Key News

Kung Hei Fat Choi! Asia had a strong day as Hong Kong traders returned from vacation in good spirits. The Hang Seng Index gained +3.24%, led by internet companies. Volumes were +75% higher than Monday’s half-day, which is 72% of the 1-year average while advancers outpaced decliners by nearly 8 to 1. With China still on holiday, many investors took the day off.

Dual-listed Hong Kong stocks played catch up with their US-listed counterparts following a positive performance week. Remember that last Friday the Cyberspace Administration hosted an event that was attended by the National Development and Reform Commission (NDRC), the State Administration for Market Regulation (SAMR, and 27 internet companies. The commission is being viewed by some as a signal that China’s internet regulatory cycle could be coming to a close. The event’s press release painted the internet space as critical to China’s economy.

Hong Kong’s most heavily traded stocks were Tencent, which gained +1.48%, Alibaba HK, which gained +5.61%, HSBC, which gained +4.99%, AIA, which gained +5.39%, Meituan, which gained +3.28%, and JD.com HK, which gained +1.86%. It is worth pointing out that neither HSBC nor AIA are part of MSCI China, but rather MSCI Hong Kong. The former is part of MSCI Emerging Markets while the latter is part of MSCI’s developed market index suite. All sectors were in the green today in a strong move.

Mainland markets, including Northbound and Southbound Stock Connect, will reopen on Monday.

The House will likely pass the America Competes Bill, which includes a provision to shorten the delisting window from three years to two years.  The House bill and Senate version do not match one another so the legislative bodies will need to reconcile the two through committee meetings. In theory, the shortened window language could be dropped. Last week, Reuters reported that a "surprise" solution to the Holding Foreign Companies Accountable Act (HFCAA) could be announced in June or earlier following a meeting between the CSRC, China’s financial regulator, and global banks and asset managers operating in China. Institutional investors, including ourselves, will continue to migrate out of the US ADRs and into the Hong Kong share classes. In speaking with the Hong Kong Stock Exchange last week, it is their expectation that a significant number of re-listings will occur in 2022, which will expedite the migration out of the US ADRs and into the Hong Kong share classes.

Electric vehicles (EVs) had a great day in Hong Kong as Xpeng HK jumped +11.21% after announcing in January that it delivered 12,922 EVs, which outpaces Nio’s 9,652 and Li Auto’s 12,268. BYD HK gained +7.05% as January sales were 95,422 units versus 42,401 in January 2021. The EV ecosystem had been weak recently on worries that the tapering of China’s EV subsidies would curtail purchasers.  Apparently not!

Q4 China internet earnings season should kick off the week after next.

The Wall Street Journal reported that the current administration is going to take a run at TikTok despite the denial of the previous administration’s attempt in court. TikTok’s servers are already in the US, though, so I am not sure what the argument will be. I don’t fit the TikTok demographic, but I think such an effort won’t help get the younger vote out in November.

Upcoming Events

We are hosting two webinars over the next two weeks. Join us for Carbon Market State of the Union with KraneShares and Climate Finance Partners on Thursday, February 10th at 11:00 am EST and Get Your “A” Game On – KraneShares and MSCI Discuss the Future of Investing in Mainland China on Tuesday, February 15th at 10:00 am EST.

Last Night’s Exchange Rates, Prices, & Yields

Mainland China’s bond, commodity, and currency markets were closed overnight.