Thematic (Sector/Industry)

• OVERSEAS.  SPX +1.2% but all Action in Tech as SOX +5.5%; Barclay Sector upgrade spurs Semis; Fed Hikes in the rear view for now; Watch Copper – supply risks+China demand
• JAPAN. NKY Futs +0.9% vs Cash; USDJPY 130.65; Where US goes, Japan will follow: All about Tech; Kishida speech: Nuclear Power, Defense, Child support in focus; Wage hikes gather steam.
• DAILY NUGGET. Davos  on board with the coming of the Metaverse. We highlight this and think there are near term challenges.

• OVERSEAS.  SPX +1.9% to close on highs; Beta-driven rally as Tech rebounds;  Dovish talk from 2 Fed Members;  Google joins the fray slashing 12,000 staff; US Banks not far behind.
• JAPAN.  NKY Futs +1.3% vs Cash; USDJPY 129.6;  CORE Inflation hits 4%;  Kishida: too early to discuss BOJ 2% policy exit;  Japan courts global elite grads; Population declines in 2022
• DAILY NUGGET.  Change of Direction with new BOJ Leadership? Ha, policy direction has already been decided, and whoever the Govt selects will just continue where Kuroda left off.

• CPCA reported China’s 2022 EV sales of 6.49mn units, + 96.1% YoY, primarily driven by better market acceptance of EVs and favourable EV policies. 
• We think the fiercer competition will lead to divergence, which is already proven by Tesla’s price war. The followers such as Xpeng, could only be price takers and sacrifice margin.
• We reiterate Li Auto as our top pick, as 1) better profitability; 2) positive growth outlook in 2023. We cut NIO’s TP to US$ 18.

• The three companies we write about this week are ASML Holding NV (ASML US) , Bayer AG (BAYN GY)  and Gentex Corp (GNTX US)
• We included ChatGPT’s innovation assessment for the three companies in the report. The qualitative commentary of ChatGPT though fluffy does somewhat reflect our quantitative assessment from technical literature.
• For the nine weeks since inception ended 20 Jan the combined innovation portfolio was +3.5%, versus DJIA -1.1%, S&P500 +0.2%, Nasdaq -0.1%, Russell2000 +1.0%, MSCI-ACWI-ETF +3.1%, all in US$ terms

• Hope everyone had a nice weekend! Collisions Ahead? As some food for thought, I am listing out a few “collisions” I am focusing on in the short to intermediate term that I believe are important signposts to monitor.
• I am calling them collisions for now because markets usually never follow a nice and simple linear movement as competing forces, new trends, data, and developments emerge which is what make markets interesting and extremely difficult to predict in the short term.
• Below are 4 “collisions” I am keeping on eye on.

• 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 GDP growth, industrial production, retail sales, and house prices.
• Companies mentioned:DiDi Global (DIDI US), NetEase (9999 HK), Alibaba Group (9988 HK), Tencent (700 HK), XPeng (9868 HK)

• The semiconductor revenue decline took a short break in October.
• Spot market prices for DRAM and NAND flash have slowed their decrease.
• These are signs that the current market collapse is slowing, although we haven’t hit bottom yet.

• Japanese stocks shrugged off weakness in overseas markets to close up for the second week running
• All eyes were on the BOJ, which did absolutely nothing.  The Yield Curve will be defended at all costs
• Stocks on our watchlist returned about +1.5% this week. They have been consolidating for the past 6 months

• OVERSEAS: SPX down 3 in a Row as  Fed Hawks out in force; Oil bucks trend ;  P&G see weak sales; Musk makes it up on TESLA’s self driving
• JAPAN: Kishida Cabinet approval at record lows;  Activist ValueAct tgts S&i(3382); Spate of Street upgrades to BUY incl General Contractors at MS; Japan CPI on tap.
• DAILY NUGGET: Could be Nothing Burger but the costs of US default is rising as Debt Limit hit.

• Early indications that CNY arrivals will show a strong rebound from covid lows, green shoots are beginning to pop.
• Pent up demand estimates face their stiffest test over the CNY holiday when a surge of arrivals over the las three years is expected.
• Macau stocks have rebounded some, but CNY will be the biggest test of all.

• In 2022, Southeast Asia’s food delivery expenditure reached US$16.3 billion, growing by 5%, a report by Momentum Works showed.
• For the first time in three years, this growth was largely driven by smaller food delivery markets, namely the Philippines, Malaysia, and Vietnam.
• ‘Meanwhile, Singapore, Indonesia, and Thailand recorded a decline in gross merchandise value (GMV) in the past year.

• China’s game licensing regulator green-lit a fresh batch of titles for market for the third time in as many months
• January’s licenses are an upbeat sign from the NPPA, which follows regulatory signals in July that the permit process would be streamlined after years of uncertainty. 

• Games must have a license from the regulator before they can enter the market. Typically handed out monthly, licenses were issued just seven times last year after an eight-month freeze that ended in April.

• China’s major express couriers will charge more for their services over the Lunar New Year period

• Express couriers, which mainly serve e-commerce sellers, typically see a lower volume of packages over the Lunar New Year when those businesses shut down. 

• Consumers generally buy their new years goods around a month before the festival, when such firms plan for a rush.

• Take or pay contracts, inflation based price adjustments, excellent industry consolidation, diverse industry spread, lack of substitutes, stable margins defines much of the industrial gas sector. 
• The nature of capacity addition and contracts make the industrial gas industry is a “less cyclical cyclical” and is relatively stable even in times of severe downturns. 
• Linde PLC (LIN US)Air Liquide SA (AI FP)Air Products & Chemicals, Inc (APD US)  Nippon Sanso Holdings (4091 JP) are the leading players with almost 80% market share. 

