Thematic (Sector/Industry)

• Overseas: SPX +0.1%; Stocks drift higher; 10Y Treasury yield at 3.8%; Biotech stocks surge
• Today: NKY Futs -0.5% v cash. JPY141.5; Daihatsu Motor could face over ¥100 billion in losses
• Markets: Japanese business leaders foresee 5% wage hikes in FY24, driving sustained growth.

• The Vietnamese government is in the midst of a campaign to eradicate corruption in its domestic real estate industry, which has seen bribery and embezzlement amounting to close to 3% of the country’s gross domestic product (GDP).
• Despite the high-profile corruption cases that have brought the sector’s financing channels to a standstill, the aggregate credit risk profile of the Vietnamese real estate industry has largely improved in recent months, after deteriorating, on the back of widespread monetary policy support from the Vietnamese government.
• The troubled sector saw a spike in its Criat credit cycle index (CCCI) since the middle of last year when deleveraging efforts for the industry by the Vietnamese government were first announced.

• We provide evidence based analysis of real residential property price indices in five major Asian countries/regions versus their stock indices including South Korea, China, Hong Kong, Australia, and New Zealand. 
• Most of the peak in real residential properties of these countries occurred in 3Q 2021 to 1Q 2022.
• If the real residential property prices continue to drag the overall economy in these major countries, this is likely to have a negative impact on their stock markets next year. 

• The oversupply of 8″/12″ mature technology and price war especially within China for the next 5 years is inevitable, especially negative for SMIC and Hua Hong Semi.
• Production moving out of China semi demand might increase to 65-70% in next five years to benefit Globalfoundries, UMC, Vanguard, Powerchip mitigating impacts from rising domestic replacement in China.  
• By building up in-house fabs, Huawei and HiSilicon supply chain vendors will be benefited the most like semiconductor equipment, material, fab construction, CoWoS interposer, and CoWoS packaging vendors.

• ATAT/600754 CH: Hotel industry update – Jinjiang disclose Oct-Nov RevPAR recovered to 105% of 2019, slightly better than industry average.(+)
• 1211HK/LI/XPEV/NIO: Huawei Harmony Intelligent Mobility Alliance to establish independent stores(-)
• ZLAB/ ARGX:  Efgartigimod failed two late stage indication trials (-)

• 700HK/ NTES/ BILI:  The NPPA has released a draft for public opinion on the <Internet Game Governing Measures>(-/-/-)
• 700HK/ NTES/ 002624CH/ 300299CH/ BILI:NPPA Announced December Imported Game Code Approvals(////+/+/+)
• AMAZ/ SHEIN/ TEMU: Local merchants reportedly unhappy with some new AI features on Amazon (-/+/+)

• It was a slightly negative week for most cannabis stocks, with the US-cannabis MSOS ETF dropping 2.11% and the global YOLO ETF ending exactly flat.
• MSOS was -8.87% for the first four days of the week, then presidential pardons and Schedule III speculation sparked a rally.
• On Friday, President Biden issued a proclamation to begin pardoning certain cannabis offenses.

• Data from Trip.com Group (9961 HK) showed good improvement in travel demand for the 2024 New Year holidays. The volume of various orders has surged between 2x and 5x YoY. 
• Aggregate net profit for the tourism and hospitality sector has turned around to Rmb20.4bn in 3Q23, from losses of Rmb24.7bn a year ago, demonstrating solid profitability recovery.
• An average of 32% drop in the sector’s share price YTD is unjustified. We like Tongcheng Travel (780 HK), Air China (H) (753 HK) and Fosun Tourism (1992 HK).  

