Key News

Asian equities were mixed but mostly higher overnight as growth stocks led the way. China real estate developers continued yesterday’s rebound upon the announcement of a government bailout fund for distressed developers.

Alibaba announced overnight that its board of directors had decided to apply for a primary listing in Hong Kong. The company's current listing in the city is only a secondary listing. After the process is complete, Alibaba’s shares will have primary listings in both New York and Hong Kong. This is good news for many reasons, including the fact that the company’s shares will be made available on Southbound Stock Connect, opening them up for investment from Mainland-based individuals and institutions. This will also open the stock up to new pools of capital and add additional liquidity. We believe this could also allow long-only portfolio managers to take a position in Alibaba and re-enter China’s internet sector overall. Furthermore, the primary listing in Hong Kong could become the Alibaba representative share class in global indexes should trading volume rise appropriately. The average trading volume in the company’s Hong Kong-listed shares is likely to rise from the current $0.7 billion to closer to the New York volume of over $3 billion.

Alibaba’s rival Tencent is currently the largest stock position held by Mainland investors via Southbound Stock Connect. 7% (691 million shares) of Tencent’s outstanding shares are held by Mainland investors, with a value of $29 billion. If we assume a similar amount would go into Alibaba’s HK share class, that would be a significant inflow. The inclusion of Alibaba in Southbound Stock Connect would serve as another strong indication that China’s internet regulatory cycle has come to a close.

A recent Reuters article noted that investment through China’s Belt & Road Initiative (BRI) has slumped this year as investments in Russia fell to zero. Interestingly, Saudi Arabia was the largest recipient of BRI investment in the first half of the year. Also, no new coal projects have been financed this year following President Xi’s pledge at the United Nations General Assembly last year.

China real estate’s reprieve was in full force overnight as shares in Country Garden Holdings, a distressed developer, surged 13%. The company’s shares were the second most traded in Hong Kong overnight by value traded. KE Holdings, which operates the online real estate platform Beike, also rose +9%.

Macau casino stocks were higher on reopening.

Real estate was the top performing sector in Hong Kong and Mainland China, while health care was the weakest and only negative sector in a mostly up day from a sector perspective.

The Hang Seng and Hang Seng Tech Indexes gained +1.67% and 1.37%, respectively, overnight on volumes that increased +8% from yesterday, which is nearly 80% of the 1-year average. Hong Kong short sale turnover increased +14% overnight. Mainland investors bought a net $130 million worth of Hong Kong stocks overnight. Both value and growth factors saw some strength overnight in Hong Kong.

Shanghai, Shenzhen, and the STAR Board gained +0.83%, +1.01%, and +1.01%, respectively, overnight on volume that decreased -3% from yesterday. Foreign investors bought a net $1.7 billion worth of Mainland stocks overnight via Northbound Stock Connect. Both value and growth factors saw some strength overnight in Mainland China.

Government bond yields edged up slightly overnight, CNY was slightly weaker versus the US Dollar, and copper continued its recent rally, gaining over +3%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.76 versus 6.75 yesterday
• CNY/EUR 6.86 versus 6.89 yesterday
• Yield on 1-Day Government Bond 1.13% versus 1.16% yesterday
• Yield on 10-Year Government Bond 2.77% versus 2.78% yesterday
• Yield on 10-Year China Development Bank Bond 3.03% versus 3.04% yesterday
• Copper Price +3.03% overnight