Thematic (Sector/Industry)

From September to October, Desertfox spent 1 month in Riyadh, the capital of Saudi Arabia. This is the final piece concluding a two-part Series covering Desertfox’s recent trip to Riyadh, during which he gained interesting insights into how Saudi Arabia’s soft power push translated to real life experience working with the Saudi public sector, how this might benefit a Hong Kong-listed proxy, and the notable rise of Chinese automakers on the Kingdom’s streets.

• Overseas: SPX +2.5% on week; Equities notch seven consecutive weeks of gains
• Today: NKY Futs -1% v cash. JPY 142; Japan capex surges to record; Tax incentives for wage hikes
• Japan: Japan, Italy, and the UK sign a treaty for the Global Combat Air Programme, crafting a supersonic stealth jet. Key Japan partners – MHI & Mitsubishi Electric

• The CSI 300 Index and MSCI China Index are down 14% YTD, the third consecutive year of decline, and is the world’s worst-performing major market
• Many high-quality stocks trade at bargain valuations, but investors ignore earnings and focus on news flow and policy clarity 
• High yielding stocks could be the best defensive shelter while waiting for sentiments to improve and for fundamentals to take center stage in investment decisions again  

• The latest China housing metrics remain weak, ‘less negative’ by some 12M measures, in line with our forecast from December 2022 data, but watch out for some major data twists
• The expanding easing of policies is still far from a major stimulus, and the ‘whitelist’ to support certain developers indicates a selective approach by the policymakers, focused on “risk prevention”
• The market for new home sales (mostly pre-sales) diverges from the secondary market, and the policy steers toward affordable housing, public facilities, urban village renovation

• Looking back, March 2023 presented a significant “wobble” to the U.S. Federal Reserve’s monetary policy tightening campaign as the sudden bank failures, the largest since the 2008 financial crisis, of Signature Bank and Silicon Valley Bank in particular, caused the Fed to step in as customers rushed to withdraw their deposits while these banks did not have enough liquid funds on hand to satisfy those customers’ cash requirements.
• One reason for these bank failures was that normally safe investments in U.S. Treasuries, purchased at the highs, began losing money due to their duration mismatch as interest rates were rapidly increased by the Federal Reserve.
• In came the Fed’s BTFP program to the rescue which was setup to eliminate a financial institution’s need to rapidly sell securities, and is open to federally insured banks, savings associations, and credit unions, as well as the U.S. branches of foreign banks.

• AMZN/PDD/Shein: Amazon launches new supply chain solution for China merchants (+/-/-)
• JD/2618 HK: Richard Liu Qiangdong responds to article written by internal employee (+/+)
• 772 HK/700 HK: Yuewen will acquire Tencent Comics business line and related IP for 600 million RMB. (+/+) 

• Market Watch: Japanese equities made minor gains as US Fed indicated potential rate cuts in 2024. BOJ next week, but no changes anticipated
• Major Movers: Outsourcing leaps on MBO; Advantest +15% as Semicon Japan gets underway; Ibiden beneficiary of improved tech sentiment
• Activist Watch: New positions for Murakami in Glosel; Nippon Active Value watching Fuji Media more closely; fresh interest in Goodspeed, the car dealer

• 9995 HK：Chinese BsAb ADC developer wins US$8.4 billion license out deal from Bristol-Myers Squibb(-)
• LKNCY: Luckin Coffee raised subsidy to franchisees in winter season(-)
• 1211.HK/300750.CH: LGES signs multi-hundred-million dollar contract with Poland electric bus manufacturer(-)

• Overseas: SPX +0.26% as treasuries tumbled; Big Tech underperforms; oil +3%
• Today: NKY Futs -0.2% v cash. JPY141.9; CVC Capital Acquires Sogo Medical for $1.2bn; Japan Machinery Orders +0.7% MoM; Honda ends production of Honda e.
• Japan has climbed from fifth to second place in the Asian Corporate Governance Association (ACGA) biennial CG Watch survey.

• 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

• IRDAI has released an exposure draft proposing a substantial  reduction in surrender charges on Non-Par Guaranteed Life Insurance Products
• The move aims to the remove penalizing surrender charges prevalent on Traditional Savings products with guaranteed RoI; this is the latest of moves aimed to improve policyholder protection
• All life insurers are negatively impacted  SBI Life Insurance Co Ltd (SBILIFE IN)HDFC Life Insurance (HDFCLIFE IN)ICICI Prudential Life Insurance (IPRU IN)Life Insurance of India (LICI IN) 

• Overseas: SPX +1.4%; The Fed’s “dot plot” of individual members’ expectations indicates four cuts in 2025
• Today: NKY Futs -0.2% v cash. JPY143; KIshida shuffles Cabinet; Recruit 200bn yen share buyback; Suzuki to split stock
• JapanX: Rohm’s multi-billion-yen investment in SiC power chips takes advantage of government support for chip industry

