Thematic (Sector/Industry)

• OVERSEAS.  SPX Clings to Positive gains – barely; Powell Testimony in Focus;  Commodities Weak on dissappointing China growth target; GS upgrade Apple to BUY; Telsa cuts prices (again)
• JAPAN. NKY Futs Flat vs Cash; USDJPY 136; Progress on Japan-S.Korea Relation normalization; Public increasingly supports nuclear restarts;  Toyota rolls out BEV in China; Win for Rakuten in “Open Ran”
• NUGGET. AI Development platforms are being rolled around across Japan’s manufacturing sector to improvement R&D efficiency. This has the potential to drive significant value, especially in Japan Big Pharma

• China’s defense budget will reach Rmb1.55trn in 2023, a 7.2% YoY increase and up from 7.1% in 2022. This also equals to 1.22% of GDP, vs. 1.2% in 2022. 
• AviChina Industry & Technology H (2357 HK) has the most direct exposure to China’s aerospace and defense developments given its holdings in A-share defense stocks.
• Avic Shenyang Aircraft (600760 CH) will benefit from its unique position as the key manufacturer of aircraft, parts and components for China’s combat fighter fleet.

• Indigo and Spice Jet have turned to profits in Q3FY23.
• Indian Aviation sector is at infancy and the large market is consolidating. 
• However, rising ATF costs may restrict profit recovery, thus while valuations are reasonable and there is a long runway, it’s not yet the time to go aboard.

• WTR Sustainable Index: During the week ended March 3, 2023, the WTR Sustainable Index performed in line with the broader market, rising 2.0% W/W versus the S&P 500 Index (up 1.9%), the Russell 2000 Index (up 2.0%), and the Nasdaq Composite Index (up 2.6%).
• Energy Technology (8.5% of the index) drove the index performance, rising 4.4%, while Advanced Transportation Solutions (69.6% of the index) was up 1.2% and Industrial Climate and Ag Technology was up 3.4%.
• Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.0x versus 18.3x for the S&P 500.

• OVERSEAS. Strong Beta Close in US Markets, with SPX +1.6%; US 10YR Yield retreated to under 4%; Tech  w/SOX +1.5%, led by BroadCom. +5.7%;  Ford +4% on strong EV demand
• JAPAN. NKY Futs +0.9% vs Cash; USDJPY strenthens 135.8;  Expect follow on Beta/Semi bid on Broadcom sentiment lift; Govt to restrain EPCO px Hikes; Renesas, OAL, JAL added to NKY
• NUGGET: Advantest looks best positioned to benefit from the emerging boom in Generative AI.

• Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government’s conservative stance amid post-COVID recovery. 
• A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
• Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out – we have seen many cities planning to hand out consumption vouchers.

• 2M2023 retail sales of passengers vehicles down 21% yoy, the biggest decline in 10 years.
• Demand recovery is expected from March with signs of warming up starting in NEV segment after price cuts and local supportive police’s introduced 
• Cost friendly models would continue be preferred. i.e demand in mass market may be stronger than luxury market, PHEV segment may do better than BEV segment

• AI has been the talk of the town in 2023, and two products in particular, ChatGPT and Dall-E 2, have been making waves with their massive popularity and usage.
• ChatGPT hit the incredible milestone of 100 million users in just two months, so it’s no wonder investors and creators are excited about the productivity boosts and potential outcomes that AI can bring in the near future.
• Even mainstream media and tech leaders are heralding AI as the next big thing after the iPhone.

• One area that appears to be picking up steam is market participants increasingly seeking out alternative non-government published data to inform real time indicators on the health of the US economy, jobs, and inflation.
• There are many reasons alternative data sources are picking up importance including declining survey participation rates, significant and material revisions of prior published data, revisions to weightings or calculation methodologies, among others.
• In particular, the steady structural decline over the past decade of survey responses can lead to inaccurate signals and conclusions with high error rates.

• Shares of Chinese rare earth suppliers plunged Thursday after Tesla Inc. said it will reduce its use of the minerals in future electric vehicles to control costs.
• The leading electric-car maker is designing next-generation powertrain that will use a permanent magnet motor that doesn’t rely on rare earth materials, Colin Campbell, Tesla vice president for powertrain engineering, said at an investor meeting.
• The change reflects Tesla’s efforts to control material costs and reduce its involvement in the health and environmental risks of mining the minerals, Campbell said.

