Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Thematic (Sector/Industry)

Since May 10 when Chinese Vice Premier Liu He left the Washington without a trade deal with the US, nor any plan for future talks, both countries have been heating up the rhetoric’s against each other at home, diminishing the public’s perception of a deal in near future.   We believe that the trade talks broke down due to highly principal issues.  China were indeed to comply with the signed “contract” on paper, its state interest in strategic industries and state-owned-enterprises would be severely compromised – something that Chins is not ready nor willing to do for now.  What’s more, the complex friction within the Party, and opposition from the conservatives, played a key role in Xi’s hardening position against the US.  While projecting a hardline to the domestic audience, China on the other hand, has NOT engaged any significant counter measures since Trump’s somewhat unexpected tariff hike of 25% on one third of all Chinese products effectively on May 10th.

Since May 10 when Chinese Vice Premier Liu He left the Washington without a trade deal with the US, nor any plan for future talks, both countries have been heating up the rhetoric’s against each other at home, diminishing the public’s perception of a deal in near future.   We believe that the trade talks broke down due to highly principal issues.  China were indeed to comply with the signed “contract” on paper, its state interest in strategic industries and state-owned-enterprises would be severely compromised – something that Chins is not ready nor willing to do for now.  What’s more, the complex friction within the Party, and opposition from the conservatives, played a key role in Xi’s hardening position against the US.  While projecting a hardline to the domestic audience, China on the other hand, has NOT engaged any significant counter measures since Trump’s somewhat unexpected tariff hike of 25% on one third of all Chinese products effectively on May 10th.

Rising Nationalism Propaganda by State Media, China Macro Data 4M 2019

Our checks indicate that during the first 5 days in May, Macau GGR reached ~1 billion MOP, up by HDD (high-double-digits) year-over-year. This was driven by the extra one day for the labor-day holiday this year, strong mass visitations from mainland and very high VIP rolling.  We estimate that the average rolling amount in VIP rooms reached ~5.5 billion -6.0 billion MOP per day per table, up ~15% YoY (same period in 2018).  The extra day provided in the holiday is to stimulate consumer spending by the government, a similar measure as the income tax cut effective on Oct 1st, 2018.In April, Macau GGR was down 8.3% YoY, dragged down by ~25% decline in VIP GGR.  The VIP luck factor was ~3% last minute, similar to same period in 2018.  Rolling demand was negatively impacted by Beijing’s tightened implementation of capital outflow controls, and crackdown of underground banking and related crimes.

Our checks indicate that during the first 5 days in May, Macau GGR reached ~1 billion MOP, up by HDD (high-double-digits) year-over-year. This was driven by the extra one day for the labor-day holiday this year, strong mass visitations from mainland and very high VIP rolling.  We estimate that the average rolling amount in VIP rooms reached ~5.5 billion -6.0 billion MOP per day per table, up ~15% YoY (same period in 2018).  The extra day provided in the holiday is to stimulate consumer spending by the government, a similar measure as the income tax cut effective on Oct 1st, 2018.In April, Macau GGR was down 8.3% YoY, dragged down by ~25% decline in VIP GGR.  The VIP luck factor was ~3% last minute, similar to same period in 2018.  Rolling demand was negatively impacted by Beijing’s tightened implementation of capital outflow controls, and crackdown of underground banking and related crimes. 

Macau Gaming: Strong Labor Day Holiday GGR

We advise clients to cut their long exposure to China as domestic macro downside, currency risk and the US-China tensions intensify.  These risks are largely secular, and thus cannot be remedied by traditional cyclical policy tools such as RRR cuts and fiscal stimulus.  The market clearly is showing resistance to conventional policy interventions, including the rate cut this weekend.   We have significantly adjusted the rating composition of stocks in our coverage to express our bearish view on future corporate earnings coming out from China.  Among 49 stocks in our coverage universe, we recommend 5 longs (12% of total), vs. 18 shorts (37%).  25 stocks (51%) are do-nothing, meaning that the current share prices are largely in line with stock fundamentals and sentiment.

