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Russia Turns Asia Markets Red Overnight

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Asia was a sea of red overnight. Several negative headlines led to a very ugly night following an ugly day in Hong Kong on Monday. Investors' concerns included Russia’s declaration of support for the independence of breakaway regions in Ukraine and guidance issued to Meituan over service fees. Unfortunately, there were few silver linings in last night’s market action as many growth names have yet to report earnings.

It appears that the new rule lowering the service fees that food delivery platforms can charge, which sent shares in Meituan plummeting in Hong Kong on Friday, was specifically due to restaurants’ extreme reliance on delivery platforms in the pandemic economy. The government is realizing that its covid zero policies have had a disparate impact on the economy, benefitting big tech at the expense of small businesses. We have written about this extensively and the covid economy has persisted for longer in China than it has in the US. In the spirit of “common prosperity”, the government wants to make sure that restaurants benefit from delivery platforms. Rather than being an anti-capitalist crackdown, current policy is meant to alleviate the effects of China’s continuing zero covid policy on segments of the economy that are most vulnerable.

Meituan shares continued to decline overnight, falling -5.10%. Interestingly, Mainland investors appear to be buying the dip. Meituan saw a significant net buy of over $400 million overnight by Mainland investors via Southbound Stock Connect after having been dumped by Mainlanders on Friday and seeing net zero inflows yesterday.

According to reports, China is telling banks and SOEs to report their financial exposure to Ant Group, which has led to some investor anxiety as well. We don't see this as a big issue given the government's cautious approach to Ant Group and other fintech platforms after the company's 2020 IPO was postponed. Perhaps this is a positive as the return of scrutiny may mean that the company is working on filing for an IPO again.

Traditional Chinese medicine (TCM) firms saw profit taking overnight following a strong rally yesterday. Health care broadly was also off as Ali Health fell -4.77% and was one of the top 10 most traded stocks by value in Hong Kong overnight.

The electric vehicle (EV) ecosystem was also lower overnight as EV manufacturer Geely fell -4.40% on concerns about the supply of chips.

The Hang Seng Index fell -2.96% overnight on broad weakness as the Hang Seng TECH Index fell -1.89%. Volumes were up slightly by +2.21% overnight. Nearly all sectors were in the red in Hong Kong overnight, though energy and financials were bright spots.

Shanghai, Shenzhen, and the STAR Board all closed lower by -0.96%, -1.23%, and -0.81%, respectively, on volume that was +8.70% higher than yesterday. Most sectors were lower on the Mainland overnight, though real estate was surprisingly higher as investors become more comfortable with the sector.\

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.33 versus 6.34 yesterday
  • CNY/EUR 7.17 versus 7.18 yesterday
  • Yield on 1-Day Government Bond 1.60% versus 1.61% yesterday
  • Yield on 10-Year Government Bond 2.82% versus 2.83% yesterday
  • Yield on 10-Year China Development Bank Bond 3.07% versus 3.06% yesterday
  • Copper Price +0.07% overnight