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Hong Kong Falls on Light Volumes With Mainland Closed Until Friday

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Key News

Asian equities were largely higher except for Japan, Taiwan, and Hong Kong while China and South Korea were closed today. Concerns around the US’ debt ceiling weighed on countries with strong US economic ties while Southeast Asia was resilient. Chinese internet companies are entering their quiet period before reporting Q3 earnings beginning in November. The companies will be hosting calls with analysts in the meantime, which Alibaba did last week. Price targets for Alibaba were reduced given how far the stock remains below the previous price targets, but there was nothing overly concerning to report from an EPS perspective.

I had speculated that post Q3 could be a catalyst for the China internet space as managers could, in theory, dip their toes back into the names with no one knowing until the end of Q4 when holdings will be released again. However, that did not occur overnight as Hong Kong was off though volumes were very light at just 66% of the 1-year average with China on holiday until Friday as the Hang Seng fell to the bottom of its range at the 24,000 level.

Clean technology plays such as electric vehicles (EVs), solar, and wind, were off on energy shortage concerns. Real estate was the only positive sector today as Evergrande (3333 HK) and Everegrande Property Services (6666 HK) were suspended pending an announcement. Bloomberg News is reporting a 51% sale of the Property Services unit to Hopson Development. The sale would raise much needed cash for the parent to meet ongoing loan and bond liabilities.

US Trade Representative Katharine Tsai will speak today at 10 am to discuss China. She is expected to reinstate tariff exceptions for US companies that can only source materials from China, which had expired. She may also turn the screws on China for not meeting its trade deal commitments. We have seen a small thaw in US-China political rhetoric following Biden’s phone call with Xi, which led to the release of Huawei’s CFO. Ultimately, tariffs are Tsai’s chief negotiating tool so we should not expect her to go soft on China right out of the gate.

The Wall Street Journal had an article on Chinese internet stocks and delisting over the weekend, which did not include anything new though it did accurately call the issue politicalized. The passage of the Holding Foreign Companies Accountable Act prevents US and Chinese regulators from solving the issue as now only politicians can solve the issue. Whether or not this issue is part of US and Chinese political discussions is hard to ascertain.    

Citigroup equity strategist Tobias Levkovich passed away over the weekend after being hit by a car a month ago. I did not know Mr. Levkovich, but always enjoyed his insights. Rest in peace and my condolences to the Levkovich family.

H-Share Update

The Hang Seng opened lower and kept falling to close -2.19% as turnover was of -1.6% from last Thursday, which was only 66% of the 1-year average. The 210 Chinese stocks listed in Hong Kong and within the MSCI China All Shares Index declined -2.37% with real estate +0.38% while utilities -6.29%, healthcare -5.18%, discretionary -3.22%, staples -2.04%, financials -2.02%, tech -1.92%, materials -1.71%, and communication -1.04%. Hong Kong’s most heavily traded stocks by value were Alibaba, which fell -3.66%, Tencent, which fell -0.95%, Meituan, which fell -3.97%, Wuxi Biologics, which fell -8.62%, AIA, which fell -1.95%, Xiaomi, which fell -3.75%, Ping An Insurance, which fell -3.76%, HK, which fell -3.04%, Hong Kong Exchanges, which fell -0.96%, and China Evergrande New Energy Vehicles, which gained +29.14%. Southbound Stock Connect was closed today along with Mainland markets.

A-Share Update

Shanghai, Shenzhen, and the STAR Board were closed along with Northbound Stock Connect.

Last Night’s Exchange Rates, Prices, & Yields

Mainland markets were closed overnight.