• OVERSEAS: SPX snapp rally;  Eearnings refocus as GS misses; Tech bid continues;  TELSA +7% as analysts see merits of price cuts; Japan’s BOJ in focus.
• JAPAN: NKY Futs +0.4% vs Cash; USDJPY flat at 129.16. BOJ Day -this is all that matters.
• DAILY NUGGET: Sustainable Aviation Fuel thematic is ramping up. ANA and JAL recent annoucements highlight the commercial potential for the supply chain.

• More evidence is emerging that department stores will rely increasingly on wealthy VIP account holders to maintain sales in the future. 
• The wealthy are also getting younger and department stores are adapting, using digital services which are also cheaper to run.
• With luxury prices up and the inbound trade also coming back strongly, the outlook for the better stores is positive – even though the sector overall will continue to contract.

• 2023- Coming in With An Open Mind After an ugly 2022, it’s important to “clear the decks” and keep an open mind to what may or may not be working for 2023.
• Coming into this year, there is tremendous clamoring over recession fears given weakness in forward looking leading economic indicators, CEO/CFO surveys, and business media talking heads.
• As an investor, remaining open to different ideas, scenarios, and sectors is important as to not get tethered to siloed thinking.

• OVERSEAS:  US MLK Holidays – World markets directionless;  US Equity Futs flat; European Markets bid on Inflation peak;  BOJ decision to lead markets this week.
• JAPAN:  NKY Futures +0.2% vs Cash ; USDJPY flat at 128.52 ; BOJ speculation dominates local headlines;  Kuroda heads to Davos = no fireworks? ;  Dec Machine Tools orders +1%YoY
• DAILY NUGGET:  Fast Retailing and Sustainability: Set to introduce a new repair service in its domestic stores.

• Two US banks saw more than 80% of their net interest income delta erased by credit costs
• Many US banks are seeing sharply higher credit costs in 4Q22 from reversals a year ago
• Loan growth is decelerating in 4Q22 compared with 3Q22, not a positive outlook

In this next webinar we will speak to Smartkarma Insight Provider, Michael Causton about his top picks in the Japanese Retail and Consumer Market space. With the Japanese retail and consumer markets facing major catalysts for change like high levels of inflation, higher wages, and a labour shortage, what can we expect from the space, and what exactly it will take for Japanese retailers to thrive under these changes? 

The webinar will be hosted on Wednesday, 25 January 2023, 17:00 SGT/HKT.

Michael is co-founder and partner at JapanConsuming. JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports and seminars on retail sectors and consumer trends, as well as telephone consulting/meetings with investors. All of JapanConsuming’s team are bilingual and bi-cultural, and the company’s research sources are: Direct meetings with retailers, wholesalers, distributors, trade body staff, govt., marketing firms, academics etc. Govt. data Trade association data Trade Press across all consumer sectors Unique Network of buyers/managers/marketing staff at retail, as well as wholesalers and trading firms. Editors/Journalists at publishing houses and PR/Ad firms. JapanConsuming was founded by Michael Causton and Roy Larke. Michael Causton set up and ran a consumer distribution business in Tokyo for 10 years and developed this into a business responsible for annual imports to Japan of several billion Yen, at the same time building up an inside knowledge of how Japanese distribution works and developing a network of contacts across the industry. Seeing the lack of quality market intelligence on Japanese markets, he co-founded JapanConsuming in 2000. He divides his time between Japan and Europe/US consulting for companies, governments and investors, including providing talks, seminars, and webinars as well as writing reports and books.

• OVERSEAS: SPX +0.4%DoD +2.7%WoW; Semi run continues with SOX +0.4%DoD +6.2%WoW; Beta and Growth the big WoW winners;  Fed’s Bostic leans to 25bp hike; Tesla cuts prices
• JAPAN:  NKY Futs -1.3% vs Cash;  JGB 10Yr Yld hits 0.512% despite BOJ 10trn yen buying; USDJPY up to127.87;  DECARBONIZATION: Resonac (Showa Denko) expansion; Toray  expansion; METI CCS roadmap
• DAILY NUGGET: Slowing EV sales in China ? Maybe, but its still the largest EV market in the world. We see Nidec as the best way to play.

• China issued the “Outline of the Strategic Plan for Expanding Domestic Demand (2022-2035)”, where some statements are different from those in the  “14th Five-year Plan” and the 20th National Congress report.
• We analyzed our interpretation and speculated the “wind direction” behind the difference in statements, so as to identify some possible changes in China healthcare industry in 2023.
• The Outline is not only in line with the adjustment of COVID policies,but also highly relevant to the major contradictions/changes in internal and external situations. Investors need to follow the trend.  

• We again write about one stock each from the large, mid and small cap portfolios, briefly giving the reasons for their inclusion.
• The three companies we write about this week are Bank Of America (BAC US)3M Co (MMM US) and SKF AB (SKFB SS)   
• For the eight weeks since inception ended 13 Jan the combined innovation portfolio was +4.2%, versus DJIA +1.7%, S&P500 +0.9%, Nasdaq -0.6%, Russell2000 +2%, MSCI-ACWI-ETF +3.2%, all in US$ terms

• The Saga surrounding Okada Manila and the efforts by a US-listed SPAC to bring the Philippines integrated resort operator public is one of the more unusual events concerning SPACs in recent memory.
• The deal, which was announced as far back as October 2021, valuing Okada at $2.6 billion, has been stuck in Limbo amidst a heated battle for control.
• After several twists and turns, the SPAC dealmakers & current management are still looking to close the deal, recently taking a one-year extension.

• 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: Taiwanese exports, Indian GDP, Chinese inflation and trade data, South Korean interest rates
• Companies mentioned:Alibaba Group (9988 HK), Ant Financial Services Group (6688 HK), BYD (1211 HK), Tencent (700 HK)