The strong Manufacturing PMI report raised chances for an aggressive rate hike at the next Fed meeting.
NVIDIA and AMD retreated as U.S. banned exports of some advanced chips to China.
Traders have started buying stocks from defensive sectors.
U.S. Export Ban On Advanced Chips Pushed Stocks To New Lows
S&P 500 declined towards the 3900 level amid worries about aggressive rate hikes from the Fed and an export ban on advanced chips to China.
The strong ISM Manufacturing PMI report pushed the U.S. dollar to new highs. Treasury yields have also moved higher. The FedWatch Tool indicates that there is a 76% probability of a 75 bps rate hike at the next meeting, which is bearish for stocks.
Interestingly, RSI remains in the moderate territory despite the strong pullback, so there is enough room to gain additional downside momentum in the upcoming trading sessions.
If S&P 500 manages to settle below the support at 3915, it will head towards the next support level at 3875. A move below this level will push S&P 500 towards the support at 3830.
On the upside, the previous support at 3950 will serve as the first resistance level for S&P 500. If S&P 500 manages to settle back above this level, it will head towards the resistance at 3980.
Traders Show Some Interest In Defensive Sectors
NVIDIA stock is down by about 12% amid worries that U.S. export ban will deal a material blow to the company’s revenue. AMD is down by 7%. The ban targets sophisticated and expensive chips that are used in AI work.
The market is worried that the ban marks the beginning of a multi-year assault on China’s capabilities in the high-tech segment, and that additional restrictions will be announced in the future.
As the relations between U.S. and China continue to deteriorate, Chinese stocks like Alibaba and NIO have also found themselves under material pressure.
S&P 500 is moving higher today while traders are waiting for comments from Jackson Hole.
Chinese stocks enjoyed strong support today as China is reportedly close to an audit deal with the U.S.
S&P 500 needs to settle above the 20 EMA to continue its rebound.
S&P 500 Gains Some Ground As Jackson Hole Symposium Begins
S&P 500 is moving higher today as traders continue to buy stocks after the recent pullback. The index managed to settle above 4150 and made an attempt to move above 4185.
The better-than-expected GDP Growth Rate report, which indicated that GDP declined by 0.6% in the second quarter, provided some support to stocks today.
Treasury yields are moving lower, which is bullish for riskier assets. Treasury yields will be extremely sensitive to Powell’s comments on Friday, but it remains to be seen whether bond traders are ready for big moves ahead of his speech.
In case traders do not hear anything disturbing from Jackson Hole today, S&P 500 will gave a great chance to finish the day in the positive territory.
Currently, S&P 500 is trying to settle above the 20 EMA. A successful test of this level will provide S&P 500 with an opportunity to develop sustainable upside momentum. If S&P 500 closes below the 20 EMA today, traders should be prepared for some downside pressure at the start of tomorrow’s trading session.
Chinese Stocks Rally As U.S. And China Are Reportedly Close To An Audit Deal
Chinese stocks are among the best performers today after the release of a report on a successful audit deal between the U.S. and China. Chinese stocks were at risk of delisting if Chinese companies failed to comply with the U.S. audit standards.
While the rally in Chinese stocks is strong, the most notable gainer is the cloud-based data platform company Snowflake, which is up by about 20% after the strong quarterly report. The report highlighted strong revenue growth and provided material support to Snowflake shares, which have been under pressure this year as traders moved away from richly-valued tech stocks.
Peloton stock, which is down by more than 17% today, is the main disappointment of the day. Yesterday, Peloton rallied after the company announced that it would launch products, apparel and accessories in Amazon’s U.S. stores. Today, Peloton released its quarterly report, which indicated that demand for the company’s products remained weak.
U.S. regulator indicates that it is premature to discuss a deal that would keep Chinese stocks listed.
China has recently signaled that it was ready to disclose more information to U.S. regulators.
Alibaba and other Chinese stocks will remain extremely sensitive to any listing-related news.
Alibaba Stock Falls Amid Worries Over The Potential Deal On China Stock Listings
Shares of Alibaba found themselves under pressure after U.S. audit watchdog stated that it was “premature” to talk about a deal that could keep Chinese companies listed at U.S. – based stock exchanges.
Earlier, the stock rallied after a Reuters report indicated that Chinese regulators asked some firms to prepare for additional disclosures that could keep them listed in New York. According to the report, Alibaba was one of the companies that was asked to prepare.
Alibaba stock managed to move away from multi-year lows after China’s Vice Premier Liu promised to provide supporrt to markets and economy. However, concerns about the future of the company’s U.S. listing continued to weigh on the stock. Today’s trading action highlights the market’s worries about this issue.
What’s Next For Alibaba Stock?
Alibaba stock and other Chinese stocks will remain sensitive to regulatory news. While China has signaled that it was ready to provide more information to U.S. regulators, any future deal would likely depend on the state of U.S. – China relations.
Delisting is the key risk for investors who may find themselves trapped even if the business of the company is performing well. Not surprisingly, the market reacts nervously to any negative news on this topic.
At the same time, it looks that China is worried about the rapid decline of the capitalization of Chinese stocks and is ready to provide material support to domestic companies, which is bullish for Alibaba and other Chinese stocks.
Chinese stocks enjoy strong rebound as the country promises to provide support to markets and economy.
Traders are willing to bet that Alibaba stock will rebound from levels that were last seen back in 2016.
A move above the $95 level will push the stock towards the psychologically important $100 level.
Alibaba Stock Rallies On Hopes For Government Support
Shares of Alibaba gained strong upside momentum after China’s Vice Premier Liu He promised to provide support to markets and economy. Other Chinese stocks, like NIO or Baidu, have also enjoyed strong demand today.
