Delin's Weekly Observation

The US Federal Reserve kept the federal funds rate target range at a 22-year high of 5.25% to 5.5%, as expected. According to the latest interest rate chart, the forecast of cutting interest rates three times this year by a total of 7.5% is maintained. At the press conference after the interest rate meeting, Federal Reserve Chairman Powell acknowledged that inflation in the past two months was more stubborn than expected, and reminded policymakers not to ignore unsatisfactory data. However, he stressed that the latest data did not really change the overall situation, that is, inflation is gradually falling to 2% on an occasional bumpy path, while the January and February inflation data did not increase or damage policymakers' confidence that inflation will stabilize at the target level.

The initial value of the US manufacturing purchasing managers' index (PMI) for March rose from 52.2 in February to 52.5, beating expectations of 51.8. It was higher than the 50 rise and fall threshold for 3 consecutive months and hit a new high since June 2022. The service sector PMI fell to 51.7 from 52.3 in February, lower than expected 52. In addition, second-hand housing sales in the US surged 9.5% to 4.38 million units at an annual rate of 4.38 million units in February, the highest in a year, and far higher than the estimated 3.95 million units.

As expected by the market, the Bank of Japan ended its 8-year negative interest rate policy since 2016. Yesterday, it announced the first rate hike since 2007, raised the benchmark interest rate from negative 0.1 percent to 0 to 0.1 percent, lifted the yield curve control (YCC) policy, and stopped buying Japanese stock exchange traded funds (ETFs) and Japanese real estate trusts (J-REITs). However, since the Bank of Japan emphasized that it would maintain a relaxed environment, there was no hint of further interest rate hikes, which meant that it would be difficult for the US to narrow the interest rate gap between the US and Japan.

According to data released by the Japanese government, Japan's overall consumer price index (CPI) rose 2.8% year-on-year in February. During the period, the core CPI, which excludes fresh food but includes energy prices, increased 2.8% year-on-year, in line with market expectations. The increase in February was higher than the 2% increase in January, mainly due to the base effect of energy subsidies introduced last year. The CPI excluding fresh food and energy prices rose 3.2% year-on-year last month, the lowest since January last year. The relevant indices are closely watched by the Bank of Japan as indicators of broader price trends.

The National Bureau of Statistics announced that in the first two months of this year, the value added of industries above the national scale increased by 7% year-on-year, which is better than market expectations. In the industrial value added category, the manufacturing industry increased by 7.7%; driven by national policies, the high-tech industry continued to promote the formation of new quality productivity, adding value by 7.5%. Among them, the value added of the semiconductor device special equipment manufacturing industry increased sharply by 41.2%.

The country's fixed asset investment rose 4.2% in the first two months of this year, better than market expectations. Among them, private fixed asset investment declined to rise. Private project investment, excluding real estate development, increased 7.6%. Private capital became an important driving force for fixed investment, accounting for 52.6% of total investment, an increase of 2.2 percentage points over the full year of last year. Private investment in the manufacturing, lodging and catering industries, and transportation achieved double-digit growth. Investments in state-owned holdings rose 7.3%.

Total retail sales of consumer goods increased by 5.5% year-on-year, which is lower than the 5.6% increase in Bloomberg's median market forecast. Service consumption performance was better than retail sales of goods. In the first two months of this year, retail sales of services increased by 12.3%, higher than the 7.7 percentage point growth rate of retail sales of goods during the same period. Mainland residents' spending power falls short of expectations, and the job market may be an important factor influencing confidence. The unemployment rate in the February urban survey was 5.3%, up 0.1 percentage points from January.

Sales of newly built commercial housing (previously known as commercial housing sales) totaled 105.66 billion yuan (RMB, same below), a decrease of 29.3%. The sales area was 113 million square meters, a decrease of 20.5%. Under segmentation, residential sales fell by 32.7% and sales area fell by 24.8% during the period, which meant that office and commercial housing declined less than residential buildings. In the first two months of this year, investment in real estate development was 1184.2 billion yuan, down 9% year-on-year, and residential investment was 882.3 billion yuan, a decrease of 9.7%.

