Notable market news this past week (10-Mar-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🇨🇳 China's endeavors to mitigate US semiconductor restrictions further cement Chinese chip stocks as an increasingly promising area for potential growth
Semicon potentially a bright spot in Chinese equities: Despite the very gloomy outlook on Chinese equities presently, analysts says are bullish on China's chip stocks, such as Naura Technology Group and Hygon Information Technology. The reasoning is simple: US efforts to curb access to cutting-edge semiconductor tech will supercharge the development of China’s chip industry as a matter of survival
$27b Chip Fund: China is in the process of raising a $27b fund to accelerate its development of cutting-edge technologies to counter US’s efforts to slow down China. US has been pressing its allies including Netherlands, Germany, South Korea and Japan to further tighten restrictions on China’s access to semiconductor technology
Huawei’s breakthrough: Despite Huawei and SMIC having tech breakthroughs to manufacture 7nm chips, it relied on machineries from Dutch maker, ASML. China’s top chip equipment suppliers still lags ASML by a few generations
Headwind for China: Even if China manages to raise the $27b fund, it will be tough for China to be completely self-sufficient as their technology lags their foreign counterparts and relies on them to build cutting edge semiconductors. Forging strong partnerships with other countries prove to be critical to minimise US interference if China wants to have a shot at competing with US
🇺🇸 Biden wants to increase tax especially for the ultra-rich
Increase corporate income tax: During the State of Union address last Thursday, Biden proposed increasing the minimum tax rate for multinational corporations to 21%. He has also previously mentioned raising the corporate tax rate from the current 21% to 28%. The White House added that bumping the minimum tax rate will make it more challenging for companies to sidestep taxes.
Biden also hopes to increase tax on the ultra-rich:
- Cease granting corporations tax deductions for all employee salaries exceeding $1m (current rule applies solely to C-suite pay)
- Impose stricter regulations on companies deducting executives' private jet travel expenses
- Increase the tax on corporate stock buybacks from 1% to 4% to incentivize companies to allocate more revenue towards salaries and enhancing productivity.
- Enforce a minimum 25% income tax on billionaires.
Anti-Trump: Trump reduced corporate taxes during his tenure in the White House, but these reductions are scheduled to lapse in 2025. Republicans aim to extend all of these tax breaks, amounting to a $3.5t expense for the government over ten years, according to the nonpartisan Congressional Budget Office. Trump has not yet developed a concrete tax plan of his own.
☕️ Quick fire happenings to note
🌏 Global macro
- US rate cuts nearing: Fed Chairman Jerome Powell stated that the central bank is nearing the requisite level of confidence to initiate interest rate cuts, emphasizing the importance of sustainable inflation reaching 2%. He highlighted, “We are waiting to become more confident that inflation is moving sustainably at 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”. US government bond yields fell following his comments and markets are starting to price in faster pace of interest rate cuts.
- US unemployment hits two-year high even as NFP stays strong: Nonfarm payrolls rose 275,000 (vs 200,000 forecast) while unemployment rate rose by 0.2% to 3.9% in Feb 2024. Average hourly earnings gain 0.1%; up 4.3% year-on-year. Despite the solid nonfarm payroll gain, the details from this jobs report are far weaker. Markets seems to be interpreting this as prompting the Fed to lower interest rates this year. More info here.
- US-China semiconductor war continues: China is still cannot be entirely self-sufficient without foreign sources for cutting edge products like semiconductors. Huawei and its partner SMIC manufactured a 7nm chip last year which relied on machineries from Dutch maker, ASML. China’s top chip equipment suppliers still lags ASML by a few generations. Washington DC has told California-based AMD that the AI chip it tailored for the Chinese market (which performs at a lower level than what AMD sells outside of China) is too powerful to sell without a license.
- China’s consumer prices rose: China’s consumer prices rose for the first time since Aug 2023 by 0.7% in Feb 2024. The price rebound was temporarily helped by Lunar New Year sales. China also set a target of 5% economic growth for 2024. The growth will not come easy as China still sees vulnerability in its real estate sector and consumers are conservative about spending and saving up cash.