In recent weeks, Chinese stocks have been under strong pressure amid fears that China may provide too much support to Russia, which will lead to sanctions on the country. However, China has so far managed to navigate the challenging diplomatic environment without big problems.
China’s problems on the coronavirus front have also served as a bearish catalyst for Chinese stocks. At this point, it is not clear whether China will be able to hold to its previous “zero tolerance” policy towards coronavirus.
In this environment, the promise of support from a highly-ranked official was sufficient enough to push Chinese stocks away from their recent lows as traders were already searching for bargains after a massive pullback.
What’s Next For Alibaba Stock?
Alibaba shares are currently trading at levels that were last seen back in 2016. China’s crackdown on tech companies pushed the stock from the $319 level to the $73 level in just one and a half year.
Not surprisingly, this pullback attracted speculative traders who are willing to bet that the company’s stock was oversold. The government’s willingness to support Chinese markets may serve as a long-term positive catalyst for Alibaba and other Chinese stocks.
At the same time, the traders will stay focused on the trajectory of U.S. – China relations as rising tensions may ultimately lead to sanctions on China or force Chinese companies to leave U.S. – based exchanges.
China’s Alibaba Group Holding shares slumped over 6% on Thursday after the e-commerce giant recorded the slowest revenue growth since it went for an IPO in 2014.
The multinational technology giant reported adjusted quarterly earnings of CNY 16.87 per share in the fourth quarter, beating the market expectations of CNY 16.18 per share.
China’s biggest online commerce company said its revenue rose nearly 10% to CNY 242.58 billion from a year earlier. That missed the market expectations of CNY 246.37 billion, and this was the first time sales grew below 20% in a quarter, Reuters reported.
“Alibaba reported Dec results with total revenue in line with our estimates and consensus. Adjusted EBITDA declined 24.9% YoY to RMB 51.4 billion, ahead of our estimates. Non-GAAP earnings came in 1.7% ahead of consensus,” noted Thomas Chong, equity analyst at Jefferies.
The U.S.-listed Alibaba stock traded 6.67% lower at $104.90 on Thursday. The stock fell over 7% so far this year after plunging over 48% in 2021.
“Domestic commerce faces macro headwinds and intense competition, but growth momentum in international commerce and cloud is encouraging. We expect ongoing strategic investments. Alibaba is determined to expand in less-developed regions, local services, and international commerce, given strong growth in these areas,” noted Gary Yu, equity analyst at Morgan Stanley.
“We see limited near-term catalysts but F2023e P/E valuation remains attractive. We think current valuation underrepresents the value of cloud and international businesses. We also see further downside support from additional disclosures to separate losses from new investments from profitable core e-commerce businesses.”
Alibaba Stock Price Forecast
Twenty-two analysts who offered stock ratings for Alibaba in the last three months forecast the average price in 12 months of $189.13 with a high forecast of $250.00 and a low forecast of $140.00.
The average price target represents an 83.62% change from the last price of $103.00. Of those 22 analysts, 19 rated “Buy”, three rated “Hold”, while none rated “Sell”, according to Tipranks.
Morgan Stanley’s base target price was $165 with a high of $360 under a bull scenario and $110 under the worst-case scenario. The investment bank gave an “Overweight” rating on the Chinese e-commerce company’s stock.
Several analysts have also updated their stock outlook. Truist Securities cut the target price to $180 from $200. Stifel lowered the target price to $150 from $170. Raymond James slashed the target price to $200 from $220.
Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator shows a strong selling opportunity.
According to the reporter, an attempt to download the App for the digital yuan failed because he couldn’t find it on any mobile app store.
He later discovered that only phones connected to the internet in China could install the App directly. The reporter further found it impossible to use the App without having an account with the bank of China.
However, overseas users can still use the digital token by getting the prepaid cards and other wallets loaded with the digital currency. But many foreigners aren’t taking advantage of these wallets.
WeChat pay and Alipay are Unavailable at Main Media Centre
At least, not yet. Instead, Visa cards appear to be the number one payment option within the venue of the Winter Olympics.
Surprisingly enough, other common forms of payments in China, such as WeChat pay and Alibaba’s Alipay, aren’t available at the Main media centre.
This leaves attendees with Visa, cash, or E-CNY (digital yuan) as the only options. While this might have been done to get more people to use the digital yuan, it doesn’t seem to be working well so far.
The digital yuan is China’s attempt at a central bank digital currency. The country, which banned crypto last year, has been working on the project for a while now.
There have been several pilot projects already, with state media reporting that 261 million digital yuan wallets are now in existence. It further reported $17.4 billion in transactions last year.
While it’s already available in 12 cities and for the Winter Olympics, there’s no official date for the full launch of the digital currency.
With the Winter Olympics approaching, the Chinese government is gearing up for the festivities.
The Olympics are also set to mark a crucial test of time for the Chinese central bank, the People’s Bank of China (PBoC), as the sporting event would also mark the assessment of its digital yuan. While the token still officially remains in its pilot phase, it will be showcased to the world next week during the Winter Olympics.
Testing Times for the Digital Yuan
Just last week the PBoC claimed that by the end of 2021, the digital yuan had over 261 million users in the nation, using the currency through their activated digital yuan wallets.
Additionally, there are over 20 million people who have downloaded its official pilot app, which was released to marketplaces in some cities in early January this year.
Apart from PBoC’s app, around 9 commercial banks, some state-owned and other private financial entities owned by firms such as Tencent’s WeChat Pay and e-commerce giant Alibaba, are currently offering digital yuan wallets. However, access to these digital yuan wallets is limited to only the people located in the pilot zones.
