Thematic (Sector/Industry)

• Semiconductors- “Big Money” Rabid Buying Spree Continues NVIDIA’s (NVDA) and Marvell’s (MRVL) earnings calls and forward guidance delivered this week resulted in earthquake shock re-rating to all things semiconductors on Thursday and Friday.
• On Thursday, NVIDIA’s $198B market cap gain was the largest market cap gain in market history.
• In the first quarter of this year, Microsoft gave clues that artificial intelligence would emerge as the next great computing platform and then this quarter it appears that Wall St. has woken up to the degree of significant data center retooling and infrastructure spending which will be required to support emerging artificial intelligence computing demand.

• Among active Global equity funds, exposure to Banking stocks is at the lower end of the decade long range
• Over the last 6-months, Banks experienced the largest drop in average fund weight of -0.4%, suffered fund outflows of $-1.98bn and had 40 more sellers than buyers over the period.
• The failure of SVB Financial, First Republic and Signature Bank has effected sentiment in US Banks, but elsewhere we see strong momentum in Singaporean Banks, Indonesian Banks and Indian Banks.  

• It was a relatively quiet week for the broader index. However, there was a big sector shift towards tech and AI winners.
• Japanese Heavy Equipment makers have technologies that will be in demand for decades. KHI trades below book. 
• As we head into AGM season, we take a look at interesting activist campaigns. 

• The recovery in Energy allocations among Asia Ex-Japan funds has stalled, and has started to reverse
• Selling in Reliance Industries (RIL IN), Offshore Oil Engineering A (600583 CH) and CNOOC Ltd (883 HK) were the key drivers behind the move
• Versus the iShares MSCI AAJX ETF, Energy is the largest sector underweight alongside Materials and Utilities, with managers overweight the Consumer sectors and Information Technology.  

• OVERSEAS. NDIVIA scores leading Tech to drive SPX +0.9% into the green; Closer to a Debt Limit Deal;  Marvell Tech reports – Bullish On AI
• JAPAN.  NKY Futs 0.9% vs Cash; USDJPY weakens to 140 on dovish Ueda comments; NVIDIA drives Japan AI supply chain gains; Foreigners continue to pour into Japan for 8th week.
• NUGGET. Calbee, worth a 2nd look after the recent share price sell-off given their very credible medium term business plan.

• Domestic and outbound Chinese air traffic continued to recover in April, but aircraft deployed on international routes continued to operate far below capacity
• Headline numbers from the recent Labor Day holiday period show an increase in domestic travel activity to above 2019 levels, but spending per trip remains depressed
• Tourism activity has increased dramatically compared to 2022, but five months after most Covid-19 restrictions were lifted there are few signs of stong demand for leisure travel

• OVERSEAS. SPX -0.7%, down again on inability to get a debt deal; Yellen’s warnings keep coming; Fed Minutes – Officials mixed on hikes/pause; NVIDIA-BLOW OUT AI DRIVEN GUIDANCE
• JAPAN. NKY Futs -0.3% Discount to Cash; US debt limit weighs on Japans;  Fujitsu MTP – to return ¥600bn to shareholders over 3 yrs; Watch Advantest today on NVIDIA’s guidance
• NUGGET. Next Gen drinks development takes off as Sapporo Holdings(2501 JP) seeks competitive edge in drinks development by using AI

• The steep part of the chip collapse has run its course, and prices are now following cost
• Revenues will rise once demand growth fully offsets price decreases, probably in the fourth quarter
• The market will regain profitability only after a new shortage develops, which may be the middle of 2024

• At the risk of sounding monotonous, while the SPAC IPO market remains pretty much comatose, there continues to be solid flow of liquidations.
• The number of SPACs electing to liquidate their trust funds has risen to 19 for May and scheduled for June thus far.
• YTD, 107 SPACs have thrown in the towel and elected to liquidate.

• OVERSEAS. SPX Closed -1.1% as US Debt Default risks rise; Democrats and Republicans still far apart;  STRONG US new home Sales; Boeing says Supply Chain Resolution will take Time
• JAPAN. NKY Futs -0.9% vs Cash; Japan likely falls 2nd day ; JP Real Wages Fall most in 8 years; S&P Cuts Softbank’s Debt in deeper Junk – Company protests
• NUGGET. Japanese Automaker face massive R&D and Capex spend for years to come as they transition to EVs. Free Cash Flow likely turn negative, and profits stagnate.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Alexis Dwek, as he will be sharing with us his insights on the opportunities in Europe equities. Join us, as Alexis shares with us the developing trends in Europe, the opportunities that lie ahead and what’s next for equities in Europe.

The webinar will be hosted on Wednesday, 31 May 2023, 17:00 SGT/HKT.

