A Tale of Two Chinas
6 Min. Read Time
Key News
Asian equities were led higher by Japan, Taiwan, Mainland China, and Vietnam, while the Philippines underperformed, despite a stronger US dollar.
Following a family vacation last week, I’m feeling refreshed and reinvigorated, though nothing has changed in Hong Kong in the last week. Every day these days appears to be a repeat, reminiscent of the Bill Murray movie Groundhog Day, as AI "picks and shovels", i.e., semiconductors and technology hardware, and recent IPOs outperform. These overweights are funded by selling, and are therefore at the expense of legacy tech plays and China’s hyperscalers, including Tencent, which fell -1.64%, and Alibaba, which fell -1.91%, also hitting a 52-week low.
Last week’s news of government support for “AI consumption” lifted AI large language model (LLM) pure plays Knowledge Atlas (Zhipu), which gained +15.09%, and Minimax, which gained +23.89%, while the IPO of AI module and model provider Shenzhen HQVT Tech gained a mere +270% after raising $78 million.
There are other factors to the downdraft in China's hyperscalers, such as supply coming into the market, as IPO lock-ups are expiring, and discretionary spending remains tepid in China.
The latest geopolitical tit-for-tat was China's response to the US Defense list. China added ten US companies to its non-procurement list, while the Ministry of Finance (MoF) added 46 companies to its list. Arguably, US-China relations are improving under President Trump, though these headlines do not help sentiment, despite there being no bite to them.
There were reports that travel and spending during the three-day weekend in China for the Dragon Boat Festival were weak, though I have not seen anything definitive.
Mainland China is outperforming Hong Kong significantly, despite virtually all of MSCI’s definition of China being Hong Kong, as its market rally is far broader. The AI "picks and shovels" trade also includes electrical equipment (i.e., CATL), communication equipment, and electronic equipment, which are also outperforming. Mainland investors are selling Hong Kong-listed stocks via Southbound Stock Connect in order to participate in the Mainland rally, with $1.12 billion of net sales since June 4th. Alibaba had its 8th day of net selling via Southbound Stock Connect, while Tencent had its 5th straight day.
Today, Alibaba was lower, as only the fifth most heavily traded stock, despite announcing the launch of its video generation model, HappyHorse 1.1. Meanwhile, He Xiaopeng, founder of Xpeng, joined Alibaba affiliate Ant Financial’s board of directors.
Tencent continues to test its AI for WeChat while buying 1.154mm shares today.
In waking up early to burn off my vacation pounds, it was hard not to notice Hong Kong’s performance was excluded from a certain review of global markets, as it has become literally out of sight, out of mind. Today, Financials outperformed in both Hong Kong, gaining +1.38%, and Mainland China, gaining +3.35%, following the Ministry of Commerce, National Development & Reform Commission (NDRC), and Ministry of Finance (MoF) having a joint announcement of plans to ease restrictions on foreign investment capital in government bond futures, healthcare, and education. The ministries also mentioned easing M&A restrictions.
Real Estate stocks were underperformers in both markets, though there was a Mainland media article on the uptake in Shenzhen real estate transactions during the recent three-day weekend.
It has been a slow grind, but Shanghai and now Shenzhen appear to have bottomed and are starting to rebound. There was a strong move on high volume, as the Science & Technology (STAR) Board outperformed, gaining +1.96%, versus Shenzhen’s 1.70% gain and Shanghai’s 1.78%.
Premier Li will attend the World Economic Forum, which kicks off in Dalian tomorrow.
The National People's Congress (NPC) Standing Committee meets from June 23rd to the 26th, with topics including “procuratorial public-interest litigation, and on Antarctic activities and environmental protection” and “review a report on the central government's final accounts for 2025, and an audit report on the execution of the central government's 2025 budget and other fiscal revenue and expenditure”.
June's Loan Prime Rate (LPR) was left unchanged at 3% for 1-year and 3.5% for the 5-year.