It has been established that Winter Olympics visitors would be able to download a smartphone app or make use of ‘a physical card’ – likely a version of a ‘hardware wallet’ card tested in the country at an earlier stage of the digital yuan’s pilot.
Furthermore, a number of ‘convenience stores, cafes, and other merchants inside the Olympic Village’ in Beijing have been equipped with point of sale machines that accept digital yuan payment.
In addition to that, stores and other merchants in the parts of Beijing and Hebei Province that will host events will also be allowed to take e-CNY payments.
Recent reports from local news agencies presented that the PBoC and its partners say they are ready to stand well on their promises. The PBoC has been working closely with the Bank of China since the pilot began in earnest. A statement from the Bank said:
“We are making every effort to prepare for the Winter Olympics under the guidance of the PBoC. During the Winter Olympics, the Bank of China will provide a full range of services such as [software-based] wallets, hard wallets, exchanges, top-ups, and [cash] redemption at the Bank of China branch in the Olympic Village.”
Digital Yuan’s Destiny to Be Decided
While there is no doubt the digital yuan or e-CNY is one of the most experienced CBDCs, a project that began in 2014, according to The Wall Street Journal, some roadblocks still persist.
Most importantly, for now, warnings around air pollution, government snooping, and the environmental impact of Games which rely mostly on man-made snow add to the mix of controversies.
That said, rising Covid-19 cases near areas around Beijing and reports about the government imposing a secret lockdown have further added to the negative commentary around the Winter Olympics.
For now, however, statistics pertaining to the digital yuan are still glimmering, in November 2021 for instance, approximately 140 million people in China had digital wallets and almost 62 billion yuans were transacted, equal to ($9.5 billion).
Further, by the end of 2021, local news agencies had reported that more than 300,000 merchants in Shenzhen were using e-CNY, one of the most technological cities in China. Nonetheless, the fate of the digital yuan could take any turn post the Winter Olympics.
At $62.9 per share, iShares MSCI China ETF (MCHI) is more than 70% under its February 2021 high. In contrast, the one-month gain of 3.4% shows that there has been a regain of interest by investors for this ETF which mainly provides exposure to the Chinese consumer cyclical, communication, financial, and tech sectors. In comparison, the iShares MSCI Emerging Markets ETF (EEM) which includes about 34% of Chinese assets is up by 3.8%.
Source: Trading View
My objective with this thesis is to understand the reason for this timid rise in the value of MCHI and whether there could be a more sustained upside. I first start with China’s central bank actions which could be beneficial to the ETF’s financial sector holdings.
China’s central bank actions
The People’s Bank of China (PBOC) which had previously taken a restrained approach to monetary stimulus, appeared to change its stance on December 25, when it pledged greater support for the real economy, stating that monetary policy will be more forward-looking and targeted. One of the intended aims would be to “promote the property sector’s healthy growth as well as work to better meet housing demand”. By that time, MCHI shares had reached their lowest point, and the PBOC’s statement did produce a temporary relief for investors.
Interestingly, the central bank’s more recent announcement about lowering interest rates by 10 basis points to 2.85% on Jan 17 constitutes a more concrete step and may preclude other such actions as Chinese authorities try to mitigate the effects of the Omicron variant, and address the downturn in the property sector.
Now, the fact that the PBOC is easing monetary policy despite China’s GDP expanding by 8.1% in 2021, supposes that the economy still faces headwinds. At the same time, the U.S. and the rest of the world are looking more towards tightening. Thus, the PBOC may have a narrow window of opportunity to provide stimulus before it has to start tightening again. Hence, while there are near-term positives for MCHI’s bank and industrial holdings, the longer-term picture looks more uncertain.
Some big investors favor China for investment
Now, REITs constitute just 4% of MCHI’s holdings and the ETF provides exposure to giants like Alibaba (BABA), also referred to as the “Chinese Amazon (AMZN)”. Interestingly, Charlie Munger, the vice-chairman of Berkshire Hathaway (BRK.B) controlled by Warren Buffett has augmented his stake in Alibaba during the recent months. Now, Berkshire is considered as the “epitome of value”, and for this matter, MCHI’s uptrend also somewhat coincides with the rotation from growth to value stocks which has been gaining momentum from the beginning of this year.
Along the same lines, billionaire investor Ray Dalio, who has reportedly raised $1.3 billion for its third China fund according to the Wall Street Journal is highly optimistic that the Asian country is winning the economic race against the U.S.
Now, Dalio’s remarks have sparked some controversy. To this end, those who have invested in Chinese tech and educational technology companies know something about the propensity of authorities in that country to bring in abrupt regulations, such as those implemented as from July last year. These quickly decimated the valuations of stocks operating in these sectors.
Exploring further, Dalio’s remarks are reminiscent of the 2005-2006 period when the U.S. had dropped from 4th to 13th position in the global rankings for broadband internet usage, all at the benefit of Japan and South Korea. At that time some Wall Street gurus predicted that this drop would result in the U.S. losing in productivity and innovation. Eventually, these predictions never materialized and twenty years later, the U.S is home to the biggest tech companies the world has ever known.
Thus, basing an investment solely on the moves of big investors makes no sense and anyone investing in China should be aware of the risks.
First, the delisting fears whereby NYSE and NASDAQ listed Chinese firms will be all removed and relisted in Hong Kong appear overblown as even if a stock delists from the U.S., possibly as a result of Chinese authorities stepping up supervision, it would eventually be converted to Hong Kong Stock Exchange shares, so one still owns the company. This was the case with ride-hailing group Didi Global (DIDI) at the start of December last year, but news about the event still trimmed some percentage points off MCHI’s share price.
