Key News

Asian equities were mixed overnight as Mainland China underperformed Hong Kong and other Asian stock markets. Both Shanghai and Shenzhen opened higher but ended up slightly lower by the end of the session, echoing the jitters in the US market from Friday after a disappointing jobs report. However, China internet stocks were strong overnight as the Hang Seng Tech Index gained +3.17% and Alibaba’s Hong Kong listing gained +7.91%. Investors are realizing that we are seeing the light at the end of the tunnel regarding internet regulations and are relieved by the lower-than-expected fine imposed on Meituan.

The volume of domestic trips taken fell -30% year-over-year to 515 million during the National Day holiday last week, according to data from CICC. Coronavirus restrictions and general concerns over the delta variant may have slowed travel growth. However, offline consumption during the holiday was high as dine-in revenue was up +59% versus the daily average in December, 2019. Also, many may have traveled locally, which would not have been reflected in the overall trip volume figure.

The PBOC was surprisingly hawkish overnight, removing RMB 190 billion in liquidity, which may have led to the lackluster overall market performance in Mainland China overnight. However, there are rumors that the central bank may roll over the medium-term lending facility (MLF) maturing this month with a higher amount to maintain the mostly supportive stance it has held all year.

Overnight, China’s government announced measures to counteract the power shortage, which include allowing electricity prices to rise as much as +20% versus a benchmark, versus the previous +10% cap. Energy prices are heavily regulated in China, especially consumer prices, which has exacerbated the current shortage. The government may also open the taps on financing for coal miners, which have been hobbled by recent efforts at promoting renewable energy. Investment in nuclear power has also risen by +9% this year, which is a good sign as nuclear energy is far more efficient than coal. The shift to renewables is underway, but, as the whole world has been realizing of late, we still have a long way to go.

H-Share Update

The Hang Seng gained +1.96% on volume that was slightly (-0.3%) lower than Friday. The most heavily traded stocks by Mainland investors via Southbound Stock Connect were Meituan, which gained +8.36%, Tencent, which gained +2.95%, Anta Sports, which fell -4.49%, Dongyue Group, which gained +14.69%, and China Resources Power, which fell -2.17%.

A-Share Update

Shanghai, Shenzhen, and the STAR Board closed -0.01%, -0.43%, and -1.08%, respectively, overnight on volume that was down -6% versus Friday. The most heavily traded stocks by foreign investors via Northbound Stock Connect were Kweichow Moutai, which gained +1.50%, Jiangsu Hengrui Medicine, which fell -1.07%, Ping An Insurance, which gained +1.23%, Wuliangye Yibin, which fell -0.18%, and BYD, which gained 1.09%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.45 versus 6.44 Friday
• CNY/EUR 7.46 versus 7.46 Friday
• Yield on 1-Day Government Bond 1.63% versus 1.59% Friday
• Yield on 10-Year Government Bond 2.96% versus 2.92% Friday
• Yield on 10-Year China Development Bank Bond 3.27% versus 3.23% Friday
• Copper Price +1.94% today