US-China Relations Improve Despite Pentagon List Potentially Adding Alibaba, Week in Review
7 Min. Read Time
Week in Review
- Asian equities were mixed in the last day of trading for many markets, including Mainaland China, which will be closed all next week, as Korea and Japan outperformed and Pakistan and India underperformed.
- Despite a challenging week for internet and technology stocks, they were among the top picks for Manland investors, who injected a net $11 billion into Hong Kong-listed stocks this week through Thursday as they geared up for Chinese New Year.
- This week, Alibaba released a new AI model called "Rynn Brain" that is meant to provide comprehensive protocols for robotics, enabling robots, especially humanoids, to make decisions and better engage with their environment.
- Internet earnings started this week with NetEase, which missed estimates on top and bottom line revenue on slowing gaming growth, though the company noted a sharp rise in "deferred revenue" from new releases and that it continues to integrate AI across its gaming ecosystem.
Friday's Key News
Reuters is reporting that the Pentagon could add Alibaba to a list of companies that aid China's military, according to “people familiar with the matter”. Alibaba’s US listing is down -3% in US trading this morning. This is the same list that Tencent is on, if you remember, which the company said it would challenge in court. While I find the accusation baseless, the market’s reaction is what it is despite the fact that all the inclusion does is bar the Pentagon from buying goods and services from Alibaba. Do you think Alibaba has revenue exposure to the Pentagon? Me neither. It has nothing to do with barring investors from holding the stock.
The timing of the inclusion on the list is interesting. Secretary of State Marco Rubio met with China’s Foreign Minister Wang Yi today. Meanwhile, Reuters had an article on the US and China holding an anti-narcotics meeting in China yesterday. We also saw Treasury Secretary Bessent on CNBC this morning talking about de-risking from China, not decoupling. We believe President Trump wants to broaden the trade deal with China when he visits in April. The South China Morning Post has an article titled “China mulls US manufacturing fund ahead of Xi-Trump summit”. Why couldn’t Chinese companies partner with US companies or build factories here in the US, just like they do with European, UK, and Asian companies?
Could the release be “Art of the Deal” or protecting a very large defense budget? Even with a US-China trade deal in April, there are many big government spending beneficiaries, such as states highly dependent on government spending, such as Virginia and Maryland, and states with companies dependent on government spending. Politicians from those states aren’t going to change their tune even with a broader US-China trade deal. That’s why the geopolitical rhetoric can come down but is unlikely to go away completely, in our opinion.
Asian equities, except for Vietnam, followed US equities lower overnight, as the US dollar strengthened versus local currencies. Taiwan was closed in advance of the Chinese New Year holiday. Mainland China is closed until Tuesday, February 24th, Taiwan is closed all of next week, South Korea is closed Monday, Tuesday and Wednesday, Malaysia and Singapore are closed Tuesday and Wednesday. Hong Kong has a half-day on Monday and is closed next Tuesday, Wednesday, and Thursday.
Hong Kong and Mainland China were off on light pre-vacation volumes, as non-ferrous metals stocks, precious metals stocks, and energy stocks followed commodity futures lower. Insurance stocks were off in both markets as well, though I don’t see a catalyst.
The State Administration for Market Regulation (SAMR) released the "Internet Platform Anti-monopoly Compliance Guidelines" which looks at “operators with market dominance who sell at unfair high prices, buy at unfair low prices, or sell below cost without valid reasons, refuse transactions, limit transactions, trade agreements, add other unreasonable conditions and differential treatment”. Specifically, it states “there is no valid reason to sell goods or provide services at a price below cost through excessive subsidies”. One could argue that curbing the subsidy wars, which have included Meituan and JD.com destroying their balance sheets in restaurant delivery or Chinese New Year promotions from Alibaba and Tencent, is a effort by the regulator to save the companies from themselves. A Mainland media source stated the document looks to curb “anti-Internal Competition” as subsidies focused on growing e-commerce and restaurant should be deprioritized. Interestingly, Alibaba , which fell -2.02% on Hong Kong overnigh , paused its Qwen voice order “Free Milk Tea” promotion, which generated 120 million orders. This follows a similar anti-involution effort by SAMR after releasing yesterday the "Guidelines on Price Behavior Compliance in the Automotive Industry".
Xiaomi gained +0.88% after SU7 EV sales exceed 600,000 since launch. Beijing Haizhi Technology’s Hong Kong IPO rose +242% after being oversubscribed by retail investors.
Real estate stocks underperformed in both markets, as January's new home prices fell -0.37% month-over-month (MoM) and used home prices declined -0.54% MoM. Aggregate Financing beat expectations, though new loans was a miss. There was not much coverage of markets overnight, as investors were packing their suitcases for the holiday.
The People's Bank of China (PBOC), China's central bank, injected RMB 600 billion worth, net of maturing repos, into the financial system to ensure vacationers have plenty of cash.
January electric vehicle (EV) exports increased +104% year-over-year to 286,000 units, accounting for 50% of all auto exports, according to the China Passenger Car Association.
