KGI Asia Commentary

HSI rose 7 points on Tuesday

The Hang Seng Index rose 7 points or 0.0% to 19,978 on Tuesday. HSTECH rose 32 points or 0.8% to 3,958 and HSCEI rose 9 points or 0.1% to 6,789. Daily market turnover was HK$78.3bn.

Mainland economic data are weaker than market expectations

The economic data released by the National Bureau of Statistics were all lower than market expectations. Among them, the industrial production only increased by 5.6% year-on-year, was significantly lower than the market expectation of 10.9%. Retail sales, industrial output and fixed investment all recorded a month-on-month decline of 7.78%, 0.47% and 0.64% respectively, shows economy losing steam. The yoy retail sales figure, which is closely related to domestic demand, remain a double-digit growth, yet, it is mainly due to the low base effect last year. Investors need to compare their performance on a monthly basis, in order to evaluate the growth momentum of the country. In terms of consumption categories, catering revenue rose slightly by 1.2% month-on-month, but merchandise retail sales fell by 6.1% month-on-month. Of the 16 product categories, 12 experienced double-digit month-on-month declines, reflecting the slowdown in demand and the current policies to promote domestic demand remain insufficient.

Dow falls more than 300 points due to disappointing Home Depot guidance, and debt ceiling concern

Dow ended lower on Tuesday, as losses in energy stocks and losses led by Home Depot weighed on stocks. Wall Street also turned its attention to a meeting between congressional leaders and President Joe Biden on the U.S. debt ceiling. The Dow Jones Industrial Average fell 1%, or 336 points, the Nasdaq lost 0.1%, and the S&P 500 lost 0.6%. Dow component Home Depot fell 2.15% after the company reported disappointing quarterly revenue and lowered its full-year forecast as consumers put off major home improvement projects. Data showed that U.S. retail sales fell short of expectations in April, pointing to weakening consumer strength and hurting retailer sentiment. Elsewhere, energy was the biggest drag on the broader market as weaker-than-expected Chinese economic data overshadowed expectations for rising energy demand. The International Energy Agency raised its forecast for global oil demand by 200,000 bpd to a record 102 million bpd. Technology stocks regained momentum led by Google and Microsoft, boosted by progress in Microsoft's $69 billion takeover of Activision Blizzard, which won European Union approval.

Yellen reiterates that U.S. could face default as early as June 1

Investors are anxiously awaiting progress in debt ceiling talks. U.S. Treasury Secretary Janet Yellen reiterated on Monday that the U.S. could default as early as June 1, known as "Day X," if the White House and Congress fail to reach an agreement. On Tuesday, she repeated her warning, calling for an immediate increase in the cap.“A default would crack open the foundations upon which our financial system is built,” Yellen said Tuesday. “It is very conceivable that we’d see a number of financial markets break – with worldwide panic triggering margin calls, runs and fire sales.”

Hong Kong Stock Connect had a net inflow of HK$1.40bn on Tuesday, of which Tencent (700) had the largest net inflow, reaching HK$0.88bn; followed by Tracker Fund (2800). CCB (939) recorded the largest net outflow at HK$0.48bn, followed by China Mobile (941).