Finance
China optimism is surging. Why some investors are cautious
A shareholder at a securities hall in Hangzhou, the capital of Zhejiang province in east China, on Sept. 24, 2024.
Cfoto | Future Publishing | Getty Images
BEIJING — China’s latest policy signals have a bigger impact on sentiment than resolving deeper issues such as real estate, analysts said.
The Shanghai Composite rallied Thursday to close at a three-month high after state media reported Chinese President Xi Jinping led a Politburo meeting on the economy that morning.
The unexpected high-level gathering called for halting the property market decline, and strengthening fiscal and monetary policy. It provided few specifics, while affirming central bank rate cuts announced earlier in the week.
Markets should value how Beijing is recognizing the severity of the economic situation, and how its piecemeal approach so far hasn’t worked, Ting Lu, chief China economist at Nomura, said in a report Friday.
“The ‘shock and awe’ strategy could be meant to jumpstart the markets and boost confidence,” Lu said, but eventually it is still necessary to introduce well thought out policies to address many of the “deep-rooted problems.”
Growth in the world’s second-largest economy has slowed, dragged down by the real estate slump. Retail sales have risen by barely more than 2% in recent months, and industrial profits have barely grown for the first eight months of the year. Exports are one of the few bright spots.
Nomura’s Lu said policymakers in particular need to stabilize property since it is in its fourth year of contraction. He estimated the impact of additional stimulus wouldn’t exceed 3% of China’s annual GDP.
“Markets should place more emphasis on the specifics of the stimulus,” Lu said. “If not designed well, a stimulus program in a haste, even if seemingly large, could have a slow and limited impact on growth.”
The People’s Bank of China this week cut major interest rates, and announced plans to lower rates for existing mortgage holders. The Ministry of Finance has yet to release major policies, despite reports of such plans.
Questions about scale
For some investment institutions, that’s still not enough to move the needle on their China outlook.
“China’s policy moves to lower interest rates have not helped improve confidence among consumers who are fearful of borrowing in the first place,” Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, said in an email.
“We would be selling emerging market equities at this point,” he said, “as we have little confidence in Beijing’s willingness to extend the large stimulus that is needed.”
Christopher added that Thursday’s “announcement of coming fiscal stimulus is welcome, but it remains to be seen if China’s government is willing to take the steps necessary to reverse the psychological damage to household and private business sentiment.”
The Chinese government has cracked down on real estate developers, after-school tutoring businesses and the gaming industry in recent years. Policymakers have since eased their stance, but business and consumer confidence has yet to recover.
China’s latest interest rate cuts follow the U.S. Federal Reserve’s shift last week to easier monetary policy. U.S rate cuts theoretically give China’s central bank more room to reduce already-low domestic rates.
A survey in September of more than 1,200 companies in China by the U.S.-based China Beige Book found that corporate borrowing declined, despite historic lows in the costs to do so.
“One can certainly hope for a wealth effect from stocks and property, but stocks will be temporary and the wealth decline from property is overwhelming compared to any relief,” Shehzad Qazi, chief operating officer at the China Beige Book, a U.S.-based research firm, said in a note Thursday.
He expects retail sales could pick up slightly in the next four to six months.
Qazi also expects the latest rally in Chinese stocks to continue into the last three months of the year. But cautioned that policies announced this week for driving more capital into the stock market “are not yet operational, and some may never be.”
Sentiment change
Those caveats haven’t discouraged investors from piling into beaten-down Chinese stocks. The CSI 300 stock index climbed Friday, on pace for its best week since 2008.
The sentiment shift has spread globally.
“I thought that what the Fed did last week would lead to China easing, and I didn’t know that they were going to bring out the big guns like they did,” U.S. billionaire hedge fund founder David Tepper told CNBC’s “Squawk Box” on Thursday. “And I think there’s a whole shift.”
Tepper said he bought more Chinese stocks this week.
An important takeaway from Thursday’s high-level government meeting was the support for capital markets, in contrast to a more negative perception in China on the financial industry in recent years, said Bruce Liu, CEO of Esoterica Capital, an asset manager.
“Hopefully this meeting is going to correct this misperception,” he said. “For China to keep growing in a healthy way, [they] really need a well-functioning capital market.”
“I don’t think they sent any different messages,” Liu said. “It’s just [that] they emphasize it with detailed action plans. That made a difference.”
