Investors Should Cheer Fines For Delivery Platforms, Week in Review
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Week in Review
- Asian equities were mostly higher for the week as South Korea and Mainland China's STAR Market outperformed, while the Philippines and Australia underperformed.
- Contemporary Amperex Technology (CATL), the world's largest battery maker, reported Q1 year-over-year (YoY) revenue and net income increases of nearly 50%, exceeding expectations.
- Memory chip stocks led the STAR Market, the science & technology innovation board of the Shanghai Stock Exchange, to outperform on speculation about a potential global supply crunch.
- Healthcare was also a top-performing theme in China this week, as regulators issued new guidance on the "Formation of Drug Prices," which was welcomed by investors.
Friday's Key News
Asian stocks ended positive week lower on light volumes overnight, except for India, as investors took profits before the weekend.
We have been highlighting the recent regulatory evidence indicating China’s fierce restaurant delivery and instant commerce price war could be coming to an end. The Economic Daily, a government media publication, concisely stated in late March that the price war was over. JD’s entrance into restaurant delivery, after having benefited from consumer electronic subsidies sales, saw the company take losses order to garner market share from market leader Meituan. Meituan responded with subsidies, while other players in the space did the same, including Alibaba’s Ele.me food delivery unit. Subsidies wiped out net income and earnings per share (EPS) for both JD and Meituan. The regulator is not trying to save the companies from either themselves or investors, but, rather, restaurants that are suffering from weak in- restaurant dining as takeaway has become so much cheaper.
At the close in Hong Kong, the State Administration for Market Regulation (SAMR) announced it had "imposed administrative penalties on seven e-commerce platforms, including Pinduoduo, Meituan, JD.com, Ele.me, Douyin, Taobao, and Tmall, for a series of 'ghost delivery' cases.” Specifically, they stated that they "ordered the seven platforms to correct their illegal activities, suspended the addition of new cake shops for periods ranging from three to nine months, and imposed fines and confiscations totaling RMB 3.6 billion." The fines total $527 million across all seven platforms, which amounts to a rounding error in terms of their revenues and the market caps of their parent companies, i.e. a slap on the wrist. This is a positive catalyst, in my opinion. It will likely result in a rebound in net income and EPS. Q1 guidance and analyst conference calls will be give us more information.
On Tuesday, JD.com's stock was upgraded by multiple analysts. Could JD be telling analysts that Q1 could be stronger than anticipated? It is difficult to say, but I suspect that is what is happening. Another factor for their earnings could be that China's economic growth was stronger than expected in Q1. Though, the data releases for the period, which include strong travel and consumer demand during the Lunar New Year holiday, have been underreported.
Hong Kong was lower overnight, but grinded off of intra-day lows to curtail losses on light volumes, as Mainland investors bought the dip via Southbound Stock Connect. Mainland investors bought a net $2.17 billion worth of Hong Kong-listed ETFs and stocks, including the Hong Kong Tracker ETF, which had a large net buy. Mainland investors were also net buyers of Alibaba, which was Hong Kong’s most heavily traded stock by value and gained +0.44%. There were also two large call option trades in the stock. Investors funded several IPOs that debuted overnight in Hong Kong, which may have been a factor in the market's weakness as the funding likely came from existing holdings.
Mainland China's former heavyweight champion liquor giant Kweichow Moutai fell -3.8% overnight. The younger generation’s healthier lifestyle appears to be leading to weakening revenue for the compay. However, it is important to note that the year-over-year (YoY) comparison for its latest report was challenging due to a strong Q4 in 2024. I love the headline that Kweichow Moutai is an indication of China’s weak consumer. That's like using Jack Daniels producer Brown Forman as a leading indicator of the entire US consumer. It's just more of the "nattering nabobs of negativity", as we like to say. Nonetheless, Kweichow Moutai’s results did weigh on consumer plays in both markets overnight.
Healthcare was weaker on reported US regulation of peptides, though doing so right before President Trump’s China trip seems strange.
Mainland China’s most heavily traded stock was optical communications company Zhongji Innolight, which gained +5.11% after announcing that Q1 revenue +192% YoY to $2.8 billion and net income increased +262% YoY to $828 million. Innolight’s results lifted Mainland-listed technology hardware stocks.
I had a great time speaking with institutional investors this week. Taiwan risks came up in a couple conversations. I noted that the price of Taiwan Semiconductor Manufacturing (TSMC) is a good barometer for this. Meanwhile, Nvidia cannot exist without TSMC, a key supplier. These stocks do not appear to be pricing in any risk there.