Second, both the US and China are heavily invested in each other as the two countries’ supply chains are highly interdependent. On the one hand, with American citizens depend to a large extent on consumer items from China, and on the other, the latter’s factories depend on capital goods like semiconductor producing equipment from the U.S. Now, semiconductors remain highly sensitive items and the U.S. has brought in legislation which limits the type of chips which can be exported to China, out of fear that the Chinese military may use these to produce sophisticated weapons. These could be used against Taiwan, one of America’s strategic allies in the region.
Better to go for partial exposure through EEM
Therefore, in addition to economic and regulatory uncertainty within China itself, there are geopolitical risks that can impact the country’s trade with the U.S. This can result in MCHI becoming highly volatile. However, China remains the second largest economy in the world and value investors like Charlie Munger and venture capitalists like Ray Dalio have been in the game since a long time. Consequently, from the balanced risk perspective, partial exposure to Chinese stocks, either individually, or through an ETF start to make some sense.
Thus, for those wanting exposure to some of the specific Chinese tech names like Tencent (TCEHY) and Alibaba which are significantly undervalued with respect to their western counterparts, there is the EEM alternative, which is also diversified in Taiwanese, South Korean, Indian stocks as well as other countries. The ETF’s holdings should benefit from record high U.S. inflation favoring cheaper alternative products from emerging economies. This said EEM has a slightly higher expense ratio of 0.68% compared to MCHI’s 0.57% but has shown a better one-month performance.
At my research firm, MAPsignals, we track the Big Money looking for trends. We believe Big Money analysis can alert you to market and sector trends. Here’s what daily buys and sells looks like over the last six months. It’s been choppy:
That’s what a rotational market looks like. See the red bars? Those are stocks we believe are getting sold. When red bars run rampant, good names can get crushed. They can become what I call “oversold.”
And that can mean opportunity. Let’s look at five stocks seeing lots of red that appear to be near-term oversold: ROKU, BABA, RH, ZM & ETSY.
Up first is Roku, Inc. (ROKU), the television streaming platform.
Even though great companies’ stocks can be volatile, like ROKU over the past year, they’re worthy of attention, especially on pullbacks. Check out ROKU:
1-month performance (-24.2%)
Recent Big Money sell signals
To show you what our Big Money signals looks like on a stock, have a look at all the buys (green bars) and sells (red bars) in ROKU over the past year:
Clearly, that’s a lot of red since September.
Looking more broadly, Roku has been a high-quality stock for years. The blue bars in the chart below show when ROKU was likely being bought by a Big Money player and also a high-ranking stock, according to MAPsignals.
When you see a lot of blue, like ROKU did in 2019 (when it hovered around half of its current price), it can be very bullish:
Those blue signals indicate Big Buying and strong fundamentals. As you can see, Roku’s recent numbers have been strong, making it worth of attention at these levels:
1-year EBITDA growth rate (+18.9%)
1-year sales growth rate (+57.5%)
Next up is Alibaba Group Holding Ltd. (BABA), which is a Chinese technology giant – it’s like China’s Amazon.
Recently, it’s been a choppy downward slide, with more Big Money selling than buying:
But not long ago, Zoom was a Big Money darling. Below are the Big Money buy signals for ZM since it’s 2019 trading debut:
Let’s look under the hood. Despite its price slide, Zoom has been growing earnings nicely and generated huge sales growth:
1-year EBITDA growth rate = (+6.4%)
1-year sales growth rate = (+325.8%)
Our last growth candidate is Etsy, Inc. (ETSY), which is an online marketplace and commerce platform. A strong final quarter in 2021 of Big Money buying has given way to steep declines:
Check out these technicals:
1-month performance (-24.1%)
Historical Big Money signals
Etsy is a high-quality stock since it’s made my Top 20 report. As you can see below, it’s been a Big Money favorite since 2016. Right now, it’s on a pullback and could be an opportunity.
Now let’s look below the surface a bit. Earnings have been growing quite well, and there’s been enormous sales growth:
1-year EBITDA growth rate = (+16.2%)
1-year sales growth rate = (+110.9%)
The Bottom Line
ROKU, BABA, RH, ZM & ETSY represent the top oversold stocks for January 2022. They’ve been sold a lot lately…perhaps too much. Strong, fundamentally-sound stocks seeing near-term sell signals are worthy of extra attention because of their long-term potential.
Alibaba Stock Falls As Company Is Reportedly Ready To Sell Its 30% Stake In Weibo
Shares of Alibaba moved closer to yearly lows after a Bloomberg report indicated that it was discussing a sale of its 30% stake in Weibo to a state-owned company.
According to the report, Alibaba wants to sell its stake in Weibo to reduce its influence in the media sphere. The company aims to become less powerful in this important market segment due to the pressure from Chinese authorities, who have been focused on limiting the power of Chinese tech companies this year.
The results of these efforts are highlighted by the performance of Alibaba stock, which has lost more than 50% of its value in 2021 and continues to move lower in the final days of the year. Other Chinese tech stocks have also suffered from sell-offs this year due to regulatory concerns.
What’s Next For Alibaba Stock?
The market remains focused on the activity of Chinese regulators and the company’s attempts to get out of regulatory spotlight. In case Alibaba is able to get back to “business as usual” without the constant pressure from regulators, its shares will get immediate support.
However, it remains to be seen whether Alibaba will have this opportunity in 2022. China has firmly decided to curb the power of tech companies, and the country does not look worried about financial consequences of its moves.
