Daily Posts

PBOC Comments Drive U-Turn Rebound, Week in Review

Week in Review

  • Asian equities were mostly higher Tuesday as Hong Kong markets opened after a four-day hiatus in celebration of Chinese New Year.
  • The State Post Bureau, China’s mail service, announced Wednesday that parcel deliveries increased +224% over the first five days of Chinese New Year compared to 2020 levels for the holiday season. Evidently, Chinese have been making up for travel restrictions by sending gifts to loved ones around the country.
  • Baidu reported stronger than expected results for Q4 2020 after the close in New York on Wednesday. Revenues from the company’s core search business grew by +6% year-over-year. The search engine had not participated in the 2020 earnings boost seen by most in the internet space.

Key News

Asian equities had another mixed session with Hong Kong, China, and South Korea in the green while Japan, Taiwan, and India were off. Hong Kong and China had an impressive U-turn after opening lower but closing higher. The Hang Seng Index was off by -1.62% intra-day closing up +0.16%. Shanghai was off -1.12% closing up +0.57%, Shenzhen was off -1.61% closing up +0.75%, and STAR Board was off -1.79% closing off -0.13%.

Yesterday’s downdraft and today’s U-turn were driven by the market’s concern that fiscal and monetary stimulus will be removed as China’s economy continues to rebound. Traders watch the PBOC’s open market operations (OMO) as an indication of tightening policies as the PBOC’s short-term bond sales haven’t been fully replaced with new issues, which drains money/liquidity from the financial system. Financial markets run on liquidity, which is why tightening is feared.

Yesterday, short-term lending rates increased as OMO pulled liquidity out of the system, sending traders to the exits even though short-term rates fell today. More importantly, the PBOC came out and said traders shouldn’t be obsessed with OMO/liquidity but instead with interest rates, which have been stable. The PBOC said they will keep conditions neutral without any “sharp turns” last week.

Hong Kong volume leaders were Tencent, which fell -0.87% as the company raised $11B in a bond offering, Xiaomi, which rose +6.42% after announcing it will manufacture electric vehicles, Meituan, which fell -1.03%, China Mobile, which gained +6.44%, Alibaba Hong Kong, which fell -1.31%, Kuaishou Tech, which was off -1.42%, Ping An, which rose +2.47%, CNOOC, which fell -2.08%, BYD, which was off -1.89%, Hong Kong Exchanges, which gained +0.27%. Growth names were largely lower following their US equivalents’ fall yesterday.

Mainland investors bought $474mm of Hong Kong stocks via Southbound Stock Connect. Tencent saw net buying by a small margin and Meituan saw net selling. Mainland China had a very broad rally with 3,454 advancers and only 471 decliners. Several brokers pointed to increased flows into mutual funds as a catalyst. Clean energy plays did well while several growth sectors were off. Foreign investors bought a healthy $1.48B of Mainland stocks via Northbound Stock Connect today bringing the two-day weekly total to $2.261B. Bonds and copper rallied while CNY appreciated versus the US dollar. 

Baidu’s (BIDU US) largely positive earnings results were lost in yesterday’s sell-off. Analysts liked the strong performance of its core search business while the company’s efforts in cloud computing and autonomous driving are aligned with investors’ current preference.

The WSJ had an interesting article on US pension funds’ reaction to the Ant Group’s IPO being pulled. More important than wasting time on why Ant Group’s IPO was pulled, the article provides an interesting insight on why US pension funds are investing in Chinese private equity. Plans need growth investments to meet their obligations. While private equity gets a lot of attention, I would point out the returns on Chinese public equities!  

Weibo (WB US) is rumored to be exploring a Hong Kong relisting. 

H-Share Update

The Hang Seng opened lower but crawled back to close up +0.16% at 30,644. Volume was off -10% from yesterday, which is 174% of the 1-year average while had 29 advancers and 22 decliners. The 196 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.2%, led by materials +5.92%, tech +2.23%, staples +2.04%, industrials +1.86%, and health care +1.04%, while energy was off -1.59%, communication -0.77%, utilities -0.66%, and discretionary -0.56%. Southbound Stock Connect volumes were elevated in the new normal as Mainland investors bought $474mm of Hong Kong stock today as Southbound trading accounted for 15.3% of Hong Kong’s turnover.

A-Share Update

Shanghai and Shenzhen also opened lower but crawled back up +0.57% and +0.75% closing at 3,696 and 2,468 respectively. Volume was off -3.85%, which is 119% of the 1-year average while breadth had 3,454 advancers and 471 decliners. The 511 Mainland stocks within the MSCI China All Shares Index gained +0.26%, led by utilities +2.07%, energy +1.17%, communication +1.06%, staples +1%, real estate +0.94%, while materials -0.94%, discretionary -0.78%, industrials -0.41%, and tech -0.22%. Northbound Stock Connect volumes were elevated as foreign investors bought $1.48B of Mainland stock today as Northbound Connect trading accounted for 7.4% of Mainland turnover.

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.45 versus 6.47 yesterday
  • CNY/EUR 7.83 versus 7.81 yesterday
  • Yield on 10-Year Government Bond 3.26% versus 3.28% yesterday
  • Yield on 10-Year China Development Bank Bond 3.74% versus 3.77% yesterday
  • China’s Copper Price +1.32% overnight