In this briefing:
- Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
- India Monthly Report Nov-Dec 2018
- India: How “Free Electricity” Schemes May Be Linked to Excellent Industrial Growth Numbers?
- Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
- RRG Global Macro – US Fed Positive Outlook – Stocks Fall. Politics Take Over from Fundamentals
1. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
After months of skirting around inventory build-up and a weakening demand outlook, Micron used their latest earnings report to call closing time on a revenue and profitability party that began in Q4 2016 and just got better and better with each passing quarter.
Micron reported Q1 FY2019 results on December 18’th and while revenues were largely in line with recently lowered guidance from the company, their outlook for both Q2 and 2019 as a whole was worse than even the most bearish of expectations.
Citing high inventory levels at key customers, Micron guided Q2 FY2019 revenues for $6 billion at the midpoint, down a staggering $1.9 billion, 24% QoQ and 18% YoY. At the same time, Micron revised down their CY2019 bit demand growth forecast for both DRAM (from 20% to 16%) and NAND (35%, the bottom of the previously forecasted range). The company plans to adjust both CapEx and bit supply output downwards to match.
In the wake of their guidance bombshell, Micron’s share price closed down almost 8% the following day to end the session at $31.41, a level last seen in August 2017. Micron is unique in reporting out of sync with its industry peers, making it the proverbial canary in a coal mine. The company’s gloomy outlook and clarion call for further CapEx reductions in a bid to rebalance supply and demand spells troubled times ahead for an already beleaguered semiconductor segment ahead of the upcoming earnings season.
2. India Monthly Report Nov-Dec 2018
The Indian indices have been seeing an ebb and flow with bearish indicators accounting for market dips with a recovery towards the end of the period. Overall the Indian indices have outperformed the global market this month with positive returns across sectors except for pharma and the metal sector.
Returns in USD
3. India: How “Free Electricity” Schemes May Be Linked to Excellent Industrial Growth Numbers?
If we look more closely at the latest Industrial Production (IIP) increase data which reported a strong overall growth of 8.1% yoy, we find a mixed picture emerging on the component wise contribution and growth across categories. The industry group ‘Manufacture of furniture’ has shown highest positive growth of 41.0% followed by 39.0% in ‘Manufacture of wood and products of wood and cork’, which is not as such the indicators of robust capacity creation for an economy. There are other interesting data points as well. Among top five item groups with positive percentage increase in production, some are purely consumption items which will have rather limited impact in terms of long term positive implications for the country.
But, what is that we are most worried about? For several previous months, IIP growth data is getting massive support from huge growth in electricity consumption. Electricity has contributed the most in growth even in October data (almost 20% more than mining, the second most important contributor and the one which has double the weight as compared to electricity). But, this could also be primarily driven by Government schemes such as SAUBHAGYA and other initiatives for rural electrification which are in overdrive. If this is not managed well, massive growth in electricity could lead to more stress for DISCOMs (power distribution companies) and that could be harmful for the entire power sector.
4. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.
Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:
Company | Share Price 27 Dec 2017 | Share Price 20 December 2018 | Dividends | % Total Return |
0.70 HKD | 0.88 HKD | 0.01 HKD | +27% | |
0.20 SGD | 0.27 SGD | 0.0 SGD | +35% | |
2.39 HKD | 2.82 HKD | 0.147 HKD | +24% | |
0.84 SGD | 0.85 SGD | 0.02 SGD | +3.5% | |
1.44 MYR | 0.32 MYR | 0.0 MYR | -79% |
4 out of 5 had a positive performance.
Below I will make a new attempt to provide five high conviction ideas going into 2019.
5. RRG Global Macro – US Fed Positive Outlook – Stocks Fall. Politics Take Over from Fundamentals
- US: Stocks fall on political turmoil despite positive noises from the Fed with a dovish rate hike, a reduction in expected 2019 hikes and positive trends on employment and inflation.
- Russia: Unexpected 25 bps rate hike in the face of higher inflation in Nov. Watch for impact of lower oil prices in coming quarters.
- Turkey: Economic developments remain negative. The outlook for retail sales is poor as the economy in general is faltering.
- Indonesia: Trade deficit in November. Exports down 3.3%; imports up 11.68%. This disappointing performance could be the beginning of a trend.