Alibaba stock has declined to levels not seen from 2017, but it is not clear whether speculative traders will rush to purchase the company’s shares. At this point, Alibaba’s valuation hardly matters as markets are focused on additional risks that may emerge in the next year.
However, it should be noted that Alibaba stock has already declined by more than 65% from all-time highs, so some traders could be willing to bet that the stock may have some upside at the beginning of the year when funds establish their positions for 2022.
The Chinese government has effectively banned numerous cryptocurrency-related activities in the country, including trading and mining. However, that doesn’t mean that Chinese residents don’t admire cryptocurrencies and what they stand for.
Joe Tsai Says he Admires Cryptocurrencies
Joe Tsai, the vice-chairman of Chinese e-commerce giant Alibaba, recently admitted that he admires cryptocurrencies. Popular Chinese journalist and blogger Colin Wu revealed this in his latest tweet.
Joe Tsai, executive vice chairman of Alibaba Group and owner of the Brooklyn Nets, said: I like crypto. Nets star Durant is an investor in Coinbase and serves as a brand ambassador. https://t.co/2CBuZwGAd5
Tsai is the vice-chairman of Chinese tech giant Alibaba and also the owner of the Brooklyn Nets NBA team. Joe Tsai is also the chairman of BSE Global. Cryptocurrencies have drawn admiration from some of the most powerful entrepreneurs in the world over the past few years.
The decentralized nature of cryptocurrencies and other features such as hedge against inflation are some of the reasons why popular figures are investing in Bitcoin and other cryptocurrencies.
Alibaba Not Pro-Crypto
Alibaba, like many other Chinese companies, has been implementing anti-cryptocurrency policies in recent months. The Chinese government has banned cryptocurrency-related activities in the country.
The People’s Bank of China banned financial institutions from processing crypto-related transactions. Hence, making it impossible for cryptocurrency exchanges and other service providers to operate in the country.
Despite China’s recent ban on cryptocurrency-related activities, the broader cryptocurrency market continues to grow. The total cryptocurrency market is above $2.3 trillion, an indication that the adoption rate is growing.
The cryptocurrency mining hash rate has recovered from the dip following China’s ban on mining activities. According to data captured earlier this month, the hashrate of the Bitcoin network hit more than 179.5 Ehash/s, which is close to the all-time high achieved earlier this year.
The Chinese government has cracked down on cryptocurrency-related activities over the past few years. However, the crackdown intensified this year as the government banned numerous crypto-related activities.
Xinhua to Release News Digital Collectibles
State-run Xinhua News Agency, the biggest media organization in China, has announced that it will release a collection of nonfungible tokens later this week. The NFT collection is set to be launched on Christmas Eve and will be the first news digital collectibles backed by NFTs in mainland China.
According to local reports, Xinhua will launch a total of 110,001 copies of selected news photos for free. There will be 11 collections, each comprising of 10,000 copies and a special edition copy. The NFTs will be available on Xinhua’s mobile app at 8 pm local time on Christmas Eve.
Xinhua said the NFTs would be the country’s first collection of digital journalistic photos issued via a blockchain. The publication said the idea is to imprint digital memories into the metaverse. The digital collection includes photos that journalists took this year, recording historical moments of 2021. Some of the historic moments include the 100th anniversary of the Chinese Communist Party.
China’s recent milestone of administering over 2.7 billion Covid-19 vaccine doses nationwide is another moment that would be captured in the NFTs.
Chinese Entities are Entering the NFT Space Despite Crypto Crackdown
The Chinese government increased its crackdown on cryptocurrency-related activities this year. Various provinces in China, including Sichuan, banned cryptocurrency mining activities, forcing mining farms and other independent miners to move to Europe and North America.
The government also went further to ban cryptocurrency trading activities, effectively eliminating the little crypto exchanges still operating in China. As a result, numerous crypto exchanges discontinued their services to mainland China users.
Top Chinese online retailer, JD.com, has launched a blockchain-backed platform to sell “digital collectibles.”
Chinese Retailer JD Launches own NFT Platform
This comes amidst similar developments by other major tech companies in China, such as Alibaba Group and Tencent Holdings, who have also launched similar platforms despite the tough stance of the Chinese government on cryptocurrency and blockchain technology.
Although the collectibles are not labeled as non-fungible tokens (NFT), the 5 digital assets listed by the retailer on its Lingxi platform, which is part of the JD.con main app, are quite similar to NFTs.
The fintech arm of JD.com, JD Technology, issued 10000 pieces of 5 different digital collectibles, 2000 apiece. All the digital assets are related to JOY Dog, the company mascot valued at 9.9 yuan ($1.55). According to the platform, all the collectibles were sold on Monday morning.
Chinese Interests in NFTs
These developments show Chinese companies and residents’ level of interest in metaverse and Web 3.0 despite the government’s crackdown on crypto.
“NFT” and “web3/web3.0” have become popular search queries in Asia, with interest from countries such as Singapore, South Korea, Hong Kong, and China leading the way. Data from the foremost Chinese search engine, Baidu, also corroborates this interest.
However, the People’s Daily newspaper, the official media for the ruling Chinese Communist Party, recently spoke against the heightened interest in NFTs. It questioned whether it could be another “zero-sum game hyped by cryptocurrency investors and capital.”
While regulators in China have placed a ban on Cryptocurrencies, there are no laws on NFT yet, which means companies in the country still have room to connect their business plans to the concept. But the growing popularity of metaverse-themed collectibles might lead to some regulations.
Several Chinese firms have embraced digital collectibles directly and indirectly. The media company 36kr recently gifted 1,124 metaverse-themed digital assets at a conference in Shenzhen on Wednesday.
