At the beginning of the new year, I wish you all good health and smooth investment! Last month's Fed rate meeting slows down in raising interest rates, only raising interest rates by 0.5%, and the federal funds rate ranged from 4.25% to 4.5%. However, inflation remains high, and the policy of raising interest rates will continue. The market began to worry that the U.S. economy would suffer, which would affect the trend of the three major U.S. stock indexes again, but the outlook was not optimistic. The Nasdaq underperformed even more, Tesla (TSLA) fell more than 60% year-to-year, and Amazon (AMZN) shares fell by nearly half, which surprised most analysts and investors on Wall Street. I believe that U.S. stocks are still under pressure this year, the falling trend will be more than rising. The targets of the Dow, S&P 500 and Nasdaq will be lowered to 28,500, 3,250, and 7,500 points, so investors are advised to further reduce their holdings in U.S. stocks. 

In Japan, the sharp rise in inflation led the Bank of Japan to ease the cap on the 10-year government bond yield to 0.5% from 0.25%. The yen saw a significant rise immediately, and the dollar fell sharply against the yen to nearly the 130 marks before respite, at the time of writing was 132.06. Since the customs clearance in October, the significant increasing of tourists has driven manufacturers to increase prices. The inflation rate that has been under pressure for many years has finally continued to stay above the target of 2%. The Bank of Japan’s monetary policy is expected to have more possibilities in the future.  

The mainland has maintained a zero-clearing policy for nearly three years. However, the Covid-19 has still broken out on a large scale recently, and the number of confirmed cases has surged across the country. Experts predict that the epidemic will not subside until the end of the first quarter of this year. Ongoing city closure prevention and control measures and the loss of working hours caused by the epidemic have caused the mainland to face an economic recession, and local income has been reduced. In an environment where it is meaningless to continue to strictly prohibit, I believe that it will happen soon although the date of "customs open" has not yet been determined at the time of writing. 

It is understandable that the mainland adopted a zero-clearance policy before a large-scale outbreak. Now the conditions are different, so the customs clearance policy is reasonable. As far as Hong Kong is concerned, most restaurants and tourism operators expect that customs clearance will bring benefits to the economy. However, I am worried that the custom open of the mainland has put a heavy pressure on the medical system (especially public medical care) in Hong Kong and made the epidemic spread faster. Therefore, it may not be a good thing for overall short-to-medium term economy in Hong Kong. On the other hand, due to the population loss in recent years, the increase in rents has not kept up with the increase in interest rates. Also, the mainland property owners have more opportunities to "sell their properties" in the face of high interest rates. Therefore, there is still a high chance of property prices weakening in the market outlook. 

The Hong Kong stock market rose slightly at the end of last year. However, the World Cup and holidays caused insufficient turnover. The Hang Seng Index faced considerable resistance at the 20,000-point mark. 

The State Index and the Branch Index also failed to break through the 6,800 and 4,400 positions. In January, the market outlook may not have sufficient motivation, but because the customs open and the Chinese New Year drive the atmosphere, we can be a little more optimistic, but not too aggressive. With this market situation, investors can consider "stock trading instead of market trading", or take the opportunity to reorganize their portfolios. Facing with the increase in interest costs, if the reader's investment strategy is relatively stable, he can choose "high dividend stocks" as the investment object. At present, the bank's fixed interest rate has risen to nearly 5%, but the risk is close to zero. Therefore, when investing in stocks with an interest rate below 5%, investors must expect the stock price to rise in order to have a reasonable return. Therefore, for stock selection at the moment, it is best to choose stocks with a relatively stable dividend payout policy and track record, a relatively healthy balance sheet, and net profit growth that can maintain high dividend payouts. The performance of the Hang Seng High Dividend Yield Index (Hang Seng High Dividend Yield Index) has slightly outperformed the Hang Seng Index in the past year, which shows that high dividends are more defensive in the face of weak market conditions. 

According to the above method, stock selection is relatively simple. First of all, it is worth noting the coal stocks led by China Shenhua (1088) and Yanzhou Coal (1171). The price of natural gas supply is limited, and the price of coal has risen sharply. It is a foregone conclusion that the net profit will double this year, and the interest rate will not be a problem if it exceeds 10%. Three barrels of oil Sinopec (0386), PetroChina (0857) and CNOOC (0883) are also relatively stable choices under uncertain market conditions. The cost of financing in the market is still high. Therefore, although the interest rates of domestic real estate, domestic banks and real estate trust funds (REITs) are relatively high, the room for growth is still limited. In terms of shipping stocks, freight rates showed signs of decline in the second half of last year, and revenue in the first half of 2023 can still be barely maintained. However, in the second half of the year and into 2024, we must pay close attention to the surge in the supply of new ships. As for the traditional high-yield textile or garment stocks, the future will still be affected by the cost pressure of inflation and the shutdown caused by the epidemic, so it is better to take a long-term view. 

I recommend Yancoal Australia (3668) so far this month. The company's average coal sales in the third quarter of 2022 will reach a record high of 481 Australian dollars per ton. Cash holdings rose by a record A$1.9 billion in the quarter after paying nearly A$700 million in dividends and repaying A$1.2 billion in debt in the same quarter, bringing the company's cash balance to as much as A$3.4 billion. Together with the company's early repayment of US$459 million in debt at the end of last year, it has repaid more than US$2.75 billion (nearly HK$22 billion) of debt in three installments in the past 15 months, and the debt ratio has dropped from 69% in 2020 to below 3%. The company guides the cash operating cost to be A$84-89 per ton, and the continued recovery of coal prices will keep the gross profit margin upward. Since the company's policy states that dividends should not be lower than 50% of net profit after tax or 50% of free cash flow, it is expected that the total interest rate in 2022 can be close to 20%.

Kay Ho (CE No.: ANV293)

Acer King Capital Hong Kong Limited

Statement: The author is a licensee of the 1st, 4th, and 9th types of licenses of Securities and Futures Commission, SFC. Acer King securities Limited and Acer King Capital Hong Kong Limited are affiliated companies of Hantec Group and were invited to contribute articles in Hantec Group's monthly newsletter. The writing does not represent the position of Hantec Group. As the author does not personally hold the above-mentioned shares, investors should exercise caution when buying or selling relevant securities and investment instruments.