Thematic (Sector/Industry)

• OVERSEAS. SPX closes with gains,  Financials and Industrials lead; TSMC to cut capex – hits global SPE stocks; Samsung to (partially) abondon Google ? 
• JAPAN. NKY Futs +0.3% vs Cash; USDJPY 134.5 as new Gov Ueda says he will stay the (dovish) course; Activists sharpen knives ahead of Japan AGM season
• NUGGET. Nissan decouples from Renault- but at what cost ?

• The three companies we write about this week are CATL (A) (300750 CH) , Kimberly Clark (KMB US) and BlackBerry Ltd (BB CN) 
• For the twenty-one weeks since inception ended 14 April the combined innovation portfolio was +3.6%, versus DJIA +0.4%, S&P500 +4.3%, Nasdaq +8.8%, Russell2000 -3.7%, MSCI-ACWI-ETF +6.2%, all in US$ terms
• For the same period the small cap innovation portfolio was up +5.9%, the mid cap portfolio was up +4.4% and the large cap portfolio was up +3.4%

• It is the time to reassess the commercialization performance and the outlook of China biotech companies, including BeiGene, Innovent, Henlus, Zai Lab, Hutchmed, Junshi, RemeGen, Innocare, Akeso. 
• We summarized the data of these biotech companies’ product revenue and profit performance to judge whether their commercialization capability is sufficient to afford production, sales teams and long-term R&D activities. 
• Most China Biotech cannot be said to achieve “commercialization success”, but they have showed some difference.We hope investors could have a better understanding about China biotech and make better decisions. 

• Broad equity indexes booked their fourth straight week of positive returns, with the MSCI World Index and the S&P 500 up 1.23% and 0.79%, respectively.
• Small caps followed suit, with the Russell 2000 gaining 1.48% this week.
• Cannabis stocks slid for the sixth straight week, with the MSOS ETF declining 0.56%. It was shaping up to be a good week until the MSOS ETF fell 3.97% on Friday.

• OVERSEAS. SPX  up +0.8%WoW but slipped -0.2% Friday as Hawkish Waller came out amid weak US March Retail Sales data;  Musk jump’s into Generative AI; Boeing Production Woes
• JAPAN.NKY Futs flat vs Cash USDJPY 133.8; Security Concerns ahead of by-elections as PM Kishida smoke Bombed;  Panasonic to build 3rd US batt plant; JT ramps up heated stick products
• NUGGET. Elon Musk’s aggressive push into Generative AI to rival/beat ChatGPT; A boon for NDVIDIA and by extension, Japan’s Advantest(6857)

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Stanley Tsai, CFA as he will be sharing with us his insights on the performance and outlook of banks in China. Join us, as Stanley tackles topics like possible triggers for a banking crisis in China, to how the evolving regulatory environment will going to change investors’ risks / rewards, in the next live session. 

The webinar will be hosted on Wednesday, 10 May 2023, 17:00 SGT/HKT.

Stanley Tsai, CFA has over 20 years of experience as a financial sector specialist across equities and fixed income. He is currently an advisor to a private investment fund and a non-executive director of a US VC fund. He is also a member of the Value Investing Committee and Media Committee at the CFA Institute of Hong Kong.

• JPM and Citigroup results may imply radical divergence amongst US banks
• Deposit flows into big banks, out of small banks, may be just one feature 
• Commitment risk, loan contraction, and net interest income can surprise

• 9995HK: ADC gets heated up with another biotech license in biotech deal (-)
• 9926HK：Akeso’s JV with SinoBio signed exclusive distribution of PD-1 drug with SE Asia and Oceania distributor
• BGNE.US: Merck KGaA’s BTK inhibitor drug hit with FDA hold due to liver injury…Impact to BGNE nil

• With the upcoming first quarter earnings season taking center stage the next 3 weeks, there is yet again a well overdue reprieve from the back and forth focus on hiking, pausing, and cutting next steps of the Federal Reserve.
• The focus now goes back to company earnings and forward guidance and whether slowdowns picked up on ISM, PMI, and regional Fed surveys are now making its way through earnings reports.
• While still early, the first 22 S&P 500 Index companies reveal a 20% drop in earnings QoQ.

