Daily Posts

April FAI/Retail Sales/IP Disappoint – Markets Rise (Go Figure), Tencent Earnings Post HK Close: Light on Revenue/Beat on Net Income/Solid Quarter, Alibaba Post US Close

3 Min. Read Time

Greetings from Beijing! I am headed home tomorrow night which makes a note tomorrow and Friday unlikely unfortunately. Be sure to watch for BABA post US close today.

  • Fixed Asset Investment: 6.1% versus estimate 6.4% and March’s 6.3%
  • Industrial Production: 5.4% versus estimate 6.5% and March’s 8.5%
  • Retail Sales: 7.2% versus estimate 8.6% and March’s 8.7%

The April data was released at 10am local time leading to a very short sell off. While March’s economic data was very strong due to the timing of Chinese New Year’s, April data has been a disappointment. Why the afternoon rally? Policy makers took March green shoots as indication that stimulus was effective. Not wanting to overstimulate, the tone around policy shifted to more targeted rather than broad stimulus. While trade talks flared during this period, an element of equity weakness might be attributable to investors’ concern that the stimulus gas pedal was being eased. Policymakers might have wanted to wait for April’s VAT cut to take effect. Today’s data highlights the necessity for continuing fiscal and monetary support leading to an afternoon rally in both HK and the mainland. The weak numbers may provide an incentive for China to make a deal on trade. Industrial Production appeared to be weighed down by autos and trade/export sensitive sectors such as textiles, metal cutting machines, and industrial robots. While April retail sales slowed driven by auto sales weakness, April online retail sales gained 17.8% which is 2.5% higher than in Q1 2019.

Tencent (700 HK) reported Q1 earnings after the Hong Kong close after gaining +0.92% as Morgan Stanley raised its price target to HK $430 from $408. Revenue came in light versus analyst expectations though net income was solid beat. Gaming continued to be weak in the quarter though the company reported several games would be released in Q2. Despite weak gaming, analysts and investors are going to love that advertising which is about monetizing WeChat had a solid quarter. The company also broke out Fintech and Business Service revenues for the first time which were also very solid. Imagine if gaming revenues kicks into gear? South African traded Naspers traded as high as +4.47% on the earnings release though the stock has come off.

  • Revenue +16% YoY to RMB 86.47B versus estimate 88.71B
  • Operating profit RMB 36.74B
  • Net Income RMB 27.21B versus estimate 19.04B
  • Combined monthly users of WeChat mobile and computer +6.9% YoY to 1.111B
  • VAS revenue +4% to RMB 48.974B (57% of revenue) though the company highlighted that paying Tencent Video subscribers (ie Netflix) increased 43% to 89mm users
  • Advertising revenue +25% to RMB 13.4B (16% of revenue)
  • Fintech/Business Services revenues +44% to RMB 21.8B (25% of revenue)

Key News Overnight

  • Investors cheered an upbeat tone from President Trump on trade talks which helped sentiment overnight.
  • Alibaba is scheduled to report earnings after the US close today.

The Hang Seng gained +0.52%/+146 index points during an afternoon rally on improved trade sentiment and the weak economic numbers leading to further stimulus and/or further trade talks. Volumes were off -22% day over day as 27 stocks advanced and 19 declined with market leaders leading the index higher AIA +2.25%/+63.1 index points, Tencent +0.92%/+27.5 index points and Ping An +1.37%/+20.4 index points. The HK stocks within the MSCI China All Shares gained +0.7% led by trade sensitive tech +2.68%, healthcare +2.33%, discretionary +1.23% and staples +0.8% led by beer stocks as all sectors ended in the green. Southbound Connect volumes were light though buyers outpaced sellers 2 to 1 with Tencent seeing 3 to 1 buying, ICBC seeing very strong buying though real estate firm Sunac saw slightly more sellers.

The Shanghai & Shenzhen also rallied in the afternoon gaining +1.91% and +2.32% on volumes 12% higher day over day strong breadth with 3,461 advancers and only 183 decliners. The mainland stocks within the MSCI China All Shares gained +2.37% led higher by staples +5.06%, healthcare +2.74%, materials +2.17%, discretionary +2.16% and financials +1.97% with all sectors gaining on the day. Mega/large, mid and small caps universally had a strong day. The “white horse” stocks, a term for popular stocks such as alcohol, food, healthcare, and home appliance stocks, stampeded. Bargain hunters might be buying after foreign investors became sellers despite Monday’s MSCI pro forma for the May inclusion of Chinese A shares. Northbound Stock Connect volumes were light compared to recent elevated volumes though still quite higher from a longer-term perspective. Foreigners were buyers of $131mm of mainland stocks.

CNY 6.87 versus 6.88 Friday

  • Yield on 1 Day Chinese Gov’t Bond 1.95% versus 1.57% yesterday
  • Yield on 10 Year Chinese Gov’t Bond 3.33% Tuesday versus 3.35% yesterday
  • Yield on 10 Year China Development Bank Bond 3.73% Tuesday versus 3.73% yesterday

Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.19%