EQUITY MARKET HEATMAP

MAJOR MARKET MOVEMENT

• After a very strong start of 2023, HK/ China market has given up some of their gains with negative performances of HSI (-4.5%) & HSCEI (-5%).
• Taiwan (+4.5%) is the outperformer in the Asian market with strong foreign inflows.
• US small cap (Russell 2000 +3.9%), and tech (Nasdaq +3.3%) are the winners in the US market.

Central Banks in the headlines

• The European central Bank raised rate by 50bps to 2.5%, pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intended to hike by another 50 basis points in March.
• The Bank of England raised rate by 50bps to 4%, its 10th consecutive hike, continuing its fight against inflation. The UK annualized Consumer Price Index (CPI) eased to 10.5% in December from 10.7% in November.
• The Federal Reserve raised its benchmark rate by 25bps to a target range of 4.5%-4.75%, the highest since Oct 2007. The Fed’s statement included language noting that the FOMC still sees the need for “ongoing increases in the target range.”

S&P and Nasdaq has both broken resistance of its downward trend.

• Investors are obviously focusing on the optimism of the FED statement. “We can now say for the first time that the disinflationary process has started. We can see that and we see it really in goods prices so far,” Powell said at the post-meeting press conference.

Disinflation is happening, but the prices of eggs are still……

• The prices of eggs in the US is still double of that in 2020. Putting pressure on consumers and businesses

Recession, what recession?

• A BofA Global Fund Manager Survey shows that Recession fears have peaked.

Fund managers’ feeling and treasury yields seem to be telling different stories

• The spread between 10-year and 2-year Treasury yields is still in the negative territory. The last 8 recessions in the US were all preceded by an inversion in this yield curve relationship.

• Given the above contrasting evidences, I would be very careful with the optimism of the current US market.
• On the other hand, I would say hello to…….

Hello Hong Kong, hello China

• Hello Hong Kong is the global promotional drive to entice visitors back to Hong Kong featuring 700,000 free ticks, spending vouchers and special events.
• Mainland China will fully reopen its borders with Hong Kong and Macau from Feb 6.
• Valuation of MSCI China/ CSI300 12m forward P/Es are 11.1x/12.0x, comparing favourably with Nasdaq (24.34x) and S&P (18.65x).
• International/ global funds still have low exposures in China equities, while hedge funds/ regional mutual funds has re-risked. Where are you on this?