In yesterday’s webinar, which you can watch here, we addressed a rumor that US-listed China stocks could be delisted. In December 2020, the Holding Foreign Companies Accountable Act was passed to address the long-running issue of China's law preventing the Public Company Accounting Oversight Board (PCAOB) from accessing US-listed stocks’ auditor books.

While we considered the delisting a low probability because US investors, rather than Chinese investors, own the US-listed Chinese stocks, we converted the US shares to Hong Kong shares in stocks like Alibaba, JD.com, Baidu, and Trip.com, which offer sufficient liquidity in Hong Kong. Another ~16% of the holdings could be converted but haven’t, as the Hong Kong shares exist, but volumes are light in comparison to the US. 

There are two worthwhile holdings that don’t have a Hong Kong listing: Full Truck Alliance and Pinduoduo. At the time, Full Truck filed for a Hong Kong listing but pulled the filing after the Chinese government changed its law to allow the PCAOB access. The PCAOB met the US-listed Chinese stocks' auditors, which are local arms of KPMG, EY, Deloitte, and PWC, and determined the auditors were doing their jobs. The SEC removed the delisting risk with the below statement, which can be found here. It stated:

We also stated our belief that the age of China disinformation was coming to an end as we are no longer reliant on the media, US government, or unnamed “sources” due to data sources like ChatGPT, DeepSeek, and Perplexity, which easily refute inaccuracies.

In the last half hour of trading yesterday, a Tweet from Fox Business reporter Charles Gasparino stated according to his unnamed “sources,” the US-listed China stocks could be delisted for several reasons. The timing at the very end of trading was deliberate and suspicious as investors fired first/asked questions later. If he had done so early in the trading day, its inaccuracies could have been refuted.  The US-China ADRs are owned by US investors and the Chinese government. While the Chinese government doesn’t care if the US government decides to vaporize US investors’ capital, they likely will care if Chinese companies are being singled out. The escalation of the goods trade war, not services as the US is the largest services exporter, to the financial markets would be deemed by the Chinese government an escalation. The US capital markets are the largest globally due to the rule of law and lack of capital controls.  The Tweet doesn’t mention the Variable Interest Entity (VIE) structure of US listed China ADRs though the VIE structure was created to by US and global private equity investors to invest in Chinese technology companies when Chinese law prevented them. The private equity structure became public equity when the companies went. The VIE is structure is not unique to the US as companies listed in HK and mainland China that were backed by US and global private equity go public there.  

To educate yourself on VIEs please click here to read our article from 2022.

On behalf of our shareholders, we will fight this misinformation.

Week in Review

• Asian equities were mostly lower for the week as Australia and Japan outperformed, while Hong Kong and Mainland China, which had a shortened week due to the Qing Ming Festival on Monday, underperformed.
• This week saw a massive $10.5 billion worth of net buying of Hong Kong-listed stocks and ETFs by Mainland investors via Southbound Stock Connect on the tariff-induced pullback.
• As global markets continued to be rattled by US import tariffs, China placed an initial 84% tariff (to be raised to 125% tomorrow) on imports from the US; China's Ministry of Commerce (MoC) and Ministry of Foreign Affairs said that China "will not back down" but left room for negotiations, and China's economic officials said that the levies will be also be followed up with domestic consumer stimulus.
• In our latest video, KraneShares' Xiabing Su explores Jingdezhen, the historic porcelain capital of China with over 1,000 years of ceramic heritage.

Key News

Asia ended a volatile week mixed as Hong Kong, Taiwan, Vietnam, and India outperformed, and Japan and Singapore were off.

CNH, China’s currency that trades during US hours, had a very strong day, indicating the government is defending the currency from depreciation, as it closed at 7.42 CNH per USD Tuesday from last Monday’s 7.26 to today’s 7.29 (CNH is quoted USD/CNH, so higher prices mean deprecation/lower prices appreciation versus the US dollar). Maybe Chinese entities are selling US assets like US Treasuries and converting them back to Renminbi? It is impossible to know, but if so, they aren’t alone, as the US dollar is weaker against many currencies as investors vote with their feet. Remember, capital flows to where it is treated best.

