Thematic (Sector/Industry)

• With the HSI surging 21.2% since 24 Sep and many stocks have even doubled, the strategy in the HK and China markets will move to chase the laggards.
• Among the underperforming HSI constituents, China Resources Power (836 HK) and China Mobile (941 HK) are the better candidates to pick up performance. 
• For HSCEI, Zijin Mining Group Co Ltd H (2899 HK) and China Shenhua Energy Co H (1088 HK) have lagged but their stories are interesting and should regain momentum.

• U.S. stocks edged lower Thursday as investors remained cautious ahead of Friday’s crucial jobs report, with the S&P 500 dropping 0.2%
• Bank of Japan board member Noguchi suggests further interest rate hikes should be slow and cautious to protect the economy
• UBE announced its largest-ever acquisition, buying LANXESS’s urethane business for €460 million (¥73.6 billion).

• Something remarkable has happened in the department store sector. A year ago, both big city stores and those in the regions were all still well behind sales levels in 2010. 
• But stores in the largest 10 cities exceeded 2010 sales levels by 2% last year. Emphasising the yawning gap, regional stores extended their losses with sales down 42% on 2010.
• The elite have also suddenly started making money. A lot of it. We now have a (very profitable) luxury retail sector and a (poor returning) middle-market general merchandise store sector.

• The packaging sector is making a comeback as key material spreads have been rising  which is being reflected in Q1FY25 results of the companies.
• What makes this sector more interesting is certain promoters of these companies are buying share of the company from the open market along with fund infusion by some big investors
• The biggest risk remains for the sector is pricing pressure and demand-supply mismatch but it seems bottom is being made for the sector

• Big move higher for oil set to spike the JP oil major Inpex although the refiners have large outstanding short interests and may squeeze
• The higher oil price is negative for Japan’s utilities which have yet to restart reactors and are dependent on oil/gas imports to fuel their thermal generation
• Details are limited on a potential Seven Bank stake sale by 7&I, but there should be room for upside as shorts continue to cover

• Announcement of a free resource for money miners in the lithium space
• Discussion about upcoming quarterly season and potential moves by Gina in Lion Town
• Consideration of cash burns, balance sheet pressure, and potential takeover scenarios in the mining industry

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• U.S. stocks edged slightly higher Wednesday despite escalating Middle East tensions between Israel and Iran
• UNIQLO reported a 22.1% increase in domestic same-store sales for September, marking six months of consecutive growth
• Toyota Motor is delaying its electric vehicle production in North America from 2025 to early 2026, citing design adjustments and slowing EV sales in the U.S. market

• Further PM Ishiba flip-flopping on his previously hawkish rates policy, set to catch markets wrong footed today.
• Homebuilders may face a bigger fallout than expected from hurricane Helene given the potential to squeeze margins as materials and workers are prioritized for emergency efforts.
• Exporters including autos, R/E and tourism related names should see renewed interest on the weak yen.

• WTR-CMI last week. Driven by the recovery in lithium stocks, our WTR-CMI index of 30 specialty chemicals and materials technology stocks rose 1.7% for the week, handily outperforming mostly flattish performance of large cap tech-heavy S&P 500 as well as the broader Russell 2000 indices.
• YTD the WTR-CMI continues to outperform the Russell 2000 (13.6% vs. 9.8%) and on YoY basis our index nearly kept up with S&P 500’s strong 33.8% rise by appreciating 31.1% compared to Russell 2000’s 24.6% improvement.
• Hurricane season kicks into high gear. While the impact of hurricane Helena are still being assessed, Francine’s impact on oil and gas production and barge traffic are already being felt in the markets, with gulf coast oil production down nearly 40% and natural gas production down nearly 50%, with barge fleets staying away from the region until weather settles, which now looks to be delayed due to Helena’s destructive path.

• US stocks ended sharply lower on Tuesday amid heightened geopolitical tensions as Iran launched over 100 ballistic missiles at Israel
• Nike shares fell 2% after hours despite Q1 earnings beating expectations at $0.70 per share vs. $0.52 estimated.
• Mizuho is negotiating to acquire a stake in Rakuten Group’s credit card unit, aiming to expand its fintech services

• Profit taking hit tech/semi’s as tensions rapidly escalate in the Middle East, causing defense and oil related names to move higher
• NEC remains overlooked as a defence play in Japan despite the MoD’s growing for budget for electronic warfare and satellite defence capabilities
• Renewables in the US are leading the way YTD, although Japan is far behind the curve despite PM Ishiba being a pro wind/solar and hawkish towards nuclear.

