☀️☕️ Red-hot HK and an Overweight banker

06 December 2022

Happy Tuesday🎄!

US large-cap S&P 500 closed 1.89% DOWN 🔻 Tech-heavy Nasdaq Composite closed 2.18% DOWN 🔻🔻Pan European STOXX Europe 600 closed 0.37% DOWN 🔻 HK’s Hang Seng Index closed 4.51% UP ▲▲▲▲Japan’s Nikkei 225 closed 0.15% UP ▲   


Red-hot services, UK recession, Turkey jam


Red-hot HK and an Overweight bankerApple: Diversifying supply to Think Different

📖   MoneyFitt EXPLAINS

🎓 The Hang Seng Index


US markets dropped 2% on hotter-than-expected data from the vast American services sector, leading traders to pause their bullish thinking on the Federal Reserve’s interest rate policies. A slower pace of hikes is pretty much baked in (0.50% at the next meeting in mid-December, probably) but how high would the peak levels get and for how long would the Fed hold it there? The Institute for Supply Management’s services index expanded for the 30th straight month in November, rising to 56.5 from 54.4 in October instead of slowing of growth to 53.1 (anything above 50 means the sector’s growing.)

Four out of every five US private sector workers are employed in the service economy, and so continued growth there drives employment income, which in turn underpins the robust consumer spending that is a big piece of keeping inflation way above the Fed’s 2% target.

This comes hot (red-hot) on the heels of data last week showing stronger-than-expected job and wage growth in November, which meant that employment would be resilient enough to withstand tougher measures from the Fed to cool inflation, which though peaking, remains well above targets.

Most certainly NOT in the red-hot category is Britain’s economy, which is expected by the Confederation of British Industry (CBI, the UK employers’ trade body) to shrink next year by 0.4%, a big forecast cut from growth of 1% expected before. The UK was probably already in recession in Q3 2022, with GDP shrinking 0.2% with the recession to last until the end of 2023 on the basis of high inflation. UK inflation is expected to have peaked in October at a 40-year high of 11.1%, but will “remain significantly above” the Bank of England’s 2% target next year.

Finally, a traffic jam of oil tankers has built up off Turkey on the first day of the EU/G7+Aus Russian seaborne crude oil “price cap” with any tankers barred from maritime insurance unless the oil is sold under US$60 a barrel, which is over US$20 below market prices. Much Russian oil is already being sold quite close to that level anyway, particularly to China and India (who may use the situation as leverage to squeeze it a few more dollars down.)


Red-hot HK and an Overweight banker

Before US markets even opened, the red-hot HK market was absolutely on fire on Monday, hitting a three-month high, driven by consumer tech names Alibaba, JD.com and Tencent, on the bullish China reopening trade. China loosened Covid-related curbs in top-tier cities and in at least ten other provincial capitals, sending the Hang Seng Tech Index up 9.3% while the Shanghai Composite rose 1.8%. (After a 5.4% gain on Friday, the Nasdaq China Golden Dragon China Index, HXC, of US-listed China names closed flat.)

Reuters reported that China may announce 10 new COVID-19 easing measures as early as Wednesday, after the 20 unveiled on 11th November. Almost three years of harsh zero-Covid measures have battered the economy and, along with youth unemployment pushing 20% (partly thanks to the frequently locked down service sector) fueled last month’s widespread show of public discontent.

A big investment bank decided after two years of being “neutral” on the China market to turn bullish. This comes after a 27% rally in HK’s Hang Seng Index 🎓 from the end of October to last Friday’s close. “Neutral” means having exposure in your portfolio of a particular asset or country that’s bang inline with benchmark weightings, and “overweight” means having more of it to other holdings, so that would be two years of holding on while the HSI dropped 30%. Timing markets is a tough game.

Apple: Diversifying supply to Think Different 

So Apple’s biggest contract manufacturing partner, Foxconn (Taiwan-listed company name Hon Hai) saw revenues sharply lower in November at the tail-end of the crucial pre-holiday period. At US$18bn, it was down by 11% from a year earlier but dropped month on month for the first time in 12 years, coming in 29% from October. (All Taiwanese companies report monthly sales figures.)

The decline was largely the result of Foxconn’s rather chaotic “closed-loop” handling of a Covid-19 outbreak in Zhengzhou where it operates the world’s largest iPhone plant (“iPhone City” where 300,000 employees work, eat and sleep.) The Zhengzhou outbreak is now under control, and Foxconn sees the plant back at full output in late December or early January.

Apple recently announced “lower iPhone 14 Pro and iPhone 14 Pro Max shipments” but even before the recent worker riots, Apple had been getting increasingly nervous about the extent of its reliance on manufacturing in China (mostly but not only through Foxconn), with a supply chain and outsourcing ecosystem built up since the late 1990s. 

Apple has been looking to expand in other Asian manufacturing bases, such as in India and Vietnam, but building up the ecosystem and the cost efficiencies that come with it will take time. (Analysts estimate that 95% of all iPhones currently come from China.)

Mini-Explainer on Diversification for businesses:
Diversification is a business strategy that involves expanding a company’s products, services, markets or suppliers. The goal of diversification is to reduce risk by spreading out the company’s bets.
Diversification can help a company to grow and reduce its reliance on any one particular area or market. This can be done by developing new products or services, entering new markets, or acquiring new businesses. There are two main types of diversification:
– 1. Horizontal diversification: This involves expanding into new products or markets that are related to the company’s existing products or markets.
– 2. Vertical diversification: This involves expanding into new areas of the supply chain, such as manufacturing, distribution, or retail.
Diversifying the manufacturing supply chain reduces dependence on any one supplier. This is important for two reasons:
– 1. It reduces the risk that a manufacturing disruption will occur if a single supplier has a problem. 
– 2. It gives the manufacturing organization more leverage in negotiating prices with suppliers.

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS

🎓 The Hang Seng Index

The HSI is the main stock market index for Hong Kong, which since 1997 is officially a part of China as a Special Administrative Region (SAR). The HSI was first created in 1969 by Hang Seng Bank (a subsidiary of HSBC) and has been calculated ever since to represent the performance of the largest (“blue chip”) stocks in the SAR. Like most major indexes globally, it is weighted by market capitalisation (share price times the number of shares) but adjusted for free float, i.e. they adjust for what’s not held by permanent major shareholders like a family or a government.The changing nature of the market will usually reflect that of the economy, in HK’s case the greater and greater integration into China. The weightings of stocks as well as the stocks themselves change on a regular basis. China companies which have a listing in HK, often in addition to other exchanges (in China or elsewhere) have become a much more important component of the index in the last decade or so and now dominate the 66 stock index.

There is a separate Hang Seng China Enterprises Index (HSCEI) which is entirely comprised of HK listed China companies and also widely followed, and of course the competing indexes in China itself, centered around Shanghai and Shenzhen where the main index is the CSI300.

Please do your own research – we create educational and entertaining content so you can start the day understanding the financial and business worlds a little better. However, this is NOT financial advice.

MoneyFitt (Spendolater Pte Ltd) is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. The information contained is not intended to be a source of advice or credit analysis with respect to the material presented. Any ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial, tax or legal professional and independently researching and verifying information. Content is intended to be used and must be used for informational purposes only.

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