Brief Thematic: 2019 Semiconductors: 5%+ Decline and more

In this briefing:

1. 2019 Semiconductors: 5%+ Decline
2. Korea Stock Market Monthly Recap #32 (January 2019)
3. Japan Stock Weekly
4. Indonesia Property – In Search of the End of the Rainbow?
5. A Simple Model that Could Take OECD US GDP Forecasts to Predict the US Dow Jones Index Level?

1. 2019 Semiconductors: 5%+ Decline

An earlier post outlined the general direction of the Objective Analysis 2019 forecast but didn’t provide any numbers.  In this post I explain the 5%+ decrease in revenues that the market will experience and how and why various elements play into that number.

2. Korea Stock Market Monthly Recap #32 (January 2019)

Korean stock market surged in January with KOSPI up 8% this past month. KOSPI was led by the market leaders including Samsung Electronics (005930 KS), SK Hynix Inc (000660 KS), and Hyundai Motor Co (005380 KS), whose share prices were up 19%, 22%, and 9%, respectively in January. There were several high-profile, M&A announcements including the potential sale of Nexon founder’s stake as well the consolidation of DSME with Hyundai Heavy Industries. The market also received strong additional boost from the dovish comments from the US Fed Chairman Jerome Powell. 

The top 10 events impacting the Korean stock market, economy, & politics in January were as follows:

• Consolidation of the Korean shipbuilding sector
• Nexon’s founder wants to sell 
• Strong rebound of KOSPI 
• More dovish statements from US Fed Chairman Jerome Powell
• The fight over Hanjin Kal/Korean Air with KCGI and potentially NPS 
• BGF & BGF Retail 
• UMC’s announcement that it will significantly scale down memory development partnership with China’s JHICC
• Amorepacific Group (002790 KS)/Amorepacific Corp (090430 KS) 
• Samsung C&T (028260 KS) likely to benefit from the restructuring of the fashion business unit
• Trump’s second meeting with KJU in late February 

The top three reports we wrote in January related to the Korean market were as follows (in terms of views & appreciates): 

• Korea M&A Spotlight: Nexon’s Founder Plans to Sell; Will Tencent Buy Nexon?
• Korea M&A Spotlight: Will the Nexon Group Sell the Korean or the Japanese Company?
• Korea M&A Spotlight: Saudi Aramco Plans to Buy Up To 19.9% Stake in Hyundai Oilbank

Also, please take a look at our in-depth analysis of TSMC: A Bear Investment Case for TSMC (In-Depth Version). 

3. Japan Stock Weekly

NGK Spark Plug (5334) – results in line, the shares are very cheap. The business should should continue to see steady growth – BUY

Foster (6794) – upward for the full year. This is nonetheless a poor year for the company but it is addressing this and earnings will bounce next year. 

M&A Capital (6080) – results much better and expected, and after poor second have next year, mainly due to timing of bookings, growth set to continue. 

Vector (6058) – BUY – this PR agent is oversold but growing fast. 

4. Indonesia Property – In Search of the End of the Rainbow?

The Indonesian property sector has only had a few glittering moments in the sun over the past five years, since the boom times of 2012-2013. The sector continues to trade at near record discounts to NAV despite the back-drop of record-low mortgage rates, rising affordability and high levels of pent-up demand. In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

In this series of Insights we will discuss in depth:

• The drivers to the property sector, including the economic drivers, with a more benign outlook on interest rates, overall supply and demand, correlations to mortgage rates, the currency impact, construction costs, regulation and tax law change over the years and the influx of foreign developers and potential buyers. 
• The profiles of the biggest players in each segment of the property market. We will also map out the details of each company’s location, accessibility, and longevity of their land bank.
• How each development is interconnected and how it benefits from new infrastructure projects, such as the new toll roads or MRT, or LRT projects, and the rise of the T.O.D. (transport orientated development). 
• Each developer’s target segment, whether they are focused on landed township developments, high rise, mixed-use, or industrial developments, and how each segment fared during boom time (2012-2014) or bust (2015-2018).
• How much of each developer’s revenues are coming from recurrent investment property sources such as the office, hotel, or retail properties, and which have the biggest proportion of speculative buyers versus end-users?

Last year saw a pick-up in sales activity for most developers but the question is can this be sustained going forward? With a more benign outlook on interest rates and a less hawkish tack from Bank Indonesia for 2019, the potential for positive regulatory changes to support the property sector, and a potential post-election tailwind from May onwards, there are good reasons to revisit this beaten up sector. 

5. A Simple Model that Could Take OECD US GDP Forecasts to Predict the US Dow Jones Index Level?

Following on from last months publication that gave a brief introduction into the viability of constructing a model using machine learning techniques that can predict the direction of daily moves in the European high yield index using data from the previous trading day. 

In this months note, we have taken a step back and constructed a simple model using traditional statistical techniques that use GDP forecasts to predict moves in the Dow Jones ETF’s.

Over the coming months, we will endeavor to show how data science can be used as an integral part of the investment management process and highlight its advantage over basic statistical modeling techniques traditionally used in finance.

With further modeling and analysis to confirm this basic investigation, investors may be able to use this information in their asset allocation decisions and profit from equity market beta-selection.