Thematic (Sector/Industry)

• Japanese stocks headed lower this week, tracking weaker US stocks. 
• With a bout of profit-taking, we are also seeing some rotation out of high-valuation, strong momentum stocks into “cheap” laggards. 
• Marine transportation stocks the big winners this week. Investors love those high dividends and low PBs

• One of the biggest stories in the Korean economy in the past two days have been the quasi bank run at MG Community Credit Cooperative (MGCCC) (새마을금고).
• The negative news about this has contributed to KOSPI falling two consecutive days (down 2% from July 5th to 7th). 
• MGCCC’s delinquency rate jumped from 1.93% at the end of 2021 to 3.59% at the end of 2022 and 6.18% as of June 29th 2023.

• WTR-CMI last week. In an up-week for the market, our WTR-CMI index of 30 chemical and material technology companies appreciated 4.8%, surpassing both the S&P 500 and Russell 2000 returns of 2.3% and 3.7%, respectively.

• FUL’s 13.2% appreciation led our index, as the company delivered strong margins in 2QFY23 (May- 23) and provided solid EBITDA guidance for the year.

• The stock was also helped by FUL’s announcement of two bolt- on acquisitions, Adhezion Biomedical, a privately held medical adhesives company, and XCHEM International, a UAE specialty adhesives manufacturer with a strong position in MENA. 

• This year’s Jakarta Fair was a spectacle with large crowds, who were spending as well as enjoying all the discounted food on offer and viewing new products on show.
• The highlights from the show were a plethora of 2W and 4W EVs, a notable presence from dairy players, and many financing options being offered by multi-finance and fintech players. 
• In the consumer sector, we like Mitra Adiperkasa, Ace Hardware Indonesia, Matahari Department Store, Cisarua Mountain Dairy (Cimory), Ultrajaya Milk, PT Nippon Indosari Corpindo (ROTI), and Astra International, for auto exposure.

• OVERSEAS. Strong ADP numbers drive bond and equity sell off; SPX -0.8% as all sectors in the red  as reality of further Fed hikes get real; EV Truce in China
• JAPAN. NKY Futs -1.1% vs Cash; USDJPY 144.1; Expect further follow through of yesterday’s NKY sell off; Yen strength won’t help – as we head into weekend, correction finally here?
• NUGGET. Profit Renaissance for Japan’s Defense Industry. From big (MHI, Melco, etc) to Small – expect numerous beneficiaries of the policy changes afoot.

• 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

• Computer-scientist-turned venture capitalist Kai-Fu Lee unveiled a new generative artificial intelligence (AI) company called 01.AI on Monday, the latest entrant in a race to develop large language models that can power products equivalent to OpenAI’s ChatGPT in China.
• The new company was officially launched after three months of incubation by the AI pioneer’s Sinovation Ventures, according to a statement posted on the VC firm’s WeChat account Monday. The new website for the company has come online, according to the statement.
• Beijing-based 01.AI aims to develop a platform and application ecosystem based on AI 2.0 era technologies, Lee said in the statement.

• There is tremendous growth in Australian insolvencies, which is not simple a base effect
• Construction insolvencies are up 75% YoY through mid June, the worst of any sector
• NAB shows +17x exposures risk-weighted at 75%, PD +84% in qualifying revolving retail

• XPEV/NIO/LI/TSLA/1211HK: 16 major automakers pledge to jointly maintain order in China auto market (+/+/+/+/+)
• XPEV: Xpeng G6’s conversion rate exceeds 50%, outperforming the industry (+)
• ZLAB：ZLAB’s FcRn Efgartigimod received NMPA approval. We expect 2023 revenue US$10mn (-)

• OVERSEAS. US Back to Equity Declines as Fed Minutes indicate  more hikes coming;  Yield Rise across the curve; SPX -0.2% with Cyclicals hit hardest; New Car Sales up Again
• JAPAN. NKY Futs -0.7% vs Cash; USDJPY 144.7;  RENGO confirms largest wage Hikes in 3 decades;  Rakuten Securites IPO=¥100bn? is it enough for parent?; Big Buyback from Leopalace(8848)
• NUGGET.  Nintendo Switch Sales still has more to run ? it would seems so -as IP is driving sales to new records in its 7th YEAR !

