Daily Morning Note – 18 June 2021
Wall Street investors shifted their patterns Thursday, buying technology giants and shunning financial and energy equities as long-term bond yields retreated. A day after the Federal Reserve signaled an earlier timeframe for hiking interest rates, investors sold bank and energy shares that have done well in 2021, steering funds to tech giants that have underperformed. “The good news is money is not rotating out of the market, it’s just rotating into growth stocks,” said Art Hogan, chief strategist at National Securities. Shares of Apple, Facebook and Amazon all rose more than one per cent, leading to a 0.9 per cent jump in the tech-rich Nasdaq Composite Index to 14,161.35. The dollar jumped on Thursday and hit a two-month high against a basket of currencies, a day after US Federal Reserve officials surprised markets by projecting a hike in interest rates and end to emergency bond-buying sooner than expected.
European shares ended a touch lower on Thursday as hawkish signals from the US Federal Reserve raised concerns over early policy tightening, with mining stocks falling the most as commodity prices tumbled. The pan-European Stoxx 600 index was down 0.1 per cent at 459.33, snapping a nine-day gaining streak, after the Fed said it could begin raising interest rates a year earlier than expected. Mining stocks were the worst performers, sinking 2.5 per cent as the US central bank’s comments lifted the dollar and dented commodity prices. Utility and chemical shares were also among the biggest decliners. Losses in major mining stocks saw the FTSE 100 shed 0.4 per cent.
Prime US REIT in talks with WeWork on proposed lease restructuring. Co-working space operator WeWork has approached Prime US Reit with a proposal to restructure its lease at the latter’s Class A office property in California, and discussions are ongoing. The tenant, a wholly-owned subsidiary of WeWork, occupies 56,977 square feet (sq ft) within Tower I at Emeryville, out of the building’s net lettable area of 222,606 sq ft. WeWork’s website states that its shared office space takes up three floors of the 12-storey tower, and includes hot desking spaces, dedicated desks, and private offices. The tenant contributes less than 2.5 per cent of Prime US Reit’s cash rental income as at end-March, the real estate investment trust’s (Reit) manager said in a bourse filing on Thursday evening. It added that the tenant has been current on its rental obligations till mid-June 2021, and the lease terms are “currently under evaluation”.
Eagle Hospitality Real Estate Investment Trust (EH-Reit), which is part of Eagle Hospitality Trust (EHT), has received net proceeds of about US$153.9 million following the sale of five Chapter 11 properties. These assets were Sheraton Denver Tech Center, Four Points by Sheraton San Jose Airport, Embassy Suites by Hilton Anaheim North, Double Tree by Hilton Salt Lake City and Hilton Atlanta Northeast The net proceeds have been partially used to repay the debtor-in-possession facility and the stalking horse “break up” fee, EH-Reit trustee DBS Trustee said in a bourse filing on Thursday. The balance remaining is around US$109.7 million, which will go to repaying ongoing post-petition expenses and pre-petition creditors.
DBS to be anchor investor in a special situations debt fund by Muzinich Asia Pacific. Industry watchers are seeing special situations funds gain ground on the back of the global health crisis, and as companies seek to access a wider spectrum of financing sources. The comments come as DBS announced on Thursday that it will be the anchor investor into a special situations private debt fund by Muzinich Asia Pacific. It is believed to be the first anchor investment by a local bank in this space. South-east Asia’s largest bank will pump in up to US$200 million or 40 per cent of the total fund size, whichever is lower. It will also have representation on the fund’s investment committee and advisory committee.
Singapore is among key drivers of a surge in demand for life sciences real estate in the Asia-Pacific (Apac) due to its competitive life sciences sector, said CBRE Research in a report. CBRE expects demand to rise for corporate offices, logistics facilities, research and development (R&D) laboratories and manufacturing facilities, which make up the four major components of real estate portfolio for life sciences companies. It noted that the life sciences sector – which includes the pharmaceutical, biotechnology, medical equipment, food science and healthcare sectors – has “enormous growth potential” in Apac due to large population sizes and a rise in R&D. It also ranks Singapore as one of the top five in the region for market competitiveness in the life sciences industry.
Advanced Systems Automation (ASA), which recently agreed to buy a video-gaming company in a reverse takeover, is looking to consolidate every 375 of its existing ordinary shares into one ordinary share. The Catalist-listed company also proposed a bonus issue of up to about 19.8 million free warrants, subject to the completion of the share consolidation. The books closure date will be determined at a later date, the company said in an exchange filing on Thursday evening. Shareholders who each hold fewer than 375 existing shares as at the books closure date will not be entitled to any consolidated shares, and will no longer be ASA shareholders when the consolidation is completed.
