AI “Picks & Shovels” & (Almost) Nothing Else
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Key News
Asian equities were mostly higher overnight, as Mainland China's STAR (Science & Technology) Market and Korea outperformed, while the Hong Kong and Indonesia underperformed.
Last night saw yet another session of semiconductor and technology stock outperformance in China and Asia, though China's broad market indexes were lower, except for the Shenzhen Component Index, which is technology-geared, and the STAR (Science & Technology) 50 Index. Mainland investors sold a net -$800 million worth of Hong Kong-listed stocks and ETFs overnight, which was somewhat surprising given that they tend to be dip buyers. Hong Kong saw a slight value tilt compared to the Mainland, as technology was in the middle of the pack in terms of sectors in Hong Kong, underperforming as internet platforms saw another downdraft.
At the Lujiazui Forum, which kicked off yesterday in Shanghai, market regulators announced an extension of the listing regime for pre-profit companies to include large language model (LLM) companies. This could lead to a barrage of new listings on the Mainland. It also follows the listings of Minimax and Zhipu (Knowledge Atlas) on the Hong Kong Stock Exchange. Rumor has it that Minimax will pursue a second listing on the Mainland in an effort to raise awareness of its products and access more onshore capital.
The AI "picks and shovels" trade was pretty much the only bullish area overnight in China. Semiconductor Manufacturing International (SMIC) gained +1%, Biren gained +9%, Hua Hong Semiconductor gained +6%, and Cambricon gained +1%. Innovative LLM firms also enjoyed a rise in an otherwise down-to-flat market, though, as Zhipu (Knowledge Atlas) surged another 26% and Minimax gained +12%.
Internet platforms declined again on concerns around competition-reduction measures, though these measures are ultimately accretive to their boittom lines. China’s State Administration of Market Regulation (SAMR) released new "draft" rules aimed at regulating subsidies on food delivery platforms. Aggressive subsidies, price competition, and traffic control will be heavily scrutinized going forward. The draft rules ban long-term, large-scale subsidies that exclude or restrict competition and forbid forcing merchants to join subsidy programs or bear subsidy costs. Platforms must also disclose subsidy program details before and after implementation for public oversight.
Ultimately, we believe the worst of the subsidy wars are mostly over. We had a glimpse of this in JD's earnings for the first quarter, which saw better profitability than we expected. However, it will take time for margins in the space to improve broadly. Meanwhile, markets continue to underrate these companies' centrality to and innovation within the AI space. Minimax, which continues to surge, relies on Alibaba Cloud!! Meanwhile, Tencent's bonds are trading at "the lowerst spread ever in its industry", according to the company. We believe we could see a rotation back into these platforms as investors realize this and stop "shooting first and asking questions later" on any new E-Commerce regulations that come out.
China will release the new 1 and 5-year loan prime rates (LPRs) over the weekend. It is not likely to move the market, but we could get a surprise, though rates are already low.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.6% |
| Hang Seng Tech | HSTECH Index | -1.4% |
| Hong Kong Turnover | HKTurn Index | 32.7% |
| Hong Kong Short Sale Turnover | HKSST Index | 51.8% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 18.2% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -867.45 |
| China (Shanghai) | SHCOMP Index | -0.4% |
| China (Shenzhen) | SZCOMP Index | 0.5% |
| China (STAR Board) | Star50 Index | 3.8% |
| Mainland Turnover | .chturn Index | 7.1% |