• Overseas: SPX +0.2%; PCE 3.2% v 3.3% exp; Nike -12% on job cuts, tough macro
• Today: NKY Futs +0.3% v cash. JPY142; Japan approves fiscal budget; Nexon ADR steadies after China game rout
• Japan: Dalton’s Xmas greetings to management & three shareholder proposals: effective capital allocation, strong alignment of interest, and a board with high independence and diversity

• For segments we cover — express, containers, tourism — 2023 was challenging
• In this note we highlight each segment’s key trends and themes from 2023
• We conclude with a look at 2023 share performance and a peak into 2024

• A new COVID variant JN.1 is spreading fast. WHO has classified JN.1 as “variant of interest” due to its “rapidly increasing spread.” Thus far, JN.1 has not caused severe infection.
• Symptoms of JN.1 may not be as mild as Omicron variants. If JN.1 becomes deadlier and more infectious, diagnostics and vaccine players are going to be benefitted primarily.
• In this insight we have discussed two Asian vaccine companies and one diagnostic company, which should be kept in the watchlist.

• Market Wrap: Japanese equities edged higher. Easing inflation, BoJ’s dovish stance and Wall Street optimism influenced the market. Industrials and basic materials best sectors. 
• Major Movers: Shipping disruptions benefit container plays; Shiseido plans reforms to cut ¥40 billion; China’s gaming crackdown hits Tencent, NetEase, triggering concerns for Nexon.
• Activist Watch: No new activist holdings to report. However, several funds continue to build stakes in existing holdings. 3D Investment Partners drinks up some more Sapporo shares

• NIO/1211 HK：Germany ended EV subsidy, impacting Chinese makers little for now (-)
• LI/NIO/XPEV/300274 CH/300750 CH/601012 CH/JKS: China customs export data for November (-)
• LKNCY :  “ Thailand Luckin ” countersues Luckin Coffee  (/)

• 700 HK/NTES: Tencent’s <Dream Star> achieved excellent results upon its launch.(+/-)
• Temu/Shein/AMZN: Government newspaper reports that Temu merchants are developing their own brands (+/-/-)
• 3690 HK: It is rumored that Douyin will acquire Eleme with an offer price of US$7bn(-)

• The 2023 vintage of “5 High Conviction Ideas” was commodity heavy with 4 of our 5 picks coming from this sector. Three out of five declined between 15-25%. 
• Our best performer was unloved Mongolian Mining (975 HK) which returned 234% even beating NVIDIA Corp (NVDA US) YTD performance.  Miracles happen: Coal mining beats AI.
• Our 2024 vintage of top ideas for the year will hopefully have a higher hit ratio. See below for more details which are our five high conviction ideas for 2024.

• Overseas: SPX +1%, Micron +8% after the chipmaker revealed a bte Q2 revenue forecast and higher prices in 2024
• Today: Japan’s domestic M&A spending has surged to an 18-year high in 2023
• Japan: Luxottica continues to build a stake in Paris Miki. It could be interesting if the family want out.

• There are many high dividend-yielding U.S. stocks. However, taxes on dividends are complex, qualified dividends max at 20%, non-qualified max at 37%, and foreigners max at 30%   
• These high-yielding stocks appear unloved and didn’t move much in tandem with the U.S. indexes, suggesting a potential laggard investment opportunity 
• If you have made your bounty from the market surge and looking for safe shelter among the laggards and dividend payers, the U.S. might just be the place for you 

• A weekly curated selection of Chinese news articles and company announcements focused on developers in distress
• We look for their deals, updates, specific project progress news (‘local signals’), as well as relevant local research commentaries about the market
• We do not verify the underlying data or provide any opinion, we only select and summarize the information; See direct links to sources

• As expected, SOX index broke a new high, in line with Nov US semi equipment billings and Oct SIA/WSTS global sales y/y improvement.
• SEMI reports Nov front/back end equipment billings decline of 9% and 11% y/y, respectively, which was improved from 14% and 17% y/y decline in Oct, implying recovery intact.
• WSTS/SIA earlier reported Oct sales of US$46.6bn, up 3.8% m/m and down only 1% y/y (vs. 16% decline in June), suggesting semi sales y/y improvement and clearly pass the trough.

