Key News

Asian equities had a strong day on light volume, with Japan outperforming. The Hang Seng gained +0.96% led by growth stocks. There is chatter that Ant Group will form a financial holding company similar to banks. This may provide a solution to regulators’ concerns, as the regulator didn’t advocate Ant Group to be broken up. Ant is weighing on Alibaba, though at yesterday’s price level, it had zero value.

One of our favorite institutional brokers is working to include their senior people. They noted that a "sum of the parts" analysis highlights how inexpensive Alibaba is today. Compared to US internet equivalents? Forget about it! Wicked cheap. Yes, there is a lot of uncertainty/unknown. Out of the 63 analysts who have a buy rating on Alibaba, only a handful of analysts have said anything. It is important to recognize Alibaba’s move is during a very low volume period, which tends to exacerbate price movements as many mutual funds and hedge funds have closed their books for the year. Working against Alibaba is the reality that at year-end funds will have to report their holdings. I suspect yesterday’s price action was led by institutional investors removing the stock from their portfolio.

Hong Kong volume leaders were Tencent, which rose +2.22%, Alibaba Hong Kong, which gained +5.71%, Xiaomi, which was up +5.3%, Meituan, which rose +5.15%, ICBC, which gained +2.94%, Wuling Motors, which fell -18.06%, China Mobile, which fell -1.87%, BYD, which was off -3.61%, Great Wall Motor, which was off -2.69%, and Geely Auto, which was off -2.65%. Tencent once again saw very strong buying from Mainland investors via Southbound Connect. Meituan saw strong buying as well. Shanghai and Shenzhen were off -0.54% and -0.64% respectively on light volumes as tech and clean energy were sold, while Mainland media coverage of 5G led to a rotation into telecom plays. Large caps were a touch off following the latest round of bulk buying, though still outperformed mid and small caps today. Brokers noted some year-end profit-taking in outperforming sectors. Foreign investors were active buying $684mm of Mainland stocks today. Bonds rallied while CNY was basically flat, with copper off a touch.

The Office of Foreign Asset Control (OFAC) finally chimed in on the Executive Order not allowing US investors to buy a select number of Chinese companies. In OFAC’s defense, they didn’t write the EO, but they are in charge of providing guidance. Index providers' interpretation of the EO appears to be on the mark, though we could see the number of stocks removed from indexes expanded slightly. 

TAL Education had previously disclosed a private placement investment via a convertible bond and issuing new shares. Today, they revealed that the investor was the prestigious private equity firm Silver Lake. 

H-Share Update

The Hang Seng rebounded +0.96%/+253 index points to close at 26,568. Volume was off -27% from yesterday, which is just above the 1-year average while breadth saw 27 advancers and 23 decliners. The 204 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +1.19%, led by tech +3.47%, communication +1.78%, and discretionary +1.64%, while energy fell -0.6% and utilities -0.37%. Southbound Stock Connect volumes were moderate with Mainland investors bought $938mm of Hong Kong stocks today as Southbound trading accounted for 13.3% of Hong Kong turnover. 

A-Share Update

Shanghai & Shenzhen were off -0.54% and -0.64% closing at 3,379 and 2,258 respectively. Volumes were off -2.5%, which is just above the 1-year average while breadth saw 1,974 advancers and 1,781 decliners. The 523 Mainland stocks within the MSCI China All Shares Index were off -0.53%, with financials and technology up +0.46% and +0.37% respectively while discretionary was off -2.38%, materials-1.64%, and industrials -1.26%.  Northbound Stock Connect volumes were moderate as foreign investors bought $684mm of Mainland stocks as Northbound trading accounted for 5.7% of Mainland trading.

Last Night's Exchange Rates & Yields

• CNY/USD 6.53 versus 6.54 yesterday
• CNY/EUR 8.00 versus 7.99 yesterday
• Yield on 1-Day Government Bond 0.35% versus 0.40% yesterday
• Yield on 10-Year Government Bond 3.16% versus 3.16% yesterday
• Yield on 10-Year China Development Bank Bond 3.57% versus 3.58% yesterday