February 25, 2024

Notable market news this past week (25-Feb-24)

Here is the Skeptivest roundup of the latest market headlines for the week

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🇯🇵 Japan's Stock Market Comeback

Record breaking index: The Nikkei 225 has reclaimed its 1989 peak. Japanese companies showing signs of sustained profit growth and the Tokyo Stock Exchange championing shareholder interests, some analysts project gains of more than 10% for the Nikkei.

Perhaps several reasons for the uptick lies in

• ‍‍Warren Buffett's bullishness on Japanese stocks, which is drawing significant attention towards how undervalued Japanese stocks are
• Signs of Japan coming out of deflation and sustained wage growth
• Investors pulling out of China and reallocating into Japan

Significant headroom for growth: While foreign investors have been bullish (ploughed a net $43b into Japanese stocks in 2023), there is still a general reluctance of Japanese households to invest into the Japanese stock market. The Bank of Japan calculates that only 13% of Japan’s liquid household assets are in equities, against >40% in the US and >21% in Europe.

Future plans: The Japanese government bets big on digital transformation, providing $4.86b worth of subsidies to TSMC to build its second plant in Japan. These initiatives will allow Japan to stably procure cutting-edge logic chips essential for automobile / smartphone production thereby attracting foreign investments. 

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🇨🇳 Apple's uncertain outlook in China

Troubling sales figures: Apple achieved $73b (down from $75b in 2022) in Chinese sales last year, an impressive figure. However, sales declined each quarter and notably dropped by 13% in the final quarter.

Apple's winning formula in China: Apple's branding signified premium and luxury - something which Chinese consumers sought after. Moreover, Apple boosted distribution of its phones by signing a deal with China Mobile in 2013, which at the time serviced 763m customers.

Waning excitement: Amid China's economic downturn, consumers are becoming more discerning about new iPhone models that offer minimal differentiation.

Intensifying competition amidst political tensions: Huawei's Mate 60 Pro smartphone released in August 2023 was a big hit. It contains 7-nanometer chips, despite US sanctions to keep China from accessing advanced semiconductor technologies. The smartphone sold 1.6m in its first 6 weeks. Beijing also banned government employees from Apple products just a few days after Huawei's release.

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☕️ Quick fire happenings to note

🌏 Global macro

• Shortage of oil tankers: Attacks on commercial shipping in the southern Red Sea by Houthi rebels have led to widespread diversions in global petroleum trades, exacerbating the existing shortage of oil tankers. Only 2 new super tankers are set to join the fleet in 2024, the fewest additions in almost four decades, leading to spikes in tanker rates and longer voyage durations.
• Climate change erodes Africa’s GDP: Climate change will have severe consequences for Africa, reducing crop revenue by 30%, driving 200m people into severe hunger, and lowering average GDP per capita by 7.1%.
• China slashes 5 year mortgage rate: A new low has been reached as of this week, bringing the benchmark rate down from 4.20% to 3.95%. The move was aimed to ease conditions in a embattled housing and commercial real estate market. Nevertheless, China's economic downtrend has been so bad that this had hardly moved the markets.
• Corporate bond markets experiencing surge: $50b of bonds have been issued in the past 2 weeks to finance M&A activity. The surge is fueled by attractive yields and anticipation of future interest rate cuts, encouraging finance chiefs to raise capital for M&A activities.
• Investor confidence decline in EV: Tesla Inc.'s warning in October about declining interest in EVs marked the beginning of a downturn for the EV market, affecting smaller players like Rivian and Lucid particularly hard. Rivian announced flat production levels for the year, along with workforce reductions. Lucid, projected only a slight increase in output. Rivian's shares have dropped about 44% since Tesla's warning, while Lucid's shares fell about 33% in the same period.
  

🏦 Individual stocks/companies

• Nvdia's outperformance: Nvdia's earnings exceeded expectations with ridiculous numbers (e.g. Full year GAAP EPS of $11.93, up 586% YoY). Nvidia is now the 3rd largest company on Earth, behind only Microsoft and Apple. Can it continue to live up to its sky-high expectations? 
• Samsung unveils new wearable ring: The official launch of the Galaxy Ring is anticipated later in 2024, offering users innovative health-tracking capabilities. Health features remain a focal point for these smartphone manufacturers with Apple reportedly developing a non-invasive glucose reader for diabetics.
• Humanoid robots: Jeff Bezos, Nvidia, OpenAI, and other major tech players are investing in Figure AI Inc., a startup developing human-like robots, with a funding round of about $675m. Figure AI aims to develop robots capable of performing dangerous tasks unsuitable for humans, addressing labour shortages and advancing AI technology in real-world scenarios.
• VinFast opens EV factory in India: The Vietnamese automaker, has begun construction on its integrated EV manufacturing facility in India. The plant is projected to have a capacity of producing 150,000 vehicles annually and is expected to create jobs for 3,000 to 3,500 local people.
• Nintendo delays Switch 2: Nintendo shares tumbled 8.8% after announcing the delay of its Switch successor. The Kyoto-based company informed its game publishing partners that the release of the next-generation video game console will be delayed to the early months of 2025.
  

🇸🇬 Singapore related

• Secretary-General of Progress Singapore Party steps down: Leong Mun Wai steps down as secretary-general of the Progress Singapore Party following a recent POFMA order over false claims about financial aid, with Hazel Poa taking over. Mr. Leong remains a member of PSP's Central Executive Committee, with the party acknowledging his accountability through his actions.
• Singapore’s core inflation falls to 3.1% in Jan: Singapore's core inflation dropped slightly to 3.1% year-on-year in January, attributed to smaller price increases in food and services, compared to 3.3% in December. The dip is expected to be temporary, with core inflation anticipated to pick up in February due to Chinese New Year spending, followed by a gradual moderating trend for the rest of the year. Deputy Prime Minister Lawrence Wong announced measures to alleviate cost-of-living concerns during his Budget speech, including additional utility rebates up to S$950 and CDC grocery vouchers of S$600.

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