Midterms look positive, China looks even more positive
Midterm results positive; Disney 4Q22 miss; Main buyers of China are from mainland
US futures edging higher as election results stream in. Looks almost certain of either a Republican sweep or a split house (R) and senate (D). The NYTimes has a great tracker:
WSJ:
A Republican win in one or both chambers of Congress is likely to lead to policy gridlock. In turn that could mean:
A modest stock-market rally, as investors welcome a lack of major policy changes.
Lower Treasury yields and a weaker dollar if the Federal Reserve is forced to take the lead in heading off an economic downturn.
Disney 4Q22 missed expectations, stock down 8% post-market. DIS 0.00%↑
I was right, yet still so very wrong. In my previous post, I wrote“parks will beat consensus’ expectations because attendance trackers show 2022 YTD attendance extremely close (or even marginally higher) than 2019 YTD numbers”.
Some exerpts from the transcript:
Domestic Parks is generating consistently strong demand, which on many days exceeds our current capacity
sell-out of special ticketed events like Oogie Boogie Bash and Mickey's Not-So-Scary Halloween Party
Walt Disney World where the mix of international attendance in the fourth quarter was roughly in line with pre pandemic levels
While it is not explicitly mentioned that attendance is back to pre-covid levels, I infer that footfall is strong.
On the DTC segment, I wrote “given the surprising Netflix NFLX 0.00%↑ results 3 weeks back, I think read-through to the Disney+ business should be positive". And indeed subscriber numbers beat expectations by 30%, with management saying that 4Q22 will be the peak for DTC losses (some sell-side analysts expected 1Q23 to be the peak).
That’s a huge positive for streaming, but investors were more focused on management’s guidance. It’s the first time they’ve given guidance for operating profit.
Putting this altogether, assuming we do not see a meaningful shift in the macroeconomic climate, we currently expect total company fiscal 2023 revenue and segment operating income to both grow at a high single digit percentage rate versus fiscal 2022.
For context, consensus expected low-teens revenue and mid-double-digit EBIT growht for FY23. Management’s guidance is effectively a huge miss for FY23.
I’m still positive on Disney given that the outlook for DTC is very positive, and will be the main driver of the stock in the next 5 years. Let’s see what the rest of the street says when they publish.
Two articles out on what is driving the Chinese market bounce.
Bloomberg says that onshore investors are buying up HK shares:
Onshore investors have been net buyers of Hong-Kong listed stocks for 24 straight sessions through Nov. 8, adding HK$118 billion ($15 billion) in the longest run of gains since early 2021, according to data compiled by Bloomberg. Tencent Holdings Ltd. was their top pick, accounting for about a quarter of the inflows during the period via trading links with Hong Kong.
FT gives more colour adding that foreign investors are still dumping shares, with domestic money scooping up the flows:
While foreign investors using the stock connect scheme have dumped about $7bn of Shanghai- and Shenzhen-listed shares since the conclusion of the party congress, mainland Chinese investors have bought almost $12bn worth of Hong Kong shares over the same period.
And the cherry on top is that China is increasing support for the property sector, including bond guarantees.
A key bond regulator on Tuesday expanded a financing support program launched in 2018 to support about 250 billion yuan ($34.5 billion) in debt sales by private companies including China’s cash-strapped builders.
Y’know how they say don’t fight the Fed? I think we shouldn’t fight mainland flows either. Am I being overly optimistic?