Tencent Results Mixed while Denying Meituan Divestment as Premier Li Outlines Stimulus

KraneShares

Contributor:
KraneShares
Visit: KraneShares

By:

Chief Investment Officer

Tencent Q2 Earnings Overview

Tencent reported mixed results amid low expectations. Remember that the year-over-year (YoY) figures are all negative, but that was expected and baked into the current share price. Management did a reasonable job cutting costs. During the conference call, when asked about China’s internet regulation, management stated that they are seeing a “positive trend for the platform economy” and “no material regulation detrimental to the industry.” When asked about the Reuters article on Tencent selling Meituan via a block trade, management stated the article was “inaccurate.” They then stated that investors liked how they spun off their stake in JD.com via a special dividend. They also addressed Tencent’s potential exposure to a 2H 2022 rebound, which is highlighted in the graphic below.

  • Revenue declined by -3% YoY to RMB 134B versus expectations of RBB 134B
  • Adjusted net income declined by -17% to RMB 28.1B versus expectations of RMB 24.3B
  • Adjusted EPS RMB 2.94 versus expectations of RMB 2.51
Positioned for broader revenue upturn when macro environment improves

Key News

Asian equities were higher overnight on light volumes except for South Korea and the Philippines. Indonesia had the day off for Independence Day. Hong Kong internet stocks rebounded following Meituan’s sell-off yesterday on a Reuters article that Tencent will sell its stake. As we showed yesterday, Tencent’s PR head denied the story on Chinese social media after the close. Today’s most heavily traded stocks by value were Meituan, which gained +3.34%, Tencent, which pulled a James Bond and rose +0.07%, Alibaba HK, which gained +0.44%, and Kuaishou, which fell -0.28%. Mainland investors were skeptical as Meituan was sold heavily via Southbound Stock Connect. Hong Kong volumes were light in advance of Tencent’s financial results, which were reported after the Hong Kong close. 

The Mainland market was off but did a 180 as Premier Li, speaking in Shenzhen, called on China’s six biggest provinces that account for 45% of China’s GDP to “take the lead and play a key supporting role in stabilizing the economy.” The government will “implement policies to stabilize the economy.” The clean technology sector had a strong day led by the EV ecosystem, solar, and wind stocks. Foreign investors bought a healthy $1 billion worth of Mainland stocks today via Northbound Stock Connect. In another sign of the disparity between onshore China (Shanghai/Shenzhen, 95% owned by investors in China) versus offshore China (Hong Kong and US-listed stocks, foreign investors definition of China), real estate was the best sector in China +3.45%.

In comparison, Hong Kong was down -0.33%. Outside of China, there was very little coverage of the government backing property developers’ bonds. As we noted last week, there has been a significant reduction in property buying restrictions, and interest rate cuts help. Offshore Chinese high-yield bonds have started to stabilize. Some tasty yields are available for those willing to get into a hated asset class. Chinese Treasury bond prices had another strong day while CNY appreciated versus the US dollar. 

The Hang Seng and Hang Seng Tech indexes gained +0.46% and +0.42%, respectively, on volume that was down -14% from yesterday, which is 63% of the 1-year average. 256 stocks advanced while 207 declined. Hong Kong short sale turnover declined by -16% from yesterday, which is 62% of the 1-year average, as short sale turnover accounted for 16% of total turnover. Value factors outperformed growth factors while small caps outpaced large caps. Top sectors were discretionary +1.19%, energy +1.09% and industrials +0.73% while healthcare -1.23%, materials -0.37% and real estate -0.32%. Top sub-sectors were appliances such as TVs, washers and dryers, and wind stocks, while cobalt, natural gas, and biotech were among the worst. Southbound Stock Connect volumes were light as Mainland investors sold -$306mm of Hong Kong stocks, with Meituan selling heavily, Kuaishou selling moderately, and Tencent selling small.

Shanghai, Shenzhen, and the STAR Board were mixed, closing +0.45%, +0.69%, and -0.44%, respectively, on volume +5% from yesterday, 102% of the 1-year average. 2,326 stocks advanced while 2,095 stocks declined. Value factors outperformed slightly while large caps outperformed small caps. The top sectors were real estate +3.46%, discretionary +3.39%, and industrials +1.68%, while materials were the only down sector -1.08%. The top sub-sectors were Apply supply chain, stock brokers, and online games, while rare earths, industrial gases, and chemical fibers were among the worst. Northbound Stock Connect volumes were moderate as foreign investors bought a healthy $1.014B of Mainland stocks today. Chinese Treasury bond prices had another good day. CNY appreciated +0.13% versus the US $ to 6.77 from 6.78, while copper gained +0.52%.

MSCI China All Shares Index 1-Day Change %
Asian Indexes 1-Day Change %
US & Hong Kong Dually Listed 1-Day Change %
Most Heavily Traded in Hong Kong (H-Shares)
Most Heavily Traded in Shanghai & Shenzhen (A-Shares)

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.78 versus 6.79 Yesterday
  • CNY/EUR 6.89 versus 6.87 Yesterday
  • Yield on 10-Year Government Bond 2.61% versus 2.64% Yesterday
  • Yield on 10-Year China Development Bank Bond 2.81% versus 2.82% Yesterday
  • Copper Price +0.52% overnight

Originally Posted August 17, 2022 – Tencent Results Mixed while Denying Meituan Divestment as Premier Li Outlines Stimulus

Author Positions as of 8/17/22 are KBA, KALL, KCNY, KFYP, KCNY, KEMQ, BZUN, HSBC, KWEB, KHYB, LI US

Charts Source: KraneShares

Disclosure: KraneShares

Content on China Last Night is for informational purposes only and should not be construed as investment advice. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results; material is as of the dates noted and is subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities. Investing involves risk, including possible loss of principal.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

Forward-looking statements (including Krane’s opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results) contained in this presentation are based on a variety of estimates and assumptions by Krane. These statements generally are identified by words such as “believes,” “expects,” “predicts,” “intends,” “projects,” “plans,” “estimates,” “aims,” “foresees,” “anticipates,” “targets,” “should,” “likely,” and similar expressions. These also include statements about the future, including what “will” happen, which reflect Krane’s current beliefs. These estimates and assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive, and financial risks that are outside of Krane’s control. The inclusion of forward-looking statements herein should not be regarded as an indication that Krane considers forward-looking statements to be a reliable prediction of future events and forward-looking statements should not be relied upon as such. Neither Krane nor any of its representatives has made or makes any representation to any person regarding forward-looking statements and neither of them intends to update or otherwise revise such forward-looking statements to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such forward-looking statements are later shown to be in error. Any investment strategies discussed herein are as of the date of the writing of this presentation and may be changed, modified, or exited at any time without notice.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from KraneShares and is being posted with permission from KraneShares. The views expressed in this material are solely those of the author and/or KraneShares and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.