Mechelany Advisors' WEEKLY MARKET REVIEW highlights the salient feature of the past week, details specific issues of the moment and reviews the Mechelany Advisors' MODEL PORTFOLIO, CHINA DEEP VALUE PORTFOLIO and the CHINA BANKS PORTFOLIO
With all due respect…
There are many narratives criss crossing the financial markets at the moment, from the timing of the decision on Central Banks tapering to slowing economic momentum, to the spreading of the Delta variant, to new lockdowns in Asia and the debacle in Afghanistan, but none more than the clamping down of the Chinese Government on big data and its technology sector is having a significant impact on the global financial markets.
A major wave of liquidation of Chinese tech companies listed in the US has taken the Nasdaq Golden Dragon Index down 50 % since its February peak, and in the last couple of weeks, the wave of liquidation has engulfed Hong Kong-listed shares as well.
The narrative has expanded from “China is clamping down on big tech” to “Is it safe to invest in China ? “, leading to portfolio liquidations and hedge funds building massive short positions in Chinese equities, making it the most crowded trade of the moment as reported by Independant hedge fund managers surveys.
So let’s analyse the reality, causes, and potential consequences of this fascinating narrative.
1. What is happening and who is losing money ?
As the above chart of the Golden Dragon Index shows, the massacre is in US Nasdaq listed shares of Chinese companies to which Chinese domestic investors have almost no access.
These shares are essentially bought by non-Chinese investors and some Chinese hedge fund managers that have their funds incorporated outside China.
So the big losers today are US investors, Foreign investors and obviously the Chinese tycoon entrepreneurs who have used US listings to fund their business in China.The collapse is not affecting the Chinese financial system or Chinese savers at large. It does not constitute a systemic risk for China.
Now observe the pattern of theses stocks since March 2020. It is entirely similar to the one of the US markets and the US technology stocks, where the Powell FED mania lifted this boat as well to unsustainable valuations up till February 2021.
All these leveraged and non-leveraged momentum investors such as Bill Hwang’s ARCHEGOS and Cathy Wood ARKK Funds were chasing them while touting them up, ending up being very long in February 2021 when the massive leverage of the ARCHEGOS fund busted the bubble. And most of the fall did occur between February and June, while the Chinese Government really started its extended clampdown in June 2021.
By contrast, observe the chart of the Chinese domestic Technology benchmark CHINEXT Index, the fall is much smaller in magnitude, and it actually rose during the period from March to July 2021.
Analysing the performance of Cathy Woods’ ARK INNOVATION FUND and ARK FINTCH Fund is also interesting. They lost respectively 36 % and 31 % of their value between February 2021 and May 2021, in line with the fall of the Golden Dragon index.
But during that period of time the US Nasdaq and most other US and European tech stocks kept on rising, meaning that her holdings of Chinese US Listed stocks caused her funds dearly as she liquidated in Q2 2021 – as per filings – and before the Chinese Government clampdown that started in June 2021.
The timing of the February peak is also coincident with the Archegos debacle as there was no other significant event in the global equity or technology markets at that time, unless she has been holding major positions in “meme” stocks such as AMC or GME.
Clearly the collapse of the Chinese Tech stocks is essentially a US affair, caused by over speculation, over valuation and over leverage in the US.both and the bursting of the speculative bubble was caused by American banks cutting the leveraged wings of Archegos, an American fund.
And ultimately, the big losers ended up being all the US and foreign hedge funds, momentum investors and retail investors riding the wave of the insane liquidity created by the US FED.
by the way, anyone heard of a Chinese fund losing 20 Billions in two days or Chinese banks losing 5 billion on one single fund ? Again a pure US greed and speculation affair…
And, clearly, the turning point was Archegos collapse and NOT the Chinese tech clampdown that started in October 2020 and intensified in July 2021z
2. How credible is the narrative ?
The narrative we get today is amazingly bearish, judging from the quotes of this article published by Bloomberg this week-end:
“Even a $1.5 trillion selloff may not provide an attractive entry point for equity investors as they grapple with cascading risks in China’s technology sector.
A stock rout triggered by Beijing’s widening clampdown has left Tencent Holdings Ltd. trading at a price-to-book ratio lower than during the 2008 financial crisis. Alibaba Group Holding Ltd. has slumped to record low in Hong Kong, where the
benchmark stock index fell into a bear market this week. Despite such rapidly diminishing valuations, the pace of fund outflows suggest few buy signals are flashing. “
“I don’t think it will end very soon,” said Alex Au,
managing director at Alphalex Capital Management HK Ltd. He sold all of his Chinese technology holdings last month and in the past one-to-two weeks has built up short positions in stocks he once favored.“Investors need to re-assess the rationale and the
risk of investing in China.”