An outstanding earnings season and signs that economic activity are picking back up are clashing with unrelenting inflation, difficulty finding more labor, and continued supply chain logjams.
Most insiders believe inflation has further to climb, though the consensus right now is calling for a peak around the beginning of Q2 next year. With big shopping holidays in the U.S. coming up, followed closely by Chinese New Year at the beginning of February 2022, shipping and transportation logjams aren’t expected to find much relief in the near-term.
Meaning inflation pressures will likely continue. How far inflation will climb as the severe supply chain dislocations drag on is a huge unknown. Some Wall street investors are concerned that the Fed might feel compelled to end its asset purchases and hike rates much sooner than expected if monthly inflation keeps accelerating.
What might be even more worrisome is the fear that some of these price increases could be more permanent in nature, so how much overall inflation will pull back in the long run is starting to become a bigger talking point.
Demand and supply chain
Supply chain insiders warn that many companies are front-loading inventories in an effort to avoid running out of critical materials, which could bite in the long run if demand suddenly drops off. A lot of manufacturers have also increased production capacity for products that currently face shortages. The risk is that once back orders are filled and demand retreats, stockpiling and excess production could result in an oversupply situation in some areas, along with much lower profits and total revenues.
Another worry right now is that demand starts to retreats due to the current inflationary environment especially with everyday items like food and gasoline costing substantially more. That has investors anxious to see the latest Consumer Sentiment read being released today which is expected to edge higher vs. last month.
Investors are closing tracking the inflation expectation gauges in the report as typically the higher those climb, the more consumers tend to pull back on spending.
Data to watch next week
Looking towards next week, the economic data flow picks up with key releases including Empire State Manufacturing on Monday; Retail Sales, Import/Export Prices, Industrial Production, Business Inventories, and the NAHB Housing Market Index on Tuesday; Housing Starts and Building Permits on Wednesday; and the Philadelphia Fed Index on Thursday.
On the earnings front, Q3 reporting is just about wrapped up with companies in the S&P 500 index reporting revenue growth of more than +17%, the second highest on record behind only Q2 2021’s growth of over +25%, according to FactSet. Earnings themselves are on track to exceed +40%. AstraZeneca is today’s earnings highlight. Earnings next week include several big retailers which will provide some more clues as to how consumer demand is trending as well as updates on supply chain struggles. Investors are also keen to hear how holiday hiring is going.
Checking in on the geopolitical front, the U.S. is warning that Russia may be planning a full-scale invasion of Ukraine. U.S. officials say they’ve briefed their EU counterparts about concerns over a possible military operation, citing a buildup of Russian troops along the Ukraine border. Tensions are boiling still in Belarus and Russia is fanning the flames on that front as well.
The bearish accumulation divergence played very well last week. Moreover, the Advance Decline Line is weaker than the price is. It is also a negative factor in the short term. Potentially SP500 started the formation of the bull flag. Finding support at lower levels would be a great buying point with a target of 4800.
The major economic indicators are still bullish despite rising inflation. 4500 level is a psychological level bears will target if 4600 fails. Current levels can be considered only for intraday trading. At the same time, lower levels are needed to get a good risk/reward ratio for swing traders.
As a result of reports that Alibaba’s founder Jack Ma traveled to Europe and the release of a new chip, Alibaba’s Hong Kong shares rose as much as 9% on Wednesday.
Chinese newspaper East Week reported on Tuesday that Ma had been on a sailing vacation with his billionaire business partners and friends in Spain over the weekend. Several confidential sources were cited in the report.
A South China Morning Post article reported later that Ma was in Spain for a study tour related to agriculture and technology.
The whereabouts of Ma have been the subject of intense discussion since he disappeared from the public eye last October after appearing to criticize Chinese regulators. Market pundits had earlier predicted that Alibaba’s share price will increase if Jack Ma was no longer missing.
An IPO for Ma’s fintech company Ant Group was subsequently halted. Regulators have also been closely watching China’s technology sector since then.
Technology companies in China have seen their valuations wiped out by billions of dollars. Alibaba’s U.S.-listed shares have lost more than 23% so far this year.
Alibaba‘s shares surged on the day Ma reappeared for the first time since his October speech.
As part of its cloud business, Alibaba also announced some news this week. As part of an effort to enhance its cloud computing capabilities, the company launched a new chip on Tuesday.
Alibaba’s future growth will be dependent on the cloud. Cloud services currently make up 8% of Alibaba’s revenue.
Besides expanding overseas, the e-commerce giant announced on Wednesday that it will open new data centers next year in South Korea and Thailand.
European bourses rallied off 2-1/2-month lows and Wall Street also jumped as steady crude oil and natural gas prices offered relief after a shock 4% drop in German industrial production highlighted supply chain disruptions.
German output of cars and auto parts slid 17.5% in August due to supply shortages of intermediate products, providing a telling sign of the constraints posed by the combination of rising inflation and moribund growth, or stagflation.
But the number of Americans filing new claims for jobless benefits fell the most in three months last week, suggesting the U.S. labor market recovery was regaining momentum after a recent slowdown as COVID-19 infections subside.
Stagflation fears are overdone, and investors are overly focused on weaker economic growth and higher inflation though the long-term market trend is higher, said Bill Sterling, global strategist at GW&K Investment Management.
“The journey ultimately is to a global expansion that continues intact, which recently has had this stagflation tinge to it,” he said.
The U.S. Senate took a step toward passing a $480 billion increase in Treasury Department borrowing authority, a move that would avert a catastrophic debt default later this month but set up another partisan showdown in early December.
MSCI’s all-country world index rose 1.5%, while the broad STOXX Europe 600 index closed up 1.6%.
