Asian equities had a strong day led by Hong Kong which had a stronger rally overnight than US listed China ADRs yesterday.
We should see another positive day in US China ADR trading. Yesterday we pointed out that reopening plays such as restaurants and retailers were up despite an incredible amount of negative US media attention to protests in China against COVID measures. Central casting called for the nattering nabobs of negativity who proved they have no idea what they are talking about. The market is anticipating the government will ease policies in light of the population’s frustration with COVID restrictions.
Overnight, the National Health Commission announced a continued push to vaccinate the elderly which lifted markets higher in afternoon trading. There are 203 million Chinese over the age of 60 with 90% vaccinated, 86% have two shots, 68% are boosted. For those over the age of 80, 76% are vaccinated, 65% have two shots, and 40% are boosted. The release mentioned drugs including CanSino Biologics’ (6185 HK) +6.15% inhalable vaccine which reduces the stigma of receiving a shot. Dynamic COVID zero isn’t going to disappear as China lacks enough hospital beds to handle a full dial back. We are apt to see further scaling back of local rules with a particular emphasis on reducing the economic consequence of COVID restrictions.
Our China City Mobility Tracker should provide clues of this progress. Overnight there were 3,561 new COVID cases along with 34,860 asymptomatic cases. The CSRC outlined five measures to support the real estate sector which gained +8.76% in China and +8.4% in Hong Kong. Measures now include mergers/acquisitions, non-public refinancing including Hong Kong listed companies, further develop the REIT market and allow for private equity investment in companies. Refinancing might include issuing new equity which is why I believe the bonds of real estate companies are so attractive as no one owns them!
Hong Kong internet stocks outperformed their US ADRs overnight which should allow for another good day in US trading. Hong Kong short sale volume jumped to 19% of Main Board total turnover as short volume increased in Meituan which gained +11.4%, Alibaba +9.07%, and Tencent +5.85% which is an indication that shorts got run over today. Baidu HK (9888 HK) gained +9% as the company announced plans to expand their driverless ride-hailing service in 2023. The company has used profits from its search business to invest in areas such as autonomous driving that is paying dividends. Online video/social media platform Bilibili’s HK share (9626 HK) class jumped +13.6% in advance of reporting after the Hong Kong close. The company beat on the big three (revenue, adjusted net income and adjusted EPS) though the company is not yet profitable which is problematic as companies with earnings are in favor versus those without. The company did report a nice uptick in users. The dollar was down overnight versus both CNY and Asia dollar index.
The Hang Seng and Hang Seng Tech gained +5.24% and +7.66% on volume +40.98% from yesterday which is 135% of the 1-year average. 474 stocks gained while 38 stocks declined. Main Board short turnover increased +49.12% from yesterday which is 148% of the 1-year average as 19% of turnover was short turnover. Growth factors were mixed though outpaced value factors while small caps beat large caps. All sectors were positive with discretionary up +9.22%, real estate up +8.39%, and communication up +6.48%. Top sub-sectors were retailers, media, and insurance with all sub-sectors positive. Southbound Stock Connect volumes were high as Mainland investors sold -$140 million of Hong Kong stocks with Tencent and Meituan a moderate net buy.
Shanghai, Shenzhen, and STAR Board gained +2.31%, +2.14%, and +0.97% respectively on volume +27.96% from yesterday which is 101% of the 1-year average. 4,027 stocks advanced while 663 stocks declined. Value factors outperformed growth factors while small caps outpaced large caps by a small margin. Top sectors were real estate +8.82%, financials +5.28%, and staples +4.62% while utilities was the only negative sector -0.65%. Top sub-sectors were real estate, insurance, and restaurants while power generation equipment, marine/shipping, and telecom were the worst. Northbound Stock Connect volumes were strong/moderate as foreign investors bought a healthy $1.367 billion of Mainland stocks today. CNY gained +0.52% versus the US $ to close at 7.16, Chinese Treasury bonds sold off and copper +0.46%.
China City Mobility Tracker
Traffic and subway usage remained sluggish as COVID runs wild across China. It will be very interesting to see if these numbers improve over the next few days as local governments respond to Beijing’s directives.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.16 versus 7.21 Yesterday
- CNY per EUR 7.43 versus 7.52 Yesterday
- Yield on 10-Year Government Bond 2.88% versus 2.86% Yesterday
- Yield on 10-Year China Development Bank Bond 2.99% versus 2.97% Yesterday
- Copper Price +0.46% overnight
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