Mainland Stocks In Hong Kong's Hang Seng Fall To 20 Year Low
The Hong Kong version of mainland China stocks are considered more liquid and free from regulatory meddling and also represent some of the top Chinese firms. Conversely, their fate also reflects investor sentiment on China's economy and stocks
Our Top Reports For Today
- (00:00) Stories Of The Day
- (00:50) Mainland stocks in Hong Kong’s Hang Seng fall to 2 decade low. What’s next?
- (03:06) US markets continue to stay strong. Will it spillover to India?
- (06:15) Worst for consumer products in 3 decades in India, says distributors federation chief.
- (25:42) Sony calls off merger talks with Zee Entertainment, will they become fresh targets?
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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Chinese Stocks Get Hammered
First, yesterday was a markets and bank holiday in India so no market report from India but there is much happening elsewhere, including in Chinese stocks, so let's dive into it.
Chinese stocks listed in Hong Kong are at their deepest discount to the mainland in 15 years.
The Hang Seng China Enterprises Index fell close to a level last seen almost two decades ago, Bloomberg reported.
The gauge tracking mainland stocks’ price gaps versus their dual listings in Hong Kong reached the widest since 2009 — implying a 36% discount for the offshore market.
The Hong Kong version of mainland China stocks are considered more liquid and free from regulatory meddling and also represent some of the top Chinese firms. Conversely, their fate also reflects investor sentiment on China’s economy and stocks.
To be fair, Chinese stocks are being hit for reasons other stocks in the region are being hit too, for example, US interest rates and where they may or may not go and when.
But some problems, like a debt ridden and struggling real estate sector are unique to China.
A market analyst told Bloomberg that quite a large number of H share investors are overseas institutional funds and they have reallocated from Hong Kong to Japan and other Asian markets in their Asian allocation, referring to Hong Kong-listed stocks.
Even in the mainland Chinese market, the benchmark CSI 300 has hit a new five-year low.
Less than a month into the new year, the gauge of Chinese stocks listed in Hong Kong has already lost 13%, making it the worst-performing major benchmark in global indexes. In comparison, the S&P 500 has gained 1.5%, Bloomberg pointed out.
Meanwhile, Reuters is reporting that China's major state-owned banks moved to support the yuan on Monday, tightening liquidity in the offshore foreign exchange market while actively selling U.S. dollars onshore as equities fell further.
The goal was to prevent the yuan from falling too fast as China's A shares plunged, sources told Reuters, with the benchmark Shanghai Composite index posting its biggest one-day drop since April 2022 on Monday, down 2.7%.
That Was China, now Global stocks
Global equities are zooming ahead, with Wall Street poised for fresh records, as investors are back to betting on falling interest rates and a strong earnings season.
India by the way is not benefiting so much from this earning season as you might have noticed except for a surprise response in IT stocks. With markets having been shut on Monday, at home we have to see how markets digest the overnight actions in the US and move today.
Futures contracts on the Nasdaq 100 index rose as they did on the S&P 500 climbed after it became the last of the three major US equity benchmarks to reach a record closing high.
Equity markets are essentially betting on the US economy’s resilience and renewed belief that central banks will start cutting interest rates later this year.
Tech shares are driving earnings and sentiment in the US now.
I mention it also because all the companies and brands are known here.
Western Digital Corp. and Paypal Holdings Inc rose and the Magnificent Seven companies are expected to deliver combined profit growth of about 46%, according to data compiled by Bloomberg Intelligence.
The last few days have been steady because US markets are looking strong though foreign portfolio investors have been selling again in India.
Be that as it may, both domestic and international flows are looking fine for now.
There is of course a valuation concern that is hanging over the markets and to take the optimistic view, will stay till earnings catch up, as and when they do.
On the other hand, it is clear that many stocks like banks and large consumer product companies who depend on the larger mass of consumers will be under pressure for some time as I will come to later in the show.
Oil Loses Ground, Uncertainty Fails To Dent
Despite all the tensions in the middle east, including missiles flying around the Red Sea, oil prices are still weak.
They fell on Monday as the demand outlook for oil stayed weak despite the geopolitical concerns in the region.
Brent crude was holding around $78.33 a barrel by.
Prices were not impacted despite an alleged Ukrainian drone attack at a huge Russian fuel export terminal, Reuters reported.
It is boiling down to a growth outlook across China and the western hemisphere which is of course not very strong.
All major forecasting agencies are predicting demand to slow down in 2025.
The COre’s Energy Segment was supported by IndiaEnergy Week to take place next month.
