Thematic (Sector/Industry)

• Jerry Derviani, partner at Bengal Capital, discusses investing in the regulated cannabis industry since 2014
• Focus on unit economics and value creation in cannabis companies like Grown Rogue
• Opportunities for growth and success in expanding cannabis markets, such as New Jersey

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• Beji Sasaki is an unusual investor. He made a name for himself during the bubble economy of the 80s/90s as the ‘takeover man’ and despite not getting too much attention lately, he’s still active in the markets.
• He takes stakes in public companies and aims to improve profitability and wrest control.
• He’s an aggressive corporate raider looking to take control of public companies and maximize profits, a concept that’s anathema in Japan.

• U.S. stocks closed higher on Monday, with the S&P 500 rising 0.3% to a new record high of 5,719
• Tesla (+5%) shares rose after Wall Street issued a bullish delivery forecast ahead of its October robotaxi even
• Six of Japan’s seven major automakers are set to break records in capital expenditures and R&D spending this fiscal year

• Japan set to tick higher with more cuts on the horizon and markets mostly unchanged after yesterdays holiday.
• 6758 Sony announced a ‘State of Play’ where it will showcase 20 upcoming PS5 and PS VR2 games from 3rd party studios a day ahead of the Tokyo Games Show.
• Defence names may be in focus after Japan fighters fired flares at a Russian military plane which violated Japanese airspace three times off Hokkaido on Monday afternoon.

• AI is being recognized as a megaforce with trillions of dollars of impact on the global economy and broad implications across various sectors
• Investors are increasingly interested in the AI theme and its potential impact on portfolios, with a focus on what’s next in AI development
• The AI theme is still in its early stages, with advancements in technology, data growth, and computing power expected to drive exponential growth and value in AI over the next decade.

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• HDFC Bank is set to close a loan sale worth over $1 billion by September 2024
• Reliance Consumer Products Ltd. (RCPL) plans a nationwide FMCG expansion, extending its in-house brands
• SJVN generated 8,489 million units of green energy in FY24, despite hydrological challenges

• Meta faces $1.4 billion Texas biometric lawsuit settlement and a €1.2 billion GDPR fine for data transfers, alongside an FTC antitrust challenge targeting Instagram and WhatsApp acquisitions.
• Apple’s $26 billion annual deal with Google is under DOJ investigation for antitrust violations, while its App Store commission model faces increasing scrutiny, threatening a key revenue source.
• Google, holding 90% of the search market, is battling DOJ lawsuits targeting its advertising dominance, risking forced divestitures that could severely impact its $224 billion annual ad revenue.

• With the US interest rate heading lower, the HSI constituent companies with the highest gearing levels are the prime beneficiaries as their interest burden will lessen.
• Sands China (1928 HK), while it has the highest leverage, is not a near-term gain. This is because its debt structure with 100% fixed rate borrowings. 
• Based on the gearing level, floating rate proportion, and YTD performance, New World Development (17 HK) and Hang Lung Properties (101 HK) are the two potential best bets.

• The Federal Reserve made a pivotal move last week, cutting its policy rate by 0.5%—the first rate cut in four years and larger than the typical reduction
• Japanese stocks rallied strongly this week, with the Nikkei gaining 3.1% and the Topix rising 2.8%, as the yen weakened by more than 2 yen to 143 per dollar.
• Rotation into economically sensitive areas like machinery and chemicals – KHI, Resonac, and Fujikura all out performed

• Revenue Impact: Google’s ad segment may see a 5-10% drop due to stricter user data protections, reducing personalized advertising reach. 
• App Store Revenue Loss: Mandated alternative payment systems threaten Google Play and Apple’s app store revenue streams, cutting commissions. 
• Operational Costs: Non-compliance fines of up to 20% of annual revenue and the added costs for compliance systems intensify financial pressure.

• A review of recent events/data impacting our investment themes or outlook
• We take a look at how some of the markets we focus on reacted to the aftermath of the Federal Reserve Decision.
• China is watching key levels on the Shanghai Composite Index

• The Global Emerging Markets Weekly summarises the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
• Macro data points: Chinese industrial production, retail sales, and fixed asset investment data.
• Companies mentioned:Samsung Electronics (005930 KS), Xiaomi Corp (1810 HK), Tata Group (1396Z IN)

• Meta’s ongoing compliance with the DSA has escalated expenses, requiring a dedicated team of over 1,000 and an annual content moderation budget exceeding $5 billion. 
• The DSA imposes restrictions on targeted advertising, crucial to Google’s revenue, necessitating shifts toward less invasive methods, increasing operational complexity and long-term financial risk. 
• Compliance with the DSA and DMA could undermine Apple’s closed ecosystem, forcing it to allow third-party app stores, jeopardizing its revenue from App Store commissions.

• Global semiconductor sales for the month of July 2024 amounted to $51.3 billion, representing an increase of 18.7% increase YoY and a 2.7% increase MoM
• The July revenue number was the second highest monthly semiconductor revenue ever recorded, the highest being $51.7 billion in May 2022
• Increasing memory prices along with modest recoveries in both PC and Smartphone unit shipments will continue to drive semi sales higher through EOY 2024.

