JD.com Marks 22nd Anniversary With Hong Kong Debut, ZTE Soars on Chip Announcement
Asian equities had a mixed day with Australia off as unemployment hit 7.1%, the two-decade high, while India rebounded following the border clash with China. Hong Kong recovered somewhat after suffering losses of nearly -1.5% intraday. The big news in Hong Kong was JD.com’s IPO, which rose +3.53%. Volume leaders were Tencent +1.64% followed by JD.com and Semiconductor Manufacturing +6.91%. Alibaba HK was flat while NetEase lost -1.09%. ZTE HK rose +21.98% after announcing a new 5G chip for telecommunication equipment. The news led to a rally in Hong Kong and Mainland tech stocks. Geely Auto rose +5.88% after announcing it will relist on the Mainland’s STAR board.
Yi Huiman, head of China’s SEC, the CSRC, announced that STAR stocks should be added to Stock Connect. Kudos to our friend William and his colleagues at Everbright for the insight. The STAR board is growth exchange on the Shanghai that competes with the Shenzhen Stock Exchange.
Healthcare was weaker as CSPC issued more shares in addition to a cash dividend. The Mainland market posted modest gains overcoming the 27 new coronavirus cases yesterday. Being the capital, the major response in Beijing is not surprising though the market doesn’t look that worried. The market shrugged off news that banks should support the economy and not post profits over 10%. I don’t think anyone expected profits over 10% though it does set up a bank reserve requirement cut. This would free up banks’ balance sheets to lend to private companies.
JD.com’s Hong Kong listing (9618 HK) debuted with a gain of +3.53% as the company raised $3.9B. Today is the anniversary of the company’s founding twenty-two years ago. It also concludes the 6.18 sales festivals from JD and Alibaba. E-commerce should be a focus as Q2 revenue may see a nice lift from the 6.18 event. One broker noted that JD.com sold $34 billion worth of goods during the event. The Hong Kong listing will add to JD’s market cap and may lead to an increase in JD’s weight in MSCI indices at the quarterly rebalance at the end of August. On deck for Hong Kong listings are Yum China, Baidu and Trip.com (formerly C-trip.com).
There have been shockingly little insights on the Hawaii meeting with Secretary of State Pompeo and Office of the Foreign Affairs’ head Yang Jiechi. A Mainland news source called the talk “constructive,” but offered little clues as to what was discussed. The meeting took place against the backdrop of President Trump signing the Uighur Bill. The consensus view is aligned with our view that China rhetoric will be more bark than bite. Tightening the screws on China economically would jeopardize a Q3 economic rebound, which makes no sense at all.
Did anyone else notice where US flights to China will be resuming first? Seattle and Detroit. This is not surprising considering that Microsoft, Amazon and GM are likely curious to visit their China operations.
The Hang Seng opened -0.39% and slumped to a low of -1.47%/-359 index points before rebounding to cut losses and pull a James Bond -0.07%/16 index points at 24,464. Volume picked up +16% from yesterday to a moderate/high level while breadth was mixed with 20 advancers and 24 decliners. Index heavyweight Tencent +1.64%/+41 index points, HSBC -1.58%/-36 index points, and today’s best performer Geely Auto +5.88%/+13 index points. China Resources Land was the worst performer -4.01%/-12 index points. China-domiciled companies +0.07% while Hong Kong-domiciled companies +0.01% using the HS China Enterprise and HK 35 indices as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.74% with tech +2.66%, communication +1.38%, real estate +0.97%, discretionary +0.92%, utilities +0.82%, staples +0.75%, materials +0.63%, healthcare +0.56%, industrials +0.46%, financials -0.33%, and energy -0.43%.
Southbound Connect volumes were moderate though Mainland investors were active buyers of Hong Kong stocks today. Semiconductor Manufacturing, Tencent, and China Construction Bank all had decent inflows today. Mainland investors bought $307mm worth of Hong Kong stocks today as Southbound Connect accounted for 8.3% of Hong Kong turnover.
Shanghai & Shenzhen opened lower -0.2%/ -0.08%, hit intraday lows of -0.54%/-0.42% before climbing in the afternoon to close +0.12% and +0.24% at 2,939 and 1,908. Volumes were +3% from yesterday and well above the 1-year average. Large, mid, and small caps were generally in line with one another with mid cap outperforming. The mainland stocks within the MSCI China All Shares +0.61% with +2.24%, energy +1.6%, utilities +1.25%, discretionary +1.21%, materials +1.17%, real estate +0.95%, staples +0.76%, industrials +0.32%, communication +0.29%, financials +0.2%, and healthcare -1.6%.
Northbound Connect trading diverged as both Shanghai and Shenzhen had net buying though volumes were much higher in Shenzhen. Volume leaders on both exchanges were net bought with TCL Technology seeing 2 to 1 buying in Shenzhen and Kweichow Moutai seeing 3 to 2 buying in Shanghai. Foreign investors bought $699mm worth of Mainland stocks today as Northbound Connect trading accounted for 5.1% of Mainland turnover.
Last Night’s Exchange Rates & Yields
- CNY/USD 7.09 versus 7.09 yesterday
- CNY/EUR 7.96 versus 7.95 yesterday
- Yield on 1-Day Government Bond 1.42% versus 1.35% yesterday
- Yield on 10-Year Government Bond 2.85% versus 2.88% yesterday
- Yield on 10-Year China Development Bank Bond 3.15% versus 3.17% yesterday