Markets shine, is tech back and Daigou dead?
Australian Market Strategist
Summary: Why the Australian market and Australia dollar are looking hotter and bullish. Daigou is dying, what does this mean? Biden threatens more sanctions on Russia and action against China. The Yen remains under pressure. And why look at, but be cautious of Australian tech and China tech stocks, as gains might be short lived.
Co-written by Market Strategists Jessica Amir in Australia, Redmond Wong in Hong Kong, Charu Chanana in Singapore.
What’s happening in equites that you need to know?
- The Australian share market (ASX200) pushed up 0.5% (to 7,375 points) today, not only opening above its 200 day average, but moving to its highest level since January 19, and making a beeline for setting fresh highs and chasing back towards its all-time high. The ASX this week, is being fueled by Tech index rising 4.1%, the Mining sector rising 3%, Energy up 2%. So what’s next? From a technical perspective, it looks like the ASX200 could gain more ground (as indicated by the moving averages, the MACD and RSI). The fundamentals suggest the market could be also pricing in the ASX200 will rise this year, despite, record inflation and interest rates rises. The market thinks earnings per share (EPS) growth of 17% will come. The ASX energy sector itself it touted to generate 61% EPS growth over 12 months, the mining sector 33% EPS growth. Quite feasible and this is supporting the ASX higher given it's made up of 30% commodity stocks. However the ‘market’ (consensus) expects the Australian tech sector to generate 860% EPS growth. Wow. We think that is not realistic for the tech sector and advocate for selective buying into tech. If you do buy into tech, consider profitable stocks, those with dominate/growing market share and those that are growing their earnings. That's the secret sauce for share price growth. But remember, most of Australia's tech stocks in the ASX200 don't make profits, except Xero (XRO), WiseTech (WTC), Appen (APX), Altium (ALU) and REA Group (REA) to name a few).
- In Asia, Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index rose 1.8%. Hang Seng TECH Index (HSTECH.I) was up more than 4%. Chinese tech stocks led the charge higher. Xiaomi (01810) announced 4Q21 results beating consensus and a HK$10 billion buyback. Xiaomi rose more than 9%. Bilibili (09626) was up 15%. Meituan (03690), Alibaba (09988) and Baidu (09888) were 4% to 7% higher. Anta Sports (02020) reported slightly better than consensus revenues and earnings but operating margins declined due to higher marketing expenses. Anta’s share price was little changed. In A shares, CSI300 was 0.7%. New energy names were among the best performers.
What you need to consider
- Daigou trade is dying. If you have ever bought or sold shares are infant milk formula businesses like, A2 Milk (A2M) Or Bubs Australia (BUB) you probably know, they were thriving when Chinese borders were open. However, as borders are shut, we’ve seen the death of Daigou trade, and thus their shares have stumbled. However, some businesses are adapting to different models, for example Swisse vitamins stepped up to sell more products to major supermarket chains. So it could be worth watching Procter & Gamble (PG) that has major brands on supermarket shelves all over the world and does not rely on sales to China via Daigou (where Chinese expats buy goods to send back to China).
- Evergrande: In a conference call to investors, China Evergrande (03333), Evergrande Properties Services (06666) and China Evergrande New Energy Vehicle (00708) updated investors about the progress in the group’s restructuring plan and suggested that the group aimed at coming up with a plan by the end of July 2022.
- Biden threatens more sanctions on Russia and action against China. New sanctions against Russia has sent the oil prices soaring again ahead of the meeting between the EU and NATO leaders in Brussels on Thursday. Risk of secondary sanctions on China is also sending risk waves in Asia even as most countries maintain a neutral stance but are still closely tied to China.
- Yen remains under pressure. A significant hawkish shift in Fed’s stance since its first hike of the cycle last week is weighing on the Japanese Yen (JPY). USD/JPY touched a fresh 6-year high of 121 this morning as central bank policies diverge and yields differentials rise. Key resistance ahead at 125 but this could go anywhere in the near term as noted by our FX strategist John Hardy in a piece titled “The Fed is chasing a runaway train.”
- AUD USD is looking bullish. We’ve been speaking about the Australian dollar looking bullish and today the Aussie hit its highest level in almost five months, 74.61 US. The reason the Australia dollar is rallying is because its commodities are increasingly being sought after. Australia is the world’s largest iron ore mining country, equal biggest LNG exporter, 3rd biggest uranium producer, 4th biggest coal nation, 5th biggest copper and lithium producer, and 6th biggest wheat and other grains exporter. And all these commodity prices are rising and this supports Australia’s trade balance hitting another record high.
- Australian tech. As above, the global, and Australian tech sector is rallying. The Australian tech sector has been in a bear market (down 25%) from its November high. However the technical indicators, suggest the tech sector could continue to rally up. We urge caution here. Why? Remember its quarterly rebalance time, so fund managers have to compulsorily buy into Aussie tech before end of quarter, given it's down the most this year, out of all the sectors on the ASX. This means, you could expect gains to be short lived. So expect higher highs in tech, before the tech sector slows down ahead of rates rising. However if you are trading short term, watch Block (SQ2) which earns most of its money from Bitcoin, you could also look at accounting software business Xero (XRO), software logistics giant WiseTech (WTC), or have a look at an Australian tech ETF like ATEC, all of which are making green tracks this week.
- China Tech Stocks: Share buybacks have bolstered investor sentiment in Chinese Internet stocks, and supported the policy triggered rally that started last Wednesday. From here, it may be advisable to take some money from the table and trim risks.
Earnings to watch
In Hong Kong & mainland China:
- Mar 23: AAC (02018), China Mobile (00941), CIMC Enric (03899), Fosun (00656), Geely (00175), Haidilao (06862), Kingsoft (03888), Tencent (00700), Trip.com (TCOM)
- Mar 24: BAIC Motor (01958), China Life (02628), China Overseas Property (02669), China Resources Beer (00291), NIO (09866)
- Mar 25: Greentown Service (02869), Longfor (00960), Meituan (03690)
Quarterly Outlook Q2 2022
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Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
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