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Policy Support Lifts Mainland & Hong Kong Equities

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Key News

Asian equities had a strong day as China and Hong Kong equities outperformed while Japan lagged despite machinery orders surprising to the upside. China and Hong Kong paid tribute to Eddie Van Halen (RIP) by opening higher and going “higher and higher” due to several positive policy developments. First and foremost is President Xi’s Wednesday visit and speech in Shenzhen, which will form a part of the festivities marking the 40th year of the city’s status as a special economic zone. More policy supporting the Greater Bay area as China’s technology center is expected in the near future.

Further clarity on Wealth Connect and ETF Connect is expected this week. Similar to Stock and Bond Connect, the program would allow for greater cross-border investment in financial products. We also had the State Council announce stronger governance regulations for publicly traded companies over the weekend.

The renminbi’s appreciation versus the dollar may have been too much too soon as the PBOC eliminated the reserve ratio on forward contracts. In a nutshell, they removed margin requirements, which means it is now easier to short/hedge the renminbi. CNY depreciated by almost $0.05 versus the US dollar or 0.74%. One broker noted that while the move may slow the renminbi’s appreciation, it is unlikely to stem the currency’s momentum entirely.

Lastly, we saw the solidification of policies supporting Electric Vehicles. Meanwhile, Baidu has begun providing free rides in its driverless taxis in Beijing.

Hong Kong had a strong day gaining just over 2% led by volume leaders Tencent, which rose +3.24%, Xiaomi, which rose +8.35%, Meituan Dianping, which rose +1.93%, Alibaba HK, which rose +2.03%, Semiconductor Manufacturing, which rose +11.47%, China Construction Bank, which rose +5.58%, and Ping An Insurance, which rose +1.79%. Mainland investors bought $962 million worth of Hong Kong stocks as Tencent saw buyers outpace sellers by nearly 3 to 1. Shanghai and Shenzhen had a very strong day as the gauges rose +2.64% and +3.31%, respectively, on strong volume and very strong breadth. 3,602 stocks gained versus only 191 declining as all sectors were positive today. DND stocks (drinks and drugs, i.e. alcohol and pharma/healthcare) had a very strong day along with financials and tech stocks. Foreign investors bought another $2 billion worth of Mainland stocks today following Friday’s purchase of $1.6 billion, which brings today’s year to date Connect inflow total to $16.76 billion.

The terms of online video streamers Huya’s purchase of competitor Douyu were released this morning. Tencent will take a stake in the combined company after buying 3.7mm shares of DOYU.

A Mainland media source noted that Baidu and e-commerce company Pinduoduo (PDD US) will collaborate on promoting the latter’s sales event.

Happy Thanksgiving to all of our Canadian friends!

H-Share Update

The Hang Seng opened higher and kept going that way to close +2.2%/+530 index points at 24,649. Volume picked up +24% from Friday, reaching levels back above the 1-year average while breadth was strong with 43 advancers and 5 decliners. The broader Hang Seng Composite gained +2.02% with 308 advancers and 147 decliners. The 204 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index rose +2.62% led by tech +4.98%, financials +3.47%, communication +3.17%, health care +2.91%, and discretionary +2%. Meanwhile, utilities and staples lagged -0.58% and -0.16%, respectively. Southbound Stock Connect saw moderate volumes as Mainland investors bought $962 million worth of Hong Kong stocks today as Southbound Connect trading accounted for 12.8% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen gained +2.64% and +3.31% to close at 3,358 and 2,289, respectively. Volume ripped +36% from Friday, reaching levels back above the 1-year average while breadth was very strong with 3,602 advancers and only 191 decliners. The 517 Mainland stocks within the MSCI China All Shares Index gained +2.69% led by staples +3.57%, financials +2.86%, health care +2.84%, industrials +2.71%, tech +2.59%, and discretionary +2.48% etc. All sectors were positive. Northbound Stock Connect volumes were moderate/high as foreign investors bought $2.003 billion worth of Mainland stocks today as Northbound Stock Connect trading accounted for 8.6% of Mainland turnover.

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.75 versus 6.69 Friday
  • CNY/EUR 7.97 versus 7.91 Friday
  • Yield on 1-Day Government Bond 1.05% versus 1.15% Friday
  • Yield on 10-Year Government Bond 3.18% versus 3.19% Friday
  • Yield on 10-Year China Development Bank Bond 3.74% versus 3.76% Friday