Daily China: EM Active Fund Performance:  Difficult 2018, but Long-Term Outperformance Remains and more

In this briefing:

1. EM Active Fund Performance:  Difficult 2018, but Long-Term Outperformance Remains
2. China’s Household Consumption in a Slowing Economy
3. China’s December GDP
4. New Oriental (EDU): Do Not Fear Q2 Record Losses, 27% Upside
5. Maoyan Entertainment IPO Valuation: Press the Skip Button

1. EM Active Fund Performance:  Difficult 2018, but Long-Term Outperformance Remains

2018 was a year to forget for many active GEM managers. Absolute returns were the worst since 2011 and, relative to the I-Shares MSCI Emerging Markets ETF, active funds registered their first average underperformance since 2008.  Here we share some of the key data points on active fund performance for 2018 and over the longer term.

2. China’s Household Consumption in a Slowing Economy

Now that we know China’s GDP posted the lowest growth rate in decades in December 2018, a lot of attention has turned to stimulus. A key outlier of stimulus is getting consumers to spend, so today we take a look at consumer spending and household consumption overall. Yet, first we need to take a look at disposable income and just where it is coming from.

3. China’s December GDP

China’s quarterly numbers are in and China’s economic growth decreased to 6.4%. We are reviewing the most recent numbers and examining some inconsistencies.We believe there are pronounced weak spots in China’s GDP growth and expect to see that downward pressure in the Chinese economy going forward.

4. New Oriental (EDU): Do Not Fear Q2 Record Losses, 27% Upside

• The record net losses were mainly due to a seasonally weak quarter and recognition of the impairment in a subsidiary.
• Q2 revenues did not slow down and management does not believe Q3 revenues will slow down.
• EDU will not be negatively impacted by the new law from the Ministry of Education.
• The P/E band suggests an upside of 27% and a price target of USD90.

5. Maoyan Entertainment IPO Valuation: Press the Skip Button

Maoyan Entertainment (EPLUS HK) is the largest online movie ticketing service provider in China. The mid-point of Maoyan’s IPO price range of HK$14.8-20.4 per share implies a market value of $2.5 billion (HK$19.8 billion). Five cornerstone investors have agreed to buy $30 million or 10% of the offering at the IPO mid-point. The cornerstone investors are Imax China Holding (1970 HK), Hylink Digital Solutions, Prestige of The Sun, Welight Capital and Xiaomi Corp (1810 HK).