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Key News

Asian equities took Fed Chair Powell’s word that US interest rates would not rise until 2023. This lifted Asian equities though India was an outlier to the downside. However, Asian holders of US treasuries appeared to be skeptical as US Treasuries futures were sold, lifting the US Treasury yield over 1.7% in overnight trading.

It was a quiet night on the news front as US and Chinese diplomats meet in Alaska. Although expectations are low for any real progress, climate change is likely to be an area of common ground. The despicable rise in violence against Asian Americans might give US politicians pause on their strategy of throwing China under the bus. There was also a discussion around limiting consumer loans to college students, which makes sense to me.

Alibaba will now offer its main E-Commerce platform on Tencent’s WeChat super-app. This is a strong indication both companies are complying with anti-monopoly rules. Allowing its arch-rival on its own app must have been a bitter pill for Tencent to swallow, but rules are rules.

Tomorrow is FTSE Russell’s trade date for their March Semi-Annual Review. As a result, we should see a healthy pick up in volumes globally. FTSE is moving its indexes’ exposure from Alibaba’s US shares to the Hong Kong share class. This decision will affect the largest emerging markets ETF globally. Passive investors will need to convert their US shares to the Hong Kong share class. The rationale for the switch is that the US listing is a foreign listing, while the Hong Kong listing is local. The US share class is more liquid with the 1-year value of volume traded $4.59B versus Hong Kong’s $887 million. Why the move? Because the Hong Kong volume is comparable to the EM index’s average volume. The US share class is not going away, but the move means there will be slow migration to the Hong Kong share class among certain investors. Remember that Hong Kong just raised its stamp tax by 30% beginning in August to 13 basis points on buys and sells from 10 basis points today. For this reason, I reached out to MSCI to request that they refrain from the share class switch in their June rebalance.

US-listed Chinese stocks are brand ambassadors for China. They provide many investors with insights into the country’s economy and capital markets. Considering the media narrative on China, having this insight is very important. While we are not going to lose these stocks, an element of liquidity will shift. Remember this started because Alibaba’s revenue doubled from 2017 to 2019 and its US-listing did not budge. This was due to the narrative of the US-China trade war, which weighed on investor sentiment. The companies are therefore listing where they believe they will be treated best.

Weibo Earnings Overview

Weibo, a social media platform commonly referred to as the “Twitter of China,” reported Q4 financial results prior to the US market open today. Management was able to rein in costs and raise net income, which is always great to see.

• Revenue +10% to $513 million versus analyst expectations of $497mm
• Monthly active users increased +5mm to 521mm
• Average daily users increased +3mm to 225mm
• Total costs and expenses decreased to $304mm from $317mm
• Adjusted net income was $212.7mm versus analyst expectations of $164mm
• Adjusted EPS was $0.92 versus analyst expectations of $0.71
• Q1 Revenue forecast is an increase by 25% to 30%

H-Share Update

The Hang Seng Index gained +1.28% while the 200 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +1.21% led by growth stocks as consumer discretionary and communication outperformed. Volume increased +17% from yesterday though that is only 113% of the 1-year average. Hong Kong volume leaders by value traded were Tencent, which gained +2.56%, Alibaba HK, which gained +4.94%, Meituan, which gained +3.69%, cloud computing company Weimob, which fell -17.92% after Q4 revenue and EPS missed analyst expectations, Xiaomi, which fell -0.19%, HK Exchanges, which gained +3.39%, Apple camera maker Sunny Optical, which gained +9.45% on strong results, Ping An Insurance, which fell -0.72%, Kuaishou Tech, which gained +1.74%, and Wuxi Biologics, which gained +2.64%. Southbound Connect volumes were moderate as Mainland investors were net buyers of Hong Kong stocks. Tencent and Meituan were the key beneficiaries of Mainland buying as Southbound Connect trading accounted for 11.8% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and the STAR Board gained +0.51%, +0.87%, and +0.39%, respectively, as growth names outperformed. The 517 Mainland stocks within the MSCI China All Shares Index gained +0.94% led by healthcare, staples, and discretionary. Volume increased +2.95% from yesterday, which is -15% below the 1-year average. The Mainland’s volume leaders by value traded were a who’s who of historical favorites with broker East Money gaining +3.18%, Kweichow Moutai gaining +1.94%, Ping An falling -1.36%, TCL Tech gaining +0.5%, Longi Green Energy gaining +0.23%, Huadong Medicine ripping +9.99%, BOE Tech falling -0.8%, Fangda Carbon gaining +9.98%, and Tianjin Zhonghuan Semiconductors ripping +10%. Several Mainland brokers felt that with Fed policy articulated as lower for longer, the taper tantrum correction is now in the rearview mirror. As in Hong Kong, I would like to see volumes indicate some conviction. Northbound Stock Connect volumes were moderate as foreign investors bought $509mm of mainland stocks today as Northbound Connect trading accounted for 7.1% of mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.50 versus 6.51 yesterday
• CNY/EUR 7.74 versus 7.74 yesterday
• Yield on 1-Day Government Bond 1.60% versus 1.65% yesterday
• Yield on 10-Year Government Bond 3.26% versus 3.26% yesterday
• Yield on 10-Year China Development Bank Bond 3.66% versus 3.66% yesterday
• China's Copper Price +0.80% overnight