• Budgets are always important for investors.
• The imminent Budget, at the end of October, will be doubly so, because it is the first from the new Labour government, and it has already signalled the need to fill an alleged £22bn black hole, while ruling out changes to more than half the tax base.
• That implies a lot of the pain will be felt by investors.

• The wait is finally over.  The Fed delivered a 50bps rate cut in September meeting, kick- starting a new rate cut cycle
• The rate cut is an absolute game changer for Hong Kong real estate.  Physical market will recover with lower mortgage rate and companies will enjoy lower borrow rate
• With the macro backdrop in US and China, Hong Kong is well positioned for as strong re-rating with mega catalysts ahead – Buy HK real estate, especially SHKP and NWD

• China’s SSE Composite Index surged 18% due to government stimulus measures, focusing on real estate and financial sector revival.
• Stimulus boosts global commodity demand, while India’s domestic market remains resilient despite minor FPI rebalancing towards China.
• China’s recovery doesn’t significantly impact India’s growth, driven by strong domestic inflows and stable market conditions.

• U.S. stocks closed September and the third quarter with fresh records despite Federal Reserve Chair Jerome Powell’s  signaling no rush for further rate cuts
• Shigeru Ishiba, newly elected president of Japan’s ruling LDP, announced plans to dissolve the lower house and hold a general election on October 27.
• SoftBank’s Vision Fund will reportedly invest $500 million in OpenAI’s $6.5 billion funding round, valuing the AI startup at $150 billion

• Plenty of Ishiba trades to pickup this morning after yesterday’s panic.
• Defence related saw some initial profit taking after pricing in some gains, but KHI and NEC remain attractive on the long side.
• Selective Inbound tourism, domestic revitalization, and China plays should snap back fairly quickly with Ishiba unlikely to upset voters ahead of elections.

• Larsen & Toubro (L&T) plans to generate INR 40,000 crore in pre-sales revenue through aggressive land acquisition and portfolio expansion.
• NLC India aims to reach a mining capacity of 1 MTPA for critical minerals by FY30
• Reliance’s Viacom 18-Disney Merger Approved, Creating India’s Largest Media Empire

• Furniture and Furnishing stocks performed well against the major market indices, where the relative calm at the level of the overall indices belied the leadership churn and rotation back into tech following the recent Fed rate cuts (1).
• The Water Tower Research Commercial/Contract Furniture index (+0.5%), Residential Manufacturers & Suppliers (+4.5%), and Home Goods Retailers index (+1.0%) we up all up more than the DJ30 and SP50 (both +0.3%) while the Mass Retailers index (-1.5%) and R2K (-0.2%) were both down.
• In a market where technology stocks are again leading and big caps are outperforming smaller caps, the relative outperformance of the Water Tower Research indices is notable. 

• Since the BoJ interest rate hike in July, the Yen appreciated ~5% to ¥142.74. Considerable amount of appreciation may be dilutive on the overall performance of export-oriented industry.
• Top healthcare players have assumed a higher exchange rate (than the current prevailing rate) for their respective full-year FY25 guidance.
• With benefit of favorable foreign exchange gradually fading and potentially diminishing guidance, investors need to be selective in picking healthcare bets in Japan.

• Higher Exchanges is a weekly cannabis-investing conversation hosted by WTR’s Head of Cannabis Jesse Redmond and Morgan Paxhia, co-founder of Poseidon.
• Those interested can listen to the show on Apple Podcasts, Spotify, or X Spaces.
• This week’s show began with a discussion about Senator Ron Wyden’s Cannabinoid Safety and Regulation Act, which proposes more regulation for the hemp industry. 

• We review last week’s biopharma news for meaningful clinical data, regulatory updates, research innovation, and M&A.
• Last week, BMY received landmark antipsychotic approval, while BHVN finally scored a win in rare genetic SCA.
• AMGN had approvable data in atopic dermatitis and gMG, but not enough to dethrone REGN and ARGX. 

• Stocks ended the week on a positive note, despite mixed performance on Friday, as investors focused on a key inflation report
• Japan’s incoming Prime Minister Shigeru Ishiba advocates for accommodative monetary policy to support economic recovery, despite previous criticism of aggressive easing
• Sumitomo Metal Mining will establish a mass production line for SiC substrates by FY2025, investing tens of billions of yen

• New LDP leader and Japanese PM favours interest rate normalisation
• This supports our outlook for a strengthening JPY against the USD
• The Japanese central bank may now face pressure to raise rates

• The median stock in our Dogs of Topix basket outperformed the median stock in the Topix 400 by 4% through Sept 2024.
• This is below the average of 7% achieved by such stocks over the past 9 years, but it was a much tougher stretch than it looked. 
• Do we need to re-think? Much can be learned comparing the outperformers, whose median return was +34%, compared to the underperformers, which declined 23%.

