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Key News

Asian equities were mostly higher overnight except for Mainland China, where investors had to consider a series of negative developments that occurred during the Labor Day holiday. These concerns included Yellen’s comments on raising interest rates, a pullback in tech stocks in the US, a worsening virus situation in India, and the deteriorating diplomatic relationship between China and its trade partner to South Australia.

On a positive note, domestic travel in China was strong during this year’s Labor Day holiday. Chinese tourists took 230 million trips this year, up 103% from 2019 (pre-pandemic) levels. CICC forecasts domestic tourism revenue for this year’s holiday will be RMB 113 billion. Pent-up demand for travel and international borders that continue to be closed contributed to the surge in domestic tourism. Key beneficiaries of the surge in domestic travel will be duty-free names, Trip.com, Fosun Tourism, among others.

Chinese vaccine makers came under pressure overnight following the US’ support for patent waivers for Covid-19 vaccines worldwide. The US decision means that covid-19 vaccines will not be subject to the normal patent restrictions, thereby enabling other manufacturers to replicate mRNA vaccines created by the likes of Pfizer and Moderna. Investors are concerned this will stifle demand for China-made vaccines abroad, which is concentrated in regions that previously lacked access to mRNA vaccines. Zhifei and Fosun Pharma fell -9% and -14%, respectively, overnight. However, this means that Chinese vaccine makers may be able to produce mRNA vaccines themselves, though rolling out the production capacity to do so may take some time. China-made vaccines are traditional, live virus vaccines as opposed to Western vaccines, which employ mRNA strands that stimulate the production of antibodies and are considered more effective, though experimental.

Many Hong Kong and US-listed Chinese internet companies will report Q1 2021 earnings in May including Alibaba, Meituan, and Tencent. I believe some investors are currently sitting on the sidelines waiting for these companies to report. As the first quarter fully out of the pandemic in China and, increasingly, globally, this round of earnings is more important than ever. These companies need to prove that they can continue to grow earnings under normal circumstances. Most likely, the internet economy is here to stay and these companies will demonstrate strong top lines.

H-Share Update

The Hang Seng opened higher and gained 0.77% as volumes rose from yesterday with the reopening of Southbound Stock Connect. Hong Kong’s most heavily traded stocks by value were ICBC, which fell -0.02%, PetroChina, which gained +0.06%, China Construction Bank, which gained +0.03%, Bank of China, which fell -0.01%, CNOOC, which gained +0.20%, Sino Biopharma, which fell -0.49%, Xiaomi, which gained +0.80%, China Petroleum, which gained +0.04%, and Ping An Insurance, which fell -0.45%. Mainland investors sold a net HKD -375 million worth of Hong Kong stocks.

A-Share Update

Shanghai, Shenzhen, and the STAR board fell -0.16%, -0.97%, and -0.92%, respectively. Foreign investors bought a net $28 million worth of Mainland stocks via Northbound Stock Connect. The most heavily traded foreign-accessible Mainland stocks by value were Kweichow Moutai, which fell -2.38%, Ping An Insurance, which gained +0.60%, China Tourism Duty-Free Group, which fell -5.22%, China Merchants Bank, which gained +1.84%, Jiangsu Hengrui Medicine, which fell -2.35%, Sany Heavy Industry, which fell -2.27%, Wuxi Apptech, which fell -6.09%, CATL, which fell -1.07%, Sungrow Power, which fell -4.56%, East Money Information, which fell -2.92%, Wuliangye Yibin, which fell -3.00%, Midea, which fell -3.26%, Shenzhen Mindray Biomedical, which fell -3.75%, BOE Tech, which fell -4.37%, and Walvax Biotech, which fell -10.80%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.47 versus 6.47 Friday
• CNY/EUR 7.80 versus 7.77 Friday
• Yield on 1-Day Government Bond 1.48% versus 1.63% Friday
• Yield on 10-Year Government Bond 3.15% versus 3.16% Friday
• Yield on 10-Year China Development Bank Bond 3.53% versus 3.54% Friday
• China’s Copper Price +1.35% overnight