Week in Review

• Asian equities were mixed but mostly higher this week as Taiwan outperformed.
• Baidu, NetEase, and Bilibili reported second quarter financials this week with mixed results while Vipshop beat estimates despite issuing a negative outlook and Kuaishou beat estimates handily.
• Walmart sold its remaining stake in JD.com as the American retailer's China business has fully matured, leading it to terminate its partnership with JD.
• According to a Ministry of Commerce release, online retail sales have increased nearly +10% so far this year compared to last year.

Friday’s Key News

Asian equities ended a positive week higher on very light summer volumes in advance of Jerome Powell’s main event today in Jackson Hole. The US dollar was weaker overnight, though whether the US Fed cuts 0.50% or 0.25% in September is becoming a debate amongst the economists and strategists I follow.

Alibaba shareholders approved of the measures required by the Hong Kong Stock Exchange to make its Hong Kong listing a dual primary listing alongside New York, which will allow the stock to go into Southbound Stock Connect next month pending Mainland regulatory approval. The dual primary status of the Hong Kong listing will be made effective on August 28, 2024 and Southbound inclusion could happen as early as September 9^th.

Hong Kong was lower today, though closed its third week in a row higher! In US dollars, over the last three weeks, the Hang Seng and Hang Seng Tech indexes have almost kept up with the Japan’s Nikkei 225 Index, outperformed Taiwan’s TWSE, outperformed India, and outperformed South Korea’s negative return over the last three weeks!

The Ministry of Housing and Urban-Rural Development held a press conference on the real estate sector and the Ministry’s efforts. Initial comments seemed a bit tone deaf, mentioning “positive changes in the real estate market.” However, officials acknowledged “significant changes in the supply and demand relationship of the real estate market,” which is in an “adjustment period”. To address this, there is an opportunity to replace older apartment buildings with new, affordable housing units with the department's full support. The department will also “pro-actively promote the acquisition of existing commercial housing for affordable housing work.”  This will be done from the bottom-up perspective of working with local city governments by establishing “a coordination mechanism for urban real estate financing and launching a ‘white list’ system for projects,…”. What’s behind the move? The conclusions from “The Third Plenary Session” i.e. orders from the very top of China’s government. The press conference Q&A was released at 2:40 pm, but did not appear to move the market.

Hong Kong’s most heavily traded stocks by value were Tencent, which fell -0.58% despite buying 2.66 million shares today, Alibaba, which gained +1.22%, Ping An Insurance, which gained +3.64% following yesterday’s positive financial results, NetEase, which fell -10.28% on disappointing quarterly results and yesterday’s decline of -11.17% in its US-listed shares, and Xiaomi, which fell -1.47%.

Remember that Mainland investors hold 10% of Tencent’s outstanding shares via Southbound Stock Connect. Obviously, that won’t happen overnight for Alibaba, but inclusion in the program is a strong catalyst, in my opinion. It is important to note that Alibaba will not be delisting from the New York Stock Exchange (NYSE), but, rather, making Hong Kong (HKeX) and the NYSE dual primary listings, meaning both Hong Kong’s SFC and the US’ SEC will regulate the company.

Baidu fell -4.92% versus its US listing’s decline of -4.4% yesterday, though many were surprised, like me, as the results seemed all right to me. There was a similar surprise for Bilibili, which fell -1.34% in Hong Kong versus -7.56% in the US, on results that beat analyst expectations. JD.com fell -0.11% versus its US listing’s decline of -1.41% yesterday, following Walmart’s share sale. Hopefully, the company gets its Board to increase its share buyback program, as it could have bought all of Walmart’s shares.

Mainland China ended the week lower despite small gains today on very light volumes. The National Team’s favorite ETFs had below average volume, though several had a mid-day volume spike, which pushed the market higher. Mega-cap banks, energy, insurance and foreign favorites Kweichow Moutai, Midea, and CATL had strong sessions. There were only 1,052 52-week highs versus 676 52-week lows.

There was a fair amount of attention to former leader Deng Xiaoping and his efforts to reform China’s economy on his 120th birthday anniversary, including a speech from President Xi.

Treasury bonds rallied…..again.  Shanghai stayed above support at 2,850. Time for policy makers to hit the gas pedal!

“It takes a village” is an understatement for parenting and covering China’s capital markets and economy. Luckily, I have a great spouse for the former and I am part of a great team for the latter. In the hustle of Q2 financial results, there is no such thing as a quiet summer for China investors.

Commodity-focused research pointed out that China’s July electricity demand increased +5.7%, which had previously escaped me. It has been hotter than Hades in China so cranking the AC seems a logical explanation for residential demand’s +5.9% increase in July. Does that explain demand from manufacturing, called secondary industry, increasing 5% in July? A Mainland media source noted the rise was due to “stronger momentum in July….as more pro-growth policies have kicked in.”  I’m not putting the champagne on ice, but it is something to keep an eye on as the super tanker doesn’t turn on a dime.

The Hang Seng and Hang Seng Tech indexes fell -0.16% and -1.13%, respectively, on volume that declined -19.13% from yesterday, which is 77% of the 1-year average. 149 stocks advanced while 309 stocks declined. Main Board short turnover declined -18.92% from yesterday, which is 83% of the 1-year average, as 19% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large caps and the value factor fell less than small caps and the growth factor. The top-performing sectors were Financials, which gained +0.91%, Energy, which gained +0.33%, and Consumer Discretionary, which fell -0.04%. Meanwhile, Health Care fell -2.46%, Communication Services fell -1.63%, and Technology fell -0.16%. The top-performing subsectors were insurance, energy, and banks. Meanwhile, pharmaceuticals, transportation, and media were among the worst-performing subsectors. Southbound Stock Connect’s Mainland investors bought a net $349 million worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, Meituan, Bilibili, and Ping An. Tencent was net sold.

Shanghai, Shenzhen, and the STAR Board gained +0.20%, +0.08%, and +0.03%, respectively, on volume that declined -7.02% from yesterday, which is 64% of the 1-year average. 1,657 stocks advanced while 3,237 declined. Large caps and the value factor outperformed small caps and the growth factor. The top-performing sectors were Consumer Discretionary, which gained +1.29%, Financials, which gained +1.01%, and Energy, which gained +0.56%. Meanwhile, Utilities fell -1.29%, Real Estate fell -0.12%, and Health Care fell -0.11%. The top-performing subsectors were insurance, office supplies, and household appliances. Meanwhile, trade, the power industry, and marine/shipping were among the worst-performing subsectors. Northbound Stock Connect volumes were light. CNY and the Asia dollar index rallied. Treasury bonds continued to rally. Copper and steel fell.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.14 versus 7.14 yesterday


• CNY per EUR 7.93 versus 7.95 yesterday


• Yield on 10-Year Government Bond 2.16% versus 2.16% yesterday


• Yield on 10-Year China Development Bank Bond 2.24% versus 2.24% yesterday


• Copper Price: -0.55%


• Steel Price: -0.75%