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Key News

Asian equity markets cheered the Federal Reserve commitment to fast and loose monetary policy, which, combined with stimulus and infrastructure, should reignite the US economy. No one likes a party pooper, so we’ll deal with inflation and debt down the road. Virtually all markets rose with the exception of Japan. By far the biggest news was Prosus’ sale of Tencent shares, which we discussed at length yesterday. The sale price was at the top of the price range, indicating strong demand in what Bloomberg said was the second-largest block trade globally ever.

In my opinion, the weakness in US-listed shares yesterday was driven by investors having to sell other names in the space to fund the purchase of Tencent shares. Tencent’s ADR in the US (TCEHY) was off by -7.54% yesterday, though Tencent Hong Kong was off by only -1.51% today following Wednesday’s decline of -3.86%. Shares were sold at HK $595 versus yesterday’s close of HK $620. US investors overreacted, which is something I’ve noticed happening more frequently. For instance, I’ve noticed that Alibaba’s Hong Kong shares are less volatile than the US shares. I don’t know if this is driven by high-frequency trading or media headlines, etc. There was some talk about mortgage rates, which were raised slightly in an attempt to cool prices, though I’ve had trouble confirming that. China doesn’t have property taxes, which seems like a logical tool.  

Trip.com's (TCOM, formerly C-trip.com) Hong Kong IPO will begin trading tomorrow under the ticker 388 HK. The company is selling 31.6mm shares at a price HK $333, which would raise US $1.4B.

H-Share Update

Hong Kong opened lower but grinded higher all day with the Hang Seng closing +1.16% as volume jumped +64% from yesterday which is 150% of the 1-year average. The 200 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.2%, led by staples +2.59%, materials +2%, healthcare +1.43%, and discretionary +1.29%, while Tencent weighed on communication, which fell -1.37%. Hong Kong’s most heavily traded by value was Tencent, which fell -1.51% as volume increased 800% from yesterday as $19.117 billion of shares traded hands which nearly 6X Alibaba Hong Kong’s value traded as the stock +0..45%, energy giant CNOOC, which fell -3.93%, Meituan, which rose +0.88%, AIA, which gained +6.16% on an analyst upgrade, SMIC, which dropped -2.21%, Xiaomi, which was off -0.38%, China Mobile, which fell -0.1%, Ping An, which fell -0.05%, and Baidu, which fell -1.26%. Southbound Connect volumes were light as Mainland investors bought $607mm of Hong Kong stocks today with Tencent seeing MASSIVE buying.

A-Share Update

Shanghai, Shenzhen, and STAR Board diverged +0.08%, -0.01%, and -0.53% respectively as volume gained +3%, which is only 86% of the 1-year average. Breadth was off as 1,350 stocks advanced and 2,527 stocks declined. The 517 Mainland stocks within the MSCI China All Shares Index rose +0.26% as healthcare rose +1.78%, staples +1.09%, and materials +0.825, while utilities fell -1.71%, real estate -1.54%, and energy -0.8%. Large-cap blue chips had a strong day along with steel stocks while some clean energy names saw profit-taking. The most heavily traded stocks by value were COSCO Shipping, which fell -0.935 on profit-taking, Kweichow Moutai, which rose +0.44%, BOE Tech, which was off -0.76%, Longi Green Energy, which dropped -1.58%, and liquor stock Wuliangye Yibin, which gained +0.82%. Foreign investors sold -$260mm of Mainland stocks on moderate volume as Northbound Connect trading accounted for 6% of Mainland turnover. Bonds were mixed, CNY off a touch versus the US $ and copper slid -0.69%. 

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.55 versus 6.54 yesterday
• CNY/EUR 7.80 versus 7.78 yesterday
• Yield on 1-Day Government Bond 1.44% versus 1.54% yesterday
• Yield on 10-Year Government Bond 3.22% versus 3.22% yesterday
• Yield on 10-Year China Development Bank Bond 3.60% versus 3.61% yesterday
• China's Copper Price -0.69% overnight