Top traded counters in August 2023 September 19, 2023

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The market at a glance:

• US debt downgraded to AA+
• Possibility of a rate hike at the end of the year
• Fed raised interest rate by 0.25%
• China reduced vital policy rate
• Beijing cuts trade levy
• Amazon’s cost-cutting measures paid off

The 3 major indices were down, ending months of a bullish streak.

Fitch sent shockwaves through the financial markets when it downgraded the US debt rating from AAA to AA+¹. This decision, driven by a decline in governance standards, came after negotiations over the debt ceiling and concerns related to the January 6 insurrection. In his discussions with the Biden administration, Fitch emphasised these factors and the potential consequences, including impacts on mortgage rates and global contracts. This downgrade may also lead to the sale of US Treasuries, resulting in higher yields that, in turn, could influence loan interest rates. Fitch’s rationale for the downgrade includes a deterioration in governance over the past two decades and expected fiscal challenges. However, officials from the Biden administration dispute the decision, criticising the methodology and attributing blame to Republican actions.

In the recent annual Jackson Hole Economic Policy Symposium, Fed Chair Jerome Powell indicated that the Federal Reserve might need to increase interest rates further to address the persistent inflation which was at 4.24% YoY in July 2023 for the Personal Consumption Expenditure. He acknowledged progress in reducing price pressures but also recognised risks stemming from the unexpectedly strong U.S. economy. While less hawkish compared to the previous year, his message led investors to increasingly believe in the possibility of another rate hike by the end of the year.

As of June’s FOMC meeting, investors are forecasting a terminal interest rate that is as high as 5.6% by the end of the year². Powell noted signs of the economy not cooling as anticipated, citing strong consumer spending and a potentially rebounding housing sector. He also highlighted the potential need for further tightening to counter above-trend growth which could hinder progress in controlling inflation. Powell’s tone was less severe than the previous year, reflecting satisfaction with progress in monetary policy and inflation reduction. Yet, he maintains a cautious stance and keeps his options open. As a result, US treasuries could potentially hit multi year high with the 10-year US Treasury yield hitting a 16-year high³.

While the US is still considering further tightening of its monetary policy, the second largest economy is moving in a different direction.

China’s central bank has unexpectedly reduced key policy rates for the second time in three months⁴, indicating efforts to stimulate a struggling economic recovery. The decision comes as credit growth declines and deflation risks rise, necessitating further monetary easing to counter the economic slowdown. Additionally, concerns about default risks among housing developers and missed payments by a private wealth manager have also shaken market confidence.

In an attempt to maintain sufficient liquidity in the banking system, the People’s Bank of China (PBOC) has lowered the rate on one-year medium-term lending facility (MLF) loans to financial institutions by 15 basis points. China’s loose monetary policy stands in contrast to tightening measures in other countries, contributing to a wider yield gap and potentially exerting pressure on the Yuan’s value. With the Yuan already depreciating against the Dollar, this unexpected rate cut further impacts currency dynamics and financial market trends.

Another attempt by China to bolster investor confidence is Beijing’s decision to cut levies on share trading and reductions Initial Public Offerings⁵. The Ministry of Finance’s announcement to reduce stamp duty on stock trades to 0.05% is the first since the 2008 financial crisis. These actions represent Beijing’s latest efforts to rejuvenate the Chinese markets after previous assurances of increased economic support leading to foreign inflows in July were reversed. Despite Beijing’s efforts, some investors see the recent moves as insubstantial in improving the overall economic landscape and thus remain cautious. Yet, the rapid implementation of these measures did however kick-start a short-term rally that was deemed beneficial. However, some analysts remain sceptical, expressing uncertainty regarding the rally’s duration due to historic trends of rallies fading after initial support wanes.

Even with a frail Chinese economy, there are still sectors that investors can look out for with one of them being the manufacturing sector.The Chinese government has announced its support towards advanced manufacturing by stressing the need to intensify efforts in strengthening the industry through the establishment of a market-oriented, legal, and international business environment. Therefore, with the fiscal support in advanced manufacturing⁶, this is a sector that is filled with potential.

With that in mind, here are some ETFs for consideration:

Global X Robotics & Artificial Intelligence ETF (NYSE-ARCA: BOTZ.US)

BOTZ is an ETF that seeks to track the investment results of companies that stand to potentially benefit from the increased adoption and utilisation of robotics and artificial intelligence(AI). This includes companies involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles⁷. According to BOTZ, the top three invested sectors are in the Industrial Machinery, Semiconductors and Medical Specialities.

