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Tencent’s Q3 Largely Beats While Gifting Meituan Shares to Shareholders

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Key News

Asian equity markets posted small losses except for India which managed a small gain.

The Asia Dollar Index posted a loss of -0.23% versus the US dollar, breaking a four-day winning streak. Hong Kong and Mainland China were off on profit-taking after the recent surge higher with real estate underperforming as two companies issued more equity shares following their stocks jumping on recent PBOC policy support.

Hong Kong-listed internet stocks were mostly higher on reports of continued support for the sector as Hong Kong’s most heavily traded stocks included Tencent, which gained +2.22%, Alibaba, which fell -0.13%, and Meituan, which fell -2.46%. Tencent Music Entertainment (TME US, 1689 HK) jumped +29% in Hong Kong trading post yesterday’s financial results.

US-China diplomatic relations took another step forward as US Treasury Secretary Janet Yellen met with the PBOC’s head Yi Gang in Bali while US businesses including Exxon Mobil, Cargill, and Boeing met with the National Development and Reform Commission (NDRC) in China.  

Dynamic zero-COVID policies are holding thus far as 1,568 new cases were reported along with 18,491 asymptomatic cases. Walvax Biotechnology (300142 CH) jumped +3.08% on reports its mRNA vaccine may enter human trials in China while Indonesia approved its use. Tencent reported Q3 results after the Hong Kong close with revenue a slight miss (RMB 140B versus estimate RMB 141B) though adjusted net income and adjusted EPS both beat. A great deal of attention will be given to the year-over-year declines, though things improved from Q2 to Q3, so hopefully, momentum will carry into Q4. Tencent announced it will give 958 million Meituan shares to shareholders as a special dividend (1 Meituan share for every 10 Tencent shares). Tencent shareholder Prosus will be a big recipient of shares which raises the question of what Prosus and other investors will do with their Meituan shares. Passive managers are apt to sell shares unless index providers expand Meituan’s weight in indices. This uncertainty may weigh on Meituan’s shares in the short term.  Alibaba and NetEase are on deck for earnings following the close in Hong Kong tomorrow, followed by JD.com on Friday. Hong Kong's short sale volume has been light, though 27% of JD.com’s daily turnover was short.

The Hang Seng and Hang Seng Tech Index were off -0.47% and -0.23%, respectively, on volume that decreased -15.5% from yesterday, which is 140% of the 1-year average. 174 stocks advanced, while 319 stocks declined. Main Board short turnover declined -16.16% from yesterday, which is 122% of the 1-year average, as 15% of total turnover was short turnover. Growth factors outperformed value factors as large caps outperformed small caps. Top sectors were communication gaining +1.97%, utilities up +1.11%, and energy closing higher +0.47%, while real estate fell -5.39%, tech closed lower -2.13%, and industrials finished lower -1.43%. The top performing subsectors were media, led by Tencent Media Entertainment +29%, food, and healthcare equipment, while autos, real estate, and technical hardware were among the worst. Southbound Stock Connect volumes were elevated/2X the 1-year average as Mainland investors bought $554 million of Hong Kong stocks, with Tencent having small/moderate (medium rare) net buying, Kuiashou small net selling, and Meituan moderate net selling.

Shanghai, Shenzhen, and STAR Board were off -0.45%, -0.78%, and -1.48%, respectively, on volume that decreased by -10.96% from yesterday, which is 97% of the 1-year average. 1,890 stocks advanced while stocks declined. Value factors edged out growth factors, while large caps slightly outpaced small caps. Energy and communication were the only positive sectors, while real estate fell -3.54%, tech was down -1.93%, and materials closed lower -1.91%. The top performing subsectors were marine/shipping, gas, and education, while electric power grid, chemical, and brokers were among the worst.  Northbound Stock Connect volumes were moderate as foreign investors bought +$140 milllion worth of Mainland stocks, with Kweichow Moutai a small net buy and Longi a small net sell. Treasury bonds were flat, CNY was off -0.58% versus the US dollar closing at 7.08, and copper fell -0.28%.

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Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.08 versus 7.04 yesterday
  • CNY per EUR 7.37 versus 7.33 yesterday
  • Yield on 10-Year Government Bond 2.81% versus 2.81% yesterday
  • Yield on 10-Year China Development Bank Bond 2.98% versus 2.96% yesterday
  • Copper Price -0.28% overnight