited impacts on bond holdings that have active secondary markets, but illiquid debt investment plans will come under more intense regulatory and auditor scrutiny.
• We see an impact of 10-15bp on the listed banks’ reported NPL ratios. That said, a handful of banks may be at risk of capital shortages if the environment worsens. 

• The three companies we write about this week are L’Oreal SA (OR FP) , Electricite De France Sa (EDF FP) and 10X Genomics (TXG US) 
• For the twelve weeks since inception ended 10 Feb the combined innovation portfolio was +3.3%, versus DJIA +0.4%, S&P500 +3.2%, Nasdaq +5.1%, Russell2000 +3.7%, MSCI-ACWI-ETF +4.4%, all in US$ terms
• Researchers from The University of Queensland found the lion’s mane mushroom had a significant impact on the growth of brain cells and improving memory

• Microsoft news of rolling out ChapGPT into its Bing search browser and eventually into its Microsoft Office product suite has dominated the news cycle the past few weeks as AI computing has garnered Wall St.’s full attention.
• Within two months, OpenAI’s ChatGPT app has registered 100 million users – nearly one-third of the U.S. population.
• Microsoft has not hidden it plans to challenge Google search dominance and erode its existing market share.

• Global stocks generally headed lower in the week as investors fretted about the prospect of further Fed tightening. 
• Japanese stocks eked out a small gain on strong domestic earnings and robust corporate outlooks. 
• The yen strengthened after it was reported that Kazuo Ueda will be appointed as the next BoJ Governor. He is generally considered more hawkish than his predecessor. 

• 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:Indonesia GDP, Thailand inflation, Indian interest rates, Chinese inflation, Malaysian GDP growth
• Companies mentioned:Samsung Electronics (005930 KS), Baidu (9888 HK), Kakao Corp (035720 KS)

• Deal terminations return to the spotlight. The past couple of months have seen a pickup in abandoned IBC deals.
• Following nine deal cancelations in December, the second-highest monthly total in 2022 behind 10 in August, the first five weeks of 2023 have seen eight deals bite the dust—four in January and four in the first week of February.
• There have been 69 deal terminations, with an aggregate deal value of ~$90 billion since the start of last year.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Shawn Yang as he shares more about his top picks in the Chinese internet space. He’ll be touching on major players in the industry, the latest trends, and business opportunities of these major players.

The webinar will be hosted on Wednesday, 15 February 2023, 17:00 SGT/HKT.

Shawn has extensive experience in internet industry and investment banking and his research findings were published in well-known websites and media outlets. Shawn mainly covers China internet sector; he joined Blue Lotus in October 2015. Shawn has been frequently interviewed by various financial medias like CCTV, Bloomberg, WSJ and CNBC. Prior to joining Blue Lotus, Mr. Yang served as the director of strategy for CMGE, a mobile game company, and was responsible for strategic research and investor relations. Mr. Yang also worked for HSBC Asset Management and Goldman Sachs. Mr. Yang graduated from Tsinghua University with a bachelor’s degree and received his master’s degree from the Hong Kong University of Science and Technology.

• China’s luxury market contracted 10% in 2022, ending a five-year streak of growth as Beijing’s “zero-Covid” policy and a slowing economy hit spending
• Repeated Covid-related lockdowns starting in the second quarter curbed travel and consumption, with shopping mall traffic falling by 30% to 35%
• Sales at Hainan’s duty-free shops operated by state-owned China Duty Free Group Co. Ltd. were expected to drop 30% to 35 billion yuan ($515 million) last year.

• China’s top state assets administration imposed minimum prices for tickets on seven state-owned airlines, slamming the door on ultra-low-cost promotions launched as travel plunged during the pandemic
• The commission put a floor under prices to preserve and increase the value of state-owned assets and to pare operating losses, a senior industry insider said.
• The move is a way for SASAC to exercise its rights as a majority shareholder of the state-owned airlines.

• This article studies the dynamics of the market, the growth drivers, the camping industry chain, and the future opportunities and challenges of China’s camping business.
• After three years of following strict rules and reducing travel as much as possible, Chinese consumers’ desire for outdoor activities, social interactions, and new experiences has never been keener.
• These needs bolstered the flourishing camping business. Search volume for the term “camping” on the Chinese search engine Baidu has climbed to a higher level since May 2021, soared in May 2022, and remains higher than the four-year average level, according to statistics from Baidu Index. 

• GT (Cell and Gene Therapy) is a sector with high growth potential.
• CAR-T, as one of the main CGT currently, presents great value for both doctors and patients.
• This article showcases the industry pain points and opportunities faced in the CAR-T sub-sector.

• OVERSEAS.  Back to Macro US Equities Refocus on Rate rises; SPX breaches 4100 support; US 2Yr Yields hit 2.5% – need to watch this;  TESLA back as shares Px doubles!
• JAPAN. NKY Futs -0.2% vs Cash; USDJPY 131.62; New BOJ Governor nominees  by Feb 14; Apple/Google warned  by Japan FTC;  Earnings Festival: Positive TEL; Renesas; Nippon Steel
• DAILY NUGGET. Chart of the Day: Tokyo Electron(8035) share price has underperformed vs US Peer AMAT. BTE Results could close the Gap