Tariff Talk Roller Coaster Continues

TAL Education Q1 Earnings Overview

Online education company TAL Education missed on the big three (revenue, net income, and earnings per share), despite top-line revenue growth increasing by +42% year-over-year, as selling, marketing, administrative expenses increased to $336 million from $24 million YoY, which weighed on bottom line net income and EPS. The company only used $13.1mm of its $490.7mm share repurchase program, which is strange to me. Thus far, no analyst has asked management about relisting in Hong Kong. I will provide a Hong Kong relisting update via Twitter (@ahern_brendan).

• Revenue increased +42% to $610 million from $429 million, versus expectations of $632 million.
• Adjusted net income fell -85% to $7 million from $48.01 million versus expectations of $50.4 million.
• Adjusted EPS fell -85% to $0.01 from $0.08 versus expectations of $0.08.

Key News

Asian stocks were lower, except for Vietnam, which outperformed the region. This followed roller coaster comments Wednesday, as President Donald Trump suggested tariff rollbacks could be in the cards soon.

China’s Ministry of Commerce threw cold water on Trump’s suggestion that talks are already in motion. The MoC said, “There are no economic and trade negotiations between China and the United States, at present.” The comments indicate a lack of understanding that the “Art of the Deal” requires Kabuki theatre, drama, and showmanship. Hopefully, the two sides will communicate with one another at the IMF and World Bank meetings in Washington this week.

Premier Li and the State Council once again reiterated that it is necessary to “stabilize the stock market and continue to promote the stable and healthy development of the real estate market.” Mainland media outlet Yicai noted that U.S. shipments of liquid natural gas to China went to zero in March, versus 412,500 tons in March 2024, as China’s 99% LNG tariff and 94% oil tariff take hold. The European container shipping index futures fell -9% overnight. It is hard to know whether fewer boats going to the U.S. means more supply for Europe, leading to the price decline, or indicating the trade war is weighing on the global economy. Regardless, the two sides should get talking, in my humble opinion.

Without question, the biggest news was declines in Meituan and JD.com shares, which fell -5.15% and -6.19%, respectively, overnight, as JD reported a substantial uptick in its new restaurant delivery service. The likely price war is apt to weigh on the companies’ financials. JD.com, as the leader in online electronic sales, was well-positioned to benefit from the new electronic subsidies through the expansion into restaurant delivery, curbing investor enthusiasm. The price action seems to be an instance of “shooting first and asking questions later, ” as investors recall self-defeating battles, including that between Didi and Uber. Internet stocks were off, as defensive plays such as banks, nonferrous metals, mining, and telecom outperformed. It is worth noting that Southbound Stock Connect had $436 million worth of net buying, concentrated in Alibaba and Meituan.

Mainland investors now hold 8.64% of Alibaba’s shares outstanding. Southbound Stock Connect’s percentage ownership continues to rise. Tencent is 11.78% owned by Mainland investors, Kuaishou is 15.76% owned, and Meituan is 10.96% owned, based on shares outstanding. Today, 43% of Hong Kong’s turnover was via Southbound, which indicates the lack of foreign investor participation, which was out of sight, and out of mind.

Mainland China had a non-eventful night, as banks and insurance outperformed, battery giant CATL gained +1.51%, and Midea gained +1.53%. These were rare growth outperformers in the current market. Software and technology, including electronic equipment and communications equipment, underperformed. The National Team’s favored ETFs had very light volumes. Carmaker BYD reports Friday.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.28 versus 7.28 yesterday
• CNY per EUR 8.29 versus 8.31 yesterday
• Yield on 10-Year Government Bond 1.66% versus 1.66% yesterday
• Yield on 10-Year China Development Bank Bond 1.70% versus 1.70% yesterday
• Copper Price -0.13%
• Steel Price +0.23%