• AUCTUS PUBLICATIONS ________________________________________ ADX Energy (ADX CN)C; Target price A$0.75 per share: Production boost at Anshof in October – The ANS-2A sidetrack well has encountered a 6.5 m net vertical oil column in high quality Eocene-aged sandstone reservoir.
• The reservoir quality encountered at ANS-2A is consistent with ANS-2 (porosity and permeability ~20% higher than at ANS-3).
• The oil-water contact was encountered very close to the top of the water wet reservoir encountered at ANS-2.

• FED has finally decided to cut the interest rate by 50 bps and plans to another 50 bps cut in 2024.
• By end of 2025, policymakers expect 100 bps cut in rate and in 2026 another 50 bps cut.
• We analyse the impact of the rate cut on Indian Markets, and GDP.

• The semiconductor market is currently enjoying an AI-driven demand surge
• The past two demand-driven surges have turned into collapses as growth returned to the long-term trend
• When we compare the past two cycles to the current one, it appears that a collapse could occur relatively soon

• U.S. stocks soared Thursday, with the Dow Jones climbing 522 points (1.26%) to close above 42,000 for the first time
• European vehicle sales dropped 17% year-on-year to 755,000 units in August, with electric vehicle (EV) sales down 36%
• Japanese household financial assets reached a record 2,212 trillion yen (about $15.4 trillion) by June, rising 4.6% year-on-year, driven by higher share price

• Markets go risk-on with the Fed’s 50 bps cut a greenlight for AI/tech favourites to rebound sharply.
• New highs for homebuilders setting the tone for further gains the Sumitomo Forestry and Sekisui House, while logistics may be weak after FedEx numbers.
• Worth noting out-of-favour JP autos with high short interests and US sales ratios who may be squeeze targets with undeployed capital and foreigners coming back to the Japanese market post-Fed.

• ATAT US/TCOM US:Travel Volume During Mid-Autumn Holiday Slightly Increased Compared to 2019(+/+)
• 1519 HK/ZTO US: Parcel volume collection +28% yoy in prior week (+/+)
• XPEV US/LI US:Xpeng is rumored to launch an extended-range PHEV SUV next year.(///)

• NTES US: <Hearthstone> PC Preload Begins, Official Return on September 25 (+)
• 700 HK: Tencent’s <Peacekeeper Elite> Tops iOS Grossing Chart After Major Gameplay Update.(+)
• 700 HK: Tencent’s FPS Game <Delta Force> Pre-launch Character Creation Event Starts, Launch on September 26 (/)

• U.S. stocks closed with modest losses on Wednesday after the Federal Reserve cut interest rates by 50 basis points
• The Fed’s projections suggest a fed funds rate of 4.4% by 2024, with further easing into 2025
• Japan’s exports grew 5.6% in August, marking the ninth consecutive month of increase. Semiconductor-related goods drove growth

• Paladin fission deal facing opposition from CGN Mining, a subsidiary of China General Nuclear Power Corp
• CGN previously invested $82 million for a 19.9% stake in fission in late 2015
• Detailed background to the agreement between Paladin and fission revealed in 444-page information circular, showing fission’s eagerness for the deal and competitive process involved.

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• While maybe deflation may not be a concern right now, we believe that high real rates will be a consideration of the Fed
• With average lending rates at 8.5% in August and the All Urban CPI Index recording 2.5% inflation in the August, real lending rates are high at 5.97%
• When figures were similar, it was July/August 2007 – rarely has there been a time in recent years, where real loan rates have been so high, without Fed reaction

• Don’t expect initial ‘sell the fact’ reaction to Fed’s best-case 50 bps cut to weigh on Japan, with a lot of money on the sidelines in Asia to be deployed.
• Shin-Etsu via its PVC sub Shintech and the Japanese home builders with high US exposure continue to look attractive as rate cut plays.
• Further US export controls for allies on chip making equipment are imminent and names with lower China sales ratios remain the safer SPE plays.

• Hindalco to Invest INR 2,450 Crore in Gujarat Copper and E-Waste Projects
• JK Cement Plans INR 30 Billion Capacity Expansion by FY26
• Hindustan Zinc Unveils $2.5 Billion Expansion Plan to Double Output

• The S&P 500 closed slightly higher on Tuesday, gaining 0.03% to finish at 5,635 after hitting a record intraday high of 5,670
• Investors are focused on the Federal Reserve’s anticipated rate cut decision on Wednesday, with a 63% chance of a 50 basis point reduction
• Japan’s average land prices rose 1.4% in July 2023, marking the third consecutive annual increase

• Strawberry was a breakthrough. Some people ask, “What’s the big deal?” but feasibly, there is a new scaling law working in tandem with training, and that’s the Chain of Thought / Inference.
• The chart below is a bit confusing, but the conclusion is the longer the model “thinks,” the better the answer.
• The new model has another log-linear scaling law. It pretty much computes, and the Bitter Lesson wins again.

