Hong Kong Rises As Tariffs Bite U.S. Economy

Key News

Asian equities were mixed but mostly higher overnight as Thailand and the Philippines outperformed while Pakistan and Korea underperformed. Hong Kong and Shenzhen saw gains, while Shanghai was slightly lower.

Tariffs are beginning to bite in the U.S. economy, as GDP for the first quarter, reported Wednesday morning, declined by -0.3% year-over-year while jobs growth slowed. This is weighing on U.S. markets more than export slowdowns are weighing on China’s markets.

China released trade data overnight showing a slowdown in manufacturing growth in April compared to March, when orders were front-loaded ahead of tariffs. While headlines are screaming about a major slowdown, the Caixin survey showed expansion year-over-year. New export orders, nonetheless, were abysmal as tariff uncertainty weighs on purchases of goods.

Alibaba is expanding “Instant Commerce” in China through a new segment of the TaoBao app. Alibaba boasts one of the the widest selections of items that can be ordered for same-day delivery. While Meituan is king in local services and speedy deliveries, Alibaba could become a strong competitor to their business with this new launch, especially in non-food products. Alibaba also has the Ele.me food delivery service, though Meituan retains strong market share in food delivery.

President Xi met with AI companies at the SMC Shanghai Foundation Model Innovation Centre, highlighting China’s potential leadership position in the space. His visit also included some foreign researchers and entrepreneurs in attendance, which is a signal that foreign talent will be welcomed in China in the AI industry.

Southbound flow into Hong Kong from Mainland investors turned positive again overnight after outflows on Monday and Tuesday. The year-to-date net flow is over $75 billion, which is near the full year flow for 2024. April was the second highest inflow month for the program in its history, with inflows averaging $1 billion per day. Southbound flow is regularly accounting for 30% to 50% of Hong Kong’s turnover. This trend could lead to more differentiation between stock performance in Hong Kong and the U.S., for stocks that are listed in both places. This should be reason enough for companies to re-list in Hong Kong and maintain listings in both Hong Kong and New York, in our opinion.

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