For more details, log onto www.indiaenergyweek.com
The Worst Quarter In 30 Years
What’s happening in consumer product numbers and what does it reflect, more importantly.
Of course it depends on who you ask. So I asked two slightly different sets of people, one an analyst looking at numbers via a platform that services close to 750,000 retailers.
The other, a distributors federation that represents over 400,000 stockists across India.
The larger point is that even if volumes rose somewhat, value did not because most companies have cut prices. We will look at both companies and the macro picture in a moment.
There is another point, which is that figures when viewed over a year, let's see, present a different picture than what some of us, including myself, were concluding or taking away, quarter on quarter.
The macro picture is important because it tells you what is happening in the economy in terms of consumption and investment, since there are not too many figures at that level going around.
The latest numbers to arrive were Colgate-Palmolive (India) which reported a 35.7% jump in third-quarter profit on Monday, thanks to a good urban demand and a fall in expenses.
Sales of consumer goods makers have been boosted by urban consumers with higher average income, even in the face of elevated prices of essential goods.
Sales were up 8.2% to Rs 1,386 crore, helped by its core oral care category.
Hindustan Unilever meanwhile posted a smaller-than-expected increase in quarterly profit on Friday, as rural markets remained weak.
It reported a volume growth of 2% for the October to December quarter, which was flat on a sequential basis and was lower than the 5% volume growth it reported during the same period last year.
Additionally, Dabur India, set to report results next week, said earlier this month that it expects mid- to high-single-digit growth in consolidated revenue for the third quarter, citing subdued pricing growth and disparity in demand between rural and urban areas.
The HUL chairman told analysts that an average Indian consumer is spending more than 50 per cent of their time on the digital media, with e-commerce and digital commerce gaining traction.
It is not clear whether the overall consumption is increasing because people are going digital though that is a discussion for a later date.
HUL says that on an YTD (year-to-date) financial year basis, the premium portfolio continues to lead growth, surging more than 2.5 times the mass portfolio. Premium products are typically those with a relative price index greater than 120 per cent of the category average.” the company said.
Moreover, Urban growth continues to outpace rural.
And then of course, a phenomenon we have discussed here as well, the very hungry regional players who are putting up a solid fight and eating into market shares of the big incumbent giants. For example noodles.
Now, let's look at the broad numbers. Data from retail intelligence agency Bizom says sales of groceries, household and personal care items grew just 2% by value in 2023, significantly slower than 7% in 2022.
Moreover, sales remained flat for discretionary products such as smartphones, refrigerators and televisions, for which volume growth fell 2-5%.
Home care has done well growing around 13% last year but many categories have low single digits or negative, like beverages.
Let's now look at two viewpoints.
First, lets begin closest to the ground with Dhairyashil Patil, President
All India Consumer Products Distributors Federation (AICPDF). I spoke to him in Kolhapur where he is based and began by asking him how was looking back at all of 2023.
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Dairyashil says the third quarter is the best quarter and this was the worst in 30 years. And there is a definite problem on rural purchasing power which is under increasing pressure.
I then spoke to Akshay D'Souza of Bizom Intelligence out of Bangalore and I asked him what happened in 2023 and why value growth was low, at least lower than what I thought it was looking like just after the festival season.
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Zee-Sony Merger Called Off, Battle Set To Start
Zee Entertainment was told today by Sony Pictures that their merger agreement dated December 21 or three whole years ago, was off.
Worse, Sony has sought a termination fee of USD 90mn on account of alleged breaches by ZEE of the terms of MCA, invoking arbitration and seeking interim reliefs against ZEE.
This is indeed a mess.
It also means that for now the market will remain fragmented or like magnets in a bowl, different pieces keep moving around till the one with the largest magnetic force captures them, or well, merges with them.
Remember, there is a binding term sheet between Reliance and Disney’s India business as well but the deal is yet to happen too.
The merger was not going to be easy ever since Zee was embroiled in a Sebi investigation into actions by the promoters, the Goenkas in alleged fund diversion.
The latest bug bear was that Sony wanted Punit Goenka, the MD and promoter to step down from the board. Zee says he was willing to buy something snapped at the end or towards the end because there were extensions and both sides obviously wanted the deal.
The question of course is what happened and why was this merger imperative for both.
I reached out to Vanita Kohli Khandekar, media analyst and Business Standard columnist who has been tracking this closely and began by asking her what prompted the deal to be called off?
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Well, that’s it from me for today, see you tomorrow