| Japan | NKY Index | 1.6% |
| India | SENSEX Index | 0.3% |
| Indonesia | JCI Index | -0.8% |
| Malaysia | FBMKLCI Index | 0.1% |
| Pakistan | KSE100 Index | 0.5% |
| Philippines | PCOMP Index | 0.6% |
| South Korea | KOSPI Index | 2.3% |
| Taiwan | TWSE Index | 1.3% |
| Thailand | SET Index | -0.1% |
| Singapore | STI Index | 0.7% |
| Australia | AS51 Index | -0.6% |
| Vietnam | VNINDEX Index | 1.3% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 134 | 145 |
| Advancing Stocks | 17 (Hang Seng) | 80 (CSI 300) |
| Declining Stocks | 75 (Hang Seng) | 220 (CSI 300) |
| Outperforming Factors | Value | Growth |
| Underperforming Factors | Growth | Value |
| Top Sectors | Health Care, Industrials, Communication Services | Information Technology, Health Care, Communication Services |
| Bottom Sectors | Real Estate, Materials, Financials | Financials, Real Estate, Utilities |
| Top Subsectors | Semiconductors, Pharmaceuticals, Software & Services | Semiconductors, Electronic Components, Biotechnology |
| Bottom Subsectors | Construction Materials, Non-Ferrous Metals, Consumer Durables | Insurance, Power, Securities |
| Southbound Connect Buys | Semiconductor Manufacturing International, Kingboard Holdings, KB Laminates | N/A |
| Southbound Connect Sells | Pop Mart, CNOOC, Gigadevice | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -1.91 |
| Communication Services | 11 | -1.28 |
| Consumer Discretionary | 28 | -2.01 |
| Consumer Staples | 13 | -1.61 |
| Energy | 6 | -2.42 |
| Financials | 25 | -2.81 |
| Health Care | 16 | 2.3 |
| Industrials | 22 | -1.24 |
| Information Technology | 12 | -1.75 |
| Materials | 14 | -3.74 |
| Real Estate | 7 | -5.71 |
| Utilities | 11 | -2.11 |
| Mainland China Listed | 386 | -0.13 |
| Communication Services | 8 | -0.03 |
| Consumer Discretionary | 26 | -1.15 |
| Consumer Staples | 19 | -2.45 |
| Energy | 12 | -1.52 |
| Financials | 64 | -3.31 |
| Health Care | 31 | 0.43 |
| Industrials | 58 | -1.6 |
| Information Technology | 95 | 3.53 |
| Materials | 52 | -1.71 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1.2 |
| Alibaba HK | 9988 HK Equity | -1.9 |
| JD.com HK | 9618 HK Equity | -2 |
| NetEase HK | 9999 HK Equity | -2.6 |
| Yum China HK | 9987 HK Equity | -0.2 |
| Baozun HK | 9991 HK Equity | 0.4 |
| Baidu HK | 9888 HK Equity | -0.4 |
| Autohome HK | 2518 HK Equity | -2.3 |
| Bilibili HK | 9626 HK Equity | -1.5 |
| Trip.com HK | 9961 HK Equity | -2.3 |
| EDU HK | 9901 HK Equity | -2.4 |
| Xpeng HK | 9868 HK Equity | -3.5 |
| Weibo HK | 9898 HK Equity | -1.6 |
| Li Auto HK | 2015 HK Equity | -3.5 |
| Nio Auto HK | 9866 HK Equity | 3.1 |
| Zhihu HK | 2390 HK Equity | 0 |
| KE HK | 2423 HK Equity | -3.2 |
| Tencent Music Entertainment HK | 1698 HK Equity | -2.6 |
| Meituan HK | 3690 HK Equity | -3.5 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | -1.9 |
| SEMICONDUCTOR MANUFACTURI-H | 1 |
| TENCENT HOLDINGS LTD | -1.2 |
| KNOWLEDGE ATLAS TECHNOLOGY-H | 26.1 |
| KINGBOARD LAMINATES HLDG LTD | 3.7 |
| HUA HONG GRACE SEMICONDUCTOR | 5.6 |
| KINGBOARD HOLDINGS LTD | 8.7 |
| YANGTZE OPTICAL FIBRE AND-H | -4.1 |
| MEITUAN-CLASS B | -3.5 |
| XIAOMI CORP-CLASS B | -3.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 7.2 |
| GIGADEVICE SEMICONDUCTO-CL A | 7.3 |
| FOXCONN INDUSTRIAL INTERNE-A | 7.5 |
| CAMBRICON TECHNOLOGIES-A | 14.2 |
| BOE TECHNOLOGY GROUP CO LT-A | -1.6 |
| EOPTOLINK TECHNOLOGY INC L-A | 4.2 |
| HENGTONG OPTIC-ELECTRIC CO-A | 0 |
| MONTAGE TECHNOLOGY CO LTD-A | 2.8 |
| SUZHOU DONGSHAN PRECISION-A | 6.3 |
| JCET GROUP CO LTD-A | 1.6 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.77 versus 6.76 yesterday
- CNY per EUR 7.76 versus 7.80 yesterday
- Yield on 10-Year Government Bond 1.73% versus 1.73% yesterday
- Yield on 10-Year China Development Bank Bond 1.82% versus 1.82% yesterday
- Copper Price -0.48%
- Steel Price -0.95%
