Alibaba Goes Ballistic, Finance Minister Talks Consumption, Week In Review

Week in Review

Asian equities were mostly higher this week as Mainland China and Hong Kong outperformed while Australia and Thailand underperformed.
It was a busy week for earnings as Alibaba beat estimates on the top and bottom line on strong cloud and e-commerce results, Baidu beat on search resilience, NetEase beat on bottom line profit only, Bilibili achieved its first profitable quarter, and Vipshop beat on its top line revenue.
Humanoid robots were a theme in the markets this week, as multiple companies rumored to be developing the technology gained.
U.S. President Donald Trump said he was mulling a grand deal with China and called his relationship with Xi Jinping “a great one.”

Key News

Asian equities ended a positive week on a high note, led by Hong Kong and Mainland China-listed growth stocks following Alibaba’s financial results, which were reported after the close in Hong Kong yesterday. Meanwhile, India was a rare underperformer for the day and for the week. Could investors be using India as a funding source for a re-allocation to China?

Mainland media is reporting that China’s trade envoy He Lifeng spoke with the U.S. Treasury Secretary Scott Bessent this morning. China’s release stated that “Both sides agreed on the importance of China-US economic and trade relations and agreed to continue communication on issues of mutual concern.” Maybe Bessent, not Lutnick, is taking the lead on trade negotiations?

As we stated Thursday, Premier Li presided over a State Council meeting, where he stated that the government would continue its campaign of “consistently promoting consumption and benefiting people’s livelihood, vigorously boosting consumption, and expanding domestic demand”.

On Friday, it was reported that Ministry of Finance Chief Lan Fo An was quoted in The People’s Daily stating that China needs to “Implement a more active fiscal policy to promote the continuous recovery and improvement of the economy.” He stated that fiscal policy should focus on:

Increasing the fiscal deficit rate
Increasing expenditure
Issuing more government bonds
“Vigorously optimizing the expenditure structure, promoting consumption and increasing momentum”
Resolving risks in key areas
Increasing transfers to local governments

The article dives deeper into each of the points, all of which are very strong signals going into the legislatively important “Dual Sessions”, which is scheduled to begin on March 5^th. Maybe the message was received?

Alibaba’s Hong Kong share class gained +14.56% versus its US listing’s gain of only +8.09% yesterday, on massive value of volume traded, which reached HKD 44.5 billion ($5.7 billion) versus the 1-year average of HKD 5.8 billion ($754 million) and volume of 329 million shares versus the 1-year average of 68 million shares. On an “average” day, Hong Kong’s most heavily traded stock by value would trade around HKD 5 billion. Mainland investors bought an impressive HKD 6 billion worth of Alibaba via Southbound Stock Connect, following the better-than-expected financial results driven by China’s E-Commerce, international E-Commerce, and their cloud computing unit, as AI drives adoption.

It is worth noting local investors’ optimism versus their US counterparts. Bilibili’s Hong Kong share class, which also reported after the close yesterday, gained +16.47% overnight versus its U.S. listing’s gain of only +8.76%.

Hong Kong-listed growth names and related AI plays led the market higher, including Tencent, which gained +6.2%, Xiaomi, which gained +5.19%, Meituan, which gained +3.82%, Semiconductor Manufacturing International (SMIC), which gained +7.86%, and Kuiashou, which gained +7.35%.

Meanwhile, Health Care had a strong day, along with insurance and stockbrokers. However, coal, oil, and precious metals were among the rare decliners. Hong Kong’s volumes were 2.5X the 1-year average, owing to $1.81 billion worth of net buying from Mainland investors via Southbound Stock Connect.

Mainland China was also led higher by growth stocks, the STAR Board, and AI-related stocks and subsectors such as semiconductors, telecom, electronic devices, the electric vehicle (EV) ecosystem (BYD gained +5.57% and CATL gained +1.98% on the extension of Shenzhen’s RMB 15,000 EV subsidy), life sciences, and pharmaceuticals. Mainland insurance also had a strong day. Mainland volumes exceeded RMB 2 trillion versus a 1-year average of RMB 1.1 trillion, though breadth was not quite as strong as in Hong Kong.

Vipshop Q4 Earnings Overview

Apparel-focused E-Commerce platform Vipshop (VIPS US) reported earnings before the US market opened this morning.

Revenue was RMB 33.2B ($4.6B) versus estimate of RMB 31.8B and Q4 2023’s RMB 34.7B
Gross Merchandise Value (GMV) was RMB 66.2B versus Q4 2023’s RMB 66.4B
Adjusted Net Income was RMB 3B ($407.4mm) versus estimate of RMB 2.753B and Q4 2023’s RMB 3.2B
Adjusted EPS was RMB 5.70 ($0.78) versus estimate of RMB 5.25 and Q4 2023’s RMB 5.79
The company repurchased US$43.3 million of its ADSs under its US$1.0 billion share repurchase program adopted in March 2023
The company expects its total net revenues to be between RMB26.3 billion and RMB27.6 billion, representing a year-over-year decrease of approximately 5% to 0%

The Hang Seng and Hang Seng Tech indexes gained +3.99% and +6.53%, respectively, on volume that increased +38.62% from yesterday, which is 268% of the 1-year average. 314 stocks advanced, while 174 stocks declined. Main Board short turnover increased +40.1% from yesterday, which is 242% of the 1-year average, as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and large caps gained more than the value factor and small caps. The top-performing sectors were Consumer Discretionary, which gained +7.89%, Health Care, which gained +6.14%, and Information Technology, which gained +5.96%. Meanwhile, the worst-performing sectors were Energy, which fell -0.94%, Utilities, which fell -0.77%, and Materials, which fell -0.56%. The top-performing subsectors were semiconductors, consumer discretionary distribution, and technology hardware. Meanwhile, coal, paper, and construction materials were among the worst-performing subsectors. Southbound Stock Connect volumes were 4x pre-stimulus levels, as Mainland investors bought a net $1.81 billion worth of Hong Kong-listed stocks and ETFs, led by Alibaba, a very large net buy, Semiconductor Manufacturing, which was a large net buy, Tencent, Meituan, Kuaishou, Hua Hong Semi, and China Mobile. Xiaomi was a moderate a net sell.

Shanghai, Shenzhen, and the STAR Board gained +0.85%, +1.56%, and +5.97%, respectively, on volume that increased +24.81% from yesterday, which is 194% of the 1-year average. 2,702 stocks advanced while 2,298 stocks declined. The growth factor and large caps outperformed the value factor and small caps. The top-performing sectors were Communication Services, which gained +5.27%, Information Technology, which gained +4.39%, and Consumer Discretionary, which gained +1.46%. Meanwhile, the worst-performing sectors were Utilities, which fell -0.47%, Materials, which fell -0.43%, and Energy, which fell -0.25%. The top-performing subsectors were telecom, internet, and computer hardware. Meanwhile, soft drinks, precious metals, and banking were among the worst-performing subsectors. Northbound Stock Connect volumes were well above average. CNY and the Asia Dollar Index fell versus the US dollar. Government bonds sold off as yields increased slightly. Copper fell while steel rose.

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