KGI Asia Commentary

2023.01.20 09:00

Hang Seng Index fell 27 points on Friday

The Hang Seng Index fell 27 points or 0.1% to 21,650 on Friday. HSTECH fell 74 points or 1.7% to 4,449 and HSCEI fell 27 points or 0.4% to 7,312. Daily market turnover was HK$92.5bn.

Stocks fall on Thursday on expectations the Fed will remain hawkish for longer

Stocks fell on Thursday as investors grew increasingly concerned that the Federal Reserve would keep raising interest rates despite signs of slowing inflation. The Dow Jones Industrial Average fell 252.40 points, or 0.76%, to 33,044.56, posting its third straight session of losses and giving up gains from the New Year's rally. The S&P 500 fell 0.76% to 3,898.85 and the Nasdaq Composite lost 0.96% to 10,852.27. Stocks extended losses after the U.S. Labor Department reported that initial jobless claims fell to the lowest level since September on Thursday, signaling to investors that the labor market remains strong. Federal Reserve Governor Lael Brainard said on Thursday that“even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis”. Among tech stocks, Netflix (NFLX) rose 7.3% in after-hours trading after the streaming giant reported quarterly results after the close. Netflix reported weaker-than-expected fourth-quarter results, but subscriber additions topped expectations. Netflix added 7.66 million subscribers, well above expectations for 4.6 million, and said it was "very optimistic" about its new advertising tier streaming model.

Initial jobless claims fall less than expected

The Labor Department said on Thursday that initial claims for unemployment benefits fell 15,000 to a seasonally adjusted 190,000 in the week ended January 14, less than the forecast of 214,000; continuing claims for the week ended January 7 increased by 17,000 to 1.647 million, compared with the expectations of 1.655 million. U.S. housing starts fell for a fourth straight month in December, meaning a disappointing year for the sector, with annual housing starts falling for the first time since 2009. Residential starts fell 1.4% to an annualized rate of 1.38 million units last month, the lowest in five months. Housing starts fell 3% in 2022 after surging the previous year. Meanwhile, applications to build, a sign of future housing activity, fell 1.6% to an annualized 1.33 million units in December, the lowest level since May 2020 and missing market expectations of 1.365 million units, but the decline slowed from the previous month.

Hong Kong Stock Connect had a net inflow of HK$1.12bn on Thursday, of which Meituan (3690) had the largest net inflow, reaching HK$0.61bn; followed by Koolearn (1797). Tracker Fund (2800) recorded the largest net outflow at HK$1.8bn, followed by HSCEI ETF (2828).

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Tencent
00700

China's National Press and Publication Administration announced that, in January 2023, a total of 88 domestic online games have been granted publishing licenses, including "Yuanmengzhixing" developed by Tencent. Market see this as a positive signal for the industry. Meanwhile, officials at the Central Economic Work Conference previously said they would support platform companies to play a leading role in development. The attitude of the mainland authorities towards technology and Internet companies has improved significantly, which means that the regulatory pressure is expected to be reduced, and the business environment can be improved. The worst case scenario is expected to be over. The valuation of Internet stocks is expected to recover. Tencent’s third quarter net profit of RMB39.943bn, up 1.1% yoy, beating expectations. Net profit on a non-IFRS basis increased by 1.6% to RMB32.254bn. Cost of revenues decreased by 2%, reflecting effective cost control efforts, versus increased costs associated with the growth of Video Accounts services. Overall, the worst time was over. All segments recorded improvement on a quarterly basis, and costs have been properly controlled. Future growth driver continue to be seen in the development of video account services and the overseas expansion of games. Target price: $420; Stop- Loss price: $346

Wen Kit Kenny is a SFC licensed person accredited to KGI Group to carry on regulated activities (for details, please refer to:https://apps.sfc.hk/publicregWeb/indi/AJF244/details). He and/or his associate do not have any financial interest in the recommended issuer or new listing applicant.

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