Trump Tough Tariff Talk Tanks Asia, Tencent Disappoints
Asian equities were a sea of red as President Trump’s Economic Club of NY speech wasn’t the Vince Lombardi pep talk investors had hoped for. The Art of the Deal was in full effect as President Trump dangled a Phase One deal but carried a heavy stick by threatening more tariffs if a deal isn’t signed. One global broker is calling Trump’s bluff after their firm’s economics team calculated that an escalation in US tariffs all but guarantees a US recession pre-election. Not a good game plan if you want to get reelected.
Hong Kong fell as ~1,000 largely student protesters funneled into the financial district (Central) creating havoc for commuters and office works. I noticed one Asian broker did not include a Hong Kong market summary today, which tells me that they sent their staff home early to avoid the mess. If these tactics continue financial firms and others will pick up and move to Singapore and/or Shanghai as it just isn’t worth the hassle. Hong Kong real estate stocks were weak reflecting this reality. It is a remote possibility at this stage that this downward spiral occurs as the general populace is the biggest loser in this outcome. Premier Li did give a speech promoting counter cyclical measures, i.e. stimulus, though trade news seemed to cast a shadow on Mainland markets nonetheless.
Alibaba’s Hong Kong IPO has become mainstream news today as a November 25th listing date appears to be in order. The full $15B listing is expected as demand appears strong. This should be a great thing for the US listing as the Hong Kong listing will trade at a higher P/E than than the US listing. Due to arbitrage, the Hong Kong listing should “pull” the US listing up.
Tencent (700 HK) reported Q3 earnings after the Hong Kong close today. The results missed analyst estimates though were not as poor as headlines would suggest. While revenues increased nicely, the company’s expenses increased, which rolls down the income statement. I’m surprised analysts didn’t lower their estimates as Bytedance’s popularity in pulling advertising dollars was evident in Q2 earnings. Analysts remained very bullish. I find it laughable that China’s economy is given as a reason for the miss. Did anybody notice Monday’s Singles Day?
- Revenue +21% to $13.748B (RMB 97.236B) from RMB 80.595 YoY versus estimate 99.04B
- Gross profit increased to RMB 42.479B from 35.480B while gross margin steady at 44%
- Selling/Marketing expenses increased to RMB 13.536B from 10.89B which lowered operating profit YoY and operating margin
- Net Income declined to RMB 20.38B from 23.405B versus estimate 23.53B
- Net margin 22% versus 29% YoY
- EPS RMB 2.127 versus 2.44 YoY
The Hang Seng fell -1.82%/-493 index points as volume picked up 20% day over day, but was still off the 1-year average. There was only 1 advancing stock today as 49 stocks fell including index heavyweights AIA -3.24%/-85.7 index points, HSBC -1.35%/-35.3 index points and China Construction Bank -1.58%/-32.3 index points. Sino Biopharma was the only gainer +0.89%/+2.12 index points. The Hong Kong stocks within the MSCI China All Shares Index were off -1.43% led lower by real estate and energy -2.11%, discretionary -1.92%, financials -1.69%, industrials -1.66%, materials -1.34%, communications -1.16%, tech -1.07%, utilities -0.99%, healthcare -0.23% and staples +0.06% as beer stocks had a good day. Southbound Connect volumes were moderate with Mainland investors buying the dip (again) as 9 of the top 10 volume stocks had more buying volume than selling volume.
The Shanghai & Shenzhen diverged with the former -0.33% and the latter +0.01% though volumes were off slightly day over day and well off the 1-year average. Breadth was off with only 1,106 advancers and 2,474 decliners as small and mid caps managed small gains while large caps were down on the day. The mainland stocks within the MSCI China All Shares Index were down -0.24% as real estate fell -1.2%, financials -0.89%, industrials -0.84%, utilities -0.83% and discretionary -0.77%. Tech had a strong day led by semis +1.1%, healthcare +0.96% and staples +0.58%. Northbound Connect volumes were moderate though Shanghai Connect had outflows while Shenzhen Connect had inflows! Foreign investors sold a total of -$251mm of mainland stocks today.
After yesterday’s US close HUYA and YY reported with the former looking very strong and the latter’s bottom line weak despite impressive top line growth. This morning, pre-market VIPS reported a moderate top line but very strong bottom line growth.
Last Night’s Prices and Yields
- CNY/USD 7.0218 versus 7.0005
- CNY/EUR 7.73 versus 7.72
- Yield on 1-Day Government Bond 2.11% versus 1.97% yesterday
- Yield on 10-Year Government Bond 3.24% versus 3.26% yesterday
- Yield on 10-Year China Development Bank Bond 3.64% versus 3.67% yesterday
- Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.11%