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

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses 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.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-ch/legal/disclaimer/saxo-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.