KGI Asia Commentary

2023.05.04 09:00

Hang Seng Index fell 234 points on Wednesday

The Hang Seng Index fell 234 points or 1.2% to 19,699 on Wednesday. HSTECH fell 63 points or 1.6% to 3,835 and HSCEI fell 90 points or 1.4% to 6,589. Daily market turnover was HK$66.2bn.

Dow ends Wednesday down more than 270 points after Fed rate hike

The Dow closed lower on Wednesday after the Fed announced a rate hike and signaled it may pause in June, but said upcoming economic data would ultimately influence its decision. The Dow Jones Industrial Average fell 270.29 points, or 0.80%, to 33,414.24. The S&P 500 fell 0.70% to close at 4,090.75. The Nasdaq Composite Index fell 0.46% to close at 12025.33 points. Bank stocks dragged the broader market lower on concerns that higher interest rates over the longer term will continue to hurt regional lenders. Zion Bank and Comerica fell the most. U.S. Treasury yields slipped after the Fed's decision, but failed to lift the rate-sensitive sector as technology stocks slumped. Alphabet gave up most of its gains to close slightly higher, while Meta and Apple fell. Apple is expected to report quarterly results after the market close on Thursday, with investors likely to focus on signs of iPhone demand amid lingering jitters over global economic growth. Meanwhile, Meta has come under pressure from regulators, with the Federal Trade Commission proposing to bar Facebook from monetizing data on children and teens under the age of 18, saying the social media company violated previous privacy orders. Chip stocks were also a drag on the broader tech sector, with chipmaker Advanced Micro Devices falling 9% after the company's underwhelming guidance and concerns about margins outweighed better-than-expected quarterly results. Shares of Starbucks fell nearly 9% on Wednesday. The company's fiscal second-quarter earnings and revenue topped expectations. However, it kept its forecast for the full fiscal year unchanged.

Powell says committee thinks it will take time for inflation to cool and it would not be appropriate to cut rates

Powell has ruled out a rate cut because he doesn't expect inflation to fall fast enough, undercutting the bullish sentiment somewhat.“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said in a statement. The Fed appeared to soften its language on future rate hikes, removing a sentence from its March statement that “the Committee anticipates that some additional policy firming may be appropriate.” Commenting to the media after the statement was released, Powell said dropping the language was a "meaningful change."

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BYD announced that its NEV sales volume grew 91.8% to 762k units over the first four months of this year. As a review of its quarterly result, BYD recorded an operating revenue of RMB120.1bn, an increase of 79.8% yoy in 1Q23, mainly due to the growth in sales volume of new energy vehicles. Operating costs were RMB98.7mn, an increase of 68.6%. Net profit attributable to shareholders was RMB4.13bn, surged by 410.9%. BYD's market share in China's new energy vehicle market reached 35% in the first quarter. Despite the price cut of the industry, BYD’s sales was better than expected, as it has a competitive brand and price positioning. At the same time, the gross profit margin has increased due to the decline in lithium prices. The GPM of BYD was at 17.9% in 1Q23, an increase of 5 percentage points compared to 1Q22. Looking ahead, the drop in lithium prices may lead to further improvement in gross profit in the second quarter, and the launch of BYD's new car models can further improve the product mix. The sales target of BYD for this year is 3 million vehicles, including overseas and mainland markets. Based on last year's overall sales volume of approximately 1.868 million vehicles, it is expected to increase by more than 60% year-on-year. Although the price war is the market concern, BYD's quarterly results and the customer feedback of the Shanghai Auto Show reflect that BYD is able to stand out from the crowd with its own strategy. Target price: $285; Stop- Loss price: $210.

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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