Major News and Events:
Mobile Internet Revenues See Tremendous Growth in Q2/2014
Data firm iResearch has announced that for Q2 2014, the mobile internet market saw overwhelming growth. Total revenues for the quarter amounted to 44.49 billion Yuan (~USD 7.24) showing quarter over quarter growth of 25% and year over year growth of 104.1%.
Mobile shopping accounted for over 50% of the total revenues for the first time. The rise in mobile shopping was pushed by a number of promotions and the World Cup. iResearch also found that companies benefited from adding shopping apps and flash sales geared to mobile devices.
Going forward iResearch expects more focus on mobile development and increased competition. The internet/e-commerce giants, in particular (Baidu, Alibaba and Tencent) will likely increase their attempts to outspend to attract new and current users. It will be imperative for smaller firms to increase their development of innovative products to keep up with the highly competitive larger firms. With no slowdown in sight for new mobile users it appears there will still be plenty of opportunity to go around however.
Consumer Sentiment on the Upswing in China
In a recent survey by The Boston Consulting Group (BCG), Chinese consumers have become more positive on the economy. The survey which polled 1,000 consumers in 12 cities, conducted in April by BCG’s China Center for Consumer and Customer Insight, showed that general consumer sentiment and levels of security are on the upswing.
As a result, the intention to spend has recovered significantly as well. This year, 31 percent of consumers plan to increase their discretionary spending over the next 12 months. That’s only 4 percentage points more than last year and quite a bit less than the high of 38 percent in 2012, but this year’s results mean that the number of consumers who intend to spend more once again exceeds the number who intend to spend less.
Second and third tier cities saw the most optimistic respondents. The intention to spend among middle-class and affluent consumers (MACs) increased 8 percentage points from last year, from 26 percent to 34 percent. (MACs are consumers with more than RMB 7,200 per month in income.)
While respondents to the survey from all geographic areas said they are under less stress, feel less anxiety about the future, and are less worried about losing their jobs than they were last year, rebounds were far stronger among MACs in small cities.
China Mobile to Quickly Adopt iPhone 6
During its recent earnings announcement China Mobile, the world’s largest wireless network operator by number of subscribers, says it will be one of the first operators to offer Apple’s iPhone 6, which is expected to be launched later this year
Total subscribers of the Beijing-headquartered company reached 790 million in the first half of this year, 23.4 million more than at the end of last year. Users of its 4G services reached 20.4 million by the end of last month, up from 13.9 million in June.
The company’s chairman said the contribution of the 4G business was already noticeable, and the impact would be even more obvious in the second half.
The average revenue per user (arpu) of 4G is 143 yuan (~$23.28), compared with the 64 yuan arpu for overall subscribers. China Mobile hopes to have 50 million 4G users by the end of the year, and to have sold 100 million 4G handsets. It sold 22 million 4G phones in the first half of the year.
China Mobile is building the world’s biggest 4G network. Its base-station network reached 410,000 in the first half, covering more than 300 cities, and is expected to exceed 500,000 by the end of the year.
China Opens Up to Global Delivery Services
After years of waiting, United Parcel Service (UPS) and FedEx Corp have received licenses in China to extend domestic express package services to Beijing and other cities without needing joint-venture partners according to Reuters.
The U.S. companies had been waiting for permission to independently courier packages from businesses to consumers (B2C) via their entire Chinese networks, since a 2009 postal law largely restricted foreign firms to delivering packages from abroad.
The licenses increase access to a market second in size only to the United States. Due to online shopping, the Chinese market is growing 60 percent annually and next year could be worth 280 billion yuan ($46 billion), according to consulting firm Deloitte.
Neither company has disclosed the size of their businesses in China, where since 2009 they have mainly handled documents and packages to and from overseas. But both companies have cited China as one of their fastest-growing markets.
But even at full strength, UPS and FedEx are still expected to face daunting competition from state-backed China Post and large, privately run rivals such as Shentong Express and S.F. Express.
China’s Bank Cleanup is Gaining Momentum
According to the Wall Street Journal (WSJ), China’s four largest state-owned lenders have started raising a planned $73 billion in debt and equity to increase reserves. The banking regulator expects that number to grow to over $300 billion in the next five years. The increase in reserves, along with a number of so-called bad banks being set up by provinces, is aimed at cleaning up nonperforming loans sitting on the banks’ books.
These moves are viewed as one of most determined efforts by Beijing to restore health to the country’s financial system. The WSJ adds that pushing banks to bolster their cash cushions will not only better protect them from deteriorating loans but could also help reopen the lending spigot and boost economic growth.
“The actions are also viewed as laying the groundwork for the financial system to be much less state dependent and more market driven,” saidTai Hui, chief market strategist Asia at J.P. Morgan Asset Management.
Local Broker Insight:*
CICC: A-Share Strategy: Re-rating Has Only Just Begun:
- Despite weak July credit data and macro data which failed to surprise, A-share markets continued to grind higher as investors expect policy to remain loose and the Shanghai-Hong Kong Connect program to provide further support.
- We see more upside in 3Q14 as we expect more news on state-owned enterprise (SOE) reform and SH-HK Connect draws near and overseas funds show persistent interest in Chinese stocks.
- We continue to reiterate our call for a turnaround of cyclicals and the divergence of growth plays, recommending cylical sectors such as property and insurance, mass consumer products like autos, home appliance, food & beverage, and pharma leaders with reasonable valuations.
- Themes we like include SOE reform, Beijing-Tianjin-Hebei coordinated development, alternative-fuel vehicles as well as IPOs in general.
http://www.cicc.com/index_en.xhtml?locale=en
Maybank Kim Eng Securities:
We recommend investors maintain an Overweight on China banks. We see chances of positive surprises in new non-performing loan (NPL) formation in the coming quarters on the back of a gradual economic recovery. Strong capital positions should help banks sustain high dividend payouts. We also believe banks will shift towards less risky loans.
Guosen Securities:
We expect the government will further raise investment in the second half of 2014 as part of efforts to stabilize growth. We believe China Development Bank (CDB) loans backed by the central bank will become an important source of funding in the second half of the year.
*KraneShares is not affiliated with any of the brokers listed, and neither KraneShares nor SEI Investments Distribution Co. sponsor the opinions or information offered by these brokers, nor do they assume liability for any loss that may result from relying on these opinions or information. The material is not intended as an offer or solicitation for purchase or sale of any security, nor is it individual or personalized investment advice.