Tencent’s Honor of Kings mobile game drew a record 33,000 fans to watch a final competition in Beijing on Nov. 16, 2024.
CNBC | Evelyn Cheng
BEIJING — Chinese gaming giant Tencent is betting on a rise in female players worldwide for its mobile game Honor of Kings, which rolled out to the U.S. and other countries in June.
Already a hit in China, the game drew a record 33,000 fans to a Beijing stadium on Saturday to watch two teams compete for a $3 million grand prize.
Surprisingly, many in the crowd were young women, reflecting how interest in mobile games has broadened out from the stereotypical male player in the days of console and PC gaming.
Launched in China in November 2015, the game’s appeal lies in its easy learning curve and relatively short sessions of around 15 minutes. Anyone with a smartphone can play for free in real time, on the go.
“Honor of Kings became an important way for me to socialize,” said Tianyun Gao, according to CNBC’s translation of her spoken Mandarin. She started playing the game in 2017 as a sophomore in college and became a professional commentator for the game’s competitions a year later.
Gao, an English major from Shanghai, has moderated Honor of Kings’ competitions in two languages, including an international event held in Riyadh, the capital of Saudi Arabia, in August. She said her hope is to see esports become as mainstream as traditional sports, noting that one of her inspirations is a Chinese soccer commentator.
Tencent ramped up its global expansion plans for Honor of Kings this year, with its subsidiary, Level Infinite, in February announcing a $15 million investment in developing the game’s tournament worldwide.
An international version of the game has been available since 2016 under different names such as Arena of Valor, but the latest global push for Honor of Kings began in 2022. The game didn’t reach the Middle East until earlier this year and only launched in the key markets of North America, Europe and Japan in June.
Less than a month later, the game topped 50 million downloads outside China, according to the company.
Overwhelmingly mobile-focused
Growth in gaming among women stems largely from their preference in playing on their smartphones, without having to invest in consoles and other technology.
“Nearly half of female players play only on mobile platforms so we have a huge addressable audience,” said Jackie Huang, head of the Honor of Kings global esports division within Tencent Games’ TiMi L1 Studio. “Women make up a significant part of our player base but we want to see this continue growing.”
He said that 45% of gamers globally are women, and that the gender composition of Honor of Kings’ users is “relatively balanced. “We strive to provide users, no matter how they identify, with [a] high quality gaming experience,” Huang said.
Gaming is Tencent’s biggest revenue driver, with international games accounting for around 28% of the its overall gaming business in the third quarter.
The company also owns Riot Games, a developer whose PC-based League of Legends has become one of the most popular names in global esports with its own annual competition. Honor of Kings, which claims 100 million players a day, uses a similar format with two teams of five players each.
Such multiplayer games are the second-most popular category for female gamers, behind puzzles, said Xiaofeng Zeng, China-based vice president at gaming research firm Niko Partners. His analysis found that 95% of women prefer mobile games.
If Honor of Kings can hold first place in China, and achieve that position overseas, then Tencent can generate half its revenue from international markets, Zeng said. He said the game’s top overseas markets by revenue are the U.S., India, Malaysia, and Indonesia.
And in the key market of Southeast Asia, Zeng said that due to a low base, female players are growing two to three times more quickly than male gamers. A newly branded Honor of Kings global championship was held last month in Jakarta, Indonesia’s capital, with Malaysian team Black Shrew Esports winning the $300,000 first prize.
Early stages
For now, no matter how popular Honor of Kings may be among women, the competitions remain dominated by men. The two teams competing in Beijing on Saturday consisted only of male players.
Huang pointed out that the global championship this year featured a female player from France’s Team Vitality, which is also managed and coached by women.
He attributed the Honor of King’s popularity among women to the game’s playable characters that are also female. Many of the figures, each with different powers, are based on Chinese historical or mythological figures.
In 2021, organizers of the Honor of Kings competition in China also launched a tournament for female players. This year’s womens finals are set to take place in December, with a prize of around $41,000 for the winning team.
“The pandemic was a large accelerator of females into the games space and we have continued to see increased engagement from female gamers,” said Chirag Ambwani, SVP, gaming and entertainment, at SensorTower, which focuses on mobile games.
Reasons include specialized and easy to access content, he said, adding that gaming participation grew overall.
As for Honor of Kings’ global expansion, Ambwani said SensorTower research showed “healthy growth,” with average revenue of more than $5 per user in the U.S. and Canada.
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