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Key News

Asian equities had a strong night on moderate volumes except for Taiwan, South Korea, and Singapore. While the Kospi was off -0.05%, the growth-oriented Kosdaq was up +0.47%. The Hang Seng Index gained +0.82%, though the broader Hang Seng Composite rose +1.04% and the Hong Kong stocks within the MSCI China All Shares Index were up +1.23%. Last night was another strong night for growth stocks. Hong Kong volume leaders were Tencent, which rose +2.01%, Alibaba Hong Kong, which rose +2.79%, Meituan, which rose +2.08%, Xiaomi, which was flat at 0.0%, Semiconductor Manufacturing, which gained +3.71%, Ping An Insurance, which was up +1.44%, Xinyi Solar, which gained +7.7%, online advertiser Netjoy Holdings, whose IPO was up +16.33%, JD.com Hong Kong, which gained +3.66%, China Construction Bank, which fell -0.17%, Sino Biopharma, which gained +7.82%, Wuxi Biologics, which gained +6.52%, and Innovent Biologics, which rose +6.54%.

Healthcare stocks were higher as the national drug procurement auction mentioned yesterday appears to not to be overly prohibitive. The potential for more vaccine approvals likely also contributed to the strong performance. Materials had a strong day as demand for electric vehicles should increase that for the raw materials that they are made of.

Both Tencent and Meituan had net outflow from Mainland investors via Southbound Stock Connect today. I’ll do some digging and report back as an interesting divergence. Shanghai and Shenzhen gained +1.13% and +0.93%, respectively, led by healthcare and materials. Brokers had a strong day as well. The big news was the strong inflow from foreign investors via Northbound Stock Connect totaling $1.233 billion. It is difficult to ascertain today’s strong inflow as the FTSE and S&P rebalance tomorrow wouldn’t cause inflow today. It could be the year-end window dressing as fund families will have to disclose their holdings at year-end. CNY was flat overnight along with bonds. Copper had another price increase today. 

There is a report that Alibaba is providing facial recognition technology in suppressing Uighurs. To be blunt, I don’t believe the story as Alibaba is an e-commerce company. I expect a strong response from the company today. 

Luckin Coffee paid an SEC fine of $180mm. The Helen of Troy company is responsible for the launching of 1,000 regulatory ships. I should hope better US-China regulatory dialogues will lead to the prosecution of the parties responsible for its frauds. 

China Last Night Cartoon Section: The US Treasury kept China on its currency manipulator watch list despite the renminbi’s 6.58% return versus the US dollar year-to-date. 

Macro strategist Larry McDonald of The Bear Traps Report hosted me on his Hot Mic podcast yesterday. Larry is a great strategist worth putting on your watch list. We had a great conversation on China and the prospect for an EM rebound in 2021 and beyond. Take a look at https://youtu.be/wHvRAF-RcOw.

H-Share Update

 The Hang Seng rallied in the afternoon to close up +0.82%/+218 index points to close at 26,678. Volume was off a touch -0.07% from yesterday, which is 2% above the 1-year average while breadth had 27 advancers and 19 decliners. The 203 Chinese companies listed in Hong Kong within the MSCI China All Shares Index rose +1.23%, led by health care +4.24%, materials +3.7%, communication +1.76%, tech +1.36%, and utilities +0.93%. Southbound Connect volumes were light as Mainland investors bought $53mm of Hong Kong stocks as Southbound Connect trading accounted for 10.4% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen went from lower left to upper right closing up  +1.13% and +0.93% at 3,404 and 2,269 respectively. Volume increased +13.9%, which is 7% below the 1-year average while breadth was positive with 2,790 advancers and 1,073 decliners. The 521 Mainland stocks within the MSCI China All Shares Index gained +1.17%, led by healthcare +2.46%, materials +2.21%, energy +1.87%, financials +1.5%, staples +1.24%, discretionary +1.04%, and utilities +1.04%. Northbound Stock Connect volumes were moderate/high with foreign investors buying $1.233B of Mainland stocks as Northbound Connect accounted for 7% of Mainland trading.

Last Night's Exchange Rates & Yields

• CNY/USD 6.53 versus 6.53 yesterday
• CNY/EUR 8.00 versus 7.96 yesterday
• Yield on 1-Day Government Bond 0.95% versus 0.95% yesterday
• Yield on 10-Year Government Bond 3.28% versus 3.28% yesterday
• Yield on 10-Year China Development Bank Bond 3.68% versus 3.68% yesterday