PDD Beats While Alibaba Raises AI Cash
6 Min. Read Time
Key News
On Friday, on X/Twitter (@ahern_brendan), we commented on the weakness in Alibaba’s US listing, stating there were rumors the company could issue a convertible bond to fund AI capital expenditure (capex). That unfortunately turned out to be partially true, as the company announced it sold 710 million shares at HKD 112.70, which represents a 3.6% discount to Friday’s US share price, though is well below the Friday close in its Hong Kong shares of HK $123.00. The company will be raising HKD 80 billion ($10.2 billion) through the private placement. Management reiterated that their AI capex is showing a strong return on investment, though diluting shareholders is far from ideal. The amount raised was almost exactly the amount of AI capex in the latest quarter. The company has ample cash on the books. Meanwhile, Alibaba’s stock is well off its 52-week high, which raises the question of why it is selling its stock near its lows. Also, the company had been buying back stock in the past quarter. In their defense, several US hyperscalers have raised money through stock and/or bond offerings, while Softbank raised $6.30 billion via a bond offering today. Overnight, there was a nice gesture from Chairman Joe Tsai, who bought 720,000 shares and CEO Eddie Wu, who bought 350,000 shares, according to an SEC filing. My concern is more about the optics of, after having taken a step forward, we are taking a step back, as sentiment around the stock was just starting to improve. Hopefully, I am overthinking this, and investors will focus on the positives.
Asian equities started the week lower, as Middle East tensions and rising US interest rates curbed AI enthusiasm across the region. One bull market that continues to grind higher with little to no attention is China's currency, the renminbi (CNY/RMB), which has appreciated against the US dollar so far this year, as the value of one dollar in RMB has fallen from 6.99 at the beginning of the year to 6.72 today, representing appreciation of nearly 4%.
The Hang Seng Index fell below the 26,000 level, as Alibaba fell -8.54% on massive volume that was 2X the average volume of Hong Kong’s most heavily traded. Alibaba traded 362 million shares overnight, versus Friday’s 146 million shares and the 1-year average of 102 million shares. One positive for Alibaba was the $278 million (HKD 2.18 billion) worth of net buying from Mainland investors.
Alibaba’s weakness weighed on Hong Kong-listed internet stocks, including Tencent, which fell -3.72%, Baidu, which fell -3.76%, and NetEase, which fell -3.51%. Hong Kong-listed auto stocks fell on China’s electric vehicle (EV) door handle recall, as XPeng’s post close results missed analyst expectations. Healthcare sold off on no new and some profit-taking, while oil & gas was a rare positive performer. Hong Kong and Mainland China-listed AI supply chain stocks, i.e. the AI "picks and shovels" were lower overnight. Onshore, i.e. Mainland-listed, value stocks and sectors, which held up, such as banks, insurance, and liquor. The ETFs favored by China's "National Team", i.e. investment firms associated with sovereign wealth, had below average volumes.
This week is a big week for earnings. ChangXin Memory (CXMT) reported earnings on Friday. Meanwhile, it will be a light week for economic data, though Industrial Profits will be announced on Wednesday and purchasing managers' indexes (PMIs) will be announced over next weekend.
Fast fashion company Shein’s Hong Kong IPO roadshow kicked off. The company is looking to raise $1.95 billion by selling 2 million shares, assuming all shares are allocated and sold at the high-end of the pricing range.
After the close, optical communication equipment maker Eoptolink announced first-half revenue increased +97%to RMB 12.57 billion and net profit increased +90.98% to RMB 7.53 billion.
Reuters is reporting President Xi will visit India next month at the BRICS summit for the first time in seven years.
PDD Holdings Q2 Earnings Overview
E-commerce company PDD Holdings announced Q2 financial results before the US market’s open that missed analysts’ revenue target, but beat on adjusted net income and adjusted earnings per share (EPS). The latter declined year-over-year (YoY), though it still beat management expectations. In the analyst Q&A, the company did note that “In the first-half of the year, consumption support policies continue to take effect, China’s consumer market expanded steadily, and online retail penetration continued to grow. We remain confident in the long-term potential of China’s consumer market and e-commerce industry.” Sounds promising, especially given that the company is globally-oriented!
- Revenue +8% to RMB 112.40 billion ($16.60 billion) versus expectations of RMB 115.00 billion.
- Adjusted Net Income -13% to RMB 28.50 billion ($4.20 billion) from RMB 32.70 billion versus expectations of RMB 28.00 billion.