BOTZ commenced on 12 Sep 2016 with an expense ratio of 0.69%. Its five year performance as of 31 Jul 2023 is 6.19%. BOTZ opened at US$28.88 and dropped 7.44% to close at US$26.73 in Aug.

Technical Analysis

Status: slightly bearish

Support: US$74.73 – 74.90

Resistance: US$75.50 – 75.80

Bearish If price can hold below resistance level, otherwise range-bound.

PROSHARES NANOTECHNOLOGY ETF (NYSE-ARCA: TINY.US)

TINY is an ETF that seeks to deliver investment results that correspond to the performance of companies that promote the adoption of nanoscale technology⁸. As an industry, nanotechnology has experienced rapid growth with the Semiconductors, Technology Hardware and Pharmaceuticals being its top 3 invested sectors. TINY commenced on 26 Oct 2021 with an expense ratio of 0.58%. Its one year performance as of 30 June 2023 is 34.64%.

TINY opened at US$40.05 and dropped by 4.07% to close at US$38.42 in August.

Technical analysis

Status: Neutral

Support: US$35.61 – 36.01

Resistance: US$38.23 – 38.42

Range-bound

Here are some of the more popular US stocks – not ranked in any order – traded by POEMS customers in the month of August 2023.

Advance Micro Devices (NASDAQ: AMD)

AMD released its fiscal second-quarter earnings report in the month of August. The company reported an 18% decline in revenue, yet exceeded sales and profit estimates. Earnings were US$0.58 per share (adjusted), surpassing the estimated US$0.57. Revenue reached US$5.36 billion, slightly above the expected US$5.31 billion. For Q3, AMD projects US$5.7 billion in sales, lower than the anticipated US$5.81 billion.

The company foresees growth in its data centre and embedded divisions throughout the fiscal year. AMD CEO Lisa Su highlighted a projected ramp-up in Data Centre related businesses in H2, with a target of 50% growth compared to H1. Despite a downturn in the global PC market affecting its processor business, AMD stands out for its high-end GPUs that are usually required for AI-related softwares. The company also plans to expand its AI-related research, because they see it as a growth driver. Hence, despite a decline in revenue, AMD’s strategic AI focus and product diversity indicate a proactive approach to future growth.⁹

In the month of August, AMD opened at US$114.26 and dropped 7.47% to close at US$105.72.

Referring to this Phillip Research report dated 4 August 2023, the recommendation for AMD is Accumulate.

Technical analysis

Status: Slightly bearish

Support: US$99.58 – 102.43

Resistance: US$117.66 – 119.19

If price breaks below support level, bearish trend will continue, otherwise range-bound

Airbnb Inc (NASDAQ: ABNB)

In August, ABNB reported that their Q2 performance surpassed earnings and revenue expectations, despite falling short on the quantity of nights and experiences booked. The company exceeded earnings estimates at US$0.98 per share (vs.expected US$0.78) and revenue at US$2.48 billion (vs. expected US$2.42 billion). While revenue grew 18% YoY and net income reached US$650 million, the reported 115.1 million nights and experiences booked fell short of the anticipated 117.6 million. Gross booking value per night increased by 1% to US$166.01.

ABNB Q3 guidance projects revenue of US$3.3 billion to US$3.4 billion, showcasing growth between 14% and 18%. CEO Brian Chesky highlighted potential service expansions for revenue growth, including an advertising platform and the matching of AirBnB hosts with AirBnB homes where the owners lack the time to host. The company also aims to leverage OpenAI’s GPT-4 for refining customer service effectiveness.¹⁰

In the month of August, ABNB opened at US$149.62 and dropped 12.08% to close at US$131.55.

Referring to this Phillip Research report dated 10 August 2023, the recommendation for ABNB is Accumulate.

Technical analysis

Status: Bullish

Support: US$123.49 – 125.94

Resistance: US$143.50 – 145.32

If price continues to hold above support, bullish price movement could be expected

Apple Inc (NASDAQ: AAPL)

AAPL Q3 fiscal results outperformed analyst predictions for earnings and sales, driven by the robust 8% growth in services revenue YoY. Overall sales experienced a 1% decline YoY, revenue from the iPhone, Mac, and iPad categories all dipped compared to the previous year. Earnings per share was reported at US$1.26, higher than estimates of US$1.19 while revenue was reported at US$ 81.8 billion, also higher than estimates of US$81.69 billion.

Despite refraining from offering official guidance due to uncertainty, CFO Luca Maestri shared insights into the upcoming quarter. He foresees a similar YoY revenue decline, similar to the 1% dip in the current quarter. However, he expects a better performance for iPhone sales and even stronger growth in the Services division. Notably, sales of iPads and Macs were projected to face double-digit drops due to challenging comparisons, particularly for Macs. Apple projected a gross margin of 44% to 45% and operating expenses ranging from US$13.5 billion to US$13.7 billion.¹¹

In the month of August, AAPL opened at US$195.97 and dropped 4.13% to close at US$187.87.

