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A Man Named Ma Spooks Alibaba HK

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Key News

It was a quiet night in Asia as China was closed for Labor Day, Japan for Constitution Day, and many countries with Muslim populations for Eid al-Fitr, which marks the end of Ramadan fasting.

It was a quiet night except for a domestic Chinese TV report that a man named Ma was arrested in Alibaba headquarters hometown Hangzhou.  While there are only 4,000 surnames in China versus over 6mm in the US, 100 Chinese last names account for 85% of the population. Alibaba HK plunged by -9.4% before panicked investors realized it wasn't Jack Ma, and the stock closed -1.4%. The episode highlights the nervousness of investors toward internet regulation.

Against the backdrop of Vice Premier Liu He's March 16th speech, Premier Li's speech last week, and the State Council release on Friday, it would seem a strong message on internet regulation cycle easing/ending. It was reported that internet companies would meet this week to help facilitate domestic consumption. But Q2 earnings will be weak due to Covid restrictions, you argue? Yes, but did fundamentals mean anything on the way down? No. Markets will look forward, not backward, as the stocks' dismal performance reflects the reality of poor Q2 financial results.

The other elephant in the room is the Holding Foreign Companies Accountable Act. There has not been anything definitive from the US side though China said a solution would be available by June or July, so we are getting closer. Interestingly, Hong Kong's short sale volume was still above average, which is the powder for a short-covering rally. Remember, Mainland investors won't be able to react to the internet policy news until Thursday.

April's official Manufacturing and Non-Manufacturing PMIs fell to 47.4 from March's 49.5 and 41.9 from 48.4, as reported by the National Bureau of Statistics.  The Caixin Manufacturing PMI, known as the "private" PMI as the survey is conducted by IHS Markit, also fell to 46 in April from March's 48.1.  As we had noted several months ago, new export orders began rolling over as global stimulus was withdrawn. This simply reduces demand for China's exports. Obviously, covid lockdowns in Shanghai, the world's largest port by volume, were a factor. Regardless, domestic consumption needs to be raised.  As we noted last Friday, President Xi's CPC Central Committee meeting spoke extensively about the importance of domestic consumption.  With 1/3 of retail sales occurring online, it could help understand the pivot in internet regulation. Within the PMIs, it is interesting that business expectations remain in positive territory for both PMIs.

Bilibili announced it would migrate its Hong Kong secondary listing to a dual primary listing. The move would likely make the Hong Kong listing eligible for Southbound Stock Connect, giving Mainland investors access to the listing.

The Hang Seng Index and Hang Seng Tech Index diverged +0.06% and -1.38% on volume -35% from Friday, which is 73% of the 1-year average. There were 256 advancing stocks and 221 declining stocks. Hong Kong short sale turnover was done -37% from Friday, which is just above the 1-year average.  Real estate had a strong day +2.79% while materials, tech, discretionary and healthcare were off -2.53%, -1.63%, -1.59% and -1.43%. Value and growth factors both did well, while small caps outperformed large caps.  Precious metals and mining had an off day while Hong Kong internet stocks were mixed.

Last Night’s Exchange Rates, Prices, & Yields

China’s bond and currency markets were closed overnight.