Key News

Asian equities had a positive day led by growth stocks in Hong Kong and Mainland China. Multiple brokers noted President Trump’s team has told US multi-nationals doing business in China that they can continue to use WeChat. Not being allowed to use WeChat would present a great difficulty for such companies to conduct business in China as alternatives to the messenger are often unavailable.

Over the weekend we saw another example of our “kabuki theater” thesis: that political rhetoric is often more of a show than real policy with real consequences. On Sunday, the President said the US could decouple from China during a Fox TV interview. Plenty of bark for the base, but precious little economic bite. The State Department’s recent letter to academic institutions on holding Chinese equities is just another example.

Hong Kong was driven by growth stocks, as evidenced by volume leader Tencent gaining +5.79% on the WeChat usage announcement, Alibaba HK rising +4.69%, Meituan Dianping rising+8.4%, after reporting excellent results on Friday, Xiaomi rising +1.54%, and AIA rising +4.66% after an analyst upgrade. Mainland China had a strong day as Premier Li’s comments on the economy over the weekend gave markets a boost. Meanwhile, tech rebounded nicely.

The Wall Street Journal had a good article this week on Ant Group in advance of their upcoming IPO. The company will list both in Hong Kong and on the Mainland on Shanghai’s STAR board. While pricing details have not been provided yet by the company, some analysts expect its valuation to rise above that of some of the largest Wall Street banks.

TikTok is expected to file their lawsuit this week while there is chatter that Tencent will do the same.

H-Share Update

The Hang Seng gained +1.74%/+437 index points to close at 25,551 as volumes rose +18% from Friday to reach levels 30% higher than the 1-year average. Breadth was strong with 38 advancers and 8 decliners led by Tencent +5.79%/+176 index points, AIA +4.66%/+128 index points, and HK Exchanges +1.22%/+16 index points. Hong Kong-domiciled stocks rose +1.49% versus China-domiciled stocks, which rose +1.225%, using the HS HK 35 and China Enterprise indexes as proxies. The 205 Chinese companies listed in HK within the MSCI China All Shares Index returned +2.57% with discretionary +5.48%, communication +5.06%, materials +3.25%, staples +1.91%, health care +0.81%, industrials +0.68%, tech +0.55%, utilities +0.54%, energy +0.32%, real estate +0.3%, and financials +0.12%.

Southbound Stock Connect volumes were moderate as buyers outpaced sellers. Shanghai volume leader Meituan Dianping was bought 4 to 1, Tencent was bought 2 to 1, and Xiaomi was sold 2 to 1. Mainland investors bought $383mm worth of Hong Kong stocks today as Southbound Connect trading accounted for 10% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen overcame morning losses to close +0.15% and +1.26% at 3,385 and 2,278, respectively, though volumes were light and just above the 1-year average. Breadth was strong with 2,254 advancers and 1,387 decliners mid and small caps outpaced large caps. The 510 Mainland stocks within the MSCI China All Shares Index returned +0.77% with tech +2.36%, staples +1.52%, communication +1.37%, industrials +1.18%, materials +1.04%, discretionary +0.9%, health care +0.34%, energy +0.28%, utilities -0.43%, real estate -0.44%, and financials -0.73%.

Northbound Stock Connect trading volumes were moderate as foreign investors were active buyers of Mainland stocks. Shanghai Connect volume leaders were Kweichow Moutai, which was bought 9 to 7, Longi Green Energy Technology, which was sold 8 to 5, and Sany Heavy Industry, which was bought 3 to 1. Shenzhen Connect volume leaders were Luxshare, which was sold 6 to 5, BOE Technology, which was bought 14 to 3, and East Money Information, which was sold almost 3 to 1. Foreign investors bought $281mm worth of Mainland stocks today as Northbound Stock Connect trading accounted for 6.6% of Mainland turnover.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.91 versus 6.92 Friday
• CNY/EUR 8.18 versus 8.15 Friday
• Yield on 1-Day Government Bond 1.45% versus 1.42% Friday
• Yield on 10-Year Government Bond 3.00% versus 2.98% Friday
• Yield on 10-Year China Development Bank Bond 3.53% versus 3.50% Friday