Referring to this Phillip Research report dated 7 August 2023, the recommendation for AAPL is Neutral.

Technical analysis

Status: Bullish

Support: US$180.68 – 181.77

Resistance: US$192.29 – 194.22

If price continues to hold above support, bullish price movement could be expected

Amazon.com Inc (NASDAQ: AMZN)

AMZN reported second-quarter earnings that exceeded analyst predictions in the month of August. The company’s EPS of US$0.65 outperformed the projected US$0.35 EPS, and its revenue of US$134.4 billion surpassed the estimated US$131.5 billion. Notable figures in the report included AWS revenue of US$22.1 billion, surpassing the anticipated US$21.8 billion, and advertising revenue of US$10.7 billion, higher than the expected US$ 10.4 billion.

This impressive performance marked AMZN’s most significant earnings beat since Q4 2020. CEO Andy Jassy’s efforts to reduce costs, including substantial job cuts and expense reductions, contributed to this success. The company’s guidance for Q3 predicts sales between US$138 billion and US$143 billion, indicating growth of 9% to 13%. This projection is underpinned by the success of the 48-hour Prime Day event in July, which was hailed as the company’s “biggest ever.”¹²

In the month of August, AMZN opened at US$133.55 and gained 3.34% to close at US$138.01.

Referring to this Phillip Research report dated 10 August 2023, the recommendation for AMZN is Buy.

Technical analysis

Status: Neutral

Support: US$130.33 – 131.15

Resistance: US$140.82 – 141.28

Range-bound

Nvidia Corporation (NASDAQ: NVDA)

NVDA reported its robust fiscal Q2 performance that outperformed predictions, coupled with optimistic guidance for the ongoing period in the month of August. Earnings reached US$2.70 per share, surpassing the estimates of US$2.09 per share. Additionally, the company’s revenue amounted to US$13.51 billion, exceeding the estimate of US$11.22 billion.

NVDA outlook for the fiscal Q3 foresees revenue around US$16 billion, surpassing the estimated forecast of US$12.61 billion. This guidance implies an impressive 170% sales growth compared to the same period last year.
NVDA solid sales and positive projections underscore the pivotal role of its graphics processing units (GPUs) in the burgeoning generative AI landscape. NVDA’s A100 and H100 AI chips are instrumental in developing and running AI applications like OpenAI’s ChatGPT, catering to services that provide conversational responses or images based on text queries.

Demonstrating their commitment to shareholders, NVDA board authorised US$25 billion in share buybacks, building on the US$3.28 billion in shares repurchased during the quarter.

In summary, NVDA Q2 performance exceeded expectations, characterised by strong earnings and revenue, driven by data centre and AI chip offerings. The company’s positive outlook, fueled by robust growth across key sectors, sets a promising trajectory for its future performance.¹³

In the month of August, NVDA opened at US$464.60 and gained 6.23% to close at US$493.55.

Referring to this Phillip Research report dated 28 August 2023, the recommendation for NVDA is Buy.

Technical analysis

Status: Bullish

Support: US$448.88 – 452.70

Resistance: US$502.52

Price needs to break above record high for bullish movement to continue.

CONCLUSION

In hindsight, the downgrade of the US debt rating is expected due to deteriorating governance and anticipated fiscal challenges. The downgrade could lead to higher yields on US, potentially affecting mortgage rates and global contracts. Additionally, the Fed may also be pushing treasury rates up to combat the persistent inflation.

Looking at China, they are doing the reverse from the Fed. China is relaxing its monetary and fiscal policies instead to stimulate its economy and boost investor confidence. However, scepticism lingers among some market participants, emphasising the need for implementing consistent and concrete measures to create a lasting impact on the economic landscape.

Despite the challenges in the Chinese economy, there are promising sectors for investors to consider. Notably, the Chinese government is actively backing advanced manufacturing, highlighting the importance of bolstering this industry through the creation of a market-oriented, legal, and international business environment. With significant fiscal support dedicated to advanced manufacturing, this sector is poised to thrive, and potentially generate positive ripple effects for the global economy.

Bloomberg analysts’ recommendations

The table below shows the consensus ratings and average ratings of all analysts updated on Bloomberg in the last 12 months. Consensus ratings have been computed by standardising analysts’ ratings from a scale of 1 (Strong Sell) to 5 (Strong Buy). The table also shows a number of analysts’ recommendations to buy, hold or sell the stocks, as well as their average target prices.

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