Group 1: US Economic Outlook - The Federal Reserve is expected to cut rates by 50 basis points before year-end, influenced by the US election outcome and recent strong employment and inflation data[1][2] - Under a Harris administration, the 2-year and 10-year US Treasury yields are projected to decline to 3.9% and 4.0% respectively by year-end[1][2] - If Trump is elected, the upward pressure on yields may persist due to inflationary policies, limiting the downward movement of the yield curve[1][2] Group 2: China Economic Policy - The Chinese government is anticipated to announce fiscal plans in November, increasing borrowing by approximately RMB 1-2 trillion to alleviate spending constraints and local debt pressure[1][2] - Successful implementation of fiscal support could boost Q4 GDP growth by about 1 percentage point, aiding in achieving the annual growth target of 5%[1][2] - Recent data indicates a slight improvement in China's economic momentum, although domestic demand remains weak[1][2] Group 3: Currency and Market Trends - The US dollar is expected to maintain strength in the near term, with the RMB facing limited downward pressure due to election uncertainties and US economic strength[1][2] - The RMB/USD exchange rate is projected to recover to around 6.8 by year-end as the dollar weakens following Fed rate cuts[1][2] - Emerging markets have seen significant capital inflows, but recent dollar strength has led to a net outflow of approximately $16 billion in October[1][2]

Core Insights - The report highlights a significant strategic shift for Hongkong Land, focusing on ultra-premium commercial real estate investments in major Asian cities, aiming to recover $10 billion in capital through asset sales and management expansion [2][6][7] - The ambitious targets set for 2035 include doubling underlying profit before interest and tax to $1.5 billion, doubling dividends per share to $0.44, and growing assets under management (AUM) to $100 billion [6][7] - The report maintains an "Outperform" rating, raising the target price from $4.50 to $6.00, reflecting the potential for capital recovery and a more aggressive management approach [2][4][11] Financial Projections - Total revenue is projected to increase from $1,844 million in 2023 to $2,027 million by 2026, with a compound annual growth rate (CAGR) of approximately 3.7% [3] - Distributable income is expected to decline significantly from $734 million in 2023 to $549 million in 2024, before gradually increasing to $626 million by 2026 [3] - The basic earnings per share (EPS) is forecasted to decrease from $0.33 in 2023 to $0.25 in 2024, with a recovery to $0.30 by 2026 [3] Strategic Goals - The company aims to recycle $10 billion in capital, with $6 billion expected from the wind-down of development properties and $4 billion from recycling investment properties [6][7] - The strategy includes expanding the investment property AUM from $40 billion to $100 billion by 2035, targeting a 10% annual growth rate [6][7] - The focus will be on premium regional gateway assets, enhancing returns through third-party capital, and building a recurring fee-based income stream [7][8] Market Positioning - Hongkong Land's new strategy positions it to compete with major developers like CK Hutchison and Sun Hung Kai Properties, which have significantly larger AUMs [7][10] - The report notes that achieving the ambitious AUM target will require overcoming fierce competition in key markets such as Hong Kong, Singapore, and Shanghai [7] - The potential for value unlocking through REIT listings and aggressive capital management is emphasized as a key driver for future performance [2][6][7]

Core Insights - The report indicates that the Federal Reserve's recent 50 basis point rate cut is a preventive measure against recession rather than a response to economic stability [1] - It suggests that investors should maintain a low exposure to US equities and prepare for range trading strategies, anticipating a shift towards safe-haven assets due to election uncertainties [1] - The report highlights the historical performance of asset classes during 50 basis point rate cuts, noting that such cycles often lead to poor stock market performance and strong bond performance [1] Market Focus - The Federal Reserve's rate cut is the first since the pandemic, driven by concerns over the labor market's health [1] - The report recommends increasing allocations to gold and bonds as a hedge against future risks [1] - It notes that the market has already priced in the Fed's rate cut, but the implications of the cut are more significant than initially perceived [1] Asset Class Performance - Commodity markets have been buoyed by statements from the Federal Reserve and the People's Bank of China, with copper and aluminum prices rising approximately 8% over the past 30 days [2] - Most 10-year government bond yields across major economies have declined [2] - Chinese equities have outperformed major asset classes, with indices like the Shanghai Composite Index rising by 16.0% and the Hang Seng Tech Index increasing by 29.4% [2] Sentiment Indicators - Overall market sentiment is optimistic, with nearly 50% of investors being bullish as of the end of September [3] - The put-call ratio in the US stock market stands at 0.53, indicating a generally bullish outlook despite recent market adjustments [3] - The VIX, known as the "fear index," has cooled from its previous highs but remains elevated [3] Global Observations - Despite some improvements in interest-sensitive data following the Fed's rate cut, business activity and the labor market remain weak [3] - Among 25 indicators tracked, only 4 are positive, while 16 are neutral and 5 are negative [3]