• Some assets in A-share that were considered to have long-term growth but are not anymore. Then the logic of capital’s allocation in A-share isn’t based on growth, but on liquidity.
• There’s no real separation between local finance and medical insurance fund. So, there could be “surprises” during the promotion of DRGs policy. Then a slump in sentiment and valuations is possible.
• For China healthcare, there’re structural opportunities and rebounds this year. We analyzed the possible trajectory of stock price fluctuations in different sectors, and also our top pick.

• The USDA surprised the market with a 5% lower-than-expected planted soybean area in 2023, with soybeans rallying 7%.  
• The U.S. Midwest drought remains in focus. Dry areas are by far the greatest since 2002 and soybean crop ratings are at historic lows for this time of year. 
• With the budding El Niño, supply risk to edible oils in 2024 continues to rise. Reiterate the positive call on Plantations and the bullish CPO price forecast. 

• OVERSEAS. US out for Independence Day – not a lot to report; European Stocks gain, and volumes 1/3 of normal;  META to Launch “Thread”, to compete with Twitter
• JAPAN. NKY Futs -0.8% vs Cash; USDJPY 144.5; NKY -1% as JP succumbs to profit taking; Toyota to cut Solid State battery costs by 50%; Rakuten to list Securities biz
• NUGGET.  Lawson – if management can execute on their MTP, the stock is super cheap. Potential growth, Yield, Take out play ?

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Providers, Pranav Bhavsar and Nitin Mangal. They will be sharing with us their Top Stock Picks in India. From trends, current opportunities, and insights on their picks, join us as we get the full picture from Pranav and Nitin.

The webinar will be hosted on Wednesday, 12 July 2023, 17:00 SGT/HKT.

Pranav Bhavsar is the Founder of ASA Capital Management, focusing on research on consumer themes and companies operating in India or global companies that have significant exposure to India or the Indian economy.

Nitin Mangal is a SEBI registered Research Analyst with more than 10 years of experience in Indian equities. He is Pioneer of Corporate Governance and Accounting Research in Indian Market and has successfully developed a product for Institutional Investors named as “Analysis Beyond Consensus” during his association with Edelweiss Securities Ltd, Mumbai. 

• Europe has seen some remarkable energy prices in recent days with record negative electricity prices in the North Western part of the continent, while Saudi Arabia strikes again and prolongs the supply cuts into August.
• Read along in our weekly Energy Cable, where Steno Research and 3Fourteen Research share their thoughts on Energy markets. As usual, we don’t quite agree.
• At yesterday’s auction for the day-ahead German baseload electricity prices turned outright negative and we wonder if this could be a signal of deflation to come like we saw in the gas markets last fall where the short end of the curve absolutely nosedived once we realized filling the storages was not going to be a problem.

• The growth of China’s semiconductor industry is inevitable and ever increasing sanctions on advanced semi supply chain components are adding fuel their self-sufficiency aspirations
• Most Chinese semi stocks P/E ratios are sky high & volatile to boot. Many US semi stocks have peaked as far as their exposure to China growth is concerned. 
• One sub-segment of the WFE sector may provide China semi growth exposure at reasonable valuation with relatively low risk. 

• OVERSEAS. SPX eakes out gains despite weak ISM Manufacutring in light trading ahead of July 4th Independence Day Holiday; TESLA +6.9% on big 2Q delivery numbers
• JAPAN. NKY Futs -0.4% vs Cash; JPYUSD 144.7; Strong BOJ Tankan print drives NKY to new highs;  JP land prices continue to rise; Support for JP foundry goals from IBM
• NUGGET.  Japan’s passing of the GX Promotion Law enables the issuance of ¥20 trillion in bonds and promotes ¥150 trillion of decarbonization investment over the next decade. Investment opportunities abound!

