Samsung Electronics Continues to Plunge on Investor Pessimism

Economic

Summary:

Shares of Samsung Electronics sank to a 52-week low of 58,900 won ($44.25) on Thursday, hamstrung by the reverberating shock of the firm's weaker-than-expected third-quarter earnings, market watchers said.

Further clouding the outlook for one of the country's most popular stocks is the continued underweight position recommendations by brokerages.

Observers say the grim development prompts retail investors to abandon the Korean equity market, defined by the decades-long undervaluation of its stocks. This is often referred to as the "Korea discount."

Many opt for the U.S. market, where global IT leaders generate robust earnings, as evidenced by the steady rise in Korean retail investors' holdings of foreign currency securities over the past few years.

According to the Korea Exchange, the Samsung chipmaker's share price traded below the psychologically significant 60,000 won barrier, at around 9:30 a.m.

It was 1.33 percent down from the previous session and a continued drop from the previous high of 88,800 won valued on July 11.

The figure is a further decline from 60,300 won, Tuesday, when the firm announced the earnings for the July-September period. Sales came to 79 trillion won and operating profit at 9.1 trillion won, undershooting the market consensus of 80.8 trillion won and 10.3 trillion won, respectively.

Brokerage insiders say the semiconductor affiliate of Samsung Group will not see a meaningful rebound in the months to come, bogged down by an increase in both inventory and marketing costs in the fourth quarter.

The brokerage affiliates of Hyundai Motor, NH NongHyup and KB lowered their target price to between 90,000 won and 80,000 won. It was down from the previous price of between 104,000 won and 95,000 won.

A Hyundai Motor Securities report said Samsung's earnings were significantly poor even when accounting for one-time costs.

"The underperformance is pronounced, especially compared to its global competitors including Micron. The underwhelming performance is likely to continue through the fourth quarter, a seasonally challenging period for businesses," it said.

Meanwhile, Korea Securities Depository data showed that the holdings of U.S. foreign securities by retail investors in the country stood at $137.9 billion in the third quarter, up 8.3 percent from the previous quarter.

The amount settled over the same period came to $174.6 billion, up 37.5 percent.

Of them, foreign stocks accounted for over $102 billion as of end-September, up 7.8 percent from $94.6 billion from the previous quarter.

The holdings of foreign bonds over the same period rose to $35.9 billion, up 9.8 percent.

Nearly three-fourths of the total securities, or 74.4 percent, was invested in the United States, followed by Europe, Japan, Hong Kong and China.

Of the stocks, about 90 percent was invested in the U.S. at $91.8 billion, up 7 percent from the previous quarter.

The Top 10 most popular U.S. stocks Koreans invested in included Tesla, Nvidia, Apple and Microsoft.

Source: Koreatimes

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Danske Bank

Economic

In focus today

In the US we get the September CPI figures, which is the most important data release this week. We forecast headline inflation slowing down to 0.1% m/m SA and 2.4% y/y (from 0.2% and 2.6%) mostly driven by lower energy prices, and core inflation to 0.2% m/m SA and 3.2% y/y (from +0.3% and 3.3%). Signs of stickier price pressures especially in the services sector would add to expectations that the Fed opts for only smaller 25bp rate cuts at the coming meetings.

This morning at 10.00 CET, Danske Research hosts a US election webinar, covering fiscal and trade policy outlooks and implications for financial markets.

In Norway, we receive September CPI. We believe that the disinflationary tendency continued, but still expect core inflation to rise to 3.4% y/y, because of unusually low inflation in September last year. If we are right, this will be 0.1 percentage points higher than Norges Bank assumed in the MPR in September and in isolation confirm that there will be no rate cut this year, like we continue to expect.

We expect Swedish August GDP, production and consumption indicators (08.00 CET) all to show some improvement judging from previously released data such as employment, hours worked and retail sales. At 08.30 CET, Riksbank head Thedeén will be discussing the economic policy frameworks together with the head of the Swedish Fiscal Policy Council, Lars Heikensten (previously also head of the Riksbank).