Near the end of the trading day, the Chinese government raised its tariff on US imports to 125% from 84% after the US raised its tariff.  I wonder what poker expert and psychologist Annie Duke would say about China increasing its tariffs despite the US saying China’s economy is dependent on the US? As our webinar yesterday stated, China is far less dependent on the US than is thought here.

Both Hong Kong and Mainland China opened lower but moved from the lower left to the upper right across the trading day on decent volume and breadth. National Team ETFs did not have very high volumes today, though Southbound Stock Connect saw a solid $1.51 billion worth of net buying of Hong Kong-listed stocks from Mainland investors.

Hong Kong and China-listed semiconductors had a very strong day, led by the Hong Kong-listed Semiconductor Manufacturing (SMIC), which gained +5.9%, and Hua Hong Semiconductor, which gained +14.07% after the China Semiconductor Industry Association announced an integrated circuit’s origin would be based on where the wafer was made.

Mainland China and Hong Kong-listed autos also had a good day as the EU and China are in talks on reducing tariffs on imports.

Spain’s Prime Minister met with President Xi as both stated that there are no winners in a trade war. Hong Kong-listed internet stocks were mixed, as Tencent fell -0.31%, Alibaba fell -1.72%, Meituan fell -1.31%, and Trip.com fell -4.6%. It is difficult to say whether the ADR delisting rumor weighed on sentiment.

More importantly, JD.com gained +0.99% stated after the close, it would help export-focused manufacturers sell to domestic Chinese consumers. It is committing to the sale of RMB 200B ($28b) of goods that would have been sold overseas to be sold in China. This is another strong signal of the coming domestic consumption push with others to follow.

The Hang Seng and Hang Seng Tech indexes gained +1.13% and +1.80%, respectively, on volume that decreased -30% from yesterday, which is 158% of the 1-year average. 335 stocks advanced, while 137 stocks declined. Main Board short turnover decreased -45.15% from yesterday, which is 160% of the 1-year average, as 16% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging).  Growth, momentum, and large caps outperformed value and small caps. All sectors were positive, except for Utilities, which fell -0.19%. The top-performing sectors were Healthcare, which gained +4.72%; Materials, which gained +3.80%; and Information Technology, which gained +3.19%. The top-performing subsectors were semiconductors, autos, and non-ferrous metals. Meanwhile, real estate investment trusts (REITs), consumer discretionary distribution services, and commercial & professional services were among the worst-performing subsectors. Southbound Stock Connect volumes were 3X pre-stimulus, September levels, as Mainland investors bought a net $1.51 billion worth of Hong Kong-listed stocks and ETFs, including Alibaba, CNOOC, Hua Hong Semiconductor, Meituan, Xiaomi, XPeng, and SMIC. Tencent was a slight net sell.

Shanghai, Shenzhen, and STAR Board gained +0.45%, +0.72%, and +2.07%, respectively, on volume that decreased -16.17% from yesterday, which is 111% of the 1-year average. 3,581 stocks advanced, while 1,382 stocks declined. Growth and small-cap stocks outperformed value and large-cap stocks. The top-performing sectors were Information Technology, which gained +2.81%; Consumer Discretionary, which gained +1.76%; and Industrials, which gained +0.97%. Meanwhile, the worst-performing sectors were Real Estate, which fell -0.99%; Energy, which fell -0.79%; and Communication Services, which fell -0.45%. The top-performing subsectors were semiconductors, precious metals, and autos. Meanwhile, agriculture, food, and telecom were among the worst-performing subsectors. Northbound Stock Connect volumes were above average. CNY and the Asia Dollar Index both rose versus the US dollar. Treasury bonds were flat. Copper and steel rose.

