Key News

Asian equities were mixed overnight on light volumes as Japan, South Korea, and Taiwan underperformed. 

Hong Kong and China posted small gains, with the former coming off morning highs. There were several interesting developments beyond the positive outcome of Janet Yellen’s China trip, which should lead to a John Kerry visit. Communication is finally occurring, which should stabilize the relationship as the US needs China just as China needs the US. US and global investors in US multinationals such as Apple, Tesla, and ExxonMobil should exhale as a dial-down of tension lowers the potential of curbs on US MNCs operating in China. As the WSJ notes, no Chinese airline has ordered a Boeing plane in years. At the same time, Chinese exports need access to the US market. Codependent, or as Elon Musk called the two countries, are “intertwined like conjoined twins.”  

Tenpay, Tencent’s fintech arm, was also fined following Ant’s announced fine, in another indication internet regulatory cycle is over as the economy needs these companies. Ant announced a plan to purchase 7.6%/$6 billion of stock from current investors to fund an employee incentive program. Alibaba filed that it might sell shares back to Ant with speculation Ant is worth ~$78 billion (RMB 567 billion).  Considering how shareholder-friendly Alibaba’s management has been, a buyback or dividend with proceeds would be anticipated. 

National Development and Reform Commission director Zheng Zhajie held a meeting with companies including Baidu, Longi Green Energy, and “private enterprises” to solicit “opinions and suggestions” on the economy. The maximum fee on Chinese mutual funds was cut to 1.2%, while six other measures were instituted to support the asset management industry. Poker players would call the move a “tell” as the regulator is telling investors to invest. 

WuXi Biologics (2269 HK) gained +0.53% after its 60% subsidiary WuXi XDC filed for a Hong Kong IPO which also lifted WuXi AppTec +1.13%, which owns the other 40%. June's CPI was 0% versus expectations of 0.2% and May’s 0.2%, while PPI was -5.4% versus expectations of -5% and May’s -4.6%. No inflation in China, as low commodity prices are reflected in the declining PPI. Hong Kong’s most heavily traded were Alibaba HK +3.2%, Tencent +0.67%, and Meituan +1.68%. Volumes were light today as short volume was 19% of total turnover as shorts target Hong Kong-listed ETFs more than individual stocks, though Alibaba’s short turnover was 25% of total turnover today. Mainland markets posted small gains, with Shanghai above 3,200 and Shenzhen above 2,000 levels.

Did you know BYD sells 3 million EVs annually versus Ford’s 4 million total vehicles? Berkshire Hathaway put BYD on the map of investors with their incredible investment back in 2009. The trade took a while to pan out though it has kicked into high gear in the last several years. I listened to the Driving with Dunne podcast titled “BYD: The Roar of China’s EV Powerhouse,” which provides a concise ½ hour overview of the roots of the company from a cell phone battery maker and the humble background of its founder and his incredible work ethic. To learn more about the EV Godzilla, I recommend tuning in!

The Hang Seng and Hang Seng Tech gained +0.62% and +1.13% on volume -21.28% from Friday, which is 69% of the 1-year average. 302 stocks advanced, while 169 declined. Main Board short turnover declined -20.49% from Friday, which is 76% of the 1-year average, as 19% of turnover was short turnover. The growth factor outperformed the value factor as small caps outpaced large caps. The top sectors were utilities +2.36%, discretionary +2.1%, and communication +0.82%, while real estate -0.55%, energy -0.39%, and materials -0.15% were the worst. The top sub-sectors were retailing, consumer durables, and consumer services, while telecom, technical hardware, and media were the worst. Southbound Stock Connect volumes were light as Mainland investors sold -$153 million of Hong Kong stocks, with Tencent a moderate/high sell, China Construction Bank a small net sell, and Meituan and Kuiashou small net buys.

Shanghai, Shenzhen, and STAR Board gained +0.22%, +0.32%, and +0.19% on volume -4.74% from Friday, which is 84% of the 1-year average. 2,316 stocks advanced, while 2,264 stocks declined. The growth factor outperformed the value factor as small caps outpaced large caps. The top sectors were communication +1.39%, industrials +1.14%, and materials +0.98%, while energy -0.41%, real estate -0.23%, and financials -0.13% were the worst. The top sub-sectors were restaurants, cultural media, and power generation equipment, while insurance, communications equipment, and auto were the worst.  Northbound Stock Connect volumes were moderate/light as foreign investors bought +$169 million of Mainland stocks, with Longi Green Technology a large net buy, Kweichow Moutai a moderate/small net buy, and China Tourism Group Duty Free a small net buy. CNY and the Asia dollar index both fell small versus the US dollar while Treasury bonds sold. Copper gained while steel fell.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.23 Friday
• CNY per EUR 7.93 versus 7.87 Friday
• Yield on 10-Year Government Bond 2.64% versus 2.64% Friday
• Yield on 10-Year China Development Bank Bond 2.77% versus 2.77% Friday
• Copper Price +0.21% overnight
• Steel Price -1.34% overnight