Alexis Dwek has been covering pan-European companies for close to a decade. With experience in three hedge funds, an underlying emphasis has always been placed on meeting the management teams of companies. Alex is passionate about equities and has been since a young age – ever since he started reading books from investors like Charles Munger, Benjamin Graham, and Warren Buffet.

• 700.HK/NTES/BILI: Tencent, NetEase and Bilibili receive game code approvals (+)
• ZLAB：First generic version of Olaparib approved in China but impact on Nariparib should be small（/）
• MNSO: Miniso opened its global flagship store in NY Times Square with 78k sales in first day

• Restaurant royalties’ same-store-sales growth continues to outpace food inflation in Canada which we believe to be persistent
• The full-service and limited-service restaurant industries have proven to have resilient growth through all economic conditions
• The group outperformed the TSX by 450 bps since our last note, yet valuations still remain at trough levels

• On the 19 May, Hong Kong’s Securities and Futures Commission (SFC) released a 145-page consultation paper on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs.
• The paper proposes amendments to various provisions of the Codes together with the reasons for such changes.
• The consultation will last for five weeks until 23 June 2023.

• OVERSEAS.  SPX Flat as Debt Limit talks Weight; Fed’s Bullard sees 2 more hikes; China Ban’s Micron’s Chips; Ford Moves to secure Lithium supplies. CEO sees Auto prices falling 5%
• JAPAN. NKY Futs +0.4% premium vs Cash; Japan to tighten rules on Semi exports to China; Kansai Elect,  CyrusOne set up Japan JV to invest in DataCenters
• NUGGET.  Japan passed the GX Promotion Law that will support 150 trillion of investment over the next 10 years. Decarbonization boom in Japan is just beginning..

• The three companies we write about this week are Raytheon Technologies (RTX US)Beiersdorf AG (BEI GR) and King Slide Works (2059 TT) 
• For the twenty-six weeks since inception ended 19 May the combined innovation portfolio was +2.5%, versus DJIA-0.9%, S&P500+5.7%, Nasdaq+13.6%, Russell2000 -4.1%, MSCI-ACWI-ETF+6.9%, S&P midcap 400 -2.2%, all in US$ terms
• Small-Cap (+4.1%) versus Russell2000 (-4.1%) and midcap (+1.9%) versus S&P400 (-2.2%) continues to outperform benchmarks, but the omission of mega-tech names has hurt large-cap portfolio (+2.6%) versus S&P500 (+5.7%) . 

• Columbia Care (NEO: CCHW, OTCQX: CCHWF) reported 1Q revenue of $124.5 million, down 1.3% Q/Q and up 1.2% Y/Y.
• This beat consensus of $123.0 million. The revenue increase was driven by three new stores and strength in its New Jersey, Virginia, and West Virginia operations.
• 1Q adjusted EBITDA declined to $16.4 million from $17.4 million in 4Q. This was below consensus of $17.4 million.

• WTR Sustainable Index: During the week ended May 19, 2023, the WTR Sustainable Index outperformed the broader market, rising 4.4% W/W versus the S&P 500 Index (up 1.6%), the Russell 2000 Index (up 1.9%), and the Nasdaq Composite Index (up 3.0%).
• Advanced Transportation Solutions (69.0% of the index) drove the index’s outperformance, rising 6.2%, while Energy Technology (7.9% of the index) was up 0.1% and Industrial Climate and Ag Technology was up 0.9%.
• Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.9x versus 19.5x for the S&P 500.

• OVERSEAS.  SPX -0.1% fails to make it 3 in a row; Talks paused, now resumed but deal distant; Powell set to pause hikes in June; More worries in US Regionals
• JAPAN. NKY Futs flat vs Cash; Kishida hosts a successful G7 summit; April Core Inflation hits 4.1% – Gov Ueda says no early exit; More Japanese are job hopping=>+ve Wages
• NUGGET. Panasonic – Found Battery Religion (Finally!) – A more aggressive stance

• Gross margin compression in China’s express industry has been going on for years and predates the Covid crisis. But margins have enjoyed a modest recovery since late 2021
• Since 2019, margins have fallen and the distribution of profits among China’s listed express companies has changed dramatically, with two clear-cut losers
• Even though two listed express companies have seen their profitability compressed dramatically, there are no signs of industry consolidation — and some parties like it that way

• Sector allocations in 2023 have been highlighted by big money rapidly leaving the “inflation trade” of 2022 (dominated by all things oil and gas, coal, ag commodities, etc.) and plowing money in full force to the “disinflation trade” headlined by sectors exposed to technology, artificial intelligence, semiconductors, automation/robotics, and software.
• In fact, the following sector ETFs are making new 6-month relative strength line highs this week compared to S&P 500 index and are quickly emerging as new market leadership groups:
• Technology: BOTZ, TECL, IXN, IYW, XLK, IGV, VGT; Homebuilders: NAIL, XHB, XL

• Over the last week, we engaged in fruitful interactions with fellow analysts and portfolio managers in Hong Kong and Singapore.
• In this insight, we share perspectives we picked up on India as a market, along with regional market dynamics.
• The way ahead involves embracing a glass well approach, combining our deep focus on Indian equities with a broader understanding of regional markets and consumer trends.

