Qwen Departures Weigh On Alibaba, 15th Five-Year Plan Coming
7 Min. Read Time
Key News
There was a massive unwind, derisking, and deleveraging across Asia overnight.
The previously outperforming Northern Asia took the brunt, as South Korea fell -12% after circuit breakers were triggered and the government said it would intervene and buy the market. Japan fell -3.61% and Taiwan fell -4.35%, while Thailand fell -5.58% and also had circuit breakers triggered. Mainland China and Hong Kong were off, but not nearly as much, though they have not had the double-digit year-to-date gains of Korea and Taiwan.
The Hang Seng temporarily broke through the 25,000 level, triggering derivative-induced forced selling as warrants hit their downside auto-liquidation levels, though the index did manage to close back above that level. The Renminbi actually appreciated slightly versus the US dollar. Vietnam, which remains a Frontier market, i.e., outside globalized flows until FTSE’s Emerging Markets Index inclusion occurs this fall, managed a small gain.
Before diving into the carnages, it is worth noting that the Chinese People's Political Consultative Conference (CPPCC), China's top political advisory body, began today with President Xi in attendance. The conference will include the release of the 15th Five-Year Plan, expected tomorrow. Mainland media noted that the plan will emphasize technology self-reliance and domestic consumption, as the National People's Congress (NPC) spokesperson stated that it will have a “strategic focus of expanding domestic demand, and vigorously boosting consumption.”
Hong Kong’s broad decline saw virtually everything down, including defensive sectors such as energy, insurance, and banks. Alibaba fell by -3.64% on very high volumes after Qwen AI leader and architect Lin Junyang said “adios” and resigned from the firm, leading to the resignations of several other employees. The move raises significant questions around the company’s AI strategy, though the company's silence is deafening as it remains in a quiet period despite somewhat shockingly not reporting a date for financial results. The departure triggered a very large sell by Mainland investors via Southbound Stock Connect and option block volume skewing toward puts.
Tencent, which fell by -0.88%, had its fourth day of net buying from Mainland investors via Southbound Stock Connect, and Baidu, which fell by -1.96%, is looking to further AI organizational efforts, which raises the question of potential poaching.
NetEase gained +1.06% after yesterday’s news of eligibility for Southbound Stock Connect inclusion. Trip.com also gained +1.53% on news it could become eligible for the program too, shortly. The Mainland-listed China equity ETFs favored by the National Team saw below-average volumes, suggesting limited intervention, though the pace of outflows declined significantly. Mainland China was off overnight, but not significantly, as defensive sectors such as insurance, energy, and banks were lower. Several Mainland energy companies released notices that their recent rise was speculation, which sent the stocks lower.
If there were ever a reason why one should be skeptical of Western media’s China coverage, Exhibit A would be the headlines on China’s purchasing managers' indexes (PMIs). February’s “official” PMI surveys, conducted by the National Bureau of Statistics (NBS), were released overnight. The Manufacturing PMI came in at 49.0 versus expectations of 49.2 and January’s 49.3, while the Non-manufacturing PMI was 49.5 versus expectations of 49.7 and January’s 49.4. The “private” PMIs, survey conducted by S&P, had the Services PMI at 56.7 versus an expected 52.3 and January’s 52.3, while the Manufacturing PMI was 52.1 versus expectations of 50.1 and January’s 50.3. You’ll notice all the headlines focus on the “official” PMIs with little to no attention to the better-than-expected “private” survey.
Why the big divergence?
The “official” PMI focuses on large companies that did not operate during the Lunar New Year holiday in China. Remember, the PMIs are not year-over-year (YoY). Rather, they are recording month-to-month changes. So, fewer people working during the Chinese New Year means less output. The “private” PMI focuses on smaller companies that stayed open during the Chinese New Year, as domestic tourism kept them busy. RatingDog is the company that sponsors the release, as Caixin ended its sponsorship. Who thought that name was a good idea?
Huo Lihui, Chief Statistician of the Service Industry Survey Center of the National Bureau of Statistics, stated: “This year, the Spring Festival holiday was extended and fell entirely in mid-to-late February, which affected business production and operations, resulting in an overall decline in manufacturing market activity.”
The quote “Nations have no permanent friends or enemies, only permanent interests” is credited to Lord Palmerston, though Henry Kissinger’s “America has no permanent friends or enemies, only interests” garners more attention. I was reminded of this after seeing a headline about how China has not come to the aid of its “friend” Iran. I do not think that China's government has any friends or foes, just interests, which include the demand for commodity inputs, which can make for strange bedfellows.
Big borders are also a factor, in my opinion. The narrative that China will be choked off from a lack of Venezuelan and Iranian crude is not accurate, as the former’s production has plummeted. China, similar to other Asian countries, is dependent on the Gulf broadly for crude and liquid natural gas (LNG), though Russia's oil continues to be available to China, especially with India’s orders on hold. Oil & gas are also, crucially, something that the US produces and China could buy ahead of Trump's visit next month.
