Raphael Stevens

Tyson food meat products are shown in this photo illustration in Encinitas, California.
Mike Blake | Reuters

Check out the companies making headlines in premarket trading.
Tyson Foods – Shares of the food processing giant suffered a 6% drop in premarket trading after the company reported weaker-than-expected results for the first quarter. Earnings came in at 85 cents per share excluding items on revenues of $13.26 billion. Analysts expected $1.34 per share in earnings and revenue of $13.52 billion, according to Refinitiv.

PayPal — Shares of the payments company fell 2.6% in premarket after Raymond James downgraded the stock to market perform from outperform. The Wall Street firm said the downgrade followed the strong start to the year that saw the stock rise more than 20%. Meanwhile, Raymond James said it holds a cautious stance on its fourth-quarter earnings set for later this week.
Children’s Place — The children’s apparel retailer shed more than 16% after management cuts its outlook for the fourth quarter as it deals with a difficult macro environment. Children’s Place also said it expects a loss per share, citing “deterioration in gross margin.”
T-Mobile — T-Mobile shares dipped more than 2% following a downgrade to market perform by analysts at MoffettNathanson, citing expectations of a slowdown in subscriber growth.
Lyft — Shares of the ride-hailing company fell about 2% in premarket trading after Lyft was downgraded to hold from buy at research firm Gordon Haskett. The firm said in a note that Lyft’s active rider metric for the fourth quarter could fall short of expectations.
Dell Technologies — Shares of the consumer technology stock gained nearly 1% before the bell following news that its cutting about 5% of its workforce as it grapples with a difficult macroenvironment.

Spotify — Shares rose more than 1% after Wells Fargo upgraded Spotify to overweight from equal weight, saying the audio streaming company is improving margins with an expected price increase ahead. Separately, Atlantic Equities also upgraded the stock to overweight.
Energizer Holdings — The battery maker’s stock fell 6% after revenue and earnings for the recent quarter fell short of expectations, according to analysts surveyed by FactSet. Energizer, meanwhile, reaffirmed earnings per share and revenue growth guidance for the full year.
— CNBC’s Yun Li, Sarah Min, Jesse Pound and Tanaya Macheel contributed reporting

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Truss resigned in October, becoming the shortest-serving prime minister in British history.
Her radical tax-cutting budget roiled financial markets, sank the pound, took British pension plans to the brink of collapse and led to a revolt within her own Conservative Party.
“I am not claiming to be blameless in what happened, but fundamentally I was not given a realistic chance to enact my policies by a very powerful economic establishment, coupled with a lack of political support,” she wrote.

British Prime Minister Liz Truss announces her resignation, outside Number 10 Downing Street, London, Britain October 20, 2022.
Henry Nicholls | Reuters

LONDON — Former U.K. Prime Minister Liz Truss is blaming a “powerful economic establishment” for bringing her chaotic 44-day tenure to an end last year.
Truss resigned in October, becoming the shortest-serving prime minister in British history, after her radical tax-cutting budget roiled financial markets, sank the pound, took British pension plans to the brink of collapse and led to a revolt within her own Conservative Party.

In a 4,000-word essay published by the Sunday Telegraph, Truss argued that she was never given a “realistic chance” to implement the £45 billion ($54 billion) tax-cutting agenda she and Finance Minister Kwasi Kwarteng put forward.
In her first public remarks since leaving office, Truss stood by her economic policies, claiming they would have increased growth and brought down public debt over time, and blamed both the country’s economic institutions and her own party for her downfall.
“I am not claiming to be blameless in what happened, but fundamentally I was not given a realistic chance to enact my policies by a very powerful economic establishment, coupled with a lack of political support,” she wrote.
She added that she had assumed her “mandate would be respected and accepted” and had “underestimated the extent” of resistance to her economic program.
Truss was elected leader of the Conservative Party in September, defeating her eventual successor Rishi Sunak, after garnering 81,326 votes from party members following the ousting of Boris Johnson. The U.K. population exceeds 67 million.