Last Night's Performance

Country/Index	Ticker	1-Day Change
China (Hong Kong)	HSI Index	1.1%
Hang Seng Tech	HSTECH Index	1.8%
Hong Kong Turnover	HKTurn Index	-30.1%
HK Short Sale Turnover	HKSST Index	-45.2%
Short Turnover as a % of HK Turnovr	N/A	15.6%
Southbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	0
China (Shanghai)	SHCOMP Index	0.5%
China (Shenzhen)	SZCOMP Index	0.7%
China (STAR Board)	Star50 Index	2.1%
Mainland Turnover	.chturn Index	-16.2%
Nouthbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	Not Available
Jing Daily China Global Luxury Index	CHINALUX Index	-0.3%
Japan	NKY Index	-3%
India	SENSEX Index	1.8%
Indonesia	JCI Index	0.1%
Malaysia	FBMKLCI Index	-0.6%
Pakistan	KSE100 Index	-1%
Philippines	PCOMP Index	0.1%
South Korea	KOSPI Index	-0.5%
Taiwan	TWSE Index	2.8%
Thailand	SET Index	-0.5%
Singapore	STI Index	-1.8%
Australia	AS51 Index	-0.8%
Vietnam	VNINDEX Index	4.6%

MSCI China All Shares Index	# of Stocks	Average 1-Day Change (%)
Hong Kong Listed	152	1.17
Communication Services	9	0
Consumer Discretionary	30	0.31
Consumer Staples	13	1.42
Energy	7	0.75
Financials	23	2.82
Health Care	13	4.68
Industrials	19	1.26
Information Technology	10	3.15
Materials	10	3.77
Real Estate	6	2.07
Utilities	12	-0.22
Mainland China Listed	432	1.13
Communication Services	9	-0.29
Consumer Discretionary	31	1.93
Consumer Staples	27	0.38
Energy	16	-0.62
Financials	63	0.87
Health Care	40	0.29
Industrials	69	1.13
Information Technology	85	2.98
Materials	68	0.96
Real Estate	7	-0.82
Utilities	17	0.27

US & Hong Kong Dually Listed	Ticker	1-Day Change (%)
Tencent HK	700 HK Equity	-0.3
Alibaba HK	9988 HK Equity	-1.7
JD.com HK	9618 HK Equity	1
NetEase HK	9999 HK Equity	1.1
Yum China HK	9987 HK Equity	-3.9
Baozun HK	9991 HK Equity	-0.8
Baidu HK	9888 HK Equity	-0.6
Autohome HK	2518 HK Equity	3.5
Bilibili HK	9626 HK Equity	2
Trip.com HK	9961 HK Equity	-4.6
EDU HK	9901 HK Equity	1.2
Xpeng HK	9868 HK Equity	6.7
Weibo HK	9898 HK Equity	0.1
Li Auto HK	2015 HK Equity	5.6
Nio Auto HK	9866 HK Equity	-1.7
Zhihu HK	2390 HK Equity	-1.6
KE HK	2423 HK Equity	-0.8
Tencent Music Entertainment HK	1698 HK Equity	-0.1
Meituan HK	3690 HK Equity	-1.3

Hong Kong's Most Heavily Traded by Value	1-Day Change (%)
TENCENT HOLDINGS LTD	-0.3
ALIBABA GROUP HOLDING LTD	-1.7
XIAOMI CORP-CLASS B	2.8
SEMICONDUCTOR MANUFACTURING	5.9
MEITUAN-CLASS B	-1.3
BYD CO LTD-H	7.1
CHINA CONSTRUCTION BANK-H	4.2
HUA HONG SEMICONDUCTOR LTD	14.1
HONG KONG EXCHANGES & CLEAR	1.8
TRIP.COM GROUP LTD	-4.6

Shanghai and Shenzhen's Most Heavily Traded by Value	1-Day Change (%)
LUXSHARE PRECISION INDUSTR-A	4.7
CONTEMPORARY AMPEREX TECHN-A	2.8
SEMICONDUCTOR MANUFACTURIN-A	2.1
BYD CO LTD -A	5.5
EAST MONEY INFORMATION CO-A	0.4
CHINA GREATWALL TECHNOLOGY-A	0
CAMBRICON TECHNOLOGIES-A	2
VICTORY GIANT TECHNOLOGY -A	5.6
UNIGROUP GUOXIN MICROELECT-A	3.4
KWEICHOW MOUTAI CO LTD-A	1.3

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.32 versus 7.32 yesterday
• CNY per EUR 8.10 versus 8.10 yesterday
• Yield on 10-Year Government Bond 1.64% versus 1.64% yesterday
• Yield on 10-Year China Development Bank Bond 1.71% versus 1.71% yesterday
• Copper Price +1.94%
• Steel Price +1.50%