Topic #1: Has faith in China’s recovery dwindled?
The Hang Seng Index is now down 10.06% since its high in January. Some believe the market decline is due to growing geopolitical concerns and doubts over the strength of China’s economy. Investors are also seeking more evidence that the economy’s recovery is on safe footing, as a sharp three-month surge in the measure started to reverse in February.
However, Goldman Sachs has expressed a positive outlook on China’s stock market, despite recent concerns around the country’s Covid resurgence and escalating tensions with the US. The firm believes that China’s stocks will continue to regain their momentum over time, with consumer sectors like the service industry expected to experience the most growth. In addition, Goldman Sachs anticipates that the Chinese government will announce new growth policies, further boosting the market. The firm predicts that the MSCI China Index will rise by 24% by the end of the year.
Why should I care?
For retail investors, this positive outlook on China’s stock market is significant as it suggests that there may be investment opportunities in the country. Additionally, the drop in China’s mortality rate indicates that the country is effectively managing the pandemic, which could lead to a rebound in oil prices as China’s demand for oil returns to pre-pandemic levels.
Overall, while China’s stock market has faced challenges recently, Goldman Sachs’ optimistic outlook suggests that the country’s stocks may continue to perform well, particularly in consumer sectors.
Topic #2: Key earnings from Alibaba, HSBC
Two Hang Seng Index heavy weighted companies, Alibaba Group and HSBC, announced quarter results last week.
The gaint Chinese e-commerce Alibaba Group dropped 5.4% after announcing its lackluster December quarter results. Revenue grew 2.1% to US$35.9 billion, which is another quarter of slower yoy growth. Net income US$6.8 billion, up 69% from the same period a year before, helped by cost trimmed in job cuts and absence of impairment of goodwill related to its digital media and entertainment segment last year.
Alibaba’ s cloud computing services was considered a major growth driver, and the December quarter reported its slowest quarterly revenue gain in the past 12 months. Alibaba Cloud posted a 3% yoy revenue increase US$2.92 billion. Sales growth slowed down from 12% yoy in March Quarter, 10% yoy in June quarter and 4% yoy in September quarter.
HSBC reports fourth-quarter pre-tax profit of $5.20 billion, beating an average estimate of $4.96 billion. HSBC said annual expected credit losses rose to $3.6 billion, more than the $3.2 billion analysts had estimated, due to rising inflation pressuring borrowers and lingering problems in China’s property market. HSBC also said it will return to paying quarterly dividends in 2023, and would bring forward the consideration of fresh share buybacks to the first quarter of 2023.
What do that mean to Hang Index?
The two companies combined accounted for nearly 16% weighting in Hang Seng Index. Their results anSengd outlook will guide the investor to evaluate China’s post-covid situation. Given their ordinary results, these two could not help to boost the Hang Seng Index. It could be said that Alibaba would give us more insight on the competition within the TMT platform players.
Topic #3: Walmart’s uncertain outlook
Walmart, the world’s largest retailer, reported strong financial results for the last quarter of 2022, with sales at US stores open for at least a year growing by 8%, well above analysts’ expectations. However, the company’s outlook for the current year disappointed investors, causing a sell-off in Walmart shares. Walmart’s forecast suggests that its annual profit could decline for the second consecutive year.
What does this mean?
The reason for the company’s cautious outlook is multifaceted. First, Walmart’s recent success is mainly due to low-margin products such as groceries and discounted goods. As a result, the company’s profitability has taken a hit. Second, despite an improving economic outlook, consumers’ savings rates remain low, indicating that they are still cautious about spending. Third, Walmart’s suppliers are increasing their prices, which could further erode the company’s profitability.
Moreover, Walmart’s disappointing outlook follows similar warnings from other major retailers, including Home Depot, which missed sales expectations for the first time since the pandemic began and predicts that its sales won’t grow in 2023. This development has led to concerns that the retail industry may face a challenging year.
Why should I care?
Retail investors should pay attention to these industry trends and their potential impact on individual companies. Walmart’s performance, in particular, is closely watched, as it serves as a bellwether for the broader retail industry. Investors should also consider the company’s efforts to adapt to changing consumer behaviors and preferences, such as its investments in e-commerce and last-mile delivery capabilities. Overall, while Walmart’s recent financial results show that the company is resilient, its outlook highlights the challenges that the retail industry is facing in the current economic environment.
