Key News

Asian equities were mostly lower overnight after the US market decline yesterday. Growth equities, including internet stocks, saw positive performance on Tuesday, but led declines overnight. However, Baidu soared +6.75% in Hong Kong as investors digested the company’s positive Q4 earnings report.

Yesterday, online recruiter 51 Job (JOBS US) announced that it will be going private. In June of 2015, the Shanghai and Shenzhen stock markets rolled over after a massive run. The market went down continuously for three months. Calling bottoms is a dangerous sport, but a signal of the bottom was when several US-listed ADRs went private or announced their intentions to do so in August of 2015. I remember online bookmaker Dang Dang and online gaming company Perfect World were two companies that went this route. Companies tend to go private when management believes that stock investors are not properly valuing their company, which is true with stock buybacks as well.

We have heard that Meituan has offered the hardest-hit merchants the option to apply for service fee relief, in response from requests from regulators. It is important to remember that the National Development and Reform Commission (NDRC) only issued “guidance” for platforms to lower service fees, which is very different from mandating a certain fee level. In China, regulators/the government sometimes tell companies what they want but give leeway regarding implementation. This is precisely what occurred in this case. As a result, the impact on Meituan’s bottom line is apt to be more muted than originally expected as not all merchants will qualify for fee reductions.

Yesterday’s PMIs were a clear driver for Chinese equities' strong performance on Tuesday as expectations going into the release were low. Business activity expectations were very strong, but that is not getting much attention, of course. The PMIs showed that export demand is holding up, but slowing nonetheless. Global covid stimulus, i.e. free money, drove huge demand for iPhones, TVs, computers, and Pelotons, which are manufactured in China. This demand outstripped supply, which also explains inflationary pressures. However, China needs domestic consumption to pick up as export-driven manufacturing slows.

The Hang Seng fell -1.84% overnight on volumes that were -0.28% lower than yesterday. Growth and internet stocks led declines as the Hang Seng TECH Index fell -2.71% overnight.

Shanghai, Shenzhen, and the STAR Board fell -0.13%, -0.56%, and -0.71%, respectively, overnight on volumes that were -7.17% lower than yesterday.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.32 versus 6.31 yesterday
• CNY/EUR 7.00 versus 7.03 yesterday
• Yield on 1-Day Government Bond 1.75% versus 1.73% yesterday
• Yield on 10-Year Government Bond 2.82% versus 2.80% yesterday
• Yield on 10-Year China Development Bank Bond 3.06% versus 3.06% yesterday
• Copper Price +1.64% overnight