PMIs Beat, Technology Leads Gains
Asian stocks were mostly higher overnight as Hong Kong and mainland China led gains in the region after Memorial Day holiday in the US.
It was a good day for growth and technology stocks, as stimulus expectations and a better-than-expected PMI release led investors to return to some names. Baidu gained more than 7% overnight after a positive earnings statement on Thursday, which is discussed below.
Purchasing Manager Indices (PMIs) are spreadsheets, that is, any reading above 50 indicates an expansion while any reading below 50 indicates a contraction. Although the May PMI publication indicates a year-on-year contraction, the readings were above expectations and the unfortunate April reading. We can attribute the continuing contraction to falling global demand for China’s exports as global stimulus fades and a better-than-expected reading of pessimism about China’s blockades, which appear be showing signs of release.
Shanghai reported 30 cases of COVID in and out of quarantined areas on Monday. Meanwhile, Beijing reported 18 cases of COVID. This represents the lowest number of reported cases in almost three months. Shanghai will lift the blockade measures for residents in low-risk areas starting tomorrow.
In addition to confinement, the Shanghai local government also announced a series of stimulus measures that include tax cuts, rent reductions, new financing for housing projects and enhanced financial support for foreign trade companies. . All these measures will be extended at least until the end of the year.
The Hong Kong Stock Exchange (HKEX) issued more rules on ETF access to Stock Connect. Hong Kong-listed ETFs must trade in RMB to be eligible for Northbound Stock Connect, which would allow them to trade Mainland-listed A shares. The opposite is true for Mainland-listed ETFs that access Southbound Stock Connect, which would allow them to trade Hong Kong-listed shares. The latter has to negotiate on the mainland in Hong Kong dollars. We believe that access to Southbound Stock Connect for Continental-listed ETFs can increase flows to Hong Kong-based Chinese-listed companies, which include many of China’s largest Internet companies, and even secondary quotes, as these ETFs will be able to trade secondary quotes. if they meet certain requirements.
Baidu Q1 earnings overview
- Revenue rose 1% year-on-year (YoY) to RMB 28.4 billion
- Net income was RMB 2.7 billion
- The net income margin was 9.6%
- Earnings per share (EPS) was 11.22 RMB compared to an estimate of 5.17 RMB
Baidu exceeded analysts’ estimates by a + 35% increase in its non-advertising business, as it was expected that advertising would be affected by the blockages.
“Baidu achieved strong first quarter results, especially in our smart and cloud-driven business. Baidu AI Cloud recorded another quarter of strong revenue growth and Apollo Go was granted the first permit China to provide driverless transportation services on Beijing’s public thoroughfares, “said Robin Li, co-founder and CEO of Baidu. “Since mid-March, our business has been adversely affected by the recent resurgence of COVID-19 in China. While virus-related challenges continue to put pressure on our short-term business operations, we are confident that Our new AI companies will drive Baidu’s long-term growth and contribute to China’s economy driven by innovation and sustainable development. “
The Hang Seng and Hang Seng TECH indices closed up 1.38% and 3.02%, respectively, overnight, with a volume that almost doubled from yesterday. Growth values exceeded values except energy, oil and gas.
Shanghai, Shenzhen and the STAR Board closed up 1.19%, 1.57% and 3.37%, respectively, overnight, with a volume that was 15% higher than the ‘yesterday. Growth values exceeded values except energy, oil and gas.
Exchange rates, prices and returns last night
- 6.67 CNY / USD compared to 6.66 yesterday
- 7.13 CNY / EUR compared to 7.18 yesterday
- Performance of the good public in 1 day 1.23% compared to 1.19% yesterday
- 10-year public bond yield 2.74% compared to 2.73% yesterday
- 10-year Development Bank of China bond yields 2.98% vs. 2.96% yesterday
- Copper price -0.37% overnight