China Equities Break Above Resistance Levels, Didi Hong Kong IPO Possible
Asian equities started 2021 in good spirits in a strong start to the New Year apart from Japan, which faces potential lockdowns to counter a spike in coronavirus cases. Meanwhile, Hong Kong and Chinese equities had a strong day on high volumes as investors were focused on several positive developments including the EU-China investment deal with benefitting sectors such as auto and clean energy outperforming today. The thinking goes European auto makers will gain more access to China while the EU’s strict clean energy mandates will benefit Chinese wind and solar manufacturers.
Copper had a strong day as demand continues to rebound in China. Mainland investors were very active in Hong Kong stocks today, buying $1.74 billion worth of Hong Kong stocks as Southbound Connect trading accounted for 15.6% of Hong Kong turnover.
News that the NYSE will delist three thinly traded and not widely held Chinese telecom stocks due to the White House’s Executive Order weighed on those names (China Mobile -0.79%, China Unicom +0.45% and China Telecom -2.79%). The Hang Seng gained +0.89% led by volume leaders Tencent, which gained +1.51% after seeing very strong buying via Southbound Connect, Xiaomi, which gained +6.17%, China Mobile ,which fell -0.79%, Alibaba HK, which fell -2.15%, Meituan, which fell -0.68%, Semiconductor Manufacturing, which fell -2.49%, BYD, which gained +9.84%, CNOOC, which fell -1.81%, Geely Auto, which gained +1.51%, and Great Wall Motors, which gained +1.13%.
Real estate was off on stricter loan requirements that firmly state that housing is for living and not speculating.
Mainland China had a strong day with Shanghai +0.86% and +2.45% as growth names outperformed led by mid and small caps. Bonds rallied while foreign investors sold a small amount of Mainland stocks via Northbound Connect.
CNY had a monster day rallying to 6.46 from Thursday’s 6.52 which is a full 1.02% move.
The Shanghai and Shenzhen Composite Indexes broke above resistance levels in local currency. These resistance levels have held times since June 2020.
A Mainland media source is noting that China’s Uber slayer turned Uber partner Didi is starting the process of going public in Hong Kong. Uber and Didi were engaged in a race to zero that led to mutual capitulation as Uber sold their China business to Didi while Didi took a stake and a board seat in Uber. This is great news for Hong Kong investment bankers.
Pinduoduo (PDD US) is likely to be weaker after an employee, a young woman in her early twenties, collapsed and died after leaving work late at night. Chinese internet companies are known for their arduous 996 work hours: 9am to 9pm six days a week. PDD has risen nearly 20% over the last month so the news could lead to some profit taking.
Takeaway: Today’s release came in below expectations though showed that the economy is still growing as a reading above 50 in a diffusion index
The Hang Seng gained +0.89%/+241 index points to close at 27,472. Volume was up +72% from Thursday’s half day session and +41% above the 1-year average while breadth had 33 advancers and 17 decliners. The 204 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +0.6% led by tech +3.92%, staples +3.03%, materials +2.44%, utilities +1.75%, industrials +1.22% and discretionary +1.07% while real estate -3.78% and financials -1.34%. Southbound Stock Connect volumes were very high as Mainland investors bought $1.74 billion worth of Hong Kong stocks today as Southbound Connect trading accounted for 15.6% of Hong Kong turnover.
Shanghai and Shenzhen gained +0.86% and +2.45% to close at 3,502 and 2,386, respectively. Volume increased +22% from Thursday’s full-day session, which is +36% above the 1-year average while breadth was decent with 2,674 advancers and 1,098 decliners. The 521 Mainland Chinese stocks within the MSCI China All Shares Index gained +2.77% led by industrials +5.88%, materials +4.92%, staples +3.9%, tech +3.36%, discretionary +3.18%, energy +2.05% and communication +1.76% while real estate was off -1.78%. Northbound Stock Connect volumes were high as foreign investors sold -$83 million worth of Mainland stocks today as Northbound Connect trading accounted for 7.4% of Mainland turnover.
Last Night’s Exchange Rates & Yields
- CNY/USD 6.46 versus 6.53 Thursday
- CNY/EUR 7.95 versus 7.97 Thursday
- Yield on 1-Day Government Bond 0.63% versus 0.82% Thursday
- Yield on 10-Year Government Bond 3.18% versus 3.14% Thursday
- Yield on 10-Year China Development Bank Bond 3.57% versus 3.54% Thursday