The Client: Chinese Momentum


CAAM June sales data released today show that total motor vehicle sales exceeded 1 million for the 4th consecutive month registering a year-over-year increase of 36.48% (see chart below). Critically, this marks 2Q of 2009 as the first quarter ever with reported sales in excess of 3 million units and, at 3.4 million in total, the CAAM target of 11 million for the year seems achievable. Passenger car sales as a category of the total experienced a 48% increase in June as tax rebates and improving vehicle quality selection continue to draw consumers to showrooms.

 (continued below chart)

The Client: Chinese Momentum  - a1

The latest NBSC production estimates, for May, show that total vehicle production increased by 28% for that month. Although NBS data production is notoriously sketchy, there is a very clear trend emerging. Domestic Chinese passenger automotive sales are outpacing commercial sales, and sales in total are outpacing production growth by a significant measure.  Add in anecdotal reports on engine component imports and individual reporting by foreign JV partners and we have a clear vision that retail Chinese automotive consumer strength is outperforming all but the most bullish expectations -and that it is driving rapid capacity growth by producers.

We have been consistently bullish on The Client's internal demand dynamics, and the consumer discretionary categories that should logically be feeling the biggest impact of the stimulus programs at this stage of the development cycle  -big ticket durable goods, appear to be  proving out our thesis.  As Chinese consumers continue to enter the car market for the first time or to trade up from inferior vehicles, we expect that they are also eyeing government sponsored incentives for household appliances, consumer electronics and small farm agricultural equipment.

Take note: as strategic investors we are China bulls, but as tactical investors we are pragmatic risk managers and will actively seek to trade in an out of a market that has experienced an intense short  term rally capable of correction with unchanged fundamentals.  With a process that employs overlapping durations we have the luxury of picking intermediate entry and exit points while remaining focused on the horizon -if you are married to a single duration by choice or circumstance you should be prepared for volatility as the complex recovery story continues to unfold in China.

As always we are here to answer any questions and welcome the opportunity to share ideas.

Andrew Barber


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more