• 2023 was great for the airlines, strong passenger demand provided high load factors and yields, coupled with lower fuel price trend in 2H23 is a virtuous combination for strong profits
• However, there were plenty of challenges, some remain unsolved such as aircraft shortage, aircraft reliability issues, and airspace closure due to geopolitics   
• The outlook for 1H24 remains solid, demand is strong and so are yields. Operationally, things are slowly getting more efficient. For 2H24, it is too early to say 

• Improved sentiment in Asia Ex-Japan Autos sector as sustained increases in positioning continue through 2023.
• BYD Company most widely held but stabilizing; Li Auto sees increased buying. Sector 7th most owned, underweight by -0.85%.
• Rising Allocations, Low Historical Positioning and Net Underweight Suggest Potential Continued Demand for Auto Stocks

• Overseas: SPX -1.5%; Stocks tumbled as investors locked in profits, ending the Dow and Nasdaq’s nine-day gains. FedEx’s disappointing outlook contributed to the index’s worst day since September.
• Today: NKY Futs -1.9% v cash. JPY143; Yamaha Motors faces slowdown in US; Toyota recall; Chugoku to sell excess Uranium
• Japan: Panasonic walked away from Oklahoma’s $698M battery offer, sparking concerns over megaproject subsidies and corporate gamesmanship.

• Objective Analysis has released its 2024 semiconductor forecast, calling for growth of below 5%
• Other forecasters currently call for 11% to 17% growth, which would require another super cycle to accomplish
• We do not see any event that will drive a 2024 super cycle, even with the current rapid adoption of AI in the data center

• Despite ongoing recovery and fading effect of the COVID-19, 2023 was not a smooth sailing for the healthcare companies. All the countries and sub-sectors did not perform equally.
• As we are heading into 2024, let us look back on the performance of some of our global healthcare stocks recommended throughout 2023.
• LianBio (LIAN US) remained the best performer with 93% return in nearly eight months. Global Health (Medanta) (MEDANTA IN), top pick for March 2023, generated 79% return in nine months.     

• The Boston Federal Reserve put out a short white paper on the Silicon Valley Bank crash and the accounting for debt securities known as held-to-maturity or HTM.
• It’s a nice short read and got me thinking about this issue again, which I examined back in May in Issue #100 (link below).
• The question, which has not definitively resolved itself in academia or policy circles, centers around bank accounting and whether banks should be allowed to value bonds they’re not planning on selling (hence the term held-to-maturity) based on amortized cost.

• Among bigger cap GEM banks, we pick four longs and one short as our conviction calls for 2024
• Our core buys are Bank Mandiri from Indonesia, KB Financial from South Korea, China Merchants Bank and Banco do Brasil
• Our key sell is Kotak Mahindra Bank from India which is richly valued, exposed to low prospective earnings growth and has low credit quality coverage

• Semicap is strong, Subsystems are not. That will change.

• I think Mks Instruments (MKSI US), Ultra Clean Holdings (UCTT US), and Ichor Holdings (ICHR US) are likely good 12+ month longs as NAND spending increases, and they blow out estimates for multiple quarters in a row.
• The factor-driven size difference drives the opportunity, and they should benefit well on a relative basis next year.

• Overseas: SPX +0.6%; Dow +250pts; Energy stocks outperformed on rising oil prices amid Red Sea disruption
• Today: NKY Futs +0.3% v cash. JPY143.9; BoJ maintains policy stance; NTT/TEPCO to build new data centre
• Japan: Amidst the holiday cheer, we wonder if it is time to take away the punchbowl at Sapporo?

• TCOM/HTHT/ATAT: China Tourism – OTA platform DAU remain lackluster, weak year end travel demand (-)
• MNSO: Korea’s top dollar store chain Daiso buys out Japanese shareholder (-)
• 9995HK：Harbour BioMed have signed an exclusive licensing agreement with Pfizer of a mesothelin (MSLN) antibody-drug conjugate (ADC) (-) 

• 1024HK：Kuaishou will charge merchants for using the “Buy now, Pay later” marketing tool (+)
• PDD/ BABA/ Shein: Extra color on PDD’s Shein lawsuit (+/+/-)
• PDD/ BABA: Nike rumored to launch official outlet store on PDD (+/-)

