Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi

Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi

Macro 8 minutes to read
Kay Van-Petersen

Global Macro Strategist

Summary:  Latest Macro Dragon Reflections, checks in on the divergence in the China Tech space that seems to be getting headwinds from all parts of the globe. It highlights the short squeeze an incredible sector outperformance on Weibo $60.03, +47% YTD, in some case that relative outperformance being as high as +65% as the rest of the space is firmly in the red YTD. This includes recently listed DiDi $12.03 which is -14% from the IPO strike of $14.00.


Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi

(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

Reflections…

  • TGIF from the Asia Pacific & what a bloody week we seem to be ending on, if you have been an equity bull, bond bear & likely whatever direction you had on the dollar.
  • Tuning back into China tech which we have covered a number of times including:
  • The overall bloodletting in the space seems linked to DiDi ll-strategized US listing, the name is now down -14% from its $14 strike IPO price & down -33% from its ATH $18.01 lvl
  • Where investors are concerned that there is going to be further waves of crackdown on China tech names which was regulatory headwind that was until recently expected to be behind the space given the talks that Beijing had with the likes of Tencent & Alibaba earlier on in the 1st half of the year.
  • On just last 2 wk alone alone the names are down anything from -14% to -6% whether you are talking DiDi, Tencent, Baidu, Alibaba or JD.Com. What makes this even more interesting is that Weibo is up c. +14% over the same period, +24% over the last month & +47% YTD. A clear outperformer to the upside, on a space that has seen prices continue to cave in. 
  • For context, Tencent & JD.Com are down -6% & -18% YTD… the outperformance of Weibo is at +53% & +65% respectively & likely has less to do with a superior business model (my equity folks say there is nothing exciting here, company is past its prime), & more to do with rumors of privatization (later denied by Weibo company representatives) that sparked a short squeeze over the last few days.
  • For context, the avg daily volume of Weibo is 1.5M, on Tue & Wed the stock did 14.4x & 4.4x of this. On Wed it came in at 1.6M pretty much bang in-line with the avg. Before finally closing last wk on Fri at about 2/3 of daily average volume. So if the Macro Dragon 'Weibo squeeze' thesis is correct, we could see the floor disappear under Weibo’s stock price over the next 1-2wks with the ‘easy’ move potentially being to sub $50 from a Friday close of $60.03.
  • Note the epic spike in volume, then subsequent petering away after each successive day – there was something like +13x days of short-interest coverage in the name.

    MR China Tech 10
  • And note the recent 'gap up' on Mon Jun 6, from c. $54 to $59, which is likely to close over the next 1-2wks. The overall move higher seems to have started from $49.16 on the 23 of Jun.
  • The chart below shows once the outperformance of Weibo vs. it peers, +22.1% vs. Tencent [700 HK] at -6.1%, or Alibaba [BABA] at -2.5%... in other words a c. +28% & +25% outperformance in c. 13days


    CH Tech 20 OG
  • If we look at a chart standardizing the YTD performance below, we see the outperformance is even more extreme. i.e. +53% vs. Tencent [700 HK], +65% vs. JD.Com [9888 HK]

CH Tech 30 OG

  • Key risks to short side expression on Weibo are naturally that the speculative take-over rumors of Weibo – which were refuted by company representatives – somehow end up being true & its taken private at a higher price ($90-100 seemed to be want was indicated). And or the share price stays elevated up until the Aug 13 estimated earnings release where they have blow out numbers that take the stock higher or at the very least allows it to consolidate at these lvls.
  • From the Macro Dragons perspective the 55 or 50 strike 20 Aug (40D) puts look interesting at a premium outlay of 1.85 and 0.80 respectively, yes the implied vol is high at 51.94 & 59.22 respectively vs. the 30D historical vol of 36.62… Yet the vol should be well supported if the shares tank. Likely outlay of 25-50bp of risk, so say $25K to $50K premium outlay in a $10M portfolio, with the thesis of potentially making at least +3x to 5x, or +$75K to 250K on that premium outlay.
  • Naturally if the Dragon wanted to be short outright, then he’d likely only do so with either a $150K to $65K short position, factoring in for a potential squeeze ‘worst case’ scenario of the take over rumor's being true, in which case a move to $90 to $100 on the stock would have a loss of c. -$25K to -$50K (equivalent to the premiums discussed above). 
  • Relative value longs vs. short Weibo, could be as a basket or set as a Tencent or JD.Com on the long side. 

-

Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.

This is The Way

Namaste,
KVP

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/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992