Occam’s Razor of Tech Earnings
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Key News
Asian equities were largely lower, except for Mainland China and Singapore, as the US dollar fell significantly by 2.64% versus the Japanese Yen. At the same time, Vietnam was closed for Unification Day, commemorating the fall of Saigon, which is now known as Ho Chi Minh City, on this day in 1975.
Hong Kong and Mainland China were lower on decent volumes in advance of tomorrow's Labour Day holiday (British spelling, not a typo) in Hong Kong and Mainland China's holiday that runs until Wednesday. Semiconductors and the semiconductor-heavy STAR Board were the rare bright spots in both markets, driven by semiconductor manufacturer Cambricon, which gained +20%. It is important to remember that STAR Board listings have a higher daily move limit of 20%, versus 10% for Shanghai and Shenzhen, after Q1 results absolutely crushed analyst expectations. Revenue increased 159% year-over-year (YoY) to RMB 2.88 billion ($415 million) from RMB 1.11 billion ($152 million). Meanwhile, net income increased +185% to RMB 1.01 billion ($146 million) from RMB 355 million ($49 million).
Sanctioned semconductor fabricator Semiconductor Manfuacturing International (SMIC) gained +5.57% in Mainland China and +7.75% in Hong Kong on reports that it will sell shares in order to buy a 49% stake in Semiconductor Manufacturing North China. This reminds me of years ago, when China Railroad South merged with China Railroad North. An additional tailwind for the space was President Xi's visit to Shanghai, where he gave a speech emphasizing "basic research" to "enhance Mainland China's capacity for original innovation, and further solidify the foundation for building the country's strength in science and technology." The National Development & Reform Commission (NDRC) also announced it would release funds for equipment upgrades.
Technology hardware was weaker, as the Mainland-listed Foxconn fell -5.1%, missing analyst expectations, despite revenue increasing +57% to RMB 251 billion from RMB 160 billion and Net Income increased +103% to RMB 10.59 billion from RMB 5.23 billion. Communication equipment was dragged lower, as Yangtze Optical Fiber & Cable (YOFC) fell -4.49% in Mainland China and -13.78% in Hong Kong missed analyst expectations after revenue increased +28% to RMB 3.7 billion from 2.9 billion and net income increased +226% to RMB 495 million from RMB 151 million.
NetEase gained +2.29% on regulator approval of The Forgotten Sea game, though Tencent fell -2.38%, despite the previously released internationally and popular Arc Raiders being approved for release in Mainland China.
According to Mainland media, the State Administration for Market Regulation (SAMR), is looking at internet celebrity chefs. However, the inquiry does not appear to be the culprit in today's broad weakness in Hong Kong or in internet stocks. Mainland investors bought the Hong Kong dip with a healthy $1.54 billion worth of net buying of Hong Kong stocks and ETFs today.
Today's price action in Cambricon, Foxconn, and YOFC shows that high-valued stocks need to deliver on financial results.
An obvious non-factor today was April's "official" purchasing managers' indexes (PMIs), which were released overnight. We call them "official" because the survey involves predominantly large companies and is conducted by the National Bureau of Statistics (NBS). The Manufacturing PMI came in at 50.3 versus March's 50.4 and expectations of 50.1. Meanwhile, the Non-Manufacturing PMI came in at 49.4 versus March's 50.1 and expectations of 49.8. Note that readings above 50 indicate expansion, while readings below 50 indicate contraction. I assume that all headlines will be focused on the Non-Manufacturing, which missed estimates and indicated contraction. I suspect fewer headlines on the Manufacturing PMI, which beat estimates and indicated expansion. By comparison, the "private" PMI, which is conducted by S&P and includes smaller companies in the survey, came in at 52.2 for Manufacturing versus March's 50.8 and expectations of 51.0. Don't expect any headlines at all on this. The China Emerging Industries PMI was 57.4 versus March's 57.6. This is a CLN exclusive, as no one reports on this survey, which is conducted by the NDRC.
Alibaba's financial results will be released after the Hong Kong close on May 13th.
