I. Performance of Global Equity Indices (in US dollars)
Source：Bloomberg, 2024/04/29-2024/05/05
II. Key Market Themes
i. Powell denies rate hike option, US economy unexpectedly cools, capital markets regain confidence
•In May, the FOMC decided to continue maintaining the current interest rates unchanged. Additionally, Powell's remarks once again leaned dovish, explicitly stating that "the current position is well positioned, and the next rate adjustment is unlikely to be a hike"; not only that, he also played down concerns about recent wage increases, stating that "the Fed does not target wage inflation, but rather price inflation".
•Regarding the economy, Powell stated that the current US economy still maintains a robust 3% growth, being quite healthy and completely unrelated to "stagflation". Moreover, the decision was made to begin reducing the balance sheet from June 1, decreasing from $60 billion per month to $25 billion, exceeding the market's "halving" expectations.
•The following day, April economic data unexpectedly showed a comprehensive cooling. Non-farm payrolls added 175,000, significantly lower than the market's expected 243,000; the unemployment rate also slightly climbed to 3.9%, surpassing market expectations; and the service sector PMI recorded 49.4, similarly well below expectations.
•Although Powell's remarks preceded the release of economic data, such dovish and targeted statements seemed to have provided a "preventive shot" to the market in advance. We believe that the Fed's current attitude is transparent: "no rate hikes, current conditions are sufficient; the economy is still doing well; inflation will come down, it's just a matter of time". Correspondingly, the market immediately dispelled previous concerns about rate hikes and returned to a profit-driven path.
ii. Profit expectations remain stable, with Greater China assets experiencing consecutive increases, while large institutions are upgrading their ratings
•Recently, Greater China assets have shown significant gains, with the Hang Seng Index $恒生指数(HSI)$ briefly approaching the 18,000-point milestone, and the Hang Seng Tech Index $恒生科技指数(HSTECH)$ seeing nearly a 20% increase over two weeks. Even during the "May Day Golden Week" holiday in mainland China, the market remained strong, leading global equity assets.
•In response, UBS has upgraded its rating on Chinese assets to "Buy". Analysts believe that the previously lackluster performance of Greater China equity assets was primarily due to valuation declines rather than fundamental profit issues. Over the past 18 months, despite significant macroeconomic uncertainties, profits in the MSCI China Internet and consumer sectors have increased by 23% and 2%, respectively, with large companies maintaining stable earnings.
•Meanwhile, Morgan Stanley notes that despite the strong performance of Greater China since April, active long-term funds have still sold a net $2.3 billion; in contrast, northbound funds through the Stock Connect have surged by $10.7 billion. This indicates strong interest in the Greater China market from domestic and specific investors.
•Since early April, we have consistently highlighted "Greater China regional opportunities", and the recent market gains align with our previous expectations and assessments. We believe that Greater China assets, including those in the Hong Kong stock market, are currently undervalued and offer stable profits, presenting a very attractive risk-reward ratio. Additionally, the structural opportunities brought about by the economic transition in mainland China are also worth noting.
Source：Bloomberg
iii. Apple's massive buyback program, Buffett selling heavily, and Tesla's cooperation with China dominate headlines
•Last week, Apple $苹果(AAPL)$ announced its Q2 FY24 earnings with revenue of $90.8 billion, a 4.3% year-over-year decline, with iPhone demand showing a noticeable downturn, mostly in line with market expectations. What exceeded expectations was Apple's authorization of a massive $110 billion buyback program, which provided short-term support to its stock price. However, we believe that Apple still faces significant pressure in the long term and urgently needs a new breakthrough.
•Coincidentally, Berkshire Hathaway $伯克希尔B(BRK.B)$ recently disclosed its Q1 holdings, and to everyone's surprise, Buffett reduced his Apple position by about 13%. Although Buffett emphasized at the shareholders' meeting that "this is just to avoid tax issues, Apple remains the largest holding unless there is a dramatic event".
•Interestingly, Tesla $特斯拉(TSLA)$ CEO Elon Musk, on the other hand, just reached an important cooperation agreement with the Chinese government and then took to social media to urge Buffett to "buy some Tesla, it's an obvious decision." Perhaps, Buffett, with his massive cash reserves, will once again become the "key player" at some point.
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