Sharply raise the stock target at the end of the year!

FinGraph is a graphical financial column that provides a concise, accurate, and comprehensive daily overview for professionals focused on global markets and economic conditions. The content of this article does not constitute investment advice.

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Headline

Foreign institutions increased their holdings of Chinese interbank bonds

The deficit in the settlement and sale of foreign exchange by banks on behalf of customers has narrowed significantly

The balance of receipts and payments under direct investment has been in deficit for 23 consecutive months

China's southbound investment in the Cross-boundary Wealth Management Connect surged by 70% in April

BYD H shares to 6.90%

Tick Travel passed the Hong Kong IPO hearing

TSMC's ADR premium is the highest since 2009

The New York Fed's business conditions index improved, and price pressures eased

Expectations of Fed rate cuts are driving flows from economically sensitive sectors

Goldman Sachs sharply raised its S&P 500 year-end target to 5,600

The doubling of stocks in the S&P 500 compared to 1999

Nvidia's stock price has soared, but the semiconductor industry is still facing inventory problems

U.S. investment-grade credit is positively correlated with GDP growth

MSCI Europe Cyclical Stocks Factor in Economic Rebound Expectations

The recovery in trade intensity in the UK has been slower than in the rest of the G7

Labor's pledge not to increase the burden of the four major taxes is facing fiscal challenges

Emerging market equities are under pressure from the dollar's appreciation

China

1. The central bank of China released data on Monday showing that the custody balance of foreign institutions in the interbank bond market at the end of May was 4.22 trillion yuan, accounting for about 3% of the total custody of the interbank bond market, an increase of about 0.17 trillion yuan from the end of April. Among them, foreign institutions bought 165.1 billion yuan of domestic bonds, including 25.3 billion yuan of government bonds (the first time in four months), 51.3 billion yuan of policy financial bonds (a record high in 2021), and 88 billion yuan of interbank certificates of deposit.

来源：边际Lab | FinGraph

2. According to data from the State Administration of Foreign Exchange, in May, banks settled US$176 billion in foreign exchange and sold US$191.9 billion, with a deficit of US$15.9 billion. Banks settled foreign exchange on behalf of customers of US$171 billion and sold foreign exchange of US$185.3 billion, and the deficit of foreign exchange settlement and sales of banks on behalf of customers was US$14.3 billion, narrowing from the new high of the previous month.

来源：边际Lab | FinGraph

-In May, the foreign-related income of banks on behalf of customers was US$584.8 billion, and the external payment was US$585.1 billion, with a difference of -US$300 million.

来源：边际Lab | FinGraph

-Among the foreign-related receipts and payments, the balance of foreign-related receipts and payments under direct investment reached -128 billion yuan, which has been in deficit since July 2022.

来源：边际Lab | FinGraph

3. Investment by mainland investors in Hong Kong and Macau through the Cross-boundary Wealth Management Connect increased by 70.5% in April from the previous month to RMB22.3 billion, data from the People's Bank of China showed. By comparison, northbound investment by Hong Kong and Macau residents was just RMB14 million in April, largely unchanged since the launch of the scheme.

来源：Reuters

4. China's exports to the United States and Europe have not changed much in the last decade, but they have grown rapidly to other regions except the United States and Europe.

来源：边际Lab | FinGraph

5. Berkshire Hathaway, Warren Buffett's investment arm, sold 1.3 million shares of Hong Kong-listed electric car maker BYD for HK$310.5 million, according to a filing with the Hong Kong Stock Exchange on Monday. The sale reduced Berkshire's stake in BYD's outstanding H shares from 7.02 percent to 6.90 percent. According to the rules of the Hong Kong market, it is only necessary to report when there is a change in the integer of the shareholding ratio, so if Berkshire's shareholding does not fall below 6%, it does not need to be declared again.

来源：边际Lab | FinGraph

6. Tick Chuxing, China's second-largest ride-hailing service provider, finally passed its listing hearing after submitting five initial public offering (IPO) applications to the Hong Kong Stock Exchange. According to the prospectus filed by Dida Chuxing in March, it plans to use the proceeds from the IPO to expand its user base, strengthen marketing and promotional activities, improve its technical capabilities, upgrade its security mechanisms and enhance its monetization capabilities. Dida Chuxing achieved a net profit of 300.4 million yuan last year, compared with a net loss of 187.6 million yuan the year before. Revenue increased 43% to RMB815.1 million. Founded in 2014, Dida Chuxing provides ride-hailing services in 366 cities in China and completed 130.3 million ride-hailing services last year, with a transaction value of 8.6 billion yuan and a market share of about 32%.

来源：Yicai，边际Lab | FinGraph

7. Driven by the artificial intelligence (AI) boom in the United States, the average premium of TSMC's American Depositary Receipts (ADRs) to Taiwanese stocks has hit its highest level since 2009. As of last Friday, the spread between the two was about 21 percent, compared to the five-year average of less than 8 percent. As of last Friday this year, TSMC ADR has surged 66%, while TSMC shares have risen only 55% over the same period. ADR performs better because it is easier for foreign investors to invest. Moreover, it is also a constituent of indices such as Philadelphia Stock Exchange Semiconductor, and ETFs such as the VanEck Semiconductor ETF and iShares Semiconductor ETF, which means that funds linked to them must buy TSMC ADRs.

