KGI Asia Commentary

2024.08.13 10:00

Hang Seng Index rose 21 points on Monday

The Hang Seng Index closed at 17,111 points for the day, up 21 points or 0.1%. The Hang Seng Technology Index reported at 3,429 points, down 6 points or 0.2%. The HSCEI Index rose 11 points, or 0.2%, to 6,029 points. The market turnover was HK$70.3billion.

S&P 500 edged higher ahead of key inflation data

The S&P 500 edged higher on Monday as investors awaited important inflation data this week. The S&P 500 fell 0.03%, the Dow Jones Industrial Average fell 140 points, or 0.3%, and the Nasdaq Composite rose 0.2%. JetBlue Airways shares fell nearly 21% as the airline unveiled detailed plans to sell $400 million in five-year convertible senior bonds. KeyCorp shares rose 9% after the Bank of Nova Scotia acquired a 14.9% stake in KeyCorp for $2.6 billion. Starbucks Corp. shares rose 2.6% after Bloomberg reported that the coffee chain is close to reaching an agreement with Elliott Management Co. to provide the latter with a board seat. Elliott has been pushing for changes at Starbucks to improve performance. Some companies will also report earnings this week, but the quarterly earnings season is basically over, with Home Depot and Cisco Systems due to report in the next few days. Data from Factset shows that the earnings season has been mostly positive. So far, 91% of S&P 500 companies have announced second-quarter financial reports, and about 78% of them have reported a positive EPS surprise.

CPI data awaited for more cues

The focus this week will be the Consumer Price Index (CPI) due out on Wednesday to get more clues about the economy and inflation. The index is expected to drop slightly in July from the previous month. The Federal Reserve is widely expected to begin cutting interest rates in September as there are growing signs that the U.S. economy is cooling, but investors are divided over whether the Fed will cut interest rates by 25 basis points or 50 basis points. Meanwhile, July retail sales data will also be released on Thursday, which will be another clue to the health of the U.S. economy.

Hong Kong Stock Connect had a net inflow of HK4.34bn on Monday of which Tracker Fund (2800) had the largest net inflow, reaching HK$0.88bn; followed by CSOP HS TECH (3033). China Unicom (762) recorded the largest net outflow at HK$0.31bn, followed by China Telecom (728).

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HSBC
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HSBC's 2Q24 revenue was $16.5 billion, down $200 million yoy, but slightly better than the market expectation. The Board has approved a second interim dividend of $0.10 per share, in line with expectations. According to management, the target payout ratio for this year's dividends is 50%, and it is preliminarily expected that the third and fourth interim dividends will be $0.10 and $0.21 respectively (excluding any special dividends) after the first and second interim dividends of $0.10 each. At the current price, the dividend yield is attractive. The group will also undertake a share buyback of up to $3 billion, expected to be completed within three months. This buyback amount is the upper end of market expectations. We believe that the high dividend and ongoing buybacks will support the stock's performance. Looking ahead, the Group CEO expressed confidence in achieving revenue growth even in a rate-cutting environment, and provided new guidance that the average return on tangible equity will be around 15% in 2025 (the same as this year). This suggests that even if the US resumes its rate-cutting cycle in September, management is confident in the overall operations and performance. With two consecutive quarters of strong performance, coupled with factors such as high dividends and buybacks, investors can consider this stock during pullback. Target price: $71; Stop- Loss price: $63.

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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