• Global renewable continue to outperform, although this is yet to be seen in Japan related names.
• Very little read from the US with the market firmly in wait-and-see mode ahead of the Fed.
• Kose sell-side meeting yesterday points to plans for global growth despite few specifics released for its new MTP set to be released in October.

• U.S. stocks closed mixed on Monday as expectations for a 50-basis-point rate cut by the Federal Reserve grew
• The dollar weakened as the yen hit a one-year high, with expectations growing for a significant Federal Reserve rate cut this week
• GU, Uniqlo’s sister brand, has opened a New York headquarters to oversee its U.S. expansion, coinciding with the launch of its first permanent U.S. store.

• AI has become a dominant topic of discussion among industry leaders, signaling a significant shift in focus over the past year
• Investment opportunities in AI extend beyond just a few mega cap stocks, with opportunities in chips, infrastructure, data and models, software applications, and services and solutions
• Tony emphasizes the importance of building a new computing infrastructure for AI, which is transforming industries and creating new opportunities for tech investors.

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• Granular data at Hang Seng Bank suggests a greater deterioration in both HK and China than is readily visible in headline numbers
• The bank’s China pre-tax profit is down 70% YoY in 1H24 and its total stage 3 loans are up 84% YoY in 1H24
• The bank’s credit-impaired loans for Hong Kong CRE rose from HKD1,081m to HKD13,485m, from 2H23 to 1H24

• Positive sentiment from Intel’s deal with AWS and extra Govt. backing may outweigh plans to delay its EU fab capex for JP SPE suppliers.
• Concerns iPhone 16 Pro preorders are below expectations to weigh on JP component suppliers, but can this be much of a surprise?
• The JP Govt. agreeing for 7&I to be designated as a ‘core’ company is not a show-stopper and may compel Couche-Tard to up their game.

• Adani Green and Adani Power secure 6.6 GW power supply deal, bolstering renewable and thermal capacity.
• Tata Electronics plans two more semiconductor fabs in Gujarat, enhancing India’s chip manufacturing capabilities.
• Reliance expands non-food retail space by 50%, focusing on boosting profitability and premium segments.

• Copper smelters are struggling for profitability but output is still rising, creating a relative concentrate imbalance in copper and zinc.
• Zinc mine output has declined year on year, leading to a tightness in concentrate supply and challenges for smelters.
• The electric vehicle market is facing challenges due to high costs and lack of policy support, especially in OECD markets, while China has a significant lead in the industry with lower costs and established supply chains.

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• Getting China property right is essential for investors who follow China equities because most companies, from cyclical to consumer, can’t be insulated from its downturn.
• China housing market is not collapsing as people feared; instead we see signs it is bottoming out with Xi’s pursuit of high-quality growth model starting paying off.
• We expect the sector’s strain on Chinese economy will ease moving into 2025/26, setting a favorable backdrop for most China’s consumer-oriented stocks.

• China M1 and M2 data disappoints and reinforces deflationary risks. Closely watched Consumer Sentiment barometer, new & used prices in top 70 cities, unequivocally weak
• . Rise in the dynamic of US auto delinquencies is cause for concern
• Corporate caution at investor conferences from Coca Cola Co (KO US) , Visa (V US), Mondelez International (MDLZ US), Wendy’s Co/The (WEN US), Dow (DOW US), 3M and Campari

• Apple iPhone 16 pre-orders weak and Questions on Apple Intelligence remain
• Big software investor days. Expect AI to feature big on hype, but what to expect from TAM to ARR to products?
• Semis: Samsung challenges, Intel relief but pressures remain, TSM momentum, this time with ByteDance 

• We review last week’s biopharma news for meaningful clinical data, regulatory updates, research innovation, and M&A.
• Last week started a busy season of medical and healthcare conferences, with obesity and cancer as major themes. SMMT led with Keytruda-beating (MRK) data in lung cancer, lifting TIL and BNTX with similar drugs.
• NVO boosted amylin class of obesity drugs with positive early data, including ZLDPF, GPCR, and VKTX. 

• Core inflation rates remain stubbornly high and real wages are still falling. 
• Surveys suggest one more major round of price hikes in October but the government still thinks prices will stabilise below its 2% target by the end of the year.
• The increases are lowering consumer confidence – bad news for most retailers, although major discount chains are making hay while the sun, well, doesn’t shine.

• Major central banks are shifting towards rate cuts, with the European Central Bank this week lowering rates to 3.5%
• Japanese stocks ended mixed: Nikkei (+0.5%), Topix (-1%), while the yen strengthened ~1 yen to 140.8/$.
• Ebara, IHI, and Softbank were among the major gainers this week

• Chinese banks are under strain as their deposits shrink in the wake of a regulatory crackdown on offering deposit rates higher than regulatory caps.
• In the first half of the year, many Chinese mainland-listed commercial banks saw a decline in their net cash flow generated from operating activities — a key indicator of lenders’ liquidity — Caixin calculations based on their interim reports show.
• Among China’s “Big Six” state-owned banks by assets, only Postal Savings Bank of China Co.