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BYD Powers EV Ecosystem, Policy Support For Internet Companies Articulated

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Asian equities were largely higher overnight except for Mainland China and Hong Kong, which were mixed.

Over the weekend, China’s State Council recommended eight proposals to support the digital economy, i.e. internet companies. Official Chinese media also published an article about Alibaba’s Singles Day, November 11th/One-One-One-One, i.e. single, a sales extravaganza akin to Black Friday in the United States. The festival has already started with pre-sales. This is just another sign that China’s internet regulation oversight is well behind us. China’s economy, especially its domestic consumption economy, is going to need these companies to do well.

Purchasing managers’ indexes (PMIs) are diffusion indexes, meaning that a reading above 50 indicates growth month-over-month, and readings below 50 indicate a decline month-over-month. The “official” PMI is a large survey conducted by the National Bureau of Statistics versus the “private” PMI by Caixin, which has its survey done by IHS Markit. Weaker exports were the culprit in the low reading for October, which should not surprise anyone as the global economy slows the demand for goods from the world’s factory continues to slow. It is interesting that, in both surveys, business expectations remain high. Raising domestic consumption will be key for the government as they can’t control foreign demand.

Hong Kong and Mainland China were largely higher in the morning on these tailwinds. There was a great deal of foreign media coverage on COVID in China today as the country confirmed 497 new COVID cases and 2,220 asymptomatic cases across 31 provinces. So, yes, COVID remains in China, though we do not anticipate a repeat of the Shanghai lockdown in economically important cities.

A local Chinese media source reported that Foxconn workers are not happy with work conditions from both mental and physical health perspectives. This is a long-running issue that flared up several years ago when the company saw a rise in employee suicides.

Mainland China and Hong Kong faded, coming off the day’s highs as growth sectors outperformed. The Hang Seng Tech Index closed up +1.05% while the Hang Seng Index fell -1.18%. Hong Kong’s most heavily traded stocks by value overnight were Tencent, which gained +2.39%, Meituan, which gained +2.46%, and Alibaba HK, which fell -0.49%. Investors in China bought a very healthy $664 million worth of Hong Kong stocks via Southbound Stock Connect as Tencent saw strong buying again. Total Hong Kong short turnover was 19% of total Main Board trading, though short activity in Hong Kong internet stocks was light today. China’s growth-oriented Shenzhen and STAR Board closed higher by +0.38% and +1.67%, respectively, while Shanghai fell -0.77%.

The electric vehicle (EV) ecosystem had a strong day in both Hong Kong and Mainland China after BYD’s very strong financial results on Friday. One headwind was the Renminbi (CNY), which fell -0.63% to 7.29 versus the US dollar as the Asia dollar index fell -0.52% versus the US dollar.

Chinese property developer Longfor (960 HK) fell -23.78% after the company’s Chairwoman quit. The company’s bonds due in 2029 fell from Friday’s close of $23.51 to $19.76 as bond investors have been worried about the company for a long time. The news pummeled real estate stocks in Mainland China and Hong Kong.  Foreign investors were net sellers of Mainland stocks via Northbound Stock Connect overnight, to the tune of -$1.2 billion.

I highly recommend reading “Markets have China’s new leadership all wrong” from the Asia Times. Li Qiang, a Xi ally promoted during the Party Congress who could become China’s new premier, has experience governing the Shanghai Free Trade Zone, which was instrumental in the country’s economic rise. Tesla’s factory was also established during his tenure as Party Secretary for Shanghai. Most importantly, the article refutes the common claim he is solely responsible for Shanghai’s COVID lockdown.

State Councilor and Foreign Minister Wang Yi met with US Ambassador to China Nicholas Burns on Friday. This could be another step in a Biden Xi meeting at the mid-November G-20 meetings in Indonesia

The Hang Seng and Hang Seng Tech indexes diverged to close -1.18% and +1.05%, respectively, on volume that increased +5.11% from Friday, which is 106% of the 1-year average. 112 stocks advanced, while 387 declined. Main Board short turnover increased +3.06% from Friday, which is 117% of the 1-year average, as 19% of turnover was short. Growth and value factors were mixed along with large versus small caps. Communication services and technology were the only positive sectors overnight, gaining +1.68% and +1.41%, respectively, while utilities fell -8.14%, real estate fell -6.71%, and energy fell -6.48%. The top-performing subsectors were auto parts, software, and hardware, while banks, electric power companies, and property management companies were among the worst. Southbound Stock Connect volumes were moderate/high as Mainland investors bought $664 million worth of Mainland stocks as Tencent was a moderate net buy, and Kuaishou and Meituan were small net buys.

Shanghai, Shenzhen, and the STAR Board were mixed to close -0.77%, +0.38%, and +1.67% on volume that decreased -3.17% from Friday, which is 90.4% of the 1-year average. 3,074 stocks advanced, while 942 stocks declined. Growth and value factors were both off as small caps “outperformed” large caps. Tech was the only positive sector, gaining +0.73%, while real estate fell -5.99%, energy fell -5.33%, and consumer staples fell -1.97%. Northbound Stock Connect volumes were moderate/high as foreign investors sold a healthy -$1.234B of mainland stocks. Treasury bonds rallied today, CNY declined -0.63% versus the US dollar to 7.30, and copper fell -1.73%.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.30 versus 7.25 Friday
  • CNY per EUR 7.23 versus 7.21 Friday
  • Yield on 1-Day Government Bond 1.25% versus 1.30% Friday
  • Yield on 10-Year Government Bond 2.64% versus 2.67% Friday
  • Yield on 10-Year China Development Bank Bond 2.84% versus 2.85% Friday
  • Copper Price -1.73% overnight