In Denmark September CPI is due for release. Energy prices will drag inflation lower, and we expect a decline to 1.2% from 1.4% in August. The underlying price pressure has remained muted in Denmark despite solid wage growth.

Economic and market news

What happened yesterday

In the US, FOMC minutes suggest that the September rate decision was indeed a close call. The minutes describe that FOMC participants had somewhat differing views on how the easing cycle should be started. ‘Some’ participants would have preferred a 25bp cut and ‘a few others’ could have supported such decision. Ultimately, only Bowman dissented from the 50bp cut in the vote. Some emphasized that communicating the outlook for more cuts was more important than the size of the initial cut. So indeed, it was a close call between a 25bp and 50bp moves, as market pricing implied ahead of the meeting. Going forward, we stick to our call for a 25bp rate cut at the next meeting.

In the euro area several ECB members spoke about monetary policy. Villeroy said that a cut is very likely, and that it will not be the last one in this rhythm, but the pace is still dependent on how inflation evolves. In his support to cuts at the two remaining meetings this year, Stournaras argued that monetary policy will still be restrictive after cutting in both October and December. This adds to other members who have spoken for rate cuts over the last couple of weeks, even the traditional hawks Nagel and Kazaks. However, the hawkish tones still exist, for example Wunsch who is undecided as he still sees domestic inflation pressures as too high, and fears that geopolitical tensions could push energy prices higher.

China’s Finance Ministry will hold a briefing on Saturday on strengthening fiscal policy. Fiscal measures are typically announced by the Finance Ministry, which is why we did not get any details from the National Development and Reform Commission on Tuesday. The briefing on Saturday is thus the place to look for China’s fiscal stimulus plans. We do expect a clear fiscal stimulus plan, but markets will likely be nervous until we see the plans as there is some risk that they underwhelm expectations that have become very high. Still, calm has been restored in Chinese stock markets for now with offshore shares up 4% this morning.

In the Middle East, US president Biden and Israeli prime minister Netanyahu discussed Israel’s planned response to Iran’s missile attack last week. They also spoke about the Israeli offensive in Lebanon, where President Biden apparently urged Israel to find a diplomatic solution to avoid civilian casualties.

Equities: Global equities were higher yesterday, except for China and Latin America. The uplift in equities was relatively broad-based, although the defensive sectors lagged, particularly utilities which underperformed yet again. Utilities have been one of the best-performing sectors over the summer as yields have been coming lower and equity markets have been choppy. With the latest reassuring job data from the US and a lift in yields it is not so surprising to see the utility sector underperforming. In the US yesterday, the Dow closed up by +0.9%, the S&P 500 by +0.5%, Nasdaq by +0.4%, and the Russell 2000 by +0.4%. The positive sentiment continues in Asia this morning, including sizable lifts in both Chinese A-shares and H-shares. Futures in Europe and the US are also higher this morning.

FI: Global yields continued rising through yesterday’s session, as the market-implied number of rate cuts in 2024-25 continues to fade. The repricing of 10Y US Treasury yields over the past week (+30bp) seems hard to justify based on a single strong jobs report, and the move looks much more like an unwinding of excessive positioning towards a ‘very dovish Fed’ narrative. The Bund curve rose gradually 3bp across tenors yesterday, while the Bund-ASW spread saw marginal widening (now 27bp). Implied vol remains elevated with the MOVE index trading at the highest levels since April. As the US election approaches, implied rates volatility will likely remain elevated.

FX: EUR/USD has firmly consolidated below 1.10 during what has been a relatively uneventful week so far with focus turning to the release of September CPI print this afternoon. NOK continues to trade heavy amid not least oil coming lower and the sell-off in NOK FI losing steam. This morning, we could see some support to NOK though as we expect the monthly CPI release to reveal a print slightly above both markets’ and Norges Bank’s projections. Akin to EUR/NOK, EUR/SEK edged slightly higher during yesterday’s session but remains below the 11.40 mark.

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Cohen

A team of experts advising Indonesia's president-elect Prabowo Subianto are reviewing a scheme to impose levies on sugar imports to help finance the country's bioethanol programme, a member of the team said on Thursday.

