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US Market (By Phillip Global Markets Night Desk)
10 October 2023
Defense Spending on the Downswing
The surprise attack in Israel over the weekend added more geopolitical uncertainty to an already-volatile investment environment. Investors initially reacted as expected, buying gold, oil and Treasuries, and selling stocks. (Truth be told, we probably would be more worried about events if investors didn't follow their playbook and markets behaved differently.) But by the end of Monday's trading session, as the conflict stayed centered in Gaza, U.S. markets stabilized and turned positive, perhaps prematurely. The Mideast uprising follows in the wake of the Russian invasion of Ukraine. It comes as the U.S. and Iran continue to negotiate over hostages and discuss Iran's nuclear program, and as OPEC continues to push for higher energy prices. Chinese officials are no doubt watching closely as they continue to invest in their global "belt and road" infrastructure initiative elsewhere in the Mideast. As for investment strategies, we anticipate that continued geopolitical uncertainty would be a positive driver behind dollar strength. From an asset-allocation standpoint, that could lead to a rally in bonds, and we also favor U.S. stocks over international stocks, given the risks. Investors on Monday flocked to U.S. defense stocks. While we like the industry and favor the capital-returns programs of the major U.S. defense primes, the long-term trend has been a reduction in defense spending from 11% of U.S. GDP in the early 1960s to the current level of 3.6%.
Market Wrap
Stocks rallied on Tuesday after dovish comments by Federal Reserve officials and the prospect of more economic stimulus from China brought some risk appetite back to markets as investors continue to evaluate the potential impact of the Israel-Hamas conflict.
The Stoxx Europe 600 index jumped 1.6%, heading for its best day this year, with all industry sectors in the green. Miners led gains after Bloomberg reported that China is preparing to unleash a new round of measures to support its economy. Anglo American Plc rose more than 5%, while Glencore Plc, Rio Tinto Plc and ArcelorMittal added more than 3% each. Carmakers advanced the most in four months, led by Volvo Car AB-B.
Today's Big News
- Israel Latest: Talks Over Crisis Government as Army Adds Forces
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- Treasuries Have Best Day Since March on Signs Fed May Be Done
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- Finland Gas Pipe Leak Probe Proceeds on Premise of Sabotage
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- Global Aircraft Seeks to Refinance With $1.95 Billion Debt Sale
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- Global Hedge Funds Push Back Against China Draft Rules
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- Airlines Begin Lengthy Tel Aviv Flight Suspensions as War Rages
OCBC
DBS
Fed officials indicates that a rise in long-term treasury yields from risk-on sentiments could steer them from further increasing rates
Tesla’s China electric vehicle sales declined 11% y-o-y in September
Defence stocks for the likes of Lockheed Martin Corp (+8.9%) rose after surprise attack on Israel over the weekend
Oil and Gas
Oil prices jump following the breakout of Hamas-Israel conflict over the weekend
No direct impact to global oil market balance or trade routes immediately
However, if this snowballs into a proxy war involving other Middle East countries, presents a significant longer term upside risk factor for oil prices
Who are the beneficiaries of rising oil prices?
Click here to read our views
Singapore Property
Breaking New Records
A new executive condominium (“EC”) site is award to Sim Lian for a record S$721psf, implying prices to launch cross S$1,500 psf
Robust 9 bids received, ECs are a “low risk” land-banking option for developers given its history of robust sales (>90% sold within 1 month)
What are our views on City Development Limited (“CDL”) upcoming EC launch in 1Q24?
Click here to read our views
China Warehouse Sector
Re-tiering warehouses
Introduced “city cluster” concept, to replace the traditional “city tier” in accessing China warehouse potential
Developed an in-house scorecard to gauge warehousing potential and risks across 24 cities in 11 traditional and emerging city clusters
Less conventional cities have potential for cap rate improvement
About time to revisit the sector as China’s economy starts to show early signs of stabilisation
Who are our top sector picks?