Wow ! That sort of comments and positioning coming after a 50 % decline in six months are amazing !!! And they are coming from people who were long the same very stocks in February…..
This sounds like the bullish hype of February 2021 in reverse and we would not want to have our money managed by this Chinese Hong Kong hedge fund manager who was long the same stocks at the February Peak.
Says a lot about the quality of these momentum investors and their asset management process.
The four largest Chinese technology stocks, Tencent, Alibaba, Kuaishou Technology and Meituan have seen more than $1 trillion of their value wiped out since February, and their valuations have now come back to earth.
ALI BABA trades at 16x earnings for the first time in its history and Tencent Holdings Ltd. trades at a price-to-book ratio lower than during the 2008 financial crisis…
The narrative propagated by Bloomberg, and others, is inaccurate as the cause for the bursting of the bubble in February was not China’s clampdown but the liquidation of Archegos capital and the portfolio liquidations that ensued.
But it is this type of inaccurate narrative that has caused the last batch of selling, wondering whether it was still safe to invest in China, without actually looking seriously at what China is doing and the impact it has on the business of these companies.
The scrutiny and clampdown on Ali Baba’s activities stated in October 2020. The company was prevented from listing its Ant financial subsidiary and had to cope with new regulations on data usage and competitive practices already then.
As the following tables shows, Ali Baba delivered bumper sales and earnings growth since then, with its EPS growing 22 % in the December 2020 ending quarter and another 12 % in the March ending quarter, and finally a 37 % growth in revenues in Q2 2021 when compared to te same quarter of 2020, while china was really affected by COVID in Q1 2020.
The consensus of analysts expects ALI BABA to deliver earning growth of 110 % in 2022 and another 19 % in 2023.
Hard to see how the regulatory clampdown will kill the Chinese e-commerce giant, but it is now trading at 16x earnings…..
Thank God, some fund managers are not the momentum followers that have lost money on the way up and will lose money by shorting now, and those now see an inflection point on the horizon as the recent tech selloff is too drastic.
“When you take apart the sum of the parts and you find that some of these companies are trading significantly below the core business and a lot of ancillary parts of the businesses, whether its payments or the cloud businesses that you’re getting for free, the valuations are very compelling,” said Louis Lau, director of investments at Brandes Investment Partners. “Five years from now I think this will prove to be one of the best buying opportunities.”
The current Bearish narrative is not only inaccurate, when looking at what triggered the collapse but wondering whether it is safe to invest in China is also completely irrational when looking at the facts…
3. So what is the Chinese Government really doing ?
To understand what is happening, the economic and financial implications of the Chinese “clamp down” and its ultimate objectives one has to look at it from the Chinese Government and society stand point.
And frankly, China is doing today exactly what the US should have already been doing and will ultimately be forced to do,…
And investors who are loaded and heavily concentrated in the ultra-expensive US tech mega caps would be well inspired to reflect on the current collapse of the Chinese US listed tech stocks, as the same causes may well lead to same outcome…
Last week, China has passed legislation setting out tougher rules for how companies handle user data, a move pushing forward its campaign to curb big tech’s potential influence on the Chinese society and consumers.
China’s legislature approved the Personal Information Protection Law on Friday morning.
Details of the new legislation were not immediately released but earlier drafts required firms to get user consent to collect, use and share information, and to provide a way for them to opt out.
Companies found breaking the rules could face fines of up to 50 million yuan ($7.7 million) or 5% of their annual revenue.
Is this any different than the recent changes imposed to Google, Facebook and the rest on the consent of users and their option to opt out ?
The government is also moving to address consumer worries about the gradual erosion of their privacy as tech companies make rapid advances in the use of tools from facial recognition to big data.
The nation’s legislature passed a related law in June that gave the Chinese Government the power to shut or fine tech companies that stood in the way of its regulating the way the vast reams of data they build can be used.
In the US many lawmakers have been calling for the same and for breaking up internet titans like Facebook Inc. and Alphabet Inc., while European regulators have increased their anti-trust actions and imposed regulations giving users more control over their data and the taxation regime of these companies.