The National Bureau of Statistics reported the May unemployment rate for non-student urban workers was 15.6%, 7.2% for those between 25 and 29 year old and 4.1% for 30 to 59 years old.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -0.7% |
| Hang Seng Tech | HSTECH Index | -1.2% |
| Hong Kong Turnover | HKTurn Index | -2.8% |
| Hong Kong Short Sale Turnover | HKSST Index | -11.4% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 16.6% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -743.24 |
| China (Shanghai) | SHCOMP Index | 1.8% |
| China (Shenzhen) | SZCOMP Index | 1.7% |
| China (STAR Board) | Star50 Index | 2% |
| Mainland Turnover | .chturn Index | 13.1% |
| Japan | NKY Index | 1.5% |
| India | SENSEX Index | 0.4% |
| Indonesia | JCI Index | -1% |
| Malaysia | FBMKLCI Index | -0.7% |
| Pakistan | KSE100 Index | -0.5% |
| Philippines | PCOMP Index | -1.6% |
| South Korea | KOSPI Index | 0.7% |
| Taiwan | TWSE Index | 2.7% |
| Thailand | SET Index | 0.1% |
| Singapore | STI Index | 0.2% |
| Australia | AS51 Index | -0.1% |
| Vietnam | VNINDEX Index | 1.8% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 129% | 161% |
| Advancing Stocks | 151 | 2324 |
| Declining Stocks | 366 | 2687 |
| Outperforming Factors | Liquidity, Large Cap, EPS Revision | EPS Revision, Momentum, Liquidity |
| Underperforming Factors | Dividend Yield, Quality, Low Volatility | None |
| Top Sectors | Financials, Industrials, Energy | Materials, Financials, Energy |
| Bottom Sectors | Real Estate, Discretionary, Communication | Consumer Discretionary, Real Estate, Utilities |
| Top Subsectors | Semis, Electrical Equipment, Financial Services | Securities, Petrochemical, Insurance |
| Bottom Subsectors | Steel, Auto, Consumer Durables/Apparel | Daily Chemical, Auto Parts, Catering/Tourism |
| Southbound Connect Buys | Kingboard (Very Large), KB Laminates, SMIC (Large), Hua Hong Semi (Moderate) | N/A |
| Southbound Connect Sells | Alibaba, YOFC (Very Large), Tencent, HK Tracker (Large), Knowledge Atlas, Xiaomi (Small) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -0.75 |
| Communication Services | 11 | -1.64 |
| Consumer Discretionary | 28 | -1.99 |
| Consumer Staples | 13 | -1.12 |
| Energy | 6 | 0.47 |
| Financials | 25 | 1.38 |
| Health Care | 16 | -1.27 |
| Industrials | 22 | 0.84 |
| Information Technology | 12 | 0.01 |
| Materials | 14 | -0.74 |
| Real Estate | 7 | -2.81 |
| Utilities | 11 | -0.76 |
| Mainland China Listed | 386 | 2.28 |
| Communication Services | 8 | 2.68 |
| Consumer Discretionary | 26 | -0.25 |
| Consumer Staples | 19 | 1.36 |
| Energy | 12 | 2.93 |
| Financials | 64 | 3.36 |
| Health Care | 31 | 1.36 |
| Industrials | 58 | 2.92 |
| Information Technology | 95 | 1.32 |
| Materials | 52 | 4.85 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1.6 |
| Alibaba HK | 9988 HK Equity | -1.9 |
| JD.com HK | 9618 HK Equity | -1.3 |
| NetEase HK | 9999 HK Equity | -0.2 |
| Yum China HK | 9987 HK Equity | -1.7 |
| Baozun HK | 9991 HK Equity | -1.1 |
| Baidu HK | 9888 HK Equity | -2.7 |
| Autohome HK | 2518 HK Equity | 2.4 |
| Bilibili HK | 9626 HK Equity | -1.9 |
| Trip.com HK | 9961 HK Equity | -1.7 |
| EDU HK | 9901 HK Equity | -0.7 |
| Xpeng HK | 9868 HK Equity | 0.1 |
| Weibo HK | 9898 HK Equity | -0.5 |
| Li Auto HK | 2015 HK Equity | -2.9 |
| Nio Auto HK | 9866 HK Equity | -3.9 |
| Zhihu HK | 2390 HK Equity | -0.6 |
| KE HK | 2423 HK Equity | -2.5 |
| Tencent Music Entertainment HK | 1698 HK Equity | -0.6 |
| Meituan HK | 3690 HK Equity | 0.3 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| SEMICONDUCTOR MANUFACTURI-H | 3.1 |
| TENCENT HOLDINGS LTD | -1.6 |
| YANGTZE OPTICAL FIBRE AND-H | 31.3 |
| KNOWLEDGE ATLAS TECHNOLOGY-H | 15.1 |
| ALIBABA GROUP HOLDING LTD | -1.9 |
| KINGBOARD HOLDINGS LTD | 11.5 |
| KINGBOARD LAMINATES HLDG LTD | 0.1 |
| HUA HONG GRACE SEMICONDUCTOR | -2.1 |
| XIAOMI CORP-CLASS B | -3.5 |
| MEITUAN-CLASS B | 0.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 1.1 |
| GIGADEVICE SEMICONDUCTO-CL A | 9.7 |
| EOPTOLINK TECHNOLOGY INC L-A | -0.3 |
| BOE TECHNOLOGY GROUP CO LT-A | 5.8 |
| SUZHOU DONGSHAN PRECISION-A | -0.9 |
| CONTEMPORARY AMPEREX TECHN-A | 4.5 |
| FOXCONN INDUSTRIAL INTERNE-A | 1 |
| MONTAGE TECHNOLOGY CO LTD-A | 3.8 |
| EAST MONEY INFORMATION CO-A | 12.7 |
| CAMBRICON TECHNOLOGIES-A | -3.3 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.78 versus 6.76 Thursday
- CNY per EUR 7.75 versus 7.77 Thursday
- Yield on 10-Year Government Bond 1.74% versus 1.73% Thursday
- Yield on 10-Year China Development Bank Bond 1.82% versus 1.82% Thursday
- Copper Price -0.26%
- Steel Price -0.35%
