In this briefing:
- Semiconductor WFE Outlook. Things Just Got Really Ugly
- The Letter.
- Seasonality of the Korean Stock Market: “Sell in May and Come Back in November”
- Singapore
- India – NPL Sale Is Not a Panacea
1. Semiconductor WFE Outlook. Things Just Got Really Ugly
SEMI, the global industry association serving the manufacturing supply chain for the electronics industry, published three different forecasts for wafer fab equipment (WFE) sales in the past week. While the forecasts differ in approach and detail, they all agree on one thing, WFE revenues are continuing to fall and the outlook for 2019 is sharply down on previous estimates.
Specifically, Q4 2018 WFE revenues are set to decline 20.8% or $3.3 billion QoQ and the forecast which had just six months ago predicted 7% growth in 2019 is now calling for an 8% decline next year.
These latest forecasts cast a dark shadow over the predictions of the leading WFE manufacturers that H1 2019 would be stronger than H2 2018 and we anticipate a strong downward revision of forward guidance in the upcoming earnings season.
There may be a glimmer of hope on the horizon however as SEMI forecasts a strong rebound in the second half of 2019 leading to a return to growth of ~20% in 2020. Let’s see.
2. The Letter.
Starbucks partners with Uber Eats in U.S. Could co-living transform the residential REIT market? Dollar stores could face new competition as Lyft & Sun Basket seek to bring oasis to food deserts.
- U.S. Dollar Stores: Dollar General and Dollar Tree, which target low-income consumers living in food deserts, may face rising competition through health initiatives such as Lyft’s to give low-income families living in food deserts subsidized rides to grocery stores and online healthy meal kit Sun Basket’s partnership with a major insurer.
- Residential REITs: Just like co-working is transforming the office market, could co-living transform the residential real estate market? Medici Living Group, a PropTech company launched in Berlin in 2012, has received a €1B investment commitment over the next five years from Corestate Capital Holding SA to develop 35 co-living properties across Europe.
- Starbucks: Starbucks’ new strategic partnership with Uber Eats to bring delivery to 2,000 U.S. restaurants provides further evidence of how it is making aggressive moves to better originate and capture value.
Adam’s face beams as he stands on his tippy toes to reach the mailbox, clutching his precious letter in his mittens. I smile as he excitingly shares with me how his letter is on its way to the North Pole and how the elves will soon be at work, building his Rescue Bots Transformer in Santa’s workshop. As he speaks, I can’t help but think about how visionary Santa Claus’ business model is. First, Santa is DTC (direct-to-consumer) as he manufactures the toys in his workshop and personally delivers them in his sleigh to kids’ homes all over the world on Christmas Eve. Second, Santa is C2B (consumer-to-business) as kids place their orders ahead of time with him, either in person when they sit on his lap to pose for the annual photo with Santa, or by writing a letter or e-mailing him, which guides toy production and logistics. And according to Jack Ma, the new e-commerce trend is C2B.
3. Seasonality of the Korean Stock Market: “Sell in May and Come Back in November”
In this report, we analyze the seasonality of the Korean Stock Market using KOSPI index from 1998 to 2018. Our analysis suggests there is a clear seasonality in the Korean stock market. “Sell in May and Come Back in November” is the best strategy for KOSPI, according to our analysis.
From 1998 to 2018, KOSPI was up on average 12.0% from November to April (6 months). For example, $1 million invested in KOSPI, generating a 12.0% per year (excluding taxes and transaction costs) using the seasonality strategy (buying KOSPI at the beginning of November and selling it at end of April) would have generated $10.8 million at the end of 21 years. In comparison, KOSPI was down on average 0.8% from May to October (6 months) from 1998 to 2018.
How About This Year? So far, “Sell in May and Come Back in November” strategy would have worked out well in Korea. For example, KOSPI was down 19.3% from end of April to end of October 2018. KOSPI is up 1.6% from end of October to December (as of 18th). Right now, the biggest impact to the direction of the global stock markets in the next several months will likely be determined in the last meeting of the US Federal Reserve on December 18th to 19th. A few high-profile investors such as Paul Tudor Jones have recently mentioned that the US Fed will not raise interest rates in 2019. A more dovish tone by US Fed Chairman Jerome Powell on the extent and pace of the future interest rate hikes in 2019 could set the tone for a turnaround of the global equity markets, including KOSPI, in the next few months.
4. Singapore
Singapore developers sold a total of 1,198 private new homes in November 2018, 146% m-o-m increase and 53% y-o-y increase. This made November sales number to be the second highest month in 2018 so far. The top three best selling projects of the month are Parc Esta, Whistler Grand and Kent Ridge Hill Residences. Looking forward, we believe the sales number in the whole 2018 is unlikely to exceed that of 2017.
5. India – NPL Sale Is Not a Panacea
Selling bad loans to the government, and asset management company or to a distressed loan buyer is not necessarily a remedy to the crisis for India’s banks. This is because their non-performing loan (NPL) levels are high compared with their buffer to absorb losses, e.g loan loss reserves and capital. Where it is rare to know about the selling price of NPLs in any market, there is news out today of a large NPL sale at 24 cents on the dollar. The market is not India, rather Indonesia, but this only raises concerns further: it is more likely that an NPL divestiture in India yields a worse price than in Indonesia. This is due to wildly different NPL trends and NPL levels in each country.
