22.05.2022
Chicago 11, Melborne City, USA
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New measures to support the stock market and the economy 06.05.2022

The Hang Seng Index in Hong Kong for the week from April 28 to May 5 rose by 6.3%, but all the growth was leveled in the morning trading on May 6, after a large-scale correction in the US market on May 5, when the Nasdaq capitalization was more than $ 1 trillion from -for expectations of a sharper increase in rates in the US.

On April 29, the Politburo of the Central Committee of the Communist Party of China approved a package of measures to accelerate the growth of the country’s economy. The policy of the PRC leadership remains unchanged – as long as new cases of coronavirus are detected in Shanghai, quarantine will be maintained, even to the detriment of the economy.

News of the week

1) China will strengthen measures to combat outbreaks of coronavirus in the regions. The decision was made at a meeting of the Politburo Standing Committee chaired by Xi Jinping, China Central Television reported. “Our pandemic prevention and control strategy is determined by the character and principles of the party,” the Standing Committee said. “Our policies can stand the test of history, and our measures are scientific and effective.” No changes to Shanghai’s full lockdown are planned until the rise in infections subsides.

2) The State Council of China decided to promote the development of local Internet platforms, as well as provide financial support to the poor who have lost their jobs, in order to support the economy, the growth of which is constrained by the pandemic.

3) Services activity in China fell in April as the coronavirus outbreaks and lockdowns continued to hurt consumer spending and the economy. The Caixin China Services Purchasing Managers Index fell to 36.2 in April, the lowest level since February 2020.

4) The US Securities and Exchange Commission (SEC) has added more than 80 Chinese companies, including JD.com, Pinduoduo and Bilibili, to the list of entities that face delisting from US exchanges due to Beijing’s refusal to provide access to full audit documentation corporations. China, in response, said that negotiations with the United States on this issue are ongoing, and the final decision on the delisting of companies from the list has not yet been made. US law provides for the delisting of companies from stock exchanges if they evade full reporting for three consecutive years, i.e. their Chinese stocks may be delisted from the New York Stock Exchange and Nasdaq indices as early as 2024.

5) China on April 28 zeroed duties on coal imports. The goal is to ensure energy security under quarantine conditions. The country may increase its coal mining capacity by 100 million tons this year (targeting 300 million tons), including mines that are still being tested. Zhang Yupeng, an analyst at the China Coal Transportation and Distribution Association, said. In India, for example, the energy crisis has already begun, which forced the state to buy liquefied gas at inflated prices.

Short term expectations

The peak of sales of Chinese assets has passed. China’s economic stimulus measures will soon take concrete shape. We expect that the positive dynamics of Chinese indices will continue next week. To reduce them, new negative trends are needed, which do not yet exist.

https://t.me/china_pre_IPO

Amid sell-offs in the US tech sector, Alibaba’s P/E discount to Amazon remains high (exceeding a record 90%, indicating that Alibaba is highly oversold and Amazon shares are overvalued) and continues to grow. If the regulatory pressure on Alibaba eases in the near future, the gap will narrow significantly and Alibaba’s share price will exceed $200.

Source: Bloomberg, ITI Capital

Normalized dynamics of benchmarks from the peak of the Chinese market, %

Normalized dynamics of benchmarks from the peak of the Chinese market, %

* KWEB is a passive ETF that reflects the dynamics of the CSI Overseas China Internet IT companies index

Source: Bloomberg, ITI Capital

Weekly calendar

Weekly calendar

Source: Bloomberg, ITI Capital

Market indicators

Market indicators

Source: Bloomberg, ITI Capital

Stock quotes of Chinese technology companies

Stock quotes of Chinese technology companies

Source: Bloomberg, ITI Capital

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