Click here to read our views
ComfortDelGro Corporation (CD SP) Standing firm against broader dips in the market
There are 2 groups of price action that catches our attention during periods of market volatility (1) stocks that have fallen to an extreme valuation low or oversold state (2) stocks that have remained quietly resilient.
ComfortDelGro fits into the 2nd group and is up +4% since going XD on 21 Aug and maintaining the +26% from Jun23 low
We believe improving operation metrics are reasons behind its resilient share price behavior
What are our fundamental and technical views on ComfortDelGro?
Click here to read our views
Yuexiu Transport Infrastructure (1052 HK)
Dividends to double on strong earnings bounce
Traffic volume rebounding faster than our expectations
GNSR Expressway R&E project is on track while M&A may materialise in 2024
We project DPS to more than double by 2024F on strong earnings recovery post reopening
Has YTI’s traffic volume exceeded pre-COVID levels?
Click here to read our views
DBS Group Research | Equity Picks
Singapore Equity Picks: Read more
Hong Kong Equity Picks: Read more
UOB
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UOBKH: Retail Market Monitor: Tuesday, October 10, 2023
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UOBKH: Regional Morning Meeting Notes: Tuesday, October 10, 2023 [GC Commodities, GC Property, EXCL IJ, MAL Oil & Gas, FRKN SP, AEONTS TB]
Click on the link for details.
KGI
Top Stories, 10 Oct 2023
1. Asia markets poised for rise as markets shake off pressures from Hamas attack
2. Micro Ether Futures now live on CME Group. Enjoy the same features of CME's larger Ether futures (ETH) at a fraction of the size and with lower margins, enabling traders of all sizes to manage ether price risk and add diversification.
Find out more: https://www.kgieworld.sg/futures/cme-micro-ether-futures
3. Oil, gold jump on Middle East conflict; US stocks end higher
4. Creditors of China’s debt laden property giant Evergrande censure ‘botched efforts’ to get regulatory nod for fundraising
5. Oil prices surge on fears of Mideast conflict adding to supply tightness
6. EUR/GBP slides below 0.8640 for Monday
CIMB
MAL: CGS-CIMB Daybreak - 10 October 2023
▍ What's on the Table...
MAL: Malaysia Airports Holdings (ADD, tp:MYR7.76) - Possible MYAirline collapse? - 10/10
A potential MYAirline collapse could result in a bad debt write-off of c.3% of group EPS this year and leave MAHB without 9% of domestic seats. Mitigating factors: MYAirline has so far been primarily a domestic airline, and competitors may grow into what it may leave behind at MAHB’s airports. Reiterate Add with an unchanged end-CY24F SOP-based TP of RM7.76; we expect the MYAirline issue to be a relatively minor speedbump for MAHB.
MAL: Banks (OVERWEIGHT) - Post-election recovery in loan growth - 9/10
We observed a significant improvement in mom loan growth (to +0.7% in Aug 23 from an average of +0.2% mom in 7M23) following 12 Aug state elections. The GIL ratio only increased by 6bp in 8M23 to a comfortable 1.78% at end-Aug 23; we do not expect it to surpass our end-2023F forecast of 2%. Reiterate Overweight on banks, premised on potential write-backs in management overlay and increase in dividend payout ratios.
▍ News of the Day....
Trendspotter – MY- Autocount Dotcom (0276) (Technical Buy, 0.715): At 5-month high
• The M’sia Business Confidence Index fell to 50.4 in 3Q23 from 54.8 in 2Q23
• EPF looking to introduce new mechanism for saving and withdrawal for members
• UMW Toyota recorded 76,511 units sold YTD as of Sep-23, up 8.0% yoy
• PetChem to construct advanced recycling plant in Johor with 33ktpa capacity
• Finance ministry to provide RM2bn loan to LTAT for Boustead Plantation deal
Lim&Tan
MayBank
HK: DIM SUM DAILY
MY: MALAYSIA BANKING
MY: TRADERS’ ALMANAC
Bangchak Corporation (BCP TB)
by Chak Reungsinpinya
Somboon Advance Technology (SAT TB) by Surachai Pramualcharoenkit
Indonesia
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