Wider adoption of biofuel, both palm oil-based biodiesel and in ethanol fuel, is part of the energy transition agenda by Prabowo, who will take office on Oct 20.

Indonesia, however, does not have enough production of sugarcane, the main bioethanol feedstock, for its domestic demand and still relies on imported sugar.

Meanwhile, production cost of bioethanol in Indonesia is currently higher than production cost of gasoline per litre, making it unattractive for producers.

To help finance the price gap, experts advising Prabowo are reviewing the feasibility of imposing levies on imports of sugar, said Ali Mundakir, a member team advising Prabowo.

"So it would be the opposite of the levies on palm oil, which are imposed on exports," Ali told participants of a webinar held by think tank Institute for Essential Services Reform.

Indonesia collects levies on exports of palm oil to finance various programmes for the sector, including to subsidise the country's biodiesel programme.

"This is still being reviewed, while we seek for other feedstocks for ethanol production," Ali added.

It was unclear whether the team has discussed the proposal directly with Prabowo.

Indonesia plans to eventually mandate bioethanol content for gasoline at 15%.

The current government aims to expand the country's sugar plantation area to 700,000 hectares (1.73 million acres) from 180,000 hectares in 2022 and targets be self-sufficient in sugar production by 2028.

Source: Theedgemarkets

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Owen Li

Economic

Markets

Yesterday’s risk-on sentiment, Fed comments and the release of the Minutes of the Fed September meeting all contributed to a gradual, but protracted intraday uptrend in US yields. They closed higher between 7.1 bps (5-y) and 4.7 bps (30-y). Fed comments (Daly, Logan) suggest most governors see inflationary pressures receding while risks to employment are growing, despite Friday’s US payrolls report.

The minutes of the September 17-18 meeting also showed some internal debate on the need for a 50 bps inaugural step. Some participants would have preferred a 25 bps reduction and few other embers indicated that they could have supported such a decision. In this respect, the also indicated that a 25 bps ‘reduction would be in line with a gradual path of policy normalization that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved.’ Markets now pricing in slightly less than 50 bps of cumulative cuts for the two remaining meetings of this year can be considered as more or less in line with the aim of gradualism. Of course, the Fed works in a status of data-dependency.

German yields added 3.2 bps (2-y) to 0.4 bps even as ECB governors show a ‘near-consensus’ on a 25 bps step next week, with ECB Kazimir one of the exceptions the rule. Especially US equities still feel supported by the combo of decent growth and the prospect of (gradual) policy easing. The S&P 500 (+0.71%) closed at a new record (5792.04). After some hesitation earlier this week, the dollar is gradually regaining traction, moving further beyond the resistance levels broken in the wake of last week’s strong US eco data. EUR/USD closed at 1.094. DXY at 102.93.

Asian markets mostly remain in risk-on mode this morning. Mainland China investors are looking forward to a press conference by the China’s Finance Minister on Saturday that should bring some clarity on the amount of (fiscal) stimulus. Later today, attention shifts to the US September CPI release. Consensus expects headline inflation to ease to 0.1% M/M and 2.3% Y/Y (was 0.2% M/M and 2.5% Y/Y) and core inflation at 0.2% M/M and 3.2% (was 0.3%, 3.2%).

The market and Fed focus recently turned from inflation to growth. We assume that a big upward surprise is needed for markets to again reconsider this shift. With markets not fully discounting two additional 25 bps steps for the two remaining Fed meetings this year, the room for a further rise in short-term US yields might become limited. LT yields maybe still have some further upside in case of solid data or as the focus turns to fiscal policy in the run-up the US election.

In theory, this also should be a rather neutral set-up for the dollar. However, the technical picture in most USD cross rates is improving. EUR/USD 1.0881/82 (76% retr. since early August/correction low) is the next intermediate target on the charts.

