In this briefing:
- Monthly Geopolitical Comment: Too Early to Expect Lasting Improvements in US-China Relationship
- Semiconductor WFE Billings Decline Reverses Course in December, First Bullish Signal in Six Months
- Global Ex-U.S. Equity Strategy: MSCI EM in Early Stages of Bottoming
- Japan Stock Weekly
- GER Upcoming EVENTS and Earnings Calendar
1. Monthly Geopolitical Comment: Too Early to Expect Lasting Improvements in US-China Relationship
In our base case, we do not expect the trade war between the US and China to end soon. The next bilateral meeting between Liu He and US Trade Representative Robert Lighthizer is scheduled at the end of this month. If the Chinese side is hoping to placate the US with promises to purchase US commodities, this is unlikely to be sufficient to achieve a lasting improvement in the relationship. We are sceptical that the Chinese leadership will agree to launch structural reforms under pressure from the US.
Elsewhere, we are concerned with growing geopolitical and security risks in Nigeria where both presidential and parliamentary elections are scheduled in February. The relations between Turkey and the US have also soured ahead of the Turkish local elections. In Poland, the assassination of the Gdansk mayor put the polarisation of the society into the spotlight ahead of the parliamentary elections due this autumn. There are signs that the US is about to ramp up pressure on Russia after newly elected Democratic House members filled their seats earlier this month.
2. Semiconductor WFE Billings Decline Reverses Course in December, First Bullish Signal in Six Months
On January 24’th 2019, SEMI announced that Wafer Fab Equipment (WFE) billings for North America-based manufacturers of semiconductor equipment amounted to $2.11 billion worldwide in December 2018. This represents an 8.5% MoM increase, although still lower YoY by 12.1%. December’s data marks the reversal of a six month long downtrend in monthly billings, a bullish signal that the WFE segment has bottomed and better times lie ahead.
This latest billings data coincides with WFE bellwether Lam Research (LRCX US)‘s latest earnings report which slightly exceeded guidance with revenues of $2.5 billion, up 8.7% sequentially. On the call, company executives stated that first quarter CY 2019 would mark the trough from a gross margin perspective, strongly implying that it would be the same for revenues.
LRCX shares surged 15.7% in overnight trading triggering a rising tide that lifted large swathes of semiconductor stocks, particularly those within the WFE sector. Two swallows don’t necessarily mean it’s Spring, but for now, the markets are betting that it does.
3. Global Ex-U.S. Equity Strategy: MSCI EM in Early Stages of Bottoming
Our overall global outlook remains cautious and continued downward pressure on global equities remains our expectation. One bright spot is EM (more on this below), which continues to give us hope that global equities can bottom out. We provide a technical appraisal of major markets and highlight actionable setups within the global Utilities and Staples Sectors.
4. Japan Stock Weekly
Tosei (8923) BUY – a very cheap small cap real estate developer
Hikari Tsushin (9435) BUY – 25% off recent highs, this is essentially a stock business that will continue to add to its installed base and grow profits.
Don Quijote (7532) BUY – oversold on the failure of FamilyMart bid and poor December sales.
5. GER Upcoming EVENTS and Earnings Calendar
Next week promises to be a large catalyst driven week, with Apple Inc (AAPL US), NTT Docomo Inc (9437 JP) and Tesla Motors (TSLA US) expected to report results, among others. We have provided a list below of the key equity catalysts for next week as well as potential drivers for M&A deals and stubs. If you are interested in importing this directly into Outlook or have any further requests, please let us know.
Kind regards, Rickin Arun and Venkat
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