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Is Didi Chuxing, China’s Uber Slayer, Joining the Hong Kong IPO Hit Parade?

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Key News

Asian equities had a strong session thanks to positive coverage of vaccine trials and a rally in US technology. Ant Group’s IPO news came out after the close in Hong Kong on Monday, which meant that all things growth were “en fuego” overnight. Volume leader Tencent rose +7.94%, Alibaba HK +7.26%, Semiconductor Manufacturing +4.08%, Meituan Dianping +8.81%, HK Exchanges +9.83%, and Xiaomi +4.93%. JD.com HK and NetEase participated in the rally as well gaining +5.13% and +5.52%, respectively. Mainland investors were highly active in buying Hong Kong-listed stocks via the Southbound Connect. Meanwhile, Mainland China had a particularly interesting session as financials/brokers saw profit taking while health care rode positive global vaccine progress and tech rebounded following several days of profit taking.

Caixin, a Mainland media source, reported that Didi Chuxing is going to go public in Hong Kong. I’ve not seen this reported elsewhere. Didi is well known for beating Uber in China, leading to Didi taking a seat on Uber’s board, as Uber China’s assets went onto Didi’s balance sheet. I met with Didi in November of last year at their office in Beijing’s tech hub. I left very impressed by the company, though they were tight lipped on their balance sheet as a private company. Didi and Ant Group are two of China’s biggest private companies. Didi’s last fundraising in 2018 valued the company over $50B. One catalyst in an IPO might be investor Softbank, as it is raising cash wherever they can. Stay tuned! 

A Mainland research firm noted that Chinese pharmaceutical company Sinopharm is progressing with its phase 3 COVID-19 vaccine trial in Abu Dhabi. The goal is to recruit 15,000 volunteers to take the vaccine in conjunction with the country’s Department of Health. Another media source noted “Abu Dhabi Department of Health (DoH) chairman Sheikh Abdullah bind Mohammed Al Hamed and DoH acting undersecretary Dr Jmal Alkaabi have volunteered to take part in the trial.” Fingers crossed on the trial! 

Tesla is moving higher in speculation that it will be added to the S&P 500. It is important to understand index methodology, but also the power of passive flows. The company’s market capitalization and valuation are a touch high. Tesla needs to be profitable in order to be eligible for S&P 500 inclusion. I stress ‘eligible’ as the S&P committee makes the decision. Put yourself in the shoes of the committee: do you add TSLA after +292% year to date/+536% over the last year? As a committee, your primary objective is to avoid being embarrassed.  S&P added Yahoo to the S&P 500 in November 1999 – that didn’t pan out. I don’t think they’ll add TSLA to the S&P 500 just because it is eligible. I believe that they will wait it out, hoping some air comes out of the stock or the next quarter the company returns to a of profitability removes eligibility. It’s a committee, which means it’s conservative by nature.

H-Share Update

The Hang Seng opened higher and stayed at +2.31%/+577 index points to close at 25,635. Volume jumped +19%, which is 1.5X the 1-year average while breadth was strong with 37 advancers and 10 decliners. Tencent had a monster day up +7.94%/+249 index points. Today’s best performer Hong Kong Exchanges went up +9.83%/+136 index points and HSBC +2.46%/+56 index points. Today’s worst performer was Bank of Communication, down -1.55%/-1.8 index points. Hong Kong domiciled stock +2.46% versus +1.46% using the HS Hong Kong 35 and China Enterprise Indexes as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares were up +3.41%, led by communication +7.02%, tech +5.99%, discretionary +5.45%, health care +5.32%, staples +1.43%, real estate +0.8%, energy +0.18%, industrials -0.04%, utilities -0.2%,  financials -0.36%, and  materials -1.43%.

Southbound Stock Connect volumes are returning to some sense of normalcy. Volume leader SMCI was sold slightly on both Shanghai and Shenhen Connect venues, while Tencent was bought 3 to 1 on the Shenzhen and 9 to 7 on the Shanghai. Meituan Dianping was bought 4.5X to 1 on the Shanghai and nearly 3 to 1 on the Shenzhen. Mainland investors bought $660mm of Hong Kong stocks today as Southbound Connect trading accounted for 9% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen gained +0.2% and +0.72% in a choppy session to close at 3,320 and 2,232, respectively. Volume retracted -7%, but was still 1.5X the 1-year average. Breadth was mixed with 1,672 advancers and 2,016 decliners; additionally mid and small caps outperformed large caps. The Mainland stocks within the MSCI China All shares were up +0.43%, led by health care +3.46%, staples +1.8%, discretionary +0.95%, tech +0.45%, communication +0.18%, real estate +0.0%, industrials -0.28%, utilities -0.34%, materials -0.37%, energy -0.49%, and financials -1.33%.

Northbound Stock Connect flows were high as the Shenzhen saw inflow and the Shanghai saw outflow. Shanghai volume leader Kweichow Moutai  had net buying by a small margin, Hundsun Technologies sold 4 to 3, and Ping An sold 2 to 1. On the Shenzhen, Wuliangye Yibin was sold 7 to 5, Luxshare bought 4 to 3, and Gree Electric Appliance bought 4 to 3. Foreign investors sold -$430mm of Mainland stocks today as Northbound Connect trading accounted for 6% of Mainland turnover.

Last Night’s Exchange Rates & Yields

Yields were slightly lower in a risk-on environment as CNY depreciated somewhat against both the dollar and Euro.

  • CNY/USD 6.99 versus 6.98 yesterday
  • CNY/EUR 8.01 versus 7.99 yesterday
  • Yield on 1-Day Government Bond 1.27% versus 1.52% yesterday
  • Yield on 10-Year Government Bond 2.90% versus 2.93% yesterday
  • Yield on 10-Year China Development Bank Bond 3.38% versus 3.44% yesterday