In terms of financial reports, BYD, Xiaomi, JD.com, Pinduoduo, Anta, XPeng, Kuaishou and Ping An Insurance will announce their financial reports this week.
Global markets focus on Fed chairman Powell’s speech at the annual meeting of global central banks in Jackson Hole this Friday at 10am.
Fed Chairman Powell may take the opportunity to further clarify the order of the Fed’s monetary policy tightening operations. At the annual meeting of the central bank last year, Powell transformed the Fed inflation system into a flexible average inflation targeting system, which wowed the markets and caused the market volatility.
Unusually, before the annual meeting of central banks, Kaplan, the Fed’s most hawkish official and the first official to propose taper, suddenly “changed his position” and joined the dove camp. He said that if economic growth slowed sharply, he might need to adjust his view of policy “slightly”.
The swaying stance of Fed officials, weak economic data and the persistence of easing by central banks in the developed world, which have the best control of the epidemic, have made the market more convinced that the Fed is “irrevocable”. Meaning liquidity pumped in the market might be prolong further and believes that Powell will not announce major policies, and will not make any big moves before FOMC in September.
The Fed will hold its FOMC meeting from September 21 to 22. Although records show that they have not yet agreed on the timing or speed of reducing asset purchases, most have agreed to reduce QE. Global liquidity is still piling in the US markets FAAMG.Microsoft Corp’s share price broke $300 for the first time, on back of the news they its cash cow Office 365 will raise prices which will boost further it’s revenue growth. With a market capitalization of US $2.25 trillion, only behind the world’s largest company Apple Inc.
Tencent 2Q revenue hiked 20% YoY to RMB138.3 billion, in line with the estimates; while its net profit climbed 13% YoY to RMB34bn. the regulatory pressure to linger for the company. The anti-addiction systems for minors in games continue to evolve, Tencent is expected to concentrate on enhancing its content quality. On the other hand, the tech giant’s advertising business is predicted to suffer near-term negative impact from the new regulations on user data privacy and the new policies imposed on the education sector to lighten students’ burdens. Interesting highlight is that its international games revenue grew 29% to RMB11bn which will help to mitigate the domestic growth.
It’s challenging to make fundamental analysis for the company and need to make adjustment according to the ongoing regulatory announcement. To help investor to understand its value, at this point, we can only make assumption of what we have already known. Historically, Tencent used to trades at the valuation range of 26-56x PE with CARG 31% from 2015-2020. Currently it trades on 25x 2022 forward PE with anticipation of 10-12% earnings growth. So, assume to apply a valuation of 18-26x PE range, fundamentally, it’s likely to trade between $350-520.
Since 70% of China’s social sector market cap may have regulation risk. Investors are moving their focus on sectors that benefit from the government policies support industry such as new energy related sectors, i.e., EV, batteries, semiconductor chips, solar. Companies such as BYD, SMIC, Xinyi Solar etc will continue to do well.
HSI Just announced that Li Ning, Xinyi Glass, China Merchant are adding to HSI index from 5th September.
The demand for chips was high even before the pandemic started, due to the rollout of 5G. However, the coronavirus pandemic drove that demand much higher as millions bought laptops, cell phones, and gaming devices as they sheltered in their homes.
While many analysts thought the shortage would get better toward the end of the year as the vaccines rolled out, that may no longer be the case.
Apple CEO Tim Cook warned that silicon supply constraints would affect sales of the iPhone and iPad. This week Toyota Motor Corp. announced it would reduce global production for September by 40% from its previous plan due to critical shortages of semiconductors. Ford Motor (F.N): affected by the shortage of semiconductor-related components caused by the COVID-19 epidemic in Malaysia. Geely Automobile warned this week of production uncertainty caused by a lack of chips and Land Rover halved its production forecast last month.
Since the shortage reflects a tight supply, this has been a boom to the semiconductor industry and many chip stocks. With the shortage expected to continue, many chip stocks continued to perform well. NVIDIA Corp’s market capitalization exceeded US$500 billion to become the only two semiconductor companies in the industry with a market capitalization of more than US $500 billion, and Taiwan Semiconductor Manufacturing Co Ltd surpassed Tencent to become the highest market capitalization company in Asia, reflecting more investors into the fiery semiconductor industry.
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