KGI Asia Commentary

2023.02.01 09:00

Hang Seng Index fell 227 points on Tuesday

The Hang Seng Index fell 227 points or 1.0% to 21,842 on Tuesday. HSTECH fell 37 points or 0.8% to 4,542 and HSCEI fell 71 points or 0.9% to 7,424. Daily market turnover was HK$173.8bn.

Dow closes up more than 350 points

Investors got some positive news on the inflation front on Tuesday ahead of the Federal Reserve's latest interest rate decision. The employment cost index came in below expectations. The Dow Jones Industrial Average rose 368.95 points, or 1.09%, to 34,086.04. The S&P 500 rose 1.46% to 4,076.60. The Nasdaq Composite rose 1.67% to 11,584.55. General Motors rose more than 8 percent after it reported fourth-quarter results that topped Wall Street expectations and issued better-than-expected annual guidance. Shares of ExxonMobil also rose nearly 2.2% after the results. Meanwhile, tech stocks rebounded from weakness early in the week as investors looked ahead to further earnings from big tech companies. Meta Platforms will report results on Wednesday, while Alphabet, Apple and Amazon will report results on Thursday. Meanwhile, McDonald's reported quarterly results that beat expectations on both revenue and profit, but margin concerns weighed on the stock, with the fast-food giant saying it expects cost pressures to persist through 2023. On the other hand, payments company PayPal announced plans to cut 2,000 jobs, about 7% of its workforce, as the company prepares for a challenging macroeconomic environment. AMD reported fourth-quarter earnings that beat Wall Street's sales and profit expectations, but forecast a 10% year-over-year decline in first-quarter sales. Shares of the company rose 3.73% on Tuesday and rose further after trading hours.

Euro zone GDP rose 0.1% quarter-on-quarter

The euro area managed to eke out growth in the fourth quarter of 2022, with gross domestic product (GDP) rising by 0.1% quarter-on-quarter, despite the impact of high energy costs, weakening confidence and rising interest rates on the region's economy, avoiding a recession.

A slew of U.S. economic data is out

The Labor Department announced Employment cost index rose 1 percent in the fourth quarter, less than the expected 1.1 percent increase, reflecting slower growth in services and government pay. Meanwhile, U.S. consumer confidence fell to 107.1 in January from 109 in December, missing expectations of 109. The Chicago purchasing managers' index fell to 44.3 in January, below expectations of 45. Separately, the S&P Case-Shiller home price index showed home prices in the 20 largest U.S. cities slowed to an annual rate of 6.77 percent in November from 8.64 percent in October, slightly below expectations of 6.8 percent and down 0.54 percent month-on-month for the fifth straight month of declines, but less than the expected 0.65 percent decline.

Hong Kong Stock Connect had a net outflow of HK$6.32bn on Tuesday, of which Meituan (3690) had the largest net inflow, reaching HK$0.35bn; followed by Petrol China (857). Tencent (700) recorded the largest net outflow at HK$2.04bn, followed by HKEX (388).

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HK Electric
02638

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. With regard to its capital investment, the construction of L12, the last of the three new gas-fired generating units, remains on track for launch in 2023. HK electrics also made headway on building a new offshore liquefied natural gas (LNG) terminal using Floating Storage and Regasification Unit technology. The terminal is targeted to go into commercial operation by the first half of 2023. HK electrics is also revisiting the development of an offshore wind farm located southwest of Lamma Island to promote the wider use of renewable energy in Hong Kong. Although the U.S. interest rate hike cycle is not over, its pace has slowed down, making dividend stocks more attractive. Target price: $6.6; Stop- Loss price: $5

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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