Health Care Outperforms, CSRC Extends Olive Tree To SEC & PCAOB
Asian equities followed US equities south as Hong Kong, Japan, and South Korea underperformed while China managed a gain. Growing coronavirus cases in India and lockdowns in Japan were factors. It was fairly quiet on the news front. However, green finance was a topic following PBOC chief Yi Gang’s comments at the Boao Forum and we learned that President Xi will attend the US’ climate summit.
Anta Sports, a sneaker and apparel company that has been a favored stock of late, fell -7.67% after announcing its parent sold 88 million shares in a private placement. Mainland investors were heavy buyers of the stock via Southbound Connect.
My colleague Derek found a great nugget yesterday as a Mainland media source quoted the head of the China Securities Regulatory Commission, China’s version of the SEC, on the issue of US-listed Chinese companies’ inability to disclose their audit papers to the Public Company Accounting Oversight Board (PCAOB). Despite the companies being allowed to list in the US, US lawmakers decided to solve the issue following Luckin Coffee’s fraud by forcing compliance or the companies would face delisting after three years of non-compliance, putting $2 trillion of US investors’ savings at risk. Many of the companies have re-listed in Hong Kong so institutional investors like ourselves would simply convert out of the US shares and into the Hong Kong shares. Previously, we’ve heard that the PCAOB was unwilling to meet with the CSRC when they visited Washington DC in December 2019, highlighting the politicization of the issue. The article quotes the CSRC head, saying “We have been seeking to ramp up cooperation with related regulators in the US. [The China side] has proposed several rounds of solutions, but has never received a comprehensive and positive response.” Taking it a step further, “To solve problems and other disagreements, both sides must negotiate.” We will do further digging as this appears to me as not just an olive branch, but the whole tree!
China’s use of wind and solar is expected to rise to 11% of energy transmission from a current level of around 9% by the end of next year.
The Hang Seng closed -1.76% on light volume, which was off -21% from yesterday and back below the 1-year average. The Chinese stocks within the MSCI China All Shares Index were off -1.77% led lower by energy -3.64%, discretionary -3.44%, communications -2.15%, and materials -1.34% as every sector was off. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -2.17%, Meituan, which fell -3.88%, Anta Sports, which fell -7.67%, Alibaba HK, which fell -2.8%, JD.com HK, which fell -3.62%, Ping An Insurance, which fell -1.88%, Xiaomi, which fell -1.31%, HK Exchanges, which fell -1.48%, Kuaishou Tech, which fell -3.66%, and China Construction Bank, which fell -0.76%. Southbound Stock Connect volumes were light as Mainland investors bought $542 million worth of Hong Kong stocks as Southbound Connect trading accounted for 10.7% of Hong Kong turnover. Tencent was a rare net sell while Meituan was bought.
Shanghai, Shenzhen, and the STAR Board closed flat, +0.20%, and -0.28%, respectively, in a reminder of the Mainland’s low correlation to global equities. Volumes were light, off -11.9% from yesterday, which is only 84% of the 1-year average. Meanwhile, breadth left much to be desired with 1,456 advancers and 2,395 decliners. The Mainland stocks within the MSCI China All Shares Index gained +0.33% led by healthcare +1.96%, financials +0.81%, and staples +0.81%. Meanwhile, energy was off -0.97% and materials were off -0.69%. Clean tech, electric vehicles, and autos saw profit taking after recent strength. The Mainland’s most heavily traded stocks by value were Longi Green Energy, which gained +0.04% after strong financial results, BAIC BluePark New Energy, which gained +1.59% after announcing it will develop an electric vehicle, BOE Tech, which gained +2.3%, Huadong medicine, which gained +8.02%, Jiangsu Hengrui Medicine, which gained +3.57%, Kweichow Moutai, which fell -0.71%, CATL, which fell -0.92%, Wuliangye Yibin, which gained +1.16%, Imeik Technology, which gained +9.63%, and Changan Auto, which fell -6.83% after an analyst downgrade. Northbound Stock Connect volumes were moderate as foreign investors sold -$162 million worth of Mainland stocks as Northbound Connect trading accounted for 5.2% of Mainland turnover. CNY was flat versus the US dollar, bonds were up a touch, and copper eased slightly.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.49 versus 6.50 yesterday
- CNY/EUR 7.80 versus 7.82 yesterday
- Yield on 1-Day Government Bond 1.70% versus 1.75% yesterday
- Yield on 10-Year Government Bond 3.15% versus 3.16% yesterday
- Yield on 10-Year China Development Bank Bond 3.52% versus 3.52% yesterday
- China’s Copper Price -0.62%