Investment Rating - The report maintains a "Underperform" rating for New World Development (17 HK) [1] Core Views - New World Development faces a bleak profit outlook but has stabilized its financial position [2] - Management uncertainty persists in the medium to long term, hindering a potential re-rating [2] - Potential restructuring and market recovery opportunities exist, particularly with the possible sale of the Kai Tak Sports Park to its parent company, Chow Tai Fook Enterprises [2] Financial Performance Summary - New World Development reported a significant net loss of HKD 11.8 billion in FY24, driven by HKD 6.3 billion in development property impairment losses and HKD 2.7 billion in investment property revaluation losses [2] - Core losses widened from HKD 1.4 billion to HKD 4.6 billion, with core operating profit declining by 17.8% to HKD 6.9 billion [2] - Total interest expenses exceeded HKD 10 billion, surpassing core operating profit, leading to the suspension of dividends [2] - The company is actively deleveraging through asset sales (HKD 59/77/130 billion in FY23/24/25F) and reduced capital expenditures (HKD 190/150/150 billion in FY23/24/25F) [2] Management Uncertainty - The resignation of Adrian Cheng, the former CEO and third-generation family member, has introduced uncertainty, with the appointment of a new CEO seen as transitional [2] - This management instability is expected to negatively impact the company's operations and re-rating potential [2] Market Recovery and Restructuring Opportunities - The potential sale of the Kai Tak Sports Park to Chow Tai Fook Enterprises could be beneficial, as the project is nearing completion and expected to be operational by Q1 2025 [2] - The company may benefit from a market re-rating driven by US interest rate cuts and China's property support policies, but management uncertainty remains a key risk [2] Valuation and Target Price - The target price has been revised downward from HKD 8.75 to HKD 7.25, reflecting a 17% reduction due to lower net asset value expectations [2][9] - Earnings forecasts for FY25-26 have been cut by 20-34% [2] Financial Forecasts - Revenue is expected to remain flat in FY25F at HKD 35.9 billion, with a slight increase to HKD 36.6 billion in FY26F [3] - Net profit is projected to recover to HKD 867 million in FY25F and HKD 1.8 billion in FY26F, following a significant loss in FY24 [3] - Core earnings per share are forecasted at HKD 0.34 in FY25F and HKD 0.72 in FY26F [3] Key Financial Ratios - The net debt ratio increased to 57.2% in FY24, up from 49.6% in FY23, but is expected to decline to 53.1% in FY25F [3] - The price-to-book ratio remains at 0.1x, reflecting the company's undervaluation [3] Trading Data - The stock's 52-week price range is HKD 6.20 to HKD 15.96, with a market capitalization of USD 2.64 billion [4] - The 12-month expected return is -11%, indicating continued underperformance [4] Historical Performance - The stock has underperformed the Hang Seng Index over the past 12 months, with a -37% absolute return and -50% relative return [5] Segment Performance - Property sales revenue declined by 41% YoY in FY24, while rental income increased by 4% [6] - The construction segment saw a significant revenue drop of 45.7%, reflecting weak market conditions [6] Balance Sheet and Cash Flow - Total assets decreased to HKD 445.2 billion in FY24, down from HKD 609 billion in FY23, primarily due to asset sales and reduced capital expenditures [11] - Operating cash flow improved to HKD 10.99 billion in FY24, up from HKD 6.53 billion in FY23, driven by cost-cutting measures [11]

