Daily Posts

Week in Review, Biden Executive Order Propels EVs, Health Care Underperforms

KraneShares CIO, Brendan Ahern, will be on vacation through next Friday. KraneShares analysts, Megan Gummer and Henry Greene, will helm CLN for this time.

Week in Review

  • Over the weekend, China’s SEC/financial regulator, the China Securities Regulatory Commission (CSRC), held a press conference stating they are open to companies listing their securities on international or domestic markets but they must “abide by applicable laws, regulations, and regulatory requirements in both their listing jurisdiction and operating jurisdiction.”  
  • Although headlines may focus on Alibaba’s “revenues miss” in its latest earnings report, the company beat analyst expectations otherwise and increased its stock buyback.
  • Investors cheered the July Caixin PMI Services, which came in at 54.9 versus expectations of 50 and June’s 50.3.
  • We took one step forward as Tencent’s social media platform, WeChat, was allowed to take on new users following a user data security review. We then took a step back as a Mainland media source reported that online gaming companies shouldn’t receive discounted tax rates, sending Tencent and NetEase lower.

Key News

Asian equity markets were mostly lower overnight, except for Australia and Singapore, which managed small gains. Hong Kong and Mainland China were off slightly as concerns about the spread of the delta variant worldwide and recent outbreaks in China remain top of mind for investors in Asia.

US-China container shipping rates reached new highs above $20,000 per 40-foot box as the increase in Delta variant outbreaks and typhoons off China’s southern coast have put a strain on container turnaround rates.  Some of these rates are the highest seen in more than 30 years, with the spot price per container on the China-U.S. East coast route — one of the most active container routes globally– has jumped more than 500% from a year prior. 

Fidelity International has obtained its long-awaited regulatory approval from China Securities Regulatory Commission (CSRC) to set up a wholly-owned mutual fund in Shanghai, which would give it a foothold in China’s massive $3.5 trillion retail fund market.

The Wall Street Journal reported overnight that Meituan could face a $1 billion fine for monopolistic practices. While the report is not verified, if true the fine would be less than half what Alibaba paid last quarter.

SMIC jumped as much as 10% in Hong Kong after the company raised its annual sales outlook, the ongoing global chip shortage drove up prices of chipsets.

Growth stocks in Hong Kong were mostly higher overnight as Alibaba and JD.com outperformed peers in the space including NetEase, which continues to see pressure due to regulatory concerns in the gaming space. Tencent saw gains after being added to Goldman’s conviction list, which cited the company’s committed investments towards long-term growth and underperformance this year. Meanwhile, China’s Economic Daily says that China’s live-streaming video companies need to set up a recommendation system and algorithm for high-quality content in line with users’ expectations, while they should reduce ‘vulgar’ content.

Biden has signed an Executive Order targeting 50% of vehicles on US roads to be emissions-free by 2030, raising shares in Tesla suppliers. Meanwhile, BYD managed a 1.70% gain following a downdraft yesterday as the EV ecosystem continues to outperform.

Health care underperformed in Mainland China overnight. WuXi Apptech led declines in pharmaceuticals, falling -7.2%, on reports of the abuse of certain drugs.  China’s Ministry of Commerce (MOFCOM) released the Statistical Analysis Report of the Pharmaceutical Distribution Industry for 2020 on July 30, 2021. The report noted that, despite strong growth in pharmaceutical E-Commerce during the pandemic, pharmaceutical E-Commerce nonetheless represents only 7% of the market for pharmaceuticals, leaving plenty of room for future growth.

Nearly 30 major business groups have called on the US to resume trade and economic dialogue with China, according to a letter sent to US Treasury Secretary Janet Yellen and US Trade Representative Katherine Tai. The business groups also called for the reduction of trade tariffs. Regular economic dialogue occurred between the US and China for nearly a decade until the Trump Administration put an end to regularly scheduled discussions. The Biden Administration has not resumed regular diplomatic and economic dialogue with China. These dialogues were often criticized as being unproductive. However, unproductive dialogue is better than none.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.47 versus 6.46 yesterday
  • CNY/EUR 7.64 versus 7.66 yesterday
  • Yield on 10-Year Government Bond 2.81% versus 2.83% yesterday
  • Yield on 10-Year China Development Bank Bond 3.18% versus 3.19% yesterday
  • Copper Price +30% overnight