The Inflow Math On Baidu’s Southbound Connect Inclusion, Week In Review
6 Min. Read Time
Week in Review
- Asian equities were mixed but mostly lower for the week, as Middle East tensions flared (again) and rising oil and US Treasury yields weighed on AI supply chain markets such as Japan, Taiwan, Korea, and Mainland China’s Science and Technology (STAR) Board.
- MSCI's addition of AI LLM company Z.AI led to the stock being one of Hong Kong’s most heavily traded by value this week, though its 1st-half financial results missed revenue expectations despite +399% year-over-year (YoY) growth, while adjusted net income and adjusted EPS beat analyst expectations.
- Fast-fashion company Shein's Hong Kong IPO went alright, though it was announced that it would be included in the Hang Seng Composite Index on September 15th.
- The Ministry of Commerce and six other government agencies released “the implementation opinions on promoting the expansion and upgrading of commodity consumption,” which focuses on improving domestic demand for autos, home appliances, communication equipment, and clothing, while setting a target of RMB 60 trillion in retail sales by 2030.
- The "private" August Services PMI, as S&P conducts the survey, is 51.4, versus July's 50.4 and expectations of 50.6. Employment improved month over month (MoM) to 51 from 50.8. This is the 44th straight month that the services PMI has been above 50, indicating MoM expansion in activity.
Key News
Asian equities ended the week on a high note following yesterday’s lower US Treasury yields.
Hong Kong, Thailand, Vietnam, and AI-pick-and-shovel-heavy Korea, Taiwan, and Japan outperformed. The strong US Non-Farm Payroll release has caused a sharp rise in US Treasury yields and a drop in US equity futures, though I remain in the camp that they don’t hike. Onshore China’s Science and Technology (STAR) Board fell by -2.1% and did not participate in the rally, though it was an off day for onshore China.
Hong Kong volumes were up +38% from yesterday to 102% of the 1-year average, led by Hong Kong’s most heavily traded by value, Alibaba (+2.42%), Tencent (+2.26%), and Minimax (+1.8%), following the launch of Minimax's Arabic AI model in Saudi Arabia. Similar to onshore China, Hong Kong semiconductor stocks were weak, with SMIC down by -1.25%. Baidu gained +4.81% ahead of the anticipated after-close announcement that it will be added to the Southbound Stock Connect on Monday. Alibaba and Tencent have 10% and 11.84% of their shares held by Mainland investors via Southbound Stock Connect. With a market cap of $32 billion, a 10% Baidu stake would represent a potential inflow of $3.2 billion. Remember, Baidu could also announce the spin-off of its Kunlun semi-chip unit.
Lenovo gained +6.09% after announcing that it will partner with Workato to enhance the capabilities of its AI LLM, Qira. Shein was hit hard today, falling by -9.19%. Alibaba had a small inflow of +$17 million (HK $137 million) while Tencent was a large net sell as Mainland investors sold a healthy -$1.279 billion of Hong Kong stocks today. The week was still a net buy of $939 million, which brings the year-to-date (YTD) total to $48.525 billion.
Real Estate outperformed in both markets as Mainland media highlighted the upcoming September and October buying season against the backdrop of increased activity in Tier 1 cities and recent State Council-directed reforms, such as easing down payment minimums. There are only ten real estate stocks left in the MSCI All China Index. Banks and staples also performed well.
The PBOC said it will issue RMB 2 trillion in local government bonds and ultra-long special Treasury bonds to meet credit market demand.
The Ministry of Industry and Information Technology (MIIT), along with nine other government agencies, released the 15th Five-Year Plan for Promoting the Development of Small and Medium-sized Enterprises (SMEs). The MIIT also released the Artificial Intelligence SME Entrepreneurship Support Plan (2026-2028).
The South China Morning Post reported that the US and Chinese Navies met in Canada for the first time in two years. Communication, what a novel concept.
US Trade Representative Greer appeared to confirm our suspicions that the upcoming Trump-Xi summit will include more agriculture buying commitments. Our thesis was built on two trips to China this year by Montana's Republican Senator, Steve Daines. China’s Ministry of Foreign Affairs, when asked about Greer’s comments, stated: “We have no information to provide.”
