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Buffett Bids Farewell to BYD

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Key News

Asian equities were largely lower as the US dollar’s strength and US equity weakness weighed on investor sentiment.

EV bus and battery maker BYD (1211 HK and 002594 CH) was down in Hong Kong -11.93% and China -4.72% after a position the size of Berkshire Hathaway’s position was transferred to a broker. The Hong Kong Exchange runs a portal called CCASS that shows how many shares market participants, custodians, and brokers hold. The likely sale sent the EV ecosystem down in both Hong Kong and China. It has been a heck of a run for Berkshire Hathaway.  After buying 225 million shares for $230 million in 2008, the stock collapsed a year later though Buffet and Munger held on despite the stock not doing anything for years. Today the stake is worth ~$9 billion according to Bloomberg News.  

Hong Kong and China are experiencing a correction following a strong run as growth sectors and stocks have taken the brunt of the recent profit taking and selling pressure. Despite little tangible evidence, media reports point to the potential for city wide Covid lockdowns in China. We could see more targeted lockdowns at a district/neighborhood level or specific apartment buildings that have a resident test positive. It was widely released that Beijing will allow large scale/+1,000 people sporting events.

The other recent culprits were Tencent and Alibaba’s fines which the media suggests reignites fears of China’s internet regulation. There is significant evidence the worst is behind us though if companies run afoul of laws they can be fined. Alibaba HK share class and Tencent have lost $37 Billion and $18 Billion on fines of less than $1 million over the last two days. 

Hong Kong and China volumes have been weak showing we are simply experiencing a summer slowdown. In Hong Kong, shorts have pressed their bets after the market’s recovery which has pressured stocks recently. What’s the catalyst to get things going? Q2 earnings season! Wuxi Biologics (2269 HK) was down -2.86% respectively despite issuing that its previous guidance was too conservative. Expectations going into the quarter are light giving me optimism that companies can beat the low hurdles.  

Healthcare was off in both Hong Kong and China as the 7th round of national drug buying commences. The results aren’t known but investors shot first. 

The Hang Seng and Hang Seng Tech were off -1.32% and -2.14% on volume -3.33% from yesterday which is 82% of the 1-year average. 83 stocks advanced while 399 declined. Hong Kong short sale turnover declined -4.43% from yesterday which is 93% of the 1-year average. Hong Kong short sale turnover accounted for 18% of total volume.

Value factors outperformed growth factors while large caps outperformed small caps.  The only positive sector was energy +0.7% while declining were discretionary -3.65%, healthcare -2.66%, and tech -1.59%.  Coal stocks were a top sub-sector while all things auto and EV related were among the worst. Southbound Connect volumes were light as Mainland investors were small net buyers of Hong Kong stocks with BYD, Meituan, Xpeng, and Kuaishou. Tencent, Geely Auto, and an ETF based off of the Hang Seng China Enterprise Index were small net buys.

Shanghai, Shenzhen, and STAR Board were off -0.97%, -1.45%, and -2.95% respectively on volume -3.31% from yesterday which is 90% of the 1-year average. 982 stocks advanced while 3,476 stocks declined. Value factors outperformed growth while large caps outperformed small caps.  Top sectors were energy +0.82%, utilities +0.42%, and real estate +0.39% while healthcare -3.29%, tech -2.14%, and discretionary -1.81%. Wind and cement stocks were among the top sub-sectors while semis and vaccine stocks were among the worst. Northbound Stock Connect volumes were moderate as foreign investors sold -$632mm of Mainland stocks today. Treasury bonds had a strong day, CNY eased to 6.72 versus the US $, while copper was hit for -1.35%.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.72 versus 6.71 yesterday
  • CNY/EUR 6.76 versus 6.76 yesterday
  • Yield on 10-Year Government Bond 2.81% versus 2.83% yesterday
  • Yield on 10-Year China Development Bank Bond 3.06% versus 3.07% yesterday
  • Copper Price -1.35% overnight