Some of the negative pressures have been mitigated as investors reduced positions on concerns about a “what if” scenario concerning the debt ceiling, said Michael James, managing director of equity trading at Wedbush Securities.
“There’s still a number of black clouds hanging over the market, but the skies have cleared up a little bit in the last two days,” James said.
Euro zone bond yields fell as energy prices declined, recovering from a sharp sell-off in debt markets a day earlier that had been driven by inflationary concerns.
Yields on the benchmark German 10-year bund slid 0.3 basis point to -0.187%.
U.S. Treasury yields rose as traders awaited U.S. employment data for September on Friday. Volatility at the shortest end of the curve eased in the wake of a potential plan to avoid a default on government debt this month.
Investors anticipate employment figures that are near consensus will lead the Federal Reserve at its November meeting to indicate when it will begin tapering its massive stimulus program.
The benchmark 10-year U.S. Treasury yield was last up 4.5 basis points at 1.5654%.
Oil prices shook off initial losses to turn positive as a possible release of emergency U.S. reserves and Russia’s offer to help Europe tide over an energy crisis did little to assuage concerns of tight supply heading into the winter season.
Brent crude rose 1.1% to settle at $81.95 a barrel. U.S. crude settled up 1.1% at $78.30 a barrel.
Natural gas prices are still up more than fivefold since the start of the year, and the huge increase over recent weeks has attracted attention from policymakers across the world.
U.S. gold futures settled down 0.2% at $1,759.20 an ounce.
Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan closed up 1.8%, its biggest one-day rise since August.
Hong Kong led Asia’s gains with a 3% bounce off a year low. South Korea’s Kospi gained 1.8% and Japan’s Nikkei firmed 0.5% to snap eight days of losses.
U.S.-listed Chinese stocks jumped, mirroring a rally in Hong Kong shares and as concerns about U.S.-Sino trade relations and Evergrande’s debt crisis appeared to ease.
IShares China Large-Cap ETF and iShares MSCI China ETF both rose about 4.0%, while e-commerce giant Alibaba was on track for biggest one-day gain since April.
The dollar eased from 12-month highs hit last month against a basket of currencies and held at a 14-month high against the euro.
The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.01% to 94.214.
Alibaba Stock Gains Ground On News About U.S. – China Virtual Summit
Shares of Alibaba gained strong upside momentum amid optimism on U.S. – China relations.
Recent reports indicated that President Joe Biden and President Xi Jinping will have a virtual summit in 2021. This summit will be a great opportunity to ease tensions between the world’s two biggest economies, and Chinese stocks are reacting accordingly.
Alibaba stock has been declining throughout 2021 as Chinese authorities put pressure on various industries, from tutoring to online gaming, in order to solve current social problems. Fears about the potential default of China’s developer Evergrande and smaller developers have also hurt Chinese stocks, including Alibaba. Previous problems of Alibaba’s founder Jack Ma also served as a material bearish catalyst for the stock.
What’s Next For Alibaba Stock?
Currently, analysts expect that Alibaba will report earnings of $9.3 per share this year and $10.82 per share in the next year, so the stock is trading at roughly 14 forward P/E which is cheap for the current market environment.
However, earnings estimates have been trending down in recent months, which is not surprising given the recent developments in China. At this point, the key question is whether the stock has declined enough to become attractive for value-oriented investors.
It should be noted that Alibaba shares reached highs near the $320 level back at the end of October 2020, so the stock lost half of its value in just one year. Most likely, traders who are comfortable with the risks that are currently present in China will find that Alibaba shares are attractive at current levels. For others, it’s a more challenging question as earnings estimates may move further down in case the business climate in China continues to deteriorate.
Alibaba Group CEO Daniel Zhang, a prime target of the broad crackdown, told a conference organised by China’s top internet regulator that his company’s $15 billion plan to boost common prosperity in China was “steadily advancing”.
Common prosperity – China’s term for narrowing the gap between rich and poor – is “not just a number”, Zhang said, stressing the importance of helping local talent in poor regions to “teach a man to fish”.
The World Internet Conference in Wuzhen in eastern China is organised by the Cyberspace Administration of China. The conference in the past has drawn such foreign executives as Tim Cook and Sundar Pichai, but overseas attendance was hurt this year by COVID-19 protocols and souring U.S.-China relations.
Qualcomm Inc CEO Cristiano Amon, Intel Corp CEO Patrick Gelsinger and Tesla Inc founder Elon Musk provided taped remarks.
China’s regulatory crackdown has hit sectors from cryptocurrencies and the internet, to entertainment, education and property, wiping hundreds of billions off the market value some of its largest companies and putting investors on alert over who may be next.
The listing of Alibaba’s financial affiliate was halted and the e-commerce giant was fined a record $2.75 for anti-competitive behaviour.
Policymakers and executives at the conference did not address the crackdown directly, though Liu He, China’s vice premier, said the digital economy can at times stifle competition. Common prosperity has re-emerged as a slogan this year after President Xi Jinping used it in public remarks.
Xiaomi Corp CEO Lei Jun called on large tech companies to help more small and midsize firms, saying they must “not let any group fall behind”.
In videotaped remarks, Neil Shen, the founding partner of Sequoia Capital China, which has backed tech giants such as ByteDance and Didi Global Inc, praised a planned tech bourse in Beijing as helping smaller firms.
The comments, made by the Ministry of Industry and Information Technology (MIIT) at a news briefing, mark the latest step in Beijing’s broad regulatory crackdown that has ensnared sectors from technology to education and property and wiped billions of dollars off the market value of some of the country’s largest companies.