We advise clients to cut their long exposure to China as domestic macro downside, currency risk and the US-China tensions intensify.  These risks are largely secular, and thus cannot be remedied by traditional cyclical policy tools such as RRR cuts and fiscal stimulus.  The market clearly is showing resistance to conventional policy interventions, including the rate cut this weekend.   We have significantly adjusted the rating composition of stocks in our coverage to express our bearish view on future corporate earnings coming out from China.  Among 49 stocks in our coverage universe, we recommend 5 longs (12% of total), vs. 18 shorts (37%).  25 stocks (51%) are do-nothing, meaning that the current share prices are largely in line with stock fundamentals and sentiment. 

Market Unfazed by China’s RRR Cut, RMB Depreciation, Escalating US-China Tension Beyond Trade

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

In last week’s Compass we noted the S&amp;P 500 was near the top end of the uptrend channel and that the index could fall 2.75%-3.25% before we get to uptrend support. Considering the S&amp;P 500 fell roughly 1% last week we believe the recent pause appears to be a normal and healthy pullback within the multi-month uptrend. Despite the potential for additional backing-and-filling toward the uptrend support, our expectation is that this uptrend continues, supporting our overall positive outlook.

In last week’s Compass we noted the S&amp;P 500 was near the top end of the uptrend channel and that the index could fall 2.75%-3.25% before we get to uptrend support. Considering the S&amp;P 500 fell roughly 1% last week we believe the recent pause appears to be a normal and healthy pullback within the multi-month uptrend. Despite the potential for additional backing-and-filling toward the uptrend support, our expectation is that this uptrend continues, supporting our overall positive outlook.

S&P 500: A Pause in the Uptrend - More Consolidation Expected.

Complete top-down and bottom-up technical analysis of the U.S. Consumer Discretionary Sector.  Charts highlighted:  AMZN, NFLX, COLM, PVH, UAA, FOSL, GOOS, GIII, TJX, BURL, AEO, ANF, BBY, M, URBN, RL, LUXTY, LE, NKE, WWW, DECK, SHOO, CROX, RCKY, WEYS, MAR, HLT, LQ, ILG, CHH, H, IHG, WYNN, LVS, MLCO, BYD, PNK, YUM, DPZ, TXRH, CAKE, NDLS, and DNKN.

Complete top-down and bottom-up technical analysis of the U.S. Consumer Discretionary Sector.  Charts highlighted:  AMZN, NFLX, COLM, PVH, UAA, FOSL, GOOS, GIII, TJX, BURL, AEO, ANF, BBY, M, URBN, RL, LUXTY, LE, NKE, WWW, DECK, SHOO, CROX, RCKY, WEYS, MAR, HLT, LQ, ILG, CHH, H, IHG, WYNN, LVS, MLCO, BYD, PNK, YUM, DPZ, TXRH, CAKE, NDLS, and DNKN.

U.S. Consumer Discretionary Sector: Complete Technical Analysis

United States

Wynn Resorts, Limited owns and operates luxury hotels and destination casino resorts in Las Vegas, Nevada, Macau, and China. The Company offers amenities such as guest rooms and suites, restaurants, golf course, and an on-site luxury automotive dealership.

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Wynn Resorts (WYNN US)

Rising Nationalism Propaganda by State Media, China Macro Data 4M 2019

Since May 10 when Chinese Vice Premier Liu He left the Washington without a trade deal with the US, nor any plan for future talks, both countries...

JL Warren Capital

Macau Gaming: Strong Labor Day Holiday GGR

Our checks indicate that during the first 5 days in May, Macau GGR reached ~1 billion MOP, up by HDD (high-double-digits) year-over-year. This was...

JL Warren Capital

Market Unfazed by China’s RRR Cut, RMB Depreciation, Escalating US-China Tension Beyond Trade

We advise clients to cut their long exposure to China as domestic macro downside, currency risk and the US-China tensions intensify. These risks...

JL Warren Capital

S&P 500: A Pause in the Uptrend - More Consolidation Expected.

In last week’s Compass we noted the S&P 500 was near the top end of the uptrend channel and that the index could fall 2.75%-3.25% before we get...

Vermilion Research

U.S. Consumer Discretionary Sector: Complete Technical Analysis

Complete top-down and bottom-up technical analysis of the U.S. Consumer Discretionary Sector. Charts highlighted: AMZN, NFLX, COLM, PVH,...

Vermilion Research

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