Key News

Asian equities were largely higher except for Japan and India following small gains on Wall Street yesterday. While Mainland markets opened slightly lower, Shanghai, Shenzhen, and Hong Kong all ended the session slightly higher. Hopes for an agreement on a new stimulus package in the US helped fuel the small gains in China and Asia broadly as Asian economies, despite many having successfully contained the virus, cannot escape the economic consequence of a continued global demand slump due to covid-19. China’s new rules offering increased support for domestic software and integrated circuit industries fueled a rise in technology stocks.

Facebook-owned Instagram officially launched its “Reels” short-video platform in direct competition to TikTok. The launch is likely to put pressure on Microsoft to seal the deal with ByteDance to buy TikTok in the US. As a fast-growing platform with over 800 million users, the acquisition of TikTok is a potential gold mine for Microsoft.

The July Caixin services PMI was released overnight showing a softer expansion than expected. PMIs are diffusion indexes meaning that any reading above 50 indicates an expansion, while a reading below 50 indicates a contraction. As we have discussed previously, the demand side in China has taken a back seat to the supply side in terms of recovery. While the number was low, we should be pleased that an expansion was logged as the month of July saw coronavirus flare-ups in Beijing and Hong Kong, which led to temporary lockdowns. It is also important to note that the Caixin PMI differs from the "official" PMI in that it is compiled by a private company in conjunction with London-listed IHS Markit and focuses on smaller, private companies.

Autos rose after the China Association of Automobile Manufacturers (CAAM) reported that China vehicle sales rose 14.9% YoY to 2.08mln units in July. The comeback in autos has been much anticipated as sales were at a low point even prior to the pandemic. Gold Miners also rose due to the rising spot gold price, which gained 2.9% compared to yesterday's Hong Kong market close level. Oil and Gas names outperformed following the rise in crude prices due to the explosion in Lebanon’s capital Beirut. Lenovo managed a small gain on policy support news despite a patent infringement claim against the company coming from Nokia.

H-Share Update

The Hang Seng rose +0.62% overnight on lower volume. Breadth left much to be desired with 26 advancers and 22 decliners. Growth and financials led the way with the top movers Tencent HK +2%/61 index points and HK Exchanges +2.15%/33.52 index points. Hong Kong-domiciled stocks outperformed China-domiciled stocks 0.60% versus 0.52% using the HS HK 35 and China Enterprise Indexes as proxies.

Mainland investors net bought a total of HKD 900 million worth of Hong Kong stocks today through Southbound Connect.

A-Share Update

Shanghai and Shenzhen bounced around the room to close +0.17% and 0.80% at 3,377.56 and 13,960.92, respectively. Breadth was positive, but not amazingly so with 842 advancers and 590 decliners in Shanghai. In Shenzhen, on the other hand, breadth was far better with 1463 advancers and 743 decliners.

Foreign investors net sold RMB 2 billion worth of Mainland stocks through Northbound Connect.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.94 versus 6.97 yesterday
• CNY/EUR 8.26 versus 8.25 yesterday
• Yield on 1-Day Government Bond 1.23% versus 1.23% yesterday
• Yield on 10-Year Government Bond 2.96% versus 2.94% yesterday
• Yield on 10-Year China Development Bank Bond 3.49% versus 3.48% yesterday