Key News

Asian equities were largely off today as investors reacted to the Fed’s guidance of interest rate hikes in 2023 (the horror!) China, Hong Kong, Taiwan, and Korea’s Kosdaq gained as growth stocks were bought following yesterday’s sell-off. Vice Premier Liu He will lead the effort to make China self-reliant in chips by raising the capabilities of the domestic semiconductor industry. There were also reports that China’s domestic semiconductor production is running at all-time highs. The skeptic in me predicts the global semiconductor buildout should come online just in time for demand to collapse. Funny/coincidental that our friend Ken in Hong Kong had a similar thought about pork prices.

All things semis ripped which spilled over to other growth sectors such as EV led by BYD and the STAR Board. There was chatter about Shenzhen listed Hoperun Software (300339 CH), which gained +11.88% overnight/+256% since 5/17/21, as retail investors believe Huawei’s new Harmony OS phone will benefit the company. Shipping companies have also been strong performers such as COSCO Shipping on the belief the global reopening will benefit their shares. CNY was off -61bps versus the US $ to 6.44 from 6.40 on the Fed rate hikes in two years. Education/tutoring stocks are in the pain cave with another downdraft overnight on a Reuters article.

Reuters reported that Didi is being investigated in advance of their IPO, which the company vehemently denied. Both Reuters articles referenced their sources as knowledgeable but didn’t name them. This makes me a touch skeptical in addition to the reporters being in Hong Kong and not in China. Time will tell!

H-Share Update

The Hang Seng Index and Hang Seng TECH Index opened lower but rallied closing up +0.43% and +0.9%, respectively, on volume that rose +1.35% from yesterday, which is 86% of the 1-year average. The 211 Chinese companies listed in Hong Kong within the MSCI China All Shares Index rose +0.52% led by tech +2.24%, utilities +2.23%, healthcare +1.35%, industrials +0.63%, discretionary +0.59% and communication +0.29%, while materials and financials -0.45% and -0.24%. Hong Kong’s most heavily traded by value were Tencent, which rose +0.42%, SMIC, which rose +5.42%, Meituan, which rose +0.42%, Xiaomi, which rose +1.25%, BYD, which rose +8.25%, Alibaba Hong Kong, which rose +0.2%, SOHO China, which rose +21.05% following a take-private deal from Blackstone, Ping An, which fell -0.63%, Sunny Optical, which rose +7.65%, and Kuaishou Technology, which fell -5.51%. Southbound Stock Connect volumes were moderate as Mainland investors sold -$70mm of Hong Kong stocks as Southbound trading accounted for 13.9% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and STAR Board gained +0.21%, +1.16%, and +4.77% respectively on volume off -3.7% from yesterday, which is 95% of the 1-year average. The 531 Mainland stocks within the MSCI China All Shares Index gained +0.15% led by tech +3.2%, industrials +0.58%, and healthcare +0.24% while communication -1.28%, materials -0.98%, financials -0.97%, energy -0.79%, real estate -0.72% and utilities -0.69%. Mainland’s most heavily traded by value were BYD, which rose +10%, Jiangsu Hoperun Software, which rose +11.88%, COSCO Shipping, which rose +9.62%, broker East Money, which rose +2.91%, China Three Gorges, which rose +10.1%, Hangzhou Silan Microelectronic, which rose +9.99%, SMIC, which rose +7.48%, Longi Green Energy, which rose +1.98%, Kweichow Moutai, which fell -0.05%, and Sanan Optoelectronic, which rose +10.02%. Northbound Stock Connect volumes were moderate as foreign investors bought $247mm of mainland stocks as Northbound Connect trading accounted for 5.7% of mainland turnover. CNY was off -61bps versus the US $ to 6.44 from 6.40. Bonds were off a touch and copper managed a small gain.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.44 versus 6.40 yesterday
• CNY/EUR 7.68 versus 7.75 yesterday
• Yield on 1-Day Government Bond 1.51% versus 1.55% yesterday
• Yield on 10-Year Government Bond 3.14% versus 3.13% yesterday
• Yield on 10-Year China Development Bank Bond 3.54% versus 3.54% yesterday
• Copper Price +0.09% overnight