Daily Posts

Vice President in Davos, TAL Education Reports, Tencent/Netease Game Approvals (finally), 5G Momentum

Hope all is well on a wet but warm day here in NYC! I am beginning to notice that the older I get the more I think about the weather.

Hang Seng overcame early weakness to gain +0.42%/+112 index points on moderate volume and strong breadth 36 advancers and 13 decliners. Tencent was off -0.9%/-24 index points on news the company along with a multitude of others had its wrist slapped by the online regulator for inappropriate online content. The downdraft was despite good news on new gaming licenses. China Mobile gained +1.29%/19 index points on strong 5G rollout chatter while HSBC gained +0.54%/13 index points and PetroChina’s +2.12%/10 index points. Within the MSCI China All Shares’ HK stocks, tech gained +3.08% led by semiconductor stocks after a Korean semi name beat analyst expectations (Hynix) though Apple suppliers and the whole sector were up. Healthcare had a good day +1.61% as energy gained +1.55% following news of increased energy investment. Auto names powered discretionary +1.25% while real estate +1.19% on news of a land plot at HK’s old airport Kai Tak was sold for $1.5B for property development. I never flew into Kai Tak though I heard coming in over the mountains was an experience. Southbound Connect volumes was higher though sellers outpaced buyers.

Shanghai & Shenzhen mirrored HK’s lower open and grinded higher to end the day +0.41% and +0.46% on higher day over day volume +22% though below the 1 year average. Within the MSCI China All Shares’ mainland stocks, tech was the big winner gaining +1.46% on 5G roll out chatter followed by financials +1.04% as Shanghai’s new tech board has boosted brokers. Fairly quiet on the news front.

TAL Education (TAL) reported earnings this morning that exceeded analyst expectations. The stock was trading up +5.7% pre-market though gave up the gains during the management conference call.

  • Q3 Revenue $586mm versus estimate $575.8mm
  • Revenue increased +35.5% year over year
  • Income from operations increased +59.2%
  • Non GAAP income +63.5% to $92.9mm
  • Q3 ADJ EPS $0.24 versus estimate $0.11
  • Student enrollment +68.4% year over year to 2,599,180 from 1,543,740
  • Q4 Forecast $670mm to $$685mm versus estimate $677mm


Vice President Wang Qishan spoke at Davos that China would continue to grow despite challenges.

South China Morning Post is reporting that both Tencent and Netease, having been shut out of the first two rounds of new online game approvals, were included in the latest approvals from the State Administration of Press and Publications. Unfortunately for Tencent neither Fortnite nor PUBG were not on the list for monetization. The article insinuates post Chinese New Year’s could see a pick up in new approvals. Worth keeping in mind that SCMP is owned by Tencent’s arch rival Alibaba.

Credit Suisse had a piece on the coming MSCI China A Inclusion Consultation being released by the end of next month. CS estimates $38 billion would go into Chinese A Shares based on MSCI raising the inclusion factor from 2018’s 5% to 2019’s proposed 15%.

WSJ had two Huawei related articles. The company CEO in Davos called out the US to provide examples of their alleged spying. The WSJ article notes that the US has never presented evidence of spying which I find interesting. The second article concerned they would roll out their internally developed 5G chips. More importantly was a chart showing global smartphone shipments declining in 2018 from 2017. There was another chart showing “Top five smartphone companies by shipments; 1Q-3Q of each year” showing Samsung’s shipments plummeting, Apple’s flatlining while Chinese providers Huawei, Xiaomi and Oppo increasing. If you need to know what is happening to Apple look no further than this article which highlights slowing demand for smart phones globally due to a lack of innovation post 4G/pre 5G and increased demand from cheaper competitors. Coincidentally I noticed a local broker downgraded a major Apple supplier.

CNY 6.79

A small pick up in yields over the last two weeks which could, on a very preliminary basis, show support for stocks as money leave bonds.

  • Yield on 1 Day Chinese Gov’t Bond 1.82%
  • Yield on 10 Year Chinese Gov’t Bond 3.13%
  • Yield on 10 Year China Development Bank Bond 3.76%

 


Commodities were higher though Dr Copper off slightly both the Dalian and Shanghai