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Didi Chuxing To List In The US, Commodity Prices Lead To Inflation, Week in Review

Week in Review

  • Most Asian equity markets returned from holidays to gains on Tuesday as business confidence in China hit a 10-year high in March according to a private survey conducted by HIS Markit.
  • Tencent investor Prosus announced Wednesday that it would be selling 2% of its stake in Tencent, which comes to 191 million shares, bringing its ownership of Tencent down to 29%. The company vowed not to sell again for at least three years and investors snapped up Tencent shares Thursday in what was the second-largest block trade in history, according to Bloomberg.
  • Trip.com announced Thursday that the company will list 31.6 million shares in Hong Kong to raise $1.4 billion. The travel platform’s Hong Kong listing (9961 HK) will begin trading Monday.

March Inflation Data Release

Takeaway: China’s economic rebound coupled with the global economy coming back online led to a sharp rise in the Producer Price Index (PPI) in March. PPI is a year-over-year indicator, which means it is being compared to a low base in 2020. Commodity prices were the main culprit as global demand continues to increase. Meanwhile, the Consumer Price Index (CPI) posted a modest gain year-over-year (YoY), though actually declined -0.5% month-over-month. Food prices fell -0.7% YoY driven by another fall in pork prices, which slid -18.4%. Transportation and communication prices increased 2.7% as gasoline prices rose. The 9:30 am release sent the market lower due to anticipation that Chinese policymakers will tighten conditions. I do not know how anyone with knowledge that PPI is YoY would be surprised based on the low comparison from a year ago and in light of higher commodity prices.

Key News

Didi Chuxing, China’s Uber, will go public in the US selling 10% of the firm at $10 billion, which would value the firm at $100 billion. A Reuters article identifies Goldman Sachs and Morgan Stanley as the lead underwriters. Chinese companies raised $12 billion in US IPOs in 2020, which is triple the amount raised in 2019. We met with Didi back in 2019 and I came away very impressed by the company.

Asian equities could not shake their recent funk as most markets were off though Japan, Malaysia, and Thailand managed to gain. Volumes were light, which likely exacerbated the moves. China’s PPI was a factor along with blue-chip delivery company SF Express (002352 CH), which announced that it will lose money in Q1 as expansion costs clip net income, leading to a -10% drop.

News that the US is adding seven Chinese companies to a technology export ban did not help sentiment, though one sharp-eyed broker noted that it does not prevent the Chinese companies from buying outside of the US, which would have given the measure some bite. Vice Premier Liu He presided over the Financial Stability and Development Committee though nothing market moving came out of it.

The US and China are co-chairing the G20 Sustainable Finance Study Group.

The Chinese Association of Automobile Manufacturers reported that March auto sales rose +74.9% to 2.53mm. Meanwhile, sales of electric vehicles rose by a whopping +239% to 226,000.

Hong Kong Exchanges released a consultation on March 31st that would greatly reduce listing requirements for overseas issuers, i.e. US-listed Chinese companies. This is garnering a fair amount of attention as it would ease listing in Hong Kong if a resolution to the long-running issue of the PCAOB not being able to conduct audit reviews of US-listed Chinese companies is not achieved. While we have 65% exposure to US-listed Chinese stocks today, if we converted from the US to the Hong Kong share classes, our exposure to the US would drop significantly. I would expect virtually all US-listed Chinese companies will have a listing in Hong Kong within the next year to two years if this issue cannot be resolved, which would provide an easy avoidance of the worst-case scenario.

H-Share Update

The Hang Seng opened higher before slumping -1.07% as volume fell -49% from yesterday’s Tencent-driven block trade. Today’s volume was just 90% of the 1-year average. The 200 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index were off -1.15% as only materials and communication managed small gains while healthcare slumped -2.8%, industrials -2.31%, staples -2.14%, discretionary -2.1%, and tech -2.01%. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +0.08%, Alibaba HK, which fell   -2.24%, supply chain technology company Linklogis, which gained +9.9% on its IPO, Meituan, which fell -2.12%, Ping An Insurance, which fell -2.2%, Xiaomi, which fell -1.91%, SMIC, which fell -1.5%, AIA, which fell -1.31%, HK Exchange, which fell -0.3%, and Wuxi Biologics, which fell -4.85%. Southbound Stock Connect volumes were light as Mainland investors bought $187 million worth of Hong Kong stocks as Southbound Connect trading accounted for 10.1% of Hong Kong turnover. Tencent saw massive buying via Southbound Connect today, once again, which totaled $168 million.

A-Share Update

Shanghai, Shenzhen, and STAR Board were off -0.92%, -0.95%, and -1.58%. Turnover fell -9% from yesterday which is just 78% of the 1-year average. The 517 mainland companies within the MSCI China All Shares were off -1.55% with energy the only sector up while staples -2.3%, industrials -2.13% and discretionary -1.82%. Mainland volume leaders by value traded were BOE Tech +1.54%, Cosco Shipping +4%, Kweichow Moutai -2.42%, Longi Green Energy -4.49%, and Ping An -1.87%. Steel, coal, shipping were subsectors that did well while insurance was off tightening regulation, while alcohol and aviation were off. Breadth saw 1,631 advancers and 2,154 decliners. Foreign investors sold -$123mm of mainland stocks in moderate/light volumes as Northbound Connect trading accounted for 5.5% of mainland turnover. Bonds gained today while CNY was off a touch versus the US $ while copper posted a small gain.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.56 versus 6.55 yesterday
  • CNY/EUR 7.79 versus 7.80 yesterday
  • Yield on 1-Day Government Bond 1.44% versus 1.44% yesterday
  • Yield on 10-Year Government Bond 3.21% versus 3.22% yesterday
  • Yield on 10-Year China Development Bank Bond 3.59% versus 3.60% yesterday
  • China’s Copper Price +0.35% overnight