“Bloomberg” reports that according to a new bill in the US Congress, the country's mutual funds will not be able to invest in products that track Chinese stock indexes. Democratic Congressman Brad Sherman's office from California said that the bill is aimed at investing in mutual funds that mainly track Chinese stock indices, not mutual funds that only invest in indices of several Chinese companies. Sherman and Sparz proposed another measure that would remove US capital gains tax incentives on investments in Chinese, Belarusian, Iranian, South Korean, and Russian companies.

Kenty Wong, managing director of Delin Securities, observed that after several ups and downs in the past, the overall Hong Kong stock market clearly showed fatigue at the beginning of last week. The Hang Seng Index rebounded significantly under the recent ceiling resistance of 17,000 points, and fell more than 500 points in a single day last Friday.

Summarizing the cumulative decline of 221 points in the Hang Seng Index last week, the main reason was affected by the decline in the mainland stock market. However, in terms of market transactions, it rose to HK$135.6 billion after a sharp drop in the market last Friday. It seems that quite a few purchases surfaced in the Hang Seng Index above 16,000 points. It is not ruled out that there is an influx of floating capital to open positions at a low level. Investors may wish to pay more attention to floating capital trends.

On the peripheral side, as expected last week, the US Federal Reserve kept interest rates unchanged for the fifth consecutive meeting, and announced to the outside world that it would cut interest rates three times this year, cutting interest rates by a total of three quarters and raising economic growth expectations at the same time.

Looking ahead to this week, I believe Hong Kong stocks will show a dull and boring pattern. However, given the large number of purchases before closing on Friday afternoon, I believe Hong Kong stocks will experience a “Xiaoyangchun” at the beginning of this week. As to whether the Hang Seng Index can challenge the 17,000 point level, more capital will be needed, and it is also necessary to match the market's turnover level above 130 billion to have some support.

According to market reports, Singapore will still be the economy with the best business environment in the world for the next five years. The famous financial magazine “The Economist” published the “Business Environment Ranking” to measure the attractiveness of the business environment in 82 countries and regions around the world. Singapore continues to rank first, followed by Denmark and the United States, Switzerland and Canada, which ranked fourth and fifth; Hong Kong, China dropped from 7th place last year to 9th place.

In fact, the top ten regions are all “advanced economies” and “safe investment regions” with strong long-term performance. Many wealthy people tend to set up family offices in Hong Kong. The SAR government issued a “Policy Declaration on the Development of Family Office Business in Hong Kong” in March of last year and introduced a series of measures to effectively accelerate the development of family offices and related businesses in Hong Kong.

In fact, according to market research conducted by commissioned consultants, there were about 2,700 single-family offices operating in Hong Kong at the end of last year, of which nearly 900 had wealth levels over $100 million. This figure does not include joint family offices. Undoubtedly, these figures once again reflect the considerable appeal of Hong Kong as an international financial center to wealth management businesses, including family offices.

This week, under Kimi's concept, the Sora concept, AI healthcare, media entertainment, etc. soared in the market. The market is speculating on AI, switching from hardware to application level. The sharp decline in the RMB exchange rate directly affected the trend of A-shares. In addition, the technical aspects of A-shares themselves also needed to be adjusted, and there was the second largest divergent adjustment in this wave of rebound markets.

Regular adjustments to the FTSE Russell Global Stock Index and sample A shares took effect in the first quarter. This regular adjustment added 76 additional A sample stocks, including 40 in Shanghai and 36 in Shenzhen. At the same time, the inclusion factor (i.e. market value adjustment coefficient) of more than 600 new A-shares included in regular sampling in September 2023 increased simultaneously from 12.5% to 25%. This adjustment is expected to bring in over 5 billion yuan in incremental capital for A-shares.

Foreign capital has gradually made up A-share positions since February, with a net inflow of 60.7 billion dollars in February and a net inflow of 25.7 billion dollars in March. At the time of the sharp drop on Friday, the national team again began to buy the Shanghai and Shenzhen 300 and Shanghai Stock Exchange 50 ETFs in a big way in the afternoon, and the market is still firm. It is expected that the market will fluctuate and clear up in the future.

