Didi Regulatory Action Weighs on Internet Sector, Fixed Income Market Tells A Different Story
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Asian equities were mixed today as Hong Kong-listed growth/tech names rebounded following yesterday’s sell-off on China’s regulatory action on Didi. The China Cyberspace Administration has initiated an investigation into the company’s data practices. The regulator has suspended new users from downloading the app while it completes a data security review, though it hasn’t suspended current users from using it. The action also applies to recently listed Full Truck Alliance (YMM) and Kanzhun (BZ).
There is concern that US policy toward US-listed Chinese companies will receive more attention due to the post-IPO regulatory action. Chinese regulatory action hasn’t hurt the financials of the companies thus far. The regulatory action has cast a pall over US and HK-listed Chinese companies’ stock. However, the conclusion of China’s internet regulatory overhaul may lead to more sustainable growth for these companies.
It is worth noting that credit default swaps on bonds issued by Alibaba and Baidu have become less expensive over the past year. Credit default swaps are insurance for bondholders and therefore serve as an excellent bellwether for credit risk.
Tencent’s credit default swaps have gotten less expensive for shorter maturity bonds, though long-dated bonds have gotten a touch more expensive.
Fixed-income investors aren’t pricing in more risk for the companies’ ability to make coupon payments and repay bonds, which is very different from the market action of the stocks.
Healthcare stocks were weak in Hong Kong and China on new guidelines for oncology drug testing, which are in line with global standards. Brokers felt the market overreacted as the rules should be a positive for the sector in the long term.
The Hang Seng opened lower and stayed there, closing lower -0.25% on volume -12.4% from yesterday, which is 88% of the 1-year average. The 209 Chinese companies listed in Hong Kong were off by -0.06%, led by discretionary +0.87%, communication +0.82%, financials +0.75% and real estate +0.42% while healthcare -5.81%, staples -1.37%, tech -1.32%, and energy -1.08%. Hong Kong’s most heavily traded by value were Tencent, which rose +0.9%, Wuxi Biologics, which fell -8.41%, Meituan, which rose +0.98%, BYD, which fell -3.2%, Alibaba HK, which rose +1.65%, Xiaomi, which fell -0.19%, Ping An, which rose +1.29%, HK Exchanges, which rose +2.33%, SMIC, which fell -2.42%, and China Construction Bank, which rose +0.33%. Southbound Stock Connect flows were elevated as Mainland investors were net sellers of Hong Kong stocks.
Shanghai, Shenzhen, and STAR Board were off -0.12%, -0.32%, and -2.74% respectively as volume increased +10.72% from yesterday. The 532 Mainland stocks within the MSCI China All Shares Index were off -0.2%, as utilities rose +2.32%, real estate +2.21%, materials +1.89%, financials +0.96%, and discretionary +0.65%, while healthcare fell -3.87%, tech -0.94%, and staples -0.51%. The Mainland’s most heavily traded by value were BYD, which rose +0.38%, Three Gorges Renewables, which rose +9.93%, Tianqi Lithium, which fell -3.93%, CATL, which fell -0.78%, Jiangsu Hoperun Software, which rose +9.35%, Hangzhou Silan Micro, which fell -5.66%, Ganfeng Lithium, which rose +2.26%, COSCO Shipping, which rose +1.78%, Longi Green Energy, which fell -1.53%, and China Northern Rare Earth, which rose +2.91%. Foreign investors were active via Northbound Stock Connect as foreign investors sold -$9mm of Mainland stocks today. CNY gained versus the US $, bonds were off, and copper rallied.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.47 versus 6.46 yesterday
- CNY/EUR 7.65 versus 7.67 yesterday
- Yield on 1-Day Government Bond 1.61% versus 1.51% yesterday
- Yield on 10-Year Government Bond 3.09% versus 3.08% yesterday
- Yield on 10-Year China Development Bank Bond 3.48% versus 3.47% yesterday
- Copper Price +1.28% overnight