S&P Futures Send Asian Equities South, Tencent Earnings Impress
Asian equities were riding the US market’s surge until S&P 500 index futures opened for trading and went limit down during the afternoon session in Hong Kong and China. The unexpected downdraft following the strong fiscal response in the US sent Asian equities south. Our Asia-based brokers didn’t have any color on why the US futures fell but the sale of risk parity strategies is being blamed. Regardless of the reason, the fall does highlight the fragile nature of equity markets. Japan was spared some of the carnage and managed a gain overnight. However, Hong Kong, Korea, Australia, India, and Singapore were hit hard. In another sign of potential bottoming, short-selling bans are being implemented in many countries. Last night was one of the worst days I’ve ever seen in Asian trading with the Hang Seng hitting a 52-week low.
Tencent reported Q4 results after the Hong Kong close today. Tencent (700 HK) was weak during Hong Kong trading as several brokers noted short-selling activity had been increasing in advance of the release. The Q4 results were universally strong. However, the focus was on net income, which came in just below analysts’ expectations. This is puzzling considering the fact that there just aren’t many companies out there with a market capitalization of over $400B and a revenue growth rate of 25%.
- Revenue +25% to RMB 105.767 billion ($15.161B) beating analysts’ estimate of RMB 103.69B
- Revenues from Gaming increased 20% to RMB 52.308B while online gaming +25% YoY
- Revenues from FinTech/Business services increased 39% YoY to RMB 29.920B
- Revenues from Online Advertising +19% to RMB 20.225B
- Gross margin 44% up from 41% YoY
- Net Income RMB 21.58B ($3.094B) versus estimate RMB 22.77B and YoY RMB 14.229B
- Diluted EPS RMB 2.248 versus RMB 1.489 YoY
Online content/entertainment/gaming provider Bilibili released Q4 earnings after the US close yesterday.
- Revenue +74% to RMB 2.007B ($288mm) versus estimate 1.98B
- Average monthly active users +40% to 130mm
- Average monthly paying users +100% to 8.8mm
- Adjusted loss per share RMB 1.01 versus estimate 1.01
- Q1 Revenue forecast RMB 2.15B to 2.2B
E-Commerce and digital marketing solutions provider Baozun released Q4 earnings as well.
- Total net revenues were RMB 2,784.1 million (US$1399.9 million), an increase of 26.4% versus estimate of RMB 2.74B
- Adjusted EPS RMB 2.71 versus estimate 3.32
- Q1 GMV estimate +10% Q1 Revenue Forecast RMB 1.4B to 1.45B
The Hang Seng was up +0.69% before plunging in the afternoon session to close -4.71%/-1,096 index points at a 52-week low of 22,291. Volumes were up nearly 10% to almost twice the 1-year average as technical analysts believe strength on weakness is not a good sign. Breadth was awful with advancers laying a goose egg and 49 decliners. The carnage was wide with index heavyweights AIA -5.16%/-115 index points, Tencent -4.52%/-100 index points and China Construction Bank -3.23%/-63 index points. Today’s best performer was Power Asset, which was unchanged. Meanwhile, Sunny Optical was off -11.92%/-23 index points with China Unicom -9.52%/-7 index points. China-domiciled companies were down -4.51% while Hong Kong-domiciled companies were down -3.94% using the HS China Enterprise and HS HK 35 indexes as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -4.57% with staples -2.91%, utilities -3.41%, industrials -3.46%, financials -3.54%, health care -3.83%, materials -4.09%, communication -4.59%, tech -6.57%, discretionary -6.68%, real estate -6.83% and energy -6.84%. The only positive from today’s market action was that Mainland investors increased their buying of Hong Kong-listed stocks as buying outpaced selling 3 to 2. Volume leader Tencent had buyers outpace sellers by a small margin, CCB had another monster inflow/buying day, and ICBC saw 8 to 1 buying. Mainland investors bought $745mm worth of Hong Kong stocks today as Southbound Connect trading accounted for 9.5% of Hong Kong turnover.
Shanghai & Shenzhen gave up morning gains in the afternoon to close -1.83% and -1.55%, respectively. Volume picked up 2% from yesterday. Breadth was atrocious with only 1,101 advancers and 2,562 decliners led by large caps off 2% while mid and small caps were down ~1.5%. The Mainland stocks within the MSCI China All Shares Index were down -2.1% led lower by real estate -4.25%, financials -2.84%, discretionary -2.38%, industrials -2% , tech -1.93%, staples -1.79%, energy -1.5%, communication -1.38%, utilities -1.28%, health care -1.25% and materials -1.21%. Foreign investors were net sellers of Mainland stocks as Shenzhen’s volume exceeded Shanghai’s. However, selling was more pronounced in Shanghai. Kweichow Moutai and Ping An were both sold 2 to 1. It is worth noting that appliance maker Midea Group’s foreign ownership fell enough to allow foreign investors to buy it again. Foreign investors sold a total of $1.023 billion worth of Mainland stocks as foreign trading accounted for 5.1% of Mainland turnover.
Last Night’s Prices & Yields
- CNY/USD 7.04 versus 7.01 yesterday
- CNY/EUR 7.67 versus 7.68 yesterday
- Yield on 1-Day Government Bond 1.31% versus 1.43% yesterday
- Yield on 10-Year Government Bond 2.71% versus 2.71% yesterday
- Yield on 10-Year China Development Bank Bond 3.09% versus 3.14% yesterday