Chen Ningdi, chairman of the board of directors of Delin Holdings, said, “The lockdown period for this sale is for one year. The aim is to attract more investors who have been optimistic about Delin's development for a long time to join us. The current state of weak market fund-raising and trading further highlights Delin's leading position in the industry segment and confidence in Hong Kong's long-term improvement. This placement is of great significance to Delin. It is not only a full affirmation by the market and investors of Delin's development over the past ten years, but also supports and supports our future development path and direction. Hong Kong is in a special period of transformation between old and new energy. Delin's brave experiment will have the opportunity to change and even reshape the traditional financial asset management industry, so that wealth inheritance is no longer mysterious and unpredictable, so that everyone can have their own family office.”

Alibaba recently sold off its holdings in exchange for the sale of Bilibili (Bilibili) American Depositary Shares (ADS), commonly known as “Station B”, and cashed out 358 million US dollars. Bloomberg quoted people familiar with the matter as saying that Ali sold 30.85 million copies of Bilibili ADS, with a shipping price of 11.6 US dollars each, a discount of about 5.54% from Bilibili's ADS closing price on Wednesday. An Ali spokesperson said that the plan to sell Bilibili ADS is in line with the Group's capital management goals and will not affect the business cooperation between the two parties. Affiliated companies of the Group will continue to cooperate with each other in various fields.

Ali became the main shareholder of Bilibili in February 2019 and is also the platform's main advertiser. However, in the fourth quarter of last year, the revenue of Bilibili's mobile game division fell by about 12% year-on-year, and its entry into e-commerce also faced fierce competition from Douyin and Xiaohongshu. Only this week did Ali disclose a reduction in Xiaopeng Motor's holdings of 33 million ADS, worth about US$314 million. At the beginning of last month, Kuaigou Taxi shares were sold, reducing its shareholding to less than 5% without further declaration. Last year, Shangtang's holdings were also liquidated.

Major Chinese financial technology network stocks are being repurchased. When announcing the results yesterday, Tencent announced that it plans to at least double the scale of this year's share repurchases, from HK$49 billion last year to over HK$100 billion, and proposes to pay a final dividend of HK$3.4 per share, an increase of 42% year-on-year. Tencent President Liu Chiping said that China's technology stock prices are currently low, and increasing repurchases is the most beneficial solution for shareholders, and emphasized the Group's ability to continue to give back to shareholders.

In terms of performance, Tencent recorded revenue of 155.2 billion dollars in the fourth quarter of last year, up 7% year-on-year, lower than the estimated 157.4 billion; adjusted profit (non-IFRS) increased 44% to 42.7 billion yuan, better than the forecast of 42 billion dollars. Affected by the weak performance of flagship games, the Group's local game revenue fell 3% year-on-year to only 27 billion dollars last quarter. Liu Chiping explained that last year, domestic game operations were concentrated on the Lunar New Year. Coupled with the post-pandemic opening up to drive consumer enthusiasm, there was a sharp increase in turnover (game payments) in the first quarter, but related deferred revenue had subsided by the fourth quarter. He estimated that the first quarter of this year was still affected by the high base. As the base effect declined in the next quarter, and with the launch of new games, local games could regain their growth momentum.

Tencent mentioned in the announcement that according to the standard of mobile game quarterly active accounts (DAU) exceeding 5 million, computer games exceeding 2 million, and annual turnover exceeding 4 billion yuan, the number of “key popular games” in the local market increased from 6 in the previous year to 8 last year. The total volume of mini-games increased by more than 50% last year, making it a leading casual gaming platform in China. International game revenue increased 1% to 13.9 billion last quarter, accounting for about 30% of overall game revenue, mainly due to a strong recovery in PUBG Mobile revenue and Valorant's continued growth.

Liu Chiping pointed out that overseas game revenue rose 14% last year, far exceeding industry performance. In addition to existing games, a series of new games will be launched overseas this year, such as “Path of Exile 2” (translated from overseas as “Dark Path of Exile 2”), which will help drive the growth of international games, and the Group is committed to increasing the share of overseas games. As for online advertising, revenue increased 21% to 29.8 billion yuan last quarter. The increase in advertising expenses in the Internet services, health, and consumer goods industries was particularly significant.

