· US Equities moderately lower on Monday with S&P -0.53%, Nasdaq -0.98% and Russell 2000 -1.36%. While there wasn’t a specific in terms of macro newsflow, sentiment may be dented by the ongoing volatility in cryptocurrencies where bitcoin fell below $55000. Momentum trades (such as Ark ETFs, SPACs, new energy etc) came under pressure while Nvidia also lost more than 3% amidst reports the UK’s antitrust watch may investigate its purchase of ARM. Tesla -3.4% after a fata crash in Texas where authorities believe the vehicle was operating without anyone in the driver seat. Altria -6% on a WSJ report the Biden administration may be exploring a new policy to require tobacco companies to reduce nicotine levels in cigarettes.
· Meituan Dianping (3690 HK) reported has raised US$10bn overnight via a US$3bn convertible bond and US$6.4-6.6bn in an equity placement. The equity placement was reported to be done at HK$273.80, a 5% discount to its last close but at the top end of the market range. While the placement being done at the high end of the range may be seen as a positive in terms of institutional demand for the stock, on the other hand the cash raising exercise has increased concerns that Meituan is taking a more aggressive posture to expand, especially in the area of community group buying. Overall we see increased competition as an area of uncertainty for e-commerce players in the near term and as such we have relative preference for Tencent in the internet space (700 HK).
· Li Ning (2331 HK, focus list stock) reported a strong set of 1Q operating data overnight. Retail sell through of its Li Ning brand grew by 80% y-o-y during the quarter, which outperformed the sales growth disclosed by various competitors. While part of it is due to a low base effect (due to COVID) and the Xinjiang cotton incident, the strong momentum could also be attributed to continued strong brand building and promotional activity by the company. Li Ning stock has been a strong performer since we added it to our Asia Focus List on 2nd Feb, rising 25% versus MSCI China’s -10% decline. We continue to like Li Ning as one our top consumer picks in China.
· Jiangsu Hengrui (600276 CH) reported an in line set of 1Q results with revenue rising 25% y-o-y and core net profit rising 20% y-o-y. There was a negative in the details in the form of higher R&D expenses, which rose from 15% to 19%. Also over the weekend there were some market chatters that there may be price cuts for some of Hengrui’s generic drugs (such as iodixanol, docetaxel) etc amidst a rumoured list of drugs under the fifth batch of GPO (Group Purchasing Organization) tender. Hengrui’s FY21 earnings as such could see significant downside risk. Hengrui’s medium term prospects meanwhile still look positive with several potential blockbusters in FY25-29.
· There are a couple of events ongoing in China this week that may of impact to equity markets. First we have the Boao forum where Xi Jinping will make an address and also there could be some focus in the market on government’s stance on new loans and also hedge fund regulation. Relaxation of 2 child policy is also a potential topic that could touched on as China will soon release the results of its seventh national population census. Meanwhile we also have the Shanghai Auto show ongoing where various automakers will showcase their new product line ups. This year there should be more EVs being lined up and the focus for the sector may soon shift to that of intensifying competition.
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