Key News

Alibaba (BABA US/9988 HK) reported its results for the quarter ending December 31, 2019, beating estimates on both revenue and EPS.

• Revenue +38% YoY to RMB 161.46 billion ($23.192 billion) versus estimate RMB 159.51 billion
• Adjusted EBITDA +37% YoY RMB 55.88 billion ($8.027 billion) versus estimate RMB 53.41 billion
• Adjusted +49% YoY EPS RMB 18.19 ($2.61) versus estimate RMB 15.35
• Annual active consumers 711 million
• Mobile monthly active users 824mm
• Singles Day (November 11^th) gross merchandise value +26% YoY$38.4 billion
• Cloud computing revenue +62% YoY to $1.54 billion (7% of total revenue)
• China commerce retail business +36% to $15.866 billion (68% of revenue)

Asian markets closed largely lower last night except for Taiwan and the Philippines following a jump in the number recorded cases of coronavirus. The jump is due to the implementation of a new testing method for the disease rather than a sudden wave of new infections. Approximately 15,000 new cases were found using the new testing method. While scary, better testing methods should lead to more effective containment and treatment.

Markets also may have been negatively impacted by political shakeups in China. It was announced last night that the Hubei province party chief Jiang Chaoliang has been removed from office and will be replaced by Shanghai Mayor Ying Yong. The Hong Kong affairs chief was also replaced and the position will now be filled by Xia Baolong, former governor of Zhejiang Province, representing the first time that a former state leader has served in the role.

The standing committee of the Political Bureau of the Communist Party held a meeting on the prevention and control of the coronavirus. Xi Jinping expressed satisfaction with present efforts to contain and treat the virus.

Cities and provinces including Wuxi, Xian, Shenzhen, and Zhejiang announced supportive property development policies, to the benefit of Mainland real estate stocks. The policies include allowing for delayed tax and land purchase payments, credit support, relaxed pre-sale conditions, and the promotion of online applications and approvals. Real estate names have been hit hard by the virus outbreak and these policies should help protect developers from downside risk as cash flows and debt repayment schedules are threatened.

MSCI released its pro forma for the month-end Quarterly Index Review (QIR). The QIR isn’t as extensive the Semi-Annual Index Review (SAIR) as the former focuses on adjusting free-float market caps based on changes in shares outstanding while the latter updates the definition of the equity universe. My estimates for China’s weight increase were a little aggressive though I did get the trajectory right. Luckin Coffee (LK US) was added (if you haven’t seen my Luckin Coffee versus Starbucks taste test take a look. https://chinalastnight.com/2020/01/15/phase-one-signed-slow-and-steady-progress-for-the-world-economy/). China's representation in the MSCI Emerging Markets Index increased by 3 stocks.

H-Share Update

The Hang Seng opened higher but closed lower to end the day down by -0.34%. Turnover declined by 5.6% DoD to HKD 105.9 billion. Southbound bought a net HKD 2.8 billion worth of Hong Kong stocks last night. IT and hardware names were down due to the announcement that the MWC 2020, the biggest annual smartphone trade show, would be cancelled. Consumer staples and Hong Kong property names rebounded last night. Meanwhile, Mainland property name Country Garden gained +1.39% and was the second highest gainer among the China-domiciled stocks within the Hang Seng, after Tencent. BABA HK gained +1.02% in the run-up to its earnings release this morning.

A-Share Update

Shanghai and Shenzhen ended Thursday trading lower closing down -0.7% and -0.8%, respectively. Solar power names extended gains from the previous session, while pharma and remote working names saw profit-taking pressure following strong rallies in both sectors. Declines were more pronounced for the Mainland names within the MSCI China All Shares Index as opposed to Hong Kong companies within the index, with Mainland and Hong Kong stocks within the index down -0.5% and -0.05%, respectively.

Last Night’s Prices & Yields

• CNY/USD 6.98 versus 6.97 yesterday
• CNY/EUR 7.57 versus 7.59 yesterday
• CNY/GBP 9.10 versus 9.04 yesterday
• Yield on 1-Day Government Bond 1.33% versus 1.40% yesterday
• Yield on 10-Year Government Bond 2.82% versus 2.83% yesterday                
• Yield on 10-Year China Development Bank Bond 3.25% versus 3.26% yesterday
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper +0.24%