Key News

North Asia was off following the US market’s poor performance yesterday, while South Asia was mixed as India outperformed. Many brokers’ explanation for today’s market action was yesterday’s Wall Street Journal article on Chinese banks' lending to private companies being reined in and scrutinized. The article’s sources were “people familiar with the plan”. No named sources? Skepticism alert! Vice Premier Liu He’s speech on September 6^th speech stated:

“The private sector contributes more than 50 percent of the tax revenue, more than 60 percent of the GDP, and over 70 percent of the technological innovations; it also provides more than 80 percent of the urban employment and accounts for more than 90 percent of market entities in China.”

I’m going to trust the above over “unnamed sources”. The real culprits for today’s price action are high energy and commodity prices globally, which are making investors nervous about the potential impact on GDP targets and inflation. We are apt to see a wholesale embrace of coal in the short term to stem high electricity prices. President Xi spoke at a UN clean energy summit and reiterated China’s commitments to developing clean technology solutions such as wind and solar.

Evergrande was in the news again though unfortunately, we know this situation is going to keep rearing its head as bonds, coupon payments and loan payments come due. Ironically, real estate stocks in both Hong Kong and the Mainland were up today.

Hong Kong was hit with profit-taking in internet stocks overnight as discretionary, tech, and communication sectors were off. Mainland investors were net buyers of Tencent and Meituan via Southbound Stock Connect. This extends Tencent’s net buy streak to 14 of the last 15 trading days. Tencent announced their shares outstanding decreased in September by 3.4 million shares as the company buys back stock.

While September car sales declined 17.3% year-over-year to 1.58 million, sales of electric vehicles (EVs) increased +202.1% to 334,000 of which Tesla accounted for 56,006. The Mainland market was off as well today as energy and utility stocks were off. Semiconductors were weak on no news as growth sectors were weak. There was a small net outflow from foreign investors today via Northbound Stock Connect.

H-Shares Update

The Hang Seng opened lower and stayed there closing -1.43% on volume off -15.9% from yesterday which is only 80% of the 1-year average. The 210 Chinese companies within the MSCI China All Shares eased -1.92% with real estate +1.15% while discretionary -2.71%, tech -2.6%, communication -2.59%, healthcare -2.08% and financials -1.3%. Hong Kong’s most heavily traded by value were Alibaba -3.87%, Tencent -2.58%, Meituan -3.03%, Ping An -5.18%, Wuxi Biologics -3.3%, HK Exchanges -1.91%, Sunny Optical -4.17%, ANTA Sports -2.07%, Xiaomi -2.54% and BYD -1.93%. Southbound Stock Connect volumes were light as Mainland investors bought $266mm of Hong Kong stocks as Southbound trading accounted for 10.9% of Hong Kong turnover.

A-Shares Update

Shanghai, Shenzhen, and STAR Board were off -1.25%, -1.65%, and -2.25% on volume flat from yesterday which is 102% of the 1-year average. The 542 Mainland stocks within the MSCI China All Shares were off -1.36% with real estate and staples +0.67% and +0.06% while materials -3.18%, communication -3.17%, Utilities -2.68%, energy -2.36%, and tech -2.14%. The Mainland’s most heavily traded by value were broker East Money -4.74%, Tianqi Lithium -4.71%, Kweichow Moutai +0.21%, BYD +0.49%, Ping An -0.91%, CATL -3.07%, Yunnan Yuntiahua -3.07%, China Northern Rare Earth -5.26%, Wuliangye Yibin +0.68% and China Three Gorges Renewables +0.68%. Northbound Stock Connect flows were moderate as foreign investors sold -$213mm of Mainland stocks as Northbound Connect trading accounted for 5.9% of Mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.45 versus 6.45 yesterday
• CNY/EUR 7.44 versus 7.46 yesterday
• Yield on 10-Year Government Bond 2.97% versus 2.96% yesterday
• Yield on 10-Year China Development Bank Bond 3.27% versus 3.27% yesterday
• Copper Price +0.21% today