Key News

Asian equities were largely higher though Japan, Hong Kong and Mainland markets were off by a touch. Following the hijacking of TikTok from ByteDance, investors in Hong Kong stocks used Secretary of State Pompeo’s comments on banning WeChat, Tencent’s social media platform, in the US to take profits. This move would have virtually no impact on Tencent due to the limited user base in the US, though Pompeo’s comments on US companies not using Chinese cloud companies could have an impact on US technology stocks, which garner approximately 15% of their revenues from China. US cloud computing companies like Amazon and Microsoft are doing very well in China.

We are getting closer to politics colliding with economics. Remember that, according to the NY Federal Reserve, US companies generate $376B of revenue in China, which is not included in trade data since the goods are manufactured in China and sold domestically.

Hong Kong volume leaders were Tencent -0.98%, Meituan Dianping +1.28%, Semiconductor Manufacturing (SMIC) +2.34%, Alibaba Hong Kong +0.47% and Xiaomi +2.18%. JD.com Hong Kong was up +0.4% while NetEase Hong Kong was flat at 0.0%. Hong Kong gold and miners were positive. It is worth noting that Mainland investors were active buyers of Hong Kong stocks on today’s weakness, as Meituan Dianping were bought heavily. Mainland stocks were off slightly on US-China political rhetoric, as growth stocks including the DnD trade (drugs ie pharma and drinks ie alcohol) saw profit taking as chatter of high valuations. Brokerage stocks had another strong day as increased trading should mean increased profits. News that China is close to the launch of a cryptocurrency might help explain Bitcoin’s rise of late.

Yesterday, we heard rumors that Tencent is encouraging online gaming streamers DouYu (ticker DUYA) and Huya (ticker HUYA) to pursue a merger. The merger would make a lot of sense for Tencent, which has a stake in both. Although such a merger would allow the companies to capitalize on synergies, competitor Bilibili (BILI US) shouldn’t be threatened due to its exclusive rights to broadcast the immensely popular League of Legends tournaments.

China’s currency, the renminbi (ticker CNY), had a big move versus the US dollar yesterday of $0.0369/+0.51%, though it came back a little overnight. The dollar has been weakening versus many currencies, though many traders use CNY as a proxy for US-China relations. It’s interesting to see CNY’s move in light of the increased rhetoric. 

Mark August 15^th on your calendar as US-China trade teams will connect virtually. Tonight, export/import data for July will be released.

H-Share Update

The Hang Seng slipped at the open but rallied off the day’s low to close at -0.69%/-171 index points at 24,930. Volumes picked up +10% from yesterday modestly above the 1-year average. Breadth was off with 8 advancers and 40 decliners, led by Tencent -0.98%/-30 index points, HSBC -1.33%/-27 index points, and China Mobile -2.61%/-26 index points. Hong Kong domiciled companies were off -0.54% versus -0.53% for China domiciled companies using the HS Hong Kong 35 and China Enterprise Indexes as proxies. The 205 Chinese companies listed in Hong Kong within the MSCI China All Shares were down -0.24%, led by materials +1.57%, energy +0.71%, industrials +0.58%, tech +0.48%, discretionary +0.46%, health care +0.02%, real estate -0.02%, financials -0.15%, staples -0.54%, communication -1.01%, and utilities -1.45%.

Southbound Stock volumes were light in mixed trading. Shanghai Connect volume leaders SMIC was sold 2 to 1, Tencent bought 2 to 1, and Meituan Dianping bought 4 to 1. Shenzhen Connect volume leaders SMIC was sold 3 to 2, Tencent was sold slightly, and Meituan Dianping was bought 20 to 1. Mainland investors bought $100mm of Hong Kong listed stocks today as Southbound Connect trading accounted for 11.% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen had a volatile day bouncing around the room to close +0.26% and -0.62% to close at 3,386 and 2,304, respectively. Volume was up +8% from yesterday to nearly 2X the 1-year average. Breadth was off with 1,268 advancers and 2,411 decliners. Large caps outperformed mid and small caps today. The 510 Mainland listed Chinese companies within the MSCI China All Shares were down -0.21%, led by financials +1.79%, materials +1.18%, industrials +0.44%, real estate +0.3%, energy -0.01%, discretionary -0.27%, tech -0.42%, utilities -0.46%, staples -1.191%, health care -2.2%, and communication -2.38%.

Northbound Stock Connect volumes were light as foreign investors sold Shanghai stocks and bought Shenzhen stocks. Volume leaders on Shanghai Connect Ping An was sold 2 to 1, Kweichow Moutai was sold by a small amount, and Jiangsu Hengrui Medicine sold slightly. Shenzhen Connect volume leaders East Money was bought 7 to 5, Luxshare was bought slightly, and Wuliangye Yibin was bought 3 to 2. Foreign investors sold -$366mm of Mainland stocks today as Northbound Stock Connect trading accounted for 5.5% of Mainland trading.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.95 versus 6.94 yesterday
• CNY/EUR 8.24 versus 8.25 yesterday
• Yield on 1-Day Government Bond 1.20% versus 1.23% yesterday
• Yield on 10-Year Government Bond 2.98% versus 2.96% yesterday
• Yield on 10-Year China Development Bank Bond 3.53% versus 3.49% yesterday