Hang Seng Brought Down by Alibaba’s Slide after Scrapping Cloud Spinoff
HKG33 Analysis
The index made a strong start to the week and Wednesday's robust data form China helped it, offering signs that the recovery of the world's second largest economy may be getting back on track. Industrial production strengthened 4.6% y/y and best print in a year, while retail sales rose to 7.6% y/y and the highest since May. However, the country grapples with deflation, factory activity is weak and the property sector in distress.
Furthermore, anticipation of Chinese President Xi visit to the US supported sentiment. The meeting with his US counterpart took place on Wednesday and appears to have lowered the temperature of the fraught Sino-Western relation. Beijing spoke of "candid and in-depth exchange of views", with the Chinese leader appearing conciliatory and non-adversarial [1]. US President Biden stressed the importance of managing competition "responsibly" so it won't turn into "conflict or accidental conflict", but did not refrain from repeating the previous characterization of his counterpart as dictator. [2]
Despite the positive climate, a change around current trade and investment curbs of critical technology does not look easy. Last month, Washington strengthened export curbs on AI chips, used by Chinese tech companies [3]. In fact, Alibaba yesterday announced the shelving of its plan to spin-off the Cloud Intelligence business, due to this recent expansion of restrictions by the US, which has created "uncertainties". The spinoff was part of a restructuring announced earlier in the year, but the company now believes it "may not achieve the intended effect of shareholder value enhancement". [4]. The news send BABA.hk to steep losses of around 10% today and new 2023 lows.
Other than that, its results for the July-September period were not particularly good. Its top and bottom lines improved from a year ago, but were worse compared to the prior quarter. It did not offer much detail around this year's 11.11 shopping festival (also known as Single's Day), but said its Taobao and Tmall online shopping platforms registered "positive year-over-year growth in participating merchants, transacting buyers and order volume" compared to last year.
Alibaba is one of the biggest constituents of the Hang Sen Index and its slump brings it down. Furthermore, Beijing has refrained from big stimulus, which fails to inspire equity market, despite various measures to prop the economy. HKG33 falls back below the EMA200 (black line) which reinforces risk of fresh 2023 lows, although 16,127 appears distant for now. On the other hand, HKG33 may get another shot at the critical 11,700-18,933 region, but would need strong catalyst to surpass it.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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