Key News

Asia was a sea of green following Powell’s press conference with Hong Kong gaining, which followed the gains yesterday in US-listed Chinese stocks. The rally in Hong Kong dual-listed Chinese internet stocks exceeded yesterday’s US rally, which could lead to further gains in the US shares today. CSRC Vice Chairman Fang Xinghai held a conference call with foreign investment banks to reassure them recent regulation action on afterschool tutoring (AST) space won’t be applied broadly. The move makes sense as the regulation would threaten foreign capital flows but also the real economy as companies might hesitate to invest.

Mainland media articles noted that according to Bloomberg, “recently announced policies targeting 'platform economies' and after-school tutoring are aimed at protecting online data security and social welfare rather than outright curtailing those industries". Afterschool tutoring accounts for 25% of urban family income according to a Mainland media article.

China needs to raise its birthrate following the recent census showing that the birthrate has declined to 1.3 children per woman. Curtailing costs associated with having children will be of significant priority (I would cheer similar policy to my oldest son’s club lacrosse team!). Real estate will likely be the next area to focus on. Significant capital has gone to AST and real estate instead of to the technologies China will need in the decades to come. What do they need? Semiconductors is an easy one along with the growth industries on the STAR Board. Mainland investors agree with me as semis had a very strong day along with the STAR Board’s gain of +4.59%.

Healthcare had a strong day in both Hong Kong and the Mainland along with clean technology plays with the EV ecosystem outperforming. It was a very broad rally as Shanghai and Shenzhen had 3,427 advancing stocks and only 569 decliners. Liquor stocks were a rare weak spot as HK-listed Budweiser Asia Pacific missed analyst estimates. You have to love their ticker 1876 HK, which references the year Budweiser was founded.

Mainland Chinese bonds ripped today! My fixed income colleague Fernando and our friend Nancy Davis of Quadratic Capital are likely falling out of their chairs after the 10 Year Chinese government bond yield went from 2.93% yesterday to 2.88%. The US Fed might not care about inflation so investors are hoovering up Chinese bonds. Yes, there is an ETF for that!  

There is chatter of Didi going private, though the company has denied it. The one asterisk around today’s great move was outflow in Tencent and Meituan from Mainland investors. As stated previously, these names are big positions so they need to be sold to fund buying other positions. China announced a new US ambassador, though we need to do some work on his background. At first glance, he appears to be moderate.

H-Share Update

The Hang Seng opened higher and grinded higher, closing up +3.3% while the Hang Seng TECH Index gained 8%. Volume declined by -9.59% from yesterday, which is 154% of the 1-year average. The 208 Chinese companies listed in Hong Kong within the MSCI China All Shares gained +5.28%, led by communication +9.78%, discretionary +7.22%, tech +5.6%, healthcare +5.56%, materials +3.83%, industrials +3.18%, utilities +1.85%, staples +1.18%, and real estate +0.5%, while financials and energy were off -0.09% and -0.04% respectively. Hong Kong’s most heavily traded by value were Tencent, which rose +10.02%, Meituan, which rose +9.49%, Alibaba HK, which rose +7.7%, HK Exchanges, which rose +5.8%, Wuxi Biologics, which rose +4.62%, BYD, which rose +9.48%, SMIC, which rose +4.97%, Xiaomi, which rose +3.19%, AIA, which rose +3.89%, Geely Auto, which rose +7.58%, and JD.com HK, which rose +12.83%. Southbound Stock Connect volumes were high as Mainland investors sold -$594mm of Mainland stocks as Southbound trading accounted for 13% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and STAR Board gained +1.49%, +3.07%, and +4.59% respectively as volume declined -1.76% from yesterday, which is 137% of the 1-year average. The 522 Mainland stocks within the MSCI China All Shares gained +2.77%, led by materials +5.01%, tech +4.96%, industrials +4.48%, discretionary +3.82%, healthcare +2.94%, communication +2.78%, energy +1.28%, and financials +0.79%. The Mainland’s most heavily traded stocks by value were Kweichow Moutai, which fell -1.08%, BYD, which rose +8.75%, East Money, which rose +5.25%, Sanan Optoelectronic, which rose +10%, CATL, which rose +6.05%, Longi Green Energy, which rose +4.95%, MIC, which rose +5.08%, Sungrow Power Supply, which rose +20%, China Northern Rare Earth, which rose +9.99%, and Wuliangye Yibin, which fell -0.69%. Northbound Stock Connect volumes were high as foreign investors bought $654mm of Mainland stocks as Northbound trading accounted for 6.3% of Mainland turnover. Bonds had a strong rally along with China’s currency while copper eased. 

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.46 versus 6.50 Yesterday
• CNY/EUR 7.67 versus 7.67 Yesterday
• Yield on 10-Year Government Bond 2.88% versus 2.93% Yesterday
• Yield on 10-Year China Development Bank Bond 3.28% versus 3.31% Yesterday
• Copper Price -0.82% overnight