“Large parts of the media and the wider public sphere had become unfamiliar with key arguments about tax and economic policy and over time sentiment had shifted leftward,” she added.
Current Business Secretary Grant Shapps, formerly Home Secretary under Truss, told the BBC on Sunday that Truss’ approach “clearly wasn’t the right one,” but gave credit to her longer-term vision.
“I think she makes a perfectly valid point that somebody has obviously got to be agitating for and making the good arguments for the reasons why a lower tax economy in the long run can be a very successful economy,” Shapps added.
Specter of ‘Trussonomics’
During her leadership campaign last summer, Truss took aim at the Bank of England, promising radical reform of a central bank she alleged was failing in its mandate to control inflation, and threatening to review its remit.
She also railed against what she dubbed “Treasury orthodoxy,” in particular projections that large unfunded tax cuts could exacerbate inflation and compress growth in the long run.
Upon taking office and with a cost-of-living crisis escalating, Truss promptly sacked the most senior civil servant in the Treasury, Tom Scholar.
As the Bank of England tried to combat spiraling inflation by raising interest rates and introducing quantitative tightening in order to slow the economy, Truss and Kwarteng’s fiscal plans set out to spur growth by cutting taxes for the wealthiest portions of society and jumpstarting spending. The government and the central bank were essentially working against one another.

Truss also broke from tradition by cutting the independent Office for Budget Responsibility, which usually publishes economic forecasts on the likely impact of government policy alongside budget statements, out of the process.
The financial markets, in particular the bond market, recoiled upon the announcements of large scale unfunded tax cuts with no apparent impact assessment, sending mortgage rates skywards and forcing the Bank of England to intervene to prevent a collapse of many British pension funds.
Michael Saunders, a former member of the Bank of England’s Monetary Policy Committee, told CNBC on Monday that Truss was brought down because the financial markets did not deem her policies credible, and this was “almost totally her own fault.”
“The idea that there is a sort of left-wing establishment made up of everybody in Liz Truss’ universe — markets, central bank, OBR, everybody else — that’s just not an idea to take seriously,” he said.
“She went out of her way to undermine her own credibility, sacking Tom Scholar, disparaging comments about the Bank of England, taking the OBR out of the forecast process. She was acting as if winning a majority of the Conservative Party membership gave her economic credibility, and it most clearly doesn’t.”
Current Prime Minister Rishi Sunak’s government vowed to restore this credibility upon taking over in October, and quickly reversed Truss’ entire economic agenda.

In November, Finance Minister Jeremy Hunt announced a £55 billion program of tax rises and spending cuts as he looked to plug a substantial hole in the country’s public finances.
However, Truss retains the support of a number of Conservative members of Parliament, including high-profile backbenchers such as Jacob Rees-Mogg, a consistently outspoken critic of Sunak’s government, and former party chairman Jake Berry. Her economic agenda also saw her to a comprehensive victory over Sunak among party members only last summer.
Saunders, now a senior policy advisor at Oxford Economics, said reigniting the debate within the Conservative Party after the markets rejected Truss’ agenda could erode trust from prospective investors that the governing party is truly committed to economic stability.
“The fact that the Conservative Party still needs to have this debate itself will worry investors looking at the U.K., because it will lead them to question how deep and solid is the Conservatives’ commitment to stability-oriented policies — the suggestion and the sense that this is what Conservative MPs and members, in their hearts, would really like to do,” he said.
“International investors will look at that and question whether a government which represents those interests can be trusted to stick to stability-oriented policies.”
Pension fund collapse
The central bank said pension funds were hours from collapse when it decided to intervene in the U.K. long-dated bond market in late September, just a week after Truss’ budget announcement.
The plunge in bond values caused panic in particular for Britain’s so-called liability-driven investment funds (LDIs), which hold substantial quantities of U.K. gilts and are owned predominantly by final salary pension plans.
In her essay, Truss claimed that she was not warned about the risks to financial stability contained in the LDI market.

