Catherine Lim

Regulators summoned major platforms (Alibaba, Baidu, JD, Meituan) on Friday regarding "evolutionary" pricing practices (price wars). Meituan warned of a $3.5B annual loss due to this competition. The government's "anti-involution" drive effectively caps profit margins. If companies cannot compete on price to gain market share, and are simultaneously facing an earnings wall due to weak consumption, their growth models are broken. SHORT/AVOID. The regulatory overhang combined with deteriorating earnings guidance makes the sector uninvestable in the near term. A surprise stimulus package from Beijing or a successful Trump-Xi summit in April could trigger a short squeeze.

Regulators summoned major platforms (Alibaba, Baidu, JD, Meituan) on Friday regarding "evolutionary" pricing practices (price wars). Meituan warned of a $3.5B annual loss due to this competition. The government's "anti-involution" drive effectively caps profit margins. If companies cannot compete on price to gain market share, and are simultaneously facing an earnings wall due to weak consumption, their growth models are broken. SHORT/AVOID. The regulatory overhang combined with deteriorating earnings guidance makes the sector uninvestable in the near term. A surprise stimulus package from Beijing or a successful Trump-Xi summit in April could trigger a short squeeze.

Regulators summoned major platforms (Alibaba, Baidu, JD, Meituan) on Friday regarding "evolutionary" pricing practices (price wars). Meituan warned of a $3.5B annual loss due to this competition. The government's "anti-involution" drive effectively caps profit margins. If companies cannot compete on price to gain market share, and are simultaneously facing an earnings wall due to weak consumption, their growth models are broken. SHORT/AVOID. The regulatory overhang combined with deteriorating earnings guidance makes the sector uninvestable in the near term. A surprise stimulus package from Beijing or a successful Trump-Xi summit in April could trigger a short squeeze.