Last Chinese New Year, we saw Unitree's famous humanoid robots perform traditional dances and play drums at the CCTV Gala, China's most-watched television event. Their competitors took notice. This year, we will see performances by humanoid robots from four major startups: Unitree, Galbot, Noetix and MagicLab. These theatrical and technological feats may help illustrate China's robotics moment for the entire world.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.7% |
| Hang Seng Tech | HSTECH Index | -0.9% |
| Hong Kong Turnover | HKTurn Index | 7.9% |
| Hong Kong Short Sale Turnover | HKSST Index | 36.1% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 17.7% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 2582.26577266922 |
| China (Shanghai) | SHCOMP Index | -1.3% |
| China (Shenzhen) | SZCOMP Index | -1.1% |
| China (STAR Board) | Star50 Index | -0.7% |
| Mainland Turnover | .chturn Index | -7.4% |
| Japan | NKY Index | -1.2% |
| India | SENSEX Index | -1.3% |
| Indonesia | JCI Index | -0.6% |
| Malaysia | FBMKLCI Index | -0.6% |
| Pakistan | KSE100 Index | -0.7% |
| Philippines | PCOMP Index | -1.3% |
| South Korea | KOSPI Index | -0.3% |
| Taiwan | TWSE Index | 1.6% |
| Thailand | SET Index | -0.8% |
| Singapore | STI Index | -1.6% |
| Australia | AS51 Index | -1.4% |
| Vietnam | VNINDEX Index | 0.6% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 98 | 100 |
| Advancing Stocks | 155 | 1420 |
| Declining Stocks | 330 | 3632 |
| Outperforming Factors | Small Caps, Growth | Small Caps, Growth |
| Underperforming Factors | Large Caps, Momentum, Liquidity, Value | Lare Caps, Momentum, Liquidity, Value |
| Top Sectors | Information Technology, Utilities, Consumer Staples | Consumer Staples, Communication Services, Consumer Discretionary |
| Bottom Sectors | Materials, Energy, Real Estate | |
| Top Subsectors | Semiconductors, Health Care Equipment, Aerospace | Aerospace, Computer Hardware, Catering/Tourism |
| Bottom Subsectors | Non-Ferrous Metals, Petroleum & Petrochemicals, Media & Entertainment | Precious Metals, Marine Industry, Energy Equipment |
| Southbound Connect Buys | Tencent, Xiaomi, Meituan | N/A |
| Southbound Connect Sells | WuXi Biologics, Zijin Mining, Pop Mart | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -1.56 |
| Communication Services | 11 | -0.87 |
| Consumer Discretionary | 28 | -1.68 |
| Consumer Staples | 13 | -0.6 |
| Energy | 6 | -3.79 |
| Financials | 25 | -1.77 |
| Health Care | 16 | -0.97 |
| Industrials | 22 | -1.34 |
| Information Technology | 12 | 0.67 |
| Materials | 14 | -6.02 |
| Real Estate | 7 | -2.69 |
| Utilities | 11 | -0.38 |
| Mainland China Listed | 386 | -1.39 |
| Communication Services | 8 | -0.24 |
| Consumer Discretionary | 26 | -0.41 |
| Consumer Staples | 19 | -0.18 |
| Energy | 12 | -3.88 |
| Financials | 64 | -1.05 |
| Health Care | 31 | -1.33 |
| Industrials | 58 | -1.82 |
| Information Technology | 95 | -0.81 |
| Materials | 52 | -3.35 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -0.7 |
| Alibaba HK | 9988 HK Equity | -2 |
| JD.com HK | 9618 HK Equity | -1.8 |
| NetEase HK | 9999 HK Equity | -0.7 |
| Yum China HK | 9987 HK Equity | 0.6 |
| Baozun HK | 9991 HK Equity | -1.7 |
| Baidu HK | 9888 HK Equity | -3.1 |
| Autohome HK | 2518 HK Equity | 0.5 |
| Bilibili HK | 9626 HK Equity | -2.2 |
| Trip.com HK | 9961 HK Equity | -2.1 |
| EDU HK | 9901 HK Equity | -3.2 |
| Xpeng HK | 9868 HK Equity | -1 |
| Weibo HK | 9898 HK Equity | -1.8 |
| Li Auto HK | 2015 HK Equity | -2.2 |
| Nio Auto HK | 9866 HK Equity | 0 |
| Zhihu HK | 2390 HK Equity | -0.7 |
| KE HK | 2423 HK Equity | -4.6 |
| Tencent Music Entertainment HK | 1698 HK Equity | -9.2 |
| Meituan HK | 3690 HK Equity | -3.2 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | -0.7 |
| ALIBABA GROUP HOLDING LTD | -2 |
| MEITUAN-CLASS B | -3.2 |
| XIAOMI CORP-CLASS B | 0.9 |
| AIA GROUP LTD | -4.2 |
| ZIJIN MINING GROUP CO LTD-H | -7.6 |
| HONG KONG EXCHANGES & CLEAR | -2.1 |
| SEMICONDUCTOR MANUFACTURI-H | 0.8 |
| TRIP.COM GROUP LTD | -2.1 |
| POP MART INTERNATIONAL GROUP | -1.9 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 0.7 |
| ZIJIN MINING GROUP CO LTD-A | -5 |
| WANGSU SCIENCE & TECHNOLOG-A | 1.8 |
| LEO GROUP CO LTD-A | -1.3 |
| BEIJING ENLIGHT MEDIA CO L-A | 15.4 |
| EOPTOLINK TECHNOLOGY INC L-A | 0.1 |
| DAWEI TECHNOLOGY(GUANGDONG-A | -4.8 |
| BLUEFOCUS INTELLIGENT COMM-A | -5.8 |
| SUZHOU TFC OPTICAL COMMUNI-A | -5.6 |
| GIGADEVICE SEMICONDUCTO-CL A | 1.8 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.91 versus 6.90 yesterday
- CNY per EUR 8.20 versus 8.19 yesterday
- Yield on 10-Year Government Bond 1.79% versus 1.79% yesterday
- Yield on 10-Year China Development 1.93% versus 1.92% yesterday
- Copper Price -1.85%
- Steel Price 0.10%
