JD and Alibaba lead internet rally, PBOC accepts Ant’s Financial Holding Company bid, week in review

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Review of the week

  • Hong Kong and Mainland China were the only Asian markets to post positive performances for the week.
  • Southbound Stock Connect volumes rose on Monday as mainland investors acquired shares in Tencent, Meituan and Li Auto, among other growth names, amid renewed enthusiasm for tech stocks and positive early sales during of the shopping festival on 18/6.
  • The People’s Bank of China (PBOC), China’s central bank, refrained from instituting a rate cut on the medium-term lending facility, which was expected on Wednesday.
  • China released a handful of better-than-expected economic indicators on Wednesday, including an uptick in retail sales.
  • Asian stocks were cut on Thursday as the Swiss National Bank hiked interest rates by 50 basis points, sending risky assets lower around the world. The Swiss bank’s move follows the U.S. Fed’s announcement of a 75 basis point rate hike, the highest since 1994.

Friday’s key news

Asian equities were broadly lower, with the exception of Hong Kong and mainland China, which posted nice gains despite yesterday’s slump in US equities. Hong Kong and Mainland China were the only Asian equity markets to post a positive performance for the week. They could end up being the only global markets to end the week with a positive performance as Europe and the Americas were hit. Remember that China is easing while central banks around the world are tightening significantly.

Reuters reported that according to “sources”, the People’s Bank of China (PBOC) has accepted Ant Group’s application to become a financial holding company, which could pave the way for an IPO. 1/3 of Alibabard ownership of the fintech giant makes it a big beneficiary. If you think Ant’s IPO marked the beginning of China’s internet regulatory cycle, today’s news could be seen as a sign of its end. The key is that the new Ants are out after the close in Hong Kong, so US-listed Chinese ADRs were going to have a good day today regardless of the news from Ant.

Hong Kong’s most traded stocks by value were JD.com, which gained +6.09%, Alibaba HK, which gained +2.05%, Meituan, which gained +5.23%, and Tencent, which gained +0.49%. As mentioned earlier, the preliminary numbers of 618 e-commerce sales events look strong.

The Hong Kong rally was on strong volume which came in at 131% of the 1-year average. The FTSE Russell and S&P indices are rebalancing today and we will have Quad Witching in the US, both of which would have contributed to the high volumes in Asia. Additionally, some under-the-radar U.S.-China talks appear to be taking place, which may have contributed to positive sentiment.

Hong Kong short selling volume has increased, so we have a battle between longs and shorts looming. I favor long positions as we are heading towards the end of the month/quarter and professional investors who are underweight the space may need to “dress the window”, i.e. add the stocks to their portfolios before disclosing their holdings to investors.

Online education stocks were hit by profit-taking in Hong Kong and mainland China after their recent surge.

Mainland China had a strong day and was also driven by growth stocks, particularly stocks related to electric vehicle (EV) and lithium batteries, including the most traded stock today by value, CATL, which gained +5.6% on news that it will roll out a new battery. Of the 35 most traded stocks by value in China, only one was down!

Overseas investors bought $1.37 billion worth of mainland stocks today, bringing the weekly total to a net inflow of $2.6 billion. Volumes on the mainland have been strong, exceeding RMB 1 trillion in 9 out of the last 10 trading days. Shanghai (+3,300), Shenzhen (+2,100) and the Hang Seng (+21,000) closed above the big round numbers. These numbers don’t mean anything, but our brains make them feel important, so they’re worth writing down.

Yesterday, Yicai Global announced that Air China is resuming flights to the United States, Europe and Asia. This is a potential sign that Covid-19 zero lives policies are being relaxed.

The Hang Seng and Hang Seng Tech indices gained +1.1% and +2.33%, respectively, on +17.56% higher volume than yesterday, or 131% of the 1-year average. 246 stocks rose while 233 fell. Hong Kong short selling volume was up +24.42% from yesterday, or 146% of the 1-year average. Growth factors outperformed value and dividend factors, while small caps outperformed large caps. The top sectors were Consumer Discretionary, which gained +2.86%, Healthcare, which gained +2.51%, and Consumer Staples, which gained +1.37%. Meanwhile, Energy fell -1.39%, Utilities -0.98% and Industrials -0.57%. The top subsectors were cobalt and internet, while online education was the worst performer. Southbound Stock Connect volumes were moderate/high as mainland investors bought Hong Kong stocks. Kuaishou was a small net buy through Southbound Stock Connect, while Tencent and Meituan were small net sells.

Shanghai, Shenzhen and the STAR
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Board gained +0.96%, +1.16% and +1.22%, respectively, on +1.23% higher volume than yesterday, or 102% of the 1-year average. 1,916 shares rose while 2,458 shares fell. Growth factors outperformed value factors today, while large caps slightly outperformed small caps. The main sectors were healthcare, which gained +2.76%, materials, which gained +2.56%, basic products, which gained +2.47%, and industrials, which gained + 2.4%. Meanwhile, communications fell -0.48%, energy -0.1% and real estate -0.07%. Leading sub-sectors were lithium and battery-related stocks, while online education lagged. Northbound Stock Connect volumes were subdued as overseas investors bought $1.37 billion worth of mainland stocks today. Treasuries were flat, the CNY rose slightly against the US dollar and copper was smoked, falling -1.65% in price.

Last night’s exchange rates, prices and yields

  • CNY/USD 6.71 vs. 6.70 yesterday
  • CNY/EUR 7.03 vs. 7.05 yesterday
  • Overnight government bond yield 1.18% vs. 1.18% yesterday
  • 10-year government bond yield 2.78% vs. 2.77% yesterday
  • China Development Bank 10-year bond yield 2.98% vs. 2.98% yesterday
  • Copper price -1.65% overnight
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