KGI Asia Commentary

2023.03.20 09:00

HSI rises 315 points on Friday

The Hang Seng Index opened 236 points higher at 19,440 points on Friday. The day-to-day gain extended to 315 points at 19,518 points at market closed. The China Enterprises Index rose 133 points or 2% to 6,616 point; the Hang Seng Technology Index rose 168 points or 4.4% to 3,980 point. The market turnover was HK$164.9 bn. HSBC (0005) and Standard Chartered (2888) edged down 0.2%. Baidu (9888)'s share price rebounded 13.7% to HK$142.2 on Friday after the stock price of "ERNIE Bot" was hit on Thursday.

Regional Bank Confidence Crisis Continues, First Republic Slumps, UBS acquires Credit Suisse

The U.S. stock market closed down on Friday. The Dow Jones index fell 384 points, or 1.2%, to 31,862 point; the Nasdaq index fell 87 points, or 0.7%, to 11,630 point; the S&P 500 index fell 44 points, a drop of 1.1 percent to 3,917 point. On Friday, the market continued to worry about regional banks. Even after the major banks pointed out that they would provide about US$30 billion in aid to First Republic Bank last Thursday and the stock prices rebounded, they fell another 30% on Friday. This was mainly due to the bank's disclosure after the market that the scale of borrowing from the Federal Reserve in recent days far exceeds the amount of assistance received from peers, the market is worried about the crisis of confidence that peer aid is still difficult to fill the gap.

Another big news is that UBS will acquire Credit Suisse at a price of 0.76 Swiss francs and a total of 3 bn Swiss francs, which is equivalent to 25.4 bn Hong Kong dollars, which is a 59% discount to Credit Suisse’s closing price last Friday. The transaction will be exchanged for the form of "22.48 shares of Credit Suisse for 1 share of UBS" was carried out. At the same time, the Swiss government announced that Credit Suisse's Additional Tier 1 (AT1) bonds with a nominal value of CHF 16 billion were fully written down.

People's Bank of China announces RRR cut

The People's Bank of China announced a RRR cut on Friday. The deposit reserve ratio was lowered by 0.25 percentage points, which came into effect on March 27. After the RRR cut, the weighted average deposit reserve ratio of financial institutions was about 7.6%. However, it should be noted that this RRR cut does not apply to financial institutions that have implemented a 5% deposit reserve ratio. The RRR cut sends a signal to continue to support the economy. The market estimates that the RRR cut will release RMB 500 billion in medium and long-term funds.

Hong Kong Stock Connect had a net inflow of HK$ 2.25 bn on Friday, of which Tencent Holdings (700) had the largest net inflow of HK$1.75 bn; followed by China Mobile (941). China Construction Bank (939) recorded the largest net outflow of HK$590 mn, followed by WuXi Biologics (2269).

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HKEI recently announced its FY22 result. The net profit amounted to HKD2.954bn, up 0.7% yoy. HK Electric has the ability to pass on costs. When the cost rises, it can pass the cost on to the consumers. With a permissible rate of return of 8%, its profitability is highly visible to investors. The Scheme of Control Agreement (SCA) provides a framework for the Government to monitor HK Electric's financial affairs and operating performance. The current SCA is effective for a term of 15 years from 1 January 2019 until 31 December 2033. HK Electric is entitled to a permitted return of 8% on average net fixed assets. The agreement provides long-term certainty to HK Electric. A second interim dividend of HK16.09 cents per share was declared, together with the first interim dividend of HK15.94 cents per share, the full-year dividend was HK32.03 cents per share, flattish yoy. Although the U.S. interest rate hike cycle is not over, its pace is expected to slow down, making dividend stocks more attractive. Target price: $6; Stop- Loss price: $4.8.

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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