KGI Asia Commentary

Hang Seng Index fell 131 points on Tuesday

The Hang Seng Index fell 131 points or 0.6% to 20,650 on Tuesday. HSTECH fell 51 points or 1.2% to 4,202 and HSCEI fell 53 points or 0.8% to 7,002. Daily market turnover was HK$109.7bn.

U.S. stocks end flat, quarterly results mixed

The Dow ended roughly flat on Tuesday, largely because of mixed quarterly results. The Dow was flat, down 10 points, the Nasdaq was flat and the S&P 500 closed up 0.1%. Shares of Goldman Sachs Group Inc fell more than 1% after the company reported lower-than-expected first-quarter revenue, hurt by losses it recorded on the sale of consumer loans. Bank of America said its revenue and profit rose as net interest income rose 25%, benefiting from higher interest rates. Johnson & Johnson, meanwhile, raised its guidance and reported better-than-expected quarterly results, but also pointed to the continuing hit from lawsuits alleging that its talc products caused cancer persists. Its shares fell more than 2%. Lockheed Martin Corporation also reported better-than-expected first-quarter results, sending its shares up more than 2%. Netflix stock was volatile on the day. Netflix's earnings beat expectations, but revenue fell short of Wall Street expectations. The company said it was delaying a plan for a sweeping crackdown on password sharing, which had been scheduled for the first quarter.

China's GDP rose 4.5% in the first quarter, beating market expectations

China's first-quarter GDP rose by 4.5%, far better than the 4% expected by the market. The retail sales was better than expected, but the industrial and fixed investment figure was lower than expected. In March, the total retail sales reached RMB3.79 trillion, up 10.6% year-on-year, with catering rose 26.3% year-on-year, benefiting from the low base effect and post-pandemic normalization. In terms of industrial profit, the growth in March was 3.9%, lower than market expectations, but it was 1.5 percentage points higher than that in January-February. In terms of fixed investment, the growth rate in March was 5.1%, which was a big gap compared with the market expectation of 5.7%.

Fed's Bostic sees 25 bps more rate hike, then a hold ‘for quite some time’

Atlanta Fed President Bostic said on Tuesday that he expects the central bank to raise interest rates one more time and then see how the tightening affects the economy. “One more move should be enough for us to then take a step back and see how our policy is flowing through the economy, to understand the extent to which inflation is returning back to our target,” Bostic said during a live interview. “If the data come in as I expect, we will be able to hold there for quite some time,” he said. “Once we get to that point, I don’t have us really doing anything but monitoring the economy for the rest of this year and into 2024.”  However, the market disagrees that the Fed will keep rates on hold. According to the CME, there is an 87% chance of a 25 basis point rate hike next month, followed by a pause for several months, followed by another 0.5 percentage point cut by the end of 2023 as the economy slows. Inflation remains too strong to consider a rate cut, Bostic said.

Hong Kong Stock Connect had a net inflow of HK$2.25bn on Tuesday, of which Anta (2020) had the largest net inflow, reaching HK$0.91bn; followed by Meituan (3690). Tencent (700) recorded the largest net outflow at HK$0.40bn, followed by CCB (939).