KGI Asia Commentary

2023.01.26 09:00

U.S. stocks end flat on Wednesday

U.S. stocks fell as technology stocks fell after Microsoft warned of slowing sales, raising concerns about a worsening economic outlook. Microsoft's softness also affected the performance of other software and cloud computing stocks such as Amazon, Adobe and Alphabet on the day, but the market later digested the news and recovered the lost ground. Separately, geopolitical worries also weighed on stocks amid fears that a decision by Germany and the United States to supply Ukraine with tanks could trigger an escalation of the war between Russia and Ukraine. The Dow Jones Industrial Average edged up 0.03%, the S&P 500 edged down 0.02%, and the Nasdaq Composite lost 0.2%.

Investors continue to digest a slew of quarterly results ahead of a key inflation report due Thursday

Microsoft reported second-quarter revenue of $52.75 billion, below the consensus estimate of $52.93 billion. Microsoft forecast third-quarter revenue of $50.5 billion to $51.5 billion, while analysts polled by Refinitiv had expected $52.43 billion. Microsoft expects third-quarter sales for its Azure cloud computing business to slow by 4 or 5 percentage points from the second quarter. On the other hand, Tesla announced its quarterly results after the market closed. Its 4Q profit increased by 12% quarter-on-quarter, which is higher than Wall Street expectations. Net income for the quarter was $3.7 billion, up from $3.3 billion in the third quarter. For the full year, Tesla's profit more than doubled to $12.6 billion from $5.5 billion in 2021. Sales rose to $81.5 billion from $53.8 billion the previous year. Tesla said it expects to produce 1.8 million vehicles by 2023.

After being closed for five consecutive days, the Hong Kong stock market will open as usual from today, and the southbound trading of Hong Kong Stock Connect will continue to be closed this week.

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Tencent
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China's National Press and Publication Administration announced that, in January 2023, a total of 88 domestic online games have been granted publishing licenses, including "Yuanmengzhixing" developed by Tencent. Market see this as a positive signal for the industry. Meanwhile, officials at the Central Economic Work Conference previously said they would support platform companies to play a leading role in development. The attitude of the mainland authorities towards technology and Internet companies has improved significantly, which means that the regulatory pressure is expected to be reduced, and the business environment can be improved. The worst case scenario is expected to be over. The valuation of Internet stocks is expected to recover. Tencent’s third quarter net profit of RMB39.943bn, up 1.1% yoy, beating expectations. Net profit on a non-IFRS basis increased by 1.6% to RMB32.254bn. Cost of revenues decreased by 2%, reflecting effective cost control efforts, versus increased costs associated with the growth of Video Accounts services. Overall, the worst time was over. All segments recorded improvement on a quarterly basis, and costs have been properly controlled. Future growth driver continue to be seen in the development of video account services and the overseas expansion of games. Target price: $420; Stop- Loss price: $352

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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