Summary: Global equities bunker down as Russian forced roll into Ukraine. Meanwhile investors continue to into buy into commodities and commodity stocks as a hedge, such as buying into gold (XAUUSD) sending it up to 0.1% to US$1,901, a new 8 month high, while investors also surged into Crude oil (OILUSMAR22 & OILUKAPR22) seeing it jump 3% to US$93.86. ASX stocks in oil and gold also benefited. In other news, the UK lifted all Covid19 restrictions, China’s central bank injected more stimulus into its banking system, and Australia welcome international tourists for the second day, after its border was shut for over 700 days. Here are APAC considerations, and trading ideas.
Co written by Market Strategists Jessica Amir in Australia and Redmond Wong in Hong Kong.
What’s happening in markets?
- When US trades resume this evening (Sydney time) the Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) are tipped to fall over 2.2%, and 1.6% respectively (according to Futures). US markets were shut on Monday for a public holiday. However, the mood of late has favoured investors who are ‘shorting’ the market, as in betting the S&P500 and Nasdaq would fall. Over the last two weeks for example, the Nasdaq 100 and S&P 500 have fallen a total 4% and 3.4% respectively. And from a technical perspective, both indices have fallen below key technical key support levels, meaning there are risks of further pull backs.
- Our view remains the same. We are expecting further downside in broad equity markets given Russian Ukraine tension. It comes at a time when equites are about to enter a new era; Interest rates will be rising for the first time in 12 years, with a suite of hikes expected. Meaning high-growth, high-valuation companies and tech names that carry higher debt and plagued with high competition, will likely be squeezed by higher inflation (wages and petrol prices). So this could spell the end of the era; so tech stocks outperformed and delivered the best returns in equities over the last 10 years, While over the next decade, the strongest outperformers are likely to be commodity stocks. And as per our quarterly outlook we are bullish on commodities and see further upside for the sector, including oil, gas, coal, wheat, nickel, aluminum, copper and iron ore to name a few.
- In Australia, on Tuesday, overall market sentiment soured. The Australian sharemarket, as measured by the ASX200 (ASXSP200.I) fell 1% to a 3 week low with shares in high growth stocks being hit. However, companies releasing better than expected results/outlooks shone, along with oil and gold companies after oil prices and gold surged. Meanwhile. Hearing implant company Cochlear (COH) shares rose about 9% on reporting full year profits rose 26%, plus Cochlear guided that while covid19 remains a risk, it does not expect a financial impact in 2022 as elective surgery restrictions are lifted. Australia’s largest agricultural supplier to supermarkets, Costa Group (CGC) shares jumped 9% (its biggest jump a year) after its profit beat expectations. For the year ahead, berry yields are rising more than expected and demand is rising, while avocado markets returned strongly, mushroom production volume and demand is up. This highlights the theme that commodities and commodity stocks will likely be a bright spark for equites in the year ahead. Meantime Australia’s second biggest retailer Coles (COL) shares rose about 3% on reporting stronger than expected half year numbers.
- Hong Kong’s Hang Seng (HK50.I) and China A shares (CSI 300) fell 0.7% and 0.4% yesterday respectively. Hang Seng Tech Index (HSTECH) fell 2.78% as Tencent (00700.HK) and other online entertainment stocks were hard hit by two online stories. First, Tencent was alleged “being hammered again” by regulators in a social media post. Second, rumors were going around about a government’s plan to restrict launch of new online games in 2022. Tencent was down 5.23%, Bilibili (09626.HK) -9.59%, Kuaishou (01024.HK) -7.29%, Weimob (02013.HK) -9.79%.
- In Singapore, the Straits Times Index (STI) rose modestly on Monday. Raffles Medical (RFMD.SP) reported better than market expected 2H21 results benefiting rom COVID-related vaccinations and testing revenues. Revenue and EBITDA rose 18% year on year and 5% year on year respectively.
What to consider?
