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Week in Review

• Both Mainland China and Hong Kong saw growth, including internet stocks and healthcare, outperform value on Monday.
• Year-to-date foreign investors have bought $34.325B of Mainland stocks, bringing the total to $65.33B since 12/31/2019.
• Didi, China’s largest ride hailing app, listed shares publicly for the first time on the New York Stock Exchange (NYSE) on Wednesday, pricing shares at $14 apiece, the top of its IPO price range.
• China healthcare stocks outperformed on Thursday as policymakers expressed the need to further support the sector, including traditional Chinese medicine (TCM).

Key News

Asian equities were largely higher though Hong Kong returned from yesterday’s holiday in a foul mood and the Mainland took a hit. When brokers use terms like tragic and black Friday it is never a good sign as several events were at work.

Alibaba is hosting conference calls with the analysts that cover the stock prior to their August 20^th earnings release. The company appears to be saying that it will have a decent quarter with revenue growth above +30%, though not a “lights out” quarter. Considering how cheap the stock, this is not necessarily a negative.

President Xi’s speech, which we mentioned yesterday, was directed to a domestic audience, though was viewed as not helpful for US-China relations as foreign investors sold $1.329 billion worth of Mainland stocks via Northbound Stock Connect.

The Cyberspace Administration of China said it will implement a cybersecurity review of Didi Travel (Chuxing means travel in Chinese). During the investigation, Didi Travel will not be allowed to register new users though it can still operate. Ironically, the regulator released a report today titled “Digital China Development Report 2020,” which highlights the adoption and integration of the internet into the economy, with an emphasis on rural users. Rural online retail increased from RMB 0.9 trillion in 2016 to 1.8 trillion in 2020.

The PBOC drained a small amount of liquidity from the financial system today, which is not a big deal, but likely did not help sentiment. The Financial Times had a very unflattering article on Jack Ma and Joe Tsai pledging Alibaba shares as collateral for loans from five banks. The move is not that unusual, though the article’s level of detail clearly shows that someone involved spilled the beans.

In Hong Kong, decliners outpaced advancers by 4 to 1 in an indication of a broad sell off. The 50 largest Mainland stocks were down -3.59% overnight though there were 1,481 advancing stocks versus 2,407 declining stocks. In both markets, growth stocks were off more than value stocks. Mainland investors sold Tencent via Southbound Connect.

H-Share Update

The Hang Seng and Hang Seng TECH indexes were in the green for few seconds at the open before putting the land gear down and descending -1.8% and -3.22%, respectively. Volume was up +25% from Wednesday, which is 107% of the 1-year average. The 209 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index were down -2.36% led by discretionary -3.82%, tech -3.59%, healthcare -2.35%, industrials -1.74%, communication -1.72% and staples -1.54%. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.63%, Meituan, which fell -5.12%, Alibaba HK, which fell -3.64%, Xiaomi, which fell -2.96%, Geely Auto, which fell -4.7%, Wuxi Biologics, which fell -1.97%, Ping An Insurance, which fell -1.51%, BYD, which fell -4.74%, Hong Kong Exchanges, which fell -1.51%, and AIA, which fell -0.73%. Southbound Stock Connect volumes were high as Mainland investors sold $906 million worth of Hong Kong stocks as Southbound trading accounted for 13.9% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and the STAR Board also slumped -1.95%, -1.86%, and -2.64%, respectively, as volume declined -1% from yesterday, which is 107% of the 1-year average. Breadth was not as bad as it felt with 1,481 advancing stocks and 2,407 declining stocks. The 532 Mainland stocks within the MSCI China All Shares Index declined -2.84% led by healthcare -4.8%, staples -3.67%, financials -2.95%, discretionary -2.84%, tech -2.75%, real estate -2.55%, utilities -2.31%, communication -1.82%, industrials -1.77%, and materials -1.01%. The Mainland’s most heavily traded stocks by volume were broker East Money, which fell -4.62%, Kweichow Moutai, which fell -4.37%, Longi Green Energy, which fell -2.89%, BYD, which gained +1.03%, Tianqi Lithium, which gained +4.39%, CATL, which fell -1.87%, COSCO Shipping, which gained +1.62%, Tongwei Solar, which fell -2.85%, Ping An Insurance, which fell -3.8%, and China Three Gorges Renewables, which fell -4.8%. Northbound Stock Connect volumes were high as foreign investors sold a net -$1.33 billion worth of Mainland stocks as Northbound trading accounted for 6.9% of Mainland turnover. Bonds rallied, CNY was off a touch, and copper prices were lower overnight.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.45 versus 6.47 yesterday
• CNY/EUR 7.66 versus 7.68 yesterday
• Yield on 5-Year Government Bond 2.95% versus 2.95% yesterday
• Yield on 10-Year Government Bond 3.08% versus 3.09% yesterday
• Yield on 10-Year China Development Bank Bond 3.48% versus 3.50% yesterday
• Copper Price -0.55%