Chinese Stock Rally Likely To Stall Without Robust Earnings

By Henry Ren, Bloomberg Markets Live reporter and strategist

Earnings for China Inc. are looking somewhat better, though likely not enough to keep fueling the recent stock market rally.

Strategists say the bounce spurred by low valuations needs a full-blown earnings recovery to continue. Remember the lesson from China’s Covid reopening trade, which began favorably in late 2022 and lasted only three months.

During that period when the MSCI China Index rallied 59% from trough to peak, analysts raised forward earnings expectations by about 10%. However, earnings revisions turned negative starting in February 2023, and Chinese stocks never managed to regain their strength.

This year, after a 25% rebound from the bottom in January, Chinese stocks are once again at a tipping point, with investors turning to earnings for potential catalysts. First-quarter reports so far are decidedly mixed.

Firms listed on the mainland have recorded a 4% decline in earnings as their gross profit margins lingered at low levels, according to UBS strategists. It’s a similar picture for MSCI China components.

Companies making up a third of the benchmark index posted a 5% drop in sales, JPMorgan cautioned in a May 1 note.

Next week’s reports from big-cap internet companies probably will determine how this earnings season registers on the index level. Weak retail sales growth in March and a decline in per-capita tourist spending during the May 1-5 national holiday are bad omens for the sector, which is highly affected by consumer sentiment.

Better earnings are critically important, especially at a time when tailwinds that lifted Chinese stock gauges into bull territory are tapering off. The MSCI China Index is now technically overbought for the first time since January 2023.

Meanwhile, Japanese equities have stabilized and US markets have digested the idea that fewer Federal Reserve rate cuts are coming, reducing the urgency for global funds to diversify away from developed markets.

But it’s not all doom and gloom. The number of mainland-listed firms missing estimates declined this reporting season, and large-cap stocks are undergoing more upward earnings revisions, according to Morgan Stanley strategists led by Laura Wang.

Some select industries still show signs of improvement, despite macro data being “weak and mixed,” said Vivian Lin Thurston, a fund manager at William Blair Investment Management in Chicago. Export-driven companies and appliance makers have stood out, she noted.

Still, more patience is required if the recovery is to broaden. “What we do have is some better news on some specific sectors because the expectations are very low,” said Societe Generale strategist Frank Benzimra. “But it’s just too early to say that this is a sustainable upturn.”

Tyler Durden Thu, 05/09/2024 - 22:20

How People Get Around In America, Europe, And Asia

This chart, via Visual Capitalist's Pallavi Rao, highlights the popularity of different transportation types in the Americas, Europe, and Asia, calculated by modal share.

Data for this article and visualization is sourced from ‘The ABC of Mobility’, a research paper by Rafael Prieto-Curiel (Complexity Science Hub) and Juan P. Ospina (EAFIT University), accessed through ScienceDirect.

The authors gathered their modal share data through travel surveys, which focused on the primary mode of transportation a person employs for each weekday trip. Information from 800 cities across 61 countries was collected for this study.

North American Car Culture Contrasts with the Rest of the World

In the U.S. and Canada, people heavily rely on cars to get around, no matter the size of the city. There are a few exceptions of course, such as New York, Toronto, and smaller college towns across the United States.

Note: *Excluding Mexico. Percentages are rounded.

As a result, North America’s share of public transport and active mobility (walking and biking) is the lowest amongst all surveyed regions by a significant amount.

On the other hand, public transport reigns supreme in South and Central America as well as Southern and Eastern Asia. It ties with cars in Southeastern Asia, and is eclipsed by cars in Western Asia.

As outlined in the paper, Europe sees more city-level differences in transport popularity.

For example, Utrecht, Netherlands prefers walking and biking. People in Paris and London like using their extensive transit systems. And in Manchester and Rome, roughly two out of three journeys are by car.

Tyler Durden Thu, 05/09/2024 - 22:00

Democrats Attack Judge For Delaying Trump Florida Trial

Authored by Jonathan Turley,

While pundits, politicians and the press have long expressed outrage over attacks on judges by former President Donald Trump, many are now attacking any judge who delays any trial of Trump before the election. Democrats have accused Judge Aileen Cannon of being politically compromised, if not conspiratorial, in her delay of the Florida trial over the mishandling of classified documents. Yet, there is ample reason for the delay that many of us anticipated in this type of case when it was filed.

For months, many of us have said that we doubt that this type of trial could be held on the rapid schedule demanded by Special Counsel Jake Smith. Smith has repeatedly sought to curtail trial review and even appellate rights of Trump to advance his schedule.

His office has made convicting Trump before the election the overriding objective of its motion — a sharp departure from past Justice Department efforts to avoid trials to influence elections.

As a criminal defense counsel, I have handled classified material cases and they are notoriously slow. Smith could have prosecuted this case in the shorter time frame if he simply charge obstruction. That would have also eliminated the glaring contrast with the handling of the Biden investigation into the current president’s retention and mishandling of classified material.

Smith decided to charge an array of document charges related to classified material. The defense must have access, review, and can appeal issue related to the classified procedures. Yet, Smith wanted both the array of document charges and a fast track to trial. The Supreme Court has agreed with Cannon that Smith desire to secure a conviction before the election is not the overriding consideration.

Judge Cannon is faced with recent admissions that the government mixed up files in the boxes and staged the famous photos of document strewn over a floor with classified jackets.

Most importantly, disputes over the relevant documents continues as expected in the case.

Nevertheless, leading democrats are denouncing Cannon as a partisan hack.

Sen. Sheldon Whitehouse (D-R.I.), the chair of the Senate Judiciary Committee’s subcommittee on federal courts and oversight subcommittee, said accused Cannon of “deliberately slow-walking the case.” Ignoring the fact that similar cases have taken much longer to go to trial, Whitehouse simply declared “it is hard for me not to reach the conclusion that this [judge] is deliberately slow-walking the case to put it into a position where should [Trump] be elected, he can order that the investigation and prosecution be terminated.”

His colleague Sen. Chris Coons (D-Del.) insisted that Cannon was “managing this case in a way that is making it highly unlikely that it will be resolved in a timely fashion.”

Coons added “Justice deferred is often justice denied.” It is a bizarre statement. Classified documents cases routinely take longer to go to trial. The alternative is to cut off the ability of the defense to fully review the documents and review objections for resolution before trial. Yet, because the defendant is Trump and these Democrats want the trial to influence the election, such defense protections are now evidence of judicial bias.

They, of course, ignore that Cannon has ruled repeatedly against major Trump motions in the case.

Sen. Peter Welch (D-Vt.), a member of the Judiciary Committee, said Cannon’s “at it again, doing everything she can to delay.”

Sen. Richard Blumenthal (D-Conn.), offered the most telling line. He said “I question whether this judge understands the magnitude or the legal import of this trial.”

Indeed, it is the timing as much as the charges that makes this so important to the Justice Department and the Democrats. Smith has crafted this case to impact the election and the failure of the court to support that effort is apparently grounds for recusal.

Blumenthal called for such a motion before the window is lost before the election: “It’s a classic dilemma for justice that a particular judicial officer may be conducting a trial that could be better done by somebody else.”

Despite the statement of his colleague Coons, this is a case where justice delayed is justice.

Tyler Durden Thu, 05/09/2024 - 21:40