China’s internet is dominated by a handful of technology giants which have historically blocked links and services by rivals on their platforms.
Restricting normal access to internet links without proper reason “affects the user experience, damages the rights of users and disrupts market order,” said MIIT spokesperson Zhao Zhiguo, adding that the ministry had received reports and complaints from users since it launched a review of industry practices in July.
“At present we are guiding relevant companies to carry out self-examination and rectification,” he said, citing instant messaging platforms as one of the first areas they were targeting.
He did not specify what the consequences would be for companies that failed to abide with the new guidelines.
The MIIT did not name any companies, but the 21st Century Business Herald newspaper reported on Saturday that Alibaba Group Holding Ltd and Tencent Holdings Ltd were among the firms told to end the practice by an unspecified time last week.
Shares in Alibaba Group and Tencent Holdings fell on Monday by over 6% and 3% respectively against a 3% decline in the Hang Seng Tech Index.
The practice targeted by the MIIT is common.
Tencent restricts users from sharing content from ByteDance-owned short video app Douyin on Tencent’s instant messaging apps WeChat and QQ. In February, Douyin filed a complaint with a Beijing court saying that it constituted monopolistic behaviour. Tencent has called those accusations baseless.
In other cases, Alibaba’s Taobao and Tmall e-commerce marketplaces do not allow Tencent’s payment service WeChat Pay to be used as a payment option.
Tencent said it supported the MIIT’s guidance and would make the necessary changes in phases.
An Alibaba spokesperson referred Reuters to remarks made by CEO Daniel Zhang on Aug. 3, when he said rectification was “highly necessary”.
“Forced cracks in China’s walled gardens has the potential to re-write China’s digital advertising and e-commerce landscapes,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina.
“In the short term, all eyes will be on Tencent as it comes to grips with what it means to open WeChat to Alibaba and ByteDance.”
The MIIT also said on Monday that China had “too many” electric vehicle (EV) makers and the government will encourage consolidation.
MSCI’s benchmark for global equity markets hit a record. The S&P 500 .SPX and Nasdaq also rose to all-time highs as dovish remarks from the Federal Reserve last week bolstered optimism in an economic rebound and eased fears of a sudden tapering in monetary stimulus.
The Dow Jones Industrial Average rose 5.8 points, or 0.02%, to 35,461.6, the S&P 500 gained 26.47 points, or 0.59%, to 4,535.84 and the Nasdaq Composite added 154.43 points, or 1.02%, at 15,283.93 by 3:06 p.m. ET (19:06 GMT).
The Europe-wide STOXX 600 rose 0.07% and was on course to end August with a rise of more than 2% – its seventh month of gains in what would be its longest such winning run in over eight years.
Asian stocks hit a two-week high and Japan’s blue-chip Nikkei closed up 0.5%.
Positive sentiment in equity markets was underpinned by Friday’s Jackson Hole speech by Fed Chair Jerome Powell in which he said tapering of stimulus measures could begin this year, but added the central bank would remain cautious.
“The questions now should pivot from the timing of the taper to its speed. How fast will the Fed reduce its purchases from the current $120 billion monthly rate?” said Christopher Smart, chief global strategist & head of the Barings Investment Institute.
“That will likely be determined by some of the data coming in this week, including U.S. consumer confidence and jobs, but also European inflation and Chinese PMIs.”
With the market focused on the “medium-term,” traders have seen any weakness as buying opportunities, said Pictet Wealth Management strategist Frederik Ducrozet.
“We are going from great to good – the outlook is not as great as it was earlier this year but it’s still consistent with further equity market gains,” he added.
Chinese shares remained the outlier, with the U.S.-listed shares of gaming firms such as NetEase Inc dropping on signs of further regulation.
Chinese regulators cut the amount of time players under the age of 18 can spend on online games to an hour on Fridays, weekends and holidays, state media reported.
The new rules come amid a broad crackdown by Beijing on China’s tech giants, such as Alibaba Group and Tencent Holdings that has hammered Chinese shares traded at home and abroad.
OIL OFF HIGHS
Oil prices edged higher but were off a four-week high as Hurricane Ida weakened into a Category 1 hurricane within 12 hours of coming ashore.
Nearly all U.S. offshore Gulf oil production, or 1.74 million barrels per day, was suspended in advance of the storm.
Focus turned to a meeting of the Organization of the Petroleum Exporting Countries and its allies on Wednesday, with sources telling Reuters the group is likely to keep its oil output policy unchanged and continue with its planned modest production increase.
Brent crude futures settled up 71 cents at $73.42 a barrel after touching four-week highs. They rose more than 11% last week in anticipation of disruptions to oil production from Hurricane Ida.
U.S. oil rose 47 cents to $69.21 a barrel, having jumped a little more than 10% over the last week.
“Hurricane Ida will dictate oil’s near-term direction,” said Jeffrey Halley, senior market analyst at OANDA. “If Ida weakens and its path of destruction is lower than expected, oil’s rally will temporarily lose momentum here.”
In bond and currency markets, it was the Fed’s dovish tone that held sway, with Friday’s key U.S. jobs report in focus.
U.S. Treasury yields retreated as the market looked ahead to the release this week of the August employment report and the possibility it could factor into the timing of the Fed’s tapering announcement.
The 10-year U.S. Treasury yield was around 1.2852% , while the dollar index – which measures the greenback against a basket of currencies – edged higher after touching a two-week low.
The euro edged up to $1.18, off a three-week peak touched earlier in the session.
“If we get a (U.S. payrolls) number close to a million that would increase the odds of taper being announced in September, but if the number is line with expectations then there’s a 50-50 chance for a September move,” said Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group.