United States: Will Sluggish Retail Sales and a Soft-Landing Economy Drag Down Chinese Assets?

In last week's strategy weekly report by Dolphin, titled "The United States is Spending Money Lavishly, Trading Interest Rate Cuts Requires Caution", it was mentioned that in the current situation where fiscal spending remains high and corporate spending is improving marginally, it is not realistic to expect the start of an interest rate cut cycle if consumer resilience remains strong. What needs to be focused on next is the marginal changes in consumer spending in the household sector, as well as the changes in government fiscal behavior, especially with stable high employment rates.

How did the data on US consumer spending fare last week? Dolphin will take a closer look here. Has US social retail really leaked? If so, what does this imply for the US economic trend?

First, a brief introduction: Social retail in the US is similar to China, mainly focusing on the perspective of terminal retail stores to track their revenue, with the main component being physical retail.

Since the customers of retail stores are mainly consumers (to C consumers), when retail stores are open for business, besides ordinary household consumers, there are also some corporate users making purchases.

In addition, the comprehensive indicator measuring consumer spending, which surveys how much residents spend from their pockets, covers all aspects of consumer goods and services consumption. Although this indicator has the highest granularity, as the data is usually released at the end of the month for the previous month, it is not as timely as social retail data.

Therefore, through the various physical retail sales reflected by social retail (which roughly accounts for around 35% of consumer spending), one can to some extent understand the trend of consumer spending.

While looking at the latest social retail data from May, there is a visible sluggishness, especially following the negative growth in April, with a seasonally adjusted month-on-month growth of only 0.09%, indicating a clear cooling trend.

In terms of specific categories, the May data shows a certain weakness, with signs of marginal improvement in optional categories excluding the real estate cycle. For example, in high-weight categories, retail sales of automobiles and parts did show a relatively high growth rate of 0.85%, but this growth came after two consecutive months of contraction, which is not actually optimistic.

The main issue here lies in the categories of catering, food and beverages, and general daily necessities, which account for 36% of social retail. In this month, they either showed marginal growth that can be ignored, or direct negative growth, especially in these three relatively essential categories, with very minimal growth after flattening out over the past three months.

Currently, after smoothing out monthly fluctuations, the only slightly better performing category is online retail, which is barely holding up

In other words, based on the social zero data from April and May, there are indeed signs of a slowdown in household consumption, especially the relatively resilient catering sector in this round of consumption has shown a noticeable decline in the past two months, which is a signal worth paying attention to. However, since the real bulk of household consumption lies in the service sector, the trend of consumption still needs to be verified through service consumption and the household savings rate.

Looking at the current household balance sheet, even if the savings rate rebounds in the future, consumption cannot be further released by squeezing the savings rate. Currently, the overall household asset-liability ratio in the United States remains relatively stable.

Especially the proportion of savings to liabilities is still as high as 89%, far higher than before 2019. Therefore, even if the future consumption capacity weakens, the relatively stable state of the household balance sheet may not lead to widespread defaults.

It is only the largest locomotive of domestic demand in the U.S. economy that is weakening. In other words, under the current circumstances, even if household consumption weakens, with increased marginal corporate capital expenditure and government deficit investment as a hedge, the economy is likely to lean towards a soft landing scenario. In this situation, growth-oriented equity assets sensitive to valuation may actually benefit.

However, a derivative logic here is that originally, the U.S. economy and other peripheral economies had resilience in growth, which bodes well for an economy like China this year, mainly supported by improved external demand and export margin repair. If the U.S. economy weakens in the future, global PMI remains low or turns downward, there may be some downward pressure on the fundamental outlook of Chinese assets.

II. Portfolio Rebalancing and Returns

Dolphin Jun did not rebalance the portfolio last week. At the end of last week, the portfolio's return increased by 0.5%, basically on par with the S&P 500 index (+0.6%), significantly outperforming the MSCI China (-0.6%), Hang Seng Tech Index (-0.2%), and Shanghai-Shenzhen 300 Index (-1.3%).

From the start of the portfolio testing to the end of last week, the absolute return of the portfolio was 36.6%, with an excess return compared to MSCI China of 56%. From the perspective of asset net value, Dolphin Jun's initial virtual assets of $100 million have now risen to $138 million.

III. Individual Stock Profit and Loss Contribution

Last week, the major gainers were Bilibili, SMIC, and TSMC. Among them, the price increase of TSMC boosted its stock price. With AI potentially driving a new cycle of phone and computer upgrades, the market also began to anticipate a rapid recovery in traditional cycles, benefiting SMIC as well.

Another unique alpha in the portfolio last week was Bilibili. Several weeks ago, Dolphin noticed that Bilibili's "Three Kingdoms: Fate Determined" product might be promising, so it was added to the portfolio in advance. After various bullish calls on Bilibili last week, Bilibili finally saw explosive growth. However, based on Dolphin's estimation, after this crazy surge, the upside potential brought by Bilibili's gaming business may have been fully priced in. When the time is right, Dolphin will consider taking profits in a timely manner.

IV. Portfolio Asset Allocation

The Alpha Dolphin virtual portfolio holds a total of 20 individual stocks and equity-type ETFs, with 5 core holdings and the rest being underweighted equity assets, along with gold, US bonds, and US dollar cash.

As of the end of last week, the asset allocation and equity asset weightings of Alpha Dolphin are as follows:

Risk Disclosure and Statement of this Article: Dolphin Research Disclaimer and General Disclosure

For recent articles from Dolphin Research's weekly reports, please refer to:

"US Fiscal Spending 'Unlocked,' Need to Be Cautious About Trading Rate Cuts"

"US Stock Market Rate Cut Expectations 'Shoot Out,' Is It Reliable This Time?"

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《Simultaneous Correction of U.S.-Listed Chinese Stocks, Who Will Seize the Opportunity?》

《The U.S. in 2024, Soft Landing or Crash Landing?》

《Earning More and Spending More, Why Are U.S. Residents Consuming So Aggressively?》

《Counting on a Major U.S. Stock Market Correction to Get In? Not Likely》《Low and steady inflation in the United States, can Chinese concept stocks still rise?》

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《Enterprises supporting the economy, the United States will not cut interest rates quickly》

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《In 2024, will the U.S. economy avoid a hard landing?》

《Another critical moment! Will Powell bail out Yellen's spendthrift ways?》《Seeing the mud and sand falling again, how many beliefs can withstand the test?》

《The unstoppable deficit, supporting the dignity of the US stock market》

《2024 United States: Good economy, quick rate cuts? Thinking too beautifully, will suffer losses》

《2023 United States: Suicide-style rebirth》