DeepSeek To Become A Shooting STAR

Key News

Asian equities were mixed on light volumes as South Korea outperformed regional peers.

Hong Kong and Mainland China were mixed overnight on light volumes. Oil & gas and non-ferrous metals outperformed in both markets. Technology, AI, and internet stocks were mixed in both markets. Optical company YOFC gained +7.24% in Hong Kong and +6.04% in Mainland China on Verizon's multi-billion dollar deal to secure supply from US optical communications company Corning.

Mainland semiconductor stocks were weak overnight, as ChangXin Memory Technology (CXMT) fell by -2.6% and the Science and Technology (STAR) Board fell by -0.69%. Baidu gained +2.96% as Mainland investors bought $127 million (HKD 1.7 billion) worth of the stock after Monday’s inclusion in Southbound Stock Connect. We anticipate that about 10% of Baidu’s Hong Kong shares will be owned by Mainland investors within 1 year. The stock will be added to the Hang Seng Tech Index on September 14th, and its addition to Southbound Stock Connect will lead to its inclusion in several Connect-related indices on October 26th.

DeepSeek has hired Citic Securities as its lead underwriter for its STAR Board IPO. The company also announced price cuts for legacy AI large language models (LLMs) ahead of its V4.1 Flash AI LLM release tomorrow.

Hot pot chain Haidilao fell by -9.14% after announcing that major shareholder SP NP will sell 259 million shares at a ~6% to 7% discount. Bilibili gained +0.81% after yesterday’s news that it is raising $500 million through convertible notes, with $100 million to be used to buy back shares and $200 million to buy shares from shareholder Tencent. Tencent fell by -0.32% and was Hong Kong’s most heavily traded stock by value, though on light volumes that were 50% of pre-summer levels. Meanwhile, Alibaba had a decent day, gaining +0.27%.

August's producer price index (PPI) was up +3.8% year-over-year (YoY) versus July’s +3.5% and expectations of +3.6%. CPI was up +0.8% YoY versus July’s +0.5% and expectations of +0.8%. Core CPI, which excludes energy and food, was +1% versus July’s +0.9% and expectations of +0.9%.

Tomorrow at 3 pm, there will be a press conference held by the People's Bank of China (PBOC), the State Administration of Market Regulation (SAMR), the China Securities Regulatory Commission (CSRC), and the State Administration of Foreign Exchange (SAFE) that was titled "Getting Off to a Good Start for the 15th Five-Year Plan". It discusses the financial sector’s role in achieving the goals set forth in the Five Year Plan. I would like to share some advice for them that comes from Jerry McGuire: “Show me the money!”, i.e., markets are looking for real numbers.

After the close, Beijing’s local government released the Beijing Municipal High-End Industry Development Plan for the 15th Five-Year Plan, comprising 22 policy measures focused on developing “high-end industries”. It emphasized building “100,000 cards of computing power cluster” in addition to emphasizing AI and semiconductors.

Shanghai’s local government announced new policies that will eliminate all childbirth costs for families.

I made a random observation today. Within the MSCI China Index, the technology sector comprises 11.65% of the index, with 137 stocks. What’s interesting is that only 14 of those stocks are listed in Hong Kong! Remember, MSCI stopped including Shanghai and Shenzhen stocks in its indices at 20% of their potential weight. All eligible securities are in MSCI China, but capped at 20% of the market capitalization, i.e., 80% underweight. Global investors’ definition of China is Hong Kong, which is why there is so little global participation in the onshore AI rally, in my opinion. 

Last Night's Performance

Country / Index	Ticker	1-Day Change
China (Hong Kong)	HSI Index	-0.2%
Hang Seng Tech	HSTECH Index	-0.8%
Hong Kong Turnover	HKTurn Index	-0.6%
Hong Kong Short Sale Turnover	HKSST Index	12.6%
Short Turnover as a % of Hong Kong Turnover	N/A	0.2
Southbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	475.15
China (Shanghai)	SHCOMP Index	0.3%
China (Shenzhen)	SZCOMP Index	0%
China (STAR Board)	Star50 Index	-0.7%
Mainland Turnover	.chturn Index	-5.2%
Japan	NKY Index	-0.2%
India	SENSEX Index	-1.1%
Indonesia	JCI Index	-0.1%
Malaysia	FBMKLCI Index	0%
Pakistan	KSE100 Index	-0.4%
Philippines	PCOMP Index	0.2%
South Korea	KOSPI Index	1.4%
Taiwan	TWSE Index	0.2%
Thailand	SET Index	-0.2%
Singapore	STI Index	-0.7%
Australia	AS51 Index	-0.1%
Vietnam	VNINDEX Index	-0.2%

