Daily Posts

Internet Rebound, Bank RRR Cut, & June EV Sales Drive Growth Rebound

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Key News

Asian equities were a sea of green as Japan outperformed along with Mainland China growth stocks. Mainland investors cheered the reduction in the bank reserve requirement ratio (RRR) and June auto sales coming in at 2.015 million units.

Electric vehicle (EV) sales hit a new high of 256,000 EVs sold last month, which is a year-over-year increase of +139%, according to the China Association of Automobile Manufacturers (CAAM). CAAM is expecting auto sales to reach 27 million in total in 2021, which is a 6.7% increase from 2020. EV sakes are likely to reach 2.4 million units, which is an increase of 76% from 2020. Members of the EV ecosystem, which includes lithium and cobalt producers, battery makers, and automakers, were top Mainland performers overnight. EV bus maker BYD gained +7.1% as the most heavily traded stock in China overnight by value. There was also chatter about an interview with a top mainland mutual fund manager who expressed optimism about the EV space.

Growth names outperformed value as healthcare rebounded from last week’s volatility. Several “white horses”, blue-chip/large/mega-cap stocks in liquor, home appliances, and financials, underperformed as investors shift toward smaller cap growth stocks.

Hong Kong rebounded today led by Chinese internet stocks though Tencent underperformed on news its orchestrated merger of HUYA and Douyu was denied by regulators. There is also talk that spin-off Tencent Music could see its music exclusivity deals nullified. This could be interesting for NetEase, which dipped its toe in the music space.

Healthcare was the top performer in Hong Kong on worries about the delta variant's spread. The volume of negative media attention on Didi and China internet regulation has me bullish. When you see people with absolutely no insight and/or knowledge of the space opining on the space, you know it must be near its bottom. There has been chatter about Bytedance not going public, but I believe they took private equity money a few months ago due to the company’s desire not to go public.

If you are a fan of historical fiction, I highly recommend Edward Rutherfurd’s China as I learned a lot about the Opium War period. I will definitely be tracking down his other novels once I finish the Immortal Irishman by Timothy Egan.

H-Share Update

The Hang Seng Index and Hang Seng TECH Index opened higher and stayed there gaining +0.62% and +1.14%, respectively, as volume declined -17% from Friday, which is 94% of the 1-year average. The 209 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +0.67%, led by healthcare +2.42%, materials +1.75%, staples +1.46%, real estate +1.28%, discretionary +1.18% and industrials +1.01%. Meanwhile, energy -1.17% and communication -0.69%. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -0.74%, Meituan, which gained +2.15%, HK Exchanges, which gained +2.65%, Alibaba HK, which gained +0.97%, BYD, which gained +7.77%, Xiaomi, which fell -0.19%, Sunny Optical, which fell -2.35%, Geely Auto, which gained +2.11%, Ping An Insurance, which gained +0.14%, and Wuxi Biologics, which gained +0.82%. Southbound Stock Connect volumes were elevated as Mainland investors sold -$74 million worth of Hong Kong stocks as Southbound trading accounted for 16.8% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and the STAR Board opened higher and kept going to close +0.67%, +1.98%, and +1.13%, respectively, as volume increased +17%, which is 144% of the 1-year average. The 532 Mainland stocks within the MSCI China All Shares Index gained +1.59% led by materials +3.58%, health care +2.77%, discretionary +2.62%, industrials +2.03%, tech +1.9%, and staples +0.7%. Meanwhile, utilities -1.27%, energy -1.07%, and real estate -0.86%. The Mainland’s most heavily traded stocks by value were BYD, which gained +7.1%, East Money, which gained +4.76%, China Northern Rare Earth, which gained +10%, Tianqi Lithium, which gained +3.51%, GEM, which gained +3.94%, Longi Green Energy, which fell -0.61%, CATL, which gained +3.65%, Jiangsu Hoperun Software, which gained +15.76%, COSCO Shipping,  which gained +3.16%, and Ganfeng Lithium, which gained +10%. Northbound Stock Connect volumes were high as foreign investors bought $253 million worth of Mainland stocks as Northbound Stock Connect trading accounted for 6.3% of Mainland turnover. Bonds rallied, CNY was down slightly versus the US dollar, and copper rallied.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.48 versus 6.48 Friday
  • CNY/EUR 7.68 versus 7.68 Friday
  • Yield on 1-Day Government Bond 1.70% versus 1.73% Friday
  • Yield on 10-Year Government Bond 2.94% versus 3.01% Friday
  • Yield on 10-Year China Development Bank Bond 3.36% versus 3.38% Friday
  • Copper Price +1.18% overnight