Taking of trans-Tasman rivalry, this week we saw the New Zealand stock market hit a fresh all time high with the NZX50 breaking through the 6000 mark. We think the kiwi index will continue to enjoy support, particularly income stocks, with the RBNZ set to possibly cut rates again in the coming months. It will be interesting to see if the RBA beats them to it for once!
Markets seem to think so – Shanghai Composite breakout.
#investing #China #BankofChina #fatprophets
Markets in the US and Europe were mostly higher on Thursday, as minutes released and rate decisions made by key central banks showed that accommodative monetary policies are going to remain in place (and in some cases expanded) for a while yet. The minutes from the Fed were particularly noteworthy, with policymakers citing uncertainties over China spilling over to other economies. Investors took this to mean that rate hikes are now likely off the agenda in 2015.
As a result, the #Dow added 138 points, while the #S&P500 finished 0.88% higher. Also notable on Thursday were oil prices rising almost 4% and I think we are well on track to hit US$60 a barrel by the end of the year.
Bloomberg’s Tim Culpan yesterday ran an interesting article about Baidu’s increasing focus on services over search – its historical core sphere of expertise. Often referred to as the Google of China, Baidu has been the dominant search for Chinese Internet surfers for over a decade.
Just as it has for Google (NASDAQ: GOOG, initial buy $219.65) this led to the company generating fat profit margins and amassing a war chest of cash. Over the past couple of years Baidu’s founder and CEO Robin Li has deployed billions of US dollars towards the so-called online-to-offline (O2O) markets.
This was something we wrote about in the Daily last week when discussing Global Opportunities constituent Tencent Holdings (HK: 0700, entry price HK$145.20) investment in ele.me, one of the leading online food delivery companies in China.
Tencent is now bottoming out (see below) following the correction in China’s stockmarket.
Each of the BAT companies of Baidu, Alibaba and Tencent Holdings are chasing opportunities in the O2O markets. The reason is pretty simple, the long term opportunities are massive and in the case of Baidu in particular – the smallest of the trio – could eventually eclipse its core business by a wide margin.
After an annual company presentation last week, Mr Li was quoted as saying “We are actually transforming the company from connecting people with information to connecting people with services.” From his perspective, it is difficult for US investors (where Baidu is listed) to really appreciate the market opportunity presenting itself in China’s O2O marketplace as they are not seeing the rapid development of the market rolling through Chinese cities.
And to date, profits have been elusive, as companies compete in a land grab for the various market verticals. Whether it is food delivery, car rides (ala Uber-style) or other services however, the combination of an increasingly online centric society, cheap labour and congested traffic make the usage of these services highly appealing for a vast number of consumers.
Currently competition is intense, but we believe the major Internet companies have both the connections and the resources (deep pockets, big data) to win a war of attrition for what will ultimately prove to be very lucrative opportunities in the long run.
At this juncture Tencent is our preferred exposure. The company has a larger core revenue base and deeper pockets than Baidu and is taking a more measured approach to O2O. This has been reflected in its superior share price performance over the past year compared to peers Alibaba and Baidu.
Tencent (like its peers) is primarily taking stakes and forming partnerships in the O2O space, with the intention of benefiting from both online advertising and getting a clip of the digital payments. In addition the value of their equity stakes in the eventual winners of these verticals look set to be extremely valuable in their own right, whether it is Didi Kuaidi (car sharing, which recently closed a US$3 billion funding round) or ele.me in food delivery or another name in an adjacent market opportunity.
The latter names (Baidu, Alibaba) are beginning to look interesting given the extent of the sell off in their share prices, but we would like to see some technical support kick in before revisiting the case for these names.
For complimentary access to our latest #asian #equities #investment report simply follow this link here: http://www.fatprophets.com.au/brand4?ref=Google_plus
S&P 500 now needs to hold the 2000 support level.
HUB24 has announced that it has received an indicative, non-binding and conditional proposal from an unrelated party to acquire 100% of HUB24’s shares for $2.75 per share in cash.
The proposal is subject to a number of conditions including the completion of due diligence, and support from HUB24’s board. HUB24 directors are currently evaluating the proposal.
We believe that the offer is an endorsement of the strong operational progress that the company has been making, and rapid growth in funds under administration.
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