Key News

Asian equities were mostly higher overnight as Mainland China underperformed.

Hong Kong was higher overnight despite China’s July CPI release of -0.3% year-over-year indicating deflation. Policymakers talked stimulus overnight, which likely kept Hong Kong afloat as investors expect an even stronger policy response to falling consumer and commodity prices. Meanwhile, Mainland investors sold the strength in Hong Kong via Southbound Stock Connect.

President Biden is likely to announce new restrictions on new, private equity investments in sensitive industries in China this week. We are viewing this as a positive, though the headline risk may cause some short-term pain. It will be good for the market to have what could be the final guardrails in place for US-China trade and investment, which will remove the consistent overhang of incoming policy. We believe Biden is trying to stabilize the relationship. Janet Yellen, Henry Kissinger, and John Kerry have all been to China this year. Meanwhile, China’s foreign minister has been invited to Washington, DC.

Remember that Apple’s market capitalization of $3 trillion is supported by China revenue representing 20% of total revenue and is likely higher than the sum of all US investor capital invested in China stocks (at 3% of the MSCI All Country World Index).

Pharmaceutical contract research organization WuXi Apptec held its investor day yesterday. The company’s management stated that investors can expect an improvement in net profits from efficiency increases fueled by artificial intelligence and automation. The company’s leaders also forecasted a long-awaited in global biotechnology funding is on the horizon.

Alibaba was higher by over +1% and led slight gains in internet stocks overnight before the company’s Q2 earnings release tomorrow. Clearly, investors are anticipating good results from the E-Commerce giant, which flies in the face of reports that China’s consumer have not come back.

The Hang Seng and Hang Seng Tech indexes diverged to close +0.32% and -0.01%, respectively, overnight on volume that decreased -19% from yesterday. Short sale turnover also decreased -19%, which was surprising given the grim headlines on China. Mainland investors sold a net -$878 million worth of Hong Kong stocks via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board all closed lower by -0.49%, -0.60%, and -0.85%, respectively, on volume that decreased -8% from yesterday. Foreign investors were net sellers of Mainland stocks again to the tune of -$170 million overnight via Northbound Stock Connect.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.21 versus 7.22 yesterday
• CNY per EUR 7.92 versus 7.91 yesterday
• Yield on 1-Day Government Bond 1.35% versus 1.35% yesterday
• Yield on 10-Year Government Bond 2.65% versus 2.65% yesterday
• Yield on 10-Year China Development Bank Bond 2.75% versus 2.75% yesterday
• Copper Price -1.03% overnight
• Steel Price -0.46% overnight