Week in Review
- Asian equities were mixed for the week as Hong Kong and Korea underperformed and Pakistan and Singapore outperformed.
- Singles Day ended this week with a bang as parcel deliveries increased +9.7% year-over-year (YoY) during the sales festival.
- Tencent reported Q3 earnings this week, meeting analyst expectations, as Alibaba, JD.com, Bilibili, and NetEase also reported.
- The founder and Chairman of battery giant CATL said that he would open a US facility, if the US government would allow it, nodding to the incoming Trump administration.
Alibaba Earnings Overview
Alibaba announced results for the third quarter this morning. The company’s fiscal year starts in April, so this was Q2 2025 in their books. Top-line revenue missed slightly, while adjusted net income and adjusted EPS beat analyst expectations. Taobao and Tmall, which are the core China E-Commerce businesses, increased revenues by +1% year over year (YoY) to RMB 98.99 billion. Meanwhile, Cloud Intelligence Group grew revenue by +7% to RMB 29.5 billion ($4.2 billion) and AIDCG (international/non-China e-commerce) grew 29% to RMB 31.6B ($4.5B).
In the quarter ended, the company bought 414 million shares (52 million ADRs) for $4.1 billion, which reduced shares outstanding by 2.1%. The company has a remaining $22 billion cash dedicated to the buyback through March 2027.
Management noted Singles Day had “robust growth” and “record high” sales. They also commented on “Optimistic government macro policies”.
Management also noted that Mainland investors have bought the equivalent of 64 million ADRs, which is 3% of shares outstanding since the Hong Kong share class was added to Southbound Stock Connect.
Management had the following to say regarding trade-in subsidies. “At the end of September, various monetary and fiscal measurements were announced at the national level and localities. Also, trade-in programs are being run to upgrade electronic goods. As well as subsidies for home appliances and automobile purchases, so the programs are stimulating growth in sales in the relevant categories.” The Q&A with analysts was geared toward cloud, AI, and AIDCG with not a lot spoken about the Chinese economy.
% Changes are year-over-year (YoY) as of 9/30/2024
- Revenue increased +5% YoY to RMB 236B ($33.7) versus an estimated RMB 239 and Q2 2024’s RMB 224B
- Adjusted Net Income fell -9% YoY to RMB 36.5B ($5.2B) versus an estimated RMB 35B and Q2 2024’s RMB 40B
- Adjusted EPS fell -4% YoY to RMB 15.06 ($2.15) versus an estimated RMB 14.93 and Q2 2024’s RMB 15.63
Key News
Asia ended an off week mixed as Mainland China underperformed, the Philippines outperformed, and India was closed for the birth anniversary of Guru Nanak Jayanti, one of the most sacred festivals in Sikhism, according to Wikipedia.
Mainland media noted that China’s “economic rebound is obvious”, referring to better-than-expected economic data, though we’d point to Singles Day sales, which were up +26% YoY. JD.com’s CEO commented on the economy yesterday, which Alibaba management reiterated.
Hong Kong bounced around the room and had a choppy session, though Mainland China sold off in late afternoon trading. Both markets rose on the mid-morning October economic release, as retail sales of 4.8% YoY handily beat expectations of 3.8% and September’s 3.2%. Online retail sales year-to-date rose 8.8% YoY, accounting for 25.9% of the total retail sales of social consumer goods. Industrial Production was 5.3% slightly missing expectations of 5.6% and September’s 5.4%.
New home prices declined month over month to -0.51% from September’s -0.71% and -6.2% YoY, while used home prices month over month -0.48% from September’s -0.93% and -8.9% YoY. It is not all bad though, if you dig into the data, versus solely looking at the headline number, first-tier cities used home sales, which posted -1.2% in September, increased +0.4%, “marking the first increase in nearly 13 months”. Shanghai and Shenzhen new home prices rose 0.3% and 0.1%, respectively. Meanwhile, home prices in both Beijing and Guangzhou fell -0.7% while used home prices in Beijing +1%, Shanghai +0.2%, and Shenzhen +0.7%, though Guangzhou fell -0.4%. New home prices in seven cities rose in October versus four in September, while used home prices in eight cities rose from zero in September. Small improvements, right?
