PMIs win, technology leads gains

Key news

Asian stocks were mostly higher overnight as Hong Kong and mainland China took the lead in the region after Remembrance Day in the United States.

It was a good day for growth and technology action as stimulus expectations and PMI announcements better than expected led investors back to some names. Baidu received over + 7% overnight after a positive earnings announcement on Thursday, which is discussed below.

Purchasing Manager Indices (PMI) are diffusion indices, meaning that any reading above 50 indicates expansion, while any reading below 50 indicates contraction. Although the announcement of the PMI in May indicates a decrease compared to the previous year, the readings were above expectations and the gloomy readings in April. The continuous decline can be attributed to the decline in global demand for Chinese exports as the global stimulus fades, and the reading is better than expected pessimism about the blockade in China, which seems to be showing signs of easing.

Shanghai reported 30 cases of COVID on Monday, and none outside quarantine areas. Meanwhile, Beijing has reported 18 cases of COVID. This is the lowest number of reported cases in almost three months. Shanghai will lift locking measures for residents in low-risk areas from tomorrow.

In addition to delaying the closure, the Shanghai local government also announced a series of stimulus measures, including tax cuts, rent cuts, new funding for housing projects and increased financial support for foreign trade firms. All these measures will last at least until the end of the year.

The Hong Kong Stock Exchange (HKEKS) has published further rules on the access of ETFs to Stock Connect. ETFs listed on the Hong Kong Stock Exchange must trade in the RMB to qualify for Northbound Stock Connect, which would allow them to trade shares of A on the Land Stock Exchange. The reverse is true for onshore ETFs that access Southbound Stock Connect, which would allow them to trade stocks listed on the Hong Kong Stock Exchange. The latter must trade on land in Hong Kong dollars. We believe that access to Southbound Stock Connect for onshore ETFs can increase flows to Hong Kong-based, Hong Kong-based companies, which include many of China’s largest Internet companies, and even secondary lists because these ETFs will be able to trade secondary lists if they meet certain conditions.

Earnings overview Baidu K1

• Revenue increased by + 1% compared to the same period last year to 28.4 billion RMB
• Net income was 2.7 billion RMB
• Net income margin was 9.6%
• Earnings per share (EPS) were 11.22 RMB compared to an estimated 5.17 RMB

Baidu surpassed analysts’ estimates of a + 35% increase in their non-advertising jobs because advertising was expected to be hit by the blockade.

“Baidu gave solid results in the first quarter, especially in relation to our cloud business and intelligent driving. Baidu AI Cloud reported another quarter of strong revenue growth and Apollo Go received China’s first license to provide driverless services on public roads in Beijing, “said Robin Li, co-founder and CEO of Baidu. “Since mid-March, our business has been negatively affected by the recent appearance of COVID-19 in China. Although the challenges of the virus continue to put pressure on our short-term business operations, we remain confident that our new artificial intelligence companies will boost Baidu’s long-term growth and contribute to China’s innovation-driven and sustainable development economy.

The Hang Seng and Hang Seng TECH indices closed + 1.38% and 3.02% overnight, respectively, with the volume almost doubling compared to yesterday. The growth of shares exceeded the value of shares other than energy, oil and gas.

Shanghai, Shenzhen and the STAR board concluded 1.19%, 1.57% and 3.37% more overnight, respectively, with a volume that was + 15% higher than yesterday. The growth of shares exceeded the value of shares other than energy, oil and gas.

Last night’s exchange rates, prices and yields

• CNI / USD 6.67 versus 6.66 yesterday
• CNI / EUR 7.13 versus 7.18 yesterday
• Yield on one-day government bonds 1.23% compared to 1.19% yesterday
• Yield on 10-year government bonds 2.74% versus 2.73% yesterday
• The yield on 10-year bonds of the China Development Bank was 2.98% versus 2.96% yesterday
• Copper price -0.37% overnight