September 28, 2023

Brad Marolf

Business & Finance Wonders

Hong Kong Internet Stocks Rally, Biden-Xi Phone Call Lifts Sentiment, Week In Review

Week in Review

  • China reported Tuesday that its exports rose +15.7% year-over-year versus an expected +8.4%. The better-than-expected release powered China equities higher and was good news for the global economy amid concerns about the delta variant’s impact on global growth.
  • Hong Kong-listed internet stocks rallied Wednesday following a Mainland media article detailing the successes of China’s new anti-monopoly law and implying that the law has been nearly fully implemented and enforced.
  • The CEO of NetEase denied rumors of a moratorium on new games releases, which led to US-listed shares in NetEase reversing from a steep decline in the morning. Gaming regulation will likely target minors, which make up an exceedingly small portion of gaming revenues for both NetEase and Tencent.

Key News

Asian equities ended the week on a high note as President Biden and Xi spoke for ninety minutes last night for the first time since February. Foreign Ministry spokesperson Zhao Lijian stated: “Both presidents agreed that in-depth communication on China-US relations and major international issues is very important for steering the bilateral ties in the right direction. They agreed to maintain frequent contact by multiple means and instruct officials at the working level to intensify the work…”. That sounds like a step in the right direction.

The other big news was that yesterday’s South China Morning Post article made a small typo in stating new video games would be banned. The reality is that new releases will only be slowed after a large number of games were approved earlier this year. The small change only cost Tencent $55 billion in market cap. The timing of the article is somewhat suspect with the 50-day moving average causing a battle between the bulls and the bears. If we can get through the 50-day moving average, it could lead to a run to the 100-day moving average, which is almost +20% higher.

Internet stocks rallied in Hong Kong overnight as Tencent gained +2.08% on volume that was 4X the second most heavily traded stock by value, Meituan, which gained +4.34%. Tencent bought back another 210,000 shares (Again! – reminds me of Kurt Russell in the fantastic hockey movie Miracle) while Mainland investors were net buyers of the stock for the fifth day in a row. Remember that active funds are underweight the space and overweight India and China A-shares so today’s rally could “force” these managers back in.

The coming launches of Wealth Connect and Southbound Bond Connect have flown under the radar. Wealth Connect will allow investors in Guangdong province to buy financial products from Hong Kong banks. I’m still ascertaining what exactly “financial products” entails. Meanwhile, Southbound Bond Connect, which would allow Mainland investors to trade bonds in Hong Kong, could give the US dollar bond market in Hong Kong a big boost.

Autos were a touch weak in both Hong Kong and the Mainland as August year-over-year sales were off -18.7% to 1.72 million cars produced. August electric vehicle sales increased +181.9% to 321,000.

Semiconductors and the STAR Board outperformed as AI giant Megvii moves closer to a STAR listing. Energy transmission and coal stocks along with energy stocks were hit today. Lithium stocks and the electric vehicle ecosystem stocks were largely higher.

Today’s August economic release was overlooked as New Loans came in at RMB 1.22 trillion versus expectations of RMB 1.4 trillion and July’s RMB 1.08 trillion. Aggregate financing picked up while M2 (money supply) was in line with July’s release, growing by +8.2%.

Foreign investors bought $562 million worth of Mainland stocks today, bringing the weekly total to almost $2.2B billion.

Tomorrow is the twentieth anniversary of 9/11. It is hard to believe that it has been twenty years. My friend Beth lost her life that day. Beth had so much life to live which was tragically cut short. My condolences to all the families who are still suffering.

H-Share Update

The Hang Seng opened higher and kept going to close +1.91% as volume slipped -9.74% from yesterday. The 210 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +2.08% led by discretionary +3.39%, materials +2.67%, real estate +2.56%, and communication +2.09%. Meanwhile, utilities -1.45%. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +2.08%, Meituan, which gained +4.34%, Alibaba HK, which gained +4.29%, HK Exchanges, which gained +2.4%, Dongyue Group, which fell -7.49%, Xiaomi, which gained +2.12%, BYD, which fell -0.3%, HK, which gained +5.24%, Ping An Insurance, which gained +0.67%, and Kuaishou Technology, which gained +5.47%. Southbound Stock Connect volumes were moderate as Mainland investors bought $84 million worth of Hong Kong stocks as Southbound Connect trading accounted for 13% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and the STAR Board had a volatile morning session before raising the landing gear and ascending to close +0.27%, +0.31%, and +1.76%, respectively, on volume that was +7.77% higher than yesterday, which is 163% of the 1-year average. The 542 Mainland stocks within the MSCI China All Shares Index gained +1.03% led by tech +2.15%, financials +2.01%, staples +1.85%, real estate +1.26%, and materials +1.24%. Meanwhile, energy -2.8% and utilities -1.65%. The Mainland’s most heavily traded stocks by value were COSCO Shipping, which gained +7.68%, Zijin Mining, which gained +4.72%, TBEA, which gained +1.76%, China Molybdenum, which gained +8.47%, China Northern Rare Earth, which gained +2.43%, East Money, which gained +0.54%, Tianqi Lithium, which gained +4.71%, Power Construction, which gained +2.31%, Wuliangye Yibin, which gained +3.07%, and Aluminum Corp of China, which fell -1.06%. Northbound Stock Connect volumes were elevated as foreign investors bought $562 million worth of Mainland stocks today as Northbound Connect trading accounted for 5.5% of Mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.44 versus 6.46 yesterday
  • CNY/EUR 7.61 versus 7.63 yesterday
  • Yield on 1-Day Government Bond 1.63% versus 1.55% yesterday
  • Yield on 10-Year Government Bond 2.87% versus 2.87% yesterday
  • Yield on 10-Year China Development Bank Bond 3.19% versus 3.20% yesterday
  • Copper Price +1.37% overnight

Krane Funds Advisors, LLC is the investment manager for KraneShares ETFs. Our suite of China focused ETFs provide investors with solutions to capture China’s importance as an essential element of a well-designed investment portfolio. We strive to provide innovative, first to market strategies that have been developed based on our strong partnerships and our deep knowledge of investing. We help investors stay up to date on global market trends and aim to provide meaningful diversification. Krane Funds Advisors, LLC is majority owned by China International Capital Corporation (CICC).