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Key News

Tencent-backed Kuaishou’s Friday Hong Kong IPO is reportedly now 1,204x oversubscribed by retail investors. Shares are already up +142% in pre-IPO trading. The company will issue 362mm shares at an offering price of HK$115. According to the company, assuming they sell at HK$110, they would raise less underwriting fees (HK$39.477B), though they can sell an additional 50.737mm shares via an over-allotment option (this used to be called the green shoe as the Green Shoe Manufacturing Company, now known as Stride Rite, used it first back in 1919). This is a strong war chest to take on rival ByteDance in China.

It is interesting to note that 356mm are allocated to “international offer shares”, indicating that there is strong demand for foreign investors in addition to the 9.13mm retail Hong Kong shares being offered. The lead banks bringing the company public are Morgan Stanley, BofA Securities, and the China Renaissance. Cornerstone investors in the IPO include Capital Group (American Funds), Singapore sovereign wealth funds GIC, an arm of Temasek, Invesco, Fidelity, BlackRock, Canadian pension fund CPP, Morgan Stanley Asset Management, and the Abu Dhabi Investment Authority.

• 305mm daily users
• 769mm monthly users
• 86 minutes per spent on the app by daily users
• RMB 204.1B of e-commerce goods sold
• Revenues for the nine months ended 9/30/2020 RMB 40.7B up from RMB 27.3B year-over-year
• Live streaming accounts for 62.2% of revenues for the time period above
• 19,941 employees
• The company has been profitable the past several years on an adjusted basis though as of 9/30/2020 reported a loss of RMB 7.2B. 

Asian equities were a sea of red except for India, which, due to a large medical manufacturing industry, appears to be making headway in coronavirus vaccine rollout, leading to optimism on an economic rebound. One factor contributing to the downdraft was Qualcomm’s earnings release yesterday, which highlighted chip shortages thanks to strong demand for work from home necessities such as mobile phones, laptops, and desktop computers. Auto’s rebound is another driver of chip demand.

Hong Kong was off, but an element of the selloff was investors' need to fund their purchases of Kuaishou’s IPO on Friday. Commerce Secretary appointee Gina Raimondo’s comments that Chinese tech companies will remain on the US tech export ban sent Executive Order-sanctioned stocks south including Xiaomi, CNOOC, SMIC, and China Mobile.

Southbound Connect volume was high as Mainland investors bought $499 million worth of Hong Kong stocks. It is worth noting that several securities, Xiaomi in particular, were net sells. This could be due to some profit-taking in advance of Chinese New Year’s as Connect activity is going to slow down next week. Tencent bucked the trend with another very strong inflow day from Mainland investors. The Hang Seng curtailed its downdraft in the afternoon closing off -0.66%/-193 index points at 29,113 while Hong Kong-listed Chinese companies within the MSCI China All Shares Index were off -1.05%. Let’s see if 29,000 can hold.

Hong Kong volume leaders were Alibaba Hong Kong, which rose +0.46% on Ant Group reorganizing as a financial holding company yesterday and reports today that it will spin off its consumer credit rating arm, Tencent, which pulled a James Bond -0.07% despite its stake in Kuaishou, Xiaomi, which fell -4.84%, Meituan, which dropped -3.19%, Ping An, which rose +2.17% post-earnings, which is better than anticipated, BYD, which dropped -4.49%, GCL-Poly Energy, which rose +11.64%, Semiconductor Manufacturing, which fell -2.33%, Hong Kong IPO Microport Cardioflow, which gained +54.26%, and Hong Kong Exchanges, which dropped -1.92%.

Shanghai dipped below the 3,500 but closed above the level with an afternoon rally off -0.44% closing at 3,501. Shenzhen and STAR Board were off -1.16% and -1.14% respectively on today’s growth swoon. Mega caps outperformed driven by volume leader Kweichow Moutai, which gained +5.98%, Ping An, which rose +4.02%, and alcohol peer Wuliangye Yibin, which rose +1.57%. The overnight repo rate did uptick slightly though Sun Guofeng of the PBOC’s monetary policy department said the PBOC “needs to both maintain the required vigor of support for economic recovery, as well as avoid flood-style irrigation.” The PBOC would “maintain the continuity, stability, and sustainability of (monetary) policy.” The quotes are sourced from a Mainland media source. Translation: Policy won’t be too hot nor too cold as economic support isn’t going to be pulled, but we should expect normalization to occur over the course of 2021. Foreign investors bought a very healthy $1.047 billion worth of Mainland stocks today via Northbound Stock Connect. CNY was flat versus USD while bonds sold off slightly.

There is chatter that JD.com (JD US) will spin off its delivery arm JD Logistics in a Hong Kong IPO. 

Online video names appear to be rising this morning thanks to Kuaishou’s IPO. Bilibili is also moving forward with a Hong Kong listing along with YY, MOMO, HUYA, and DOYU.

It is worth noting that 5 of the 9 board members of Lufax Holding (LU US) are independent in another sign that companies are recognizing the importance of governance.

H-Share Update

The Hang Seng curtailed its downdraft in the afternoon, closing off -0.66%/-193 index points at 29,113. Volumes increased by +8.4%, which is 65% higher than the 1-year average while breadth saw 19 advancers and 31 decliners. The 196 Chinese companies listed in Hong Kong within the MSCI China All Shares Index declined -1.05%, with utilities gaining +0.9%, energy +0.25%, and financials +0.15%, while tech fell -3.58%, discretionary -2.6%, materials -1.95%, industrials -1.65%, health care -1.41%, stapes -1.38%, and real estate -1.22%. Southbound Stock Connect volumes were similar to yesterday as they were high from a long-term historical perspective, though off recent absurdly high levels. Mainland investors bought $499mm of Hong Kong stocks today as Southbound trading accounted for 15.2% of Hong Kong turnover.  

A-Share Update

Shanghai and Shenzhen also curtailed their downdraft in the afternoon closing -0.44% and -1.16% at 3,501 and 2,353 respectively. Volumes were off -1.1% from yesterday though still 7% above the 1-year average. The 511 Mainland Chinese companies within the MSCI China All Shares Index eased -0.46%, with staples up +1.62% while communication fell -4.22%, discretionary -1.38%, materials -1.27%, health care -1.2%, tech -1.02%, and real estate -1.01%. Northbound Stock Connect volumes were elevated as foreign investors bought $1.047B of Mainland stocks today as Northbound trading accounted for 7% of Mainland turnover.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.46 versus 6.46 yesterday
• CNY/EUR 7.75 versus 7.76 yesterday
• Yield on 10-Year Government Bond 3.23% versus 3.21% yesterday
• Yield on 10-Year China Development Bank Bond 3.68% versus 3.64% yesterday
• China’s Copper Price +0.88% overnight