Key News 

Asian equities had a mixed night as Hong Kong and China outperformed led by growth stocks and sectors. China’s April PPI and PPI came in at 8% and 2.1%, respectively, slightly higher than expectations of 7.8% and 1.8%. However, the market believes inflation is not high enough to stop further stimulus. There were several more policy announcements including Premier Li’s presiding over a State Council meeting that mentioned that the economy needs “fiscal and monetary policies to stabilize the economic market with employment a priority”.  

Shanghai’s falling COVID-19 numbers continue to decline as no new cases were reported today. In another positive sign, the PBOC added liquidity to the financial system again today. 

Fosun Pharma (2196 HK +10.83%, 600196 CH +9.33%) gained on reports its BioNTech vaccine finished phase two clinical trials, leading to a strong rally in healthcare. EV ecosystem stocks had a strong day on news that EV production increased +52.6% in April to 293,000 vehicles though remains off -33.1% month over month. CATL (300750 CH) gained +8.06% and BYD (002594 CH +8.3%, 1211 HK +8.47%)  were the most heavily traded stocks in China today on the news.  

One of the most important aspects of today is the volume disparity of China, which was very strong versus modest in Hong Kong. Mainland investors were quite enthusiastic today as volume was 100% of the 1-year average and above the RMB 1 trillion value traded level.  Foreign investors/non-Chinese investors were sort of enthusiastic as volume was only 91% of the 1-year average while short sale volume was 113% of the 1-year average.  Mainland investors were buyers of Hong Kong internet stocks via Southbound Stock Connect with Tencent, Meituan, and Kuiashou benefitting. Mainland investors appear to be looking forward i.e. more stimulus and policy support, which foreign investors aren’t noticing.

The CSRC had an interesting statement today noting the low valuation of China relative to overseas markets. The release noted the dividend yield of Chinese stocks is equal to China’s 10 Year Treasury at 2.8%. I would compare that to the US equity market where the dividend yield is approximately half of the 10 Year Treasury. Yes, we can look at free cash flow yield and buybacks but the reality is asset classes compete with one another. Chinese equities look “cheap” versus bonds. However, not all Chinese stocks are cheap as evidenced by the P/E of Shanghai at 12 versus Shenzhen at 33. 

Online real estate company KE Holdings (BEKE US) relisted on the Hong Kong Stock Exchange under ticker 2423 as a dual primary, which will allow it to be added to Southbound Stock Connect.

The Hang Seng Index and Hang Seng Tech Index gained +0.97% and +2.89% on volume -12.2% from yesterday, which is 91% of the 1-year average. There were 286 advancing stocks and 186 declining. Hong Kong short sale volume declined -12.91% from yesterday, which is 113% of the 1-year average. Large companies outperformed small companies and growth outperformed value from a factor perspective. Healthcare had a strong day +4.33% following strong results from Zai Labs (9688 HK) +12.93% and the Fosun news.  Communication, tech, and discretionary were led higher by internet stocks gaining +2.77%, +2.5%, and +2.35%. Southbound Stock Connect volumes were modest/strong as mainland investors bought Tencent, Meituan, and Kuaishou.

Shanghai, Shenzhen, and th STAR Board gained +0.75%, +1.27%, and +3.12% on volumes +27.41% which is 100% of the 1-year average. There were 2,934 advancing stocks and 1,385 declining stocks. Growth stocks outperformed value factors today. Discretionary, tech, and healthcare were the best performing sectors gaining 3.89%, 2.72%, and 2.24%. Foreign investors bought $331mm of mainland stocks via Northbound Stock Connect.  Treasury bonds fell, CNY appreciated versus the US $ and copper managed a small gain.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.71 versus 6.72 yesterday
• CNY/EUR 7.09 versus 7.09 yesterday
• Yield on 10-Year Government Bond 2.82% versus 2.81% yesterday
• Yield on 10-Year China Development Bank Bond 3.02% versus 3.00% yesterday
• Copper Price 0.14% overnight