Key News

Asian equities were mixed though mostly higher overnight as Mainland China led the way. Certain growth stocks such as Alibaba took a hit and the Hang Seng Tech Index was down slightly by -0.48%. Asian investors appeared bullish on the continued global recovery from Covid-19 despite the spread of the delta variant. Meanwhile, new restrictions in China due to the delta variant have dealt a blow to global oil prices.

Bytedance, which owns the wildly popular Tiktok social media platform, may list shares in Hong Kong as soon as the fourth quarter of this year, according to a Financial Times article citing sources from inside the company. We will be providing more details as the story progresses.

CPI Release

China’s CPI print came in at a low level compared to the massive US print of over 5% in June. The relatively conservative approach taken by China’s central bank to covid-19 stimulus has had an after-effect that has been deflationary. This, among other factors, prompted the central bank to lower reserve requirement ratios (RRR) somewhat last month. Nonetheless, demand continues to rise in China as the CPI print was higher than the consensus estimate of 0.80%. Producer prices also rose more than expected, likely powered by commodity prices.

Trade Data Release

Both imports and exports slowed in July. The steeper drop in exports can be partially explained by global economies coming back online, resulting in consumers rotating spending from physical goods and into services such as dining and travel. Imports may have slowed as delta restrictions have led to less demand for oil.

A wide gulf has developed between A-shares and the overseas listings of Chinese companies this year. The MSCI China A Index has outperformed the CSI Overseas China Internet Index, which tracks US and Hong Kong-listed China internet stocks, by 36% year-to-date. Chinese investors continue to be positive about the country’s economic prospects, though volatility and uncertainty around the delta variant and the exact trajectory of economic growth have meant that the index has remained relatively flat for the year. Meanwhile, overseas-listed shares may have been oversold due to foreign investors’ misunderstanding of China regulations.

China’s government bonds have been a source of stability this year through tremendous market volatility. The Bloomberg Barclays China Treasury & Policy Bank Index has gained over 12% so far this year, compared to US government Bonds, which have fallen -1.19% so far this year based on a US-listed ETF tracking the performance of long and short-dated US government bonds. Although the yield on a 10-year China Government Bond has come down to just below 3% after having been consistently above 3% in 2020, it is still significantly higher than other government bond markets.

Interestingly, cement names rallied overnight and have been strong following favorable regulatory changes in the sector. CICC brokers are upbeat about the sector. Sany Heavy Industry and Conche cement both gained nearly +5% overnight.

Our hearts go out to all those affected by extreme flooding in central China over the past week.

H-Share Update

The Hang Seng Index gained +0.40% overnight on volume that was -0.36% lower than Friday. The top traded stocks by Mainland investors via Southbound Stock Connect were Tencent, which gained +1.76%, Meituan, which gained +3.06%, Semiconductor Manufacturing, which fell -4.97%, and Great Wall Motors, which fell -4.97%.

A-Share Update

The Shanghai, Shenzhen, and STAR board ended the day +1.05%, +0.81%, and -0.77%, respectively. The top traded stocks by foreign investors via Northbound Stock Connect were Sany Heavy Industry, which gained +4.98%, Kweichow Moutai, which gained +1.36%, CATL, which fell -5.13%, and Wuliangye Yibin, which gained 1.77%.

Last Night's Exchange Rates, Prices, & Yields

• CNY/USD 6.48 versus 6.48 Friday
• CNY/EUR 7.63 versus 7.63 Friday
• Yield on 1-Day Government Bond 1.50% versus 1.38% Friday
• Yield on 10-Year Government Bond 2.86% versus 2.81% Friday
• Yield on 10-Year China Development Bank Bond 3.24% versus 3.18% Friday
• Copper Price -0.65% overnight