Key News

Asian equities were largely higher despite the US’ Fed Chair driven downdraft led by Hong Kong, Japan and India. Alibaba (BABA US, 9988 HK) announced it would increase its buyback program from $15B to $25B, having already bought back 56.2mm shares for a $9.2B. This was a very deliberate sign from the company they believe their stock is inexpensive. As Deputy CFO Toby Xu stated: “Alibaba’s stock price does not fairly reflect the company’s value given our robust financial health and expansion plan.” Well said Toby! The company also announced that Borje Ekhold, President and CEO of Ericsson, will retire from his post as an independent advisor to the board and be replaced with Weijian Shan, executive chairman of the highly respected alternative asset manager PAG. The news lifted Alibaba HK by +11.2%.

This morning, Reuters is reporting that the China Securities Regulatory Commission (CSRC) has told several US-listed Chinese companies to prepare broader disclosures in anticipation of adhering to the US Public Company Acounting Oversight Board’s (PCAOB) audit review. If true, this would a strong step in solving the Holding Foreign Companies Accountable Act (HFCAA). That would be very much in line with our thinking that, amongst the China ADRs, the private companies have nothing to hide and should be able to comply with the HFCAA. Let’s hope the story, attributed to “sources” is true! Yesterday’s post-China close statement from the State Council reiterated support for the economy through “monetary policy tools” while avoiding “flood-style irrigation” i.e., targeted stimulus versus a broad interest rate cut.

Nike’s earning release lifted its supply chain and peers in the category. Last week I mentioned Evergrande had a bond due tomorrow which would require $2B of principal to be paid back. The company suspended its Hong Kong stock and stated it isn’t able to report financial results until an important release regarding its restructuring is made available to the public. Evergrande is currently holding a private meeting with stakeholders in Hong Kong, which should result in the final details of the company's restructuring coming to the fore. There are already reports of the company receiving support as real estate was an area of Vice Premier Liu He’s speech last week.

Real estate was the top sector in the Mainland, where it gained +3.69% while Hong Kong shares in the sector had a solid showing, gaining +4.34%.

Tencent Music Entertainment's (TME US) financial results were mostly in line with analyst estimates. The music streaming platform announced that they will follow Nio’s Hong Kong relisting strategy by offering US ADR holders the ability to convert to a new Hong Kong share class.

The Hang Seng Index gained +3.15% while the Hang Seng TECH Index gained +5.37%, led by internet stocks on volume that was -5.85% from yesterday, which is just 94% of the 1-year average. Advancers outpaced decliners by 4 to 1. However, we would like to see an up move accompanied by strong volume as Hong Kong short-selling turnover is well off last week’s highs. Alibaba’s Hong Kong share class made discretionary the best sector, gaining +8.09% while Tencent gained +4.19%. Tencent saw small net buyers via Southbound Stock Connect while Meituan had a small net buy too.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.19%, -0.41%, and -1.56%, respectively, on volume that was -5.43% lower than yesterday, which is 91% of the 1-year average. Value sectors outperformed as real estate gained +3.69%, energy gained +3.15%, financials gained +1.2%, and utilities gained +0.64% while tech was off by -1.43% and healthcare took a breather, falling -2.58%. Foreign investors were net sellers of Mainland-listed stocks via Northbound Stock Connect to the tune of -$144mm. Treasury bonds were off, CNY was unchanged versus the US dollar, and copper was off -0.03%.  

Hong Kong financial media noted that State Street Global Advisors could be replaced as the portfolio manager of the $14.119B Tracker Fund of Hong Kong (2800 HK) after Hang Seng Investment Management's 20 years in the role. The US asset manager ran into complications from the 2020 Executive Order, which prevents US asset managers from holding several Hong Kong-listed stocks that are in the Tracker’s underlying index: the Hang Seng Index.  The news reminded me of a great book called The Ugly Americans by Ben Mezrich, which is about an American trader based in Japan doing index and futures arbitrage. The trader’s big gains came from understanding the Tracker’s inclusion of new stocks and subsequently, a Nikkei index rebalance trade, which led to spectacular gains and an early retirement.  It is an entertaining read with an ETF twist!

Coincidentally I recently finished Angela Duckworth’s Grit: The Power of Passion and Perseverance. The book argues that grit i.e., hard work when combined with passion and perseverance, are better indicators of success than talent. It is a good read that I enjoyed and hope to impart its moral on my kids!

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.36 versus 6.36 yesterday
• CNY/EUR 7.00 versus 7.01 yesterday
• Yield on 10-Year Government Bond 2.83% versus 2.81% yesterday
• Yield on 10-Year China Development Bank Bond 3.08% versus 3.06% yesterday
• Copper Price -0.03% overnight