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Rate Hike Risk Shakes Hong Kong, Mainland Holds Up Better

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Key News

Asian equities followed the US south after the higher-than-expected inflation print in July and heightened expectations of rate hikes from the US Federal Reserve.

Tencent and NetEase both confirmed they received 73 new game approvals, further evidence that China’s internet regulatory cycle, as it applies to gaming, may have ended.

Inspectors from the US Public Company Accounting Oversight Board (PCAOB) may arrive in Hong Kong as early as this week to begin their audits of accounting firms that sign off on ADR filings.

Lithium prices rose to 0.5 million RMB per ton overnight, adding pressure to battery and new energy vehicle companies, while Chinese lithium companies rose on the news.

Multiple cities announced their plans to buy properties as affordable housing projects, showing the government's effort to help solve property companies' ongoing liquidity issues. Suzhou relaxed its restriction on first home purchases for non-Suzhou-residents. According to reports, China may build up to 6.5 million units of affordable housing in the period from 2020 to 2025. The units will be built across 40 cities and will be able to meet the demands of 20 million people, according to a briefing given yesterday by China housing ministry officials.

China Southern Airlines has been approved for a Mainland listing. The company is state-owned and listed in the United States. We believe it may join other SOEs in voluntarily delisting from US exchanges, which would pave the way for audit inspections of China-based companies by the PCAOB to go forward.

The Hong Kong Stock Exchange is discussing a system that would slash the revenue requirements for hardware companies to go public on the exchange. Previously, the exchange had onerous requirements for listed companies’ revenue. Such requirements are not found on US exchanges.

The Hang Seng and Hang Seng Tech Indexes fell -2.48% and -2.85%, respectively, on volume that decreased -1.28% from yesterday. Hong Kong short sale turnover increased +32.96% from yesterday. Growth underperformed value overnight, as the latter declined slightly less overall. The top performing sectors overnight were energy and consumer staples, which fell by -0.61% and -1.72%, respectively. The worst performing sectors overnight were consumer discretionary and information technology, which fell -3.47% and -2.85%, respectively. Mainland investors bought a net $632 million worth of Hong Kong shares overnight via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board fell by -0.80%, -1.14%, and +0.01%, respectively, on volume that decreased -6.92% from yesterday. Growth and value were neck and neck on the Mainland overnight. The top performing sectors were real estate and energy, which fell by -0.43% and -0.71%, respectively. The worst performing sectors on the Mainland overnight were industrials, which fell -2.11%, and consumer discretionary, which fell -1.91%. Foreign investors sold a net $203 million worth of Mainland listed stocks via Northbound Stock Connect. China's currency fell in value versus the US dollar overnight and is nearing the psychologically important 7 CNY/USD level.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.96 versus 6.93 yesterday
  • CNY/EUR 6.96 versus 7.04 yesterday
  • Yield on 10-Year Government Bond 2.66% versus 2.64% yesterday
  • Yield on 10-Year China Development Bank Bond 2.82% versus 2.81% yesterday
  • Copper Price -1.06% overnight