What A Night! Alibaba Largest IPO Globally (Again) & Largest Foreign Buying of China Ever

Key News

Asia traded in a tight range as Alibaba’s Hong Kong IPO and MSCI’s semi-annual rebalance overshadowed positive developments in the US-China trade dialogue. Markets jumped on news of the Lighthizer He conversation though eased as the Alibaba IPO likely sucked in capital from the region. We also had money moving into Mainland Chinese stocks due to the MSCI rebalance which requires selling other regions to fund the trade.

MSCI’s Semi Annual Index Review is occurring globally today including the third inclusion of Chinese A-Shares. The third inclusion adds mid-cap stocks to MSCI’s definition of Chinese A-Shares while raising the total number of Chinese A-Shares to over 700 of the MSCI Emerging Market Index’s 1,400 stocks. With more than 50% of the numeric count of Emerging Markets, it shows where the market cap weight will be in the years to come. It is also important to note that MSCI’s definition of Chinese A-Shares differs dramatically from other Mainland indexes such as the CSI 300 or FTSE A50. A record $3B of foreign capital was invested into MSCI’s select definition of Chinese A-Shares today.

Alibaba’s Hong Kong IPO, which occurred yesterday, became the largest IPO globally this year raising $11.2 billion as the stock gained +6.59% to close at HK $187.60 from the offering price of HK $176. The Hong Kong listing should help those of us long the US listing due to arbitrage between the two share classes. The Hong Kong listing is welcomed news to the Hong Kong financial community. 9988 HK was an impressive 11% of Hong Kong’s total volume. The Hong Kong listing has two big days ahead of its as I anticipate it will be added to MSCI indexes and being added to Southbound Connect once it is added to Hang Seng indexes in early 2020. Ultimately the company is going to where investors will properly value it as opposed to treating it as a trade war proxy.

H-Share Update

The Hang Seng eased off morning highs of +0.87% to close -0.29%/-79.1 index points at 26,913 as volumes surged 75% day over day to the second highest trading day of the year driven by both the MSCI rebalance and BABA’s HK listing. Breadth was slightly off with 21 advancers and 26 decliners as AIA declined -0.94%/-25.3 index points, Tencent -0.94%/-24.7 index points and CK Asset Holding -2.33%/-9.6 index points. China Mengniu Dairy was the best performer +3.04%/+7.7 index points with Apple supplier Sunny Optical +2.88%/+7.8 index points though fellow Apple supplier AAC was the worst performer -4.88%/-5.2 index points. The Hong Kong stocks within the MSCI China All Shares -0.21% as discretionary +0.50%, staples +0.50%, utilities +0.45%, healthcare +0.37% and financials +0.07%. Tencent pulled down communications -0.9%, real estate -0.61%, energy -0.28%, tech -0.23%, industrials -0.18% and materials -0.04%. Southbound Connect volumes were moderate in mixed trading though volume leader CCB saw massive buying (again), Meituan Dianping had another strong buying day and ICBC had strong buying.

A-Share Update

The Shanghai & Shenzhen chopped there way to a gains of +0.03% and +0.32% as volumes fell -6.9% day over day and well off the 1 year average. Breadth was mixed with 1,418 advancers and 2,093 decliners as mega/large caps underperformed mid and small caps. The Chinese stocks within the MSCI China All hares gained +0.16% as tech jumped +1.39%, healthcare +0.68%, staples +0.68%, utilities +0.55%, communication +0.45%, discretionary +0.39% and industrials +0.17%. Materials was off -0.75%, real estate -0.58%, financials -0.42% and energy -0.38%. Northbound Connect volumes were MASSIVE as foreign investors bought a Connect record $3.04 billion of mainland stocks today. Volumes on both the Shanghai & Shenzhen jumped more than 3X from yesterday. Shanghai volume exceeded Shenzhen volume by a slight amount though both had record days.

Social media company Momo Inc (MOMO US) reported Q3 earnings before the US open today. The company appears to have avoided the Bytedance effect that has hit other social media and online video players.

  • Revenue +22% to $622.8mm (RMB 4.451B)
  • Monthly active users inched up to 114.1mm from 110.5mm
  • Adjusted EPS +0.69 (RMB 4.90) versus estimate $0.62 and last year RMB 3.57

Online auto seller Bitauto (BITA US) reported disappointing Q3 results as revenue, EPS and Q4 revenue forecast came in light.

China will resume the import of chickens from +170 plus US plants.

Last Night’s Prices & Yields

  • USD/CNY 7.0402 versus 7.036 Yesterday
  • CNY/EUR 7.7564 versus 7.7466 Yesterday
  • Yield on 1-Day Government Bond 1.89% versus 1.801% Yesterday
  • Yield on 10-Year Government Bond 3.1517% versus 3.1573% Yesterday
  • Yield on 10-Year China Development Bank Bond 3.745% versus 3.7562% Yesterday
  • Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper +0.04% .