• The WTR Sustainable Index was up by 4.6% W/W versus the S&P 500 Index (up 2.5%), the Russell 2000 Index (up 5.5%), and the Nasdaq Index (up 3.3%).
• Energy Technology (14.4% of the index) was up by 13.8%, while Industrial Climate and Ag Technology (50.2% of the index) was up 4.0%, ClimateTech Mining was up 2.4%, and Advanced Transportation Solutions was up 1.5%.
• Top 10 Performers: VIEW, XOS, SUNW, TPIC, INVZ, RUN, MAXN, COMM, LAZR, AEVA

• Government policies compel Japanese companies to embrace shareholder-friendly practices, adherently engaging in regular dividend payments and executing share buybacks  
• The quick way to boost shareholder value is via share buybacks, but the efficacy diminishes as the price-to-book ratio increases, whereas the appeal of dividends continues to strengthen
• Japan is the BEST destination for sourcing high-quality blue-chip companies with promising prospects that consistently pay reliable and high dividends

• FT article uncovers other contributors to surging air freight rates—Chinese online brands Temu and Shein are flooding Western nations with fast fashion and inexpensive e-commerce goods  
• The biggest beneficiaries are Chinese carriers with significant air cargo exposure, and Cathay Pacific. This presents a potential catalyst for an earnings beat and a boost to the share price.
• Carriers from Taiwan and South Korea will benefit from supply tightness to the U.S.. Logistics providers are unlikely to benefit much due to tight margins and volatile high freight rates 

• Overseas: SPX +0.5%, M&A action drives market higher. Fed talks down interest rate cuts.
• Today: NKY Futs -0.1% v cash. JPY 142.9; Japan’s FSA wants to overhaul tender offer rules; Mit Elec to step up cross-share unwind
• Japan: Nippon Steel’s $15bn acquisition of U.S. Steel is a bold move; it secures a top-three global position & substantial share in the EV e-steel market.

• With Singapore bank’s negative credit growth now at -4.7% YoY in the latest available month of October, there is increased risk of worsening net interest income growth.
• Over the past several months the severity of worsening domestic credit growth in Singapore is acute moving from +8% YoY in May to -5% YoY in October.
• OCBC and DBS saw net interest income delta essentially flat YoY, while for UOB net interest income delta was well lower. 2H23 can be far worse for all.

• There is more optimism about headline inflation but for the average Japanese consumer, there are major concerns given the 9% spike in food inflation.
• Surveys suggest that households reduced shopping frequency for daily needs consumer goods by about 10% in the first nine months of 2023 alone.
• Retailers, meanwhile, are taking steps to reduce prices where they can, creating a widening gap between retailers with the capacity to lower prices and those that can’t.

• China hopes to establish the new before abolishing the old, which means after new industries bring new growth drivers to new economic structure, it’s time to abolish the old model. 
• China wouldn’t carry out aggressive stimulus, but attach importance to the quality and efficiency of policies. The country’s top leaders do not agree with the current phenomenon of so-called “deflation”.
• Expansion of effective demand will inevitably involve the reforms of tax/financial system and the role of national capital in development. The economic theoretical basis of China’s future development deserves attention.

• Stocks have had a few good weeks and last week was another. The furniture/furnishings group has focused on restoring and defending margins.
• The “rolling recession” rolled over the sector this year. Despite sales pressure, earnings improved for the best in the group, notably the commercial/contract names, residential manufacturers, and select retailers.
• Costco, which includes furniture in its broad merchandise mix, reported 1QFY24 revenue of $57.8 billion, matching estimates. 

• Housing is a permanent source of anxiety for everyone and a perennial source of interest.
• The current housing market is uncertain and facing long-term structural issues.
• The Fed’s attempt to cool down inflation by raising interest rates has impaired the supply side of housing and worsened housing affordability.

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• In a week with lower news flow and volume, cannabis stocks drifted lower.
• The US cannabis MSOS ETF dropped 10.86%, while the global YOLO ETF lost 8.23%. YTD, MSOS and YOLO are down 4.86% and 19.44%, respectively, indicating the relative outperformance of US cannabis stocks versus their global (primarily Canadian) peers.
• Glass House Brands (NEO: GLAS, OTCQX: GLASF) inched up 1.09% last week and is now +142.40% YTD.