Key News

Asian equities were largely higher with Hong Kong growth stocks higher on very high volumes twice the 1-year average and Korea outperforming to the upside, while India was off to the downside. By far the biggest news was Tencent's gain of +10.93% as investors realized that ByteDance's rival, Kuaishou's upcoming IPO on Monday, February 5th, will benefit Tencent, which owns 21.6% of the company. Kuaishou secured several high-profile cornerstone investors who are buying $2.45B of the $5.4B IPO. Investors include Capital Group (American Funds), Temasek and GIC (Singapore sovereign wealth funds), Invesco, Fidelity, CPPIB (Canadian pension fund), Morgan Stanley, and Abu Dhabi Investment Authority (sovereign wealth fund). Another factor was analyst coverage of Chinese internet stocks including Tencent, Alibaba, JD, Pinduoduo, and Bilibili from respected research firm Bernstein.

Hong Kong Exchanges traded up +8.33% on the IPO and announcement that STAR Board stocks will be eligible for Northbound Stock Connect, providing access to foreign investors beginning February 1st. Our friend Matt pointed out a South China Morning Post article over the weekend with quotes from China’s bank and insurance regulators that their goal was not to hurt Ant Group. Tencent and Hong Kong Exchanges accounted for 366 and 141 index points of the Hang Seng Index’s 711 index point gain, which pushed it over the 30k level. Southbound Connect, the trading venue for Mainland investors to access Hong Kong stocks, was MASSIVE as Mainland investors bought $2.483B of Hong Kong stocks today as Southbound Connect trading accounted for a massive 17.4% of Hong Kong turnover. Cleantech and EV plays were strong performers once again.

Hong Kong volume leaders were Tencent, which rose +10.93% with the value of trading nearly 3X the second volume leader, Alibaba Hong Kong, which rose +2.95%, Meituan, which gained +5.16% with buying via Southbound Connect, BYD, which rose +9.35%, Xiaomi, which gained +2.52%, Hong Kong Exchanges, which was up +8.33%, Semiconductor Manufacturing, which gained +10.09%, China Mobile, which fell -0.95%, clean tech GCL-Poly Energy, which rose +28.5%, e-cigarette maker Smoore International, which was off -3.25% and China Evergrande New Energy Vehicle, which gained +51.67% after announcing their STAR Board listing. Consumer plays, EV, and cleantech had a strong day in Mainland China with Chinese New Year on the horizon as Shanghai rose +0.48%, Shenzhen +0.27%, and STAR 50 +0.83%. Foreign investors bought $298mm of Mainland stocks today via Northbound Stock Connect.  

My favorite weekend read was from an Asia-focused institutional broker. Their research is their intellectual property and how they are compensated, so I don’t want to infringe on their revenue stream. However, they were focused on Asia’s relative value to US equities. They pointed out how much US tech/internet companies would have to increase revenue to justify current valuations. What jumped out to me was how much smaller many Chinese companies are compared to their US equivalents.

On the homepage of WSJ.com, I counted four negative China articles (China Clout WTO, China Boeing Rival, Caterpillar China Rival, and China Rein Tech giants). I suppose this is the wall of worry markets are apt to climb.

H-Share Update

The Hang Seng closed at the day’s high gaining +2.41%/+711 index points at 30,159. Volume surged +17% from Friday, which is more than twice/108% of the 1-year average, though the breath had 18 advancers and 34 decliners. The 197 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +4.18%, led by communication +10.71%, discretionary +4.71%, tech +2.62%, materials +1.4%, financials +1.07%, and staples +9.96%. Energy was off -1.32%, real estate -0.87%, industrials -0.53%, and utilities -0.32%. Southbound Connect volumes were very high as Mainland investors bought $2.483B of Hong Kong stocks as Southbound Connect trading accounted for a massive 17.2% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen gained +0.48% and +0.27% to close at 3,624 and 2,462 respectively. Volume increased by +8% from Friday, which was 38% above the 1-year average though breadth was off with 889 advancers and 2,983 decliners. The 512 Mainland Chinese companies within the MSCI China All Shares Index gained +1.03%, led by staples 4.44%, discretionary +2.56%, materials +0.9%, and health care +0.58% while energy fell -1.5%, communication -1.21%, tech -0.9% and real estate -0.55%. Northbound Stock Connect volumes were high as foreign investors bought $298mm of Mainland stocks today as Northbound Connect trading accounted 6.9% of Mainland turnover.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.48 versus 6.48 yesterday
• CNY/EUR 7.88 versus 7.89 yesterday
• Yield on 10-Year Government Bond 3.13% versus 3.12% yesterday
• Yield on 10-Year China Development Bank Bond 3.53% versus 3.51% yesterday
• China's Copper Price -0.37% Overnight