In an article Sunday in the New Statesman, former Work and Pensions Secretary David Gauke implied that Truss’ version of events suggest that the LDI market’s frailties caused the market turmoil, when in reality, the surge in government bond yields caused the LDI problems.
“There might be a debate about the role and regulation of LDIs (although we should not ignore the consequence of prohibiting LDIs would mean much higher pension contributions from employers and/or employees) but the fundamental problem was that gilt yields surged because the bond market thought the U.K. government had taken leave of its senses,” Gauke wrote.
“Truss complains that she was not warned of the LDI risks. For argument’s sake, let us accept this as true. But she was certainly warned about the risks of pursuing an aggressive tax-cutting Budget without showing how the public finances were going to be put on a sustainable footing.”

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“What I want to emphasize regarding this unexpected accident is that both sides, especially the U.S., should remain calm,” said China’s Ministry of Foreign Affairs spokesperson Mao Ning in Mandarin, according to a CNBC translation.
She was speaking at the first of the ministry’s daily press conferences after U.S. Secretary of State Antony Blinken indefinitely postponed his trip to Beijing in light of news that a suspected Chinese surveillance balloon was flying over the United States.

“What I want to emphasize regarding this unexpected accident is that both sides, especially the U.S., should remain calm,” said China’s Ministry of Foreign Affairs spokesperson Mao Ning.
Aly Song | Reuters

BEIJING — China’s Ministry of Foreign Affairs spokesperson Mao Ning urged both sides to remain calm after the U.S. said it shot down what it called a Chinese spy balloon.
“What I want to emphasize regarding this unexpected accident is that both sides, especially the U.S., should remain calm,” Mao said in Mandarin, according to a CNBC translation.

She was speaking at the first of the ministry’s daily press conferences after U.S. Secretary of State Antony Blinken indefinitely postponed his trip to Beijing following news that a suspected Chinese surveillance balloon was flying over the United States.
Blinken was originally expected to visit Beijing Sunday and Monday, although the U.S. had offered few official details and the Chinese side never confirmed the trip. The U.S. military shot down the balloon over the weekend.
China has called the balloon a “civilian unmanned airship” and said it was primarily conducting weather research before it was blown off course.

Foreign Ministry spokesperson Mao emphasized the accidental nature of the balloon’s flight path, and said China has lost control of other such vehicles, according to her question-and-answer session Monday with reporters.
When asked who or what kind of company made the balloon, Mao declined to share any details.

Majority Leader Chuck Schumer “revealed that we do know that once the balloon was exposed to the public, China attempted to maneuver the balloon to leave the U.S. as soon as they could,” a Senate Democrats press release said Sunday.
When asked to confirm this detail, Mao said China’s communication with the U.S. “always works hard to handle things responsibly.”
She said again that the event was accidental, but puts the U.S. to the test in terms of how it can handle crises and stabilize U.S.-China relations. Mao reiterated China’s calls for “mutual respect, peaceful coexistence and win-win cooperation“ in the bilateral relationship.

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Plans for Blinken to visit Beijing were announced in November after Chinese President Xi Jinping and U.S. President Joe Biden had their first in-person meeting during the Biden administration.
News of the meeting and expectations that Blinken would visit Beijing had increased hopes for more stability in the tense U.S.-China relationship.
Ahead of Blinken’s visit, U.S. Department of State spokesperson Ned Price told reporters Thursday that one goal of high-level conversations with Beijing was “responsible management” of the world’s “most consequential” bilateral relationship. Such talks, he added, are meant to ensure that “competition doesn’t veer into conflict.”

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In 2022, Huawei announced it signed more than 20 new or extended licensing agreements for its patents.
Huawei ranked fourth last year by the number of patent grants in the U.S., said IFI Claims Patent Services.
Per the China Intellectual Property Administration website late last year, Huawei filed for a lithography technology patent.

