KGI Asia Commentary

2023.03.02 09:00

Hang Seng Index rose 833 points on Wednesday

The Hang Seng Index rose 833 points or 4.2% to 20,619 on Wednesday. HSTECH rose 260 points or 6.6% to 4,185 and HSCEI rose 322 points or 5.1% to 6,914. Daily market turnover was HK$153.9bn.

Dow ends flat, 10-year U.S. Treasury yield hits 4%

The Dow ended flat on Wednesday and U.S. Treasury yields continued to move higher, suggesting the Federal Reserve may be on a steeper-than-expected path of rate hikes. The S&P 500 fell 0.47% to 3,951.39 and the tech-heavy Nasdaq Composite fell 0.66% to 11,379.48. The Dow Jones Industrial Average edged up 5.14 points to close at 32,661.84. On the earnings front, shares of home improvement retailer Lowe's fell nearly 6% after it reported fourth-quarter revenue that fell short of Wall Street expectations and a surprise decline in annual sales guidance. Electric vehicle stocks are also in focus as Tesla kicks off its investor day, with the electric automaker expected to unveil its third master plan and provide insights into its long-term growth plans. Rival Rivian Automotive reported mixed fourth-quarter results, missing revenue expectations and annual production below Wall Street expectations, sending its shares down more than 18 percent. Shares of cloud software maker Salesforce surged 16% in after-hours trading on Wednesday after the company reported profit that topped Wall Street expectations and issued a better-than-expected forecast.

Inflation in Europe and America did not cool down as expected

Minneapolis Federal Reserve President Neel Kashkari said Wednesday he is "open" to the possibility of a rate hike of "25 or 50 basis points" at this month's policy meeting. Meanwhile, the benchmark 10-year yield briefly topped 4% for the first time since November. The 1-year Treasury yield rose above 5%. In line with other EU countries, German consumer prices rose more than expected in February, suggesting stubborn cost pressures have not eased and boosting expectations for a rate hike by the European Central Bank.

Hong Kong Stock Connect had a net inflow of HK$3.39bn on Wednesday, of which Tencent (700) had the largest net inflow, reaching HK$1.33bn; followed by Meituan (3690). Li Auto (2015) recorded the largest net outflow at HK$0.26bn, followed by CNOOC (883).

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China Resources Beer
00291

Beer stocks, like other consumer stocks, have enjoyed a recovery since the end of last year, when restrictions on the movement of people across regions were lifted and channels such as restaurants and night clubs gradually recovered. At the beginning of the year, China Daily published an article titled "Night-time economy can help boost consumption". The development of the night economy not only meet the people's growing needs for a better life, but also have a significant role in stimulating domestic demand, prospering the market, and creating jobs. Relevant remarks reflect that mainland China has a positive attitude towards the beer industry, and beer stocks can become one of the options for investors to capture the rebound in consumption in the mainland. The pandemic in 2022 somehow dented beer sales in China. Nevertheless, it is forecast that the premiumization will continue, which will send the product ASP higher. In 1H22, the sales volume of the sub-premium beer segment of China Resources Beer was approx.1,142,000 kiloliters, up 10% YoY. Looking ahead, the company will continue to focus on Heineken, pure draft and SuperX, while exploring further possibilities in the "baijiu" liquor segment. China Resources Beer has set a goal of 4 million kiloliters by 2025 for its high-end lines. Also, the product ASP remains at relatively low levels when compare to peers. We see the increase in both ASP and sales volume to continue in the coming future. Target price: $73; Stop- Loss price: $58.

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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