• The Nikkei and Topix indexes finished the week 1.73% and 1.57% higher
• A more flexible BOJ will be a good thing…just don’t expect too much too soon
• Mitsubishi Chem is looking to divest non-core assets….could they make use of more tax-efficient spin-offs

• 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: Chinese PMI data, South Korean exports, India GDP growth
• Companies mentioned:Naver Corp (035420 KS), Mediatek Inc (2454 TT), Foxconn Technology (2354 TT), Hon Hai Precision Industry (2317 TT)

• SPACs are still heading for the exits in droves.
• While the six IPO pricings that occurred last month would ordinarily be nothing to write home about, February 2023 happened to be the most active month for SPAC IPOs since May 2022, which was the last time a month produced six IPOs.
• However, while the six IPOs last May raised a total of $915 million in gross proceeds, last month’s IPOs raised about half that amount (~$500 million), reflecting the tougher prevailing fundraising environment.

• OVERSEAS. US Equities rise, defying higher yields and further yield curve inversion;  Fed’s Bostic out again – talking of a summer pause; Telsa Day: Musk’s Master Plan lacking details
• JAPAN. NKY Futs +0.7% vs Cash; USDJPY Weakens to ¥136.8 on stronger USD;  Expectations rise  BOJ Policy Change in June;  Invidual invetors shifting to risk assets; Strong Retail SSS
• NUGGET:Japan Video Streaming Wars: U-Next(9418) well positioned to flourish as consolidation kicks off in earnest.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Alec Tseung as he shares more about his thoughts on the Insurance Opportunities in China. From the trends in the industry, to its major players and catalysts, join us in this next installment as we dive deep into the topic alongside Alec.

The webinar will be hosted on Wednesday, 8 March 2023, 17:00 SGT/HKT.

Alec Tseung is a Fintech & EM-focused Analyst. He previously spent time with Tencent, where he was responsible for the group’s investments in the overseas markets (Southeast Asia, the Middle East, and Europe). Prior to Tencent, he was in the Principal Investments team at Swiss Re, where he focused on driving the group’s investments into financial services and Fintech sectors in APAC. He has been responsible for a wide range of investments and transactions (venture/growth, buyout, direct secondaries, etc.) totalled >$5 billion.

• The metals and mining market took a breath after a strong January with gold and copper pulling back 5% and 3%, respectively
• As full-year earnings roll in, the effects of inflation are taking hold with costs rising dramatically and earnings missing expectations
• Despite the February slowdown, we anticipate 2023 to be a standout year for both precious metals and base metals and encourage investors to position themselves accordingly

• OVERSEAS. US Equities down again as Bostic, Kaskari call for higher rates; US10 Yr touches 4%; China Drives Energy and Materials Bid; Awaiting TESLA IR Day (as we write)
• JAPAN. NKY Futs flat vs Cash; USDJPY 136.2 flat; Japan caught btw US rate hike Narrative vs China Recovery;  JP firms to hire more; ARM listing: UK loses to US
• NUGGET.  As Tesla’s Investor day in Focus;  Time to Refocus on their premier US battery supplier Panasonic, and the MASSIVE impact that IRA will have on earnings

• ZLAB: Merck’s Keytruda received repeated setbacks on treating prostate cancer, but the result cannot benefit ZLAB(/)
• 9995HK: RemeGen preannounced 2022 results, which is slightly better than our estimate
• 1877HK: JUNSHI preannounced 2022 result, which was worse than we expected

• OVERSEAS. SPX close near Feb lows as US 2Y hits 4.82%; Inflation –   Mkt sees higher for longer; AMAT disrupt ASML Monopoly? ;  GS gets thumbs down; TESLA DAY
• JAPAN. NKY Futs flat vs Cash; USDJPY 136.2;  Toshiba Deal in Doubt; Bullish Calbee Investment Plan; Chinese Real Estate Mkt looking up: + Daikin/Toto; Broker Sell D/G: Makita, Nippon Steel
• NUGGET:  Cyberagent – Loss Making Media business set for a turnaround. Looking discounted and the sell off since late 2021,  and given the outlook for its 3 businesses.

• Improved connectivity has led to an increase in leisure travel, resulting in reduced seasonality of the hotel business.
• Premium branded hotels have seen an increase in ARR due to an increase in customers’ spending power and demand for value.
• While entering the industry poses no major challenges, running a hotel is becoming increasingly difficult due to rising costs and competition.

• OVERSEAS.  SPX Gains (barely) after a brutal week; Durable Goods Ex-Transport point to economic resilience;  Beta/Growth> Value as Cyclicals rebound; JPM Quant Sees $50bn Selling if SPX breeches 3940
• JAPAN. NKY Futs +0.4% vs Cash; USDJPY 136.2; BOJ Gov Designate Ueda says no change to Easing for now; Japan Post Massive X-Share $9bn sale of Sub shares; Auto Upgrades
• NUGGETS NUGGET. Nidec’s E-Axle Future may rest with the Europeans, not the Chinese !