James Mitchell, Chief Strategy Officer of Tencent, explained that the growth rate of the advertising business was higher than that of the industry last quarter. On the one hand, it was driven by the commercialization of WeChat video accounts (video accounts), and secondly, due to the use of artificial intelligence to upgrade advertising technology platforms to promote accurate delivery results. Revenue from fintech and corporate services increased 15% year-on-year in the last quarter, reaching $54.4 billion. Among them, fintech service revenue maintained double-digit growth, corporate service revenue increased by about 20%, mainly benefiting from increased technical service fees for video channels and steady growth in cloud service revenue.

When talking about the development of AI, Liu Chiping said that whether it is logical reasoning and multiple rounds of dialogue, the mixed element model has developed into a leading basic model. For consumers, at this stage, users are mainly able to test the ability of mixed elements to help them continuously improve through applets. In the future, small programs or applications (apps) based on the mixed element large model may be developed according to user needs.

Meituan, the largest takeout platform in the Mainland, earned nearly 4.3 times more in the fourth quarter of last year. The adjusted net profit reached 4.37 billion yuan, far higher than the estimated 2.9 billion yuan, and contracted 24% quarterly; revenue increased 22.6% year-on-year to 73.69 billion yuan, better than the forecast of 72.7 billion yuan.

The community group buying business “Meituan Premium” has continued to record huge losses in recent years, which has become a major drag on performance. Meituan admits that the community e-commerce market is “more difficult than expected” and will make strategic adjustments this year with the goal of drastically reducing operating losses.

“Meituan Premium” is a new business launched by Meituan in 2020 and accounts for a significant share of the Group's new business divisions. According to the disclosure, the operating loss of Meituan's new business division in the last quarter was 4.8 billion yuan, a decrease of 24% year-on-year. The operating loss rate was 26%. The operating loss rate for the whole year was 20.2 billion yuan, and the operating loss rate was 28.9%.

CEO Wang Xing mentioned at the performance conference that due to macroeconomic headwinds and the return of consumers to offline after the pandemic, the size of the community e-commerce market remained basically flat last year, causing the growth rate of “Meituan Choice” to slow down. Despite improvements in the efficiency of this business, the amount of loss and loss rate are still significant. As scale growth falls short of expectations, it is difficult to drastically reduce the cost of each contract. At the same time, fierce competition makes it more difficult to increase the product price increase rate and reduce subsidies.

Wang Xing added that the Group has been investing in “Meituan Premium” for almost 4 years. This year, it will adjust its strategy and improve its business model with the aim of drastically reducing operating losses. Rather than expanding scale and market share, it will focus more on building core competitiveness and improving user experience. What is encouraging is that the operating losses of “Meituan Choice” narrowed markedly in the first quarter of this year, and I am confident that the trend will continue this year.

On the core local business side, revenue for the last quarter increased 26.8% year-on-year to $55.13 billion, operating profit increased 11% to $8 billion, and operating profit margin was 14.5%, a decrease of 2.1 percentage points year-on-year, due to the decline in average customer unit prices for food and beverage takeout and Meituan flash shopping, as well as increased subsidy rates and promotion expenses for trading users.

Regarding the food and beverage takeout business, Alibaba's “Are You Hungry?” has recently been rumored to be selling, and outsiders are worried that the competitive landscape is changing. Meituan Chief Financial Officer Chen Shaohui believes that Meituan's food and beverage takeout development process has never lacked competition. The industry has entered a more mature stage. Consumers have formed a mentality about high-quality service platforms and brands, and the group currently serves nearly 490 million annual trading users and 4.6 million annual active merchants, building the world's largest and most efficient real-time delivery network, and is confident that it will maintain its leading position.

Kuaishou announced last year's fourth quarter and full year results. The adjusted profit for both was better than expected. It was also the first time since listing that it recorded annual profits. Kuaishou said that the company's development has entered an era of full profit.

