The Hang Seng Index (HSI) shows a slight rebound after the collapse
The Hong Kong Hang Seng Index (HSI) is showing a technical rebound today after the recent collapse.
The benchmark quotes are growing by 0.5%. China’s Hang Seng Tech (HSTECH) index of technology companies added 3%.
Quotes of the benchmark at the moment (early morning October 25) are kept in the region of 15,250 p. Of the 69 shares in the index, about 39 are traded in positive territory: the technology sector and cyclical consumer goods manufacturers.
The assessment of the environment remains moderately negative. Prices for new housing in the 70 largest cities in China continued to decline. In September it amounted to 0.28% m/m. Home sales decreased by 15% y/y compared with a fall of 21% y/y in August. Investments in real estate decreased by 12% y/y compared to 14% y/y last month.
The data shows a slight improvement in dynamics, but the weakness of the sector will most likely continue into the next year.
In addition, according to a recent report by Gamma Data, a Chinese research company specializing in video games, films, and television programs, in the first 9 months of the year (YTD), mobile video game sales in China fell by 19% y/y. In the third quarter, which is usually the peak due to the two-month school holidays, they fell by 13% QoQ. The fall y/y reached 25%. The entire gaming industry in mainland China totaled 207 billion yuan (-7.5% YoY).
The reasons for the negative dynamics are the decrease in the number of active players and the number of hours spent playing the game, the weakening of the solvency of users; and the small number of licenses for new video games issued by the PRC regulator.
NetEase (9999) and Tencent (700) quotes are under pressure due to the negative dynamics in the industry. Investors should expect a return to growth in the mobile video game market no earlier than next year.
Company news
Unconfirmed reports appeared on the market that China Mobile, the world’s largest mobile operator, could acquire a stake in Tencent (700). Representatives of the tech giant have so far denied the report, but it is worth noting that the symbiosis could benefit both companies. China Mobile provided support in the early stages of Tencent’s development.
A good option would be to buy out a stake from the South African media group Naspers, which through its international division Prosus still owns a 28% stake in the tech giant and is currently gradually selling it to the market. This would take the pressure off Tencent’s quotes.
What’s next?
On Thursday, October 27, the dynamics of the profits of industrial enterprises in China for September will become known. In August, for the first 8 months (YDT), it was negative (-2.1%).
Baidu (9888) and PetroChina (857) should submit their financial statements for the III quarter on Friday, October 28.
The P/B (price/book value) multiple of the Hang Seng index dropped to 0.61x. Even if we suggest twice that something is wrong with the assessment of the book value of Chinese companies, the papers will remain attractive for investment.
Attractive stocks
Recommendations for Sino Biopharmaceutical (1177), Xiaomi (1810), JD.com (9618), Alibaba (9988), WH Group (288), and Tencent (700) remain unchanged. Traders can continue to hold positions. There are no signals for any action yet. Opportunities for averaging over some securities still remain.
The main risk for positions is the growth of internal and geopolitical tensions.
Markets react to the 20th CPC Congress
The key outcome of the 20th CPC Congress is the formation of the party’s Politburo by the people most loyal to General Secretary Xi Jinping, who was elected for a third term. The personalities, who were usually called the Xi opposition, were not elected to key positions in the party.
The market is expected to react with a strong decline. Traders' and investors’ fears that the current configuration of power will be aimed at a tough geopolitical confrontation with the United States, and not at active economic development, have increased significantly.
No new economic stimulus measures or a plan to reduce COVID restrictions were presented, as predicted. But such expectations of traders and investors were rather wrong due to a misunderstanding of the goals of the past event, which were exclusively political.
Before the start of yesterday’s trading, important data was published, the release of which was postponed for the duration of the XX Congress of the CPC.
GDP growth for the third quarter was better than expected and amounted to 3.9% y/y against the forecast of 3.5% y/y and 0.4% y/y in the second quarter. For the first 9 months of the year (YTD), the indicator added 3% to 87.03 trillion yuan ($12 trillion). The volume of industrial production rose to 6.3% y/y in September, against the forecast of 4.5% y/y and 4.2% y/y last month.
The dynamics of investment in fixed assets were generally at the level of expectations—an increase of 5.9% y/y. But retail sales continued to show weakness and rose only 2.5% y/y, which was worse than the forecast of 3.3% y/y and 5.4% y/y last month.
Against the backdrop of a decline in domestic consumer activity, imports denominated in dollars continued to stagnate and amounted to 0.3% y/y, against the forecast of 1% y/y and 0.3% y/y last month. Exports showed growth of 5.7% y/y, against expectations of 4.1% y/y and 7.1% y/y. The September trade surplus rose to 573.57 billion yuan (+29.9% yoy), but it is worth noting that a significant part of the growth was due to the weakening of the yuan and the stagnation of imports.