• A collapse of real estate speculation destroyed the balance sheets of Chinese households, leading to downward spiral in consumptions. A tremendous stimulus package can reflate the economy, 
• But it doesn’t solve the structural problems; Unlike semiconductor and biotech, inputs to renewable energy are many and supply chains are long.  To stay ahead, Chinese companies must keep themselves 
• Cost competitive,  which means they can neither realize profits nor retaliate US containments. But their equities offer the long-term hope to replace real estate as nest eggs of Chinese retirees.

• 2252HK:   NHC issued the “14th Five-Year Plan for Large-Scale Medical Equipment Allocation” ,  the planned quota of laparoscopic robots is slightly lower than our estimated (-)
• 1801HK/LEGN:Innovent/ISAO co-developed CAR-T received approval in China ahead   of Legend’s CARVIKTI, might try to squeeze in NDRL list this year (+)
• LKNCY: Luckin Coffee reported 50mn monthly transacting customers in June(/)

• OVERSEAS.  Strong close to Month, Quarter and Half Year as SPX rose +1.2% on Friday; AI Trade Back as NDX100 hit  $5trn Mkt cap; Apple now >$3 trill !
• JAPAN. NKY Futs +0.7% vs Cash; USDJPY 144.3; Tokyo Inflation print 3.2% raises questions on national inflation and BOJ’s next steps;  Tokyo heats up as Power conservation measures implemented
• NUGGET.  We believe Toyota’s concerns regarding BEVs are valid. We see them having the technology and manufacturing prowess at scale, strong branding, and global reach to eventually overtake Tesla

• ZLAB: Laekna Therapeutics IPO’ed in HK with two AKT inhibitors. We believe it will complement PARP inhibitor (+)
• LKNCY: COTTI Coffee opened its No.4k store，but may lack sustainability(/)
• 002202CH/601615CH：Siemens Gamesa’s wind turbine suffers quality recall, may benefit Chinese vendors (-)

• In any portfolio, it’s always good to have a listing of up and coming companies on hand which you may be interested in which may have recently IPO’d, did a significant acquisition, or has introduced a new and exciting product or service.
• These companies may also have parabolic forward Wall St. estimates for both revenue and or profits.
• I generally refer to this listing as my “wild broncos” listing and they generally can have wild price and volume swings (based upon earnings releases, press releases, investor day presentations, or analyst upgrades) and sometimes can often come under attack by short seller reports.

• New HDFC Bank appears to have far better returns and credit metrics that large Asian peers
• Pro-Forma amalgamation puts HDFC Bank as 2nd largest bank in Asia Pacific in market cap 
• Comparably large banks in Asia are concentrated in China, where credit metrics are opaque

• Oasis has launched a hostile campaign against Tsuruha, one of the largest drug store chains in Japan
• The company’s corporate governance needs a serious overhaul – the board is entrenched and dominated by the founding families
• Shareholders will need to elect a Board with more independence and a greater skillset to navigate industry consolidation

• The National Health Commission released “14th Five-Year Plan for the Configuration of Large Medical Equipment”, which should drive the upgrading of the whole industry chain and accelerate the import substitution.
• The gap between Chinese and Western hospitals can lead to many differences in the logic of future commercialization, such as surgical robots and other high-priced innovative medical devices in China.
• The efficacy/safety standards of GLP-1 drugs have been raised sufficiently high. If latecomers’ products fail to be better than Semaglutide/Tirzepatide/Orforglipron, it’s difficult to gain market share through “fast-follow strategy”.

• Micron said we bottomed, wrung their hands a ton about gross margins and comparability, and said oh, inventory accounting has helped us out
• Oracle had a huge announcement that majorly snubbed Intel.
• There’s another rumored AI winner. Amkor was rumored (heavy emphasis, Digitimes can be untrustworthy) to be helping Nvidia with packaging.