• Consumption is on the rebound as pandemic restrictions are lifted. Inflation has been higher than the 2% goal, but still not entrenched according to the BoJ. 
• JGB yields drifted lower despite higher consumer inflation. Lower producer prices may hint that supply issues are normalizing. Stocks are on fire
• Bulls adding to Japanese semiconductor equipment names. Global backdrop of AI but Japan also benefits as a “safe haven” destination for new capital investments

• We believe that the nine Korean banks (on average) are likely to continue to underperform KOSPI in the next 6-12 months due to the continued rising delinquencies.
• The major reasons for higher loans and cards delinquency ratios include higher interest rate burdens, higher inflation rates, inverted yield curve, weakening economy, and pressures on disposable income.
• The delinquency ratios of the largest nine banks in Korea all worsened in 1Q 2023 (for both banks and credit cards).

In this next #webinar Wednesday, we are glad to welcome Smartkarma Insight Provider Jeroen Blokland. He will introduce the Macro-Sentiment-Valuation framework and we will take a look at the outlook of equities. Jeroen will also show us the rationale behind decisions to chase the year-to-date rally in equities.

The webinar will be hosted on Wednesday, 24 May 2023, 17:00 SGT/HKT.

Jeroen Blokland is an all-round Multi-Asset investor. He is the former head of a EUR 5 billion multi-asset fund range, a speaker, and the founder of True Insights, a provider of independent investment research, trade ideas & well-diversified portfolios. 

• OVERSEAS.  SPX up again as Tech pushes stocks higher;  Biden off to G7 in Japan as market expect a deal on return; Walmart lifts Sales, spurring optimism; Fed Hawks back
• JAPAN.  NKY Futs +1.1% vs Cash;  As Japan Prepares for G7 Meeting, PM Kishida woos Global Semi CEOs; Panasonic tgts 200GW batteries by 2030; Ricoh-Toshiba merge OA-Expect more OA Consolidation.
• NUGGET. Digital Transformation Japan – Still lots to do but legislation passed to expand DX that promotes the expansion in the use of My Number

• Except US banks to move from liquidity risks to credit risks
• Recently released US Senior Loan Officer Survey shows major tightening
• Focus on small banks’ CRE lending and credit card company net charge-offs 

• OVERSEAS.  Risk on as US Equities Jump on Debt Ceiling Hopes; China April House px rise;  Solid US Housing starts; Musk Says 2 new Blockbuster Telsa models to come.
• JAPAN.  NKY Futs 1.4% vs Cash; Japan Equities poised to make new highs on US rally and weaker yen;  Japan GDP print 1.6%, better than expected;  Chinese Tourist Back
• NUGGET. Rapidus aims to rejuvenate Japan’s semiconductor industry by developing advanced 2-nanometer logic semiconductors, with plans for a prototype production line by 2025 and mass production by 2027.

• Wafer demand in 2023 has fallen to just 86% of global capacity, the lowest in a decade
• Demand for Epitaxial wafers (used for Logic) is not going to recover until EOY’23. Demand for Polished wafers (used for Memory) will likely take until H2’24 to recover
• It could potentially take until 2026 for supply and demand to return to balance. 

• Our calls since last year have included focus on Manila’s Entertainment Zone casino stocks taking note of surging growth both before and post covid.
• We continue to guideBUY on the shares as we see growing acceleration of GGR increases.
• Latest results indicate growth both in domestic play as well as growing visitation from nearby Asian origin points, some of which is diverted from Macau.

• Nissan Motor Co. Ltd. posted a sharp drop in its China car sales last year as the Japanese company trailed many of its rivals in shifting toward electrification in the world’s largest auto market, where homegrown electric-vehicle (EV) brands are increasingly gaining traction.
• Nissan sold just over 1 million cars in China in 2022, a 24.3% drop on the year, according to its earnings report released on Thursday.
• In comparison, it booked respective annual drops in car sales of 5.2% and 5.8% in the two previous years. But the country is still the auto giant’s largest market, followed by North America, Japan and Europe, respectively.

• Strong demand for pad-optimal super-spec drilling rigs drove ICD’s solid 1Q23 financial and operating results.
• ICD generated 1Q23 adjusted EBITDA of $21.4 million on revenue of $63.8 million, up 16% from 4Q22.
• Adjusted EBITDA in 1Q22 was $3.6 million.