Chinese telecommunications giant Huawei saw revenue decline in 2021 for the first time on record.
Bloomberg | Bloomberg | Getty Images

BEIJING — Chinese telecommunications giant Huawei is turning to patents for a lifeline as the company seeks to forge a path forward in advanced chip technology — the prized tech which the U.S. is trying to cut off from China.
In 2022, Huawei announced it signed more than 20 new or extended licensing agreements for its patents. Most were with automakers, for 4G and LTE wireless technology, the company said.

Mercedes Benz, Audi, BMW and at least one U.S. automaker were among the licensees, said Huawei’s global intellectual property head Alan Fan. He said he wasn’t able to say which American company.
Huawei has more on the way — and filed a record number of more than 11,000 patent applications with the U.S. in 2022, according to IFI Claims Patent Services. Their analysis showed just under half typically get approved each year.
But the sheer number of patents filed meant Huawei ranked fourth last year by the number of patent grants in the U.S., IFI said. Samsung was first, followed by IBM and TSMC.

“The U.S. is still a substantial market that everybody wants to have a part of,” said IFI Chief Executive Mike Baycroft. “They want to make sure when they’re developing those technologies that they’re protecting those IP [intellectual property] rights for the U.S. market for the European market.”
Over the last two years, Huawei’s U.S. patents have increased the most in areas related to image compression, digital information transmission and wireless communication networks, according to IFI.

The U.S. government put Huawei on a blacklist in 2018 that restricted its ability to buy from American suppliers. By October 2022, the U.S. made it clear that no Americans should work with Chinese businesses on high-end semiconductor tech.

The potential of patents

Huawei’s revenue dropped for the first time on record in 2021, and the consumer division that includes smartphones reported sales plunged nearly 50% to 243.4 billion yuan ($36.08 billion).
For Huawei, licensing its patents to other companies has the potential to claw back a bit of that revenue.
Alex Liang, partner at Anjie & Broad in Beijing, pointed out that having ceased operations in certain business areas allows the company to realize patent revenue that previously existed primarily on paper.
“Huawei’s situation is similar to Nokia’s when the first generation iPhone came out,” Liang said. “Nokia was quickly losing market share to Apple and lots of their patents no longer [had] to be licensed in exchange for other licenses to protect their phone business.”

Companies that share technical areas with Huawei … should all beware that a giant patent monetization player is jumping into their respective pool and will make a splash.

Alex Liang
partner, Anjie & Broad

Nokia generated 1.59 billion euros ($1.73 billion) in sales last year from patent licensing — about 6% of its total revenue. The company said in 2022 it signed “over 50 new patent license agreements across our smartphone, automotive, consumer electronics, and IoT [Internet of Things] licensing programs.”
Nokia and Huawei extended their patent licensing agreement in December. Huawei also announced licensing deals with South Korea’s Samsung and China’s Oppo.
“As far as I know, Huawei is aggressively pushing for the monetization of its patents,” Liang said.
“It is one of the most important [key performance indicators] of their IP department, if not yet the single most important,” he said.
“So any other companies that share technical areas with Huawei — such as telecommunication, phones, IoT, automobiles, PC, cloud service, and so on — should all beware that a giant patent monetization player is jumping into their respective pool and will make a splash.”
Huawei pushed back at the idea it was building a business in patent monetization.
The company’s IP head Fan said his department is “a corporate function, not a business unit,” and that it redirects royalties to the research departments that filed the patents to fund further research.
“We actively support patent pools and similar platforms, which license patent not just for us, but also for other innovators at the same time,” Fan said in a statement.
The company previously said it expected $1.2 billion to $1.3 billion in revenue from licensing its intellectual property between 2019 and 2021. Huawei did not break down specific figures, and only said it met its intellectual property revenue expectations for 2021.
A business of that size would still be a tiny fraction of the company’s overall revenue. Huawei said in December it expects 2022 revenue of 636.9 billion yuan, little changed from a year ago. Cloud and connected cars are other business areas the company has sought to develop.

