Tencent Puts Hong Kong On Its Back
A belated Happy Fathers Day!
Asian equities were mixed overnight as investors kept an eye on recent coronavirus flare-ups in the US and Beijing. Fortunately, daily new cases in Beijing declined to less than 40 over the weekend. Hong Kong would have had a much worse day if not for volume leader Tencent’s gain of +3%/+79 index points. Speculation regarding a potential bid for iQiyi (ticker IQ) has lifted the stock of late. Southbound Connect volumes were elevated as we head into the Dragon Boat Festival market holidays on Thursday and Friday.
Hong Kong Exchanges had a strong day rising +3.73% as CEO Li participated in a Bloomberg virtual conference saying that Southbound Connect would include secondary Hong Kong listings (i.e. Alibaba) in the future. He also commented that he does not believe China’s new national security law will jeopardize Hong Kong’s status as a financial hub.
AIA jumped +1.81% on news that its Shanghai subsidiary will operate independently, making it the first independent foreign insurance company operating in China.
1 and 5-year Loan Prime Rates were left unchanged at 3.85% and 4.65%, which was in line with expectations. I’ve noticed that China bond yields have increased over the last month or so by nearly 10 basis points (0.1%). My colleague Fernando, who has a background in fixed income, would be doing backflips over 10bps, which, for a stock person like me, is a yawn.
Mainland markets managed a small gain early in the day on reports that the Shanghai Composite Index would include STAR companies in its performance calculation. Shenzhen ended the day higher while Shanghai ended the day lower.
Semiconductor Manufacturing’s IPO on the STAR Exchange is coming soon after having received approval in record time. The STAR Exchange is an outcropping of the Shanghai Stock Exchange that caters to high-growth tech companies, akin to the Nasdaq in the US.
A Mainland media article quoted Yi Huiman, Chairman of the China Securities Regulatory Commission (CSRC, “the SEC of China”), on the long-standing PCAOB issue. Huiman appeared to show a willingness for the CSRC to allow the auditors’ to provide their books to the PCAOB. This would be big news as it would negate the recent Senate bill. I’ve not seen this confirmed elsewhere but will do my best to confirm over the coming week. The announcement follows a South China Morning Post article from Friday, which quoted the CSRC saying that 14 US-listed Chinese companies have submitted their audit papers to the SEC and PCAOB in “recent years”. The article is interesting as it is clearly meant to be read by the SEC and PCAOB. Is this an olive branch? At the very least, it demonstrates a desire for communication.
Alibaba Health is retiring its Singapore listing due to a lack of volume relative to their primary listing in Hong Kong. The company will pay for shareholders to have their Singapore shares to be converted in Hong Kong shares.
JP Morgan took control of its futures trading joint venture. This is yet another sign of China’s opening up as well as of a respected US company doing well in China.
The Hang Seng opened lower and let gravity take effect to close -0.54%/-132 index points at 24,511. Volumes were off -21% from Friday’s FTSE rebalance. Only 5 stocks advanced while 44 declined. Tencent gained +3%/+79 index points while ICBC was the day’s worst performer falling -6.18%/-67 index points. AIA rose +1.81%/+46 index points. Hong Kong Exchanges was the best performer rising +3.73%/+42 index points. Hong Kong and China-domiciled stocks were off -0.84% and -0.96%, respectively, using the HS HK 35 and China Enterprise Indexes as proxies. The Chinese companies listed in Hong Kong and within the MSCI China All Shares Index rose +0.12% with communication +2.37%, tech +0.84%, staples -0.38%, utilities -0.49%, financials -0.53%, healthcare -0.77%, materials -0.83%, energy -0.89%, discretionary -1.27%, industrials -1.65%, and real estate -1.76%.
Southbound Connect volumes were light in mixed trading though Tencent had a very high volume day as buyers outpaced sellers by 3 to 1. Semiconductor Manufacturing saw buyers outpace sellers by a small margin while Ping An saw net sellers sold. Mainland investors bought $100mm worth of Hong Kong stocks as Southbound Connect accounted for 11% of Hong Kong turnover.
Shanghai and Shenzhen bounced around to close -0.08% and +0.29% at 2,965 and 1,936. Volumes picked up 5% which is well above the 1- year average while 1,527 stocks advanced and 2,143 declined. Mid and small caps outperformed large caps. The Mainland stocks within the MSCI China All Shares Index gained +0.19% with tech +1.83%, financials +0.47%, communication +0.45%, healthcare +0.38%, utilities +0.05%, staples -0.17%, materials -0.34%, industrials -0.33%, energy -0.87%, and discretionary -1.07%.
Northbound Connect volumes were moderate/high as foreign investors were active buyers of Mainland stocks. Shenzhen Connect volumes were very high compared to Shanghai in a trend that we have been observing for the past year. MSCI inclusion stock Kweichow Moutai saw net sellers while fellow liquor stock Wuliangye Yibin saw sellers outpace buyers by 2 to 1. East Money Information was bought 3 to 2. Foreign investors bought $308mm worth of Mainland stocks today while Northbound Connect trading accounted for 5.1% of Mainland turnover.
Last Night’s Exchange Rates & Yields
- CNY/USD 7.07 versus 7.07 Friday
- CNY/EUR 7.94 versus 7.91 Friday
- Yield on 1-Day Government Bond 1.45% versus 1.43% Friday
- Yield on 10-Year Government Bond 2.92% versus 2.88% Friday
- Yield on 10-Year China Development Bank Bond 3.20% versus 3.16% Friday