KGI Asia Commentary

2023.07.26 09:00

HSI rose 766 points on Tuesday

The Hang Seng Index rose 766 points or 4.1% to 19,434 on Tuesday. HSTECH rose 242 points or 6.0% to 4,257 and HSCEI rose 333 points or 5.3% to 6,604. Daily market turnover was HK$142.1bn.

Dow closes higher for 12th straight day, longest winning streak since February 2017

The Dow extended its gains on Tuesday, with tech stocks dominating a key week ahead of the sector's earnings and the Federal Reserve's interest rate decision on Wednesday. The Dow rose 26.83 points, or 0.08%, to 35,438.07. It was the index's 12th straight session of gains and its longest run since February 2017. The S&P 500 rose 0.28% to 4,567.46. The Nasdaq Composite rose 0.61% to 14,144.56. GM shares fell 3.5 percent despite raising its full-year profit forecast. Meanwhile, GE shares rose nearly 6.3 percent after second-quarter revenue beat expectations. UPS fell 1.9 percent after the company reached a preliminary agreement with the Teamsters union that avoided a strike. Chip stocks also propelled the tech sector higher, with major auto chip supplier NXP Semiconductors reporting an upbeat outlook and quarterly results that topped Wall Street expectations. Meanwhile, shares of Banc of California surged 11% and shares of PacWest Bancorp fell 27%. The Wall Street Journal quoted people familiar with the matter as saying that Bank of California is in advanced talks to acquire PacWest. Wall Street is digesting its busiest earnings yet, with major tech companies Alphabet and Microsoft reporting after the close. Nearly 130 S&P 500 companies have reported second-quarter results so far. Of those companies, about 79% beat analysts' estimates, according to FactSet.

Market eyeing on the result of FOMC meeting

Investors are also awaiting the Federal Reserve's policy decision on Wednesday and will analyze comments from Fed Chairman Jerome Powell on the economic outlook. Investors are overwhelmingly betting the Fed will raise rates by 0.25 percentage points. However, they were less certain about what policymakers would do in September.

Hong Kong Stock Connect had a net inflow of HK$6.1bn on Tuesday, of which Tencent (700) had the largest net inflow, reaching HK$1.2bn; followed by Kuaishou (1024). Tracker Fund (2800) recorded the largest net outflow at HK$4.1bn, followed by HSCEI ETF (2828).

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Tencent
00700

The politburo meeting reaffirmed the need to promote the healthy and sustainable development of platform companies, and the market responded positively. As a heavyweight stock in the index and a leader in the platform economy, Tencent has the potential to edge higher. The revenue of Tencent in the first quarter was RMB149.986bn, representing an increase of 11% yoy and 3% qoq, higher than the market expectation of RMB146.29bn. The group's payment business benefited from the recovery of domestic consumption. During the period, the games revenue improved, and the advertising revenue remained rapid growth, driving solid overall revenue growth. The Non- IFRS profit in the first quarter was RMB32.5bn, a yoy increase of 27% and a qoq increase of 10%, which was lower than market expectations of RMB33.22bn. The Company is having improved games revenue visibility, and potential growth from the overseas expansion of games. Advertising revenue continues to accelerate, benefiting from the new budget of advertisers and the increase in ad inventory. The prospect for the fintech and business services sectors is also positive. The management is confident in the fundamental strength of the main business lines. It is expected that the company's profitability and gross profit margin will continue to improve this year, and it expect AI to be a growth multiplier. Overall, we think the outlook of Tencent remains positive despite the lower-than-expected earnings for the quarter. Target price: $460; Stop- Loss price: $300.

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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