Well it was an eventful week in global equity markets. Reports emerged early in the week that a summit between President Trump and China's Xi Jinping could be pushed back to June, and the news weighed on investor sentiment during the day. Crude prices hit 2019 highs during the week (US$60.) after OPEC agreed to deeper production cuts than previously committed. The big story for markets (while not totally unexpected) was that the Fed Open Market Committee stood pat on interest rates, and more notably produced some expectations that any further rate rises in 2019 were unlikely.
Then on Thursday the European Union granted a shortish reprieve (until May 22) to Britain on its exit from the bloc well short of the months that UK Prime Minister Theresa May asked for. Global equity markets were sailing along quite nicely until Friday (our Saturday of course) when bond yields tumbled amid a buying panic that followed news from Germany that its 10-year Bund yield went negative after the German Purchasing Manager Index or PMI fell to its weakest level in seven years. The 10-year Treasury yield headed to two-year lows (5.44%), a precursor to an inverted yield curve (three-month vs. 10-year, for the first time since before the GFC) and equities gave up all of their prior weekly gains and then some.
Weekly returns to 22 March 2019
(AUD return far right- hand column)
- 10-Year Treasury yield: down sharply to 2.44%
- WTI crude oil: US$59.04.
- AUD/USD: -0.04% to 70.81
Notable company news
Microsoft (NASDAQ: MSFT)
Microsoft shares hit an all-time high on 19 March. At time of writing Microsoft remains the world’s largest company by market capitalisation.
3S Bio (HKG: 1530)
3S Bio reported FY18 revenues of Rmb4.6bn (+23% Y/Y) which was in-line with consensus, and net profit of Rmb1.3bn (+37% Y/Y) which was ahead of consensus by 11%. Operating margin was down to 29.1% (vs. 30.9% in 2017) on higher selling expenses (36.9% in 2018 vs. 35.7% in 2017), and higher R&D expenses (7.9% in 2018 vs. % 6.9 in 2017).
Core product TPIAO remained strong in 2018 with recorded sales of Rmb 1,670mn (+71% Y/Y); EPO (EPIAO+SEPO) grew by 5% on solid sales growth on SEPO (+28% Y/Y) and Yisaipu is on a recovery track, delivering 10% sales growth in FY18 (17% Y/Y) in 2H18 after a 1H18 channel digestion.
The company also gave a pipeline update: As of December 31, 2018, amongst the 32 product candidates within the Company's active pipeline, 22 were being developed as National Class I New Drugs in China, including 11 in oncology, 12 in immunology, 6 in nephrology.
3S Bio is held in Macrovue’s Asian Healthcare share portfolio.
Tencent (HKG: 700)
Tencent reported its fourth-quarter and annual results on 21/03/2019. Tencent’s 4Q results came in above consensus on both revenue and profit. Non-GAAP EPS was Rmb2.06, some 5% higher than the Bloomberg consensus. The earnings beat was due primarily to strong top-line performance and lower-than-expected sales and marketing expenses.
Total revenue was Rmb84.9bn (+28% Y/Y) and above Bloomberg consensus. While PC games revenue was weak (Rmb11.2bn, -13% YoY) more importantly, smartphone games revenue was solid and well above consensus (Rmb19bn, +12% Y/Y). Core social networking services (SNS) revenue (ex-smartphone games allocation) also came as a positive surprise delivering Rmb13.4bn, 6% above consensus and up 25% Y/Y.
Investors have fretted about Tencent’s gaming business and the approval delays but its clear that the growth drivers now seem increasingly tilted to more promising business segments, including smartphone games, digital content consumption, payments and cloud. A 38% reported growth in ad revenue demonstrates the resiliency of Tencent’s ad business, especially amid a weak advertising market.
Novo Nordisk (NYSE: NVO)
Novo Nordisk sees a great deal of potential in the new oral version of its GLP-1 diabetes drug semaglutide. Last week, Novo officially submitted an application for the drug to the FDA, the company said in a press release. It filed the drug with a priority review voucher, positioning itself for approval later this year.
Novo is facing tough competition from Eli Lilly's GLP-1 entrant Trulicity, so it is hoping its semaglutide franchise can maintain market share particularly after its daily blockbuster, Victoza, faces generic competition in a few years. The priority review voucher will shorten the FDA's review to six months.
Novo Nordisk is held in Macrovue’s High Quality thematic portfolio.
The week ahead
The calendar is bigger than normal with a “catch up” on data from the government shut down earlier this year. Housing data will be in focus with starts, permits, new homes and pending sales all reported. We also have personal income and spending, consumer confidence and PCE prices (the favourite Fed measure of inflation). All are important given the economic concerns from late last week.
Charts of the week
1. The Future is Streaming! Pay TV under pressure.
2. Tencent’s “Jewel in the Crown” WeChat
Weixin/WeChat now has over 1 billion monthly active users. Think of WeChat as a messaging app but with many of the functions of PayPal, Yelp, Facebook, Uber, Amazon, Expedia, Slack, Spotify, Tinder, and more. It is becoming the primary means of communication for the Chinese.
Quote of the week
"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Paul Samuelson (an American economist and the first American to win the Nobel Memorial Prize in Economics).