Mark Mobius passed away earlier this week. Arguably, he was the founding father of emerging market investing. It is hard to think of anyone who did more to popularize the asset class other than Sir John Templeton and whoever coined the term "BRICS". I never met Mobius in person, though I shared a virtual panel with him at a conference. It was and remains a career highlight to hear his compliments on the growth-oriented China ETFs that my colleagues and I had created. Maybe this week’s rally in China and emerging market equities is a tribute to Mark and his legacy? I’ll start my weekend on that happy thought and recommend that you do the same.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -0.9% |
| Hang Seng Tech | HSTECH Index | -1% |
| Hong Kong Turnover | HKTurn Index | -7.1% |
| Hong Kong Short Sale Turnover | HKSST Index | 11.7% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 20.6% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 2,172.38 |
| China (Shanghai) | SHCOMP Index | -0.1% |
| China (Shenzhen) | SZCOMP Index | 0.4% |
| China (STAR Board) | Star50 Index | 0.1% |
| Mainland Turnover | .chturn Index | 3.7% |
| Japan | NKY Index | -1.8% |
| India | SENSEX Index | 0.6% |
| Indonesia | JCI Index | 0.2% |
| Malaysia | FBMKLCI Index | 0.3% |
| Pakistan | KSE100 Index | 2.5% |
| Philippines | PCOMP Index | -1.1% |
| South Korea | KOSPI Index | -0.5% |
| Taiwan | TWSE Index | -0.9% |
| Thailand | SET Index | -0.5% |
| Singapore | STI Index | -0.2% |
| Australia | AS51 Index | -0.1% |
| Vietnam | VNINDEX Index | -0.1% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 92 | 121 |
| Advancing Stocks | 134 | 2214 |
| Declining Stocks | 375 | 2829 |
| Outperforming Factors | Value | Momentum, Liquidity, Growth |
| Underperforming Factors | Momentum, Liquidity, EPS Revision | Buyback, Low Volatility, Quality |
| Top Sectors | Energy, Financials, Consumer Discretionary | Information Technology, Real Estate, Energy |
| Bottom Sectors | Materials, Healthcare, Industrials | Consumer Staples, Healthcare, Industrials |
| Top Subsectors | Steel, Tech Hardware, Petroleum/Petrochemical | Communication Equipment, Electronic Components, Soft Drink |
| Bottom Subsectors | Consumer Durables/Apparel, Electrical Equipment, Non Ferrous Metals | Liquor, Petrochemical, Biotech |
| Southbound Connect Buys | HK Tracker ETF (Very Large), HS China Enterprise ETF (Large), HS Tech ETF, Pop Mart, YOFC (Moderate), Alibaba, Tencent, Xiaomi (Small) | N/A |
| Southbound Connect Sells | CIG, SMIC, Akeso | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 164 | -0.94 |
| Communication Services | 11 | -1.38 |
| Consumer Discretionary | 28 | -0.44 |
| Consumer Staples | 12 | -1.3 |
| Energy | 6 | -0.22 |
| Financials | 25 | -0.42 |
| Health Care | 16 | -1.87 |
| Industrials | 19 | -1.72 |
| Information Technology | 15 | -0.76 |
| Materials | 14 | -2.9 |
| Real Estate | 1 | -0.46 |
| Utilities | 6 | -1.17 |
| Mainland China Listed | 11 | -0.17 |
| Communication Services | 11 | -0.27 |
| Consumer Discretionary | 26 | -0.72 |
| Consumer Staples | 18 | -2.51 |
| Energy | 11 | -0.2 |
| Financials | 64 | -0.48 |
| Health Care | 29 | -2.2 |
| Industrials | 60 | -0.87 |
| Information Technology | 113 | 1.99 |
| Materials | 58 | -0.81 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1.3 |
| Alibaba HK | 9988 HK Equity | 0.4 |
| JD.com HK | 9618 HK Equity | -1 |
| NetEase HK | 9999 HK Equity | -2.3 |
| Yum China HK | 9987 HK Equity | -4.4 |
| Baozun HK | 9991 HK Equity | 11.8 |
| Baidu HK | 9888 HK Equity | -1.1 |
| Autohome HK | 2518 HK Equity | 0.4 |
| Bilibili HK | 9626 HK Equity | -2.1 |
| Trip.com HK | 9961 HK Equity | -0.6 |
| EDU HK | 9901 HK Equity | 3 |
| Xpeng HK | 9868 HK Equity | -0.4 |
| Weibo HK | 9898 HK Equity | 0.2 |
| Li Auto HK | 2015 HK Equity | -0.2 |
| Nio Auto HK | 9866 HK Equity | 3.4 |
| Zhihu HK | 2390 HK Equity | 1.9 |
| KE HK | 2423 HK Equity | -1.8 |
| Tencent Music Entertainment HK | 1698 HK Equity | -0.3 |
| Meituan HK | 3690 HK Equity | -2.5 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | 0.4 |
| TENCENT HOLDINGS LTD | -1.3 |
| MEITUAN-CLASS B | -2.5 |
| YANGTZE OPTICAL FIBRE AND-H | -5.5 |
| PING AN INSURANCE GROUP CO-H | -3.3 |
| XIAOMI CORP-CLASS B | -0.2 |
| POP MART INTERNATIONAL GROUP | -3.5 |
| AIA GROUP LTD | -3.1 |
| CONTEMPORARY AMPEREX TECHN-H | -3.1 |
| CIG SHANGHAI CO LTD-H | 34.9 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 5.1 |
| EOPTOLINK TECHNOLOGY INC L-A | 9.6 |
| VICTORY GIANT TECHNOLOGY -A | 7.6 |
| SUZHOU DONGSHAN PRECISION-A | 8.4 |
| SUZHOU TFC OPTICAL COMMUNI-A | 6.7 |
| CONTEMPORARY AMPEREX TECHN-A | -2.2 |
| KWEICHOW MOUTAI CO LTD-A | -3.8 |
| BIWIN STORAGE TECHNOLOGY C-A | -5.6 |
| BLUEFOCUS INTELLIGENT COMM-A | 4.7 |
| GIGADEVICE SEMICONDUCTO-CL A | 0.8 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.82 versus 6.82 yesterday
- CNY per EUR 8.05 versus 8.03 yesterday
- Yield on 10-Year Government Bond 1.76% versus 1.78% yesterday
- Yield on 10-Year China Development Bank Bond 1.86% versus 1.87% yesterday
- Copper Price -0.28%
- Steel Price 0.42%
