Daily Posts

“ATMX” Gains Before Hang Seng Index Inclusion Trading on Friday

We have two webinars coming up in September. You can find the descriptions below.

China Macro: Thursday, September 17th, 9 am EST
China Macro Economic Outlook: Digital Transformation and Structural Reforms Provide Catalysts for Post COVID-19 Growth

EM Consumer Technology: Tuesday, September 15th, 11 am EST 
COVID-19: An Inflection Point For Emerging Markets Consumer Technology

Key News

Asian equities followed US equities higher overnight. The Hang Seng initially fell on several negative news items such as reports that TikTok’s sales might be in jeopardy, the US military’s belief that China is increasing its nuclear weapon stockpile, and the White House’s Peter Navarro saying other Chinese apps could be banned. At the same time, the US extended tariff exemptions on electronic watches through the holiday season (it might be time to replace my FitBit with the new model). Growth names led Hong Kong as the volume leaders were Xiaomi, which rose +0.39%, Tencent, which gained +1.11%, Alibaba HK, which rose +2.97% after raising its stake in delivery company YTO, Meituan Dianping, which was up +3.1%, Wuxi Biologics, which fell -1.97% on a large share sale at a discount to yesterday’s close, JD.com HK, which rose +7.37%, and Geely Auto, which rose +3.27% on news it will pursue a dual listing on the Mainland STAR Board.

Remember that Alibaba HK, Meituan, and Xiaomi will be added to the Hang Seng Index on Monday, which will require ETFs and index funds to buy the stocks at the close on Friday. It should be fun to see the Friday volumes at the close. Education stocks were off on policies supporting nonprofit programs though we’ve had this chatter in the past. Social distancing measures in Hong Kong are being loosened as the third coronavirus outbreak appears to be petering out. Overnight, August Hong Kong retail sales came in at -23% year over year. Macau visitor numbers were off over 90% year over year, which weighed on gaming names. Shanghai and Shenzhen also clawed back from morning losses as growth outperformed value in the Mainland as well. YTO (600233 CH) rose +10% on the Alibaba investment news.

Foreign investors sold a healthy net $969 million worth of Mainland stocks via the Northbound Stock Connect program overnight. The selling was concentrated in Shanghai-listed stocks, which tend to be large companies with a value bias.

Foreign flights are now allowed into Beijing from eight countries, though I assume visitors will have to quarantine for 14 days.

Walmart denied selling its Chinese stores after a Mainland media source reported that it was. Walmart sold its online business to JD.com in exchange for an ownership stake. Working more with JD.com makes sense for Walmart, which stated that they wanted to open 500 more stores in China, though those stores may end up being fulfillment centers

On September 24th, FTSE Russell will announce whether Chinese government bonds will be added to World Government Bond Index (WGBI). China is the second largest bond market in the world so it might be worth adding!

The European research arm of a global Wall Street firm recommended being overweight to China versus Emerging Markets Ex China. This is the first time I’ve seen a researcher break out China from broader Emerging Markets though I believe we will see a lot more of this in the years to come. This is a significant thesis for our firm as China’s weight in EM has grown from 17% to over 40% since 2014.  The rationale behind the move was the growth orientation of Chinese equities versus the value orientation of the rest of Emerging Markets. Additionally, China’s economy is rebounding post quarantine while many Emerging Market countries are, unfortunately, still dealing with coronavirus outbreaks. They also noted that many Emerging Market countries are cutting interest rates, which may lead to significant weakness versus the US dollar.

GSX Techedu (GSX US) reported strong top line revenue growth, but light EPS. The company, which has been accused by short sellers of malfeasance, disclosed a SEC investigation on the claims. As a great company, let them prove naysayers wrong or be punished if they did something wrong.

On a side note, KraneShares CEO Jonathan Krane recently made an appearance on PBS series Travels & Traditions With Burt Wolf to discuss his experience starting a business in China and his thoughts on the country’s growth.

H-Share Update

The Hang Seng was off -1.01% but mitigated the loss to -0.26%/-64 index points to close at 25,1120. Volume was up +14% from yesterday’s lackluster trading day while breadth was off with 16 decliners and 33 advancers. The 204 Chinese companies within the MSCI China All Shares Index rose +0.5% led by discretionary, technology, and staples as financials and energy underperformed. Southbound Stock Connect flows were moderate as Mainland investors were buyers of Hong Kong stocks. Mainland investors bought $5 billion worth of Hong Kong stocks today as Southbound Connect trading accounted for 9.7% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen also mitigated losses to close -0.17% and +0.46% at 3,404 and 2,321, respectively. Volumes picked up +13% though only just above the 1-year average. Large companies underperformed medium and small companies. The 517 mainland stocks within the MSCI China All Shares +0.02% led by discretionary, communication and health care while energy, materials and financials underperformed. Northbound Stock Connect had moderate volumes with foreign investors sellers of predominantly Shanghai listed stocks. Foreign investors sold -$969mm of mainland stocks as Northbound Stock Connect accounted for 8% of mainland turnover.

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.84 versus 6.83 yesterday
  • CNY/EUR 8.10 versus 8.16 yesterday
  • Yield on 1-Day Government Bond 1.12% versus 1.05% yesterday
  • Yield on 10-Year Government Bond 3.10% versus 3.05% yesterday
  • Yield o 10-Year China Development Bank Bond 3.68% versus 3.63% yesterday