Key News

Northern Asian equities were off with growth stocks leading the way while Southern Asian equities were mixed. Yesterday’s economic release weighed on sentiment despite chatter that we could see another bank reserve requirement ratio (RRR) cut and other supportive policies.

US-China rhetoric on Taiwan appears to have been escalated overnight, contributing to Mainland softness as leading themes such as semis, the electric vehicle (EV) ecosystem, cleantech, and healthcare were hit today in a very broad selloff with only 544 advancing stocks versus 3,554 declining on the Shanghai and Shenzhen Stock Exchanges. It is hard to pinpoint the exact reason for the Mainland sell-off, though another leg down from Hong Kong-listed internet stocks was a contributor.

It is being reported that China’s anti-monopoly policies will go live in September, which would be a good thing as it means there is a finish line to regulatory uncertainty. There were also reports of China’s user data laws going into effect. Investors decided to shoot first sending the space lower.

Good results from online book company China Literature did not matter as the stock was sent lower in Hong Kong. Tencent Music’s results pre-US market open were largely better than expected yet it is down in pre-market trading. We did have a Mainland media source mention online “idols”, which weighed on online video and social media names. We also had SEC Chairman Gary Gensler’s podcast on US-listed Chinese companies, which was a reiteration of the end of July statement.

China’s online regulation was a contributor to the Mainland’s downturn today. We saw this several weeks ago, leading to an about-face from policymakers. The uptick in unemployment was small, though, among the 16 to 24-year segment, it increased more. Maybe all those after-school tutors being laid off was a factor? I doubt it but it certainly didn’t help. I would expect we’ll see several positive Mainland media statements though hopefully today’s market action gives policymakers pause.

H-Share Update

The Hang Seng Index put the landing gear down late morning and descended to close -1.66% as volume increased +23.92% from yesterday which is just below the 1-year average. The 522 Chinese companies listed in Hong Kong within the MSCI China All Shares declined -2.95% led lower by communication -4.27%, discretionary -3.79%, healthcare -3.37%, energy -2.81%, utilities -2.77%, materials -2.43%, industrials -2.21%, staples -1.82%, tech -1.51%, real estate -1.5% and financials -1.03%. Hong Kong’s most heavily traded by value were Tencent -4.14% on volume 3X the #2 stock Alibaba Hong Kong -4.77%, Meituan -3.52%, Wuxi Biologics -6.03%, AIA +3.14%, Hong Kong Exchanges -2.94%, Sunny Optical _0.55%, Geely Auto -3.58%, BYD -0.32% and Xiaomi -1.41%. Southbound Stock Connect volumes were moderate/high as Mainland investors sold -$607mm of Hong Kong stocks as Southbound trading accounted for 13.3% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen and STAR Board were down -2%, -2.52% and -2.5% as volume increased +4.66% from yesterday which is 142% of the 1-year average. The 522 Mainland stocks within the MSCI China All Shares were off -2.25% with real estate +0.37% while healthcare -4.16%, staples -3.82%, discretionary -3.15%, tech -2.72%, energy -2.63%, communication -2.21%, materials -1.69%, utilities -1.2%, financials -0.94% and industrials -0.74%. The Mainland’s most heavily traded were Northern Rare Earth -2.85%, Kweichow Moutai -3.78%, broker East Money -3.76%, Shanxi Meijin Energy -5.47%, BYD -1.78%, CATL +0.63%, Tianqi Lithium -4.2%, Qinghai Salt Lake -1.3%, Longi Green Energy +0.27%, and Tibet  Mineral Development +6.61%. Northbound Stock Connect volumes were moderate/high as foreign investors bought $227mm of Mainland stocks as Northbound trading accounted for 5.5% of Mainland turnover.

Last Night’s Exchange Rates, Prices & Yields

• CNY/USD 6.48 versus 6.48 Monday
• CNY/EUR 7.63 versus 7.62 Monday
• Yield on 10-Year Government Bond 2.88% versus 2.89% Monday
• Yield on 10-Year China Development Bank Bond 3.22% versus 3.23% Monday
• Copper Price -0.65%