Has this sent their stocks falling out of bedd, ? Not yet ! are the concerns purely Chinese ? certainly not !
The legislation, which goes into effect Sept. 1, will also help the Chinese government in its quest to make the world’s second largest economy a leader in big data. Beijing has been pouring money into data centers and other digital infrastructure to make electronic information a national asset and economic driver.
The new law also adresses the way they strike deals to acquire start-ups, price services and ensure that the way they harness the enormous amounts of data hoovered up daily does not harm competition and privacy.
This again, is the basis for all the current anti-trust efforts in the US, including the latest action re-introduced by the DOJ against Facebook after their initial complaint was rejected ted in June.
The privacy rules indeed threatens to curtail a raft of online commerce services that rely on personalized data to target consumers and peddle their wares, but Amazon is already under fire for the same reasons and Google is now having to adapt its search engines to comply with new regulations or fear of new regulations.
Drafts of the latest personal data law would tighten rules on user profiles that companies keep and the recommendations that apps can make. Any decisions that are automatically made in the apps must be “fair and just,” Zang Tiewei, a spokesman for a commission under the legislature, told a press briefing in Beijing last week.
They also allowed for restrictions on moving personal information across borders and required that any critical information be stored within China.
Data localization requirements are certainly not new or unique to China, and Australia has already moved in that direction.
China is also clamping down on gaming companies to force them to prevent young Chinese to spend their nights playing addictive games or spreading false historical narratives.
Most parents in the West would actually welcome such measures and the fact that 40 % of the American people believe that the 2020 US Presidential election was rigged is entirely due to the unbridled power of a social media to broadcast unchecked fake news, twisting history..
Ironically, America has exactly the same problem on its hand right now with the Afghan situation.
Facebook Inc., Twitter Inc. and Google, already under fire for wielding outsized influence on political discourse around the world, are on the brink of another high- stakes decision — whether to give the Taliban a social-media megaphone.
Their actions will have lasting impacts on the diplomatic stage and on the lives of everyday people in Afghanistan.
The Taliban’s rise to power is forcing Silicon Valley’s biggest internet companies to revisit their policies on how to treat controversial political actors, having learnt the lesson of how they allowed ISIS to exist and terrify the world by broadcasting killings, executions and women enslaving using the American Social media.
While the Taliban is banned from holding accounts or spreading propaganda on most
big online networks, its takeover of the government means the tech giants will soon have to decide whether to expand its access or grant it the ability to manage Afghanistan’s official state social media channels.
Should that not be the exclusive role of the US Government ?
They may also have to make decisions about whether to keep up or flag content that both praises and criticizes the group, with potentially perilous consequences for those posting it.
The events unfolding in Afghanistan underscore how difficult it is to make quick judgments on who deserves to have a voice on social networks during dangerous and fast-moving international crises. Facebook and other platforms tout their mission of fostering a robust and free-flowing political debate while only lightly moderating content, and have been accused of censorship for blocking posts expressing some extreme views.
Still, they also face a deluge of criticism for failing tovadequately take into consideration the potential for imminent or even long-term harm by giving controversial, authoritarian orvviolent leaders a digital megaphone.
What China is doing right now is addressing exactly the problems that are facing the western democracies with the outsized reach of the US Social media and their potentially nefarious effects on politics – Insurrection of the Capitol – free competition – Google and Apple monopoly on apps or Amazon competing with its clients with its own products – and finally on the privacy of the citizens.
No Western democracies citizen wants Google or Facebook to publish their patterns of visiting porn sites or their listening to political debates or how they cheat and date their neighbours through WhatsApp or Tinder, let alone young women undressing or having sex on Tik Tok to attract attention.
China has the same concerns. … And in all fairness, All the nations around the world have the same concerns.
4. Why is China doing it now ?
And this is where we are going to put the record straight, WITH ALL DUE RESPECT
Already quite some time ago, we have analysed the dangerous developments of the rising antagonism between the US and China and the development of the anti Chinese and anti Asian sentiment in North America in an article tilted THE THUCYDIDES TRAP.
Over the past decade, China has never attacked, sanctioned or criticised the US Government or US companies, quite the opposite.
It has opened its market to Foreign corporations, granted companies like TESLA the right to full ownership of their Chinese subsidiaries, granted the large US financial institutions the right to operate in china’s capital markets and financial sector without restrictions, not even ownership restrictions, and has favoured the development of exchanges with most Western democracies.
