Did Trump just end the case for emerging markets?

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  Emerging markets are suffering today from the news that the Trump administration is considering adding two Chinese companies, SMIC and CNOOC, to the defense blacklist which would be another blow to the Chinese semiconductor and energy sector. While sentiment on emerging market equities today is weaker we remain confident that emerging markets will continue to outperform next year as the Asian rebound will continue led by China which will most likely ease financial conditions in 2021. We also take a look at the third-largest e-commerce company in the world Meituan and its Q3 earnings released after the Hong Kong market close.


Emerging market equities are down 1.5% today as the US Defense Department is likely to add two additional Chinese companies (SMIC and CNOOC) to the defense blacklist which would bring the list to 35 names. The move would yet again hit the Chinese semiconductor industry but now also the energy sector. Other markets in EM were negatively impacted by the move. One week ago, we wrote all the reasons for why we are bullish on emerging markets in 2021, so with today’s weakness the question whether this news changes anything. The move by the US although negative for China is still not something that critically moves the needle and the rebound in Asia led by China will continue in 2021. We expect China to significantly ease financial conditions to allow the rebound to strengthen further and deliver strong Q2 numbers in 2021 against a strong comparison due to the sizeable rebound in Q2 this year.

Source: Saxo Group

Meituan shows strong growth but also margin pressure

A sign that the Chinese economy is doing well came after the market close in Hong Kong with Meituan (the world’s largest meal delivery service) reporting Q3 earnings. Meituan delivered Q3 net income of CNY 6.3bn vs est. CNY 435mn on revenue of CNY 35.4bn vs est. CNY 34.1bn. The company has benefitted from the Covid-19 pandemic forcing many consumers in China to order take-away instead of eating physically at restaurants. The company is estimated to control two-thirds of the market for food delivery in China and as such profitability should begin to show strength because if the market leader cannot expand margins who can then? Revenue was up 29% y/y in Q3, but gross margin declined to 30.6% from 34.7% in Q2 again highlighting some of the cost pressures that are building in the e-commerce industry which we wrote about last week. Meituan is the number three in our global e-commerce theme basket with a market value of over $200bn. The news from Meituan has lifted Chinese and emerging market equities ahead of the US equity session so risk appetite for emerging markets is still intact.

Source: Meituan
Source: Saxo Group

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.