Economic Performance - August data indicates a slowdown in economic momentum, primarily due to weak domestic demand[1] - Industrial production (IP) growth slowed to 4.5% YoY in August, down from 5.1% YoY in July[3] - Retail sales grew only 2.1% YoY in August, missing the consensus forecast of 2.5% YoY[3] Consumption Trends - Soft income growth continues to restrain consumption, with auto sales declining by 7.3% YoY, contributing approximately -0.7 percentage points to overall retail sales[3] - Housing-related spending has stabilized, with furniture and decoration materials showing flat YoY growth after previous positive trends[3] Investment Insights - Fixed-asset investment (FAI) grew by 2.2% YoY in August, with real estate investment contracting at -10.2% YoY[3] - Green infrastructure investment remains robust, with the electricity sector expanding over 20% YoY in August[3] Policy Recommendations - The report calls for increased policy support to stabilize income and growth expectations, as fiscal spending rose only 2.5% YoY in the first seven months[4] - Continued liquidity accommodation is anticipated to support the cyclical economy in the coming months[2]

Group 1 - The Federal Reserve's recent 50 basis point rate cut is the first since the pandemic, indicating a shift in monetary policy aimed at addressing recession risks rather than stabilizing the economy [1][2][3] - Market reactions included a rise in the S&P 500 index to 5660, followed by fluctuations in gold and U.S. Treasury yields, reflecting investor uncertainty about future economic conditions [1][3] - The Fed's dot plot suggests further rate cuts, with expectations of a total reduction of 100 basis points by the end of 2026, indicating a more aggressive approach to monetary easing [1][2] Group 2 - Historical analysis shows that rate cuts initiated with a 50 basis point reduction typically occur during recessionary periods, contrasting with 25 basis point cuts that are more common in stable economic conditions [1][3][4] - The report highlights that asset performance during 50 basis point cuts tends to be poor for equities, particularly in emerging markets, while bonds generally perform well, especially U.S. Treasuries [1][4][5] - The Fed's focus has shifted towards a weakening labor market, with downward revisions to GDP and inflation forecasts, while unemployment rate projections have been increased for the next three years [1][2][3]

Global Market Strategy - The report indicates that the market is likely to oscillate between "soft landing" and "recession," with a high probability of confirming a recession next year [1][2] - The initial trading of September saw significant declines in major US indices, reminiscent of the adjustments seen in early August [1][2] - The ISM manufacturing PMI for August was reported at 47.2, below economists' expectations, indicating a continued slowdown in manufacturing activity [1][3] Manufacturing Sector Analysis - The manufacturing PMI has been below the neutral level of 50 for five consecutive months, suggesting a persistent decline in economic activity [1][2] - Key indicators such as new orders and export orders are showing signs of contraction, with the new orders index falling to 44.6 in August [3][8] - The report highlights that the divergence between services and manufacturing sectors is unlikely to last, as historically, service sector resilience does not prevent manufacturing from following suit in downturns [1][3] Employment and Economic Indicators - The report notes that the non-farm payroll data for September is anticipated to be disappointing, which could exacerbate market volatility [1][2] - The unemployment rate has reached its highest level in nearly three years, triggering recession indicators [1][2] - The VIX index, a measure of market volatility, spiked significantly during both August and September, reflecting heightened panic in the market [1][2] Monetary Policy Environment - Recent shifts in monetary policy have seen a pivot towards a more dovish stance, with the focus shifting from inflation risks to employment market slowdowns [1][2] - The report suggests that the PMI is likely to continue weakening, potentially leading to clearer signals of recession in the coming quarters [1][3] - The difference between new orders and inventory levels is highlighted as an effective leading indicator for PMI, with current trends suggesting ongoing weakness in manufacturing demand [1][8]

