Key News

Asian equities cheered US debt ceiling progress/kicking the can and a proposed virtual call between Biden and Xi following US-China talks in Zurich. Virtually all markets were up, though Hong Kong and South Korea posted significant gains. The Hang Seng gained 3.07% while the Chinese companies listed in Hong Kong within the MSCI China All Shares (the most comprehensive definition of China comprised of Shanghai, Shenzhen, Hong Kong, and US-listed Chinese stocks) gained +4.14% and the Hang Seng Tech gained +5.23%. While Hong Kong’s volume was very light/just 61% of the 1-year average, internet stocks had a very strong day on strong volume. Remember our air pocket thesis that many active EM and global funds have moved out of the space.

Yesterday we noted Charlie Munger doubling his stake in Alibaba in Q3 and Fidelity’s CIO and China’s PM both commenting on opportunities in China tech stocks. If we can get some momentum, this money can move back into the space. Today’s price/volume action could be a sign of this occurring. Early days but fingers crossed. A Mainland media source noted Duan Yongping, a Chinese billionaire tech entrepreneur widely followed by Chinese investors, had stated he was buying Tencent in August.

Clean technology had a very strong day including EV, solar, wind, and metals, while energy stocks were hit with profit-taking. Real estate stocks had a strong day following yesterday’s announcement on developing land near Shenzhen for affordable housing. Chinese Estates gained +31.72% as the company’s founding family took the company private.

An area that the US and China should be able to find common ground on is the US providing China with much-needed coal and LNG to solve the energy shortage. China’s energy crisis could take several months to curtail despite a full-court press from policymakers. We’ve already seen China begin importing coal from Australia, despite political tensions, though US suppliers could benefit as well.

The Holding Foreign Companies Accountable Act is another area of potential collaboration. It benefits neither the US nor China to see US-listed Chinese companies delisted. Domestic travel appears to have been limited on Delta worries during the Golden Week, consumption activity appears to be strong according to JD.com and Meituan real-time data.

One overlooked economic nugget is the business activity expectation survey within the PMIs. What better way to understand what business leaders are thinking about the future than their expectations? September’s official PMIs business expectations for Manufacturing were 56.4 versus August’s 57.5, while the Non-Manufacturing PMI’s business expectations were 59.1 versus August’s 57.4.

There are 14 companies globally with a market cap of over $350B that grew revenue more than 20% year over year. Two of the fourteen are Alibaba and Tencent. The average P/E ratio of the 14 companies is 59 though Tesla’s P/E ratio of 397 skews the simple ratio. Alibaba and Tencent’s P/E ratios are 22 and 18 which are both below that of Saudi Arabia Oil Company’s (Aramco) P/E of 28.

H-Shares Update

The Hang Seng opened higher and kept going closing +3.07% though volume only increased +1.34% which is only 61% of the 1-year average. The 210 Chinese companies listed in Hong Kong gained +4.14% led by discretionary +6.45%, communication +5.52%, tech +3.64%, healthcare +2.91%, materials +2.49%, staples +2.22% and real estate +2.07% while energy was off -0.79%. Hong Kong’s most heavily traded were Tencent +5.6%, Meituan +9.71%, Alibaba HK +7.28%, Ping An +7.03%, Xiaomi +3.89%, NetEase +8.59%, JD.com HK +6.15%, Kuaishou +8.49%, HSBC +1.88% and HK Exchanges +1.61%. Southbound Stock Connect was closed today.

A-Shares Update

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

Last Night’s Exchange Rates, Prices, & Yields

Mainland markets were closed overnight.