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Yuan Strengthens Versus USD, Tencent Soars On Earnings

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Key News

Asian equities were mostly higher overnight as the Yuan and the Asia Dollar Index both gained significantly versus the US dollar.

Xi Jinping returned to Beijing from Russia with some lower-level agreements, especially regarding the northern and eastern borders. I have not heard an update on Xi’s call with Ukrainian leader Zelenskyy, but we know that he is keen to meet with the Chinese president. Given his reticence about Xi’s visit to Moscow, we can assume that he is open to hearing Xi out. An end to the war could be a positive black swan for markets.

Tencent’s over-the-counter ADR traded at a significant discount to its Hong Kong share class, which was up +8% overnight versus the ADR's only +2% gain yesterday. This echoes the continued disparity between US and global/China views of China. Tencent’s results were slightly lower than expected, but the company is rebounding in its advertising division after the ending of zero COVID restrictions.

Li Qiang, China’s new premier, visited multiple advanced manufacturing plants in one of his first official trips. His stops included plants operated by BYD, China Railway Construction, and Lens. During his trip, he urged the importance of innovation in advanced manufacturing and technology.

The National Development and Reform Commission (NDRC) confirmed that qualifying companies in the semiconductor and software industries will continue to receive the same tax benefits for 2023 that the received in 2022, which led the space higher overnight.

The Hong Kong Monetary Authority (HKMA) said that bond investors will take precedence over equity holders when banks are wound up, in contrast with the Credit Suisse deal with the Swiss Government and UBS, which may leave some convertible bondholders high and dry.

Healthcare earnings were positive. WuXi Biologics reported revenues in-line with consensus estimates with net profit up +46% year-over-year. JD Health also reported earnings for the six months ended 12/31/2023, beating estimates handily with revenue up +52%.

Evergrande laid out its plan for a multi-billion dollar restructuring that would allow offshore bondholders to convert their current holdings to new issues, another positive sign for the real estate sector.

Food delivery and local services giant Meituan will report Q4 earnings tomorrow.

The Hang Seng and Hang Seng Tech gained +2.43% and +4.74%, respectively, on volume that increased +27.55% from yesterday, which is 113% of the 1-year average. 318 stocks advanced while 171 declined.  Main Board short sale turnover increased +34.89%, which is 99% of the 1-year average as 15% of turnover was short turnover. Growth outperformed value as small caps outpaced large caps. The top-performing sectors were communication services, which gained +6.97%, technology, which gained +4.61%, and consumer discretionary, which gained +3.95%. Meanwhile, healthcare and utilities were off -0.43% and -1.33%, respectively. The top-performing subsectors were software, technical hardware, and retail. Meanwhile, utilities, real estate, and pharmaceuticals were among the worst performing. Northbound Stock Connect volumes were high/moderate as Mainland investors bought $105 million worth of Hong Kong stocks as Tencent and Meituan were both strong net buys.

Shanghai, Shenzhen, and the STAR Board gained +0.64%, +0.62%, and +2.41%, respectively, on volume that increased +6.42% from yesterday, which is 114% of the 1-year average. 1,690 stocks advanced while 2,9342 declined. Growth factors outpaced value factors as small caps outpaced large caps. All sectors were positive as technology gained +4.05%, financials gained +2.13%, and energy gained +1.62%. The top-performing subsectors were computer hardware, software, and communication equipment. Meanwhile, motorcycles, leisure products, and power generation equipment were among the worst.  Northbound Stock Connect volumes were moderate/high as foreign investors bought a healthy $704 million worth of Mainland stocks, though CTG Duty Free and Longi Green Energy were small net sells and Kweichow Moutai a small net buy. CNY gained a very significant +0.74% versus the US dollar as the Asia Dollar Index gained +0.55%. Treasury bonds sold off while Shanghai copper gained, and steel fell.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 6.83 versus 6.87 yesterday
  • CNY per EUR 7.43 versus 7.49 yesterday
  • Yield on 1-Day Government Bond 1.48% versus 1.65% yesterday
  • Yield on 10-Year Government Bond 2.87% versus 2.86% yesterday
  • Yield on 10-Year China Development Bank Bond 3.02% versus 3.01% yesterday
  • Copper Price +0.66% overnight
  • Steel Price -0.70% overnight