Group 1: Federal Reserve and Interest Rates - The Fed is expected to cut rates by 25 basis points in September, with a total of 50 basis points by year-end, although an additional cut may occur[1] - Market expectations for a total cut of over 100 basis points this year and over 200 basis points by the end of 2025 appear overly aggressive[1] - The 2-year and 10-year U.S. Treasury yields are forecasted to return to 4.1% and 4.0% respectively by year-end[1] Group 2: Economic Conditions in the U.S. and Europe - U.S. inflation continues to cool, with July's overall inflation at 2.9% year-on-year, down from 3.0%[3] - Non-farm payroll data for July showed a significant decline, with a downward revision of 818,000 jobs over the past year[3] - The Eurozone's manufacturing PMI hit an 8-month low, while the services sector remains strong, indicating a mixed economic outlook[3] Group 3: China's Economic Recovery - China's economic recovery remains uneven, with July data showing weak consumption despite strong manufacturing supported by international trade[1] - Food inflation is rising, with July's CPI expected to increase significantly, driven by a 20.4% year-on-year rise in pork prices[9] - Real estate sales have stabilized at low levels, with a year-on-year decline narrowing to 16% in August[9] Group 4: Currency and Bond Markets - The U.S. dollar is expected to continue its downward trend, with a forecasted RMB/USD exchange rate of 7.0 by year-end[1] - Dim Sum bond issuance is anticipated to remain strong, with a year-to-date increase of 41.7% in issuance volume[13] - U.S. Treasury yields fell by 42 basis points for the 2-year and 23 basis points for the 10-year bonds in August, reflecting market expectations for rate cuts[7]

Market Overview - Global markets experienced significant adjustments in early August due to a series of events, including widening policy divergence between the Bank of Japan and the Federal Reserve, and a shift in trading sentiment following weaker-than-expected U.S. economic data [1] - The popular trades of shorting the yen and going long on U.S. large-cap growth stocks faced a paradigm shift, leading to a reassessment of market positions [1] - Concerns over economic hard landing and recession fears triggered a panic sell-off, with the VIX index reaching its highest level of the year [1] U.S. Market Insights - Despite recent market turmoil, there is no clear indication that the U.S. is entering a recession; economic data remains inconsistent, suggesting potential for continued market volatility [1] - The S&P 500 index is expected to fluctuate around 5500 points until clearer economic signals emerge [1] Japanese Market Insights - The Japanese stock market's strength is driven by foreign investment rather than domestic investors, leading to high volatility [1] - The USD/JPY exchange rate is projected to fluctuate between 155 and 160 until Q3 2024, with a subsequent range of 140 to 155 anticipated [1] Asset Performance - Precious metals have performed strongly, with gold up 21.2% and silver up 23.3% year-to-date, driven by safe-haven demand and interest rate cut expectations [2] - Most 10-year government bond yields have decreased across major economies [2] - Recent underperformance in U.S. and Japanese stocks, with the Nikkei index down 4.0% and the S&P 500 index up 0.8% over the past 30 days [2] - Value stocks have outperformed growth stocks in the last 30 days, with sectors like real estate, healthcare, consumer goods, and utilities showing positive returns [2] Sentiment Indicators - "Dumb money" confidence is very optimistic, while "smart money" confidence is also optimistic, indicating a projected excess return of -0.6% over the next two months [3] - The put-call ratio in the U.S. stock market is currently at 0.47, suggesting a generally bullish sentiment despite recent adjustments [3] - The VIX index has surged during recent market turbulence, reflecting increased market fear [3]

Economic Performance - July industrial production (IP) growth slowed to 5.1% YoY, slightly below the consensus expectation of 5.2% YoY[4] - Retail sales growth increased to 2.7% YoY, surpassing the consensus expectation of 2.6% YoY[4] - Fixed-asset investment (FAI) grew 1.9% YoY, marking one of the slowest growth months in the past five years[4] Sector Insights - Manufacturing investment saw solid growth of 8.3% YoY, driven by industrial upgrades and high-tech industries[4] - Real estate investment contracted by 10.8% YoY, continuing to be a significant drag on overall investment growth[4] - Infrastructure investment growth slowed to 5.6% YoY, with traditional infrastructure investment at 2.0% YoY[4] Housing Market - Property sales showed slight stabilization, with a smaller YoY decline in July compared to previous months[5] - High inventory levels continue to pressure housing prices, necessitating policy interventions for supply-demand equilibrium[5] - New home prices fell 0.7% MoM, while second-hand home prices decreased by 0.8% MoM[4] Policy Outlook - Macro policy is expected to remain accommodative, with potential for increased fiscal support in the second half of 2024[5] - Rising food prices may constrain further monetary easing in the near term, as indicated in the July Politburo meeting[5] - Core inflation remains low at around 0.5% YoY, despite a rise in CPI to 0.5% YoY driven by food prices[4]