We would expect Tier 1 cities to lead the rebound. Clearly, the real estate data didn’t affect markets today, though it fits with our thesis of incremental improvements.
After reporting financial results after the close in Hong Kong, JD.com’s US listing (ADR) fell -6.56% yesterday though the HK share class only fell -1.85% today. Similarly, following the close in Hong Kong, Bilibili’s ADR fell -12% and NetEase’s ADR gained +10% while Bilibili’s Hong Kong shares fell -10% and NetEase gained +12%. Pessimism in US listings helps explain why we hold the Hong Kong shares over the US-listed shares.
Famous hedge fund investors David Tepper and Michael Burry maintained their Chinese stock and ETF positions, as of 9/30, according to their firms’ 13F filing. Another investment legend, Howard Marks of Oaktree Capital, spoke yesterday in Australia, stating that “Chinese equities are way down and underperforming, and in general, our bias is toward buying things that are on the bargain heap.” According to Oaktree’s 13F, the company initiated five new China ADR positions in Q3 and held them as of September 30th. Obviously, hedge funds can hedge, though I suspect many strategic investors are sidelined due to the threat of tariffs and geopolitical concerns. It’s understandable, though.
China’s economic supertanker is turning for the better, in my opinion. With that being said, Mainland investors have followed the government’s directive to buy stocks, though markets pulled back this week.
One popular way to play the rebound has been Mainland brokers’ stocks, which were hit today.
It is surprising that the National Team’s favored ETFs continue to see below-average volumes, indicating a lack of support. It is time to press the gas to get the market up!
President Xi stopped in Peru on his way to the APEC conference in Brazil. Hopefully, he will get to enjoy the great food in Lima!
The Hang Seng and Hang Seng Tech indexes diverged to close -0.05% and +0.22%, respectively, on volume that decreased -10.25% from yesterday, which is 122% of the 1-year average. 242 stocks advanced while 241 stocks declined. Main Board short turnover decreased -5.74% from yesterday, which is 133% of the 1-year average, as 17% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps outperformed the growth factor and small caps. The top-performing sectors were Energy, which gained +1.37%, Materials, which gained +1.05%, and Industrials, which gained +0.46%. Meanwhile, Real Estate fell -1.28%, Consumer Discretionary fell -0.67%, and Health Care, which fell -0.5%. The top-performing subsectors were consumer durables, media, and telecom. Meanwhile, diversified finance, semiconductors, and insurance were among the worst-performing. Southbound Stock Connect volumes were almost 2X the average as Mainland investors bought $118 million worth of Hong Kong-listed stocks and ETFs. However, the Hong Kong Tracker ETF was a large net sell. Tencent and Meituan were moderate net buys. CNOOC , China Mobile, and Xiaomi were small net buys.
Shanghai, Shenzhen, and the STAR Board fell -1.45%, -2.41%, and -3.94%, respectively, on volume that decreased -0.61% from yesterday, which is 193% of the 1-year average. 798 stocks advanced, while 4,246 stocks declined. The value factor and large caps fell less than the growth factor and small caps. Communication services and energy gained +2.22% and +0.47%, respectively, while Technology fell -3.15%, Real Estate fell -2.35%, and Financials fell -1.92%. The top-performing subsectors were education, telecom, and land transport. Meanwhile, diversified financials, semiconductors, and securities were among the worst-performing subsectors. Northbound Stock Connect volumes were high at nearly 2X the average. CNY and the Asia Dollar Index rose versus the US dollar. Treasury curve steepened. Copper gained while steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.23 versus 7.24 yesterday
- CNY per EUR 7.65 versus 7.61 yesterday
- Yield on 10-Year Government Bond 2.09% versus 2.08% yesterday
- Yield on 10-Year China Development Bank Bond 2.16% versus 2.15% yesterday
- Copper Price +0.18%
- Steel Price -1.47%
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