Key News

Asian equities were largely higher with growth stocks powering Hong Kong and South Korea’s Kosdaq.

Jack Ma is back! I never thought he was missing but rather laying low following a few run ins with China’s financial regulators. Beijing resident and author of Alibaba: The House that Jack Ma Built Duncan Clark said as much a few weeks ago. I appear to be in the minority as Alibaba HK (9988 HK) jumped +8.52%, which lifted the company’s market cap by $58 billion. Reaffirming the reality of the China internet opportunity, the Ministry of Commerce reported that online retail sales of goods grew +14.8% to $1.5 trillion in 2020 as online retail sales accounted for 24.9% of total retail sales. Growth stocks dominated trading in both Hong Kong and the Mainland.

Value/interest rate sensitive sectors were off as short-term money rates rose in advance of Chinese New Year demand for spending cash. The 1 and 5-year Loan Prime Rates were left unchanged for the eighth month in a row, as anticipated, at 3.85% and 4.65%. Reports that Shanghai will tighten restrictions on property purchases did not help the real estate sector.

Electric vehicle names closed higher along with a noticeable rise in lithium prices and investors' recognition of potential opportunities stemming from electric vehicle policies under the Biden administration. Health care stocks were strong today following positive early earning reports.

China is clamping down on a small coronavirus outbreak in Northern China though timing before the big Chinese New Year vacation is problematic.

Southbound Stock Connect, the trading venue allowing Mainland investors to buy Hong Kong stocks, had another monster day overnight as Mainland investors bought $2.6 billion worth of Hong Kong stocks today following yesterday’s record purchase of $3.4 billion worth by Mainland investors. As our friend Sheldon noted, yesterday was the highest volume day ever in Hong Kong measured by turnover. Tencent, Xiaomi, and Meituan were big buys while Hong Kong Exchanges saw net buying. It is worth noting that buy volume and sell volume was not as skewed to buys as it was on Monday and Tuesday. Foreign investors bought a healthy $523 million worth of Mainland stocks today via Northbound Stock Connect.

A Mainland media source noted that Capital Group (American Funds) cuts its stake in Kweichow Moutai. In another insistence of the headline not being supported by the data, Capital Group reduced their position by 516,591 shares to 13,213,360 shares.

Yesterday I mentioned that Mainland brokers were chatting about Chinese asset managers’ success in raising assets for new mutual funds. The source appears to be a Reuters article on E Fund Management raising $36.6 billion in a new mutual fund. The fund has the ability to own both Mainland and Hong Kong shares.

Technical analyst Michael Oliver of Momentum Structural Analysis shared an updated chart on the Shanghai Composite over the weekend. Michael noted that the Shanghai Composite’s relative strength versus the S&P 500 is on the cusp of a very long break out.

I mentioned Investors Business Daily provided a 2020 mutual fund and ETF scorecard two weeks ago. In the Foreign ETF category, four of the ten ETFs came from our firm including the #1 performer. I recognize that 2020 is a year to forget but has anybody else noticed the lack of similar scorecards? Maybe I missed them though maybe they didn’t happen. While I nor my colleagues dwell nor spend much time thinking about this sort of stuff, it is nice when all the hard work by my colleagues and our founder Jonathan Krane, for both his vision and the gumption to go and do it, receive credit. I will read a few Richard Branson quotes on challenger brands and get right back at it. My final thought is that this is why I’m bullish in 2021 for our firm. I’ve had several conversations with several long-time investors on whether they should take profits. I have thought the same for my own investments in our ETFs. Knowing that being long China is far from a consensus trade has me kept me from hitting the rebalance button.

H-Share Update

The Hang Seng gained +1.08%/+320 index points to close at 29,962. Volume was basically flat from yesterday, though still twice the 1-year average while breadth was even with 26 advancers and 26 decliners. Hong Kong volume leaders were Alibaba HK +8.52% on very high volume, Tencent +3.74% on very high volume, Meituan +9.09%, Xiaomi +1.75%, China Mobile -1.8%, HK Exchanges +1.2%, Geely Auto +5.6%, Ping An -0.39%, Semiconductor Manufacturing -0.34%, AIA -3.4% and JD Health, which ripped 15.42%. The 197 Chinese companies listed in Hong Kong and included in the MSCI China All Shares Index gained +2.59% led by discretionary +5.7%, health care +5.65%, communication +3.63%, tech +2.07%, materials +1.77% staples +1.67% and industrials +1.58% while energy and financials were off -0.44% with real estate and utilities off -0.23%. Southbound Stock Connect volumes were very high running 2.5X the 1-year average, which is off slightly from yesterday.

A-Share Update

Shanghai and Shenzhen gained +0.47% and +1.43% to close at 3,583 and 2,412, respectively. Volume was off -11.9% from yesterday but still 5% above the 1-year average while breadth had 1,654 advancers and 2,126 decliners. The 512 Mainland companies within the MSCI China All Shares Index gained +1.43% led by health care +3.86%, industrials +2.65%, materials +2.34%, discretionary +1.95%, tech +1.63%, staples +1.46% and communication +1.06% while rate-sensitive sectors were off led by real estate -1.58% and financials and energy, which were off -0.84% and -0.6%, respectively. Northbound Stock Connect volumes were high as foreign investors bought $524 million worth of Mainland stocks.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.47 versus 6.48 yesterday
• CNY/EUR 7.81 versus 7.86 yesterday
• Yield on 1-Day Government Bond 1.94% versus 1.84% yesterday
• Yield on 10-Year Government Bond 3.16% versus 3.16% yesterday
• Yield on 10-Year China Development Bank Bond 3.54% versus 3.54% yesterday