China’s attitude and policies were cooperative and rather friendly to the rest of the world,
With the election of Donald Trump in 2016, the American tone and policy vis a vis China changed considerably and it is Donald Trump’s Administration’ that unilaterally launched a Trade War against China for internal political populist motives…
America sanctioned Chinese companies and their executives, asked for delisting of Chinese companies from the US exchanges and went as far as preventing all US -Government related pension funds to invest in Chinese corporations in full contradiction with its own US Federal Laws.
It even tried to force a Chinese company to sell its American business to a US company, something that was ruled to be contrary to US Laws by the US judiciary itself.
With all due respect, the aggressor was clearly America … Not China….
China waited out patiently that Donald Trump be replaced by a new administration, avoiding to retaliate or harm any US business operations in China.
Unfortunately, its expectations that the new Biden administration would be more accommodative was proven wrong and Biden pursued the aggressive tone of anti-Chinese sentiment of his predecessor.
Sanctions imposed by the US on Hong Kong and Hong Kong Lawmakers has been taken by China -and to be honest, legitimately when it comes to International Law -as a clear interference into its domestic affairs – Hong Kong is an integral part of China – and a denial of its sovereignty over Hong Kong ( This is international Law, not subjective judgement ).
Even with the issue of the handling by China of the Uigurs radical Islamist movements and calls for separatism in its own country, it could be worth reminding the American People, politicians and journalists that when faced with the 9/11 islamic terrorism attacks on the World Trade Center, America invaded militarily a foreign sovereign country, Afghanistan, “to eradicate Al Qaeda “…. We know the outcome 20 years and US$ 2 trillion later …
China has now decided to go its own way, and no longer wait for foreign approval when dealing with its own affairs.
Foreign Commentators that depict Xi Jing Ping as a Dictator with full powers are only demonstrating their lack of knowledge of the way the Chinese political system and Community Party Functions. Xi Jing Ping has far less personal powers than a US President and all his action are decided by the Standing Committee of the Communist Party.
China’s strategic shift is NOT a personal choice of Xi Jing Ping but the shift of a Nation that is now going on its own.
The sad reality is that America’s aggressiveness vis a vis China and its people has now fed a Chinese anti-American sentiment that will be lasting and the ultimate losers will probably be America and American products ultimately.
Chinas’ vision of its Society and harmonious development is radically different from the US capitalist system, and the priorities are different..
The American system is based on freedom of enterprise and the ultimate goal of every citizen is to get rich, as quickly as possible. The country values personal success and Billionaires are treated as stars and supposedly inspiring models.
The Chinese system privileges the community and the well-being of all. It values success, but success becomes a failure when it happens at the expense of the rest of the community.
There are only 696 billionaires in America for 300 million people, and there are now 1058 Billionaires in China, for 1.3 Billion people, and many of those only became billionnaires because their companies stocks listed on the Nasdaq went through the roof.
Billionaires are stars in the US, but more than 40 million Americans lived under the threshold of poverty ( less than 1.9 US$ a day) in 2019, and the 2020 pandemic has thrown another 4 to 5 million into poverty. This represents 12 % of the population. Moreover 45 % of these are living into EXTREME Poverty according to the US census bureau.
Over the past 20 years, China has eradicated Poverty almost completely, with now close to 0 %of the population living under poverty.
China’s priority is to raise the living standards of the entirety of its population, half of the Americans are against providing basic State medicare to their population.
As a significant increase in the number of Chinese becoming Billionaires came from the listing in the US, while making their money out of the Chinese consumers, China’s decision to force Chinese companies operating in China to list in China and to ask for agreement to list abroad, is first legally perfectly normal, and second must be understood in the context of keeping social harmony and preventing the development of this billionaire star culture.
Incorporating companies in a foreign jurisdiction and listing them in the US had become a recipe for getting rich quickly for the Chinese tech eco-system. Create a foreign company, milk the Chinese consumer, and list in the US to become a Billionaire, with your money outside the country, and US investors benefiting while Chinese investors cannot invest there….
can anyone really blame the Chinese Government for correcting these anomalies and preventing the further development of the US billionaire star system, seen in China as individualistic and contrary to the culture of the community ?????
China’s regulatory clamp down is NOT about constraining those thriving businesses that are an intrinsic part of the Chinese day-to-day life… We Chat and Alipay are used by hundreds of millions of Chinese citizens and life would not be conceivable without them.
