Hi YXI friends,

Not every day you have a “value stock” moving up 60% in just 5 weeks, but it must have been extremely satisfying for Alibaba’s shareholders (as far as I can tell on FinTwit) for achieving such feats.

To top it off, Jack Ma showed his face on TV shaking hands with President Xi Jinping, after years of being “missing” (not really completely, but he was on an exile).

Is this the time to load up on the BABA train? Today, we examine Jack Ma’s re-emergence, Alibaba’s fundamentals, valuation, and price technicals, ahead of its earnings tomorrow.

But before that, we first dive into the macro theme of China equities, here represented by KWEB, amidst the great uncertainties of US Tariffs.

Table of Contents

• 1. KWEB: Fool Me Twice?

• 2. Jack Ma Re-emerges

• 3. Alibaba (BABA) Earnings Preview

  • 1) Alibaba is a slow growing business

  • 2) Valuation Is No Longer Cheap

  • 3. Price Technicals

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. KWEB: Fool Me Twice?

Since the January 10 low of $27, KWEB has managed to rise by 32% in 5 weeks, its timing coinciding with the Chinese New Year.

My January 17th article highlighted that “KWEB has already been moving higher since Monday, and I expect it to continue a bullish climb in the short term”. But I did not initially foresee the extraordinary strength in the extent and duration of this rally, in the absence of official stimulus measures.

Reverse Repo vs KWEB

The original catalyst for this move, a very large liquidity injection by the PBOC on January 15 of $960 trillion Chinese Yuan (CNY) via the 7-Day reverse repo, was more than matched the following week. There has been continuously sizeable (500-700 billion CNY) injections up every week up to today, which has coincided with KWEB’s sustained rise.

KWEB vs USDCNH

Despite Trump’s 10% tariffs on China having already started, USDCNH has managed to stay below the 7.35 resistance zone. CNH (Chinese Yuan Offshore) has in fact climbed back to the pre-tariff levels.

KWEB typically trades inversely with USDCNH. It rises with a relatively stronger Yuan and falls with a relatively stronger US Dollar.

As USDCNH peaked on January 10, KWEB bottomed on the same day. The strength in Yuan has been supportive of the KWEB despite the tariff headlines.

US 10Y Yield vs Chinese 10Y Yield vs KWEB

Here, we breakdown the USDCNH dynamics a bit further. It is primarily driven by the interest rate spread between the US and China (plus or minus structural USD demand).

KWEB topped in October as the US vs China yield spread started to widen, driven by a combination of hawkish US yield expectations around the US Election and dovish Chinese yield expectations due to its economic woes.

KWEB bottomed as the US 10Y yield recently receded on lower oil, while Chinese 10Y also stabilised in the lead up to the Chinese New Year.

But there are also other reasons for China’s optimism.

There may be a couple of reasons for this. Firstly, having seen how Canada and Mexico tariffs were immediately delayed, investors read Trump’s tariffs primarily as a tool of diplomacy, rather than mutual destruction. Secondly, Chinese companies are taking off on the DeepSeek buzz, which is leading the AI-boom in China.

KWEB Bullish Path (https://www.tradingview.com/x/EqTBvs6p/)

Examining KWEB’s price technicals, it performed a perfect “break-out and retest” of the blue trend line of the previous two highs. It has now finally run into a wave (v) resistance, which sits at the 100% extension of wave (i) + (iii).

I do expect KWEB to turn lower soon, with a potential retrace of 0.618-0.786 of the entire wave 1 as the target zone for wave 2. Breaking below $27 would invalidate this thesis.

KWEB Bearish Alternative

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