The Briefing Room

Current Market Overview:

• US Futures: Opened slightly green, with the Russell 2000 leading the charge. Near-term sentiment appears very positive, signaling investor optimism.
• Jobs Report: Last week’s blowout jobs report illustrates the resilience of the job market. However, while markets seem content with the headline number, skepticism remains. The potential job issue might not be entirely “gone” after one favorable print.
• Port Strike Resolution: The port strike that threatened supply chains has been resolved as of late last week. However, this matter could resurface in January if worker demands are not met. For now, it appears this won't disrupt the upcoming winter spending season.
• S&P 500 Performance: The first three quarters of this year marked the 9th best performance for the S&P 500 since 1950. Historically, October typically sees a decline, which I interpret as a profit-taking opportunity that many investors capitalized on.
• China Markets: Chinese markets are experiencing a significant uptick, with FTSE A50 futures climbing 2.6% and the Hang Seng Tech Index rising 3%. Despite this, property developers face ongoing challenges, with RonShine China falling 17.6% and Sino-Ocean Group down 9%. It appears that the initial stimulus package is producing mixed results across various sectors.
  • NDRC Meeting: A National Development and Reform Commission (NDRC) meeting is scheduled for Tuesday, which could provide further clarity on China's strategic next steps.

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Analysis: As we move through this market environment, it's essential to remain vigilant. The positive sentiment surrounding US Equities and job growth is encouraging, but underlying vulnerabilities could emerge. Similarly, while the Chinese market shows promise, continued scrutiny of property developers and the outcomes of upcoming regulatory meetings will be crucial for strategic positioning.

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Debrief: Revisiting the China Trade

On September 12th, I posited that "China’s current slump could be possibly laughed at within the next 18-24 months," identifying this extended recession as a generational buying opportunity. With this perspective, I increased my exposure to Alibaba ($BABA), driven by what I deemed an absurd disconnect between the company's fundamentals and its suppressed share price. Despite revenues soaring over 1000%, the stock languished under the weight of pervasive uncertainty regarding China and the government's reputation. fig below

I was curious about how long this substantial dislocation could persist and speculated on which names might best reflect a resurgence when the market began to recover. Alibaba, with its evolution beyond merely being the "Chinese Amazon" to becoming a significant player in technology services and digital payments, seemed ideally positioned for success.

Recent developments bolster this viewpoint:

• Cloud Infrastructure Growth: Alibaba's cloud infrastructure spending grew 22% year-over-year in Q4 2023, reaffirming its status as a leading provider in the market. This growth reflects the increasing demand for cloud services, a segment expected to gain further traction in an increasingly digital economy.
• Investment in Innovation: Alibaba led a $1 billion fundraising round in Moonshot A.I., positioning itself at the forefront of AI development. While the USA currently leads in global AI advancements, Alibaba's strategic initiatives suggest that it could capitalize on the AI wave as it extends into other markets, where valuations remain comparatively undervalued.
• During the first four days of the National Day holiday (October 1-4), spending by inbound tourists to China using Alipay increased by around 120% year-on-year, according to Chinese state media.