“ATMX” Leads Hong Kong Higher, US Teenagers Dance & Lipsync To TikTok’s Oracle Announcement
Asian equities were largely higher while Hong Kong and China had a good start to the week driven by Friday’s strong loan and credit release, which occurred after the market close on Friday. Hong Kong’s volume leaders were the “ATMX” stocks: Tencent rose +2.62% on strong Southbound Stock Connect buying from Mainland investors, Alibaba HK rose +0.83% on reports it will take a stake in Grab, which is Southeast Asia’s Uber/riding hailing company, Meituan Dianping rose +0.74%, and Xiaomi rose +1.29% while Ping An Insurance rose +0.55% and Sunny Optical rose +4.56% after reporting strong August handset sales.
Stock Connect is the trading link between the Hong Kong and Shanghai/Shenzhen stock markets. Southbound Connect allows investors in Mainland China to buy Hong Kong-listed stocks while Northbound Stock Connect allows foreign investors to trade Mainland stocks, replacing previously established quota programs that required pre-approval from regulators. Stock Connect was a giant leap forward in terms of access for both markets. Southbound Connect often accounts for a significant portion of trading in Hong Kong while Northbound often accounts for a similar portion of trading in Shanghai and Shenzhen.
JD.com HK was off -0.41% while Yum China HK was up +1.26% and NetEase HK was up +0.42%. Financials lagged in both Hong Kong and China as new Mainland policies regarding financial holding companies were released. Tech had a strong day in both markets as Sunny’s earnings release and President Xi’s comments that China needs to invest more in the sector in what I assume is to counter US restrictions on tech purchases were both positive signs for the sector. We also saw the first four Mainland-listed STAR Board ETFs approved for trading, which lifted sentiment in the stocks.
China’s currency is currently trading at 6.8137 per dollar after having appreciated from Friday’s close of 6.8331. Remember we use CNH (the offshore currency’s ticker) to evaluate the severity of the impact of political rhetoric on markets. As discussed Friday, a recent academic study showed how US manufacturers have been hurt by tariffs on inputs. This has subsequently hurt US exports as their prices are higher than their global competitors. Removing tariffs would give the US economy a shot in the arm, though the likelihood of that actually happening is low.
It is being widely reported that Oracle will become TikTok’s “trusted tech partner” according to the Wall Street Journal. This sounds more like a joint venture than an outright acquisition to me. The partnership could be a smart move as Oracle founder and CEO Larry Ellison has a relationship with President Trump after having contributed to his campaign. It is also not a bad model to allow Chinese companies to partner with US companies in order to satisfy national security issues. Maybe Huawei should have done the same. Tencent has a partnership with Walmart so why not embed WeChat on the Walmart app? That seems logical to me.
Terry Branstad will retire from his role as US Ambassador to China. The former long-time governor of Iowa had meet President Xi back in 1985 during a Chinese envoy to Iowa as Chinese leadership’s long-running relationship was supposed to help in US-China dialogue. Bloomberg is reporting that Branstad will come back to campaign for President Trump in Iowa, which has become a tossup for the president. Relationships matter so I am sad to see Branstad go.
The operator of the Trans-Mongolian and Trans-Siberian railways reported traffic increased 62% in August after a fairly tepid coronavirus contraction in previous months. The data from the China-Europe Railway Express, which runs Europe-China freight trains as well as passenger service appears to give indication that Europe’s economy is starting to pick up while reaffirming China’s V-shaped recovery.
A Mainland media source noted Minnesota-based US food giant Cargill will build Asia’s largest trehalose plant in Jilin China. Apparently trehalose is a sugar substitute that is being researched for a multitude of potential medical uses. The planr is another sign of how US companies are benefitting from access to China’s 1.4 billion consumers and Asia’s 4 billion consumers.
The Hang Seng Index opened higher and stayed there gaining +0.56%/+136 index points to close at 24,640. Volumes were up +3.75% from Friday but remained below the 1-year average while breadth was decent with 27 advancers and 19 decliners. The broader Hang Seng Composite rose +0.83% with 286 advancers and 162 decliners. The 204 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +1.13% with materials +2.79%, communication +2.43%, tech +1.72%, and heath care +1.62%. Financials lagged -0.09% followed by energy -0.06% and utilities +0.02%. Southbound Stock Connect volumes were light but Mainland investors were very active buyers of Hong Kong stocks overnight. Mainland investors bought $676mm worth of Hong Kong stocks today as Southbound Connect trading accounted for 12.4% of Hong Kong turnover.
Shanghai and Shenzhen stayed in a narrow range closing +0.57% and +1.15% at 3,278 and 2,189, respectively. Volume was +12% higher than Friday, which was a hair above the 1-year average while breadth was positive with 2,166 advancers and 1,471 decliners. Small caps outperformed large and mid caps today. The 517 Mainland-listed companies within the MSCI China All Shares Index gained +0.76% led by utilities +1.91%, discretionary +1.5%, materials +1.44% and tech +1.28% while health care lagged -0.59% and real estate fell -0.4%. Northbound Stock Connect volumes were light as foreign investors were net sellers of Mainland stocks. Foreign investors sold -$460mm worth of Mainland stocks today as Northbound Stock Connect accounted for 6.6% of Mainland turnover.
Last Night’s Exchange Rates & Yields
- CNY/USD 6.81 versus 6.83 Friday
- CNY/EUR 8.10 versus 8.09 Friday
- Yield on 1-Day Government Bond 0.56% versus 0.76% Friday
- Yield on 10-Year Government Bond 3.15% versus 3.13% Friday
- Yield on 10-Year China Development Bank Bond 3.15% versus 3.13% Friday