DAILY MORNING NOTE | 24 July 2023

Week 30 equity strategy: Global key economic data, particularly consumer spending, continues to show signs of weakness. In the US, retail sales in June rose a mere 0.6% YoY, the slowest pace in three years and below pre-pandemic trend growth of 4%. In China, economic momentum is also losing steam. Retail sales only expanded 3% YoY in June after the torrid double-digit pace of the previous few months due to the re-opening base effect. The critical property sector remains sluggish, declining 28% YoY in June. A weak property market has far-reaching negative implications for the upstream building materials and the downstream household goods sector. We worry expectations of an inventory re-stocking cycle pushing up global growth may disappoint.

The critical but widely expected event next week will be the Federal Reserve interest rates decision on 26 July. Futures market is pricing a 90% probability of a 25-basis point hike in rates. It is doubtful Powell will mention a permanent pause in interest rates but fall back on the usual data-dependent mantra. Relying on current data while expecting a lagged effect from monetary policy will be backwards looking. The past three cycles where the Fed paused after a series of rate hikes were in 2000, 2007 and 2019. On average, a pause did trigger a short-term equity rally, but eventually, equity markets declined following rate cuts. Ultimately, the trajectory of the economy seemed to have a substantial influence on the underlying equity market trajectory. In all these episodes, bond prices did rally.

Paul Chew
Head Of Research
paulchewkl@phillip.com.sg

LOCAL shares ended the week in the black, as the slew of corporate earnings results and macroeconomic data releases globally gave investors much to mull over. This, in turn, translated to bargain hunting in the local capital market. Singapore shares rose 0.1 per cent or 3.92 points on Friday (Jul 21) to close at 3,278.30. Across the broader market, advancers outpaced decliners 306 to 241, after 1.2 billion securities worth S$862.3 million changed hands.

US STOCKS ended mixed on Friday (Jul 21), with the Dow Jones Industrial Average rising marginally to notch its 10th straight day of advances, its longest rally in almost six years.The blue-chip index was lifted by gains of more than 1 per cent each in Procter & Gamble and Chevron. It is now up over 6 per cent in 2023, compared to the S&P 500‘s 18 per cent rise.

SG

THE Chinese government will resume a 15-day, visa-free facility for Singaporeans travelling to China from midnight on Wednesday (Jul 26), more than three years after it was suspended. These include visas for tourism, business, visiting relatives and friends, and transit purposes, the Chinese Embassy in Singapore announced on Sunday morning.

FEWER properties in Singapore went under the hammer in the second quarter of 2023, even as interest rates continued to soar and property owners remained under pressure. There were a total of 62 auction listings in Q2, down 15.1 per cent from 73 in the previous quarter. Of the 62, just 18 were mortgagee listings, down 35.7 per cent from the previous quarter’s 28. Owner listings accounted for the remaining 44, slipping marginally from 45 in Q1.

THE Singapore Exchange Regulation (SGX RegCo) is looking into potential listing-rule breaches by Kitchen Culture and will refer any infringements of the law to the relevant authorities. This comes after an independent review of the embattled kitchen solutions provider flagged potential payroll irregularities, as well as uncovered unauthorised transactions by the company.

CHRISTINA Ong, an independent director of Singtel is still eligible to be retained in her role despite exceeding nine years of service this year, due to a transitional period implemented by the Singapore Exchange.

US

GOLD prices climbed on Friday (Jul 21) as a weaker dollar made bullion cheaper for holders of other currencies, while the metal was poised for a third consecutive weekly gain on hopes that the US Federal Reserve will pause rate hikes after July.Spot gold rose 0.1 per cent to US$1,971.79 per ounce by 0119 GMT. Bullion gained nearly 1 per cent so far this week.US gold futures gained 0.2 per cent to US$1,973.80.

CHINA’S Dalian Wanda Commercial Management, a unit of China’s largest commercial real estate developer Dalian Wanda Group, has made a US$400 million bond repayment, financial information provider Redd reported on Saturday (Jul 22). Wanda Commercial, which has been under spotlight over its debt woes, has around 6.7 billion yuan (S$1.2 billion) of onshore bonds maturing and puttable through June 2024, according to Moody’s, and US$1 billion of offshore bonds coming due in the period.

TWO US House of Representatives committees said on Friday (Jul 21) they are investigating Ford Motor’s partnership with Chinese battery company CATL. Ford announced in February it is spending US$3.5 billion to build a battery plant in Michigan using technology from CATL, the world’s largest battery maker. They warned that if the company remains reliant on China for inputs to produce electric vehicle batteries, “the company will be exposing itself and US taxpayers to the whims of the Chinese Communist Party and its politics.”

AMAZON is building a US$120 million processing facility at Nasa’s Kennedy Space Center in Florida for its thousands of planned Kuiper Internet satellites, the company and state officials said on Friday (Jul 21). The 100,000 square-foot building is part of the roughly US$10 billion that Amazon has vowed to invest in its Kuiper project, a planned network of 3,200 low Earth-orbiting satellites designed to beam broadband Internet globally.

Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR

RESEARCH REPORTS

Netflix Inc – Paid sharing driving most of the gains

Recommendation : NEUTRAL (Maintained); TP: US$446.00, Last Close: US$427.50

Analyst: Jonathan Woo

– 2Q23 results were in line with our estimates. 1H23 revenue/PATMI at 48%/51% of our FY23e forecasts. Currency continued to be a 3% point drag to revenue growth.

– Positive results on its two key initiatives: 1) Paid sharing driving majority of membership/revenue growth in 2Q23; 2) Ad-supported memberships doubled from 1Q23. Expect acceleration in revenue growth in 2H23e.

– Writer and actor strikes a positive for FY23e FCF due to delays in content spend. FY23e FCF is raised by 37%.

– We reduce our FY23e content spend by 12%. Longer-term content spend growth is also lowered by 2% to be more in line with revenue growth. We also nudge FY24e revenue/PATMI up by 3% to reflect stronger revenue trends from Paid Sharing and advertising. FY23e revenue/PATMI remain unchanged. We maintain our NEUTRAL recommendation with a raised DCF target price of US$446.00 (prev. US$388.00). Our WACC and growth rate assumptions remain the same at 12.2% and 3% respectively.

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