KGI Asia Commentary

2023.06.23 09:00

HSI fell 388 points on Wednesday

The Hang Seng Index fell 388 points or 2.0% to 19,218 on Wednesday. HSTECH fell 113 points or 2.8% to 3,961 and HSCEI fell 149 points or 2.2% to 6,505. Daily market turnover was HK$98.1bn.

S&P 500, Nasdaq end 3-day losing streak

The S&P and Nasdaq snapped a three-day losing streak after Federal Reserve Chairman Jerome Powell wrapped up two days of testimony before Congress. Powell on Wednesday reiterated his view that the Fed could raise rates again this year while continuing to fight inflation. The Bank of England raised interest rates by half a percentage point on Thursday, its 13th consecutive hike, as UK inflation continued to beat expectations. On Wednesday, Powell told lawmakers in the House of Representatives that the Fed has not stopped raising interest rates to cool inflation, even though the central bank paused further rate hikes last week. Powell's comments suggest further rate hikes are "a pretty good guess" about the Fed's plans if the economy continues on its current path. Futures traders see a 74 percent chance of a 0.25 percentage point hike at the Fed's July meeting. Tech shares pushed the Nasdaq higher, with Amazon shares leading a 4.3 percent gain. Elsewhere, shares of Boeing supplier Spirit AeroSystems fell more than 9% as the company halted production at its Kansas plant. In addition, Boeing shares fell more than 3%, dragging down the Dow.

Fed’s next move will be guided by data

The Fed's next move will be guided by data, Powell said. Recent inflation data suggest the economy is cooling while the labor market remains stable. Initial jobless claims came in at 264,000 on Thursday, unchanged from the previous week and slightly above expectations. At the same time, Fed Governor Michelle Bowman also said that the Fed needs to raise interest rates further to reduce inflation.

Hong Kong Stock Connect had a net outflow of HK$3.26bn on Wednesday, of which Li Auto (2015) had the largest net inflow, reaching HK$93.9mn; followed by SMIC (981). Tracker Fund (2800) recorded the largest net outflow at HK$1.86bn, followed by HSCEI ETF (2828).

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Following the Chinese government's announcement that it would extend the NEV purchase tax exemption till the end of 2025, NEV sector performed well. BYD 5M23 sales volume grew 95.7% to 100.2k units. 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: $300; Stop- Loss price: $243.

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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