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Pop Mart’s IPO Pops As Hong Kong Growth Outperforms, Week in Review

Week in Review

  • China announced Monday that its exports grew by a whopping +21.1% YoY in November compared to an estimate of only +12%. Export growth was fueled by continuing demand for healthcare supplies and smartphones. The price of copper on Chinese exchanges rose by nearly 30 basis points after the release.
  • JD Health listed publicly for the first time in Hong Kong Tuesday. The innovative online healthcare consultation company sold 381 million shares at an initial price of HKD 70.58 each, raising $3.5 billion. 
  • China’s CPI inflation rate turned negative in November for the first time since 2009, an official economic release indicated Wednesday. Pork prices have finally normalized after skyrocketing in 2019 due to the swine flu epidemic, which is likely what led to the negative CPI reading. Meanwhile, November credit growth fell mostly within expectations at +10.7%. Credit growth is likely to have peaked already and may slow significantly in 2021 against the backdrop of a healthy economy.
  • S&P Global announced Thursday that the index provider will be removing 10 Chinese companies (18 listings) from its indexes effective December 21st. This announcement follows a similar move by FTSE Russell earlier this week and precedes MSCI’s announcement to a similar effect, which is expected imminently. The removals are in response to a November Executive Order that will prohibit trading in companies believed to have ties to China’s military, effective January 11th.

Key News

Asia ended the week largely up with Mainland China underperforming as US-China tit-for-tat political rhetoric weighed on sentiment, leading to rounds of profit-taking. The big news in an otherwise quiet night in Hong Kong was the IPO of toymaker Pop Mart International, which jumped +79%. The company’s Molly dolls are apparently very popular with China’s millennials. I’m sure countless entrepreneurs have said “if everyone in China bought it for $1, we would be billionaires!”. Apparently, 300 million Chinese millennials are enough for Pop Mart. After Pop Mart, Hong Kong volume leaders were Tencent, which rose +1.73%, Xiaomi, fell -0.18%, Meituan, which gained +2.37%, CNOOC, which rose +6.11%, Alibaba, which gained +1.17%, Country Garden, which fell -5.03% after announcing a share sale, Ping An, which dropped -1.96%,, which rose +0.38%, Semiconductor Manufacturing, which fell -0.9%, Geely Auto, which rose +3.77%, and JD Health, which gained +8.44%.  

Mainland China ended an off week with a thud as the FCC is said to be revoking China Telecom’s US operating license and putting further sanctions on Huawei. There are rumors that liquidity might tighten going into year-end, which could lead to a bout of profit-taking today. Bonds sold off a touch while the currency was flat. Foreign investors sold $600mm of Mainland stocks today but invested $1B for the week, raising the Connect inflow to $25.5B YTD. Copper didn’t seem to care about politics, ripping +1.79% in Shanghai. (JD US) invested $700mm in e-commerce company Xingsheng Preference, which focuses on smaller cities.

H-Share Update

The Hang Seng gained +0.36%/+95 index points to close at 26,505. Volume was up +23% from yesterday,  which is 108% of the 1-year average while breadth had 30 advancers and 21 decliners. The 203 Chinese companies within the MSCI China All Shares Index rose +0.75%, led by energy +4.31%, discretionary +1.51%, communication +1.41%, and staples +1.05%, while real estate fell -0.82% and industrials -0.7%. Southbound Stock volumes were light as Mainland investors bought $9mm of Hong Kong stocks as Southbound Connect trading accounted for 9.6% of Hong Kong turnover. 

A-Share Update

Shanghai and Shenzhen were off -0.77% and -1.31% to close at 3,347 and 2,223 respectively. Volume increased +18% from yesterday, which is -1% of the 1-year average while breadth had only 701 stocks advanced versus 3,124 decliners. The 522 Mainland stocks within the MSCI China All Shares Index lost -0.87%, with energy up +0.45% but communication down -2.7%, real estate -1.28%, financials -1.24%, tech -1.05%, and industrials -0.88%. Northbound Stock Connect volumes were moderate with foreign investors selling -$606mm of Mainland stocks as Northbound trading accounted for 7.9% of Mainland turnover.

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.55 versus 6.54 yesterday
  • CNY/EUR 7.93 versus 7.94 yesterday
  • Yield on 1-Day Government Bond 1.29% versus 1.16% yesterday
  • Yield on 10-Year Government Bond 3.30% versus 3.26% yesterday
  • Yield on 10-Year China Development Bank Bond 3.72% versus 3.69% yesterday
  • China’s Copper Price +1.79% overnight