Its is neither about preventing these companies from making money… But simply as the pressures are building up in the Usa and the rest of the world, to regulate their operation and control what they do..
Finally, it is about forcing Chinese companies that operate in China and generate their revenues out of the Chinese consumers to structure themselves IN China, and raise their funding FROM the Chinese capital markets and not the foreign capital markets, enriching American speculators and not Chinese investors..
5. Where do we go from here ?
Foreign investors would be well advised to fathom the depth of the Chinese wealth and savings. China does not need foreign investors to finance its economic growth or its corporations anymore…
China has deep pockets and its investors, pension funds, insurance companies even deeper pockets.
Chine does not need nor wish a collapse of its equity markets, nor does it need to make Ali baba or Tencent bankrupt companies…
We are very close to the point where the Chinese Government will intervene to stop the down draft in the Chinese and Hong Kong Markets…
And it can do that extremely easily…
Chinese individuals have had an enormous propensity to invest in real estate, creating inflated prices and a debt bubble in the real estate sector, as testified by the travails of Evergrande..
The Chinese Government can easily re-direct Chinese savings from real estate to the stock markets, through fiscal measures and tax breaks.
That would unleash Hundreds of Billions of Dollars flowing into stocks in both Chinese domestic and Hong Kong Markets.
We are buying H-shares and Chinese Tech stocks very comfortably…
Global investors should also reflect on these events as the roadmap for what is coming in the US in the near future, when regulatory pressure on the big tech mega-cap finally lead to the same type of clampdown on their activities…
Extreme valuations, a reversal in interest rates and liquidity and anti-trust actions are setting the stage for a crash of at least similar magnitude as what we have juts witnessed with the over-inflated Chinese tech stocks listed in the US:
Weekly Market review
Hong Kong Listed equities were clearly the worst performing stock market last week, but also the worst performing stock market on a year-to-date basis, despite the good health of the Chinese economy, corporate profits and the cheap valuations they command.
But China was not the only casualty last week as all markets fell ( second column from the right) with Japan and France experiencing big breakdowns too and the outlook for emerging markets and Asian markets worsening considerably. ( see technical section below.)
Why Bonds and Jackson Hole Matters ?
The phenomenal rally in equities and speculative bubbles of the past year and a half have all to do with the humongous amount of liquidity injected by the G3 central Banks through monetary policy and quantitative easing and the massive Government stimulus handing out cash to the citizens.
And both are coming to an end… We already highlighted last week that, using the Marshallian K indicator, liquidity is already withdrawing and the sharp breakdown in Japan, emerging markets equities and commodities may be a consequence of that.
Jackson Hole matters because it may – and probably will – signal a major change in monetary policy and an announcement on when the Fed may start reducing its US$ 120 Billion a month.
Since 2007, and even more since 2020, the FED has been artificially tweaking bond yields down, and to get feel for how significant this tweaking has been, suffice to look at the following graph from the New York FED, confirming that the FED alone owns between 30 and 55 % of all the US treasuries outstanding on their balance sheet. When its stops buying and starts selling, supply will clearly outsize demand.
The Fed has been voluntarily cornering the US bond market…
In the process, this extreme liquidity has generated a sharp inflation burst leading real interest rates to fall into negative territory by the most ever, sending every other asset class through the roof.
The FED cannot keep inflation and real interest rates at these levels for long, and when it will stop tapering, at a time where the US Government is borrowing another US$ 3 Trillion to fund its excessive budget deficit, then bond yields will rise, withdrawing liquidity further and making equity valuations unsustainable.
We have several signals indicating that the markets are already preparing for that, the US dollar, Emerging markets and commodities.
Weekly Technical Review
US EQUITY MARKETS
Last week was the first negative week for the US indexes in a long time but the correction remained shallow with the Buy-the-dips in full force and heavy concentration in the same mega tech companies.
The Dow Jones hovers at 35’000 and the Nasdaq 100 at 15’000 making the rally since March 2020 the strongest, longest and most powerful in recent history. It is clearly too early to tell whether this is the beginning of something more serious but the markets will clearly be awaiting the outcome of the Central Bankers Jackson Hole symposium next Thursday.
The MSCI World has also rebounded on its ST Moving averages, but the damage is becoming worrying when looking at the MSCI Emerging Markets Index and the MSCI Asia Pacific Index. Last week’s breakdown below the ST Moving Average is worrying because it is not due to the Chinese selloff, butis more global with a very negative Japanese configuration.
