Week In Review

• Mainland and Hong Kong markets closed higher in Monday trading on the anticipation of positive policy developments, including President Xi's Wednesday visit and speech in Shenzhen, which formed a part of the festivities marking the city's 40th year as a special economic zone. Xi emphasized support for the region's tech sector, though did not provide the level specificity markets would have hoped for.
• The China Passenger Car Association reported Tuesday that September car and vehicle data rose +7.4% to 1.94mm units, breathing life into the sector after a slump in sales lasting over a year.
• China released September loan data after the market close Wednesday. M2 growth, new loans, and aggregate financing all came in slightly higher than expected. Evidently, stimulus was mostly left at the same level in September despite improving economic conditions.
• Mainland and Hong Kong markets closed -2% in a broadly risk-off day Thursday as China released September inflation data. CPI inflation came in at 1.7% while the producer price index (PPI) fell -2.1% on a demand slump, again highlighting that China is not immune to the economic consequences of global quarantines.
• The Luxe Decade, a column by our friends at Jing Daily, explores the major forces and trends set to reshape luxury over the next ten years, focusing on the expansion and power of Chinese consumption. Check out their latest article: Why the US Luxury Recovery Is Not Comparable to China's.

Friday's Key News

Asia ended the week mixed. How did you think Hong Kong and Mainland stocks did this week? Surprisingly strong! Take a look below. Hong Kong rebounded today as stocks that were loved on Wednesday were dumped on Thursday and back up today. Growth names were back in vogue as Hong Kong volume leaders were Alibaba HK, which rose +3.23%, Tencent, which rose +0.91%, China Construction Bank, which rose +5.7%, Meituan Dianping, which rose +0.3%, Xiaomi, which rose +3.12%, Ping An Insurance, which rose +0.91% and ICBC bank, which rose +4.25%.

Ant Group has raised the valuation target for its IPO to $280 billion, which lifted the stock prices of not only Alibaba, but also Tencent as WeChat Pay is second to Ant’s Alipay in digital payments.

Alibaba's Taobao operations in Taiwan will shutter at the end of the year as local regulators wanted the company to register as a Chinese company and become subject to the restrictions that come with that registration. Previously, Taobao Taiwan had been legally designated as a UK company because its legal domicile is in the UK. I doubt this is a material event with regard to revenue.

Banks and brokerages had a strong day as PBOC liquidity measures supported their stocks and regulators expressed support for the current pace of Mainland IPOs.

Healthcare had a decent day led by CanSino Biologics' Mainland listing (688185 CH), which rose +6.92% after announcing that Mexico will buy 35 million doses of its coronavirus vaccine. It is interesting that CanSino's Hong Kong listing (6185 HK) was off -1.72% today.

Semiconductor Manufacturing lifted its Q3 revenue guidance, which, in turn, lifted its Mainland and Hong Kong shares through technology.

China released September foreign direct investment data on Friday:

Takeaway: This was not a market moving release, but runs counter to the reshoring narrative that multinationals are leaving the world's second largest economy. I’ve mentioned repeatedly that factories are based in China due to the 1.4 billion potential customers there.

Foreign investors bought $1.6 billion worth of Mainland stocks this week driven by Monday's $2B inflow day.

I finally found the JD Health Hong Kong filing thanks to my buddy JD. The JD.com spinoff's filing provides a nice background on healthcare in China today. The size of the health and wellness industry is RMB 8.131 trillion and is expected to grow at 9.4% annually through 2030. From 2015 to 2019, the industry's growth rate has been 12%, which is expected to be 10.5% from 2019 to 2024, and 8.4% from 2024 to 2030. According to the most recent data, only 2.4% of pharmaceutical products were sold online while only 6% of medical consultations were done online. The company's revenues have doubled from 2017 to 2019, going from RMB 5.553B ($829mm) to RMB 10.842B ($1.619B). Revenues in the first half of 2020 were double the first six months of 2019, going from RMB 4.988B ($745mm) to RMB 8.777B ($1.311B). The spinoff derives revenue from its online JD Pharmacy, which has seen users grow from 2017's 43mm to 72mm in June 30 2020. Not bad! The company also provides online healthcare services, i.e. tele-doctoring with 65,000 in-house and external doctors. The company recorded a profit in 2017 and 2018, though a convertible bond that was issued, which is more of a financial accounting issue. If we excluded the convertible bond issued, the company would have made RMB 344mm ($44mm) in 2019. We will get more details as JD Health nears its IPO. The company's joint sponsors are Bank of America, Haitong, and UBS.

I would never have thought that I would become fluent on the US Department of Agriculture's website, but here we are. The USDA provides a very high level of detail and transparency in a very well-run website. The USDA reported that 261k tons of soybeans and 420k tons of corn were sold to China during the 2020/2021 market year.

Political rhetoric is, at times, pure conjecture that is completely detached from data. I caught a webinar this week with a DC political researcher saying that US companies were doing awfully in China, had been banned from doing business there, and should move out of Hong Kong. Didn't Apple just generate $9 billion in revenue in China? For financial professionals, leaving Hong Kong for Singapore would be a career ending move as Hong Kong and Mainland IPOs take off. Ultimately, the webinar reminded me of the very good Wall Street Journal article in August detailing what little influence the US Chamber of Commerce has in DC today. This is not just a China issue and could have wider repercussions for investors. Sorry to end the week on a sour note.

H-Share Update

The Hang Seng rebounded +0.94%/+228 index points to close at 24,386. Volume was off -13% from yesterday, placing it just below the 1-year average. Breadth was flat with 23 advancers and 23 decliners. The Hang Seng Composite Index was up +0.8% with 265 advancers and 183 decliners. The 204 Chinese companies listed in Hong Kong within the MSCI China All Shares Index, which rose +0.99%, led by financials +3.65%, materials +1.45%, tech +0.82%, communication +0.75%. Meanwhile, laggards were staples -0.41%, discretionary -0.11%, and real estate -0.1%. Southbound Stock Connect volumes were light as Mainland investors bought $561 million worth of Hong Kong stocks as Southbound Connect trading accounted for 10% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen bounced around the room to close +0.13% and -0.39% at 3,336 and 2,265, respectively. Volume was off -6%, placing it below the 1-year average. The 517 Mainland stocks within the MSCI China All Shares Index gained +0.26% led by energy 1.73%, financials +1.6%, health care +1.01%, real estate +0.84%. Meanwhile, laggards included tech -0.78%, industrials -0.49%, discretionary -0.49%, staples -0.34%, and materials -0.17%. Northbound Stock Connect volumes were moderate/light in mixed trading as foreign investors sold -$75 million worth of Mainland stocks today. Northbound Connect trading accounted for 6% of Mainland turnover.

Last Night's Exchange Rates & Yields

• CNY/USD 6.70 versus 6.73 yesterday
• CNY/EUR 7.86 versus 7.87 yesterday
• Yield on 1-Day Government Bond 1.25% versus 1.20% yesterday
• Yield on 10-Year Government Bond 3.22% versus 3.23% yesterday
• Yield on 10-Year China Development Bank Bond 3.77% versus 3.78% yesterday