Chinese dual-listings, Tesla’s ugly registrations, Trump’s infrastructure plan Chinese dual-listings, Tesla’s ugly registrations, Trump’s infrastructure plan Chinese dual-listings, Tesla’s ugly registrations, Trump’s infrastructure plan

Chinese dual-listings, Tesla’s ugly registrations, Trump’s infrastructure plan

Equities 6 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity note we focus on JD.com's new listing of shares on the Hong Kong Stock Exchange which will start trading tomorrow following in the footsteps of NetEase. According to data tracking Tesla's California registrations fell 37% in April and May putting more pressure on the company. But the stock seems resilient in pre-market trading but the new data points increases the risk ahead of Q2 earnings and Q2 delivery numbers which will be published in the first week of July. We also provide a list of US stocks that could benefit from Trump's announced $1trn infrastructure plan to boost growth.


Chinese technology companies are outperforming the market this year riding the theme of investors betting on online companies but also that China has been more successful in containing COVID-19 and thus will see a quicker rebound. In the midst of this rally for Chinese technology companies the growing tensions between the US and China, and the recent accounting scandals such as China-based Luckin Coffee with ADRs listed on US exchanges, and caused the US to threaten delisting Chinese stocks on US exchanges.

Republican Senator John Kennedy has proposed a new bill called Holding Foreign Companies Accountable Act which will be an amendment to the Sarbanes-Oxley Act of 2002. The bill will provide the Public Company Accounting Oversight Board with ability to conduct inspections of foreign companies something that China’s government has previously rejected. The bill passed in the Senate on 20 May and is now being debated in the House. Skopos Labs has a 55% probability that it will be enacted in the House.

The bill threatens several Chinese companies with ADRs listed on US exchanges as any violations related to this bill would give the US government the authorization to delist the ADRs pushing the shares into the over-the-counter market and severely limiting the liquidity. As a result we recommend clients and investors in general to avoid Chinese ADRs and only seek exposure to Chinese companies through Chinese mainland shares or Hong Kong listings. Some Chinese companies are already making moves to create a dual listing with NetEase listing its shares on the Hong Kong Stock Exchange (HKSE) on 10 June and Yum China announced today that it’s seeking banks for potential Hong Kong secondary offering.

Tomorrow JD.com, the closest Chinese equivalent to Amazon.com, will begin trading on the HKSE with the Saxo ticker 09618:xhkg. JD said this morning that it has raised $3.8bn and that it’s retail offering was oversubscribed 179 times indicating strong demand. Unless adverse news arrives overnight JD.com shares in Hong Kong could be off to a good start like NetEase experienced. While we understand the need for a second listing we don’t understand the need for issuing new primary shares raising additional equity capital. This form of capital is very expensive relative to debt and according to analyst estimates the online retailer is growing the top line by 20% y/y and is expected to generate $3.9bn in free cash flow in FY21. In addition the company has a negative net debt position so there’s no need for the capital.

Source: Saxo Group

Tesla shares are up in pre-market despite data from Dominion Enterprises shows that California registrations fell 37% in April and May. There is still not available data from other US states but with an estimated 40% share of registrations it’s most likely a good proxy on the national demand picture. It might even be overestimating the real decline as California has had better economic prospects during the COVID-19 lockdown with its larger share of workers in the digital sector. Analyst estimates still suggest 7% y/y growth in revenue in 2020 and a positive free cash flow. Our view is that both Wall Street and the market is pricing Tesla for a reality that might easily be way off from the truth as the real damage to the economy is revealed over the coming months. Tesla is one of the most high-risk earnings releases for Q2.

Source: Saxo Group

Trump’s latest idea of an $1trn infrastructure plan to revive economic growth could lift sentiment in the entire sector related to construction. We recommend investors to consider exposure to this segment of the equity market. The lists below are not exclusive but a snippet of the largest names with exposure to the infrastructure plan.

Building Products: Johnson Controls, Carrier Global, Masco, Lennox International, Fortune Brands, Smith, Trex, Owens Corning, Azek, Armstrong World, Simpson Manufacturing, Advanced Drainage Systems

Construction & Engineering: Jacobs Engineering, AECOM, Quanta Services, Emcor Group, MasTec, Valmont Industries

Machinery: Caterpillar, Illinois Tool Works, Deere, PACCAR, Otis Worldwide, Cummins, Fortive, Stanley Black & Decker, Dover, Ingersoll Rand, Xylem, IDEX

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 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.