- In the Hong Kong & China A share markets: The People’s Bank of China (PBOC) kept its 7-day reverse repo rate at 2.1%, unchanged from January. 1-year Loan Prime Rate (LPR) and 5-year LPR were unchanged at 3.7% and 4.6%. On the data front, the decline in home prices in the 70 largest Chinese cities moderated in January 2022. Selling prices in first-tier cities rose slightly from a month ago but those in lower-tier cities still struggled. China’s Emerging Industries PMI rose to 53.5 in February from 48.4 in January. National Development & Reform Commission (NDRC) reported that China’s daily coal production had increased back to the average daily production level in 2021.
Possible trading ideas?
- Equites: If you take a view that markets could go down for reasons mentioned out above, you could consider shorting the S&500, Nasdaq and ASX200 to hedge your positions.
- Commodities: Given the escalating tension, you could also consider increasing your Gold (XAUUSD) positions, or buying into gold stocks, given these markets have historically outperformed equities (every time the Fed has increased interest rates since 1972).
- Currencies: if you believe the Australian dollar will continue to rise against the US dollar, (after it rose to a 4 week high yesterday when the Australian borders opened), then, you could buy the AUDUSD. The AUD is also likely to benefit from commodities rising. At Saxo, we are bullish long term on the AUD.
- In Asia; The drastic market reaction to last week’s news about government pressures on delivery food delivery platforms cutting fees and yesterday’s rumors about new “crackdown” on Tencent and the online entertainment industry once again demonstrated investors’ worry about the high regulatory risks hanging over Chinese tech companies. In our view, concerns about more incoming tightening of the Chinese Government’s grip over the tech sector is well deserved. As Peter Garnry, Head of Equity Strategy at Saxo put it in his note yesterday, “Chinese technology stocks might look cheap but that it is likely a trap for investors as a lot of negative sentiment could hit Chinese technology stocks until we get on the other side of the [Chinese Communist Party] Party Congress” this fall.
Upcoming company earnings calendar
- Feb 23: APA (APA), WorleyParsons (WOR), Woolworths (WOW), WiseTech (WTC), Bega (BGA), Healius (HLS), St Barbara (SBM), Domino's (DMP), Steadfast (SDF), Pilbara Minerals (PLS)
- Feb 24: Perpetual (PPT), Qube (QUB), NEXTDC (NXT), Appen (APX), Flight Centre (FLT), Life360, 360), Nine Entertainment (NEC), Link Administration (LNK), Blackmores (BKL), APE Group (APE), Reece (REH), Qantas (QAN), Zip (Z1P)
- Feb 25: Brambles (BXB), Medibank (MPL), Iluka (ILU), National Storage REIT (NSR) Charter Hall (CHC), Novonix (NVX), Lynas Rare Earths (LYC), PolyNovo (PVN)
Hong Kong & China A Shares:
- Feb 22: HSBC (00005.HK), Hang Seng Bank (00011.HK), ASM Pacific Technology (00522.HK), Nine Dragons Paper Holdings (02689.HK), Awinic (688798.CH)
- Feb 23: Galaxy Entertainment Group Ltd. (00027.HK), Lenovo Group Ltd (00992.HK), SmarTone (00315.HK)
- Feb 24: Alibaba (09988.HK), Hysan Development (00014.HK), Sun Hung Kai Properties Ltd (00016.HK), Hong Kong Exchanges & Clearing (00388.HK), Bank of East Asia Ltd (00023.HK), NetEase (09999.HK), PCCW Ltd (00008.HK), Pacific Basin Shipping (02343.HK)
- Feb 25: Li Auto Inc. (02015.HK), AIA Group Ltd. (01299.HK), Beigene (06160.HK), New World Development Co. Ltd (00017.HK), HKT Trust & HKT Ltd (06823.HK), Seazen Group (01030.HK), NWS Holdings Ltd (00659.HK), Great Eagle Holdings (00041.HK), Angelalign (06699.HK), Sunlord (002138.CH)
- Feb 23: SATA (SATS.SP)
- Feb 24: Singapore Airlines (SIA.SP)
- Feb 25: Singapore Technologies Engineering (STD.SP)
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For prior Australian market and APAC updates - click here.