Hong Kong tycoon Richard Li’s insurer FWD said it has lodged an application to regulators for an initial public offering (IPO) in the United States. The company did not disclose the size of the IPO, but the deal could raise between US$2 and US$3 billion, people familiar with the matter said. A fundraising of that size would value FWD at US$13 billion to US$15 billion, they added. “The IPO is expected to take place after the SEC (Securities and Exchange Commission) completes its review process, subject to market conditions,” it added. The IPO filing comes under FWD holding company PCGI Intermediate.
TikTok owner ByteDance’s total revenue hit US$34.3b in 2020, up 111 per cent from 2019, the company told its employees in a staff meeting, a person who attended the meeting told Reuters on Thursday. Its gross profit hit US$19 billion, representing a 93 per cent growth year over year while its operating loss was US$2 billion for the year and net loss was US$45 billion, the person said.
Tesla sales of China-made Model Y cars more than doubled last month, allaying for now concern that a high-profile protest and a ban on some of the automaker’s vehicles from government buildings due to security concerns may have hurt demand. Registrations of the sporty SUV, which in China starts from around US$53,000, rose to 12,785 in May from 5,520 in April, data from China Automotive Information Net show. Registrations of the cheaper Model 3 sedan were 9,324, up from 6,429. April’s figures were well down on March because some production lines at the Shanghai factory were suspended for two weeks for maintenance and adjustment. Tesla only starting making deliveries of the Model Y in China in January.
US jobless claims break streak of declines with surprise increase. New applications for US unemployment benefits increased last week for the first time in seven weeks, according to government data Thursday, breaking a streak of declines as Covid-19 vaccines have allowed businesses to reopen and rehire. Jobless claims rose to 412,000, seasonally adjusted, in the week ended June 12, which was 37,000 more than the previous week, the Labor Department said. And claims filed under the Pandemic Unemployment Assistance (PUA) programme for freelance workers rose 46,722 to 118,025, not seasonally adjusted, the data showed. The declining trend in regular claims for the past six weeks was welcome news for the US labour market, after applications skyrocketed into the millions in March 2020 and remained at elevated levels throughout the pandemic.
The average rate on the popular 30-year fixed mortgage moved decidedly higher Thursday, hitting 3.25%, according to Mortgage News Daily. That is the highest rate since mid-April. The move was a reaction to comments made Wednesday by Federal Reserve Chairman Jerome Powell following the central bank’s meeting this week. Fed officials indicated that rate hikes could come in 2023, although they didn’t mention when they would start scaling back their massive bond-buying program. Mortgage rates do not follow the federal funds rate, which was unchanged Wednesday, but generally track the yield on the 10-year Treasury, which moved higher. Mortgage rates are also affected greatly by the amount of mortgage-backed bonds the Fed purchases. That’s what caught some investors off guard and caused bond yields and mortgage rates to move higher than expected. Last fall, mortgage rates dropped dramatically, and by February of this year, the average rate on the 30-year fixed was at 2.75%.
Ant Group could list its shares by the end of this year though the Chinese fintech giant faces a 60 per cent slash in valuation, according to a report from Sanford C Bernstein & Co.The firm controlled by billionaire Jack Ma could be worth about US$120 billion upon listing due to slower revenue growth, Bernstein analysts led by Kevin Kwek wrote in a June 17 report. Ant may also have to inject 30 billion yuan (S$6.24 billion) to 40 billion yuan of capital into its new consumer finance unit to support credit growth, the analysts said. The revised estimate is a far cry from valuations that ran as high as US$320 billion before the company was forced to scrap its record initial public offering in November. China’s crackdown forced Ant to withdraw the US$35 billion IPO just days before its planned listing in Hong Kong and Shanghai.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Analyst: Chua Wei Ren
Recommended Action: Technical BUY
Xiaomi Corp (HKEX: 1810) is still in an overall corrective ranging structure. However, after Xiaomi successfully hold its fort at HKD$24.80 region, Xiaomi broke the ascending triangle and touch base at 61.8% Fibonacci retracement level of the overall of wave A. Wave and Technical indicate further upside, but it will be cap with the range between HKD$35.90-HKD$20.65:
HK Reports – Read up on our Hong Kong reports here
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