• With re-opening of borders, China’s tourism and hospitality industry should see encouraging earnings outlook over the next two years; and we are now only in the early stage of recovery.  
• Online travel agencies and hotel and resorts operators including Tongcheng Travel Holdings (780 HK), H World Group (1179 HK), Trip.com (9961 HK) and Fosun Tourism (1992 HK) are well positioned.
• These companies all have sound business model, industry leadership position, solid competitive strengths, comprehensive customer coverage and, for some, meaningful global presence in their respective sub-sectors. 

• Macau GGR forecasts for 2023 continue to be revised upward.
• Highest analyst call was for 2023 GGR of US$16b of baseline 2019. Morgan has now raised estimate to US$22b. Our call was US$18b.
• Speedier build of premium mass and mass segments than anticipated before Beijing lifted zero covid is clearly ahead. Sector stocks not yet reflecting full price implications in our view.

• Bitcoin could find the bottom and strongly rebounded in 1Q23. We believe BTC mining companies could be sellers of crypto assets on strong bounce and limit room for further upside. 
• Our bear case scenario assumes an average BTC price of $25K in 2023 with an opportunity to reach as high as $30K. Leading crypto miners began to offload Bitcoin holdings. 
• Investors should be more selective on the crypto miner names during a prolonged bear market. Our top picks include Marathon Digital Holdings, Riot Blockchain, and Cipher Mining. 

• After briefly dipping down to around 4.25%, last week saw a new cycle high for the closely followed 2 year Treasury yield breaking through the 4.8% level and ending the week at 4.814%.
• This came off the back of continued unfavorably strong inflation and spending data from economic reports issued over the past few weeks (Core PCE, retail sales, GDP, PPI, etc.).
• With the earnings yield on the S&P 500 is 4.68%, the equity risk premium on the S&P 500 (estimated earnings yield less 10yr treasury yield) is now the lowest since late 2007.

• XPEV: BYD cut prices for the older models of its Dynasty series (-)
• 700HK/SE/NTES: <Undawn> performance lower than expectation  (-/-/+)， hence we cut our estimation of annual gross billings of the game
• 9995HK: Daiichi Sangyo/Astra Zeneca’s ADC blockbuster DS8201 (Enhertu) approve by NMPA… Impact to Remegen is material in the long run (-)

• OVERSEAS.  SPX sees Red on Friday to  close -2.9%WoW as PCE Deflator heats up; Reality check for peak inflation camp; US 2Yr Yield highest since 2007
• JAPAN. NKY Futs -0.4% vs Cash; USDJPY 136.5 on strong USD;  BOJ Gov designate Ueda to follow Kuroda path – for now; Jan Core infl 4.2%; Fujitec: 3 directors booted
• DAILY NUGGET. Tale of two Markets: Bearish US Equities but Constructive Japan Equities.  When the data changes..

• China has pointed out to strengthen and expand cooperation with the industrial chain/supply chain of neighboring countries. Countries along the Belt and Road would be key partners in the future. 
• In addition to traditional low value-added consumables, a group of high-tech/high value-added equipment that conform to the technical trend are gradually becoming important export products, which implies great investment opportunities.
• We listed related companies that would benefit from the vigorous development of the Belt and Road project. Their global revenue proportion would further increase, which worth investors’ attention.

• Incoming BoJ Governor Kazuo Ueda told parliament that he was in no rush to end the bank’s low interest rate policy.
• Meanwhile, consumer prices rose 4.2% in January, a level not seen since 1981.
• Japanese stocks ended the week down 0.2%. Tech stocks were buoyed by Advantest (+7%) and Nikon (+5%)

• China unveiled the “No. 1 central document”, providing a good opportunity for domestic healthcare enterprises to develop rural medical market – Its market size cannot be ignored.
• The 8th national VBP has been officially launched last week. Pfizer is the most affected of all foreign big pharma, which would have certain impact on its China business. 
• We have noticed that the unified medical insurance code of traditional Chinese medicine (TCM) formula granules is accelerating, which seems to be paving the way for the future VBP.

• 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 exports, imports, PPI, and policy rates.
• Companies mentioned:Pinduoduo (PDD US), JD.com Inc. (9618 HK), NIO Inc (9866 HK), Taiwan Semiconductor (TSMC) (2330 TT)

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Michael J. Howell as he shares more about his thoughts on the global liquidity outlook for 2023. From questions like why liquidity is so important for investors, to tracking the global liquidity cycle, join us in this next installment as we dive deep into the topic alongside Michael.

The webinar will be hosted on Wednesday, 1 March 2023, 17:00 SGT/HKT.

Michael J. Howell is Managing Director at CrossBorder Capital, an investment advisory firm specialising in macro-investing. Founded in 1996 with an international client base, CrossBorder focuses on monitoring and understanding global liquidity and capital flows.