Monday is Labor Day, so enjoy your three-day weekend if you are based in the US. The “official” end of summer is upon us as it has started to get dark early in the morning.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 1.7% |
| Hang Seng Tech | HSTECH Index | 2.3% |
| Hong Kong Turnover | HKTurn Index | 38.9% |
| Hong Kong Short Sale Turnover | HKSST Index | 13.8% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 0.2 |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -1279.80 |
| China (Shanghai) | SHCOMP Index | -0.3% |
| China (Shenzhen) | SZCOMP Index | -0.8% |
| China (STAR Board) | Star50 Index | -2.1% |
| Mainland Turnover | .chturn Index | 15.6% |
| Japan | NKY Index | 1.3% |
| India | SENSEX Index | 0.5% |
| Indonesia | JCI Index | -0.5% |
| Malaysia | FBMKLCI Index | -0.4% |
| Pakistan | KSE100 Index | 0.2% |
| Philippines | PCOMP Index | 0.3% |
| South Korea | KOSPI Index | 1.6% |
| Taiwan | TWSE Index | 1.5% |
| Thailand | SET Index | 1.2% |
| Singapore | STI Index | 0.9% |
| Australia | AS51 Index | -0.2% |
| Vietnam | VNINDEX Index | 1.4% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 102% | 82% |
| Advancing Stocks | 396 | 2645 |
| Declining Stocks | 128 | 2341 |
| Outperforming Factors | Buyback, EPS Revision, Growth | Dividend Yield, Quality, Low Volatility |
| Underperforming Factors | None | Liquidity, EPS Revision, Momentum |
| Top Sectors | Communication, Discretionary, Financials | Communication, Staples, Real Estate |
| Bottom Sectors | Healthcare, Materials | Tech, Materials, Energy |
| Top Subsectors | Media/Entertainment, Industry Conglomerates, Food/Beverage | Agriculture, Heavy Machinery, Cultural Media |
| Bottom Subsectors | Semis, Healthcare Equipment, Paper/Packaging | Computer Hardware, Semis, Electronic Components |
| Southbound Connect Buys | Minimax (Large), Alibaba, KB Laminates (Small) | N/A |
| Southbound Connect Sells | Tencent (Very Large), Akeso, Genscript Bio, SMIC, Hua Hong Semi (Large), Z AI (Moderate) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | 1.77 |
| Communication Services | 11 | 2.52 |
| Consumer Discretionary | 28 | 2.14 |
| Consumer Staples | 13 | 1.82 |
| Energy | 6 | 1.45 |
| Financials | 25 | 1.89 |
| Health Care | 16 | -0.29 |
| Industrials | 22 | 1.59 |
| Information Technology | 12 | 1.59 |
| Materials | 14 | -0.11 |
| Real Estate | 7 | 1.61 |
| Utilities | 11 | 0.29 |
| Mainland China Listed | 386 | -0.33 |
| Communication Services | 8 | 3.28 |
| Consumer Discretionary | 26 | 0.39 |
| Consumer Staples | 19 | 2.82 |
| Energy | 12 | 0.05 |
| Financials | 64 | 0.91 |
| Health Care | 31 | 0.17 |
| Industrials | 58 | 0.38 |
| Information Technology | 95 | -1.97 |
| Materials | 52 | -1.42 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 2.3 |
| Alibaba HK | 9988 HK Equity | 2.4 |
| JD.com HK | 9618 HK Equity | 3.3 |
| NetEase HK | 9999 HK Equity | 3.3 |
| Yum China HK | 9987 HK Equity | 0.1 |
| Baozun HK | 9991 HK Equity | -2.9 |
| Baidu HK | 9888 HK Equity | 4.8 |
| Autohome HK | 2518 HK Equity | -0.6 |
| Bilibili HK | 9626 HK Equity | 1.4 |
| Trip.com HK | 9961 HK Equity | 0.1 |
| EDU HK | 9901 HK Equity | 1.5 |
| Xpeng HK | 9868 HK Equity | 1.4 |
| Weibo HK | 9898 HK Equity | 0.7 |
| Li Auto HK | 2015 HK Equity | 3.1 |
| Nio Auto HK | 9866 HK Equity | -0.7 |
| Zhihu HK | 2390 HK Equity | 5.1 |
| KE HK | 2423 HK Equity | 3.3 |
| Tencent Music Entertainment HK | 1698 HK Equity | 0.1 |
| Meituan HK | 3690 HK Equity | 5.3 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | 2.4 |
| TENCENT HOLDINGS LTD | 2.3 |
| MINIMAX GROUP INC | 1.8 |
| HUA HONG GRACE SEMICONDUCTOR | -8.4 |
| SEMICONDUCTOR MANUFACTURI-H | -1.2 |
| Z AI CO LTD | -3 |
| HSBC HOLDINGS PLC | 2 |
| XIAOMI CORP-CLASS B | 3.6 |
| LENOVO GROUP LTD | 6.1 |
| KINGBOARD LAMINATES HLDG LTD | -5.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 0.1 |
| IEIT SYSTEMS CO LTD-A | -10 |
| CHINA CSSC HOLDINGS LTD-A | 9.2 |
| EOPTOLINK TECHNOLOGY INC L-A | 0.3 |
| GIGADEVICE SEMICONDUCTO-CL A | -3 |
| CXMT CORP-A | -1.4 |
| HENGTONG OPTIC-ELECTRIC CO-A | -4.7 |
| SUZHOU TFC OPTICAL COMMUNI-A | 0 |
| SHENGYI TECHNOLOGY CO LTD -A | -4 |
| CAMBRICON TECHNOLOGIES-A | -2.5 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.70 versus 6.72 yesterday
- CNY per EUR 7.79 versus 7.79 yesterday
- Yield on 10-Year Government Bond 1.68% versus 1.68% yesterday
- Yield on 10-Year China Development Bank Bond 1.76% versus 1.76% yesterday
- Copper Price +0.53%
- Steel Price +0.73%
