Week in Review
- Asian equities were mostly higher for the week, which was shortened for Hong Kong and Mainland China due to the Labor Day holiday, as Taiwan and the Hang Seng Tech Index outperformed, while Pakistan and Mainland China underperformed.
- This week was busy for economic releases. We learned that the US economy contracted by -0.3% in the first quarter, China’s factory production slowed significantly in April after a surge in March as importers front-loaded orders ahead of tariffs, and China re-affirmed its GDP target despite trade headwinds.
- PDD’s Temu international E-Commerce platform responded to US tariffs by adding levies on imported goods and then committing to mainly using local suppliers for US customers to keep prices low.
- AI and robotics names surged this week as President Xi visited with AI entrepreneurs in Shanghai.
Key News
Asian equities were mostly higher overnight on positive news of trade talks with China being initiated by the US. Mainland China remained closed for the Labor Day (May Day) holiday and will remain closed through Monday.
Hong Kong rose as nearly all sectors had positive performance, on average, led by internet and growth stocks. Xiaomi gained +6% on an increase in electric vehicle deliveries in April and an increase in earnings per share estimates for the first quarter. China internet names were higher on improved earnings expectations, as internet earnings season begins in earnest this month.
The US-China trade talk reprieve was a significant catalyst for global markets, including the US yesterday and Hong Kong overnight. Trump ended up being the one to reach out first, though it was probably a member of his team. The way this appears to be playing out reflects China’s success at diversifying its economy over the past ten years. As we have said before, the GDP exposed to US exports is only around 2%, which can be easily made up for with stimulus measures, for which China has massive amounts of dry powder, unlike the US. Moreover, if you include the exemptions for consumer electronics, this potential GDP hit is much lower. The US is arguably in a more precarious position because consumer confidence is starting from a high point, and there is little room for policy easing. Meanwhile, China added more items to its list of exemptions from retaliatory tariffs, placing the current exempted item tally at 131, including pharmaceuticals, medical devices, and industrial chemicals, to name a few.
Apple announced that most of its iPhones sold in the US would be assembled in India. This is a bold statement by the company and could imply cost increases, but investors appear to have been persuaded by this, given the stock’s market action since the announcement earlier this week.
The Hang Seng Tech Index recovered most of its losses from the “Liberation Day” tariff announcements on April 2nd and is only down -2% for the past month. Apple is down nearly -9%.
China State Railway reported 23.1 million trips on the first day of the May Day holiday, representing an increase of 12% year-over-year. The news was positive for tourism names, as Trip.com gained +0.64% in Hong Kong and its US share class is extending gains this morning.
The electric vehicle ecosystem was mostly higher on positive April deliveries from Xpeng and Xiaomi.
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