Potential change in direction – Market Updates

Tian Xuan Zhou (Oliver)
Bachelors Student, New European College – Munich

Be greedy when others are fearful – Warren Buffett

Asia

Japan

Nikkei and Topix were relatively stable last week, compared to weeks prior. Forward looking earnings revisions have begun to trend lower, with repricing target prices of index and stock prices, Topix one year target ranges from 3,800 to 4,200. Foreign investors and domestic institutions were net sellers over the week, whilst retail investors were net buyers. Historically where a depreciating yen would historically benefit exports, at this point in time it is domestic demand stocks outperforming instead.

Sector related performance showed a rotation into defensives, with insurance, healthcare, and pharmaceuticals outperforming. Energy related names also saw strong inflows, reflecting both earnings tailwinds and hedging demand against further commodity upside. Cyclically sensitive sectors, particularly construction and real estate underperformed, weighed down by rising cost assumptions and sensitivity to rate expectations.

HK/CN

It tried, before coming back to almost even. Equities remained choppy and liquidity remained thin, only southbound flow providing some support, definitely not enough to offset the off shore institution risk off positioning, especially in internet and property developers. Further complicated by US rate expectations after sticky inflation prints, since the currency is pegged.

E-commerce. Popmart 9992HK, back on the watchlist, has been absolutely hammered since last coverage. The sell side consensus is sales growth in China growing 70-80%, and overseas sales growth by about 30%, net profit in 2026 to be approximately CNY 15.7 billion. Currently trading below 145 HKD per share, this implies a P/E ratio of less than 7x for overseas operations, this seems so low way oversold.

Home appliance. TCL Electronics 1070HK, no Haier this time. Finalising $650m deal with Sony to form a new joint venture company. +12.34 Monday trading. Tuesday trading will be important to see if the market agrees with this large leap.

ENN Energy 2688HK. Has to be good to hold, huge institution buy from both Blackrock and UBS. Management revised forward estimates modestly lower due to weaker than expected retail gas volumes, but still projects mid to single digit earnings growth over 2026–2028, implying 8–9x forward P/E valuation. The restructuring and privatization of Sino-Ocean Energy introduces a potential valuation re rating catalyst.

Xiaomi 1810HK. Earnings, revenue of approximately RMB 457.3bn, +25% YoY and adjusted net profit of about RMB 39.2bn, +43.8% YoY, reflecting strong top-line expansion. As expected, Q4 margins came under pressure. Intensifying competition weighed on smartphone profitability and the EV sector. Still testing the $32 HKD level

Cathay Pacific 293HK. Consider cutting off routes as last resort but, looking past the fuel disruptions I still like this for a long term target sometime.

US markets

Officially entering correction territory, worst performance since 2022, with President Trump now weighing a military operation to extract Iran’s uranium, combined with inflationary worries and private credit concerns, the wider Dow Jones index marking five consecutive weeks of decline.

Federal Reserve Chair Jerome Powell mentioned that central banks are looking past the oil shocks assuming that the conflict and the current energy disruptions is short lived, therefore holding rates steady, however may be forced to act if expectations of inflation worsens. If anything, assuming that the market is also looking past this conflict, they will be most concerned about a monetary policy mistake from the Feds.

Private credit, no systematic risk. The estimated 25% increase in issuance YoY is still more or less on track. The main drivers of this remains an uptick in M&A this year and AI Hyperscalers issuance, which seems to remain agnostic to macro conditions. This is also due to them not being opportunistic but rather, there has to be winners and losers in the AI race. The concern now will be their ability to refinance these debts that are maturing in the short term.

“Opportunity for banks to regain market share (from private credit)” – Moody’s. However, I think this depends on the assumption that there is a rotation of these funds from private credit redeemers into IBs but the inflation worries and state of the economy has to surely be a limitation, credit is tight. One to watch will be Blackrock, who are set to report results next Friday.

I had notes from week 14 from Morgan Stanley mentioning the SPX trading as low as 6,300 (public information). With the SPX currently trading at 6,343, I personally also feel there is some opportunity to jump start here.

Jefferies, failed to buy in thinking price was going to drop further post earnings assuming that sentiment was going to worsen more post earnings. As for the report itself, revenue was inline but 17 million in losses including First Brands and Market Financial Solutions was very worrying, not only for the company itself but also feeding into the abysmal private credit sentiment. The profitability is probably hard to improve, with bulge bracket looking to compete more for deal size below $1B, middle market fees will be squeezed. Furthermore Jeffereies has already spun off separate arms, margins are unlikely to be improved. However, looking to buy at some point this week due to takeover speculations from SMBC from Japan.

Tech, Amazon long idea, being dragged down earlier in the year by AI valuation concerns, we are already deep into the correction cycle, S&P P/E multiples are already down 17% since the start of the correction. Through 2024 and very early last year, markets favored Meta, noted as an over spender into winner, intentionally without a cloud strategy, and limited spending on AI monetisation. There were questions raised on Amazon’s EBIT expectations as they were wide of consensus. However, EBIT has been improving throughout 2025 now creating a valuation opportunity, but it seems like the valuation has been overlooked by the 200 Billion CapEx cycle in 2026. Maybe a hedge with a Meta short, who are going backwards after largely scaling back the metaverse project.

Small update on the new AI/tech idea mentioned last week, Micron is now down 30% since all time high.