News & Views

The People’s Bank of China announced details of the swap facility which was part of the broader support package launched on September 24. Eligible brokers and insurers can now pledge assets with the Chinese central bank such as bonds, stock ETF’s and shares of companies listed on the CSI 300 in return for liquid assets. The size is CNY 500bn but may be expanded in the future. The announcement helps Chinese stock markets 3% to 5% higher this morning, extending their volatile ride. USD/CNY tries to break with the post-payrolls USD-strength that pulled the pair away from 7-area (lowest since May 2023) to currently 7.07. Focus now turns to a press conference by Finance Minister Lan Fo’an on Saturday with more (details on) fiscal stimulus expected.

The New Zealand Department of Treasury published financial government statements for the year ended 30 June 2024. The deficit was NZD 12.85bn, compared to NZD 11.07bn projected in the May budget. That’s an increase from the NZD 9.45bn deficit in the 2022/2023 financial year. Finance Minister Willis warned that the books are not in great shape and wants to tidy them up. She targets a return to budget surplus in 2028 and wants to reduce debt to less than 40% of GDP (42.5% of GDP end June). According to the budget forecasts, the deficit will widen further to NZD 13.37 bn in the year through June 2025 before starting to narrow.

Graphs

GE 10y yield

The ECB cut policy rates by 25 bps in June and in September. Stubborn inflation (core, services) still is a source of concern, but very weak PMI’s and soft comments of Lagarde (and other MPC members) suggest the ECB is likely to step up the pace of easing with an October cut. Spill-overs from strong US data prevented a test of the 2.0% barrier. 2.00-2.35% might serve as a ST consolidation range.

US 10-y yield

The Fed kicked off its easing cycle with a 50 bps move. Powell and Co turning the focus from inflation to a potential slowdown in growth/employment made markets consider more 50 bps steps. Strong US September payrolls suggest the economy doesn’t need aggressive Fed support for now, but the debate might resurface as the economic cycle develops. For the US 10-y, 3.60% serves as strong support. The steepening trend is taking a breather.

EUR/USD

EUR/USD twice tested the 1.12 big figure as the dollar lost interest rate support at stealth pace. Bets on fast and large rate cuts trumped traditional safe haven flows into USD. An ailing euro(pean economy) partially offset some of the general USD weakness. After solid early October US data, the dollar regained traction, with EUR/USD breaking the 1.1002 neckline. Targets of this pattern are near 1.08.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness was indicated to be further unwound gradually. The economic picture between the UK and Europe also (temporarily?) diverged to the benefit of sterling, pulling EUR/GBP below 0.84 support. Dovish comments by BoE Bailey ended by default GBP-strength. Uncertainty on the UK budget to be released end this month is becoming an additional headwind for the UK currency.

Source: ACTIONFOREX

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Warren Takunda

Economic

The Dollar could extend its winning streak to eight days out of nine if Thursday's inflation figures trounce expectations and prompt markets to whittle down expectations for interest rate cuts even further.

The problem for dollar 'bulls' is that these inflation figures really do need to 'trounce' expectations, i.e. come in convincingly hot enough to bolster the USD rally.

This is because investors might have gone too far in lowering expectations for the number of Federal Reserve rate cuts that are still to come.

The benchmark expectation is a rise in headline CPI by 0.1% on a monthly basis and 2.3% annually. For core inflation, the expected readings are 0.2% and 3.2%, respectively.

Money market pricing, indicated via the OIS curve, shows approximately 40 basis points of easing are now expected in 2024.

This is less than two more 25bp cuts, whereas it stood at approximately 75bp at the turn of the month (one 25bp and another big 50bp move).

"Repricing was justified after the stronger than expected September jobs figures," says Michael Brown, an analyst at Pepperstone, "as has happened so often this year – participants have gone too far to the other extreme."

GBP/USD investment bank consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/USD.

Brown thinks the Fed is almost certain to deliver 25bp cuts at each meeting this year and into the start of next until the Fed funds rate reaches a neutral level late next summer.

If the repricing were to ease and potentially reverse, the Dollar's recent run of strength could be reaching its limit in the near term.

To be sure, the Pound to Dollar exchange rate (GBP/USD) is looking increasingly supported just south of the 1.31 level, and we would anticipate further buying interest into 1.30.

