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Diverging China Returns, PBOC Releases Report on E-CNY

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Key News

Asia was a sea of red following concerns about the spread of the delta variant and US equities’ poor performance on Friday, though volumes were light. Chinese investors located in China were less pessimistic as the Mainland market was off, but only by a touch. Foreign investors in China, who mostly use Hong Kong and US shares, were much more pessimistic, which is not surprising given the constant barrage of negative headlines in the US.

Healthcare outperformed in both Hong Kong and China while the electric vehicles ecosystem was mixed as auto manufacturers and battery makers saw selling though metal stocks held up. Both Nio and Li Auto will be listing in Hong Kong following Xpeng’s lead.

Hong Kong-listed China internet names were weak though sell-side analysts are becoming more vocal about the attractive valuations in the space.

Worries about property developer Evergrand have resurfaced. I found it interesting that a Mainland source noted the first personal bankruptcy ever in China with a Mr. Liang of Shenzhen winning the distinction.

On Sunday, June imports of corn and soybeans were reported. Both categories increased from May.

Foreign investors were active buyers of Mainland stocks today while Mainland investors were net sellers of Hong Kong stocks.

On Friday the PBOC released a white paper titled “Progress of Research & Development of E-CNY in China”. We now know China’s digital renminbi is going to be called E-CNY. The report noted that 66% of all transactions in China are done via mobile payment according to a 2019 PBOC survey. In a heartbreaker to the conspiracy theorist who viewed the E-CNY as a threat to the US dollar’s dominance, E-CNY will only be available for domestic transactions initially. E-CNY is not a threat to mobile payment wallets such as Alipay or WePay either as it is simply a currency. As M0, it will be non-interest bearing.

H-Share Update

The Hang Seng Index and Hang Seng TECH Index opened lower and stayed there to close -1.84% and -2.4%, respectively, on volume that was 7% lower than Friday, which is 87% of the 1-year average. The 208 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index declined -2.07% with healthcare +0.095 while discretionary -3.22%, communication -2.6%, real estate -2.6%, staples -1.46%, financials -1.25% and materials -0.99%. Hong Kong’s most heavily traded stocks by volume were Tencent, which fell -2.57%, Meituan, which fell -5.02%, Alibaba HK, which fell -3.25%, HK Exchanges, which fell -0.38%, Xiaomi, which fell -0.52%, AIA, which fell -3.28%, BYD, which fell -1.98%, Ping An Insurance, which fell -1.29%, SMIC, which fell -3.6%, and Wuxi Biologics, which fell -0.21%. Mainland investors sold $229 million worth of Hong Kong stocks today via Southbound Stock Connect as Southbound trading accounted for 13.3% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and the STAR Board had a choppy session closing -0.01%, -0.07%, and -0.72%, respectively, on volume that declined -4.84% from Friday, which is 124% of the 1-year average. The 532 Mainland stocks within the MSCI China All Shares Index declined -0.14% with healthcare +2.2%, discretionary +0.41% and staples +0.07% while real estate -2.21%, materials -1.67%, communication -1.63%, utilities -1.08% and energy -0.69%. The Mainland’s most heavily traded stocks by value were China Northern Rare Earth, which gained +2.36%, CATL, which fell -1.41%, Canfeng Lithium, which gained +0.98%, BYD, which gained +0.47%, Hoperun Software, which fell -13.73%, Longi Green Energy, which fell -0.99%, COSCO Shipping, which gained +3.25%, Tianqi Lithium, which fell -3.29%, ZTE, which gained +5.77% and Shenghe Resources, which fell -2.9%. Northbound Stock Connect volumes were moderate/high as foreign investors bought $674 million worth of Mainland stocks as Northbound trading accounted for 5.7% of Mainland turnover. Bonds rallied, CNY weakened versus the US dollar, and copper was off.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.49 versus 6.48 Friday
  • CNY/EUR 7.66 versus 7.65 Friday
  • Yield on 1-Day Government Bond 1.70% versus 1.72% Friday
  • Yield on 10-Year Government Bond 2.95% versus 2.84% Friday
  • Yield on 10-Year China Development Bank Bond 3.34% versus 3.34% Friday
  • Copper Price -0.38% overnight