• March revenue numbers from the Taiwan semi ecosystem are surprisingly good.
• The sequential decline in Q1 2023 PC unit shipments was at the low end of the predicted range
• Quanta, a leading ODM Direct Server manufacturer,  had an unexpectedly strong first quarter. 

• The Global Emerging Markets Weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
• Macro data points: South Korean interest rates, Chinese CPI and trade data
• Companies mentioned:Alibaba Group (9988 HK), Softbank Group (9984 JP), Tencent (700 HK), Prosus (PRX NA), DiDi Global (DIDI US)

• Globally stocks were strong this week. Ditto for Japan where the Nikkei and Topix indexes finished the week 3.5% and 2.7% higher, respectively
• The biggest news of the week was that Warren Buffet visited Japan, met with trading companies that he owns, and said he may buy more 
• Fast Retailing was the standout performer this week, surprising the market with a strong Q2 report

• Full year 2022 annual results indicate that SOEs CRL and COLI are holding up, while smaller developers are still under liquidity pressure
• In terms of the physical market, contract sales rebound strongly in Q1, with SOEs to gain market share over POEs
• Sunac announced resume trading today (down 53%), but sector risk is still here.  Part of the risk is priced in at current valuation for sector, but SOEs are not cheap 

• Oligopolistic structures, market dominance doesn’t necessarily translate into pricing power.
• As some consumer focusing firms aren’t price takers and their business inherently cyclical – sustaining premium valuations are at risk.
• A dominant co., in a mega trend or amidst underlying structural change could be a formidable play to sustain both – pricing power and premium valuations. 

• We suggest that AIGC will be a short-term driver for the major companies in the online gaming industry. It could assist the rise of small-to-mid-size companies in the long run.
• In the next 1-2 years, we expect that Tencent and NetEase’s EPS may improve by 13%/24% because of AIGC.
• By adding more AIGC functions, Unity may also increase customers’ retentions in the near term. Maintain BUY to Tencent, NetEase, and Unity.

• OVERSEAS. Inflation Benign but Fed Minutes point to (mild) recession with Hawkish bent for addl rate hikes;  US  Equities close in the red, giving up early CPI driven gains
• JAPAN. NKY Futs -0.6% vs CASH; USDJPY 133.1; Japan Population falls below 125 million in 2022 – increases worries on low birthrate/aging society; Activists gear up ahead of Japan AGM
• NUGGET. Japan Post (6178) – this low pbr stock is undergoing transformation in many areas – from balance sheet to operations. If they can execute….

• We highlight 14 stocks in ASEAN that look interesting to us based on our FVMR Methodology
• Seven stocks remain, and seven stocks added to our portfolio
• Since its inception, the portfolio has generated a before-fee total return of 177% versus MSCI ASEAN’s 27%

• We highlight 14 stocks in Asia that look interesting to us based on our FVMR methodology
• Four stock remains, and 10 stocks added to our portfolio
• Since its inception, it has generated a before-fee total return of 106% versus the MSCI Asia ex Japan of 61%

• Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. 
• With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. 
• Shenzhen International (152 HK), ENN Energy (2688 HK), Shenzhen Expressway (548 HK) and Kunlun Energy (135 HK) are key beneficiaries, while CIMC Enric (3899 HK) may turned into exchange losses.

• The market of biopharmaceuticals and CDMO keeps growing, with CAGR of about 10%. However, CGT is the “outlier”. The whole story of CGT business isn’t persuasive at the current stage.
• Lonza is still the leader.WuXi bio has secured the second place. Samsung Biologics is catching up in terms of profit margin. Different production capacity structures can bring about different changes.
• Industry concentration of CDMO would further increase, making it difficult for new entrants to seize orders from Top CDMOs.We advise investors not to spend too much time on small CDMOs.

