Key News

Asian equities had a strong day while Taiwan and South Korea were off. Hong Kong was led higher by internet stocks such as Tencent, which gained +1.56%. Tencent traded twice as much as the second most heavily traded stock. Tencent announced it bought another 210,000 shares after the market’s close.

Kuaishou Technology (1024 HK) was added to Southbound Stock Connect, the trading platform that allows Mainland investors to buy Hong Kong stocks, gaining +5.24% as Mainland investors were allowed to buy the stock for the first time. Mainland investors bought $51 million worth of the stock. Considering that 6% of Tencent’s and 4.82% of Meituan’s respective market caps are owned by Mainland investors, we could see significant inflows into the stock. It is interesting to see an internet stock being added to Connect, as its addition to the program means that regulators in China gave the green light.

Internet stocks once again overcame negative headlines as the Ministry of Transportation, along with several other agencies, called on Didi, Meituan, and other online taxi cab-hailing companies to “rectify” by December. There was also talk about Ant Group housing its credit rating business in a joint venture with a government agency. The key is the that market rose despite these headlines.

Clean technology plays; industrial metals like lithium, solar and wind, were on fire today in both Hong Kong and the Mainland. Electric vehicle plays were off after Nio curtailed their sales forecast due to chip shortages. Like yesterday, coal plays ironically did well while semiconductor stocks were weak. Utilities, which are a defensive play, had a strong day, which is interesting and will be something to watch.

President Xi spoke to the China International Service Trade Fair, where he announced the establishment of the Beijing Securities Exchange to provide a venue for small companies to list. This might explain the weakness in the STAR Board recently, though the Beijing exchange appears to be focused on very small companies. I will keep digging on this. Foreign investors were net buyers of Mainland stocks today.

John Kerry is in China. Perhaps a climate deal is in the works?

The New York Times had a good article titled “Businesses Push Biden to Develop China Trade Policy”. In a nutshell, US businesses that import goods continue to pay tariffs, which then forces them to either eat the tariffs or pass along the higher prices to consumers i.e., cause inflation. The irony, of course, is that tariffs were supposed to help US manufacturers, but, in reality, it hurts them because many basic inputs that go into high-end manufactured products such as cars and planes that are assembled in the US come are sourced from China.

H-Shares Update

The Hang Seng opened higher, took a midday dive, and then came back into the close +0.24% on volume -5.87% from yesterday which is 101% of the 1-year average. The 210 Chinese companies listed in Hong Kong gained +1.07% led by utilities +2.9%, discretionary +1.68%, communication +1.64%, industrials +1.45%, energy +1.26%, materials +1.24% and tech +1.11% while healthcare -1.01% and staples -0.44%. Hong Kong’s most heavily traded by value were Tencent +1.56%, Meituan +0.08%, Alibaba HK +3.51%, Kuaishou +5.24%, Ping An -1.54%, HK  Exchanges +0.85%, Xiaomi +0.4%, Wuxi Biologics -2.4%, AIA -1.23% and Li Ning -4.75%. Southbound Stock Connect volumes were moderate/high as Mainland investors sold -$80mm of Hong Kong stocks as Southbound trading accounted for 13% of Hong Kong turnover.

A-Shares Update

Shangahi, Shenzhen, and STAR Board diverged +0.84%, +0.41%, and -1.77% as volume eased -16.54% from yesterday’s record-breaking volume day. Today’s volume was still 153% of the 1-year average. The 543 Mainland stocks within the MSCI China All Shares gained +0.42% led by utilities +3.59%, energy +3.09%, materials +2.14%, real estate +2.04%, industrials +1.59% and financials +1.26% while healthcare -2.89% and staples -0.96%. The Mainland’s most heavily traded by value were Inner Mongolia BaoTou Steel +4.21%, China Northern Rare Earth +3.36%, Sany Heavy Industry -1.14%, Tianqi Lithium +0.32%, liquor stock Wuliangye Yibin -3.12%, broker GF Securities +10.02%, Tibet Mineral Development +8.81% on a broker upgrade, Longi Green Energy +3.66%, Tongwei +9.85% and Qinghai Salt Lake +3.88%. Northbound Stock Connect volumes were elevated as foreign investors bought +$795mm of Mainland stocks today as Northbound Connect trading accounted for 4.8% of Mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.46 versus 6.47 yesterday
• CNY/EUR 7.65 versus 7.64 yesterday
• Yield on 10-Year Government Bond 2.83% versus 2.82% yesterday
• Yield on 10-Year China Development Bank Bond 3.17% versus 3.16% yesterday
• Copper Price -1.08% overnight