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Low Volumes Exaggerate Moves Overnight

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Key News

Asian equities were largely lower with Hong Kong, India, and Taiwan being rare positive performers today as China remains on holiday. Volumes in Hong Kong were very low today at only 58% of the 1-year average. Hong Kong internet stocks were off on no news, though they were not down as much as their US share classes yesterday so we are apt to see a bounce (fingers crossed).

Yicai Global noted that Mainland regulator and data provider Ministry of Industry and Information Technology (MIIT) reported large internet companies have seen profits increase 37.5% year over year to RMB 103.3B (~$15.93B) in the first eight months of 2021, while revenues increased 25.4%  year over year to RMB 10.1 trillion. The price action doesn’t agree with the data but that’s been the case all year as the companies’ revenue has held up well.

Tencent hasn’t been buying back stock this week as I assume the Shenzhen home office is on vacation. Yesterday’s sell-off was interesting as CNH, China’s currency that trades during US trading hours, was remarkably quiet. US Trade Representative Katherine Tai is going to meet with China trade Vice Premier and trade envoy Liu He while the South China Morning Post is reporting national security advisor Jake Sullivan will meet with his Chinese counterpart.

Hong Kong real estate was off today despite yesterday's positive news on Evergrande Services as smaller property developer Fantasia missed a bond payment. Mainland financial media has been very quiet on Evergrande which is likely driven by the local opinion Evergrande will not be allowed to become a systemic risk.  

Energy and material stocks were strong as anything metal, mining, clean energy, and dirty energy were higher while tech was off. Healthcare had a decent day as Fosun Pharma (2196 HK) gained +12.96%. Based on Mainland media, there appears to be a full-court press to ramp up energy production considering recent power shortages driven by a lack of coal and disappointing clean energy output.

My colleague Joe pointed out an interesting article in the Financial Times highlighting BofA's research on China's revenue exposure in US equities and ETFs. According to the article, 79 companies within the S&P 500 generate more than 5% of revenue in China with US semiconductor and casino stocks exhibiting significant exposure. Ultimately the article highlights how integrated the global economy is.

Mainland broker and US-listed FOTU is expected to file for a Hong Kong dual listing according to chatter.

H-Shares Update

The Hang Seng opened lower but managed to grind higher closing +0.28% as volume declined -11.91% which is only 58% of the 1-year average. The 210 Chinese companies listed in Hong Kong within the MSCI China All Shares was off -0.33% as energy +4.15%, utilities +2.08%, and materials +1.66% while real estate -3.44%, communication -1.49%, and consumer discretionary -0.55%. Hong Kong’s most heavily traded stocks were Tencent -1.53%, Alibaba HK -1.24%, Meituan -1.35%, Ping An -0.49%, Xiaomi +1.46%, AIA +1.98%, HK +0..36%, BYD +1.99%, Wuxi Biologics +1.9%, and PetroChina +7.59%. Southbound Stock Connect was closed today.

A-Shares Update

Shanghai, Shenzhen, STAR Board, and Northbound Stock Connect were closed today until Friday.

Last Night’s Exchange Rates, Prices, & Yields

Mainland markets were closed overnight.