Alibaba Delivers Blockbuster Results as Hong Kong’s ATMX Outperforms
Asian equities were off on Fed minutes, lingering US-China political tensions, and US Iran political rhetoric. I’m surprised that markets took the news hard as Jerome Powell isn’t going to remove his foot from the gas pedal going into the election. Taiwan and South Korea were hit hard as the immensely popular Taiwan Semiconductor was down -2.92% and Samsung was down -4.15%, which weighed on indexes. Hong Kong was pulled down by AIA, which reported that new business declined -37%. Hong Kong growth names held up, with Tencent up +0.4%, Alibaba Hong Kong off -0.16%, Xiaomi up +2.02%, Meituan Dianping up +1.56%, Hong Kong Exchanges off -0.7% and AIA off -3.28%.
Reports that US-China trade talks were delayed and not canceled did little to lift Mainland markets. It was a good old-fashioned risk-off day, though Apple suppliers did rebound. The loan prime rate was left unchanged, which wasn’t a surprise. In looking at charts of Shanghai, Shenzhen, and Hong Kong markets, these charts show that little has changed despite the recent downdraft. It is interesting that the market “feels” much worse than it has performed. We use China’s RMB price movement as a US-China political risk indicator, it was unchanged.
Despite strong results, Vipshop (VIPS US) fell hard yesterday. One factor was the announcement that its long-standing and well-respected CFO was leaving the company. Ultimately, the results were an excuse for investors to take profits as the company is in e-commerce, which has been a market favorite.
Alibaba reported strong quarterly results that exceeded analyst expectations before the US market open this morning. Finding a company of this size ($699mm market cap, growing revenue more than 30%, and bottom-line EPS +28%) is exceedingly rare. In listening to the management call, the big takeaway was that China was fully back online post-quarantine, and that quarantine has created new customers. It is clear that these new customers continue to use the company’s services. It mentioned closing its India business, which will have a minimal financial impact. Alibaba’s equity investment in Ant Group contributed $429mm (RMB 3.034B). Percentage change is June 2020 quarter versus the June 2019 quarter.
- Revenue +34% to $21.762B (RMB 153.751B) versus estimated RMB 148B
- China E-Commerce Revenue which accounts for 66% of total revenue +34% to RMB 101.321B
- Total E-Commerce Revenue which accounts for 87% of total revenue +34% to RMB 133.318B; includes logistics
- Cloud computing revenue which accounts for 8% of revenue +59% to RMB 12.345B though lost $251mm
- Annual active customers +16mm to 742mm
- Mobile Monthly Active Users +28mm to 874mmm
- Net Income Adjusted +28% to $5.587B (RMB 39.474B) versus analyst expectations RMB 36B
- EPS Adjusted +18% to $2.10 (RMB 14.82 versus analyst estimates of RMB 13.79
The Hang Seng opened lower and stayed down for the count -1.54%/-387 index points at 24,791. Volumes were up +39%, which is just above the 1-year average, from yesterday’s half-session due to the typhoon. Only 6 stocks advanced while 34 declined, led by AIA off -3.28%/-83 index points, China Construction Bank -3.2%/-60 index points, and HSBC -1.46%/-30 index points. Hong Kong domiciled stocks and Chinese domiciled stocks both declined -1.53%, using the HS Hong Kong 35 and China Enterprise Indexes as proxies. The 205 Chinese companies listed in Hong Kong within the MSCI China All Shares were off -0.71%, led by tech +1.02%, discretionary +0.28%, communication +0.1%, energy -0.8%, materials -1.05%, industrials -1.08%, utilities -1.11%, real estate -1.22%, health care -1.79%, financials -1.96%, and staples -2.12%.
Southbound Stock Connect turnover was light in mixed trading. Shanghai Connect volume leaders Tencent was bought 5 to 4, Xiaomi 4.5 to 3, and Hong Kong Exchanges sold 2 to 1. Mainland investors bought $49mm of Hong Kong stocks today as Southbound Connect trading accounted for 9.2% of Hong Kong turnover.
Shanghai & Shenzhen also opened lower and stayed there, off -1.3% and -1.24% and closing at 3,363 and 2,225. Volume declined -19.8% to just above the 1-year average, while breadth was well off with 1,038 advancers and 2,610 decliners. Large, mid, and small caps were down about the same. The 510 Mainland stocks within the MSCI China All Shares declined -1.35%, led by utilities +0.22%, communication -0.31%, health care -0.42%, real estate -0.78%, tech -0.86%, energy -0.87%, discretionary -1.67%, financials -1.69%, staples -1.72%, materials -1.82%, and industrials -1.91%.
Northbound Stock Connect volume was light in mixed trading as foreign investors sold Shanghai stocks and bought Shenzhen stocks. Shanghai Connect volume leaders China Tourism Group was sold slightly, Kweichow Moutai sold 2 to 1, and Ping An Insurance sold 2 to 1. Shenzhen Connect volume leaders East Money bought nearly 4 to 1, Luxshare bought 8 to 5, and Walvax Biotechnology bought 2 to 1. Foreign investors sold -$409mm of Mainland stocks today as Northbound stock Connect trading accounted for 5.3% of Mainland turnover.
Last Night’s Exchange Rates & Yields
- CNY/USD 6.92 versus 6.92 yesterday
- CNY/EUR 8.19 versus 8.23 yesterday
- Yield on 1-Day Government Bond 1.38% versus 1.27% yesterday
- Yield on 10-Year Government Bond 3.00% versus 2.99% yesterday
- Yield on 10-Year China Development Bank Bond 3.52% versus 3.51% yesterday