Scope for a Pound to Dollar Rebound on Inflation Figures_1

Above: GBP/USD is looking better supported in the run-up to 1.30.

Should the inflation data easily surpass expectations, the Dollar's rally would almost certainly extend as markets grow nervous about the prospect of a second rate cut from the Fed in 2024.

Here, a break of 1.30 in Pound-Dollar over the coming days becomes a prospect.

The odds of a sizeable rebound in the Dollar remain limited, however, given the potential for growing nervousness ahead of next month's U.S. election.

The vote is too tight to call, and measures of expected foreign exchange volatility are elevated for the period leading into and after the vote.

The prospect of increased volatility could naturally favour the Dollar, with potential further follow-through buying in response to a Donald Trump win.

"Markets are now within touching distance of US elections, and the outcomes remain too close to call with any confidence. Given that a “Red Sweep” remains a realistic possibility, and an outcome that we see as clearly USD-bullish," says Shahab Jalinoos, Strategist at UBS.

Source: Poundsterlinglive

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ING

Economic

Markets holding firm position on October ECB cut

With the ECB blackout period starting, members of the Governing Council had one last chance to dissuade markets from a cut next week and push back against the 24bp priced in by markets. Kazimir was especially critical about the expectation of a done deal and Wunsch was not yet convinced of an October cut. But markets held their position and even for December another cut remains fully priced in. Whilst October and December cuts are the most likely outcome in our view, we do warrant against excluding a hold scenario entirely.

That begs the question of whether the ECB can deviate from market pricing and what such a bold move would mean for euro rates in general. Forwards are now expecting four back-to-back cuts of 25bp, and thus skipping the October cut could be a bit of a blow to that conviction. On the front end, that would translate to higher rates as the ECB turns out more hawkish than interpreted and seemingly focused more on inflation. Interestingly we'll receive the minutes from September's meeting on Thursday which may shed some light on the balance between perceived inflation and growth risks.

In contrast, not cutting would probably lead to backend yields coming down as the risk of a policy error increases by being behind the curve. Growth concerns would mount and markets would return to the view that the ECB might have to cut below the neutral range of 2-2.25%. In effect, this could result in more rate cuts priced in, just moved further back in time and likely only reaching a low towards the end of 2025. Altogether the curve would flatten.

FOMC meeting notes showed support for 25bp cut in September

Wednesday's FOMC minutes pointed to a more divided Fed than the sole dissent to the 50bp cut decision had suggested. While in the end most supported the decision, some had preferred a smaller cut, which others said they would also have supported.

The market's pricing for the Fed's terminal rate, which should implicitly also provide a floor to rates further out, has in the meantime risen to 3.4%. The 2Y US Treasury yield has topped 4%, albeit just barely and we do not think it should move much higher from here. Rather the path should still be gradually lower as upcoming rate cuts draw closer. The 10Y still faces more persistent upside pressure in our view, having risen to 4.07%.

Thursday's events and market views

The key data release comes out of the US with the CPI data for September. The headline is expected to slow to 2.3% YoY and the core rate to stay at 3.2%. More relevant again is the monthly core rate that is seen reverting to 0.2%, which is needed to keep the annual rate tracking towards the 2% target. As such, the data should leave all options for the Fed on the table, even if the debate in the market seems to have shifted to whether even 25bp is necessary at all.

Unless there is a big (upside) surprise on the CPI data, the initial jobless claims data might be more market-moving in the wake of the payrolls data. It is a more contemporary indicator of job market health and the consensus sees the weekly figure ticking up only slightly.

The only noteworthy release out of the eurozone is the ECB minutes of the September meeting when the ECB cut a second time by 25bp.

Germany will be in the primary market auctioning two bonds in the 15Y maturity area for a combined €1.5bn. The US Treasury auctions are probably more closely followed after the weaker 3Y and 10Y sale earlier this week. Thursday the Treasury will sell 30Y bonds for US$22bn.

