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Gensler Reminds US Investors of HFCA, Baidu Begins Robo-Taxi Test

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Key News

Asian equities were mixed as Mainland China and Hong Kong underperformed on delta risks. China has locked down the city of Xiamen, Fujian, which has a population of 4.5 million. China has thus far taken a cautious approach to outbreaks of the delta variant of the coronavirus. This is the latest in a slew of lockdowns that have caused economic activity to slow somewhat. News of developer Evergrande’s restructuring likely also weighed on sentiment.

SEC Chairman Gary Gensler published an op-ed in the Wall Street Journal last night on the Holding Foreign Companies Accountable Act (HFCA). The piece is nothing new. He reiterated that companies have three years to allow the PCAOB to inspect their audit books and that the timeline could be reduced to two years if Congress passes the acceleration bill. Unfortunately, it does not mention that the China Securities Regulatory Commission (CSRC) has pledged to “create conditions for audit cooperation with the U.S.” The CSRC release is available here.

While the language in the bill and Gensler’s latest statements place the onus on the companies to change their behavior, this issue likely can only be solved through cross-border cooperation between regulators, whose rules the companies follow. Again, nothing new here. I would like to see Gensler reaching out to his counterparts in China to see if a solution can be found. At the CFTC, Gensler stressed international cooperation between securities regulators. Hopefully, he will apply the same tactic at the SEC.

Baidu has begun testing its “Apollo Go” robo-taxis in Shanghai. The taxis are available to be hailed by the public, but require a human “driver” to ensure safety and monitor their performance. “Apollo Go” is the definition of a futuristic undertaking and is significant considering that Uber scrapped its plans to make robo-taxis a reality. Baidu has taken up the mantle in a big way.

Barron’s released an interesting article on the restructuring of China’s real estate giant Evergrande after the embattled developer had to reschedule payments on debt. The article notes that its restructuring is not “China’s Lehman Brothers” and, as such, with government help, the wind-down of the company’s voracious borrowing will not present a system-wide risk. The article notes that a certain real estate-heavy ETF holding Asia-Pacific high yield bonds has rallied over the past month. Other developers have been more cautious, though we should expect more news out of the real estate sector as it is next on the government’s list of “to do’s” before the final meeting of the 13th party congress in March 2022.

Tencent was a net buy in Southbound Stock Connect and they bought back stock again overnight.

Video streaming platform Kuaishou Technology has been a consistent buy on the part of Mainland investors since being added to Southbound Stock Connect, the program that allows Mainland Chinese investors to buy stocks listed on the Hong Kong Stock Exchange.

H-Share Update

The Hang Seng Index lost -1.50% overnight on volume that was +0.34% higher than yesterday. Tech and internet companies contributed the most to the decline as the Hang Seng Tech Index fell -2.27% overnight. The most heavily traded stocks by Mainland investors through Southbound Stock Connect were Tencent, which fell -1.09%, Meituan, which fell -1.13%, Sunac, which fell -11.22%, and CNOOC, which fell -0.60%.

A-Share Update

Shanghai, Shenzhen, and the STAR Board returned 0.33%, -0.05%, and -2.97%, respectively, overnight on volume that was -5% lower than yesterday. The most heavily trade stocks by foreign investors through Northbound Stock Connect were China Northern Rare Earth, which fell -1.96%, Zijin Mining, which fell -5.41%, CATL, which gained +5.39%, and East Money Information, which fell -2.10%.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.44 versus 6.45 yesterday
  • CNY/EUR 7.61 versus 7.62 yesterday
  • Yield on 1-Day Government Bond 1.83% versus 1.73% yesterday
  • Yield on 10-Year Government Bond 2.89% versus 2.89% yesterday
  • Yield on 10-Year China Development Bank Bond 3.21% versus 3.21% yesterday
  • Copper Price -2.02% overnight