Outlook for Chinese Stocks as AI Transforms Economy

0:00We've seen names like Alibaba JD dot com Neo with down arrows today. This is China sets its new growth target and it's still a good number four and a half to five percent, but for China, it is the lowest growth rate that we have seen since 1991. And that puts some pressure on some of these names, including JD dot com that it did have some profits rising revenue, but the stock has been to the downside after its quarterly numbers. Let me bring in Henry Green, senior investment strategist, Crane Chairs, and Olivier Blanchard, research director at Futurable Group. Henry, your thoughts on the JD earnings, because you know, I remember how exciting this name was. Last fall, it took this big gap up. It was a new recent highs. You know, it was at $48, three years ago. And now it jumped in that October, and now it's $25. Hi, Nicole. Thank you for having me. Yeah, JD has been over the past year,

1:03flipped from being a leader to being a laggard in our K web. Of course, that's the China Internet portfolio from the K web ETF that we have. JD, I think to me, JD has a couple problems. Number one is they've really put a lot of money into their instant commerce business and other expanding businesses, which is why their margins are so low. They were already low historically, just given the nature of its business, they're lower. It's always had lower margins than say Alibaba, but they've just this putting massive consumer subsidies into instant commerce has really lowered their lower their margin. But one of the things that I saw in their latest earnings report that excites me is actually where they're saying they're spending more, they're investing more in their budget e-commerce platform. So that's targeting lower tier cities in more rural areas in parts of China. And that's really exciting to me because that suggests that company management believes that China's consumer could continue, could could

2:04return to growth very soon. And so that the overall e-commerce penetration pie could be growing again, which is why they want to be more in those lower tier markets, right? Because the instant commerce spending, that was all about the urban customers, all about the first tier Shanghai Beijing areas, right? So we have seen them look more at at this second tier areas is really exciting to me and says a lot about where we could be seeing consumer growth in China this year. And that's really positive for the Holy Commerce sector. Of course, well represented by our Kweb ETF KWB. Yeah, and look, there was a lot of excitement about some of these names. The chart we showed before was a three year chart of JD.com. And I talked about that October where it capped higher it went up to $47. It was near the earlier highs, 52 week highs, only to see it crash down again. Neo starts with a high number three years ago and has just been down ever since. Alibaba had a

3:08lower number, went up recently, but then has lost its ground to none of these are really shining. Only if you have lunch or what's going on with this group. I think a lot of it is just that the economy is in a state of transition, right? Now we're familiar with the AI plus strategy. And if you're not, it's part of the the 15th five year plan that prioritizes the integration of AI into manufacturing and logistics and everything else. And you look across the segment and what you see is that logistics and service revenues actually surge 23% showing that JD is actually successfully pivoting from being just a retailer to a supply chain based technology provider. And you're seeing that across the board a little bit. So there's a little bit of reshuffling there where a lot of the margins are being eroded by these investments in AI and infrastructure and logistics services that didn't really play into the original retail business plan that we're used to. I was thinking about 10 cent, you know, the White House has been debating about 10 cent and some of

4:11the gaming stakes ahead of the Trump sheet meeting that's coming up. Do you like any of these names here? I'll go back to you, Alibaba, and Char, just for a moment, are any of these that have been beaten down really maybe sort of the diamond in the rough or baby out with the bathwater? Yeah, I think you know 10 cent is really doing well with international gaming sales. And that to me is always a signal that I pay attention to anything that's gaming. It's always a little bit underwhelming and it seems niche, but it's a lot bigger than people realize. And I think there's a lot of there's a lot of back end revenue growth on that. Alibaba, I wouldn't bet against Alibaba. I think you know, they're navigating cutthroat domestic competition, but their earnings showed a, I think it's 34.5 or just shy of 35% jump in cloud revenue, which matches my hypothesis at the beginning of the segments, even though core retail growth remains slow. So you're, again, you're seeing that shift to cloud and

5:12service as in logistics. And then PDD also, it continues to gain market share. I think TV is doing really well. It's global expansion is going well. Everybody understands that it's, you know, low price, but in the stress, economic environment, that can be really good for them. So I think those three kind of, kind of do really well. Yep. Yeah, you said Pinduoduo, right? PDD is that what you said? You know, when I look here at JD, when I look at JD.com, you know, we think about the, the battle it has with some of the competition. Alibaba and Mituin, it does have a costly battle. Some of the margins have been sliding and we have this concern about the growth rate. Final quick thought here, Henry, which one is a buy of the group? I think the whole, the whole lot of them right now, Nicole, I think if you look at Kweb is down 15, 14%. I think on the year and, and, and really on, again, very little information, only a handful of our top 10 have actually reported

6:13Q4 earnings. So this has really been a sell-off, just on very little information, right? We're still waiting to get that Alibaba earnings date. That's going to be really key. It was good to see JD reporting today, but again, their, their profits are, are still low because of all the spending they've been having on these new businesses, right? And some of that's good. And some of that suggests that China's consumer is coming back, again, with the, with the lower tier city logistics and e-commerce. So that's really exciting. Yeah, and look, I really, right. Yeah, look, we're out of time here, and I really am looking forward to, to President Trump, President Xi meeting, although President Trump is pretty busy with this Iran war at this moment. We'll continue to follow the story. Henry Green, Olivier Blanchard, thank you both for being with us.