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Huawei has “been floundering around since the demise of their handset business,” said Paul Triolo, Senior Vice President for China and Technology Policy Lead at Albright Stonebridge Group. “I don’t think they had a choice in terms of sort of boosting their licensing revenue.”
“The question is what do they do for 6G [in] five years?” he said. “Are they still going to play a patent game? They can’t really manufacture the equipment. They’re sort of stuck if they can’t figure out the semiconductor piece in terms of going forward.”
Still, Huawei said it spent 22.4% of 2021 revenue on research and development, bringing total category spending to more than $120 billion over the last decade.

Progress in chip tech?

Some of the research is in semiconductor manufacturing. Huawei has filed for a patent in the highly specialized area of lithography technology used for making advanced chips, according to a disclosure late last year on the China Intellectual Property Administration website.
“It’s significant in the sense that each individual piece of a complicated technology like EUV [extreme ultraviolet] is not that difficult to sort of make progress on,” Triolo said. “Turning that into a commercial system at scale that can boost commercially is a huge, huge task.”
Right now, Netherlands-based ASML is the only company in the world that can make the extreme ultraviolet lithography machines needed to make advanced chips.
Not only did it take ASML about 30 years to develop EUV on its own, but the company had the benefit of unrestricted access to thousands of suppliers and international industry groups, Triolo said. “What China really lacks is these international consortia.”
But he didn’t rule out the possibility that China’s national champion could help Beijing build up its semiconductor industry.
“Huawei has a very capable group of engineers,” Triolo said. It’s “probably a five-to-seven year process to build something commercially viable — only if everything goes well, if there’s substantial funding. The Chinese government is going to have to step up here.”

Other Chinese companies are also pouring resources into intellectual property.
IFI’s rankings of companies’ and their subsidiaries’ global patent holdings showed a number of Chinese giants among the top 15, including the state research organization Chinese Academy of Sciences.
Appliance companies Midea and Gree also ranked high globally, among South Korean and Japanese heavyweights, the data showed.
“The rise in Chinese innovation has been in plain sight for a long time,” said IFI CEO Baycroft. “Why shouldn’t we expect that China is innovating today like everybody else? Like Japan, like Germany, everybody’s in this game. It’s not just the U.S.”
— CNBC’s Arjun Kharpal contributed to this report.

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Active foreign fund managers are buying mainland China and Hong Kong stocks at a pace not seen since 2018, according to EPFR. The managers are also buying U.S.-listed Chinese stocks, at a more muted pace, the firm said.
But U.S.-based active money managers are still sitting on the sidelines, and any sustained rally needs them — and local Chinese investors — to buy in, according to Bernstein.

Trucks and passenger cars drive across the Sutong Bridge in the city of Suzhou near Shanghai on Jan. 27, 2023, during the Lunar New Year holiday.
Future Publishing | Future Publishing | Getty Images

BEIJING — Money is flowing into mainland Chinese and Hong Kong stocks in ways not seen since 2018, according to research firm EPFR Global.
Active foreign fund managers put $1.39 billion into mainland Chinese stocks in the four weeks ended Jan. 25, EPFR data showed. Active fund inflows into Hong Kong stocks were even greater during that time, at $2.16 billion.

“Active managers have never been this positive toward China markets in the past five years,” said Steven Shen, manager of quantitative strategies at EPFR.
“In the very short term we should be expecting more inflows from the active managers,” he said, pointing to factors such as China’s reopening from zero-Covid. EPFR says it tracks fund flows across $46 trillion in assets worldwide.
Active money managers are more involved with picking portfolio investments, while passive money managers tend to follow stock indexes.

The Shanghai composite gained more than 5% in January, the most since a surge of nearly 9% in November, according to Wind Information. The Hang Seng Index climbed by more than 10% in January, a third-straight month of gains.
The money is coming in faster than it did in early 2022, Shen said. At the time, a few institutional investors had said it was time to buy Chinese stocks due to Beijing’s emphasis on stability in a politically important year.