• The stimulus policy this time is more to convey a signal that  “China will resolutely defend the bottom of the stock market”, and more importantly, complete the pricing of important assets.
• When global central banks really need to address US’ soaring debt risk,the process of reassessing the dollar’s status as a currency begins,which is the logic behind RMB’s rally/gold’s record highs.
• The optimal solution to the dollar problem is a global depression, and China will not be immune. So, the current rally in stock market may not be sustainable.

• Over the weekend, Shanghai, Shenzhen and Guangzhou, 3 of the 4 tier-1 cities, announced policy to loosen and support the property market
• China property stocks are very policy-driven.   We think there will be more policies to be announced.  Hence it is not too late to chase the rally
• We think COLI 688 HK, Longfor 960 HK and Sunac 1918 HK offer attractive upside and decent risk-reward profile

• Since the US started sanctioning Huawei in 2017, the China tech giant has maneuvered into many new fields. This time, its HIMA (Huawei Intelligent Mobility Alliance) is showing renewed momentum;
• China is the greatest EV market in the world. But what is being masked in the robust growth is the divergence between BEV and PHEV, and Huawei’s role in PHEV;
• We expect the trend to continue as Chery, JAC and BAIC will launch their HIMA models in 2025. Most importantly, these vendors gain share in the mid-to-high price segments.

• U.S. markets remained relatively stable, with major indices flat to up 1% for the week. Treasury yields rose slightly, with the 10-year yield up nearly 10 basis points to 3.8%.
• Meanwhile, China, grappling with a property slump and likely to miss its 5% growth target, announced substantial stimulus measures.
• Japanese stocks rallied strongly this week, with the benchmark Nikkei index surging 5.6% and the broader Topix index gaining 3.7%.

• NTES US: Blizzard’s <Hearthstone> Resumes Operations in China Today with High Player Enthusiasm (+)
• BABA US/PDD US/AMZN US/SHEIN: AliExpress to promote new merchant models and faster logistics at Double 11 and Black Friday promotions (+/-/-/-) 
• BABA US/PDD US/JD US: Taobao/Tmall to offer no extra service fees on “buy-now pay-later” orders during Double 11 (-/-/-)

• Arrow Exploration (AXL LN/CN)C; Target price £0.70 per share: Another horizontal well with high flow rate – The fourth horizontal well at Carrizales Notre (CNB HZ-5) has been put on production at a gross oil rate of 2.7 mbbl/d (1.35 mbbl/d net to Arrow) with a water cut of 11%.
• This flow rate compares favourably with CNB HZ-4 that was put on production at a gross oil rate of >2.5 mbbl/d (8% water cut).
• Overall gross oil production from the three other horizontal wells is ~5.62 mbbl/d (~2.8 mbbl/d net to Arrow) including 2.1 mbbl/d for CNB HZ-4, 1.9 mbbl/d for CNB HZ-3 and 1.6 mbbl/d for CNB HZ-1.

• BEKE US/BZ US/ATAT US/3690 HK/TCOM US:September Politburo Meeting Unusually Discusses Economic Topics, bodes well for catering and tourism consumption, Employment, and Real Estate(+)
• 2618 HK/002352 CH: JD and Alibaba reconcile, JD Logistics to launch on Taobao and Alipay to launch on JD.com (+/-)
• NIO US: NIO Lowers Battery Swap Service Fees to Encourage Frequent Battery Swaps(-)

• Stocks rallied on Thursday, with the S&P 500 climbing 0.40% to a record high of 5,745, driven by strong U.S. economic data and corporate earnings
• Shares of Super Micro Computer fell over 12% after a Wall Street Journal report revealed a Justice Department investigation into alleged accounting manipulations
• Nissan will acquire an additional 5.03% of its shares from Renault for ¥79.8 billion, reducing Renault’s stake further

• On 23-Sep-24, SEBI released a study on Trends in Equity Derivative segment. 
• In FY24, Proprietary traders earned the highest gross profit, followed by FPIs while the individual category faced the largest gross loss.
• In FY24, 91.1% of individuals incurred net losses in F&O trading, slightly improving from 91.5% in FY23 and 90.2% in FY22.

