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Hong Kong Internet Stocks Rebound as Shorts Squeezed on the Shortest Day of the Year

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Today might be the shortest day of the year whereas yesterday felt like one of the longest (and darkest). Last Friday’s Quad Witching was the last trading day for many institutional investors, which means liquidity is leaving the market, leading to higher volatility days such as yesterday. Asian equities were almost universally higher on light volumes overnight.

The Hang Seng gained +1% while the Hang Seng Tech gained +2.08% on volumes that were -11% lower than yesterday, which is only 65% of the 1-year average. Breadth was strong with nearly 4 advancers and only 1 declining stock within the broader Hang Seng Composite. Hong Kong internet stocks were largely higher after yesterday’s sharp decline in US-listed ADRs after news broke that key opinion leader (KOL) and shopping blogger Huang Wei owes $206 million in taxes and penalties. Tax-loss harvesting and light volumes likely exacerbated the move as the “news” doesn’t feel like a big deal to me.

Tencent and Meituan were both net buys via Southbound Stock Connect as the former extends its consecutive inflow day to 9 days and the latter to 19 days.  Real estate had a strong day in both Hong Kong and China, gaining +2.72% and +4.42% in each market, respectively, as policy looks to support the space. Mainland media source Yicai noted that banks are being encouraged to facilitate mergers and acquisitions amongst real estate companies. Darwin would be proud as the weak and injured are being taken out by the strong.

Energy was the only down sector in Hong Kong, sliding -0.52% while some clean energy ecosystem stocks were hit with profit-taking in both Hong Kong and China. Shanghai gained +0.88%, Shenzhen gained +1.05%, and the STAR Board gained +0.78% on volume that was -13% lower than yesterday, which is 95% of the 1-year average. A Mainland media source noted that the Ministry of Finance (MOF) will allow local and provincial governments to issue RMB 3.42 trillion in bonds to support key industries based on guidance from the Central Economic Work Meeting (CEWC), held just over a week ago. This is a quick heads up that there is policy support is coming.

The top six most heavily traded stocks in China were down though breadth overall was strong with 3 advancers and 1 decliner. These names tend to top the holdings of foreign and domestic investors as profit-taking might be the culprit. Foreign investors sold -$156 million worth of Mainland stocks today. Meanwhile, Chinese Treasury bonds were flat as CNY gained versus the US dollar and copper rose.

Today’s Wall Street Journal China-related articles include “China’s Yuan May Have Peaked”, “The Slow Meltdown of the Chinese Economy,” and “Macau’s Casino King dethroned as Beijing Reins In Offshore Gambling”. Uncle! It is interesting that the consequence of the last few years also created WSJ news stories that include “China Mobile Plans to Raise $7.64 Billion Through Shanghai Listing” thanks to the Executive Order forcing its NYSE delisting and hurting countless individual investors.

We also had the article titled “The U.S. Pursued Professors Working with China. Cases Are Faltering.” The US Justice Department was told to investigate Asian American professors’ dealings with Chinese universities, implying they were spies. This effort is getting pushback from academics. The article does include the line “The federal government has estimated that each year more than $225 billion in intellectual property is lost to China.” $255B a year? That’s like losing Disney’s market capitalization every year! In other words, it as though Magic Kingdom, Star Wars, and Marvel were disappearing every year. Does anyone question where this number came from? I wasted a day trying to figure it out and discovered that it dates back to a speech given on July 9, 2012 by NSA and US Cyber Command Commander General Keith Alexander at think tank AEI. Where did he come up with that number? From his speech, “our intellectual property here is about $5 trillion. Of that, approximately $300 billion (6%) is stolen over the networks per year.” I am not sure that I find that a scientific or data-driven approach. The Report of The Commission on the Theft of American Intellectual Property quoted that number in their report in May 2013 and it has lived on since then. I’m not aware of anyone challenging the number as we just accept it. Maybe it is right. Maybe it is wrong.  

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.37 versus 6.38 Yesterday
  • CNY/EUR 7.19 versus 7.19 Yesterday
  • Yield on 10-Year Government Bond 2.85% versus 2.85% Yesterday
  • Yield on 10-Year China Development Bank Bond 3.09% versus 3.09% Yesterday
  • Copper Price +0.17% overnight