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Vice Premier Liu He’s Speech Sends Stocks Flying

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Key News

Asian equities posted mild gains while the Hang Seng Index +9.08% posted the strongest day in over a decade. Hong Kong’s gains were led by internet stock as the Hang Seng Tech Index +22.6% while the Shanghai +3.48% and Shenzhen +4.32% after reversing morning losses. What happened? Vice Premier Liu He, who might recognize as China’s trade envoy who is the #3 in China’s government behind President Xi and Premier Li, gave a speech at the State Council’s Financial Stability and Development Committee as reported by Mainland media source Xinhua. Below are quotes and my interpretation of what was stated.

  • “Concrete actions must be taken to bolster the economy in the first quarter…noting that monetary policy should take the initiative…” – Stimulus and supportive policies coming.
  • “Chinese and US regulatory bodies have maintained good communication and made progress. The two sides are working on a concrete cooperation plan.”  – Solving HFCAA/US ADR delisting. The CSRC, China’s SEC, put out a release already they will “Continue to strengthen communication with U.S. regulatory agencies, and strive to reach an agreement on China-U.S. audit supervision as soon as possible.”
  • “…support various enterprises to seek listings in the overseas market,” – US and HK IPOs are allowed.
  • “For real estate enterprises, it is necessary to timely study and suggest effective risk prevention and mitigation solutions and put forward supporting measures for the transformation to a  a new development approach” – Making sure overleveraged real estate developers don’t cause a financial crisis and prevent them from doing so in the future.
  • “…relevant authorities…actively introduce market-friendly policies and prudently introduce policies with a contractionary effect.” – Support not hinder!
  • “Authorities should timely respond to issues that draw attention from the market” – Don’t screw it up!

Specific to internet companies, especially the bigger companies which are referred to as “platform economy”:

  • “As for the platform economy, relevant departs should improve the established plans to govern the sector.”  They should steadily advance and complete the rectification work on large platform companies as soon as possible through standard, transparent, and predictable regulation,” – Internet regulation shouldn’t be done in an ad hoc/whack a mole approach. It should also finish as soon as possible.
  • “Both “red lights” and “green lights” should promote the steady and healthy development of the platform economy and improve its international competitiveness.” Regulation should support the companies rather than hinder them. Interesting to note the inclusion of internet companies to go “international”.

Very good news! Investors will want to see tangible follow-throughs in the coming weeks and months. For two thousand years, China has had a large government bureaucracy that allowed the emperor to govern such a large country before modern technology.  We will want to see that bureaucracy embrace this message. The move from the CSRC is a strong message that this new approach has been heard. Let’s see what we hear from other regulators in the coming days and weeks.

There were two other catalysts:

  • News is reporting a movement away from China’s quarantine/lockdown policies. Without an effective vaccine, lockdowns have been the only solution to preventing spread. This has dampened consumption which we need to see pick up as global stimulus wanes which will reduce demand for the world’s factory (Chinese exports!).
  • Increased denial of Russia support. As we’ve noted the narrative that somehow China and Russia are BFF is false.  China doesn’t control Russia in any shape form nor fashion. China has a strong economic incentive to see a peaceful resolution to the horrible situation in the Ukraine though there is one person who can stop it and they are in Moscow.

The Hang Seng Index was up for the day though went vertical on the Liu He release closing +9.08% on volume +8.35% from yesterday which is 208% of the 1-year average. It was a broad rally with 486 advancers and just 26 decliners as internet stocks absolutely flew as Tencent +23%, Meituan +32%, Alibaba HK +27% etc. Tencent saw mild inbound from Mainland investors after yesterday’s significant buy, Meituan saw a small net sell and Li Auto saw a small net buy on its second day in Southbound Stock Connect. Worth noting that HK short sale volume increased today to a 52 week high after elevated levels in the last week. There could be more pain in store for short-sellers.

Shanghai +3.48%, Shenzhen +3.62%, and STAR +2.93% on volume +6.03% from yesterday which is 113% of the 1-year average. Remember that the Mainland hasn’t fallen nearly as much as the HK/US shares so the rebound was a bit less today. Breadth was absurd as 4,070 stocks advanced and only 336 decliners. Foreign investors sold -$12.958mm shares today via Northbound Stock Connect. Ooops! CNY appreciated versus the US $ from yesterday’s 6.37 to 6.35 while bonds were flat and copper +0.25%.

  • Alibaba is positioned to be a beneficiary of the upcoming IPO of Indonesia’s Goto Gojek Tokopedia (GOTO) on April 4th. Alibaba owns 8.8% of non-management shares as the company will raise ~$1.26B from investors by selling 52B shares on the Indonesia Stock Exchange making it potentially the fourth largest company. 
  • Kingsoft Cloud (KC US) announced yesterday it is exploing a dual listing on the HK Stock Exchange.
  • Bilibili (BILI US) also announced that it will make its HK listing a dual-primary versus a secondary today. This could pave the way for the HK listing to be added to Southbound Stock Connect.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.35 versus 6.37 yesterday
  • CNY/EUR 7.00 versus 7.00 yesterday
  • Yield on 10-Year Government Bond 2.80% versus 2.82% yesterday
  • Yield on 10-Year China Development Bank Bond 3.05% versus 3.00% yesterday
  • Copper Price +0.25% overnight