• In early December 2022, Chinese authorities relaxed many Covid-19 restrictions
• A year in, the recovery in Chinese tourism activity has disappointed, so far
• Similarly, most Chinese tourism stocks have performed poorly over the last year

• Indian pharmaceutical companies started FY24 on a strong note. Due to better pricing environment, drug shortages, and new launches, sector heavyweights reported double-digit revenue growth from U.S. business.
• Price erosion has come down to high single-digit from their peak of mid-teens. Despite the rise in number of ANDA approvals from the US FDA, Indian companies continued their dominance.
• Indian pharmaceutical companies have accelerated the filing pace. With shorter timeline of approval, the companies are witnessing a spike in number of approvals. Regulatory risk remains the main downside risk.

• Back to the peripheries. The past two years have seen a significant retreat in investor interest that has all but brought SPACs back to the peripheries of the investing world.
• Traditional IPOs have been restored as the vehicle of choice for private companies to go public.
• SPAC IPO famine. Into the final month of the year, 2023 can be best summed up as an acceleration of the negative trends seen in 2022.

• Overseas: SPX +0.5%; US Consumer prices +3.1% YoY; Oracle shares down -12% after Q2 miss
• Today: NKY Futs flat v cash. JPY 145.5; Renault initiates the sale of a 5% stake in Nissan
• Murakami takes 5.9% stake in Glosel; Macnica’s bid was too cheap. Expect a bump

• BABA/MELI/PDD/Shein/1519 HK: Cainiao launches charter flight route to Mexico (+/+/-/-/-/)
• 700 HK: Tencent gaming studio <Level Infinite> announced 4 new games at The Game Award 2023(+)
• BABA/Temu/Shein/CPNG/SE/AMZN/MELI: Alibaba plans to launch LLM AI-powered <1688> in South Korea(+/+/+/+/+/-/-)

• BABA/TCOM: China Tourism – Singapore and China to establish mutual 30-day visa exemption (+)
• NIO: NIO Auto to spin off its battery manufacturing business for financing (+)
• HTHT/ATAT: China Tourism Update – Chinese Embassies abroad temporarily reduce visa fees (+)

• We are recommending to go long on Gland Pharma Ltd (GLAND IN) and short on Syngene International Ltd (SYNG IN). 
• Gland Pharma, with its niche focus on generic injectables is expected to be outlier, while Syngene, with substantial exposure to early-stage biotech research will continue to have muted performance.
• Over the last six months, Gland Pharma shares rallied 83%, while Syngene International shares declined 5%. We expect the performance gap between the two companies will widen further.

• 2023 was the year of Uranium. Both the underlying commodity and most uranium equity-linked stories performed strongly.
• 2024 will be the story about copper and supply side issues becoming front and center as the “energy transition” benefits copper usage.
• Buy a basket of junior copper companies with high M&A likelihood such as Los Andes Copper Ltd (LA CN), Solaris Resources (SLS CN), Arras Minerals (ARK V EQUITY), and Entree Resources (ETG CN). 

• Jet fuel price has declined in the past two months and is 20% lower than the September peak. Positive for airlines but we have yet to see any earnings upgrade   
• All the Chines state carriers (Air China, China Eastern and China Southern) and Taiwan’s EVA Airways are unhedged, benefiting the most from this lower fuel price trend 
• Worst off due to fuel hedge cover at higher than current market prices are Qantas Airways (75% hedged), Air New Zealand (54% hedged) and Japan Airlines (40% hedged)  

• Overseas: SPX +0.4%, Fed meeting & CPI today; Macy’s +19% on buyout plan;
• Today: NKY Futs +0.8% v cash. JPY146.2; TSE asks companies to improve disclosure on subsidiary companies
• JapanX: Rohm’s multi-billion-yen investment in SiC power chips signals takes advantage of government support for chip industry

• There are few banking systems in the world or in Asia-Pacific that show such a steady but significant reduction in bad loans as in India.
• Credit costs can remain subdued for sometime with better NPL levels and this can also lead the way to better loan volume, as loan officers take on more risk.
• Banking penetration remains incredibly low in India compared with almost all countries in the region, and this means that there can be sustained robust growth.

• Hooker Furniture results highlighted the past week in the furniture/furnishings space.
• Hooker reported EPS of $0.65 on sales of $116.8 million, both ahead of FactSet consensus estimates of $0.28 and $116.3 million, respectively.
• A year ago, Hooker reported EPS of $0.42.