• ASPs & bit shipments decreased by high single digits percent QoQ
• Anticipated recovery in H2 ’23 will be slow & gradual
• The potential for inventory write-downs remains a headwind but March revenue MoM increase is a hopeful sign

• NIO: Wait times for NIO ET5 shortened to 2 weeks (-)
• 700HK: Tencent games now able to buy traffic on Bytedance (+)
• BABA: Alibaba unveils implementation plans for its LLM AI and price cuts for Cloud (+)

• OVERSEAS.  SPX flat on the day as catalysts lacking; Tech down ahead Wed’s  CPI as momentum builds for rate hike;  Broad strength in cyclicals – underlying economic strength?
• JAPAN. NKY Futs +0.4% vs Cash; USDJPY  133.7;Buffet says he looking to raise Japan equity weighting; MHI awarded big defense contract for missiles: Denso gears up for EV transition
• NUGGET.  Toyota gets serious in BEVs – we are excited about the prospects for the supply chain, particularly Denso and Panasonic

• With food inflation exceeding 8% in December, prices have become the focus for all supermarket retailing. 
• This is good news for those that are set up for price competition but it presents a serious challenge to the majority of chains.
• The net result will be a widening gap in performance between the best and rest, with the former delivering both top line growth and rising margins.

• Semiconductor revenues remain in a decline, although that decline has slowed.
• Prices appear to have reached cost.  They should follow cost declines until a shortage returns.
• The timing of the next shortage is still in question.

• Just before Beijing lifted zero covid, proejctions for the 2023 year ranged from US$9B TO US$16B. Bothe have proven significantly below revised estimates now.
• Since the end of zero covid, JP Morgan and USB have lifted their Macu GGR projects to US$22b. Our analysis effective with end of 1Q23 ranges higher to ~US$24–US$25b.  
• Adding non-gaming revenue at 14% to expected GGR is above the historic 10% pre-covid. Moving more non-gaming revenue is mandated by Macau’s extension of concessions.

• Samsung’s Q1 2023 operating profit has collapsed to 0.6 trillion Korean won (TKW), down from 4.31 TKW in Q2 2022 and 14.12 TWK in Q1 2022
• A promise to “meaningfully lower” memory production sent competitor shares soaring, presumably in anticipation of a faster end to the current memory downturn.
• The memory production cut report is elusive and vaguely attributed. We don’t anticipate a return to meaningful profitability in the memory segment until Q1 2024. 

• BIDU ：More companies announce / release large language model projects（-）
• BABA / SE: Brazil cancels tax exemption for cross-border ecommerce (-)
• PDD: Shein begins inviting 3P merchants to its platform (-)

• 700.HK/ IQ： Tencent Video and Douyin reach strategic cooperation （+/-）
• NIO: NIO to allow consumers to lock in EC7 orders starting Apr 10 （+）
• ZLAB/1801HK: ZaiLab started FGFR2 mAb Phase III trial for Gastric Cancer in China (+)

• Rivals ByteDance Ltd.’s Douyin and Tencent Holdings Ltd. have reached a deal to collaborate on video content, marking the latest move toward reconciliation between the two Chinese tech giants that have been locked in copyright disputes for years.
• Under the agreement, Douyin — the Chinese version of TikTok — and Tencent Video will explore cooperating on areas including joint promotion of long and short videos as well as generation of secondary content, Douyin said in a statement on Friday.
• The short-video platform said that Tencent Video will authorize the use of its copyrighted long videos to Douyin, and that rules over the creation of secondary content and publication have been clarified.

