Bargain Hunters Eye Executive Order Banned Stocks in Hong Kong
Asian equities were largely higher as Hong Kong and China outperformed while South Korea took a breather from its recent strong run. The biggest positive catalyst overnight was news that Chinese banks would be allowed to offload non-performing loans onto Chinese asset managers. The asset managers, in turn, get to launch high yield bond funds while the banks get to clean up their balance sheets. As you would suspect, financials stocks ripped today.
There is definitely an outbreak in Hubei province as several cities have been placed in lockdown. The Hang Seng Index gained +1.32% while the Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +0.77% as value stocks outperformed growth stocks.
Executive Order banned stocks, which are predominantly old economy sectors, continue to be bought in size by Mainland investors via Southbound Connect as they recognize that foreign investors have to sell regardless of price. Mainland investors bought $1.386 billion worth of Hong Kong stocks today with China Mobile, Tencent, Semiconductor Manufacturing, and energy giant CNOOC seeing outsized buy volume.
Hong Kong volume leaders were China Mobile, which gained +6.61%, Tencent, which fell -0.17% despite very strong buying from Mainland investors, Alibaba HK, which fell -0.45%, Meituan, which fell -2.45%, Xiaomi, which gained +4.37%, Ping An Insurance, which gained +5.95%, Executive Order banned stock Semiconductor Manufacturing, which gained +6.72%, Executive Order banned stock energy giant CNOOC, which gained +1.96%, BYD, which fell -0.94%, and Geely Auto, which fell -0.15%.
Shanghai and Shenzhen ripped higher +2.18% and +1.86%, respectively, after yesterday’s downdraft led by financials. Volumes were high once again as large and mega caps outpaced mid and small caps and value names outperformed. Foreign investors bought a healthy $1.307 billion worth of Mainland stocks today. CNY gained a touch versus the US dollar while bonds were flat.
It has been very cold in China and Asia this week. There has been a fair amount of broker chatter on natural gas prices as a result.
Tencent Music Entertainment’s (TME) CFO Min Hu registered to sell 134k shares in a SEC filing. I would assume that the shares represent an inconsequential percentage of his holdings, but the sale is worth noting. Rumor has it that TME is preparing for a Hong Kong IPO, which could lead to a pop on the stock today. There are reports that E-Commerce discounter Vipshop and video streamer Joyy will list in Hong Kong too.
Chinese biotech BeiGene Ltd (6160 HK) is licensing a cancer drug to Swiss pharmaceutical giant Novartis as the Chinese biotech could receive up to $1.5 billion in royalty payments. The stock ripped +12.88% in Hong Kong.
JD.com will consolidate its tech units including JD Digital with its efforts in AI and cloud computing into a fintech unit, which is expected to list publicly this year.
Paypal’s acquisition of Chinese mobile payments company GoPay is complete. A year ago I was skeptical of PayPal’s efforts in competing with Ant Group’s Alipay and Tencent’s WePay though a lot has changed since then.
Online auto seller Autohome announced its founder and chairman Min Lu is retiring. I suspect he will drive off into the sunset.
State Street is at risk of being fired from the biggest ETF you have never heard of: Tracker Fund of Hong Kong (2800 HK), which is benchmarked to the Hang Seng Index. As a US company, State Street cannot replicate the Hang Seng Index due to the Executive Order so the Hong Kong Monetary Authority could replace the company, according to the South China Morning Post. This is similar to the nearly 500 structured products that have been unwound by US banks in Hong Kong due to their having been linked to Chinese telecom stocks and the Hang Seng Index. As with the US banks, State Street’s pain is apt to be somebody’s gain.
Bloomberg reported that foreign holdings of Chinese bonds increased +33% to RMB 3.3 trillion (US $510 billion) with over half of the increase led by inflows into Chinese government bonds. I find the data ironic after having offered Chinese bond ETFs for seven years without a single taker less my friends Chuck and John in Wisconsin.
The Hang Seng Index gained +1.32%/+368 index points to close at 28,276. Volumes were off -21% from yesterday but were still 50% higher than the 1-year average while breadth was decent with 29 advancers and 21 decliners. The 197 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +0.77% led by financials +3.17%, tech +2.7%, materials +1.35%, health care +1.31% and energy +1.29%. Meanwhile, discretionary -1.22% and staples -0.45%. Southbound Stock Connect flows were very high/2X the 1-year average as Mainland investors bought $1.386 billion worth of Hong Kong stocks today. Southbound Connect trading accounted for 16.2% of Hong Kong turnover.
Shanghai and Shenzhen gained +2.18% and +1.86% to close at 3,608 and 2,419, respectively. Volumes were off -10% from yesterday but still 27% above the 1-year average while breadth was decent with 2,411 advancers and 1,293 decliners. The 513 Chinese companies within the MSCI China All Shares Index gained +2.7% led by financials +3.84%, industrials +3.28%, discretionary +3.08%, staples +2.81%, materials +2.56%, tech +2.36%, energy +2.32%, health care +1.68%. Meanwhile, communication was off -0.91%. Northbound Stock Connect volumes were high with foreign investors buying $1.307 billion worth of Mainland stocks today. Northbound Connect trading accounted for 5.7% of Mainland turnover.
Last Night’s Exchange Rates & Yields
- CNY/USD 6.46 versus 6.48 yesterday
- CNY/EUR 7.86 versus 7.86 yesterday
- Yield on 1-Day Government Bond 1.19% versus 1.14% yesterday
- Yield on 10-Year Government Bond 3.15% versus 3.16% yesterday
- Yield on 10-Year China Development Bank Bond 3.53% versus 3.54% yesterday