- Adjusted EPS RMB 19.33 ($2.85) from RMB 22.07 versus expectations of RMB 18.50
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.9% |
| Hang Seng Tech | HSTECH Index | -3.6% |
| Hong Kong Turnover | HKTurn Index | 13.2% |
| Hong Kong Short Sale Turnover | HKSST Index | 47.3% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 0.2 |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 1,477.23 |
| China (Shanghai) | SHCOMP Index | -0.6% |
| China (Shenzhen) | SZCOMP Index | -1.7% |
| China (STAR Board) | Star50 Index | -3.1% |
| Mainland Turnover | .chturn Index | 6.9% |
| Japan | NKY Index | -0.7% |
| India | SENSEX Index | -0.2% |
| Indonesia | JCI Index | -0.4% |
| Malaysia | FBMKLCI Index | 0% |
| Pakistan | KSE100 Index | -0.1% |
| Philippines | PCOMP Index | 0.2% |
| South Korea | KOSPI Index | -3.1% |
| Taiwan | TWSE Index | -1% |
| Thailand | SET Index | -0.8% |
| Singapore | STI Index | -0.1% |
| Australia | AS51 Index | 0.5% |
| Vietnam | VNINDEX Index | -0.0005 |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 102 | 100 |
| Advancing Stocks | 120 | 1153 |
| Declining Stocks | 398 | 3888 |
| Outperforming Factors | None | Dividend Yield, Value, Low Volatility |
| Underperforming Factors | Liquidity, Growth, EPS Revision | Momentum, Liquidity, Growth |
| Top Sectors | Energy, Materials | Staples, Financials, Utilities |
| Bottom Sectors | Discretionary, Communication, Tech | Tech, Healthcare, Real Estate |
| Top Subsectors | Consumer Durables/Apparel, Coal, Petroleum/Petrochemical | Insurance, Coal, Liquor |
| Bottom Subsectors | Semiconductors, Tech Hardware, Software | Communication Equipment, Biotech, Energy Equipment |
| Southbound Connect Buys | Alibaba, HK Tracker ETF (Very Large), Hang Seng Tech ETF, Tencent, YOFC (Large), Minimax (Small) | N/A |
| Southbound Connect Sells | SMIC (Large) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -2.5 |
| Communication Services | 11 | -3.6 |
| Consumer Discretionary | 28 | -4.68 |
| Consumer Staples | 13 | -0.58 |
| Energy | 6 | 1.72 |
| Financials | 25 | -0.01 |
| Health Care | 16 | -2.83 |
| Industrials | 22 | -2.34 |
| Information Technology | 12 | -2.98 |
| Materials | 14 | 0.33 |
| Real Estate | 7 | -0.87 |
| Utilities | 11 | -0.59 |
| Mainland China Listed | 386 | -1.18 |
| Communication Services | 8 | -1.45 |
| Consumer Discretionary | 26 | -0.13 |
| Consumer Staples | 19 | 1.49 |
| Energy | 12 | 0.12 |
| Financials | 64 | 1.08 |
| Health Care | 31 | -2.82 |
| Industrials | 58 | -0.72 |
| Information Technology | 95 | -3.71 |
| Materials | 52 | -0.57 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -3.7 |
| Alibaba HK | 9988 HK Equity | -8.5 |
| JD.com HK | 9618 HK Equity | -1.6 |
| NetEase HK | 9999 HK Equity | -3.5 |
| Yum China HK | 9987 HK Equity | -2.3 |
| Baozun HK | 9991 HK Equity | 0 |
| Baidu HK | 9888 HK Equity | -3.8 |
| Autohome HK | 2518 HK Equity | 1.1 |
| Bilibili HK | 9626 HK Equity | -2.8 |
| Trip.com HK | 9961 HK Equity | -0.9 |
| EDU HK | 9901 HK Equity | -0.7 |
| Xpeng HK | 9868 HK Equity | -0.9 |
| Weibo HK | 9898 HK Equity | -4.8 |
| Li Auto HK | 2015 HK Equity | -3.4 |
| Nio Auto HK | 9866 HK Equity | -0.8 |
| Zhihu HK | 2390 HK Equity | -0.7 |
| KE HK | 2423 HK Equity | 3.6 |
| Tencent Music Entertainment HK | 1698 HK Equity | -2.1 |
| Meituan HK | 3690 HK Equity | -2.7 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | -8.5 |
| TENCENT HOLDINGS LTD | -3.7 |
| Z AI CO LTD | -10.8 |
| POP MART INTERNATIONAL GROUP | 4 |
| MINIMAX GROUP INC | -10.1 |
| XIAOMI CORP-CLASS B | -4.1 |
| MEITUAN-CLASS B | -2.7 |
| KUAISHOU TECHNOLOGY | -4.1 |
| PING AN INSURANCE GROUP CO-H | 0.7 |
| ZIJIN MINING GROUP CO LTD-H | -0.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | -7.7 |
| EOPTOLINK TECHNOLOGY INC L-A | -6.8 |
| GIGADEVICE SEMICONDUCTO-CL A | -6.7 |
| CAMBRICON TECHNOLOGIES-A | -6.4 |
| CXMT CORP-A | -2.4 |
| SUZHOU TFC OPTICAL COMMUNI-A | -8.6 |
| SUZHOU DONGSHAN PRECISION-A | -3.7 |
| ZIJIN MINING GROUP CO LTD-A | -0.6 |
| WUXI APPTEC CO LTD-A | -4.3 |
| HANGZHOU SILAN MICROELECTR-A | -0.9 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.72 versus 6.72 Friday
- CNY per EUR 7.84 versus 7.87 Friday
- Yield on 10-Year Government Bond 1.68% versus 1.68% Friday
- Yield on 10-Year China Development Bank Bond 1.76% versus 1.76% Friday
- Copper Price 0.59%
- Steel Price 0.76%
