China Internet Stocks Rebound
Q2 China Internet & Equity Market Update
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Asian equities had a strong day though on lighter volumes with Japan and Pakistan missing out due to holidays today. The US-China diplomatic meeting taking place this weekend was cited as a catalyst.
Bloomberg had a good article today on the strength of trade between the US and China. The article doesn’t mention the amount of revenue generated by US companies in China from goods sold from plants based in China. That revenue isn’t considered “trade” since it isn’t put on a boat. I would recommend seeing the US-China Business Council report on US exports by state. Clean technology plays such as metals, solar, wind, and the EV ecosystem outperformed in both China and Hong Kong. Coincidentally The Economist has an article on EV battery maker CATL that is worth reading. Despite being the largest battery maker globally, with sales outpacing the second, third, and fourth-largest combined. The company has flown under the radar, which, as the article notes, has largely been to the company’s benefit. CICC also noted today that, as of Q2 2021, CATL is now the most widely held stock numerically amongst active mutual funds in China.
Hong Kong-listed China internet stocks had a strong day despite the news Didi may face a steep fine. As we mentioned in our webinar yesterday, we need to separate Didi from the broader internet regulation. On that topic, Nikkei Asia had a great interview with Fred Hu, ex Goldman Sachs China Chairman and CEO of private equity firm Primavera Capital Group which focuses on China tech with efforts in healthcare and beneficiaries of China’s growing urban middle class. While regulation is “spooky for financial markets”, in the long term the regulation will be a good thing for the industry while the rationale for it is justified due to the companies being “so big and so powerful”. Having invested in Ant Group, he believes an IPO will occur at some point based on how well the company is doing.
Foreign investors were active in Mainland China, buying a healthy $916mm of Mainland stocks. I reached out to Kevin Liu of CICC for his take on steady outflow in Tencent from Mainland investors via Southbound Stock Connect. He felt the stock, being the largest Hong Kong holding from Mainland, investors are being trimmed to fund investments in other stocks. Yes, internet regulation is part of it, but Tencent’s market cap held by Mainland investors is more than 2X the #2 stock, China Construction Bank. We continue to see Mainland investors buy Mainland China’s internet ETF, which holds US and Hong Kong stocks.
The Hang Seng Index and Hang Seng TECH opened higher and kept going gaining +1.83% and +2.22% as volume declined -12.55% which is 84% of the 1-year average. The 208 Chinese companies listed in Hong Kong within the MSCI China All Shares gained +1.6% led by materials +3.37%, real estate +3.24%, energy +3.12%, industrials +2.08%, discretionary +2.02%, tech +1.79%, financials +1.43%, utilities +1.37%, communication +1.22%, healthcare +0.27% and staples -0.79%. Hong Kong’s most heavily traded by value were Tencent +1.12%, Meituan +3.55%, Hong Kong Exchanges +0.93%, China Mobile +2.87%, Alibaba HK +2.87%, Weimob +17.52%, Ganfeng Lithium +3.1%, Geely Auto +2.35%, AIA +2.45% and BYD +2.38%. Southbound Stock Connect volumes were moderate/high as Mainland investors sold -$291mm of Hong Kong stocks as Southbound trading accounted for 14.4% of Hong Kong turnover.
Shanghai, Shenzhen and STAR Board gained +0.34%, +0.45% and +1.05% as volume increased +6.54% which is 143% of the 1-year average. The 532 mainalnd stocks within the MSCI China All Shares gained +0.25% led by materials +2.63%, energy +1.58%, financials +1.25%, real estate +1.2%, tech +1.03% and industrials +0.95% while healthcare -3.03%, staples -1.1% and discretionary -0.47%. The Mainland’s most heavily traded by value were broker East Money +2.63%, GoerTek -2.7%, Tianqi Lithium +7.41%, Sanan Optoelectronic +10.01%, China Northern RareEarth +2.53%, Sany Heavy Industry +7.13%, Ganfeng Lithium +7.58%, BYD +3.2%, Tongwei +1.67% and Xinjiang Daqo NewEnergy +184.37%. Northbound Stock Connect volumes were moderate/elevated as foreign investors bought $916mm of Mainland stocks as Northbound trading accounted for 5.7% of Mainland trading.
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 2.93% versus 2.92% Yesterday
- Yield on 10-Year China Development Bank Bond 3.32% versus 3.32% Yesterday
- Copper Price 0.63% overnight