Key News

Asian equities were mixed today in a quiet summer session. Before diving into today’s market action it is worth reviewing several “green shoots” that are not receiving media attention. This morning it is being reported that social media company JOYY Inc (YY US) will take itself private after the stock went from a high of $147 on February 16^th  to a low $40.50 on August 17^th. The market cap of the company as of yesterday was $4.427B but the company had $2.592B of cash/cash equivalents and another $1.325B of short-term deposits according to the company’s Q2 financial results reported on August 18^th. The company has almost as much cash as investors are valuing the company!

Privatization deals marked the bottom in the summer of August 2015 during that Chinese stock sell-off. Another green shoot is clarity on regulation’s finish line as China’s Data Security Law and Critical Information Infrastructure regulation goes into effect on September 1^st. Another green shoot was last Friday’s CSRC statement on wanting to address the long-running audit issue which led to the Holding Foreign Companies Accountable Act. On Monday the State Council put out a statement saying the issue should be resolved saying it would “boost cross border accounting cooperation”.  

Yesterday there was an article based on Goldman Sachs research showing that exposure to Chinese internet stocks from hedge funds hit a low last week. We’ve seen research showing that global and emerging market active funds have left the space. This is dry powder that can come back into the space.

Today a government press conference was held today from Han Wenxiu who stated that common prosperity does not mean “killing the rich and helping the poor”. The main idea is to address wealth/income inequality. He did touch on internet regulation, stating that monopolistic behavior comes at the expense of consumers and merchants while protecting data and personal privacy. He also reiterated that China will continue to open up. I can’t predict the future but all I’m saying is that there are positive developments occurring.

China and Hong Kong were off overnight. The culprit on the Mainland was liquor makers, which have excess capacity going into the October holiday, weighing slightly on price. No, this does not have to do with “common prosperity”. Foreign investors were net buyers of Mainland stocks today though they did sell Kweichow Moutai nearly 2 sells for every 1 buy. Healthcare stocks were off after a company in the space has run into problems that spilled over into Hong Kong-listed healthcare stocks as well. Electric vehicle-related metal names were strong though the broader electric vehicles (EV) ecosystem was off on chatter that EV manufacturing output might be outstripping demand. It is worth noting that EV battery behemoth CATL (300750 CH) reported earnings, which grew +179% year over year to $3.86B.

Apple supplier AAC Technologies (2018 HK) missed earnings today while investors gave Kuaishou Technology (1024 HK) mixed earnings (revenue beat, still a net income loss) a thumbs down. This weighed on the growth stocks in Hong Kong.

Meanwhile, Tencent did see the fifth day of net buying from Mainland investors via Southbound Stock Connect. As of 8:30 am EST, the company has not yet posted whether they bought shares back today.

Hello Group (MOMO US), formerly MOMO, reported a small revenue miss, beat on EPS, and a good Q3 revenue forecast prior to the US open.

H-Shares Update

The Hang Seng opened lower and stayed there closing -1.08% as volume declined -15.17% which is just 82% of the 1-year average. The 209 Chinese companies listed in Hong Kong within the MSCI China All Shares were off -1.38% with staples +1.12% but healthcare -2.25%, tech -2.97%, real estate -1.79%, industrials -1.5%, discretionary -1.42%, utilities -1.37%, financials -1.19% and materials -0..81%. Hong Kong’s most heavily traded by value were Tencent -0.59%, Xiaomi -3.55%, Alibaba HK -1.16%, Meituan -0.09%, Kuaishou Technology -9.16%, China Mobile -1.85%, Wuxi Biologics -3.47%, AAC Technologies -10.03%, SMCI +1.05% and Anta Sports -2.88%. Southbound Stock Connect volumes were light.

A-Shares Update

Shanghai, Shenzhen and STAR Board opened lower, stayed low and sold off hard into the close -1.09%, -1.53% and -2.95% as volume increased +5.18% which is 148% of the 1-year average. The 522 Mainland stocks within the MSCI China All Shares lost -1..9% with energy and materials +2.29% and +0.11% while staples -3.56%, healthcare -3.52%, discretionary -2.6%, communication -1.97%, tech -1.86%, financials -1..76%, real estate -1.38%, utilities -1.36% and utilities -1.1%. The Mainland’s most heavily traded by value were Qinhai Salt Lake -1.15%, CATL -1.74%, China Northern Rare Earth +1.29%, Kweichow Moutai -4.21%, Long Green Energy -2.42%, Inner Mongolia BaoTou Steel +8.17%, BYD -4.63%, Wuliangye Yibin -4.75%, Shanxi Meijin Energy +8.77% and China Telecom -2.48%. Northbound Stock Connect volumes were moderate as foreign investors bought $189mm of Mainland stocks today.   

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.48 versus 6.48 yesterday
• CNY/EUR 7.63 versus 7.61 yesterday
• Yield on 10-Year Government Bond 2.88% versus 2.85% yesterday
• Yield on 10-Year China Development Bank Bond 3.24% versus 3.21% yesterday
• Copper Price -0.25% overnight