Key News

Asian equities had a mixed session as China and Japan outperformed and the Philippines underperformed. Mainland China was in great spirits on a very high volume day led by growth stocks, as STAR Board outperformed Shenzhen which outperformed Shanghai. Remember MSCI’s definition of A Shares is nearly five hundred large and mid cap stocks, leading to a higher weight to growth stocks versus the CSI 300. There is alpha in ETF due diligence!

Clean technology including the EV ecosystem powered the market today led by metals such as lithium and cobalt and battery plays, i.e. CATL, while tech, healthcare and discretionary had a strong day. Lots of chatter about actively managed mutual funds in China moving back to growth stocks though the end of Q2 isn’t fully available yet.

Policies supporting families having more kids appear to be coming, such as tax deductions.

Hong Kong also saw clean tech and EV ecosystem outperform though healthcare was off despite rising cases in Asia.

China internet names were largely higher with Tencent and Meituan sold via Southbound Connect. Great Wall Motor jumped +16% after announcing revenue grew 73% year over year for the 1^st half of 2021, profit growth of 205.2% for the 1^st half of 2021 year over year while profit and EPS tripled. I checked and noticed that Alibaba’s August 3^rd earnings announcement is a full two weeks earlier than last year’s announcement. Makes you wonder what they are so eager to share?

After the close we learned that US Deputy Secretary of State Wendy Sherman will visit China on Sunday while in Asia.

I wanted to share an answer provided to an investor yesterday. Indebted property developer Evergrande has nine lives having always staved off several liquidity crises in the past. While policy has backed away from a “too big to fail” mentality, Evergrande is big. With stability job #1, there is a focus to prevent the first domino from falling. If history is a guide, Evergrande will likely come out of this. The recent rise in Evergrande news was driven by a court freezing a $20mm payment which has been unfrozen. A rounding error amount but raised concerns about the feasibility of similar actions. Another issue was two real estate developments that had sales suspended by local authorities but those have also been lifted. Evergrande’s bonds and stocks have been hammered the last days. We have exceedingly little exposure to the Hong Kong stock listing.

H-Share Update

The Hang Seng Index bounced around the room opening higher, sliding and then mounting a comeback to close -0.13% which is the same return for the Hang Seng TECH Index. Volumes increased +12.39% from yesterday which is 96% of the 1-year average. The 208 Chinese companies listed in Hong Kong within the MSCI China All Shares -0.37% with materials +2.32%, utilities +0.6% and discretionary +0.14% while healthcare -2.09%, communication -0.85%, energy -0.8%, financials -0.6%, tech -0.45% and real estate -0.26%.  Hong Kong’s most heavily traded by value were Tencent -0.83%, Meituan -1.82%, Wuxi Biologics -4.49%, Hong Kong Exchanges +2.69%, Great Wall +16.15%, Alibaba HK +0.1%, Xiaomi -2..72%, BYD +6.12%, Gangfeng Lithium +14.095 and Anta Sports -2.29%. Southbound Stock Connect volumes were elevated as mainland investors sold -$469mm of Hong Kong stocks today as Southbound trading accounted for 14.9% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen and STAR Board opened higher and kept going gaining +0.735, +1.46% and +2.82% as volume increased +25% which is 134% of the 1-year average. The 532 mainland stocks within the MSCI China All Shares gained +1.12% led by materials +3.31%, tech +2.14%, industrials +1.89%, healthcare +1.37%, discretionary +1.19% and financials +0.25% while real estate -0.99%, utilities -0.88% energy -0.56% and staples -0.25%. The mainland’s most heavily traded by value were East Money +5.3%, Sanan Optoelectronic +8.71%, BYD +6.04%, Tianqi Lithium+10%, Longi Green energy +4.11%, CATL +5.25%, China Northern Rare Earth +10%, Tongwei +10%, Shanghai Fosun Pharma +9.01% and Ganfeng Lithium+10%. Northbound Stock Connect volumes were moderate as foreign investors bought $481mm of mainland stocks today as Northbound trading accounted for 6.7% of mainland turnover. CNY appreciated versus the US $, bonds rallied and copper managed a small gain.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.47 versus 6.48 Yesterday
• CNY/EUR 7.62 versus 7.64 Yesterday
• Yield on 10-Year Government Bond 2.92% versus 2.93% Yesterday
• Yield on 10-Year China Development Bank Bond 3.32% versus 3.32% Yesterday
• Copper Price 0.41% overnight