Key News

Asian equities had a strong day overnight with another strong day for growth stocks. The notable news overnight was the release of the Shanghai Securities News commentary celebrating top entrepreneurs that highlighted Tencent’s founder Pony Ma but out Jack Ma. We know that Jack is in the regulator’s doghouse so this may not be surprising, though this clearly is an overhang on Alibaba’s stock for some investors. The PBOC injected liquidity into the financial system, which helps alleviates concerns on monetary and fiscal stimulus being pulled. We had another strong day of Southbound Stock Connect inflows into Hong Kong stocks with a total purchase of $2.234B.

The Hang Seng gained +1.23% while the Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained an impressive +1.71%. Hong Kong volume leaders were Tencent, which rose +1.76%, Meituan, which gained +1.02%, Alibaba Hong Kong, which was up +3.5% pre-earnings results, BYD, which was up +7.02%, Xiaomi, which fell -0.24%, GCL-Poly Energy, which gained +35.75% after landing a deal to sell polysilicon materials to a client, Hong Kong Exchanges, which rose +3.37%, CNOOC, which was up +3.81%, China Mobile, which fell -0.31% and Ping An, which dropped -0.11%. Ping An Healthcare and Technology rose +7.55% after reporting losses widened, but revenue +36%, beating estimates. Growth companies and growth themes all outperformed. Shanghai, Shenzhen, and STAR Board gained +0.81%, +1.66%, and +1.17% respectively as the growth theme also played out along with leisure, auto, and EV. Foreign investors bought $508mm of Mainland stocks today via Northbound Stock Connect. CNY appreciated slightly versus the US $, copper was off, and bonds weakened a touch.

Alibaba reported fiscal year Q3/calendar year Q4 results prior to the US open this morning. The numbers look very strong as the company beat analyst expectations across the board. I see a considerable focus from brokers on the anti-monopoly and Ant Group. On the former, BABA reported that they are fully cooperating with regulators. On Ant Group, they are developing a “rectification plan”, which casts a shadow over “Ant Group’s business prospects and IPO plans”. Sounds pessimistic, but harder to say as Alibaba’s management tends to be conservative. Considering the company increased their share repurchase from $6B to $10B and bought 540k shares in the quarter, one could argue that they believe the stock is cheap. Margin came in a touch lighter than expected due to the heavy promotions around Singles Day (11/11). All in all, the numbers speak for themselves. Yes, Jack Ma was left off a list of China’s top entrepreneurs, but the company has evolved into much more than one person. His accomplishments in growing the business don’t need a list to prove that. 

• Revenue +37% Year over Year (YoY) to $33.88B versus Q2’s $22.419B and estimate $33.496B
• Annual active customers 779mm +22mm quarter over quarter and +68mm year over year
• Mobile monthly active users 902mm +21mm quarter over quarter and +78mm year over year
• Core China E-Commerce +38% YoY to $29.968B revenue versus estimate $29B; 89% of revenue
• Cloud computing revenue +50% YoY to $2.74B, 7% of revenue
• Adjusted Net Income +27% to $9.074B versus Q2 $6.808B and versus estimate $8.578B
• Adjusted EPS +21% YoY to $4.42 versus Q2’s $2.59 and estimate $3.17

H-Share Update

The Hang Seng opened higher and stayed there up +1.23%/+355 index points at 29,248. Volume increased by +12%, which is 60% higher than the 1-year average while breadth had 29 advancers and 22 decliners. The 196 Chinese companies within the MSCI China All Shares Index gained +1.71%, led by health care +4.37%, discretionary +2.36%, staples +2.21%, materials +2.03%, industrials +1.86%, communication +1.74%, tech +1.4%, and utilities +1.34%. Southbound Connect volumes were high from a historical perspective running twice the 1-year average though off levels seen in the last month. Mainland investors bought a healthy $2.234B of Hong Kong equities today as Southbound Connect trading accounted for 15.2% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen opened higher and kept grinding higher, closing up +0.81% and +1.66% at 3,533 and 2,401, respectively. Turnover increased by +5.5% from yesterday, which is 3% above the 1-year average while breadth saw 1,892 advancers and 1,884 decliners. The 511 Chinese companies within the MSCI China All Shares Index gained +1.74%, led by discretionary +5.47%, staples +3.04%, materials +2.54%, industrials +2.38%, health care +1.48%, and tech +1.28%, while financials and utilities were off -0.59% and -0.26% respectively. Northbound Stock Connect volumes were moderate/high as foreign investors bought $508mm of Mainland stocks as Northbound Connect trading accounted for 7.5% of Mainland turnover.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.46 versus 6.47 Yesterday
• CNY/EUR 7.77 versus 7.82 Yesterday
• Yield on 10-Year Government Bond 3.19% versus 3.17% Yesterday
• Yield on 10-Year China Development Bank Bond 3.60% versus 3.58% Yesterday
• China’s Copper Price -0.50% from Yesterday