💰 New Alpha | Trade War II's secret therapy: 9688/1801/6160
💰 Trump administration is sending signals of easing tensions, leading major indices to rebound nearly 3%.
💹 $ZAI LAB(09688)$/$INNOVENT BIO(01801)$/$BEIGENE(06160)$ : The innovative pharmaceutical sector is less affected by tariffs.
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| Market recap
The shift in attitude from Trump and Musk has comforted the market.
After nearly two weeks of turmoil, the major indices finally experienced a notable increase, with gains close to 3%.
Chinese assets have shown a stronger recovery compared to the broader market. $NASDAQ Golden Dragon China Index(HXC)$ rose by 3.7%, and most stocks ended the day positively. Leading companies performed even better, with $Roundhill China Dragons ETF(DRAG)$ up 4.5% and $Alibaba(BABA)$ up 5.2%. Capitalizing on upward opportunities can yield substantial returns.
Megacaps - a tale of two giants
$Tesla Motors(TSLA)$ increased by 4.6% as Musk announced that he will focus on company operations starting in May, prompting a positive market response.
The earnings report revealed that Tesla, mired in a price war, faced a significant downturn, with automotive revenue down 20% and net profit plunging 71%. A drop in the first quarter was attributed to the backlash in the U.S. and globally; however, if viewed as a non-recurring event, performance recovery in the next quarter is anticipated as Musk returns to lead. It is important to note that the market is changing rapidly, and competition in the EV industry will intensify, especially with Chinese rivals investing heavily in smart driving technology. Currently, EV margins are razor-thin, pushing Musk to emphasize the potential of Robotaxi and Optimus. The rollout of these new initiatives in the second half of the year will be a crucial variable.
$Netflix(NFLX)$ gained 5.3%, marking three consecutive days of increases, which boosted SPOT by 5.7%, IQ by 7.9%, and TME by 4.3%. Despite the rapidly changing world, investment logic remains unchanged. Historically, from mid-2018 to late 2019, during the first U.S.-China trade war, NFLX's stock price doubled. Amid recession expectations, entertainment companies provide irreplaceable emotional value to consumers, creating business opportunities and performance growth, such as increased advertising revenue. (It’s worth noting that NFLX's stock price was around $300 back then, and there were no ads; content was the key focus then.)
MAGA - NO put in da real Trump Trade
In the battle for attention, Trump remains the winner; his statement that he would not dismiss Powell relieved the markets. Additionally, the Trump administration continues to signal a potential easing of tensions with China. In hindsight, even if Trump successfully "replaced” the one who bring about interest rate cuts, the market may not necessarily respond favorably; concerns about the enduring rivalry between the two nations remain, which could impact asset prices and long-term economic growth. Thus, Trump’s remarks at this juncture are timely.
Top movers - energy, banks
BTC mirrored gold's trajectory, with most crypto assets experiencing significant rebounds: $Bitdeer Technologies Group(BTDR)$ up 23.4%, $TeraWulf Inc.(WULF)$ up 17.8%, $CleanSpark, Inc.(CLSK)$ up 17.4%, and $Hut 8 Mining Corp(HUT)$ up 10.8%. Recently, gold prices have followed a similar pattern to BTC, experiencing rapid surges followed by a swift correction back to rational levels.
$Pagseguro Digital Ltd.(PAGS)$ rose by 10.4%, $StoneCo(STNE)$ by 8.8%, and $Root, Inc.(ROOT)$ by 14%; the financial sector led the industry ETFs, with $Financial Select Sector SPDR Fund(XLF)$ up 3.3%, $SPDR S&P Bank ETF(KBE)$ up 3.3%, and $SPDR S&P Regional Banking ETF(KRE)$ up 3.2%, continuing the upward trend.
