Summary of the week
- Asian stocks had a relatively upbeat week overall as President Biden visited the region and China’s internet earnings season kicked off with some surprises to the upside from names like Alibaba, Baidu, Kuaishou, NetEase and Pinduoduo.
- However, Snapchat’s deeply disappointing earnings release in the US led to a drop in sentiment in Asia on Tuesday.
- John Tuttle (Vice President and Chief Commercial Officer of the New York Stock Exchange) joined KraneShares CEO Jonathan Krane on a panel in Davos this week, where he said he believes the NYSE will see more China ADR listings in the future rather than less as US and Chinese regulators work to reach an audit agreement. Check out the full panel discussion here.
- The State Council held a conference call with a rumored hundred thousand participants, urging them to “… seize the window of time and strive to bring the economy back to normal,” after the PBOC cut further deeper than expected at a key lending rate last Friday.
Friday key news
Asian stocks were mostly higher overnight as Hong Kong outperformed, led by internet stocks after the strong performance of US-listed Chinese internet shares yesterday.
Alibaba HK and Baidu HK gained +12.21% and +14.26%, respectively, following their better than expected financial results, which we covered in yesterday’s note.
This morning, after the market close in Hong Kong, e-commerce company Pinduoduo (PDD US) posted earnings that beat analysts’ expectations for revenue, adjusted EPS, monthly users and active buyers. The Pinduoduo release is covered below.
After the close in Hong Kong, HKEX announced that Hong Kong-listed ETFs will be added to Southbound Stock Connect. While the listing date has yet to be announced, mainland Chinese investors are likely to be interested in growth-oriented ETFs such as Internet proxy servers. There was also an announcement about relaxing the rules for foreign investors in China’s onshore bond market.
Pinduoduo (PDD US) reported first quarter results before the market open. The results beat expectations, leading to a pre-market rally in the stock. However, management was conservative in its outlook. Unfortunately, neither management nor analysts on the earnings call discussed the prospects of Pinduoduo re-listing in Hong Kong. I’m surprised the company hasn’t made a public filing yet, although in theory they may have filed privately. Management did a good job of keeping costs down. They also did a good job of maintaining profitability, which is key in this market environment.
- Revenue increased +7% to RMB 23,793 billion (USD 3,753 billion) against expectations of RMB 20,649 billion
- Average monthly users increased +4% and 7% to 751.3mm and 881.9mm
- Total operating expense decreased to RMB 14,479 billion (US$2,284 billion) from RMB 15,568 billion
- Adjusted net income was RMB 4.2 billion ($662.6 billion) up from a loss of RMB -1.89 billion vs. expectations of RMB 2.65 billion
- Adjusted EPS RMB 2.95 ($0.47) vs RMB 1.52 expectations
- Cash on the books increased to RMB 95.2B ($15B) from RMB 92.9B
The Hang Seng and Hang Seng Tech Index gained +2.89% and +3.8%, respectively, on volume that was +25.7% higher than yesterday, which is 85% of the trading average. 1 year. 307 shares advanced while 161 declined. Hong Kong short selling volume increased +19.28% from yesterday, which is 88% of the 1-year average. Growth drivers outperformed value drivers as large caps outperformed small caps. All sectors were in the green, led by discretionary, which gained +6.63%, health care, which gained +3.89%, and communications, which gained +2.53%. The best-performing subsectors included contract research organizations (CROs, or pharmaceutical research and manufacturing outsourced work), e-commerce, and cloud stocks. Southbound equity volumes were average in mixed trading, although Tencent saw a small net sell and Meituan saw a small net buy.
Shanghai, Shenzhen, and the STAR board diverged to close +0.23%, 0.00%, and -1.05%, respectively, on volume down -1.2% from yesterday, which is 75% of the trading average. 1 year. 1,574 shares advanced while 2,743 shares decreased. Large and mega caps outperformed small caps, while growth and value factors were flat. The main sectors were energy, which gained +2.33%, healthcare, which gained +1.6%, and financials, which gained +0.88%. For its part, communication fell -0.12% and real estate fell -0.7%. CROs and energy exploration were among the top subsectors, while cement, semiconductor and software stocks were down. Overseas investors bought $581 million worth of mainland China stocks through Northbound Stock Connect. Treasuries rose, CNY rose +0.43% against the US dollar to 6.71 and copper rose +0.84%.
Exchange rates, prices and yields last night
- CNY/USD 6.70 vs. 6.74 yesterday
- CNY/EUR 7.18 vs. 7.23 yesterday
- 1-day government bond yield 1.20% vs. 1.25% yesterday
- Yield on the 10-year Government Bond 2.70% compared to 2.71% yesterday
- China Development Bank 10-Year Bond Yield 2.94% vs. 2.93% yesterday
- Copper Price +0.84% overnight