Key News

Asian equities followed US markets higher, with India and Taiwan outperforming as President Trump’s hospital release provided a positive catalyst for investors. Volumes were way off, which should curb our enthusiasm to some degree.

The Hang Seng Index was up +0.9% with 37 advancers and 9 decliners, though the much broader Hang Seng Composite was up +1.45% with 378 advancers versus 78 decliners. Hong Kong volume leaders were Alibaba Hong Kong, which was off -0.71% as the Ant Group IPO investor news discussed below came out after the market’s close, Meituan Dianping, which was up +4.96%, Tencent, which rose +0.48%, Xiaomi, which rose +2.88%, Hong Kong Exchanges, which was up +2.46%, Geely Auto, which gained +6.11%, and Semiconductor Manufacturing, which rose +7.06% after positive analyst comments. While volumes were anemic, breadth was very strong. The market is very focused on Golden Week consumption and travel data, which thus far appear strong, leading consumer discretionary stocks higher. Casino Macao visitors look well off the historical levels, though we still have several days left in the holiday. Tech and healthcare also had strong days, with the latter driven by European restrictions and continued increases in the number of US Covid-19 cases.

China’s currency appreciated versus the US dollar to 6.79. Bloomberg had a piece yesterday on non-US Emerging Market debt ETF inflows, though the underlying indices don’t include China. The reality is that China’s economy is in a significantly stronger position than the vast majority of EM countries. I am not sure when US investors will wake up to the opportunities in China’s bond market due to the yields.

iQIYI (IQ US) released an internal review from the company’s independent audit committee assisted by a Big Four accounting firm that is not the firm’s auditor, following a short seller’s April report alleging inflated revenue and user data. The internal review “did not uncover any evidence that would substantiate the allegations”. IQ was spun out of Baidu, with management coming from the latter. Baidu management has a strong reputation leading to skepticism from myself of the allegations. IQ’s stock is up +42% since the allegation. 

The Nikkei Asia is reporting that online streamer Bilibili (BILI US) is planning on a Hong Kong listing tapping UBS, JP Morgan, Goldman Sachs, and Morgan Stanley to raise between $800mm and $1.5B. I added a number of Hong Kong listings that also have a US listing to the below data section. If there are securities you would like added, do let me know.

Bloomberg is reporting that Singaporean sovereign wealth funds, GIC and Temasek will participate in the Ant Group IPO, with the former reportedly making a $1 billion investment. China’s Social Security Fund is also rumored to be investing, though I believe they have a stake in the company already. According to the article, Ant Group’s market capitalization and valuation will be closer to $250 billion which is the same size as Bank of America and twice the size of Citigroup. The article notes Cannonball coming! 

The WSJ had an article on China’s efforts to open the Mainland markets to foreign investors. The article points out that the amount invested is below the past highs though focuses on QFII. Most foreign investors now use Stock Connect, which is cheaper and easier from an implementation perspective. The inflow net of sales is +$13B year-to-date according to my calculations. The article doesn’t speak to the great performance of Mainland markets! Everyone says investors chase performance, but where are the flows into China? Headlines continue to keep investors on the sidelines which is why the Mainland markets will likely continue to rally. 

H-Share Update

The Hang Seng Index opened higher and stayed there up +0.9%/+212 index points to close at 23,980, though volume was down -6% from yesterday’s light volume. Breadth was strong with 37 advancers and only 9 decliners as the broader Hang Seng Composite +1.45% had 378 advancers and only 78 decliners. The 204 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +1.53%, led by tech +3.96%, health care +3.56%, discretionary +3.26%, materials +2.86%, energy +2.15%, real estate +2.08%, and industrials +1.99%. Southbound Stock Connect is closed.

A-Share Update

Mainland markets are closed until Friday.