Is America becoming an Auto Archipelago? The Wall Street Journal had a well-written article titled "The U.S. Wants to Ban China's High-Tech Cars, But They're Already Here in El Paso" on the effect that Chinese EVs, bought in Mexico, are having on El Paso, as Mexican citizens come across the border for school, work, etc. An interesting point made by the article is the range of lower-cost vehicles from Chinese manufacturers that US automakers have largely abandoned. Ultimately, Mexican consumers, especially those in lower-income tiers, have a range of affordable options that Americans don't. Of the nine countries I've visited this year (not a typo), I can't recall not seeing a Chinese car, usually a hybrid or fully electric vehicle, on the road. That is, until I get off the plane back in the US.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.3% |
| Hang Seng Tech | HSTECH Index | -0.8% |
| Hong Kong Turnover | HKTurn Index | 12.9% |
| Hong Kong Short Sale Turnover | HKSST Index | 9.3% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 17.5% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 1,557.07 |
| China (Shanghai) | SHCOMP Index | 0.1% |
| China (Shenzhen) | SZCOMP Index | 0.1% |
| China (STAR Board) | Star50 Index | 5.2% |
| Mainland Turnover | .chturn Index | 5.7% |
| Japan | NKY Index | -1.1% |
| India | SENSEX Index | -0.8% |
| Indonesia | JCI Index | -2% |
| Malaysia | FBMKLCI Index | 0.1% |
| Pakistan | KSE100 Index | -1.5% |
| Philippines | PCOMP Index | -1.3% |
| South Korea | KOSPI Index | -1.4% |
| Taiwan | TWSE Index | -1% |
| Thailand | SET Index | 0.1% |
| Singapore | STI Index | 1.1% |
| Australia | AS51 Index | -0.2% |
| Vietnam | VNINDEX Index | -1.2% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 113 | 137 |
| Advancing Stocks | 107 | 2681 |
| Declining Stocks | 409 | 2342 |
| Outperforming Factors | Liquidity, Momentum, Growth | |
| Underperforming Factors | Growth, Value, EPS Revision | Dividend Yield, Value, Buyback |
| Top Sectors | Healthcare | Tech, Real Estate, Energy |
| Bottom Sectors | Materials, Tech, Discretionary | Communication, Materials, Discretionary |
| Top Subsectors | Semis, Machinery, Household Appliances | Semis, Energy Equipment, Leisure Products |
| Bottom Subsectors | Auto, Non Ferrous Metal, Tech Hardware | Gas, Precious Metals, Steel |
| Southbound Connect Buys | SMIC, Xiaomi (Large), CNOOC, Hua Hong Semi (Moderate), CIG, Pop Mart, YOFC (Small) | |
| Southbound Connect Sells | Alibaba (Small) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 164 | -1.85 |
| Communication Services | 11 | -1.83 |
| Consumer Discretionary | 28 | -2.41 |
| Consumer Staples | 12 | -0.88 |
| Energy | 6 | -0.56 |
| Financials | 25 | -1.56 |
| Health Care | 16 | 0.2 |
| Industrials | 19 | -1.02 |
| Information Technology | 15 | -2.9 |
| Materials | 14 | -3.38 |
| Real Estate | 1 | -0.86 |
| Utilities | 6 | -1.04 |
| Mainland China Listed | 11 | 0.05 |
| Communication Services | 11 | -2.65 |
| Consumer Discretionary | 26 | -0.89 |
| Consumer Staples | 18 | -0.62 |
| Energy | 11 | 0.38 |
| Financials | 64 | -0.28 |
| Health Care | 29 | -0.48 |
| Industrials | 60 | -0.66 |
| Information Technology | 113 | 1.7 |
| Materials | 58 | -0.97 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -2.4 |
| Alibaba HK | 9988 HK Equity | -3.5 |
| JD.com HK | 9618 HK Equity | -1 |
| NetEase HK | 9999 HK Equity | 2.3 |
| Yum China HK | 9987 HK Equity | 0.5 |
| Baozun HK | 9991 HK Equity | 1.1 |
| Baidu HK | 9888 HK Equity | -1 |
| Autohome HK | 2518 HK Equity | -1 |
| Bilibili HK | 9626 HK Equity | -2.3 |
| Trip.com HK | 9961 HK Equity | 0.1 |
| EDU HK | 9901 HK Equity | -0.8 |
| Xpeng HK | 9868 HK Equity | -2.4 |
| Weibo HK | 9898 HK Equity | -2.8 |
| Li Auto HK | 2015 HK Equity | -2.5 |
| Nio Auto HK | 9866 HK Equity | -6.3 |
| Zhihu HK | 2390 HK Equity | 0.1 |
| KE HK | 2423 HK Equity | 0.4 |
| Tencent Music Entertainment HK | 1698 HK Equity | -4.1 |
| Meituan HK | 3690 HK Equity | 0.1 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | -2.4 |
| SEMICONDUCTOR MANUFACTURI-H | 7.8 |
| ALIBABA GROUP HOLDING LTD | -3.5 |
| XIAOMI CORP-CLASS B | -3.7 |
| YANGTZE OPTICAL FIBRE AND-H | -13.8 |
| HUA HONG SEMICONDUCTOR LTD-H | 5.6 |
| CONTEMPORARY AMPEREX TECHN-H | -3.1 |
| MEITUAN-CLASS B | 0.1 |
| BYD CO LTD-H | -5.4 |
| CHINA CONSTRUCTION BANK-H | -2.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| CAMBRICON TECHNOLOGIES-A | 20 |
| FOXCONN INDUSTRIAL INTERNE-A | -5.1 |
| GIGADEVICE SEMICONDUCTO-CL A | 1.3 |
| ZHONGJI INNOLIGHT CO LTD-A | 1.5 |
| EOPTOLINK TECHNOLOGY INC L-A | -2.1 |
| SUZHOU DONGSHAN PRECISION-A | 1.3 |
| HYGON INFORMATION TECHNOLO-A | 6.3 |
| CHINA NORTHERN RARE EARTH -A | 4.1 |
| CONTEMPORARY AMPEREX TECHN-A | -2 |
| SEMICONDUCTOR MANUFACTURIN-A | 5.6 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.82 versus 6.83 yesterday
- CNY per EUR 7.99 versus 7.99 yesterday
- Yield on 10-Year Government Bond 1.75% versus 1.77% yesterday
- Yield on 10-Year China Development Bank Bond 1.85% versus 1.84% yesterday
- Copper Price -0.18%
- Steel Price +0.72%
