Daily Posts

Tariffs Go Into Effect/Markets Rise (Go Figure), JD Earnings Beat

TGIF!



Key News Overnight

  • Markets took Trump’s “beautiful letter” comment as a potential olive branch lifting stocks in the morning. At midnight US time/noon HK, tariffs rose to 25% from 10% on $200B worth of good though goods en route to the US are grandfathered in meaning the tariffs don’t hit for two to three weeks. In theory this leaves plenty of time for negotiations to occur. The lack of a China response should give optimists hope that a deal gets back on track before China hits back with “countermeasures” to the US tariff increases. After the lunch break (HK and mainland equity markets stop for lunch), HK and mainland markets plunged but bounced and rallied into the close. There was chatter that China’s “National Team” bought stocks though there are rumors that another bank reserve requirement cut may be coming.
  • Next week is a very busy week for earnings. Though in China next week I will do my best to get a note out on Monday, Tuesday and Wednesday. Thursday and Friday I am traveling so no note. Monday: BILI, Tencent Music, Vipshop Tuesday: PDD Wednesday: Tencent, BABA, HUYA, NTES. We also have on Monday’s MSCI’s May Semi-Annual Rebalance pro forma released at 5pm EST. Tuesday  we have April’s Retail Sales, Industrial Production and Fixed Asset Investment released. Monday is a HK market holiday for Buddha’s birthday though the mainland market is open. 
  • The Hang Seng ended a roller coaster ride +0.84%/+239 index points on higher volumes 2% day over day and above the 1 year average on strong breadth 40 advancers and 9 decliners. Tencent had a strong day +1.7%/52 index points, Ping An +2.48%/37 index points and HSBC +0.68%/20 index points. The HK stocks within the MSCI China All Shares gained +1.34% led by healthcare +3.2%, tech +2.97%, real estate +2.3% and discretionary +2.02%. Energy lagged -0.14% in what was a broad rally (finally!). Apple supplier gained Sunny Optical gained 5% on better than expected April shipments. Southbound Connect was closed in advance of Buddha’s birthday.

 



The Shanghai & Shenzhen roared back 3.1% and 3.83% on volumes 40% higher day over day as 2,548 and only 103 declining stocks! That’s amazing. The mainland stocks within the MSCI China All Shares gained 3.52% with staples +5.17%, tech +4.65%, real estate +3.49%, communications and financials +3.39%, industrials +3.38% etc. Mega/large caps traded inline with mid/small caps. The National Team is the term for China’s government bodies that intervened in the stock market fall in the summer of 2015. In reality the strategy of buying low turned out to be a great one. While in China, I plan on finding out if the pension reforms that are occurring are being misinterpreted as the National Team. I will report back! 

JD.com reported strong results prior to the US open this morning as the Alibaba rival’s cost cutting appears to be working as the company made a net income profit while analysts had expected a loss. China’s VAT tax cut and focus on raising domestic consumption appear to have trickled down into JD.com’s bottom line.

  • Revenue increased 20.9% YoY to RMB 121.1B ($18B) versus estimate RMB 120.08
  • Net Income RMB 7.3B ($1.1B)
  • Adjusted EPS 2.23 versus estimate 0.86
  • Annual active customer accounts totaled 310mm
  • Q2 Revenue Forecast 145B to 150B versus estimate 145.35


Momo just announced they’ve been told to “strengthening its content screening efforts” from a “government authority”. 

CNY 6.82 versus 6.82 yesterday

 

  • Yield on 1 Day Chinese Gov’t Bond 1.52% versus 1.32% yesterday
  • Yield on 10 Year Chinese Gov’t Bond 3.349% Tuesday versus 3.36% yesterday
  • Yield on 10 Year China Development Bank Bond 3.73% Tuesday versus 3.71% yesterday

 


Commodities were mixed w/softs soft and metals firmer on the Shanghai & Dalian Exchanges with Dr. Copper +0.34%