- Canada unemployment rate rises: The unemployment rate increased 0.1 percentage points to 5.8% while the labour participation rate held steady at 65.3%. High levels of immigration is contributing to the rapid population growth. Canada’s economic growth is not able to keep up with its population growth thus it is expected for its unemployment rate to edge higher in the first half of the year against slowing per-capita GDP.
- Speculation on BOJ hiking rates: Speculation intensified regarding the Bank of Japan's potential interest rate hike in March, fueled by reports of support from certain policymakers and government officials. This led to a yen surge of over 1% against the dollar, reaching a one-month high on Thursday. Additionally, Japanese bank shares and government bond yields rose following wage data and comments from a BOJ board member expressing confidence in inflation.
- China sets 5% GDP growth target: During the commencement of the annual National People’s Congress (NPC), Premier Li Qiang unveiled a growth target of 5% for 2024. This is what China achieved in 2023, which was partly because of a low base of 2022 where China's economy was pummeled by covid lockdowns. Mr. Li acknowledged the "difficulties" China's economy has encountered, noting that many of these remain unresolved. In addition to these challenges, Mr. Li also revealed an inflation target of 3%.
🏦 Individual stocks/companies
- Sea Limited surges: Sea rallied after a strong earnings release. In Q4 of 2023, Sea posted a net loss of US$111.6m, reversing from profit of US$422.8m in the prior year. Nevertheless, the loss exceeded market forecasts for a more substantial deficit. While SeaMoney experienced profit growth, it was offset by weaker performances from Shopee and Garena. Sea anticipates Shopee's gross merchandise value growth for 2024 to be in the "high teens."
- Coinbase surpasses direct listing price after 2 years: Coinbase's stock climbed 5.8% on Friday, reaching $256.62 per share, marking its highest point since December 2021. At its 2021 public listing, the reference price was $250 per share. Despite initial optimism, the stock ended its first year down by 38%. Over the following years, Coinbase shares faced pressure amid a crypto-winter and increased regulatory scrutiny from the US SEC. However, digital currencies have seen a resurgence, aided in part by exchange-traded funds, with Bitcoin reaching over $70,000 for the first time on Friday
- TSMC set to win $5b grants to set up new plant: The Taiwanese semiconductor giant is set to receive more than $5b in federal grants to set up a plant in Arizona. Although the award not confirmed, the Chips Act set aside a total of $39b in direct grants plus financing options valued at $75b — to persuade chipmakers to build on American soil after decades of production in Asia. If successful, it will increase the country’s export value, create many highly valued jobs and attract foreign talent.
- Novo Nordisk becomes the most valuable company in Europe: The company announced a new anti-obesity drug in Phase I trials that works twice as effective as its predecessor. The company has plans to spend $11b to expand its weight loss drug production capabilities. Reports show that prescriptions for weight loss drugs have skyrocketed 5,000% since 2018, illustrating a huge untapped market in the industry.
- Amazon’s cloud business to build new infrastructure region: AWS will invest over $10b to build data centres in Saudi Arabia as the country seeks to diversify its oil-dependant economy. Other tech firms such as IBM, DataVolt and ServiceNow have also expressed interest to develop data centres in Saudi Arabia, attracting foreign investment and on its way to becoming major tech hub for the Middle East.
- Apple's downturn in China: Apple’s iPhone sales in China fell by a surprising 24% over the first 6 weeks of the year, according to figures from Counterpoint Research. The report suggests the decline in sales is due to tough competition from local smartphone companies like Huawei, Oppo, Vivo, and Xiaomi.
🇸🇬 Singapore related
- Parliament passes Bill to enhance MAS investigative powers over financial sector: The new regulation grants MAS broader authority to enter premises without a warrant, issuance of legally binding directions to capital markets services license holders, and enhanced inter-agency coordination for evidence transfer, aiming to ensure effective regulation and uphold integrity in Singapore's financial system.
