KGI Asia Commentary

2024.07.25 09:47

Hang Seng Index fell 158 points on Wednesday

HSI fell 158 pts or 0.9% to 17,311. HSTI fell 53 pts or 1.5% to 3,491. HSCEI fell 52 pts or 0.8% to 6,142. Market turnover reached $86.9 billion.

S&P 500 suffers biggest drop since 2022, Alphabet and Tesla stock prices plummet

U.S. stocks sold off on Wednesday, weighed down by poor earnings from two big technology companies, causing the S&P 500 and Nasdaq Composite to post their worst single-day performances since 2022. The S&P 500 fell 2.31% to close at 5,427.13 points, while the technology-heavy Nasdaq fell 3.64% to close at 17,342.41 points. The Dow Jones Industrial Average fell 504.22 points, or 1.25%, to close at 39,853.87 points. Shares of Alphabet, Google's parent company, fell 5%, the biggest one-day drop since January 31. While Alphabet's revenue and earnings beat expectations, YouTube's advertising revenue fell short of general expectations. Meanwhile, Tesla shares fell 12.3%, its worst day since 2020, due to lower-than-expected results and a 7% year-over-year decline in auto revenue. Other major technology stocks also fell on Alphabet and Tesla shares. Nvidia and Meta Platforms fell 6.8% and 5.6% respectively, and Microsoft fell 3.6%. Tech stocks aside, payments technology company Visa reported third-quarter results that beat Wall Street expectations, but the company's shares fell as volumes slowed slightly in the company's latest quarter. Chipmaker Texas Instruments reported strong second-quarter earnings, with adjusted earnings per share beating expectations and shares flat. AT&T shares rose 5% after the telecom giant beat market expectations for wireless subscriber growth in the second quarter as its higher-tier unlimited plans attracted customers.

U.S. manufacturing data weaker than expected

According to FactSet, more than 25% of S&P 500 companies have announced second-quarter results, and about 80% of them have exceeded expectations. Still, Wall Street takes these reports from large-cap stocks particularly seriously because they have accounted for much of this year's gains. Weaker-than-expected U.S. manufacturing data on Wednesday heightened investor concerns. The preview value of the U.S. manufacturing PMI fell to 49.5 in July, unexpectedly falling into contraction territory due to declines in new orders, production and inventories.

Hong Kong Stock Connect had a net outflow of HK0.07bn on Wednesday of which ICBC (1398) had the largest net inflow, reaching HK$3.24bn; followed by Sinopec (386). Meituan (3690) recorded the largest net outflow at HK$6.31bn, followed by Tencent (700).

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SPDR Gold
02840

The US Consumer Price Index (CPI) in June rose 3.0% year-over-year, lower than the previous month's 3.3% and the expected 3.1%. On a monthly basis, inflation declined 0.1%, the first decline since the pandemic. Excluding energy and food prices, core CPI rose 3.3%, lower than the previous month and the expected 3.4%, in line with the Fed's indication that "inflation is progressing towards the target". The easing of inflation has made the market more optimistic about rate cuts. The CME Group's Fed Watch tool indicates that the probability of a 25-basis point rate cut in September has risen to >90. Gold does not provide income, so the risk-free rate becomes the opportunity cost of holding gold. The price of gold is negatively correlated with real interest rates; historically, when interest rates rise, gold prices fall. The Eurozone has already started cutting rates, and we expect the US to follow suit this year. Falling Treasury yields is likely to support gold prices. Additionally, ongoing global risk events and concerns about the US fiscal situation may enhance gold's role as a safe haven. Moreover, central banks worldwide increasing their gold reserves further boosts demand. Investors bullish on gold may consider allocating to gold ETFs such as SPDR Gold Shares. Target price: $1800

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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