Kuaishou recorded an adjusted profit of 10.271 billion yuan for the full year of last year, and an adjusted loss of 5.751 billion yuan for the full year of last year. The Group's revenue for the full year of last year increased by 20.5% year-on-year to $113.47 billion. For the fourth quarter of last year, adjusted profit was 4.362 billion yuan, and adjusted loss was 45 million yuan for the same period of the previous year; in addition, the Group's quarterly revenue increased 15.1% year-on-year to 32.561 billion yuan. According to business division, the online marketing business that earns advertising revenue was still an important business segment of Kuaishou last year, accounting for 55.9% of annual revenue. The division recorded revenue growth of more than 20% in the fourth quarter and full year of last year, and active marketing customers surged 1.6 times year-on-year in the fourth quarter of last year, mainly due to refined industry operations, intelligent marketing product upgrades, and continuous algorithm optimization.

Kuaishou's live streaming business accounted for 30.9% of revenue for the full year of last year, but it only increased by 10% year on year, and almost stagnated quarterly. On the other hand, looking at other services, including e-commerce, the revenue growth rate for the full year of last year surged by more than 40% year-on-year, making it the fastest growing of Kuaishou's three major businesses. Kuaishou's total e-commerce product transaction volume (GMV) rose 29.3% year-on-year to 403.9 billion yuan in the fourth quarter of last year; last year's GMV surged 31% to 1.18 trillion yuan. In the fourth quarter, the average number of monthly e-commerce paying users reached a record high of 130 million, and the monthly active user penetration rate rose to 18.6%, mainly due to the continued abundance of shopping scenarios such as pan-shelves, as well as continuous product and gameplay upgrades.

In a post-performance conference call, management pointed out that as measures to improve quality and efficiency continue to be implemented, including improving operational efficiency through technological innovation, overall profitability will gradually increase, and adjusted net profit growth is expected to exceed expectations this year. The e-commerce business and online marketing services continue to grow rapidly. The management expects gross margin to improve year by year throughout this year, mainly due to the optimization of the Group's revenue structure, driving an increase in the share of high-margin online marketing and e-commerce business revenue. The Group's average daily active users in the fourth quarter of last year increased by 4.5% to 380 million; the average monthly active users increased by 9.4% to a record of 700 million.

Management estimates that Kuaishou is expected to reach the target of 400 million daily users in a single quarter in the second half of this year using technology and operating methods, and by optimizing growth strategies. Based on the above reasons, Kuaishou's user ROI (return on investment) is expected to increase, and the group's overall sales and marketing expenses as a share of revenue are expected to drop this year compared to last year.

The SNB unexpectedly relaxed its monetary policy earlier than the European Central Bank and the US Federal Reserve. It announced a 0.25% interest rate cut on Thursday, lowering the benchmark interest rate to 1.5%, making it the first central bank in the top ten most active currency countries to cut interest rates since the epidemic eased. Analysts believe that pre-emptive interest rate cuts will help prevent the Swiss franc from appreciating sharply. The Swiss franc declined in response to the announcement.

Swiss Central Bank Governor Thomas Jordan (Thomas Jordan), who will step down in September, said when announcing the decision to cut interest rates that monetary policy can be relaxed at this time because the anti-inflation campaign over the past year and a half has had remarkable effects. The central bank said in a statement that local inflation has remained below 2% for many months, which means that prices are within a stable range, and according to the latest forecast, inflation can remain within this range for the next few years. The central bank also lowered its inflation forecast. The average inflation for this year and next two years is expected to be 1.4% and 1.2%, respectively, and fall to 1.1% by 2026.

Capital Economics analysts expect the SNB to cut interest rates two more times this year because the central bank's tone is further skewed and inflation is likely to be lower than predicted. The SNB's decision was unexpected by the market. Many analysts expect the central bank to keep interest rates at 1.75% until June, because many ECB officials, including President Lagarde, said that the ECB had the greatest chance of cutting interest rates in June, and the Federal Reserve has yet to act. On Wednesday, they continued to suggest that interest rates will be cut three times this year.

Bloomberg economist Maeva Cousin said that the ECB and the Federal Reserve's interest rate meeting in June came earlier than the Swiss central bank. If the European and American central banks act first, the Swiss franc will face an upward risk. She believes the SNB will take the lead in taking the lead.