Key News

The State Administration for Market Regulation (SAMR) announced it is looking into Alibaba for monopolistic practices. Alibaba’s Hong Kong share class fell -8.13% during Hong Kong’s half-day session. The fact that the announcement occurred on Christmas Eve clearly exacerbated the move as the vast majority of our Hong Kong brokers are on holiday and not in the office.

The headlines might be screaming, but I think the timing of the announcement is far worse than the implications. Alibaba does not allow merchants to sell on their competitors’ platforms. You choose Alibaba, arch-rival Tencent-backed JD.com, or Pinduoduo. That is going to change. Another issue is that Alibaba does not allow customers to use Tencent’s mobile payment app WePay when transacting on Alibaba’s e-commerce platforms. That will change, as well.

Does this justify the market action? I think not. Yes, Alibaba’s ½ day volume was 69 million shares versus yesterday’s 15 million. Simply put, the exit door was not big enough due to the punters’ stampede out. If you think about it, shouldn’t Alibaba’s rivals gone up today? But, they did not. The whole sector got torched as this price action is what differentiates the smart money from the rest.

Asian equities were largely higher on light volumes overnight as positive Brexit negotiations were cited by the few brokers who were in. The Hang Seng closed its half-session with a +0.16%/+43 index points gain to close at 26,386 as value stocks outpaced growth stocks by a significant margin. Put simply, virtually all stocks that had performed well Year-to-date (YTD) were down while some stocks that have seen poor performance YTD were up.

Hong Kong volume leaders were Alibaba HK, which fell -8.13%, Tencent, which fell -2.63%, Meituan, which fell -2.72%, Xiaomi, which gained +1.72%, JD Health, which fell -15.64%, HK Exchanges, which gained +2.28%, JD.com, which fell -2.28%, Alibaba Health, which fell -10.92%, Ping An, which gained +0.6%, GCL-Poly Energy, which fell -6%, and China Mobile, which gained +1.48%.

AAC Tech had a good day, gaining +7.07% as it considers spinning off a unit through a Mainland listing. Southbound Connect trading resulted in net buying of both Meituan and JD Health, mixed trading in Tencent, and net selling of Alibaba Health on light volume.

Shanghai and Shenzhen were off -0.57% and -1.13% as year end profit taking ruled the day on light volume. Growth/YTD winners such as liquor stocks, clean energy, EV/auto were universally weak while Value/YTD laggards were positive. Northbound Stock Connect was closed today. CNY appreciated a touch versus the US $ while bonds were off slightly. Copper rebounded nearly +1% today.

H-Share Update

The Hang Seng’s half-session led to a gain of +0.16%/+43 index points to close at 26,386. Volume was high considering it was a half-day only off -24% from yesterday and -23% from the 1-year average while breadth was positive with 36 stocks and 12 decliners. The 204 Chinese companies listed in HK were off -0.43% with financials +1.46%, industrials +1.16%, energy +1.16% and tech +1.05% while communication -2.2%, discretionary -1.59% and health care -0.95%. Southbound Connect volumes were robust for the half-session as Mainland investors bought approximately $245 million worth of Hong Kong stocks today.

A-Share Update

Shanghai and Shenzhen were off -0.57% and -1.13%, respectively, to close at 3,363 and 2,255. Volume was off -11% from yesterday, which is -3% lower than the 1-year average while breadth was off with 777 advancers and 3,066 decliners. The 521 Mainland stocks within the MSCI China All Shares Index were off -0.31% with materials +0.89%, energy +0.24%, and health care +0.23%. Meanwhile, communication -1.5%, real estate -0.93% staples -0.75% and discretionary -0.71%. Northbound Stock Connect was closed today.

Last Night's Exchange Rates & Yields

• CNY/USD 6.53 versus 6.54 yesterday
• CNY/EUR 7.96 versus 7.98 yesterday
• Yield on 1-Day Government Bond 0.55% versus 0.55% yesterday
• Yield on 10-Year Government Bond 3.23% versus 3.22% yesterday
• Yield on 10-Year China Development Bank Bond 3.63% versus 3.61% yesterday