Indicator	Hong Kong	Mainland China
Today's Volume % of 1-Year Average	75%	75%
Advancing Stocks	238	1691
Declining Stocks	324	3343
Outperforming Factors	Momentum, Large Caps, ESG Score	Momentum, EPS Revision, Large Caps
Underperforming Factors	Growth, Buyback, Quality	ESG Score, Liquidity
Top Sectors	Materials, Energy, Tech	Energy, Materials, Utilities
Bottom Sectors	Staples, Healthcare, Real Estate	Communication, Healthcare, Real Estate
Top Subsectors	Coal, Commercial/Professional Services, HK Machinery	Marine, Coal, Heavy Machinery
Bottom Subsectors	Consumer Staples Distribution, Media/Entertainment, Consumer Services	Cultural Media, Healthcare, Real Estate
Southbound Connect Buys	CNOOC (Moderate), Tencent (Small)	N/A
Southbound Connect Sells	KB Laminates, Minimax, YOFC, Z AI(Small)	N/A

MSCI China All Shares Index	# of Stocks	Average 1-Day Change (%)
Hong Kong Listed	165	-0.16
Communication Services	11	-0.43
Consumer Discretionary	28	-1.01
Consumer Staples	13	-2.16
Energy	6	1.48
Financials	25	0.3
Health Care	16	-1.86
Industrials	22	1.42
Information Technology	12	1.42
Materials	14	2.03
Real Estate	7	-1.29
Utilities	11	0.32
Mainland China Listed	386	0.22
Communication Services	8	-1.96
Consumer Discretionary	26	-0.09
Consumer Staples	19	-1.02
Energy	12	2.7
Financials	64	0.18
Health Care	31	-1.76
Industrials	58	0.52
Information Technology	95	0.05
Materials	52	1.25

US & Hong Kong Dually Listed	Ticker	1-Day Change (%)
Tencent HK	700 HK Equity	-0.3
Alibaba HK	9988 HK Equity	0.3
JD.com HK	9618 HK Equity	-2.1
NetEase HK	9999 HK Equity	-2.7
Yum China HK	9987 HK Equity	-0.8
Baozun HK	9991 HK Equity	-2.3
Baidu HK	9888 HK Equity	3
Autohome HK	2518 HK Equity	-3.4
Bilibili HK	9626 HK Equity	0.8
Trip.com HK	9961 HK Equity	-2.3
EDU HK	9901 HK Equity	-2.5
Xpeng HK	9868 HK Equity	-0.2
Weibo HK	9898 HK Equity	0.8
Li Auto HK	2015 HK Equity	-3.4
Nio Auto HK	9866 HK Equity	2.9
Zhihu HK	2390 HK Equity	11.1
KE HK	2423 HK Equity	-1.9
Tencent Music Entertainment HK	1698 HK Equity	-2.9
Meituan HK	3690 HK Equity	-3.5

Hong Kong's Most Heavily Traded by Value	1-Day Change (%)
TENCENT HOLDINGS LTD	-0.3
YANGTZE OPTICAL FIBRE AND-H	7.2
ALIBABA GROUP HOLDING LTD	0.3
MINIMAX GROUP INC	-3.1
XIAOMI CORP-CLASS B	-2
Z AI CO LTD	-0.3
LENOVO GROUP LTD	6.8
BAIDU INC-CLASS A-HKD	3
KINGBOARD LAMINATES HLDG LTD	4.8
SEMICONDUCTOR MANUFACTURI-H	-0.5

Shanghai and Shenzhen's Most Heavily Traded by Value	1-Day Change (%)
ZHONGJI INNOLIGHT CO LTD-A	0.7
SUZHOU DONGSHAN PRECISION-A	5.2
HENGTONG OPTIC-ELECTRIC CO-A	5.6
CONTEMPORARY AMPEREX TECHN-A	0.4
EOPTOLINK TECHNOLOGY INC L-A	-0.4
HGTECH CO LTD-A	8.2
CXMT CORP-A	-2.6
JIANGSU ZHONGTIAN TECHNOLO-A	5
YANGTZE OPTICAL FIBRE AND -A	6
GIGADEVICE SEMICONDUCTO-CL A	-1.1

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 6.70 versus 6.71 yesterday
• CNY per EUR 7.79 versus 7.79 yesterday
• Yield on 10-Year Government Bond 1.68% versuss 1.68% yesterday
• Yield on 10-Year China Development Bank Bond 1.76% versus 1.76% yesterday
• Copper Price +0.78%
• Steel Price +0.03%