The U.S. has imposed higher tariffs on Chinese solar companies producing in certain countries to evade tariffs on China, driving up stock prices for North American solar companies: $First Solar(FSLR)$ up 10.5%, $NuScale Power(SMR)$ up 10.6%, $Canadian Solar(CSIQ)$ up 7.8%, and $Daqo New(DQ)$ up 5.2%. Overall, $Energy Select Sector SPDR Fund(XLE)$ rose 3.31%, continuing a two-week rebound.
| The Federal Reserve: From the hindsight
The independence of the Federal Reserve is crucial for the market. Historically, the U.S. faced a series of frequent financial crises in the late 19th century, prompting reflection on their causes. The 1873 depression and the 1907 financial turmoil highlighted the vulnerability of the banking system, leading to calls for a central bank. After years of discussion and effort, Congress passed the Federal Reserve Act in 1913, officially establishing the Fed with the aim of providing a safe, flexible, and stable monetary and financial system for the U.S.
During economic crises, how does the Fed play a role in stabilizing the market? It uses various monetary policy tools such as adjusting interest rates, conducting open market operations, and modifying reserve requirements to influence economic activity and manage inflation. During the 2008 global financial crisis and the subsequent pandemic, the Fed implemented unconventional measures, including quantitative easing and emergency lending facilities. These actions provided support to financial institutions and businesses facing liquidity crises, quickly stabilizing financial markets and aiding economic recovery.
Why is the independence of the Fed so important? While the Fed maintains structural independence, its policies are still subject to oversight from Congress and legal constraints, ensuring a balance between flexibility and autonomy. As the guardian of the U.S. economy, the Fed is committed to achieving price stability and maximum employment, safeguarding the nation’s future.
| Plans are nothing, but planning is everything
Short-term emotional relief does not signify a fundamental change in trend; the unpredictability of policy makes recent strategies akin to a LEGO game.
As Eisenhower stated, "Plans are nothing, but planning is everything." In light of tariff uncertainties, how should traders tackle the situation? One may consider that innovative pharmaceuticals are less affected by tariffs. These drugs typically target specific diseases or conditions, enjoying strong market demand and lower price sensitivity due to their critical reliance by patients and healthcare institutions. Many pharmaceutical companies are globally positioned and may establish production bases in regions with lower tariffs.
Moreover, Chinese assets present a timely opportunity for investment.
$ZAI LAB(09688)$ is a biopharmaceutical company headquartered in China, founded in 2013, dedicated to developing innovative drugs, particularly in the areas of oncology, autoimmune diseases, and infectious diseases.
Today, Zai Lab received the acceptance notice from the National Medical Products Administration (NMPA) regarding the new indication application for the repotrectinib capsule. This drug is a next-generation tyrosine kinase inhibitor targeting ROS1 and NTRK oncogenic drivers, with Zai Lab holding exclusive development and commercialization rights in Greater China, propelling its stock price to rise by over 6%.
Zai Lab has established an international research and commercialization network. The company collaborates with several international pharmaceutical companies and research institutions, allowing it to quickly acquire cutting-edge technologies and resources from global markets.
$INNOVENT BIO(01801)$ , founded in 2011, chose the PD-1 target and successfully commercialized products.
In 2018, the company went public in Hong Kong and chose to partner with $Eli Lilly(LLY)$ , exchanging overseas rights for cash flow to focus on domestic clinical needs, aiming for a rapid commercialization cycle. It closely integrates with the medical payment system and negotiates for rapid market penetration through PD-1 medical insurance discussions, creating a "hybrid" pipeline of innovative and generic products.
Currently, 15 products have been approved, with multiple latest preclinical data set to be presented at the 2025 American Association for Cancer Research (AACR) annual meeting, including a series of bispecific antibodies, multi-specific antibodies, and antibody-drug conjugate (ADC) oncology pipelines.
$BEIGENE(06160)$ , founded in 2010, also initially targeted PD-1 and achieved successful commercialization. In 2018, it debuted as the "first dual-listed Chinese pharmaceutical company on both NASDAQ and the Hong Kong Stock Exchange."
The company invested $800 million to set up a production base and clinical research center in New Jersey, aiming for "global innovation" and attempting to break through the "pricing ceiling" for Chinese innovative drugs, directly participating in the formulation of global rules through innovative breakthroughs.
Its product, zanubrutinib, is priced in the U.S. at ten times the domestic medical insurance price, comparable to O- and K-drug prices, successfully tapping into the international market. Over the past seven years, the company has conducted more than 140 clinical trials, and its management team has established a "dual-core" structure driving both U.S. and Chinese operations, positioning the company for high expectations and valuations through its global strategic layout.
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