Alibaba, JD.com, and NetEase Rise On Southbound Stock Connect Inclusion
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Asian equities largely celebrated Janet Yellen leading the US Treasury, the beginning of Biden’s transition, and the positive vaccine progress, with Japan returning from its three-day weekend gaining +2%. The Hang Seng managed a small gain that masked a weaker day than the 50 stock index would indicate. The index was led higher by Hong Kong volume leader Alibaba Hong Kong, which rose +2.27% on a Mainland media report that Chief Executive of Hong Kong Carrie Lam will announce on Wednesday an expansion of Southbound Connect, the trading venue that allows Mainland Chinese investors to buy Hong Kong stocks, to include US-listed companies’ Hong Kong listings and Hong Kong-listed biotech stocks. How much money could flow into Alibaba’s Hong Kong listing? Looking at Southbound ownership as a percentage of shares outstanding, Mainland investors own 4.17% of Tencent and 6.42% of Meituan. So, this is real money that could flow into Alibaba Hong Kong, JD.com Hong Kong, which rose +1.04%, NetEase, which rose +1.55%, and Yum China Hong Kong, which rose +0.38%.
Other volume leaders were Tencent, which fell -0.34%, Xiaomi, which fell -1.63%, BYD, which rose +0.81, Meituan, which fell -1.49%, Hong Kong Exchange, which gained +4.03% after announcing a new settlement platform for Northbound Connect, Ping An, which was off -1.24%, and Geely Auto, which gained +2.35%. Although both Tencent and Meituan were off, it is worth noting that, as US dual listing stocks rose, both stocks were bought heavily in Southbound Connect trading.
There is chatter that Ping An’s valuation could be questioned after the announcement that Ant Group will be regulated more as a bank than as a fintech company, which is similar to Ping An’s efforts to be valued more as a fintech company than as an insurance company based on numerous successful investments in the space. Hong Kong is implementing increased social distancing on Hong Kong’s 4th wave, though healthcare stocks were off. Shanghai & Shenzhen were both off -0.34% on profit-taking in growth sectors, while many are predicting cyclical stocks to outperform as China’s economic rebound expands. Northbound Stock Connect had a small outflow driven by a few larger stock sales on the Shanghai. CNY was off a touch to 6.58 while the bond market stabilizes.
Baozun’s Hong Kong listing followed its US listing down overnight despite what looked to be strong earnings. We are starting to see analysts opine on the strong Q3 earnings, which could give the stock some support. There are reports that a respected hedge fund manager is coming to the defense of JOYY (YY US), following a fraud allegation last week and the company’s strong denial. I don’t Tweet often but for intra-day updates, I can be followed at @ahern_brendan.
The Hang Seng overcame a mid-morning swoon to close up +0.39%/+102 index points at 26,588. Volumes were off -5.78% from yesterday but still 117% of the 1-year average while breadth was positive with 28 advancers and 19 decliners. The 204 Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -0.57%, led by tech +0.33% and utilities +0.28%, while health care was off -2.56%, financials -1.23%, and materials -0.93%. Southbound Connect volumes were moderate/light as Mainland investors bought $296mm of Hong Kong stocks as Southbound trading accounted for 9.5% of Hong Kong turnover.
Shanghai & Shenzhen opened lower and stayed there with both off -0.34%, closing at 3,402 and 2,294 respectively. Volume was off -13% from yesterday, which is 101% of the 1-year average, while breath was off with 1,478 advancers and 2,237 decliners. The 519 Mainland stocks within the MSCI China All Shares Index were off -0.64%, led by materials +0.28% and energy +0.1%, while health care fell -1.13%, real estate -1.1%, financials -1.08%, communication -1.02%, and utilities -0.96%. Northbound Connect volumes were moderate/light as foreign investors sold -$20mm of Mainland stocks as Northbound trading accounted for 5% of Mainland turnover.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.60 versus 6.59 yesterday
- CNY/EUR 7.82 versus 7.86 yesterday
- Yield on 1-Day Government Bond 1.30% versus 1.34% yesterday
- Yield on 10-Year Government Bond 3.29% versus 3.27% yesterday
- Yield on 10-Year China Development Bank Bond 3.65% versus 3.67% yesterday
- China’s copper price +0.18% overnight