Back then, local investors had been more cautious. The highly transmissible omicron variant and China’s zero-Covid policy subsequently locked down the city of Shanghai for two months, while constraining business activity in much of the country. In 2022, GDP grew by 3%, one of the slowest paces in decades.
China abruptly ended its increasingly stringent Covid controls in December. Tourism, including travel abroad, rebounded during the Lunar New Year in late January.
This year, local investor sentiment is also recovering.
“With the macro environment in China I think 2023 we’re going to see a lot more [mainland China] client money shifting back into the market, into the secondary market funds,” Lawrence Lok, chief financial officer of wealth management firm Hywin, said in early January. The secondary market refers to the public stock market.
Lok said those clients last year avoided taking risk due to the turbulent market. The Shanghai and Hong Kong stock indexes plunged more than 15% last year.
For Hywin’s clients with funds outside of China, Lok said they are looking for ways to invest in U.S.-listed Chinese companies or Hong Kong stocks, among other offshore funds.
Hywin had more than 40,000 active clients as of June 2022 and 4.5 billion yuan ($642.9 million) in assets under management.

Read more about China from CNBC Pro

While real estate and renewable energy-related sectors are seeing interest, tech has been relatively quiet, EPFR’s Shen said. He said inflows were also less aggressive when it came to U.S.-listed Chinese stocks.
For passive money managers, cumulative net inflows into mainland Chinese, Hong Kong and U.S.-listed stocks stands at $7.05 billion for the four weeks ended Jan. 25, according to EPFR.
U.S.-based money managers who invest for the longer term bought a net $1.3 billion of U.S.-listed Chinese stocks last month as of Jan. 25 — the second-straight month of such inflows, according to Morgan Stanley.
“U.S.-based long-only managers shared that they just started to reduce their underweights on China, or were in discussion with investors to release mandate constraints on China exposure,” Morgan Stanley analysts said. “They expect inflows from asset owners to accelerate in 2Q23.”
Pinduoduo, Baidu and Bilibili were among the U.S.-listed Chinese stocks that saw the largest inflows, the report showed.

Deeper concerns

However, Bernstein analysts cautioned Chinese stock gains might not run much further if U.S. active investors — who have sat out the rally — and local investors don’t buy in.
The “extreme” inflows of the past three months threaten whether the market rally can continue for the next three months, Bernstein analysts said in a Jan. 27 report. “We believe in the short term, investors need to be more selective while picking China exposure.”
Recent enthusiasm about Chinese stocks also follows a rocky two years in which the abrupt suspension of Ant Group’s IPO, a crackdown on tech and real estate businesses and stringent Covid controls weighed on sentiment.
Bruce Liu, CEO of Esoterica Capital, said in January that while he’s been talking with some affluent Chinese about global diversification since 2019, they didn’t really start to act until the second half of last year. His firm manages under $50 million in assets.
“What happened in the past two years, that left a scar on their mind,” Liu said. “It’s a matter of confidence. I don’t see that confidence coming back yet. At least the people I have been talking to.”
“This is a strategic decision from their perspective,” he said. “Maybe they have enough Chinese assets. It’s more important for them to diversify [globally] rather than take advantage of this current, ongoing coming back.”

Moving to China

The China reopening story isn’t just for capital. Now that the borders are open, some in the investing business are even physically coming into the country.
Taylor Ogan, CEO of Snow Bull Capital, moved with his team of three to Shenzhen, China, in January to open a research office.
“The more we looked at it, we need to be in China simply just for research,” Ogan said. He said many Chinese companies don’t have much English-language material even if they are listed in Hong Kong, and that some giant Chinese public companies told them they hadn’t had any foreign analysts visit them since the pandemic.
“We started seeing that as an opportunity.”
— CNBC’s Michael Bloom contributed to this report.

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