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Economic

Stocks

3Q 2024 earnings preview – Key Singapore stocks to watch

The 3Q 2024 earnings season will unfold over the coming weeks, with any earnings resilience likely to be on market participants’ radar to drive further risk-taking. Year-to-date, the Straits Times Index (STI) is up more than 10%, driven by a catch-up rally in August this year. The index has been enjoying increased traction for its composition of dividend-paying stocks amid lower bond yields, along with ongoing authorities’ focus to increase Singapore stocks’ value proposition for investors.

But moving forward, corporate earnings will likely hold the key in determining whether the index can push to a new multi-year high. Here is a brief overview of what to expect for the key sectors and companies.

Banking trio: DBS, OCBC, UOB

With the US Federal Reserve (Fed)'s rate-cutting cycle in place, expectations are that the upcoming reporting quarter could see the banks’ net interest income contract slightly (-1% to -2%) from a year ago.

This comes as lending margins could see some downward pressures. A lower interest rate environment could weigh on banks’ loan rates, while funding costs are usually slower to adjust. However, the pace of tapering in the banks’ net interest margin (NIM) may remain gradual amid smaller Fed’s rate cuts priced into 2025, which may still offer some earnings resilience.

There will likely be earnings cushion around the banks’ net fee and commission income as well. Robust market conditions may help to support wealth management activities, alongside credit card fees on economic resilience. Aside, loan loss provisions may likely see a more measured build-up, with a slight downtick from previous quarter aiding to downplay economic risks.

With that, the banks’ overall profits should be able to grow at the low single-digit. With expectations for lower interest rates ahead, their current dividend yield of more than 5% may continue to stand out as an attractive income play.

3Q 2024 Earnings Preview – Key Singapore Stocks to Watch_1

Real estate investment trust (REITs)

Despite surging as much as 16% over the past three months, the sector continues to trail the broader index by a significant margin. Year-to-date, the iEdge S-REIT index is still in the red by 2.8% while the STI is up 11%. Thus far, the major REITs continue to deliver attractive dividends in the range of 4 - 6%.

With sentiments around the rate-sensitive sector improving amid the Fed’s policy pivot, further catch-up performance among the REITs remains a theme to watch. A lower interest rate environment may help to lower the sector’s borrowing costs, drive higher property valuation for their portfolio and enables their dividend yield to stand out more.

Retail REITs (eg. CapitaLand Integrated Commercial Trust, Frasers Centrepoint Trust) may continue to stay supported by stable retail sales, along with brewing optimism of an October boost from Chinese tourists with the Golden Week holiday. Global trade dynamics in the region may help to support industrial REITs, which has also diversified their exposure into data centres, such as

Mapletree Industrial Trust and Ascendas REIT. Ongoing digital transformation and broadening adoption of artificial intelligence (AI) across more sectors may help to offer a stable backdrop for these REITs’ earnings.

3Q 2024 Earnings Preview – Key Singapore Stocks to Watch_2

Industrials: Singapore Airlines, SATS, Yangzijiang

In the aviation space, travel demand is likely to remain healthy, but this has to be balanced with higher capacity in the market. Lower passenger yield, alongside rising fuel costs, would be a key challenge for airlines to tackle. Expectations are for Singapore Airlines’ FY2025 revenue to register a somewhat negligible growth (+0.7%), while net income could come with a 18% contraction from a year ago, alongside a fall in net margin.

For SATS, having reversed out of its losses in 1Q 2025, focus will be on whether the turnaround can continue. Expectations are for FY 2025 revenue to register a 9.7% growth from the previous year, alongside a four-fold improvement in net income. After a strong improvement in operating profit margins in Q1 FY25, market participants will keeping an eye on whether SATS can maintain or improve these margins as well.

Yangzijiang Shipbuilding clearly has a bumper year so far, with its share price up 71.1% year-to-date and holds the award for the top-performing STI constituent as of today (9 Oct 2024). A record-high order book offered strong visibility for future revenue through 2028, as it remains a beneficiary for the clean energy transition theme or low-carbon shipping. 79% of its new orders are classified as clean energy vessels. Expectations are for FY2024 revenue to increase 16.0% year-on-year, while growth momentum may be expected to pick up pace to deliver a 19.7% growth for FY 2025.

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