• The WTR Sustainable Index was down by 0.4% W/W versus the S&P 500 Index (up 0.2%), the Russell 2000 Index (up 1.0%), and the Nasdaq Index (up 0.5%).
• Energy Technology (13.2% of the index) was down by 3.8%, while Industrial Climate and Ag Technology (50.5% of the index) was up 1.1%, ClimateTech Mining was down 1.6%, and Advanced Transportation Solutions was down 1.8%.
• Top 10 Performers: VIEW, CPTN, LILM, ALTA, SPI, FE, WBX, PEV, EGT, CMC

• It was another strong week for cannabis stocks, with the US cannabis MSOS ETF and the global YOLO ETF gaining 7.65% and 5.65%, respectively.
• MSOS is now +7.62% YTD and +53.91% since the HHS recommended Schedule III on August 29, 2023.
• The MSOS ETF had $29,340,300 in inflows this week. Some large investors are waiting for the DEA response prior to pushing in their chips, but others are comfortable increasing allocations in advance. 

• Overseas: SPX +0.4%, Nasdaq +0.4%; Six weeks of gains on strength in the job market
• Today: NKY Futs +0.7% v cash. JPY145/$; Private Equity interest in Tsuruha; Rohm & Toshiba JV on SiC chips
• JapanX: iQPS, a leader in small satellite SAR technology, recently debuted on the Tokyo Growth Market, securing funds to expand and provide vital real-time data for national security.

• More clear y/y improvement for 8/12″ raw wafer, WiFi IC, GaAs RF/VCSEL, and memory vendors but more y/y deterioration for OLED/LCD driver, LCD panel, design service, equipment/materials, and foundry vendors.
• GaAs RF and gaming GPU card vendors showed very impressive y/y sales growth of 54% and 63%, respectively. ABF substrate vendors showed the weakest sales decline of 34% among all.
• Except A Data (+2.5% m/m) and Phison Electronics (+5.6% m/m) might see stronger share price to reflect stronger November sales, most of others see good/bad news in the price already.

• Based on Fisher’s Law M*V=P*Q, the interest rate hikes in the US and management issues in China have led to continuous decline of V, thus forming the illusion of deflation.
• The Fed’s rate hike is nearing its end. The huge amount of dollars need to be matched with corresponding assets. The only place with a matching assets pool is China.
• If there’s a serious economic stagnation, recession, combined with hyperinflation, there may be a historic great depression. How China will respond is the key to determine the future global landscape.

• Cybertruck was first conceptualized by Elon Musk in 2012. Its design epitomizes the Tesla spirit of achieving jaw-dropping engineering feats. How will it impact Tesla’s financials?
• The Cybertruck offers unique value proposition through its eye-catching design while also offering rapid pickup, large towing capacity, and a compelling battery architecture.
• Cybertruck is unlikely to affect Tesla’s financial top-line and bottom-line anytime soon. The truck is slated to be cash-flow negative for the next two years.

• The Global Emerging Markets Weekly summarizes the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
• Macro data points: Chinese credit ratings, exports, and imports growth.
• Companies mentioned:PDD Holdings (PDD US), Tencent (700 HK), Naver Corp (035420 KS)

• Market Watch: Topix hits a one month low as the BOJ Governor hints at an exit from negative rates policy
• Major Movers: Dai-Ichi Life launched a rival bid for Benefit One, trumping M3’s offer. Good news for Benefit One and Pasona
• Activist Watch: Nippon Active Value takes new positions in Eiken Chemical and Meiko Shipping

• Thanks to the rapidly expanding middle class, increasing incomes, and a strong desire for luxury, Chinese consumers are often seen as the embodiment of the luxury industry’s promising future
• However, the market has seen competition intensify: Not only are international brands competing against each other, but the rise of domestic brands has brought the competitive landscape to another level
• Since this summer, investors have been concerned by a shifting Chinese landscape in the context of the current economic situation

• Real interest rates moving lower together with massively increasing fiscal deficits is a plus for gold.
• Gold miners are generally poor long-term investments, but their time is close.
• Miners’ margins are improving as revenue increases while costs decrease.

• Overseas: Stocks snap losing streak with 1.4% Nasdaq rally. Google’s new AI model Gemini lifts tech stocks. Oil below $70/bbl
• Today: Japanese stocks likely to end week on a high following overseas stocks. Bidding war for Benefit One as Daiichi Life launches TOB at higher price
• Markets: Bank of Japan more and more comfortable with exit from negative rate policy. Yen strengthens to 144/$ on Ueda’s remarks.

• 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

• According to Graph 1, during the period August 28, 2023 – November 24, 2023, an overall bullish trend was reflected in the prices of Coffee, despite some notable fluctuations.
• During the period under consideration, there was a significant price correction from September 19th until the beginning of October.
• In contrast, from 15th of October until the middle of November an upward trend was observed.