Work luck ratio – Market Updates

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

Three weeks in a row now that I think my general overview and analysis was really good, I used to doubt my work a lot and I still do. How much of it was really down to work and how much of it was just me being lucky. It is a weird feeling, doing this without much help, feels like I know nothing, feels like I am just guessing, but one can only get so lucky in a row.

Asia

Japan

Good idea last week, not so sure this week. When I first started doing this I was taught that risk was one of the four big things that I should be very aware of. Since then I have this weird idea that if you are managing some sort of portfolio, why not just sell everything before the weekend? Because that’s when you can’t do anything, by selling everything before the weekend, run with no risk into Monday. Maybe I’ll experiment with this.

As I’ve mentioned before for like the last 3 weeks or so, Japan still has to be a long term valuation target. Looks like the oil prices will persist as a problem for a longer term. It’s not like a reopening of the Straits of Hormuz will fix everything and that is already a big if. Ships and oil tankers are so out of place that it would likely take months for this to be normalised. More concerning are energy infrastructures, which may take up to years to rebuild due to the high level of precision to be normalised again.

HK/CN

How does this price movement make sense at all? No idea, to me this has to be wrong. Should be a big reversal after Monday or I am wrong. Is the volatility here to stay? No, because otherwise the national team will just buy back into the market. Also A shares are more attractive than H shares (where A shares are listed in mainland and H shares are those listed in Hong Kong), due to the liquidity and as mentioned before national team support.

Home appliance. Got this wrong, I suspect this is due to the export outperformance, I am sure I have mentioned before but if not, the export outperformance may likely disincentivise the committee to push forward any policy as it is already helping to hit the growth target. This trade in program is also not new, so markets may be unimpressed by them just extending it, that is just so weak.

Cathay Pacific 293HK. Air travel names back into the crosshair this week, as they should with any talks of the end of the Iran conflict.

ENN Energy Holdings 2688HK. Property sentiment drag? Rotations out of defensives? Relatively stable compared to the very recent HK underperformance, still a hold for now.

Xiaomi 1810HK. Earnings results on Tuesday. Biggest concern is margins, but this is already expected to be under pressure, estimate that net income will decline YoY. All gains last week was wiped out in one day on Friday but didn’t break 32 HKD per share again. Really don’t mind challenging this level again, if anything consolidating that there is a huge support and bottom at this level, I’ve mentioned before, stress test. Sure there is pressure for performance but the stock price has already tanked to such a level that the valuation is more or less fair, in my opinion, and I am sure, a lot of others as well, buying and supporting at this level.

US Markets

Lucky? I don’t even know at this point. Derisking last week because of high volatility and uncertainty in the Iran conflict. Still have to work on my size and timing much but its just hard to do without much guidance I feel.

I think the bigger concern is the state of the economy. Not so sure if there will be cuts in the near future or at all this year, the economic data is just worrying. Even Fed Governor Christopher Waller went on and said that he was supporting the rate cut on jobs reports but even he is not so sure anymore.

The problem remains inflation, as it was in 2024. Oil prices have stayed at a higher price for a prolonged period of time during this Iran conflict and it is starting to hit American consumers. Furthermore continuing from the no hire no fire labour environment mentioned earlier this year, job growth is forecast in some cases to be 0 or close to 0.

So in any case of the ending of this conflict, definitely buying back into the US market, because of this underperformance, there has to be somewhat of a reversal. As mentioned last week, staying away from financials, especially private credit. Forgot to mention last week about the law suit against Jefferies for the responsibility for losses tied to a failed, possibly fraudulent borrower of a $126M+ loan tied to First Brands Group, not good.

New playbook for AI/tech stocks. Filling shorts into results, even if the set of results beat top line estimates. Since valuations are, in my view, bloated due to the much crowded longs in these outperforming AI/tech stocks. How I look at it is that a top line beat is just catching up to the market valuation, and I think institutions know this and then you profit take. This worked with Intel earlier this year, Nvidia similar case, Oracle this month, Micron with a top line beat dropped by up to 5%. This should last one to two days of underperformance and higher volatility, then look to re enter at a lower price range since it should stay within a range where investors decide how they view the stock.