来源：Bloomberg

United States

1. The New York Fed's headline business conditions index rose 9.6 points to -6. Analysts had expected -10. Meanwhile, the state's Manufacturers Received Price Index fell 7 points to 7.1, while the Raw Materials Prices Paid indicator fell to its lowest level since the beginning of the year, indicating a significant easing of price pressures.

来源：Bloomberg

2. Historically, the Fed has begun to cut interest rates and marks a key inflection point – if the rate cut is not triggered by a recession, then the stock market will see strong returns. This explains why the latest flow data shows rotation in the financials, materials and utilities sectors – three sectors that are closely linked to the economy and have historically benefited from interest rate cuts as long as the economy is strong.

来源：Bloomberg

3. However, strategists at Morgan Stanley believe that many stocks are now becoming more sensitive to slower growth conditions. Some value/cyclical stocks have started to focus more on earnings expectations and less on interest rates. This means that this cycle of interest rate declines may not be as beneficial to equities as it has been before. Currently, the correlation between US equity prices and bond yields continues to be in deep negative territory, with the two having reached its largest negative correlation since 1997.

来源：Bloomberg

4. Goldman Sachs Group Inc. raised its forecast for the S&P 500 to 5,600 from 5,200 points at the end of the year, citing earnings growth in the top five technology stocks offsetting the negative revision to the consensus earnings per share estimate, while the agency raised its judgment that the S&P 500 P/E ratio is reasonable.

来源：边际Lab | FinGraph

5. From 1995 to 1999, 108 stocks in the S&P 500 doubled in a year, and 39 stocks doubled in 1999 alone. And so far in 2020, only 32 stocks have risen 100% in one year.

来源：Michael Batnick

6. While the AI boom has propelled Nvidia's stock price to historic heights, much of the rest of the semiconductor industry remains mired in cyclical inventory overhangs due to a slowdown in consumer demand for smartphones, laptops, gaming consoles and even electric vehicles following the Covid pandemic. With the exception of companies that have benefited from artificial intelligence, such as Nvidia, semiconductor companies in the S&P 500 index have all seen a decline in revenue in the first quarter of this year. At the same time, inventories at these companies have also risen.

来源：S&P Global

7. Historical data shows a positive correlation between quarterly excess returns on U.S. investment grade (IG) credit bonds and quarterly real GDP growth. Investment grade credit bonds have the highest excess returns when real GDP growth is between 1% and 3%.

来源：Morgan Stanley

8. Energy services firm Baker Hughes said the number of oil and gas rigs at U.S. energy companies fell by four to 590 in the week ended June 14, the lowest level since January 2022. Among them, the number of oil drilling rigs decreased by 4 to 488, and the number of natural gas drilling rigs remained unchanged at 98.

来源：边际Lab | FinGraph，Reuters

Europe

1. In the first quarter of 2024, 7 of the 15 countries included in the STOXX 600 index have expected earnings growth. Among them, Portugal topped the list with a growth rate of 92%, followed by Italy with 13.4%. Poland and Austria had the worst earnings forecasts, with growth rates of -27.9% and -25.3%, respectively.

Source: LSEG

2. The performance of MSCI European cyclical stocks relative to defensive stocks has a strong correlation with manufacturing PMIs. While the current bottoming out of macro indicators has helped to improve the outlook for European returns, the rally in European cyclical equities has priced into this expectation.

来源：Morgan Stanley

3. According to the latest poll by Statistics Sweden, 34.4% of respondents now support the adoption of the euro as the official currency. This percentage is nearly 4 percentage points higher than last year's survey and much higher than the 22.6% in favor ratio in 2022. Cevian Capital AB said discussions about joining the eurozone are likely to intensify between now and Sweden's 2026 general election.

来源：Bloomberg

United Kingdom

1. The UK's Office for Budget Responsibility notes that the UK's trade intensity (exports plus imports as a share of GDP) has not recovered in tandem with the rest of the G7. The UK's trade intensity is still 1.7% below 2017 levels, while the G7 countries are on average 1.7% above that time.

来源：Bloomberg

2. Income tax, National Insurance payroll tax, VAT or corporation tax are the four major sources of revenue for the UK Treasury, which together account for about three-quarters of the government's total revenue. Labour has previously made it clear that if it wins the election, it will not raise the tax burden on these four categories to preclude tax increases on "working people". However, this poses a new challenge for the Labour Party to maintain the sustainability of its fiscal position and the quality of public services once it comes to power.

来源：Bloomberg

Emerging markets

Emerging market equities have come under pressure this year due to the appreciation of the US dollar, but global macro optimism and stronger economic growth, coupled with an improvement in China's markets, have helped stabilize returns.

Related: Statistics

globe

A dividend recapitalization is the act of a company raising a large amount of debt and paying it to shareholders in the form of a large dividend. About $30.2 billion in leveraged loans have been issued so far this year to pay such dividends, matching the amount in 2021 and the most in at least a decade, according to PitchBook LCD. Although this approach has increased the financial pressure on the company, the strong demand from investors for various credit products has made this strategy continue to be popular.

来源：Bloomberg

ESG

So far this year, bonds containing biodiversity loss prevention and nature conservation objectives have accounted for almost one-third of total ESG bond issuance, up from just 3% in 2015. At this rate, the annual issuance of such bonds will be close to $300 billion by the end of 2024, a record high.

来源:Pictet

Note: Any information selected in this column only reflects the views of the listed institutions or analysts, and is for readers' reference only, and does not constitute investment advice to any person or institution, and cannot be regarded as an invitation or promise to trade in any securities products.