Week In Review

• JD.com reported Q2 results on Monday. The company grew revenues +33% YoY to RMB 201B compared to an estimated RMB 190B.
• A research firm reported Tuesday that China will grant a patent to CanSino Biologics for their Covid-19 vaccine, which may be available by year-end. "More bark than bite rhetoric" also continued on Tuesday as the State Department suggested US universities divest from some China holdings.
• E-Commerce company Vipshop reported Q2 results on Wednesday, announcing that revenues grew +6% YoY to RMB 24.1B versus an estimated RMB 23.75B.
• Alibaba released strong quarterly results on Thursday that exceeded analyst expectations. Revenue grew +34% YoY to RMB 153.75B versus an estimated RMB 148B.

Key News

Mainland and Hong Kong markets opened higher following tech-led gains in the US and ended the day higher while Asian equities were mixed overnight. Tech earnings as well as news that trade representatives from the US and China have agreed to hold a phone call in the coming days both bolstered sentiment.

There was also news that China's President Xi Jinping will hold a virtual summit with various leaders of the EU in mid-September. European leaders have been performing a balancing act of late between working with the US and charting their own path when it comes to relations with China. The EU relies on China far more for the all-important tourism revenue than the US and is therefore differently incentivized to maintain a steady relationship.

China's currency, our indicator for the severity of political rhetoric, was unchanged versus the US dollar overnight. The currency's strength of late has gone largely unnoticed. The offshore Yuan reached its highest level in months on Thursday.

Pinduoduo (PDD US) released positive Q2 earnings this morning that beat estimates on revenue and EPS. The company noted in the release that they have seen the results of the recovery in China first-hand and also deployed their own resources to help their merchants get back on their feet. Pinduoduo focused its resources on promotions as well as augmenting their coverage of groceries and other household necessities. Tony Ma said that many merchants deferred their marketing spending to the second quarter, which led to the spike in revenue. However, the company also increased its own spending to support its merchants. Nonetheless, the company’s outlook is bright as it continues to gobble up E-Commerce market share

• Revenues +67% YoY to RMB 12,193.37 million versus estimate RMB 12,152 billion
• EPS RMB -0.76 versus RMB -3.52 in Q2 2019 and estimate RMB -1.45
• Gross Merchandise Value (GMV) +79% YoY to RMB 1,268.7 billion
• Average Monthly Active Users (MAUs)  +55% YoY to 568.8 million
• Active buyers in the 12-month period ended June 30^th +41% to 683.2 million
• Annual spending per active buyer +27% to RMB 1,857 over the same period

H-Share Update

The Hang Seng opened higher and stayed there to close +1.30% at 24,791. Turnover was relatively unchanged from yesterday. Macau gaming stocks led gains as visitors to the territory nearly doubled in July according to government data as casinos have re-opened. Pharma stocks were mixed following the release of 55 medications in a government drug procurement list. Meituan Dianping HK rose +4.5%, Alibaba HK fell -0.8% despite a positive earnings release yesterday, and Tencent HK rose +1.97%.

Southbound Connect volume leaders included Tencent, which was sold 2 to 1, Meituan Dianping, which was bought nearly 3 to 1, Xiaomi, which was sold 2 to 1, and Semiconductor Manufacturing, which was sold nearly 3 to 2. Mainland investors net bought HKD 118.1 billion worth of Hong Kong stocks through Southbound Connect, which accounted for 10.4% of Hong Kong volume.

A-Share Update

Shanghai and Shenzhen both opened higher and ended the day +0.5% and +1.2% at 3,363 and 2,225, respectively.

Northbound Connect volume leaders included Luxshare, which was bought 2 to 1, Kweichow Moutai, which was bought 10 to 8, Goertek, which was bought nearly 2 to 1, and East Money Information, which was bought and sold in nearly equal amounts. Foreign investors net bought RMB 1.1 billion worth of Mainland stocks overnight through Northbound Connect, which accounted for 5.9% of Mainland volume.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.92 versus 6.92 yesterday
• CNY/EUR 8.14 versus 8.20
• Yield on 1-Day Government Bond 1.42% versus 1.38% yesterday
• Yield in 10-Year Government Bond 2.98% versus 3.00% yesterday
• Yield on 10-Year China Development Bank Bond 3.50% versus 3.52% yesterday