• LKNCY: Luckin Coffee launch new flavor Mint Coconut latte, and co-brand with Doraemon, but with no expectation to be the next blockbuster(+)
• BGNE/9969HK:Abbview & J&J voluntarily withdrew two major indication of IMBRUVICA, a known positive to BeiGene but within our expectations (+)
• ZLAB: GSK’s court battle loss to AZ likely will not affect Zai Lab’s royalty obligation on Zejula (/)

• PDD / JD: PDD launches electronic product consumption promotion (-/-)
• JD: JD to implement new AI model for customer service (+)
• LI: Li Auto to unveil all-electric solution on Apr 18 (+)

• Stock indexes finished the holiday-shortened week almost exactly flat, as the MSCI World Index and the S&P 500 ended at 0.01% and -0.05%, respectively.
• Smalls caps followed suit, with the Russell 2000 down 0.01%.
• As has been the trend lately, cannabis stocks declined. The US cannabis-focused MSOS ETF dropped 6.36%, led by Curaleaf (CSE: CURA, OTCQX: CURLF), which was down 15.35%.

• Q1 2023 revenue of ~US$16.7 billion was at the bottom end of the guided range 
• Despite the inauspicious start, Q1 revenue still represents sequential growth of 3.6% year on year.
• TSMC’s earnings commentary on April 20 next will set the stage for how recovery looks across the broader semiconductor industry

• WTR Sustainable Index: During the week ended April 7, 2023, the WTR Sustainable Index underperformed the broader market, falling 9.0% W/W versus the S&P 500 Index (down 0.1%), the Russell 2000 Index (down 2.7%), and the Nasdaq Composite Index (down 1.1%).
• Advanced Transportation Solutions (70.0% of the index) contributed to the index underperformance, falling 10.4%, while Industrial Climate and Ag Technology (22.3% of the index) was down 4.5% and Energy Technology was down 8.9%.
• Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 26.6x versus 18.8x for the S&P 500.

• OVERSEAS. Good Friday holidays. US Economy proving to be pretty resilient. Non-farm payrolls showed hiring continued to be strong in March. NFP was 236k vs Cons 230k. Telsa cuts prices(again)
• JAPAN. NKY Futs +0.5% vs Cash as US Equity(Cash) markets closed. USDJPY 132.2. Likely see some beta led reversals of losses seen in the latter half of last week.
• NUGGET.  Kuroda bids Farewell after 10 years as BOJ Governor. He created a new playbook on monetary policy that will be studied for years. Net-net, positive outcome.

• Investors should note that even when there’re technical bottlenecks and domestic enterprises’ products are not yet mature, the government would still start centralized procurement, such as cardiac pacemaker.
• The FDA has changed game rules and tighten the standards for accelerated approval. Together with the IRA, will the US really start limiting drug prices due to economic/financial pressure?
• The relationship between fundamentals and stock prices is complicated. Beta would disappear without fundamentals, because fundamentals include not only objective facts, but also those generated by consensus brought by cognition.

• February 2023 effectively marked the 13th consecutive month of declining semi sales making it one of the most protracted downturns of the past two decades. 
• However, we are beginning to see green shoots of recovery from the likes of Foxconn, Asus and Nanya
• We predict semi sales will trough in Q2 2023 and begin a gradual recovery through H2 2023

• JD: Douyin new merchant services aims to improve eCommerce quality (-)
• BABA/PDD: Taobao begins to roll out “99 Bargain” portal (-)
• 1024HK / 3690HK: Kuaishou resumes exploration of local services (+/-)

• BILI: Some BILI content creators reportedly cease to upload videos due to monetization(-)
• BEKE: Housing transaction volume continue ramp up in March 2023(+)
• 9995HK: BioNTech signed ADC license deal with a Chinese startup (-)

• JD: JD plans listing of its MRO distributor subsidiary JD Industrials (+)
• PDD: Reports indicate that small merchants rebel against PDD policies (-)
• 981HK/1347HK/650HK/ACMR: Japan announces restrictions on exports of semiconductor equipment (+)

• The Global Emerging Markets Weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
• Macro data points: Asian PMI data, South Korea exports and inflation, Thailand inflation, Philippines inflation, China Caixin PMI
• Companies mentioned:SK Hynix (000660 KS), NCSOFT Corp (036570 KS), Kakao Corp (035720 KS)

• It appears as though off balance sheet lines are moving on balance sheet
• We should not confuse loan growth from off balance sheet as positive
• Credit costs can now rise from a myriad of factors, including off B/S