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May 19, 2025
[Market Musings] Trade Truce Takes Root: Markets Surge on US-China Détente
By
Kristal Advisors
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May 13, 2025
[Market Musings] Trading Truce: From Tariff Tensions to Teasing Détente
By
Kristal Advisors
(12-16th May 2025)
90-day tariff reduction unlocks strongest rally of 2025
Stock markets staged a powerful recovery this week after Washington and Beijing announced a surprise 90-day reduction in tariffs. The S&P 500 surged more than 5%, erasing year-to-date losses as investors welcomed the unexpected diplomatic breakthrough.
The US will lower tariffs on Chinese goods from 145% to 30 %, while China will cut duties on American products from 125% to 10%. Markets interpreted the move as a significant de-escalation despite Treasury Secretary Bessent cautioning these were merely preliminary discussions with his counterpart, Vice Premier He Lifeng.
A softer US inflation reading (0.2 % MoM versus 0.3% expected) provided additional momentum. Federal Reserve chair Powell noted April's PCE inflation was tracking towards 2.2% YoY, down from March's 2.3 %.
Traders now anticipate 52 basis points of Fed easing by year-end — approximately two quarter-point cuts — a notable shift from recent weeks when expectations had fallen to less than one cut.
Semiconductor stocks led the rally following reports the administration might ease chip export restrictions. The détente sparked gains across emerging markets, with Goldman Sachs lifting its 2025 China GDP forecast to 4.6 % from 4 %.
While the temporary nature of the agreement raises questions about sustained market momentum, the immediate reaction underscores how significantly trade tensions have weighed on investor sentiment.
The mixed data reinforces a picture of an economy maintaining modest growth amid significant policy uncertainty. While inflation pressures continue to ease, the slowing consumption trends and weakening housing sector support the case for Fed easing later this year. The tariff reductions may provide some relief, but their temporary nature could limit the economic impact.
Sea Limited, once known for prioritising growth at all costs, has transformed into a profit machine while maintaining robust expansion across its digital ecosystem in Southeast Asia. The Singapore-based group operates Shopee (e-commerce), Garena (gaming) and SeaMoney (financial services), giving it unmatched regional digital breadth.
Despite narrowly missing revenue targets, Sea demonstrated remarkable operating leverage with EBITDA exceeding expectations by nearly 31%. The standout story is Shopee's dramatic margin improvement, swinging from negative territory to 8.5% as its marketplace matures. This echoes Amazon's playbook of monetising established traffic through high-margin advertising, which grew 50 % YoY.
Operational efficiencies continue to compound, with logistics costs falling 6% in Asia and 21% in Brazil while improving delivery times. Management projects 20% GMV growth for 2025 alongside further margin expansion, positioning Sea as a relatively insulated way to access Southeast Asian digital growth with minimal exposure to US-China tensions.
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Nu Holdings continues to disrupt Latin American banking, with its digital-first model now serving 59 % of Brazil's adult population. The fintech delivered revenue and deposit growth exceeding forecasts, but margins faced temporary pressure from aggressive expansion investments in Mexico and Colombia.
These international ventures, while dilutive near-term, follow Nu's successful Brazilian playbook. Mexico's customer base grew 70 % YoY to 11 million, while Colombia reached 8 % population penetration in just four years. Credit quality remains impressive despite 75 % portfolio growth, with non-performing loans stable at 1.1 %.
Nu's structural advantages persist, with cost-to-serve at $0.70 monthly per customer — 85 % below incumbent banks. With average revenue per customer at just $11.20 compared to $26 for mature cohorts and $40+ for traditional banks, Nu's runway for monetisation remains substantial even without further expansion.
On Running continues to outpace the athletic footwear sector, delivering results above expectations across all metrics. The Swiss brand saw revenues exceed forecasts by 6.9 %, with impressive regional growth — EMEA up 33%, Americas 28.6%, and Asia-Pacific 129% YoY.
The company's premium positioning is proving resilient, with gross margins and EBITDA beating expectations despite ongoing growth investments. On's innovative products, particularly the CloudSurfer 2 launch, are creating positive "halo effects" across its broader portfolio. Even its most expensive models show no demand impact despite economic uncertainties.
While FX headwinds prompted a reduction in absolute revenue targets, On raised its currency-neutral growth guidance to 28%+. Its "LightSpray" manufacturing innovation and successful Latin American loyalty programme launches position the brand to continue challenging much larger competitors with its differentiated products.
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Cloudflare maintained its growth trajectory against an increasingly challenging market backdrop, with revenue exceeding estimates by 1.9% while maintaining a robust 28.5% two-year compound annual growth rate. The cloud security and performance company's sales productivity improvements delivered record enterprise contracts, including its first-ever $100 million deal.
AI adoption is accelerating dramatically across Cloudflare's platform, with inference requests up 4,000% YoY and 4,000 customers now using AI integrations. The company's ability to dramatically improve GPU utilisation rates for AI workloads is becoming a key differentiator, while its Workers platform takes market share from hyperscalers for edge computing.
Despite gross margin pressure from customer traffic mix shifts, management maintained full-year guidance. With its network handling approximately 20% of global internet traffic, Cloudflare's strategic position at the intersection of security, performance and AI infrastructure continues consolidate.
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· Uber's Platform Innovations: At its GoGet 2025 event, Uber unveiled several new features to improve predictability and affordability for its core mobility business. New offerings include Price Lock (locking in favorable rates for commutes), Prepaid Passes (bulk ride discounts), and Route Share (fixed routes at up to 50% off UberX prices). CEO Dara Khosrowshahi also reported that autonomous Waymo vehicles in Austin have "higher utilization rates than 99% of manned Uber vehicles."
· Apple's AI Search Strategy: Apple VP of Services Eddy Cue revealed the company is exploring adding AI to its search browser and noted that browser searches fell for the first time in April. Cue mentioned Perplexity or Anthropic's Claude as potential partners and stated Apple has "no intention of making its own general search engine." This news sent Alphabet shares tumbling 7.5%, reflecting concerns about Google's $20 billion annual payment to Apple for default search status.
· Meta's AI Delay: Meta Platforms is delaying the rollout of its flagship AI model, Behemoth, by six months, according to the Wall Street Journal. The delay stems from performance concerns and has prompted internal questions about the direction of the company's multibillion-dollar AI investments. This setback could impact Meta's competitive position against OpenAI and Anthropic as large language models continue to advance rapidly.
· United Healthcare Investigation: The Department of Justice is investigating UnitedHealth Group for possible criminal Medicare fraud, sending shares plunging nearly 18% on Thursday. The company had already suspended its 2025 outlook the previous day as it announced a leadership transition, creating significant uncertainty around one of healthcare's largest players.
· Starbucks China Strategy: Starbucks is reportedly exploring a sale of at least part of its China business, potentially seeking a local partner to reduce regulatory pressure from Chinese authorities. This move reflects growing challenges for Western consumer brands operating in the increasingly complex Chinese market.
Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.
By
Kristal Advisors
May 19, 2025
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May 19, 2025
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May 13, 2025
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We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
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