• 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

• We suggest that both Tencent and NetEase will launch blockbuster new games in their pipelines during this year’s summer vacation, with NetEase slightly surpassing Tencent.  
• Although iQIYI, Kuaishou, and BILI each have new games, their contributions are relatively small, so we maintain a SELL rating for these three companies;
• Investors can also pay attention to Nexon and Netmarble, two Korean game companies that are expected to benefit from the launch of new games;  

• OVERSEAS. SPX +0.4% AS Banks lead after passing Fed’s stress test= PAYOUTS ! 2 Fed hikes more likely says Swaps markets; US 1Q GDP REVISED UP to 2%.
• JAPAN. NKY Futs +0.3% vs Cash; USDJPY 144.8; End of Month/Quarter; Flat NKY Today = +18.5% QTD..best Quarter in a Decade !  Big Japan AGM Week -Biz leaders get heat.
• NUGGET. Kandenko(1942) set to benefit from the massive drive to decarbonize by  key client TEPCO.  Co is still trading below book, is net cash, with earnings set to grow !

• NIO: NIO’s new order intake in June exceeds 20k units (+)
• XPEV: Xpeng is likely to slightly beat 2Q23 guidance (+)
• BEKE：Property transactions in June is weak, but likely to bottom-out(-)

• 2618.HK/002352.CH: Cainiao launching its own national express delivery network (-/-)
• 3690.HK/PDD: Meituan planning to launch “Summer War” in community group buying (-/-)
• BEKE: Beike is planning to extend business to real estate upstream, exploiting extra value beyond new home sales channel(-)

• New World Resources Ltd (ASX:NWC) is developing the Antler copper deposit in northern Arizona and the earlier-stage Javelin copper project which lies about 75kms to the south- east of Antler.
• The company has recently released an updated scoping study (May 2023) in which it upgraded the production profile by 30% to 15.4Mt at 1.3Mtpa for 13 years at an average grade of 3.0% copper equivalent (Cu Eq.) for capex of US$252m to deliver 381,400 tonnes of Cu Eq metal.
• The study identified that over the life of the project, Antler should produce US$3.0bn in revenue and US$1.5bn in free cashflow with a pre-tax IRR of 40.2%. New World is also undertaking a pre-feasibility study on the project and intends submitting mine permit applications in Q3 2023.

• OVERSEAS. SPX Flat as Chips stocks sell off on potential new China restrictions;  Fed Chair Powell keeps hawkish stance saying more hikes on the horizon; Micron calling bottom on Memory.
• JAPAN. NKY Futs +0.1% vs Cash; USDJPY 144.4; Japan FX Tsar concerned saying govt will  respond “appropriately” on excessive weakness; Final Fantasy 16 off to a solid start
• NUGGET. Katitas – specialist in remodelling vacant homes. 40% YTD underpeformance vs TPX. Govt stepping up support of vacant home sector – supportive of Katitas’s business.

• PDD/1024.HK/700.HK: PDD adds an entrance that is dedicated to viewing live broadcasts (+/-/-)
• Luckin Coffee: Luckin Coffee cooperate with OneContract Cloud to develop internal contract management system, which is intended to improve the efficiency of franchise store opening.
• BILI: Bilibili Will Change Video Display Metrics to Measure Watch Time Instead of View Counts (-)

• Sequential monthly increases in Macau GGR presages arrival at near 2019 pre-covid levels earlier than many have forecast. This keeps entry points attractive.
• China economy inching up to projected 4.5% GDP growth for 2023 and 5% for 2024 supports underlying confidence of continuing cycle of recovery for Macau.
• Added room, gaming and non-gaming amenities will kick in later this year and for 2024 will keep positive momentum going.

• Investors appear to have lost faith in China healthcare following a plunge in CXO shares.But seeing the decline in CXO orders as indicator of industry’s prosperity is a lagging view.
• The logic of CXO is tied to biotech on the one hand and to overseas relationships on the other. But Biotech remains the cornerstone of the overall logical chain. 
• According to the primary market situation, we’re not optimistic about CXO’s domestic business to achieve a significant recovery next year, but the overseas recovery/financing situation may improve a bit faster.

• WTR-CMI last week. In a week when the broad market index (Russell 2000) declined 3.6%, our WTR-CMI index of 30 chemicals and materials technology companies modestly outperformed, dropping 2.3%.
• This nonetheless trailed the large-cap S&P 500 index, which lost only 1.8% of its value during the week.
• Benefiting from improved investor sentiment on possibly higher summer sales of insecticides, improving automotive and construction markets, and lower raw material costs that we discussed last week, ag-chem and coatings companies led the performance of our index.