00:00 Speaker A
PDD, the parent company of Temu, posting better-than-expected second-quarter earnings, getting a boost from China’s latest round of stimulus aimed at supporting consumers and offsetting the impact of US tariffs. So, does that make China an attractive investment right now, or will the escalating trade war continue to weigh on the world’s second largest economy? Joining me now is Brandon Ahern, Kraneshares CIO. So Brandon, PDD has been one of the strongest China tech names this year. Its results often a barometer when it comes to the Chinese consumer. How significant do you think this company, the earnings results that we saw, is a gauge for the broader market?
00:45 Speaker B
I mean, certainly the company is very much geared to the Chinese consumption, which is benefiting from stimulus from the government. They’re doing these big trade-in subsidy programs. So we saw that from top line growth from companies like JD, from PDD today where they grew top line growth 7% year over year. At the same time, uh, the competition across e-commerce, Meituan, Alibaba, JD really, really fierce. And that’s where, yes, they did beat on net income, EPS. Those are actually declines year over year. So cost of revenues increasing, despite the backdrop of, uh, the macro improving slightly.
01:49 Speaker A
And it’s interesting to me too because we we constantly talk about the stimulus measures that China has rolled out, right? And like liquidity injections, targeted support for AI and the digital economy. But how durable is this rally if it’s so dependent on fiscal policy? Is that enough to sustain this over the long term?
02:17 Speaker B
I think because of the effect the trade war, and really it’s a goods trade war. So Chinese exports to the US are being adversely affected. That that’s weighing on an element of the economy. So the government is keeping this kind of pedal on, uh, their foot on the gas pedal in order to try to raise domestic consumption, really offset some of the weakness that you’re going to see on the export side. So we don’t see that going away. I think the bigger issue is just this competition that we’re seeing across the major players. I mean, we have Meituan reporting on Wednesday, Alibaba on Friday, and do we see the same sort of effect? Yeah, top line growth, but maybe some weakness. So, so within the KWEB ecosystem, we actually really like online video, online entertainment, online gaming, mobile payments, a little bit more so than what we’re seeing due to this real competition in e-commerce.
03:35 Speaker A
And what companies within that sector do you think are best positioned?
03:41 Speaker B
I mean, Tencent, we had really strong results. Bilibili, Quashu, Tencent Music Entertainment, these are companies that are a bit away from this e-commerce element where you have this real fierce competition, something that might actually raise the ire, uh, where we might actually see some government intervention to try to prevent some of this kind of profitless competition.
04:14 Speaker A
Also, China semiconductors, right? I mean, there’s reports that Beijing might halt purchases of Nvidia’s H20 chips over security concerns. How significant would that be for local chip makers and, and really for US-China tech relations?
04:36 Speaker B
I mean, it’s it’s, we’ve seen this over the last really two trading days where the the onshore, the mainland semiconductor names have just been absolutely flying, companies like Cambricon, uh, Huahong Semi, I mean just 10, 20% returns over two days. So we see that in our our Starboard ETF, KSTAR. So, so that’s, I think that’s something that’s going to benefit. You know, hopefully we see US-China trade talks improve a little bit. We know a lot of the underlings are talking, uh, potentially maybe we’ll see a Trump-Xi summit over the next several months. Uh, obviously for Nvidia, particularly for US investors, where it’s such a key pillar to the success, really holding up the US market, as you mentioned, particularly today. I mean, you can’t really see 12, 13% of Nvidia’s revenue go to zero.
05:44 Speaker A
Are these Chinese chip innovations, are they starting to catch up in a meaningful way? Could you ever see a world where China is not as reliant on the US or those Nvidia chips?
05:59 Speaker B
I mean, if the current policies are maintained, you’d assume China has no choice but to develop that, that onshore capability. I think, I think the example would be what we saw with Huawei where, uh, under the, uh, previous administration, there was an effort to bankrupt Huawei. And, and the company either was going to innovate or go bankrupt. They innovated, and they’re now, that they are Apple’s worst nightmare because the Huawei Pro Mate 60 Plus is better than a smartphone. And, and so the government policy sometimes with that short-term focus can create long-term issues, and we don’t want to see what a Huawei Apple play out into something with an incredibly key company like Nvidia.
07:09 Speaker A
Yeah, you are hearing more about the Huawei competition when it comes to Apple. So we’ll see if Tim Cook has, uh, you know, any tricks up his sleeve here. But Brandon, thank you so much. Appreciate it.
07:25 Speaker B
Thank you, Ali.