Asian equities were higher, largely due to the outperformance of China, while Japan, India and Indonesia were marginally off.
Walter Isaacson’s great book Steve Jobs Silicon Valley talks about the counter culture among tech entrepreneurs that inspired them to rebel against the established standards for building the tech world we now live in. I saw none of these signs yesterday in US-listed China Internet shares, which fell despite strong results from Kuaishou. and NetEase. Given the exact same information, US investors sold NetEase’s ADR, which fell by -1.68% yesterday. However, Hong Kong shares of NetEase gained +3.05% overnight. Kuaishou (1024 HK) increased +2.6% after the company posted positive financial results.
Yes, yesterday we had a sharp drop in US equities. Yes, we had a Wall Street Journal article citing PCAOB on its efforts to resolve the long-running audit issue. We have the SEC’s YJ Fischer, director of the Office of International Affairs, delivered a speech yesterday afternoon in which he reiterated the efforts being made to address this issue.
Overnight, Hong Kong Internet stocks saw a mixed performance. However, they were not down as much as their US-listed peers yesterday. Tencent fell -1.18%, Meituan rose +0.06%, Alibaba HK fell -1.5% (versus Alibaba’s US-listed shares, which fell -5.46%), Kuaishou, which rose +5.37%, and JD. com, which fell -0.49% (versus JD’s US-listed stock, which fell -7.03%). These are all good reasons for an investor to prefer Hong Kong stocks over US stocks.
Key to yesterday’s weakness was the lack of buyers in these stocks as professional mutual fund managers will likely continue to underweight unless a solution to avoid delisting is in hand. In the meantime, shorts can continue to place their bets, knowing that no one is taking steps to hedge against buying the stock.
It is worth noting that NetEase, which is traded in Hong Kong, is now valued at 59% of the value traded in its US listing.
One factor that led to overnight gains in Hong Kong and Mainland China were the 33 fiscal and monetary policy points that were made after yesterday’s close.
Traditional autos were performing strong in both Hong Kong and Mainland China following the announcement of a sales tax exemption for the purchase of automobiles, whether electric or internal combustion.
Today’s range was very strong in China, although we expect volumes to go up a bit, which reflects investor confidence.
Alibaba and Baidu will report tomorrow morning after the close in Hong Kong and before the market opens in New York.
The SEC’s Fischer made two interesting points in a speech he gave yesterday. First, he said that “any claim of national concern for the PCAOB’s refusal to provide the audit work paper should be viewed with suspicion.” Translation: the audit is unlikely to include “sensitive information relating to national security”. She then goes on to say that a small number of state-owned enterprises may contain “sensitive information,” so “… some China-based issuers may choose to remove pre-listings from US exchanges.” Removing the SOE from the issue would allow private companies to comply as they have nothing to hide.
Both Fisher and the Wall Street Journal article noted the possibility that the delisting window would be shortened to next year, according to one of the HFCAA architects, shortening the timeline “will lead to faster negotiations.” I disagree with that statement because shorting a window is like shorting a fuse on a bomb. It’s worth noting that at Davos, there was a panel, including NYSE’s John Tuttle, who said they believed China ADRs would list more, rather than less, in the future. interesting! Our very own CEO Jonathan Crane made several strong points that can be viewed on Twitter via @KraneShares or @ahern_brendan.
The Hang Seng and Hang Seng Tech indexes gained +0.29% and +0.28% respectively, down -9% from yesterday, which is just 72% of the 1-year average. 267 stocks gained while 197 declined. Hong Kong short sale turnover declined by -14.08% from yesterday, which is 74% of the 1-year average. The value factor outperformed today as large caps outperformed small caps. Today’s best performers were Energy +2.26%, Utilities +1.44% and Staples +1.16% while Communications (ie Tencent) -0.56% and Discretionary (i.e. Auto Alibaba) -0.37% despite outperforming. Mainland investors were net buyers of Hong Kong shares on light southbound Stock Connect volume today, with Tencent and Meituan seeing net buying. China Mobile has seen very strong buying yesterday and today via Southbound Stock Connect.
Shanghai, Shenzhen and Star Board increased volume by +1.19%, +1.17%, and Wen Gretzky +0.99%, down -23.24% compared to yesterday, which is 70% of the 1-year average . There were 3,835 forward stocks and 598 down stocks. Factor performance was mixed in growth and value factors, though small caps outperformed large caps. The top sectors were utilities +2.14%, energy +2.03% and discretionary +1.72% (auto) while materials and staples were off -0.12%. Foreign investors bought +$509mm mainland stocks via Northbound Stock Connect, although Quicho Mutai saw smaller net outflows, while non-SOE Bank China Merchants saw a smaller net inflow. Treasury bonds edged higher, with the CNY depreciating from US$-0.61% to 6.69 while copper declined -0.43%.
happy late 14th and 12th Birthday to my Mac and Eddie!
My condolences to all those affected by the horrific events in Uvalde Texas. Our thoughts, prayers and sympathies are with you.
Last Night’s Exchange Rates, Prices and Yields
- CNY/USD 6.69 vs. 6.67 Yesterday
- CNY/EUR 7.14 vs. 7.14 yesterday
- Yield on 10-Year Government Bonds 2.76% versus yesterday’s 2.77%
- Yield on 10-year China Development Bank bond 2.96% versus 2.98% yesterday
- Copper price -0.43% overnight
Credit: www.forbes.com /