Notable market news this past week (26-May-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🇨🇳 China strikes amidst trade tensions with the US and EU
Background: The EU is reaching a deadline to announce results of its probe into Chinese EV subsidies. China wants to send a strong message to the EU to dissuade them from following US footsteps (read about fresh US tariffs including EV batteries in last week's market monitor here).
- For China, the impact of US tariffs are less significant than a potential EU tariff. Chinese carmakers are targeting Europe for growth amid domestic overcapacity and intense price competition. For example, BYD is planning to sell its Seagull hatchback for less than €20,000 in Europe from 2025.
- Should the EU adopt US-style tariffs, China's price advantage could be compromised. This could prompt Xi's government to retaliate by imposing tariffs on popular European products such as wine and dairy, potentially escalating into a broader trade conflict.
Threatening with potential tariffs of up to 25% on imported cars: Xi Jinping’s government is considering tariffs up to 25% on large-engine imported cars, according to the China Chamber of Commerce to the EU, citing “insiders.”. While no specific countries or regions were named, it comes as trade tensions are escalating with the US and European Union.
Economic implications will be huge: Last year, China imported 250,000 cars with engines over 2.5 liters. German luxury carmakers Mercedes-Benz and BMW would be hardest hit due to Europe's greater reliance on the Chinese market compared to the US.
☕️ Quick fire happenings to note
🌏 Global macro
- Rishi Sunak calls for UK elections on 4 July: UK Prime Minister Rishi Sunak, speaking in a downpour amid Labour Party anthem blaring bystanders, called for national elections on July 4. The Tories, facing unpopularity, are expected to lose to Keir Starmer’s Labour, currently leading by over 20 points in polls. Sunak, who was expected to wait until autumn, appears to be capitalizing on improving economic data. However, with no imminent rate cuts, Labour remains the favorite, though much can change in 6 weeks.
- Beijing's response to Lai Ching-te's presidential inauguration: After being sworn in on Monday, Lai Ching-te called on China to stop its military intimidation of Taiwan. In response, China sanctioned 3US defense contractors over Taiwan arms sales and former congressman Mike Gallagher for supporting Taipei, while also criticizing US Secretary of State Antony Blinken for congratulating Lai. Moreover, the People’s Liberation Army launched extensive exercises around Taiwan, the largest since last year’s meeting between Tsai and then-US House speaker Kevin McCarthy.
- Chinese stocks gaining back interest: Amid a profitable earnings season marked by increased buybacks and dividends, the attractive valuations of Chinese tech stocks are drawing in more investors. Following better-than-expected profits from companies like Tencent, analysts have lifted the Hang Seng Tech Index's forward-earnings estimates to a three-year peak. Sentiments are that Chinese stocks have likely bottomed with more investors reconsidering China. The Hang Seng Index is up 33% since end of January.
- Spain, Norway, and Ireland will recognize a Palestinian state: Three European countries announced symbolic diplomatic gestures on Wednesday amidst ongoing conflict in Gaza, aiming to support a two-state solution. In response, Israel recalled its ambassadors from these nations, with PM Netanyahu denouncing the recognition as "a reward for terrorism." The US also opposed the decisions, emphasizing that a Palestinian state should be achieved through direct negotiations rather than unilateral recognition.
- AI video generation software: Alphabet and Meta are offering millions to Hollywood studios to train AI video generation software. Both are developing technology that creates scenes from text prompts, but studios are cautious about relinquishing control over their content to tech firms. Similar discussions are occurring with Microsoft-backed OpenAI. Scarlett Johansson and her team of attorneys have sent 2 letters to OpenAI demanding the company reveal how it created a voice assistant that sounded eerily similar to the actress’s voice.
🏦 Individual stocks/companies
- Nvida (+21.35% past 1 month) continues to outperform: Nvidia's 1Q revenue beat expectations by 7.02%. Revenue for 1Q was $26.04b, more than 3x the same period last year. Net income also ballooned alongside revenue, at $14.9b, a 621% y/y and 21% q/q. A 10-for-1 stock split occurring on 7th June will make the stock more accessible, especially for retail traders, and a possible rally from more demand.
- Hims & Hers Health (+35.04% past 1 month) reached almost $1b sales in a few years: Hims has made it easy to buy cheap, generic versions of popular drugs like Viagra. It is now looking at selling popular weight loss drugs at steep discounts. Wegovy by Novo Nordisk costs about $1,350 monthly without insurance. Hims now offers a treatment with the same active ingredient for $199 a month.
- 97% price slash for Alibaba's AI services: Alibaba has slashed prices for its AI services by 97% - potentially kicking off a price war in China's nascent AI market.
- DBS CEO sell shares: DBS CEO Piyush Gupta has sold additional bank shares this month, accumulating proceeds of S$13.8m. As of May 16, he retains 2.29m shares valued at approximately S$81.75m.
🇸🇬 Singapore related
- Singapore's economic growth slows q/q but gradual pickup still likely: The economy grew at its slowest pace in a year in Q1 2024, hindered by sluggish growth in the export-driven manufacturing sector. According to the Ministry of Trade and Industry (MTI), the economy expanded by 0.1% in the January-March period, slower than the 1.2% growth in the fourth quarter of 2023 (on a quarter-on-quarter seasonally adjusted basis). Nonetheless, MTI kept its full-year 2024 GDP growth forecast of 1% to 3%, saying that Singapore’s manufacturing and trade-related sectors are expected to see a gradual pickup in growth over the course of the year.