• Big gains for semi related after Micron’s big beat, although the lions share of this may have priced in during Asian trading yesterday.
• China related names in Japan look set to continue gains with HSI futures strong overnight and names like Estee Lauder +10% and L’Oreal +7% overnight.
• Election day in Japan, with voting kicking off at JST, results, or at least a strong indication should be known before market close today.

• Obvious policy efforts are being made to drive consumption and improve consumer confidence.
• Previous attempts have resulted in increased savings but policy direction has changed
• Beaten-Up consumer names have a good risk-reward at this stage

• This note is a weekly (select weeks on SK) 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 the sources

• US stocks closed mixed on Wednesday after hitting all-time highs. The S&P 500 dipped 0.2%, reversing earlier gains, while the Nasdaq finished flat.
• Micron’s stock rose 10% in after-hours trading following a strong earnings report.
• ValueAct Capital, a U.S. activist investment fund, has acquired a 5.94% stake in Sanwa Holdings

• China considers launching a stock stabilization fund which could release RmB800B in liquidity support for the market.  Securities firms and insurance companies will be the major beneficiaries.
• The mega merger between  Haitong Securities Co Ltd (H) (6837 HK) and Guotai Junan Securities (2611 HK) could be the precursor to further industry consolidation.
• Hong Kong trading volumes and IPO’s set to surge as Beijing lifts sentiment.

• Memory names with high exposures to Micon such as Micronics will be back in focus.  
• Microsoft paying overs for stable nuclear energy should put the spotlight back onto UPS and help lift Fuji Electric once again. 
• Capcom’s Monster Hunter Wilds looks fully priced and with the TGS about to come and go this this weekend, further catalysts are lacking with the stock close to ATH. 

• MNSO US: MINISO Acquires 29.4% Stake in Yonghui Superstores for RMB6.3 Billion, Becoming Its Largest Shareholder(-)
• BEKE US:Stimulus monetary policies bodes well for real estate and consumption(+)
• BEKE US:Chongqing Agency Decco Real Estate Joins Beike, Bodes Well for Market Share Gains(+)

• L&T Secures Rs 10,000-15,000 Crore Order in the Middle East
• Power Grid Corporation Shares Rise After Winning Key Transmission Projects
• NHPC to Raise INR 2,300 Crore for Expansion through Securitization

• JD US/1810 HK/BABA US:NRDC announces positive results for “old-for-new” trade-in during September (+)
• BILI US:Bilibili’s <Three Kingdoms: MDTX> Shows Robust Gross Billings Performance After Season 3 Update (+)
• PDD US/BABA US/JD US: PDD reduces the minimum withdrawal threshold for funds (/)

• The S&P 500 rose 0.25% to a record 5,733 on Tuesday, buoyed by a nearly 4% jump in Nvidia shares
• U.S. Consumer confidence dropped sharply in September to 98.7, down from 105.6 in August, marking the largest decline since August 2021
• Activist investor, City Index Elevens, has taken a 5.08% stake in Aichi Steel, a Toyota affiliate

• China names will be in focus with yesterdays gains holding overnight in the US.
• Worth looking at Japanese names previously bucketed as China plays which could now be squeeze targets with large short interests.
• The list is long, but some names which could squeeze on the improved sentiment include Shiseido, Daikin, TOTO, Yamaha Corp and Nabtesco.

• While the worst-performing stocks in 2023 have gone down by an average of 17.6% YTD, their pick-up in the last month is significant at 19.9%. 
• The cut in US interest rate and the Chinese government’s stimulus measures will benefit the HSI, providing room for shifting position from heavily overweighted names to underweighted.
• Li Ning (2331 HK), Meituan (3690 HK), Wuxi Biologics (2269 HK), and Zhongsheng Group (881 HK) are the key “dogs” in last year that are worth a look. 

• The WTR Sustainable Index was up 2.2% W/W versus the S&P 500 Index (up 1.4%), the Russell 2000 Index (up 2.1%) and the Nasdaq Index (up 1.4%).
• Energy Technology (13.5% of the index) was up 0.7%, while Industrial Climate and Ag Technology (47.4% of the index) was up 2.2%, ClimateTech Mining was up 2.1%, and Advanced Transportation Solutions (20.0% of index) was up 3.6%.
• Top 10 Performers: REE, NGPHF, LICY, SUNW, MVST, FTCI, ENG, GCEH, ORGN, IPWR