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“In the Midst of Chaos, There is Also Opportunity.” -Sun Tzu

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Key News

Tuesday night the Senate passed the America COMPETES Act (HR 4521).  I will refrain from commenting on the bill, though US taxpayers should look at how their tax dollars are being spent. Unlike the House’s version of the bill, the Senate’s version did not include language shortening the Holding Foreign Companies Accountable Act (HFCAA) delisting window from 3 years to 2 years. I searched the 2,326-page bill for HFCAA related terms and found none. Since the House version includes an accelerated delisting, I am being told by our DC policy research firm that there will be a negotiation on the disparities between the bills. It is interesting that the language was left out as one could speculate it was dropped intentionally so as not to disrupt ongoing negotiations between the US and China regulators. Shortening the HFCAA window from three years to two years would be highly problematic and an unmitigated disaster for US custodians and broker-dealers that do not allow or are not set up for ADR conversion. My assumption is that cooler heads in the Senate removed the language so as not to throw a wrench in negotiations. Smart move! We will continue to monitor the situation and provide updates.

Asian equities had a good day on hopes that the Ukraine crisis would be resolved, except for Japan, which was off overnight.

This week is an important week for Mainland and Hong Kong companies as they will be reporting Q4 and annual results. A Mainland media source noted that among the 130 Mainland-listed companies that had reported, 87.69% (114) reported positive results.

A Wall Street Journal article released overnight sent Kuaishou (1024 HK) down by -6.24%, Weibo HK (9898 HK) down by -5.33%, and Bilibili HK (9626 HK) down by -2.48%. The Cyberspace Administration of China (CAC) will limit “digital tipping” and “is considering imposing tighter censorship over content,” according to “people familiar with the matter”.  The “news” would contradict Vice Premier Liu He’s speech from two weeks ago telling regulators to dial it back, though it could be true as this topic has come up in the past. Reuters did report that the State Taxation Administration stated that “live streamers and platforms should compete fairly and fulfill their legal obligations to pay taxes.” Tax dodging live streamers have garnered attention over the past year, so nothing new here other than investors dumping the names. The broader internet sector managed small gains overnight, which is a good sign and very different from the recent past when the entire sector would be down on any regulatory news.  

The Hang Seng Index grinded higher across the trading day to close +1.39% on strong volumes that were +24.18% higher than yesterday, which is 104% of the 1-year average. All sectors were positive except for energy. We finally got an up day accompanied by stronger volumes. We also had strong breadth as 403 stocks advanced and only 97 declined.

Real estate stocks were the best performers in both Hong Kong, where they gained +6.27%, and Mainland China, where they gained +6.4% following reports that a city loosened apartment buying rules. The market is anticipating a broader loosening on apartment buying, though only time will tell. Property developer Country Garden (2007 HK), which gained +6.29% overnight, stated in its earnings call that China’s housing market is likely to rebound and the worst is over for the country’s property policy tightening” according to Bloomberg.

Clean technology energy including wind, solar, and the electric vehicles (EV) ecosystem were strong performers overnight.

The Hang Seng TECH Index gained +0.34% as Tencent bought back 780,000 shares overnight, marking the fourth straight day in a row of share buybacks for the company (838k on 3/25, 818k on 3/28, and 798k on 3/29).  Tencent was a small net sell by Mainland investors via Southbound Stock Connect while Meituan was a small net buy. 

Shanghai, Shenzhen, and the STAR Board had a strong day, gaining +1.96%, +2.55%, and +3.02%, respectively, on volumes that were +11.07% higher than yesterday, which is 90% of the 1-year average. There were 3,591 advancing stocks and just 628 declining stocks. The same themes that were up in Hong Kong were up on the Mainland. The clean technology ecosystem and real estate had very strong days along with stockbrokers. Like Hong Kong, energy was the only declining sector today. Foreign investors bought a healthy $2.004B worth of Mainland stocks today.  Treasury bonds had a strong day while CNY appreciated versus the US dollar and copper gained +0.18%.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.35 versus 6.36 yesterday
  • CNY/EUR 7.08 versus 7.07 yesterday
  • Yield on 1-Day Government Bond 1.68% versus 1.59% yesterday
  • Yield on 10-Year Government Bond 2.77% versus 2.79% yesterday
  • Yield on 10-Year China Development Bank Bond 3.02% versus 3.04% yesterday
  • Copper Price +0.18% overnight