JD.com and Bilibili report tomorrow.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -2% |
| Hang Seng Tech | HSTECH Index | -1% |
| Hong Kong Turnover | HKTurn Index | -1.7% |
| Hong Kong Short Sale Turnover | HKSST Index | -3.9% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 18.1% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -59.52 |
| China (Shanghai) | SHCOMP Index | -1% |
| China (Shenzhen) | SZCOMP Index | -0.5% |
| China (STAR Board) | Star50 Index | -0.5% |
| Mainland Turnover | .chturn Index | -24.3% |
| Japan | NKY Index | -3.6% |
| India | SENSEX Index | -1.4% |
| Indonesia | JCI Index | -4.6% |
| Malaysia | FBMKLCI Index | -0.8% |
| Pakistan | KSE100 Index | -1.4% |
| Philippines | PCOMP Index | -2.1% |
| South Korea | KOSPI Index | -12.1% |
| Taiwan | TWSE Index | -4.4% |
| Thailand | SET Index | -5.6% |
| Singapore | STI Index | -2.1% |
| Australia | AS51 Index | -1.9% |
| Vietnam | VNINDEX Index | 0.3% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | N/A | 125% |
| Advancing Stocks | 104 | 1617 |
| Declining Stocks | 387 | 3442 |
| Outperforming Factors | ||
| Underperforming Factors | Value, Liquidity, Momentum | Dividend Yield, Buyback, Value |
| Top Sectors | Utilities | |
| Bottom Sectors | Healthcare, Discretionary, Financials | Energy, Financials, Staples |
| Top Subsectors | National Defense, Coal | Power Generation Equipment, Agriculture, Forest |
| Bottom Subsectors | Industry Conglomerates, Transportation, Equity REITS | Marine, Gas, Petrochemical |
| Southbound Connect Buys | HS Tech ETF, Tencent (Large), SMIC (Small) | N/A |
| Southbound Connect Sells | Alibaba (Very Large), CNOOC, Xiaomi (Small) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -1.81 |
| Communication Services | 11 | -1.03 |
| Consumer Discretionary | 28 | -2.46 |
| Consumer Staples | 13 | -1.58 |
| Energy | 6 | -1.87 |
| Financials | 25 | -2.33 |
| Health Care | 16 | -3.04 |
| Industrials | 22 | -1.82 |
| Information Technology | 12 | -0.13 |
| Materials | 14 | -1.2 |
| Real Estate | 7 | -1.79 |
| Utilities | 11 | -1.31 |
| Mainland China Listed | 386 | -1.01 |
| Communication Services | 8 | -0.77 |
| Consumer Discretionary | 26 | -0.59 |
| Consumer Staples | 19 | -1.5 |
| Energy | 12 | -2.54 |
| Financials | 64 | -1.61 |
| Health Care | 31 | -1.43 |
| Industrials | 58 | -0.39 |
| Information Technology | 95 | -0.67 |
| Materials | 52 | -1.05 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -0.9 |
| Alibaba HK | 9988 HK Equity | -3.6 |
| JD.com HK | 9618 HK Equity | -2.4 |
| NetEase HK | 9999 HK Equity | 1.1 |
| Yum China HK | 9987 HK Equity | 0.2 |
| Baozun HK | 9991 HK Equity | -0.9 |
| Baidu HK | 9888 HK Equity | -2 |
| Autohome HK | 2518 HK Equity | -2.5 |
| Bilibili HK | 9626 HK Equity | -1.9 |
| Trip.com HK | 9961 HK Equity | 1.5 |
| EDU HK | 9901 HK Equity | 1.7 |
| Xpeng HK | 9868 HK Equity | -2 |
| Weibo HK | 9898 HK Equity | -1 |
| Li Auto HK | 2015 HK Equity | -1.1 |
| Nio Auto HK | 9866 HK Equity | -1.5 |
| Zhihu HK | 2390 HK Equity | -2.5 |
| KE HK | 2423 HK Equity | -1.1 |
| Tencent Music Entertainment HK | 1698 HK Equity | -1.7 |
| Meituan HK | 3690 HK Equity | -0.3 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | -3.6 |
| TENCENT HOLDINGS LTD | -0.9 |
| CNOOC LTD-H | -1.9 |
| XIAOMI CORP-CLASS B | 1.3 |
| SHANDONG MOLONG PETROLEUM-H | -12.9 |
| PING AN INSURANCE GROUP CO-H | -2.2 |
| MEITUAN-CLASS B | -0.3 |
| HSBC HOLDINGS PLC | -3.7 |
| YANGTZE OPTICAL FIBRE AND-H | -3.9 |
| SHANGHAI DAZHONG PUBLIC UT-H | -21.6 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | -4.4 |
| PETROCHINA CO LTD-A | 0.7 |
| TBEA CO LTD-A | 4 |
| EOPTOLINK TECHNOLOGY INC L-A | -3.4 |
| ZIJIN MINING GROUP CO LTD-A | -2.3 |
| HGTECH CO LTD-A | 6 |
| BEIJING TEAMSUN TECHNOLOGY-A | 4.3 |
| CNOOC LTD-A | -1.3 |
| SUZHOU TFC OPTICAL COMMUNI-A | 0.3 |
| CHINA PETROLEUM & CHEMICAL-A | -5.4 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.89 versus 6.90 yesterday
- CNY per EUR 8.02 versus 8.00 yesterday
- Yield on 10-Year Government Bond 1.78% versus 1.78% yesterday
- Yield on 10-Year China Development Bank Bond 1.93% versus 1.94% yesterday
- Copper Price -1.14%
- Steel Price +0.16%
