Monday, July 28

Asian equities experienced a generally negative session overnight, reflecting a modest pullback in the US market where the stocks of major tech companies, referred to as the “Magnificent 7,” faced profit-taking. The decline in Asian markets came despite a slight decrease in the US dollar’s strength against local currencies and growing concerns about a potential escalation in the Russia-Ukraine conflict. Mainstream trading activity indicated that while mainland Chinese markets fared relatively better compared to Hong Kong, overall trading in China lacked a clear direction, particularly as the technology-focused STAR Board managed to outperform its counterparts.

Recent signals regarding consumer performance in China illustrated a dichotomy among different industry players. Wake-up calls were apparent as Kuaishou, a prominent short video platform, saw its shares fall significantly after issuing a lackluster outlook for its e-commerce segment. The challenge for Kuaishou, which is entering the increasingly competitive short video-driven e-commerce landscape, is fierce. Douyin, often dubbed China’s version of TikTok, continues to dominate this arena, making it exceedingly challenging for newer entrants to gain traction, a predicament underscored by larger e-commerce companies struggling for market share against local competitors.

Diverging trends were also highlighted from a survey conducted by a major bank, which indicated that many foreign brands operating in China reported slowing sales growth. Much like Kuaishou, these brands are encountering fierce competition from local companies, particularly in sectors such as apparel and smartphones. However, a more positive narrative emerged from the fintech sector, where Qifu Technology, a consumer-focused fintech firm, reported strong third-quarter results that surpassed analyst expectations. With a year-over-year revenue growth of 55%, the company’s focus on consumer loans and innovative credit assessment methods underlines a healthier trajectory for Chinese consumers, particularly in the subprime market amidst the challenges faced by numerous fintech firms in the past few years.

In the realm of internet earnings, Pinduoduo (PDD) reported its third-quarter earnings with a revenue increase of 44% to RMB 99.4 billion, although the figure fell short of analysts’ expectations by 3%. Additionally, PDD’s net profit was 6% below forecasts, leading investors to speculate about the potential causes of this shortfall, especially without detailed regional revenue breakdowns. Meanwhile, the electric vehicle sector experienced mixed sentiments, with NIO and Xpeng shares slipping due to lower-than-expected shipment guidance and price-cut concerns, respectively, reflecting broader volatility within this burgeoning industry.

The interactions between government policy and industry performance were evident in the renewable energy sector, where the Ministry of Industry and Information Technology (MIIT) urged solar firms to avoid excessive scaling. This directive follows the Ministry of Finance’s recent decision to reduce tax rebates for solar panel exports, an act perceived as an attempt to prepare for future trade negotiations with the United States and other countries, including Brazil, that recently increased tariffs on solar imports. Such moves indicate a potential shift in trade dynamics and signal China’s commitment to fostering a cooperative approach in international trade discussions as the geopolitical landscape evolves.

Market indexes displayed varied performances as the Hang Seng and Hang Seng Tech indexes declined by 0.53% and 1.24%, respectively. Reflecting a more mixed performance, sectors such as Utilities and Energy outperformed, while Consumer Staples, Consumer Discretionary, and Real Estate lagged behind. On a regional basis, Shanghai closed slightly up by 0.07%, Shenzhen edged down 0.07%, and the STAR Board finished positively with a gain of 0.89%. Additionally, concerns over currency valuation and bond yield fluctuations continued to be highlighted, as the Chinese yuan saw subtle shifts against the USD and EUR, while government bond yields exhibited minor changes indicative of the ongoing economic landscape.

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