KGI Asia Commentary

2024.01.25 09:00

HSI rose 545 points on Wednesday

The Hang Seng Index rose 545 points or 3.6% to 15,899 on Wednesday. HSTECH rose 133 points or 4.2% to 3,281 and HSCEI rose 212 points or 4.1% to 5,353. Daily market turnover was HK$128.8bn.

Nasdaq and S&P 500 close higher for fifth consecutive trading day, Netflix stock soars

The S&P 500 rose on Wednesday, with Netflix leading technology stocks higher, pushing the market to new highs. The S&P 500 index edged up 0.08% to close at 4,868.55 points, setting a new all-time closing high. Boosted by gains in technology stocks, the Nasdaq rose 0.36% to 15,481.92 points. The Dow Jones Industrial Average fell 99.06 points, or 0.26%, to 37,806.39, hurt by losses of more than 2% a day after Verizon and 3M reported results. Netflix shares surged more than 10% after the company announced that its total subscriber base reached an all-time high of 260.8 million. Elsewhere, Microsoft's stock price rose nearly 1%, and its market value briefly exceeded US$3 trillion for the first time. Meta shares rose 1.4%, giving the Facebook parent company a market value of more than $1 trillion. On the earnings front, ASML ADR reported fourth-quarter earnings, with both revenue and profit beating expectations and its stock price rising more than 10%, but Texas Instruments failed to join the rebound after announcing lower-than-expected guidance. FactSet data shows that so far, more than 16% of companies in the S&P 500 Index have announced quarterly financial reports, and more than 71% of them have exceeded Wall Street expectations.

The U.S. PMI composite index rose to 52.3, signaling an acceleration in economic growth

The U.S. manufacturing PMI rose from 47.9 to 50.3 in January, resuming expansion and reaching the highest level in 15 months. The services PMI rose to 52.9 from 51.4, a seven-month high. The PMI composite index rose to 52.3 from 50.9, hitting a seven-month high. Driven by improving demand conditions and steady growth in new orders over the past three months, growth momentum has increased significantly, lifting business confidence to the most optimistic level since May 2022. Additionally, there is optimism about lower inflation in 2024, which is expected to ease cost-of-living pressures and potentially pave the way for lower interest rates.

Hong Kong Stock Connect had a net inflow of HK$1.98bn on Wednesday, of which Tracker Fund (2800) had the largest net inflow, reaching HK$1.03bn; followed by CNOOC (883). Tencent (700) recorded the largest net outflow at HK$0.67bn, followed by CCB (939).

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Tencent
00700

The negative factors that dragged Tencent's share price have been partially eliminated. The consultation period for the "Measures for the Administration of Online Games (Draft for Solicitation of Opinions)" ended on Jan22. Senior game industry insiders told China media that the Measures would still be introduced, but will definitely take into account the views and suggestions of the industry, and will retain more flexibility and room for maneuver. The released version will therefore certainly be different from the draft for consultation, report said. To recap, the fundamental of Tencent in recent quarter result is actually solid. Tencent achieved quarterly revenue of RMB154.63bn in 3Q23, increased by 10% yoy, slightly lower than market expectations of RMB154.8bn; operating profit of RMB48.48bn, a 6% decrease from 3Q22, but an increase of 20% from 2Q23, beating the market forecast of RMB43.4bn. Adjusted net profit was RMB44.92bn, increased by 39% yoy, beating the market expectations of RMB39.98bn. Revenues from VAS increased by 4% yoy to RMB75.7bn. Domestic Games revenues grew by 5% to RMB32.7bn, driven by the recent launches of Lost Ark and VALORANT, as well as increased revenues from evergreen titles such as Honour of Kings and DnF. Revenues from Online Advertising were RMB25.7bn for 3Q23, up 20% yoy, propelled by robust advertising demand for Video Accounts, mobile ad network, and Weixin Search, with notable growth in the local services and FMCG categories. Revenues from FinTech and Business Services increased by 16% yoy to RMB52bn for 3Q23. Tencent achieved notable margin expansion, favored by the relatively new services such as Video Accounts and Mini Games which contributed high margin revenue streams. Meanwhile, the AI development of the Company is creating new growth opportunities and enriching its ecosystem. Target price: $400; Stop- Loss price: $258.

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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