Asian stocks were mostly higher overnight, as Hong Kong and mainland China made gains in the region after Remembrance Day in the United States.
It was a good day for growth and technology stocks, as stimulus expectations and better-than-expected PMI information prompted investors to return to some names. Baidu won over + 7% overnight after a positive earnings announcement on Thursday, discussed below.
Purchasing Managers’ Indices (PMIs) are diffusion indices, which means that any reading above 50 indicates an expansion, while any reading below 50 indicates a contraction. While the PMI announcement in May showed a contraction on an annual basis, the readings were above expectations and the gloomy reporting for April. We can attribute the continuing contraction in declining global demand to Chinese exports as global stimulus fades and a better-than-expected reading of pessimism about the blockade in China appears to be showing signs of easing.
Shanghai reported 30 COVID cases on Monday, and none outside quarantine zones. Meanwhile, Beijing has reported 18 cases of COVID. This is the least recorded case in nearly three months. Shanghai will lift measures to block residents in low-risk areas from tomorrow.
In addition to postponing the blockade, Shanghai’s local government has also announced a number of incentives, including tax cuts, rent cuts, new funding for housing projects and increased financial support for foreign trade companies. All these measures will continue at least until the end of the year.
The Hong Kong Stock Exchange (HKEX) has published additional rules for ETF access to Stock Connect. ETFs registered in Hong Kong must trade in RMB in order to qualify for Northbound Stock Connect, which will allow them to trade A shares registered on the mainland. The opposite is true for mainland-registered ETFs that have access to Southbound Stock Connect, which would allow them to trade shares registered in Hong Kong. The latter must trade on the continent in Hong Kong dollars. We believe that access to Southbound Stock Connect for mainland-registered ETFs could increase flows to Hong Kong-registered Chinese-based companies, which include many of China’s largest Internet companies, and even secondary listings, as these ETFs will may trade secondary listings if they meet certain requirements.
Baidu Q1 revenue overview
- Revenues increased by + 1% on an annual basis (on an annual basis) to 28.4 billion RMB
- Net income was RMB 2.7 billion
- Net income margin was 9.6%
- Earnings per share (EPS) were RMB 11.22 compared to the estimated RMB 5.17
Baidu successfully surpassed analysts’ estimates of a 35% increase in its non-advertising business, as the ad was expected to be affected by blocking.
“Baidu gave solid results for the first quarter, especially in terms of our cloud business and intelligent driving. Baidu AI Cloud reported another quarter of strong revenue growth, and Apollo Go received China’s first authorization to provide driverless services on public roads in Beijing, “said Robin Li, co-founder and CEO of Baidu. “Since mid-March, our business has been negatively affected by the recent resurgence of COVID-19 in China. Although the challenges of the virus continue to put pressure on our short-term business operations, we remain confident that our new AI businesses will stimulate Baidu’s long-term growth and contribute to China’s innovation and sustainable development economy.
The Hang Seng and Hang Seng TECH indices closed higher by + 1.38% and 3.02%, respectively, overnight, almost doubling since yesterday. Growth in inventories outpaced the value of stocks, excluding energy, oil and gas.
Shanghai, Shenzhen and the STAR board closed 1.19%, 1.57% and 3.37% higher, respectively, overnight, at a volume that was + 15% higher than yesterday. Growth in inventories outpaced the value of stocks, excluding energy, oil and gas.
Last night’s exchange rates, prices and profitability
- CNY / USD 6.67 against 6.66 yesterday
- CNY / EUR 7.13 against 7.18 yesterday
- The yield on a 1-day government bond was 1.23% against 1.19% yesterday
- The yield on 10-year government bonds was 2.74% against 2.73% yesterday
- The yield on 10-year bonds of the China Development Bank was 2.98% against 2.96% yesterday
- Copper price -0.37% for one night