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, ...
  • 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

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

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-mena/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.