Are the emerging markets telling us that something may be happening on the global scene with the US being the last shoe to drop soon ? Time will tell, but there is no doubt that as global liquidity is withdrawing , and soon to drop even more , we may see a global regime change.
We have been avoiding Japan for most of the year and were right to do so. The Nikkei 225 just broke down below its ST Moving Average for the first time since March 2020. Moreover, when looking at individual stocks, the picture is even uglier with leading shares breaking down sharply last week.
The Eurostoxx 50 is still in an uptrend for now, but there is a clear loss of momentum and the internals dynamics of the market are deteriorating.
The French CAC 40 recorded a major reversal last week, confirming that a serious top is in place and the most worrying element is the very sharp breakdown in the leaders of the European stock markets, luxury good makers such as LVMH, after a failed attempt a new highs… This is a clear topping out process for these stocks.
The Chinese Domestic market may not have totally ended the downdraft but its is no longer overbought. However, both the HSCEI Index and the HSI Index are now deeply oversold with the RSI reaching levels that have always marked major bottoms in the past.
US Bond yields are nearing the end of their countercyclical rally and the probable decision of the FED to announce tapering will take its toll on the market. We would not chase this rally further and have exited our bond positions. Micheal Burry of The Big Short is massively short US Treasuries.
One of the most interesting development in the markets last week was the sharp breakout in the US dollar Index after a major double bottom. If interpreted correctly, this breakout ahead of Jackson Hole is telling us that the currency markets are expecting higher US interest rates ahead….
This is confirmed by the behaviour of the EUR and the Australian Dollar. The Chinese Yuan is also marking a significant change of trend vis-a-vis the US dollar. However, last week’s sharp selloff in the Australian Dollar may be a short term trend ending wash out and the US dollar may temporarily pull back on the announcements next week.
The diamond formation reversal on the CNY may be signalling that China will now allow its currency to weaken to boost its exports an competitiveness while easing monetary policy.
GOLD and SILVER are turning. The completion of two hanging hammers last week confirms the end of the selloff and precious metas should be accumulated. We favour Silver over Gold
The message from the commodity complex is the same warning signal about economic growth momentum and liquidity withdrawing. We have been shorting growth through shorting commodities and last week saw major breakdowns in the complex.
OIL is sharply down, Copper is truly ugly, Soybeans and Corn are breaking down again.
Bitcoins are testing the 50’000 level again and my much marginally higher. It remains to be seen if they can sustain the sharp bear market rally and surpass their March all-time high.
MODEL PORTFOLIO 21 Aug 2021
Considering the sharp sell-off in Chinese H-Shares last week, the -4.45 % drop in the MSCI Asia Pacific, and our significant exposure to Chinese H-shares, our MODEL PORTFOLIO weathered relatively well the liquidation phase with a -2.84% drop.
We have taken advantage of the sell-off to accumulate more technology shares in China while taking profits on some positions in China and Europe. We see the current sell-off as the trend-ending move before a significant rally unfolds in the fourth quarter of the year as China eases monetary policy and adds liquidity.
Shorting Chinese shares is the most crowded trade of hedge funds at the moment and any sign of a bottoming out or Chinese intervention will make short sellers run for cover.
We are taking advantage of the volatility to build positions for the rest of the year,.
On a year-to-date basis, our MODEL PORTFOLIO is up + 44.43 % still comfortably ahead of the pack.
During the week, we took profits on several positions in China and Europe, added Esperion therapeutics and three stocks in the UAE, shorted soft commodities and oil, added to Silver and Gold Miners, took our profits on our remaining US treasury positions, added more Chinese technology stocks and were stopped out of our Bitcoin short position at no cost.
As our regular readers know, we have been avoiding the hyped Chinese tech stocks for many months. Today, after their 50 % drop in 6 months, the valuation of Stocks like ALI BABA and TENCENT have come back to earth with 16x earnings on 25 % sales growth ahead. JD is reporting its Q2 results on Monday.
Foreign investors are mis-reading the Chinese Government’s clampdown on the use of big data and the objective of the Government is not to kill their businesses, but to frame their activities.
Technically, taking the example of TENCENT, we have probably seen the worst and are now trading at the 200 Days Moving Average, a support level that has marked major buying opportunities in the past.
Our positions do not exceed 2.5 % per stock in the universe, and we are happy to weather some volatility there.
Soft Commodities were a positive contributor last week
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